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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______
Commission file number 1-4928
DUKE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
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North Carolina 56-0205520
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
422 South Church Street, Charlotte, North Carolina 28202-1904
(Address of principal executive offices) (Zip Code)
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704-594-6200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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Common Stock, without par value New York Stock Exchange, Inc.
6.375% Preferred Stock A, 1993 Series, par value $25 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 5 7/8% Due 2001 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 5 7/8% Series C Due 2003 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 1/4% Series B Due 2004 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 3/8% Due 2008 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 5/8% Series B Due 2003 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 3/4% Due 2025 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 7/8% Series B Due 2023 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Due 2000 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Series B Due 2000 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Due 2005 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Due 2033 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7 3/8% Due 2023 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7 1/2% Series B Due 2025 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7 7/8% Due 2024 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 8% Series B Due 1999 New York Stock Exchange, Inc.
7.20% Quarterly Income Preferred Securities issued by Duke
Energy Capital Trust I and guaranteed by Duke Energy Corporation New York Stock Exchange, Inc.
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Title of class
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Preferred Stock, par value $100
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Estimated aggregate market value of the voting stock held by nonaffiliates of
the registrant at February 27, 1998 .................... $20,010,800,000
Number of shares of Common Stock, without par value, outstanding at February
27, 1998 .................................................... 360,149,391
Documents incorporated by reference:
The registrant is incorporating herein by reference certain sections of
the proxy statement relating to the 1998 annual meeting of shareholders to
provide information required by Part III, Items 10, 11, 12 and 13 of this
annual report.
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DUKE ENERGY CORPORATION
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
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Item Page
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PART I.
1. Business ........................................................................ 1
General ......................................................................... 1
Electric Operations ............................................................. 1
Natural Gas Transmission ........................................................ 4
Energy Services ................................................................. 6
Other Operations ................................................................ 9
Environmental Matters ........................................................... 9
Other Matters ................................................................... 10
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 10
Operating Statistics ............................................................ 11
Executive Officers of the Corporation ........................................... 12
2. Properties ...................................................................... 12
3. Legal Proceedings ............................................................... 14
4. Submission of Matters to a Vote of Security Holders ............................. 14
PART II.
5. Market for Registrant's Common Equity and Related Stockholder Matters ........... 15
6. Selected Financial Data ......................................................... 15
7. Management's Discussion and Analysis of Results of Operations and Financial 16
Condition
7A. Quantitative and Qualitative Disclosures About Market Risk ...................... 26
8. Financial Statements and Supplementary Data ..................................... 27
9. Changes in and Disagreements with Accountants on Accounting and Financial 61
Disclosure
PART III.
10. Directors and Executive Officers of the Registrant .............................. 61
11. Executive Compensation .......................................................... 61
12. Security Ownership of Certain Beneficial Owners and Management .................. 61
13. Certain Relationships and Related Transactions .................................. 61
PART IV.
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ................ 62
Signatures ....................................................................... 63
Exhibit Index .................................................................... 64
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PART I.
Item 1. Business.
GENERAL
On June 18, 1997, Duke Power Company (Duke Power) changed its name to Duke
Energy Corporation (the Corporation) in accordance with the terms of a merger
agreement with PanEnergy Corp (PanEnergy), pursuant to which the Corporation
issued 158.3 million shares of its common stock in exchange for all of the
outstanding common stock of PanEnergy (the merger). PanEnergy was involved in
the gathering, processing, transportation and storage of natural gas, the
production of natural gas liquids and the marketing of natural gas,
electricity, liquefied petroleum gases and related energy services. Pursuant to
the merger, each share of PanEnergy common stock outstanding was converted into
the right to receive 1.0444 shares of the Corporation's common stock. In
addition, each outstanding option to purchase PanEnergy common stock became an
option to purchase common stock of the Corporation, adjusted accordingly. The
merger was accounted for as a pooling of interests.
As a result of the merger, the Corporation is an integrated energy and
energy services provider with the ability to offer physical delivery and
management of both electricity and natural gas throughout the United States and
abroad. The Corporation provides these services through four business segments:
Electric Operations, Natural Gas Transmission, Energy Services, and Other
Operations.
The Electric Operations segment is engaged in the generation,
transmission, distribution and sale of electric energy in central and western
North Carolina and the western portion of South Carolina. These electric
operations are subject to the rules and regulations of the Federal Energy
Regulatory Commission (FERC), the North Carolina Utilities Commission (NCUC)
and The Public Service Commission of South Carolina (PSCSC).
The Natural Gas Transmission segment is involved in interstate
transportation and storage of natural gas for customers primarily in the
Mid-Atlantic, New England and Midwest states. The interstate natural gas
transmission and storage operations are also subject to the rules and
regulations of the FERC.
The Energy Services segment is comprised of several separate business
units: Field Services gathers and processes natural gas, produces and markets
natural gas liquids (NGLs) and transports and trades crude oil; Trading and
Marketing markets natural gas, electricity and other energy-related products;
Global Asset Development develops, owns and operates energy-related facilities
worldwide; and Other Energy Services provides engineering consulting,
construction and integrated energy solutions.
Other Operations include the real estate operations of Crescent Resources,
Inc. (Crescent Resources) and communications services. Corporate costs and
intersegment eliminations are also reflected in the financial results of this
segment.
A discussion of the current business and operations of each of the
Corporation's segments follows. The Corporation expects moderate growth in its
Electric Operations segment, consistent with historical trends. In the Natural
Gas Transmission segment, relatively slow growth is expected due to increased
competition. The Corporation is seeking to significantly grow its Energy
Services segment through acquisition, construction and expansion opportunities.
For further discussion of the operating outlook of the Corporation and its
segments, see "Management's Discussion and Analysis of Results of Operations
and Financial Condition, Current Issues -- Operations Outlook." For financial
information concerning the Corporation's business segments, see Note 4 to the
Consolidated Financial Statements, "Business Segments."
The Corporation is a North Carolina corporation with its principal
executive offices located at 422 South Church Street, Charlotte, NC 28202-1904.
The telephone number is 704-594-6200.
ELECTRIC OPERATIONS
Service Area and Customers
The Electric Operations service area, approximately two-thirds of which
lies in North Carolina, covers about 20,000 square miles with an estimated
population of 5.1 million and includes a number of cities, of which the largest
are Charlotte, Greensboro, Winston-Salem and Durham in North Carolina and
Greenville and Spartanburg in South Carolina. Electric Operations supplies
electric service directly to approximately two million residential, commercial
and industrial customers in more than 200 cities, towns and unincorporated
communities. Electricity is sold at wholesale to incorporated municipalities
and to several public and private utilities. In addition, sales are made
through contractual agreements to municipal or cooperative customers who
purchased portions of the Catawba Nuclear Station. For statistics related to
gigawatt-hour sales
1
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by customer type, see "Business, Operating Statistics." For further discussion
of the Catawba Nuclear Station joint ownership, see Note 6 to the Consolidated
Financial Statements, "Joint Ownership of Generating Facilities."
The Electric Operations service area is undergoing increasingly
diversified industrial development. The textile industry, machinery and
equipment manufacturing, and chemical and chemical-related industries are of
major significance to the economy of the area. Other industrial activities
include rubber and plastic products, paper and allied products, and various
other light and heavy manufacturing and service businesses. The largest
industry served is the textile industry, which accounted for approximately $457
million of the revenues of the Electric Operations segment for 1997,
representing 10% of electric revenues and 38% of industrial revenues. Electric
Operations normally experiences seasonal peak loads in summer and winter which
are relatively in balance.
Shown below is the Electric Operations service area, in which business is
conducted under the name "Duke Power" and by Nantahala Power and Light
Company, a subsidiary of the Corporation.
[Map of North and South Carolina depicting
Electric Operations Service Area appears here]
Capability and Resources of Energy
Electric energy required to supply the needs of the customers of Electric
Operations is primarily generated through three nuclear generating stations
with a combined net capability of 5,078 MW (Oconee Nuclear Station -- 2,538 MW,
McGuire Nuclear Station -- 2,258 MW and Catawba Nuclear Station -- 282 MW,
which represents Electric Operations' 12.5% ownership share in the Catawba
Nuclear Station), eight coal-fired stations with a combined capability of 7,699
MW, twenty hydroelectric stations with a combined capability of 2,685 MW and
six combustion turbine stations with a combined capability of 1,784 MW. Energy
and capacity are also supplied through contracts with other generators of
electricity and purchased on the open market. Electric Operations has
interconnections and arrangements with its neighboring utilities, which are
considered adequate for planning, emergency assistance, exchange of capacity
and energy and reliability of power supply. Future increased energy
requirements of Electric Operations' customers are expected to be supplied
through open market purchases. For statistics regarding sources of electric
energy see "Business, Operating Statistics."
Fuel Supply
Electric Operations presently relies principally on coal and nuclear fuel
for the generation of electric energy. Electric Operations reliance on oil and
gas is minimal. Information regarding the utilization of sources of power and
cost of fuels for each of the three years in the period ended December 31, 1997
is set forth in the following table:
2
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Cost of Fuel per Net
Generation by Source Kilowatt-hour Generated
(Percent) (Cents)
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1997 1996 1995 1997 1996 1995
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Coal .......................................... 59.3 54.0 43.7 1.30 1.40 1.56
Nuclear (a) ................................... 38.8 44.0 53.7 0.48 0.53 0.57
Oil and gas (b) ............................... .4 .3 .3 5.58 6.74 5.06
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All fuels (cost based on weighted average) (a) 98.5 98.3 97.7 0.99 1.02 1.03
Hydroelectric (c) ............................. 1.5 1.7 2.3
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100.0 100.0 100.0
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(a) Statistics related to nuclear generation and all fuels reflect the
Electric Operations' 12.5% ownership interest in the Catawba Nuclear
Station.
(b) Cost statistics include amounts for light-off fuel at the Electric
Operations' coal-fired stations.
(c) Generating figures are net of output required to replenish pumped storage
units during off-peak periods.
Coal. Electric Operations obtains a large amount of its coal under supply
contracts with mining operators utilizing both underground and surface mining.
Electric Operations currently has an adequate supply of coal. Electric
Operations' supply contracts, all of which have price adjustment provisions,
have expiration dates ranging from 1998 to 2003. The Corporation believes that
it will be able to renew such contracts as they expire or to enter into similar
contractual arrangements with other coal suppliers for the quantities and
qualities of coal required. The coal purchased under these supply contracts is
produced from mines located in eastern Kentucky, southern West Virginia and
southwestern Virginia. Coal requirements not met by supply contracts have been
and are expected to be fulfilled with spot market purchases.
The average sulfur content of coal being purchased by Electric Operations
is approximately 1%. Such coal satisfies the current emission limitation for
sulfur dioxide for existing facilities. See also "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Current Issues --
Environmental, Air Quality Control" for additional information regarding
particulate matter.
Nuclear. Generally, the supply of fuel for nuclear generating units
involves the mining and milling of uranium ore to produce uranium concentrates,
the conversion of uranium concentrates to uranium hexafluoride, enrichment of
that gas and fabrication of the enriched uranium hexafluoride into usable fuel
assemblies. After a region (approximately one-third of the nuclear fuel
assemblies in the reactor at any time) of spent fuel is removed from a nuclear
reactor, it is placed in temporary storage for cooling in a spent fuel pool at
the nuclear station site. Electric Operations has contracted for uranium
materials and services required to fuel the Oconee, McGuire and Catawba Nuclear
Stations. Based upon current projections, these contracts will meet Electric
Operations' requirements through the following years:
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Uranium Conversion Enrichment Fabrication
Nuclear Station Material Service Service Service
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<S> <C> <C> <C> <C>
Oconee .......... 1998 1998 2000 2006
McGuire ......... 1998 1998 2000 2009
Catawba ......... 1998 1998 2000 2009
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Uranium material requirements will be met through various supplier
contracts, with uranium material produced primarily in the United States and
Canada. The Corporation believes that it will be able to renew contracts as
they expire or to enter into similar contractual arrangements with other
suppliers of nuclear fuel materials and services. Requirements not met by
long-term supply contracts have been and are expected to be fulfilled with
uranium spot market purchases.
Under provisions of the Nuclear Waste Policy Act of 1982, the Corporation
entered into contracts with the Department of Energy (DOE) for the disposal of
spent nuclear fuel. The DOE delayed in accepting the waste materials on the
contract date of January 31, 1998. The Corporation has joined with 35 other
utilities in a lawsuit attempting to force the DOE to meet its obligations as
called for in the contract. The Corporation has satisfactory plans in place to
provide storage of spent nuclear fuel if the DOE cannot accept it.
3
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Competition
Competition for retail electric customers is not generally allowed in the
Electric Operations' service territory. However, there are discussions and
events at the national level and within certain states regarding retail
competition which are resulting in changes in the industry. For further
discussion, see "Management's Discussion and Analysis of Results of Operations
and Financial Condition, Current Issues -- Electric Competition."
Electric Operations is subject to competition in some areas from
government-owned power systems, municipally-owned electric systems, rural
electric cooperatives and, in certain instances, from other private utilities.
Currently, statutes in North Carolina and South Carolina provide for the
assignment by the NCUC and the PSCSC, respectively, of all areas outside
municipalities in such states to regulated electric utilities and rural
electric cooperatives. Substantially all of the territory comprising the
Electric Operations' service area has been so assigned. The remaining areas
have been designated as unassigned and in such areas Electric Operations
remains subject to competition. A decision of the North Carolina Supreme Court
limits, in some instances, the right of North Carolina municipalities to serve
customers outside their corporate limits. In South Carolina there continues to
be competition between municipalities and other electric suppliers outside the
corporate limits of the municipalities, subject, however, to the regulation of
the PSCSC. In addition, Electric Operations is engaged in continuing
competition with various natural gas providers.
Regulation
The NCUC and the PSCSC approve rates for retail electric sales within
their respective states. The FERC approves the Electric Operations' rates for
electric sales to wholesale customers. For further discussion of rate matters
and fuel and purchased power cost adjustment procedures, see Note 5 to the
Consolidated Financial Statements, "Regulatory Matters -- Electric Operations."
The FERC, the NCUC and the PSCSC also have authority over the construction and
operation of the Electric Operations' facilities. Electric Operations holds
certificates of public convenience and necessity issued by the FERC, the NCUC
and the PSCSC, authorizing it to construct and operate the electric facilities
now in operation for which certificates are required, and to sell electricity
to retail and wholesale customers.
The Energy Policy Act of 1992 (EPACT) and the FERC's subsequent rulemaking
activities permit the FERC to order transmission access for third parties to
transmission facilities owned by another entity. EPACT does not, however,
permit the FERC to issue orders requiring transmission access to retail
customers. The FERC has issued orders for third-party transmission service and
a number of rules of general applicability, including Orders 888 and 889.
Pursuant to the FERC's final rules, Electric Operations obtained from the FERC
open-access rights to sell at market-based rates up to 2,500 megawatts (MW) of
capacity and energy from its own assets. For further discussion, see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition, Current Issues -- Electric Competition."
The Electric Operations segment is subject to the jurisdiction of the
Nuclear Regulatory Commission (NRC) as to the design, construction and
operation of its nuclear stations. For discussions of nuclear decommissioning
costs and nuclear insurance regulatory requirements and coverages, see Note 12
to the Consolidated Financial Statements, "Nuclear Decommissioning Costs &
Spent Nuclear Fuel" and Note 15 to the Consolidated Financial Statements,
"Commitments and Contingencies -- Nuclear Insurance," respectively.
The hydroelectric generating facilities of Electric Operations are
licensed by the FERC under Part I of the Federal Power Act, with license terms
expiring from 2008 to 2036. The nuclear generating facilities of the Electric
Operations are licensed by the NRC with license terms expiring from 2013 to
2026. The FERC has authority to grant extensions of hydroelectric generating
licenses, and the NRC has authority to grant extensions of nuclear generating
licenses.
The Electric Operations segment is subject to the jurisdiction of the
Environmental Protection Agency (EPA) and state environmental agencies. For a
discussion of environmental regulation, see "Business, Environmental Matters."
NATURAL GAS TRANSMISSION
During 1997, the Natural Gas Transmission segment completed the
organization of its operations into the Northeast Pipelines, which includes
Texas Eastern Transmission Corporation (TETCO) and Algonquin Gas Transmission
Company (Algonquin), and the Midwest Pipelines, which includes Panhandle
Eastern Pipe Line Company (PEPL) and Trunkline Gas Company (Trunkline).
4
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In 1997, consolidated natural gas deliveries by the Natural Gas
Transmission segment's interstate pipelines totaled 2,862 TBtu (Trillion
British thermal units), compared to 2,939 TBtu in 1996, which represented
approximately 12% of the natural gas consumed in the United States. A
substantial majority of the delivered volumes of the Natural Gas Transmission
segment's interstate pipelines represents gas transported under long-term firm
service agreements with local distribution company (LDC) customers in the
pipelines' market areas. Firm transportation services are also provided under
contract to gas marketers, producers, other pipelines, electric power
generators and a variety of end-users. In addition, the pipelines offer
interruptible transportation to customers on a short-term or seasonal basis.
See natural gas deliveries statistics under "Business, Operating Statistics."
Demand for gas transmission of the Natural Gas Transmission segment's
interstate pipeline systems is seasonal, with the highest throughput occurring
during the colder periods in the first and fourth quarters.
The Natural Gas Transmission segment's 37,500 mile interstate pipeline
system is fully interconnected and can receive natural gas from most major
North American producing regions for delivery to markets throughout the
Northeast and Midwest states, as shown in the map below.
[Map of United States depicting the Natural Gas Transmission segment Interstate
Pipelines and Storage Fields appears here]
Northeast Pipelines
TETCO's major customers are located in Pennsylvania, New Jersey and New
York, and include LDCs serving the Pittsburgh, Philadelphia, Newark and New
York City metropolitan areas. Algonquin's major customers include LDCs and
electric power generators located in the Boston, Hartford, New Haven,
Providence and Cape Cod areas.
TETCO also provides firm and interruptible open-access storage services.
Since the implementation of the FERC Order 636 restructuring, storage is
offered as a stand-alone unbundled service or as part of a no-notice bundled
service. TETCO's storage services utilize two joint venture storage facilities
in Pennsylvania and one wholly owned and operated storage field in Maryland.
TETCO also leases storage capacity. TETCO's certificated working capacity in
these three fields is 70 Billion cubic feet (Bcf), and the combined working gas
in storage was 55 Bcf on December 31, 1997. Algonquin owns no storage fields.
For further discussion of Order 636, see "Business, Natural Gas Transmission --
Regulation."
Midwest Pipelines
PEPL's market volumes are concentrated among approximately 20 utilities
located in the Midwest market area that encompasses large portions of Michigan,
Ohio, Indiana, Illinois and Missouri. Trunkline's major customers include eight
utilities located in portions of Tennessee, Missouri, Illinois, Indiana and
Michigan.
PEPL also owns and operates three underground storage fields located in
Illinois, Michigan and Oklahoma. Trunkline owns and operates one storage field
in Louisiana. The combined maximum working gas capacity of the four fields is
44
5
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Bcf. Additionally, PEPL, through a subsidiary, Pan Gas Storage Company (Pan
Gas), is the owner of a storage field in Kansas with an estimated maximum
capacity of 26 Bcf. PEPL is the operator of the field. Since the implementation
of Order 636, each of PEPL, Trunkline and Pan Gas offer firm and interruptible
storage on an open-access basis. In addition to owning and operating storage
fields, PEPL also leases storage capacity. PEPL and Trunkline have retained the
right to use up to 15 Bcf and 10 Bcf, respectively, of their storage capacity
for system needs. See further discussion of Order 636 in "Business, Natural Gas
Transmission -- Regulation."
Competition
The Corporation's interstate pipeline subsidiaries compete with other
interstate and intrastate pipeline companies in the transportation and storage
of natural gas. The principal elements of competition among pipelines are
rates, terms of service and flexibility and reliability of service. The
Corporation's pipelines continue to offer selective discounting to maximize
revenues from existing capacity and to advance projects that provide expanded
services to meet the specific needs of customers.
In the Mid-Atlantic and New England markets, TETCO competes directly with
Transcontinental Gas Pipe Line Corporation, Tennessee Gas Pipeline Company
(TGPC), Iroquois Gas Transmission System (Iroquois), CNG Transmission
Corporation and Columbia Gas Transmission Corporation. Algonquin competes
directly in certain market areas with TGPC and Iroquois. PEPL and Trunkline
compete directly with ANR Pipeline Company, Natural Gas Pipeline Company of
America and Texas Gas Transmission Corporation in the Midwest market area.
Natural gas competes with other forms of energy available to the
Corporation's customers and end-users, including electricity, coal and fuel
oils. The primary competitive factor is price. Changes in the availability or
price of natural gas and other forms of energy, the level of business activity,
conservation, legislation and governmental regulations, the capability to
convert to alternative fuels, and other factors, including weather, affect the
demand for natural gas in the areas served by the Corporation.
Regulation
The FERC has authority to regulate rates and charges for natural gas
transported in or stored for interstate commerce or sold by a natural gas
company in interstate commerce for resale. For further discussion of rate
matters, see Note 5 to the Consolidated Financial Statements, "Regulatory
Matters -- Natural Gas Operations." The FERC also has authority over the
construction and operation of pipeline and related facilities utilized in the
transportation and sale of natural gas in interstate commerce, including the
extension, enlargement or abandonment of such facilities. TETCO, Algonquin,
PEPL, Trunkline and Pan Gas hold certificates of public convenience and
necessity issued by the FERC, authorizing them to construct and operate the
pipelines, facilities and properties now in operation for which such
certificates are required, and to transport and store natural gas in interstate
commerce.
The Natural Gas Transmission segment's pipelines operate as open-access
transporters of natural gas. In 1992, the FERC issued Order 636, which requires
open-access pipelines to provide firm and interruptible transportation services
on an equal basis for all gas supplies, whether purchased from the pipeline or
from another gas supplier. To implement this requirement, Order 636 provided,
among other things, for mandatory unbundling of services that have historically
been provided by pipelines into separate open-access transportation, sales and
storage services. Order 636 allows pipelines to recover eligible costs, known
as "transition costs," resulting from the implementation of Order 636. For
further discussion of Order 636, see Note 5 to the Consolidated Financial
Statements, "Regulatory Matters -- Natural Gas Operations."
The Natural Gas Transmission segment is subject to the jurisdiction of the
EPA and state environmental agencies. For a discussion of environmental
regulation, see "Business, Environmental Matters." The Natural Gas Transmission
segment is also subject to the Natural Gas Pipeline Safety Act of 1968, which
regulates gas pipeline safety requirements, and to the Hazardous Liquid
Pipeline Safety Act of 1979, which regulates oil and petroleum pipelines.
ENERGY SERVICES
The Energy Services segment is comprised of several separate business
units: Field Services, Trading and Marketing, Global Asset Development and
Other Energy Services. See certain operating statistics of the Energy Services
segment under "Operating Statistics." Activities of the Energy Services segment
can fluctuate in response to the seasonality affecting both electricity and
natural gas.
6
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Field Services
Field Services owns and operates approximately 17,000 miles of natural gas
gathering systems, including intrastate pipelines, and 27 natural gas
processing plants in the United States. Field Services also has ownership
interests in 11 other natural gas processing plants in the United States.
Field Services' gathering systems are located in 10 states, which serve
major gas-producing regions in the Rocky Mountain, Permian Basin, Mid-Continent
and Gulf Coast (offshore and onshore) areas. Field Services' gathering
operations also include several intrastate pipeline systems and two natural gas
storage facilities.
Field Services' NGL processing operations involve the extraction of NGLs
from natural gas and, at certain facilities, the fractionation of the NGLs into
their individual components (ethane, propane, butane and natural gasoline). The
natural gas used in Field Services' processing operations is generally gathered
on its own gathering system or from the natural gas stream on the Corporation's
transmission system. Field Services also operates approximately 450 miles of
NGL pipelines in the Texas Gulf Coast area which transport NGLs received from
12 processing plants in South Texas. NGLs are sold by Field Services to a
variety of customers ranging from large multi-national petrochemical and
refining companies to small family-owned retail propane distributors. NGL sales
are based upon current market-related prices. Field Services also provides, on
a more limited basis, processing services to producers and others for a
stipulated fee and produces helium at the National Helium facility.
Field Services also operates approximately 1,500 miles of intrastate crude
oil pipelines in the Mid-Continent and South Texas areas. The crude oil
pipeline system provides gathering and mainline transportation service, for a
volumetric fee, based on published tariffs. Crude oil is also purchased from
producers and sold to end users.
Trading and Marketing
The Corporation's energy marketing operations are conducted through Duke
Energy Trading and Marketing L.L.C. in the United States, Duke Energy Marketing
Limited Partnership in Canada (collectively, DETM) and Duke/Louis Dreyfus
L.L.C. (D/LD).
DETM was formed in August 1996 as a natural gas and power marketing joint
venture with Mobil Corporation (Mobil). All of Mobil's United States and
Canadian natural gas production is committed to be marketed through DETM for at
least a 10-year period. The Corporation, through its affiliates, operates the
joint venture and owns a 60% interest, with Mobil owning a 40% minority
interest.
In June 1997, a wholly owned subsidiary of the Corporation acquired the
remaining 50% ownership interest in D/LD not already owned from affiliates of
Louis Dreyfus Corp. A substantial portion of the Corporation's trading and
marketing of electricity is conducted through D/LD.
Trading and Marketing markets natural gas primarily to LDCs, electric
power generators, municipalities, industrial end-users and energy marketing
companies and markets electricity to investor owned utilities, municipal power
generators and other power marketers. Operations are primarily in the United
States and, to a lesser extent, in Canada, and are serviced through 13 offices
or operating centers.
Natural gas marketing operations encompass both on-system and off-system
sales. With respect to on-system sales, Trading and Marketing generally
purchases natural gas from the Corporation's Field Services facilities and
delivers the gas to an intrastate or interstate pipeline for redelivery to
another customer. The Corporation's Natural Gas Transmission pipelines are
utilized for deliveries when prudent. With respect to off-system sales, Trading
and Marketing purchases natural gas from producers, pipelines and other
suppliers not connected with the Corporation's facilities for resale to
customers.
Trading and Marketing has a portfolio of short-term and long-term sales
agreements with customers, the vast majority of which incorporate
market-sensitive pricing terms. Long-term gas purchase agreements with
producers, principally entered into in connection with on-system sales, also
generally include market-sensitive pricing provisions. Purchases and sales of
off-system gas and electricity supply are normally made under short-term
contracts. Purchase and sales commitments involving significant price and
location risk are generally hedged with commodity futures, swaps and options.
For information concerning the Corporation's risk-management activities, see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition, Quantitative and Qualitative Information About Market Risk --
Commodity Price Risk" and Note 8 to the Consolidated Financial Statements,
"Financial Instruments and Risk Management -- Commodity Derivative
Instruments."
7
<PAGE>
Trading and Marketing also provides energy management services, such as
supply and market aggregation, peaking services, dispatching, balancing,
transportation, storage, tolling, contract negotiation and administration, as
well as energy commodity risk management products and services.
Global Asset Development
Global Asset Development is an active participant in competitive power
markets worldwide and has ownership interests in more than 6,500 megawatts of
generation worldwide, including projects under construction and under contract.
Global Asset Development is comprised of three units: Duke Energy Power
Services (DEPS), Duke Energy Industrial Asset Development, and Duke Energy
International.
DEPS develops, owns and operates electric generation projects for
customers in the United States and Canada. DEPS focuses on acquisitions of
existing energy production facilities, greenfield opportunities and operating
energy assets. Domestic investments include a 32.5% indirect ownership interest
in American Ref-Fuel Company, which owns five waste to energy facilities in New
York, New Jersey, Massachusetts and Connecticut. Such facilities process about
4 million tons of municipal solid waste per year and have an aggregate
generating capacity of 286 megawatts. DEPS projects under construction include
an ownership interest in the Bridgeport Energy Project, a 520 megawatt combined
cycle natural gas fired merchant generation plant which will be Connecticut's
largest non-nuclear power plant.
On November 18, 1997, DEPS entered into an agreement with Pacific Gas &
Electric Company (PG&E) for the purchase of three electric generating plants in
California for approximately $500 million. The plants have a combined net
operating capacity of 2,645 megawatts. The sale is expected to close during
1998. Pursuant to California's electric restructuring law, DEPS must contract
with PG&E to operate and maintain the facilities for two years following the
sale. Energy and capacity from the plants will be sold into the California
power exchange and under separate contracts.
Duke Energy Industrial Asset Development was formed in July 1997 to
develop, own, manage and operate on-site, inside-the-fence electric generation
and energy conversion facilities for industrial customers. Its market focus is
the United States and Canada. This unit is currently working with prospective
customers from the textile, pulp and paper, petrochemical, agricultural, food
and automotive industries and the federal privatization sector.
Duke Energy International develops, owns and operates energy projects
worldwide. This unit focuses on projects involving natural gas exploration,
production, processing, transportation and supply. Additionally, projects
include generation, delivery and marketing of electric power and thermal
energy. Its ownership interests include investments in Argentina, Chile, Peru,
Indonesia and Saudi Arabia.
Other Energy Services
Other Energy Services provides engineering consulting, construction and
integrated energy solutions, primarily through Duke Engineering & Services,
Inc. (DE&S), Duke/Flour Daniel and DukeSolutions, Inc. (DukeSolutions).
DE&S specializes in energy and environmental projects and provides
comprehensive engineering, quality assurance, project and construction
management and operating and maintenance services for all phases of
hydroelectric, nuclear and renewable power generation projects worldwide.
Duke/Flour Daniel, operating through several entities, provides full
service siting, permitting, licensing, engineering, procurement, construction,
start-up, operating and maintenance services for fossil-fired plants, both
domestically and internationally.
DukeSolutions provides integrated energy solutions to industrial,
commercial, institutional, governmental and wholesale customers and focuses on
increasing customers' efficiency, productivity and profitability through energy
cost savings.
Competition
Field Services and Trading and Marketing compete with major integrated oil
companies, major interstate pipelines and their marketing affiliates, national
and local natural gas gatherers, brokers, marketers and distributors and
electric utilities and other electric power marketers for natural gas supplies,
in gathering and processing natural gas and in marketing and transporting
natural gas, electricity, NGLs and crude oil. Competition for natural gas
supplies is primarily based on efficiency, reliability, availability of
transportation and the ability to obtain a satisfactory price for the
producer's natural gas. Competition for customers is based primarily upon
reliability and price of delivered natural gas, NGLs and crude oil. Competition
in the energy marketing business is driven by the price of commodities and
services delivered, along with the quality and reliability of services
provided.
8
<PAGE>
The Global Asset Development and Other Energy Services business units
experience substantial competition in their fields from utility companies in
the United States or abroad and from independent companies.
Regulation
The intrastate pipelines owned by the Field Services group are subject to
state regulation and, to the extent they provide services under Section 311 of
the Natural Gas Policy Act of 1978 (NGPA), are also subject to FERC regulation.
The natural gas gathering activities of the Field Services group are generally
not subject to regulation by the FERC, but are subject to state regulation.
The energy marketing activities of the Trading and Marketing group may, in
certain circumstances, be subject to the jurisdiction of the FERC. Current FERC
policies permit the Trading and Marketing entities subject to the FERC
jurisdiction to market natural gas and electricity at market-based rates.
The NCUC, PSCSC and FERC have implemented regulations governing access to
regulated electric customer data by non-regulated entities and services
provided between regulated and non-regulated affiliated entities. These
regulations affect Energy Services' activities with the Corporation's Electric
Operations segment.
The Energy Services segment is subject to the jurisdiction of the EPA and
state environmental agencies. For a discussion of environmental regulation, see
"Business, Environmental Matters." The Energy Services segment is also subject
to the Natural Gas Pipeline Safety Act of 1968, which regulates gas pipeline
and LNG plant safety requirements, and to the Hazardous Liquid Pipeline Safety
Act of 1979, which regulates oil and petroleum pipelines.
OTHER OPERATIONS
The Other Operations segment includes the Corporation's non-energy related
subsidiaries, including Crescent Resources and DukeNet Communications, Inc.
(DukeNet).
Crescent Resources develops high quality commercial and residential real
estate projects and manages substantial forest holdings. At December 31, 1997,
Crescent Resources owned 3.5 million square feet of commercial space, of which
75% of the operating space was leased. Crescent Resources' portfolio included
2.1 million square feet of warehouse space, 1.1 million square feet of office
space and .3 million square feet of retail space. In 1997, Crescent Resources
sold 884 residential developed lots compared to 869 lots in 1996. At December
31, 1997, Crescent Resources also had approximately .2 million acres of land
under its management.
DukeNet develops and manages communications systems, including fiber optic
and wireless digital network services. DukeNet provides a network for
communications and other services to commercial, industrial and residential
markets.
ENVIRONMENTAL MATTERS
The Corporation is subject to federal, state and local regulations with
regard to air and water quality, hazardous and solid waste disposal and other
environmental matters. Certain environmental regulations affecting the
Corporation include:
o The Clean Air Act Amendments of 1990, which require a two-phase reduction by
electric utilities in aggregate annual emissions of sulfur dioxide and
nitrogen oxide by 2000;
o State Implementation Plans (SIP), which were issued by the EPA to 22 states
related to existing and new national ambient air quality standards for
ozone;
o The Federal Water Pollution Control Act Amendments of 1987, which require
permits for facilities that discharge treated wastewater into the
environment; and
o The Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), which can require any individual or entity which may have owned
or operated a disposal site, as well as transporters or generators of
hazardous wastes which were sent to such site, to share in remediation
costs for the site.
For further discussion of environmental matters involving the Corporation,
including possible liability and capital costs, see "Management's Discussion
and Analysis of Results of Operations and Financial Condition, Current Issues
- -- Environmental" and Note 15 to the Consolidated Financial Statements,
"Commitments and Contingencies -- Environmental." Except as set
9
<PAGE>
forth therein, compliance with federal, state and local provisions which have
been enacted or adopted regulating the discharge of materials into the
environment, or otherwise protecting the environment, is not expected to have a
material adverse effect on the consolidated results of operations or financial
position of the Corporation.
OTHER MATTERS
The Corporation is exempt from regulation as a holding company under the
Public Utility Holding Company Act of 1935 (PUHCA), except with respect to the
acquisition of the securities of other public utilities. The issuance of debt
or equity securities by the Corporation is subject to the regulation of the
NCUC and the PSCSC.
Foreign operations and export sales are not material to the Corporation's
business as a whole. For a discussion of risks associated with the
Corporation's foreign operations, see "Management's Discussion and Analysis of
Results of Operations and Financial Condition, Quantitative and Qualitative
Disclosures About Market Risk -- Foreign Operations Risk."
At December 31, 1997, the Corporation had approximately 23,000 employees.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
From time to time, the Corporation may make statements regarding its
expectations, intent or beliefs about future events. These statements are
intended as "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. The Corporation cautions that assumptions,
projections and expectations about future events may and often do vary from
actual results, the differences between assumptions, projections and
expectations and actual results can be material, and there can be no assurance
that the forward-looking statements will be realized. For a discussion of some
factors that could cause actual achievements and events to differ materially
from those expressed or implied in such forward-looking statements, see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition, Current Issues -- Forward-Looking Statements."
10
<PAGE>
OPERATING STATISTICS
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Electric Operations
Sources of Electric Energy, GWh (a)
Generated -- net output:
Coal .............................................................. 45,234 40,649 32,389 32,714 34,097
Nuclear ........................................................... 29,569 33,177 39,836 35,587 34,390
Hydro ............................................................. 1,129 1,319 1,685 1,460 1,582
Oil and gas ....................................................... 301 199 255 35 43
------ ------ ------ ------ ------
Total generation ............................................... 76,233 75,344 74,165 69,796 70,112
Purchased power and net interchange ............................... 3,776 3,587 1,175 1,276 1,750
------ ------ ------ ------ ------
Total output ................................................... 80,009 78,931 75,340 71,072 71,862
Plus: Purchases from other Catawba joint owners ................... 2,316 2,662 6,070 9,046 8,810
------ ------ ------ ------ ------
Total sources of energy ........................................ 82,325 81,593 81,410 80,118 80,672
Less: Line loss and company usage ................................. 4,784 4,741 4,673 4,555 4,614
------ ------ ------ ------ ------
Total GWh sales ................................................ 77,541 76,852 76,737 75,563 76,058
====== ====== ====== ====== ======
Electric Energy Sales, GWh
Residential ....................................................... 20,005 20,992 19,669 18,870 19,465
General service ................................................... 19,368 19,269 18,160 17,289 16,904
Industrial
Textile ......................................................... 11,950 11,599 12,151 12,285 11,954
Other ........................................................... 18,253 18,021 17,631 17,005 16,244
Other energy and wholesale ........................................ 7,555 7,028 8,330 10,274 11,337
------ ------ ------ ------ ------
Total GWh sales billed ......................................... 77,131 76,909 75,941 75,723 75,904
Unbilled GWh sales ............................................ 410 (57) 796 (160) 154
------ ------ ------ ------ ------
Total GWh sales ............................................. 77,541 76,852 76,737 75,563 76,058
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Natural Gas Transmission
Throughput Volumes, TBtu (b):
Northeast Pipelines
TETCO ........................................................... 1,300 1,349 1,234 1,194 1,115
Algonquin ....................................................... 341 327 331 288 245
----- ----- ----- ----- ------
Total Northeast Pipelines ...................................... 1,641 1,676 1,565 1,482 1,360
Midwest Pipelines
PEPL ............................................................ 659 687 663 626 607
Trunkline ....................................................... 620 632 519 560 633
----- ----- ----- ----- ------
Total Midwest Pipelines ........................................ 1,279 1,319 1,182 1,186 1,240
Intercompany eliminations ........................................ (58) (56) (44) (91) (125)
----- ----- ----- ----- ------
Total Natural Gas Transmission .................................... 2,862 2,939 2,703 2,577 2,475
===== ===== ===== ===== ======
Energy Services
Field Services Natural Gas Gathered/Processed, TBtu/d (c) ......... 3.4 2.9 1.9 1.6 1.4
Field Services NGL Production, MBbl/d (d) ......................... 103.9 76.5 54.8 49.4 42.0
Trading and Marketing Natural Gas Marketed, TBtu/d ................ 6.9 5.5 3.6 2.7 2.1
Trading and Marketing Electricity Marketed, GWh ................... 64,650 4,229 513 -- --
</TABLE>
- ---------
(a) Gigawatt-hour
(b) Trillion British thermal units
(c) Trillion British thermal units per day
(d) Thousand barrels per day
11
<PAGE>
Executive Officers of the Corporation
RICHARD B. PRIORY, 51, Chairman of the Board and Chief Executive Officer.
Mr. Priory served as President and Chief Operating Officer from 1994 until he
assumed his present position in 1997. He was Executive Vice President, Power
Generation Group, from 1991 to 1994.
PAUL M. ANDERSON, 52, President and Chief Operating Officer. Mr. Anderson
served as Chairman of the Board, President and Chief Executive Officer of
PanEnergy prior to the merger, when he assumed his present position. Mr.
Anderson was elected Chairman of the Board of PanEnergy in 1997, Chief
Executive Officer in 1995 and President in 1993. He was Executive Vice
President of PanEnergy from 1991 to 1993.
WILLIAM A. COLEY, 54, Group President, Duke Power. Mr. Coley served as
President, Associated Enterprises Group, from 1994 to 1997 when he assumed his
present position following the merger. Mr. Coley served as Executive Vice
President, Customer Group, from 1991 to 1994.
FRED J. FOWLER, 52, Group President, Energy Transmission. Mr. Fowler
served as Group Vice President of PanEnergy from 1996 until the merger, when he
assumed his present position. He was President of TETCO from 1994 to 1996,
President of 1Source Corporation from 1993 to 1994 and President of Trunkline
Gas Company from 1991 to 1993.
JAMES T. HACKETT, 44, Group President, Energy Services. Mr. Hackett served
as Executive Vice President of PanEnergy from 1996 until the merger, when he
assumed his present position. Prior to joining PanEnergy, Mr. Hackett served as
Senior Vice President of NGC Corporation (formerly Natural Gas Clearinghouse)
from 1990 to 1995.
RICHARD W. BLACKBURN, 55, Executive Vice President and General Counsel.
Mr. Blackburn was named to his present position in October 1997. Prior to
joining the Corporation, he served as President and Group Executive of NYNEX
Corporation's Worldwide Communications and Media Group from 1995 to 1997. He
was Chief Operating Officer, Worldwide Communications and Media Group, of NYNEX
from 1993 to 1995 and Senior Vice President for Business Development and
General Counsel of NYNEX from 1991 to 1993.
RICHARD J. OSBORNE, 46, Executive Vice President and Chief Financial
Officer. Mr. Osborne served as Senior Vice President and Chief Financial
Officer from 1994 until he assumed his present position in 1997 following the
merger. Mr. Osborne served as Vice President and Chief Financial Officer from
1991 to 1994.
RUTH G. SHAW, 50, Executive Vice President and Chief Administrative
Officer. Ms. Shaw served as Senior Vice President, Corporate Resources, from
1994 until she assumed her present position following the merger. Ms. Shaw was
Vice President, Corporate Communications, from 1992 to 1994, and prior to
joining the Corporation, she served as President of Central Piedmont Community
College from 1986 to 1992.
JEFFREY L. BOYER, 41, Vice President and Corporate Controller. Mr. Boyer
served as Controller from 1994 to 1997, when he assumed his present position
following the merger. He was Director of Corporate Accounting from 1992 to
1994.
Executive officers are elected annually by the Board of Directors and
serve until the first meeting of the Board of Directors following the annual
meeting of shareholders and until their successors are duly elected.
There are no family relationships between any of the executive officers
nor any arrangement or understanding between any executive officer and any
other person pursuant to which the officer was selected.
Item 2. Properties.
ELECTRIC OPERATIONS
At December 31, 1997, the Corporation's Electric Operations segment
operated three nuclear generating stations with a combined net capability of
5,078 MW (which includes Electric Operations' 12.5% ownership share in the
Catawba Nuclear Station), eight coal-fired stations with a combined capability
of 7,699 MW, twenty hydroelectric stations with a combined capability of 2,685
MW and six combustion turbine stations with a combined capability of 1,784 MW,
all of which are located in North Carolina or South Carolina.
In addition, the Corporation owned, as of December 31, 1997, approximately
12,800 conductor miles of electric transmission lines, including 600 conductor
miles of 500 kilovolts, 2,600 conductor miles of 220 kilovolts, 6,400 conductor
miles of 100 kilovolts, and 3,200 conductor miles of 13 to 66 kilovolts. The
Corporation also owned approximately 75,000 conductor miles of electric
distribution lines, including 47,300 conductor miles of rural overhead lines,
15,000 conductor miles of urban overhead lines, 7,000 conductor miles of rural
underground lines and 5,700 conductor miles of urban underground
12
<PAGE>
lines. At December 31, 1997, the Corporation's electric transmission and
distribution systems comprised approximately 1,600 substations with an
installed transformer capacity of approximately 84,100,000 kVA
(kilovolt-ampere).
Substantially all electric plant is mortgaged under the Indenture relating
to the First and Refunding Mortgage Bonds of the Corporation.
NATURAL GAS TRANSMISSION
TETCO's gas transmission system extends approximately 1,700 miles from
producing fields in the Gulf Coast region of Texas and Louisiana to Ohio,
Pennsylvania, New Jersey and New York. It consists of two parallel systems, one
consisting of three large-diameter parallel pipelines and the other consisting
of from one to three large-diameter pipelines over its length. TETCO's system,
including its gathering systems, has 73 compressor stations. The TETCO system
connects with the PEPL and Trunkline systems in Lebanon, Ohio.
TETCO also owns and operates two offshore Louisiana gas supply systems,
which extend over 100 miles into the Gulf of Mexico and consist of 490 miles of
pipeline.
Algonquin's transmission system connects with TETCO's facilities in New
Jersey, and extends through New Jersey, New York, Connecticut, Rhode Island and
Massachusetts. The system consists of approximately 250 miles of pipeline with
6 compressor stations.
PEPL's transmission system, which consists of four large-diameter parallel
pipelines and 13 mainline compressor stations, extends a distance of
approximately 1,300 miles from producing areas in the Anadarko Basin of Texas,
Oklahoma and Kansas through the states of Missouri, Illinois, Indiana and Ohio
into Michigan.
Trunkline's transmission system extends approximately 1,400 miles from the
Gulf Coast areas of Texas and Louisiana through the states of Arkansas,
Mississippi, Tennessee, Kentucky, Illinois and Indiana to a point on the
Indiana-Michigan border. The system consists principally of three
large-diameter parallel pipelines and 18 mainline compressor stations.
Trunkline also owns and operates two offshore Louisiana gas supply systems
consisting of 337 miles of pipeline extending approximately 81 miles into the
Gulf of Mexico.
For information concerning natural gas storage properties, see "Business,
Natural Gas Transmission."
ENERGY SERVICES
For information regarding the properties of Field Services, see "Business,
Energy Services -- Field Services."
Global Asset Development owns two liquid natural gas (LNG) ships, each
with a transportation capacity of 125,000 cubic meters of LNG. Both vessels
have been chartered to Nigeria LNG Limited (Nigeria LNG) for 22 years starting
in 1999. Under the terms of the charter, Nigeria LNG will have the right to
purchase the vessels.
Global Asset Development also owns a marine terminal, storage and
regasification facility for LNG located in Louisiana. This LNG facility has a
design output capacity of approximately 700 million cubic feet per day (MMcf/d)
and a storage capacity of approximately 1.8 million barrels, which approximates
6 Bcf.
Other generation, transmission and distribution properties of Global Asset
Development are owned primarily through joint ventures in which the
Corporation's ownership interest is 50% or less.
Properties of Trading and Marketing and Other Energy Services are not
considered material to the Corporation's operations as a whole.
OTHER OPERATIONS
None of the other properties used in connection with the Corporation's
other business activities are considered material to the Corporation's
operations as a whole.
13
<PAGE>
Item 3. Legal Proceedings.
See Note 15 to the Consolidated Financial Statements, "Commitments and
Contingencies" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition, Current Issues -- Environmental" for a
discussion of legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Corporation's security holders
during the last quarter of 1997.
14
<PAGE>
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The common stock of the Corporation is listed for trading on the New York
Stock Exchange. At February 27, 1998, there were approximately 155,619 holders
of record of such common stock.
The following table sets forth for the periods indicated the dividends
paid per share of common stock and the high and low sales prices of such shares
reported by the New York Stock Exchange Composite Transactions:
<TABLE>
<CAPTION>
Dividends
1997 Per Share (a) Stock Price Range
- ------------------- --------------- ----------------------
High Low
---------- -----------
<S> <C> <C> <C>
First Quarter .. $.40 $ 48 $ 43 3/8
Second Quarter . .40 48 42 1/8
Third Quarter .. .55 51 1/8 47 11/16
Fourth Quarter . .55 56 3/16 45 3/4
</TABLE>
<TABLE>
<CAPTION>
Dividends
1996 Per Share (a) Stock Price Range
- ------------------ --------------- --------------------
High Low
--------- ----------
<S> <C> <C> <C>
First Quarter ... $.38 $53 $46 7/8
Second Quarter .. .39 51 1/2 45 3/4
Third Quarter ... .40 51 3/8 45 3/4
Fourth Quarter .. .40 49 1/8 43 3/8
</TABLE>
- ---------
(a) Financial information reflects accounting for the merger with PanEnergy
Corp as a pooling of interests. As a result, the financial information
gives effect to the merger as if it had occurred January 1, 1996.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
1997 (a) 1996 (a) 1995 (a) 1994 (a) 1993 (a)
-------------- -------------- ------------- ------------- -------------
In Millions (except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement
Operating Revenues ....................................... $ 16,308.9 $ 12,302.4 $ 9,694.7 $ 9,115.0 $ 8,784.3
Operating Expenses ....................................... 14,338.9 10,143.8 7,626.4 7,309.0 7,068.6
---------- ---------- ---------- ---------- ----------
Operating Income ......................................... 1,970.0 2,158.6 2,068.3 1,806.0 1,715.7
Other Income and Expenses ................................ 138.1 135.6 122.2 101.0 137.5
---------- ---------- ---------- ---------- ----------
Earnings Before Interest and Taxes ....................... 2,108.1 2,294.2 2,190.5 1,907.0 1,853.2
Interest Expense ......................................... 471.8 499.2 508.2 484.5 526.3
Minority Interests ....................................... 23.0 6.2 -- -- --
---------- ---------- ---------- ---------- ----------
Earnings Before Income Taxes ............................. 1,613.3 1,788.8 1,682.3 1,422.5 1,326.9
Income Taxes ............................................. 638.9 697.8 664.2 558.4 528.9
---------- ---------- ---------- ---------- ----------
Income Before Extraordinary Item ......................... 974.4 1,091.0 1,018.1 864.1 798.0
Extraordinary Item ....................................... -- 16.7 -- -- --
----------- ---------- ---------- ---------- ----------
Net Income ............................................... 974.4 1,074.3 1,018.1 864.1 798.0
Dividends and Premiums on Redemptions of Preferred and
Preference Stock ........................................ 72.8 44.2 48.9 49.7 52.4
----------- ---------- ---------- ---------- ----------
Earnings for Common Stockholders ......................... $ 901.6 $ 1,030.1 $ 969.2 $ 814.4 $ 745.6
=========== ========== ========== ========== ==========
Common Stock Data
Shares of common stock
Year-end ................................................ 359.8 359.4 361.8 360.6 359.1
Average ................................................. 359.8 361.2 361.2 360.2 353.6
Basic earnings per share (before extraordinary item) ..... $ 2.51 $ 2.90 $ 2.68 $ 2.26 $ 2.11
Basic earnings per share ................................. $ 2.51 $ 2.85 $ 2.68 $ 2.26 $ 2.11
Dividends per share ...................................... $ 1.90 $ 1.57 $ 1.50 $ 1.44 $ 1.39
Balance Sheet
Total Assets ............................................. $ 24,028.8 $ 22,366.2 $ 20,867.9 $ 20,254.2 $ 19,717.4
Long-term Debt ........................................... $ 6,530.0 $ 5,485.1 $ 5,803.0 $ 5,930.8 $ 5,370.9
Preferred Stock with Sinking Fund Requirements ........... $ 149.0 $ 234.0 $ 234.0 $ 279.5 $ 281.0
</TABLE>
- ---------
(a) Financial information reflects accounting for the merger with PanEnergy
Corp as a pooling of interests. As a result, the financial information
gives effect to the merger as if it had occurred January 1, 1993.
15
<PAGE>
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
INTRODUCTION
On June 18, 1997, Duke Power Company (Duke Power) changed its name to Duke
Energy Corporation (the Corporation) in accordance with the terms of a merger
agreement with PanEnergy Corp (PanEnergy), pursuant to which the Corporation
issued 158.3 million shares of its common stock in exchange for all of the
outstanding common stock of PanEnergy (the merger). PanEnergy was involved in
the gathering, processing, transportation and storage of natural gas, the
production of natural gas liquids and the marketing of natural gas,
electricity, liquefied petroleum gases and related energy services. Pursuant to
the merger, each share of PanEnergy common stock outstanding was converted into
the right to receive 1.0444 shares of the Corporation's common stock. In
addition, each outstanding option to purchase PanEnergy common stock became an
option to purchase common stock of the Corporation, adjusted accordingly.
As a result of the merger, the Corporation is an integrated energy and
energy services provider with the ability to offer physical delivery and
management of both electricity and natural gas throughout the United States and
abroad. The Corporation provides these services through four business segments:
Electric Operations, Natural Gas Transmission, Energy Services, and Other
Operations.
The Electric Operations segment is engaged in the generation,
transmission, distribution and sale of electric energy in central and western
North Carolina and the western portion of South Carolina. These electric
operations are subject to the rules and regulations of the Federal Energy
Regulatory Commission (FERC), the North Carolina Utilities Commission (NCUC)
and The Public Service Commission of South Carolina (PSCSC).
The Natural Gas Transmission segment is involved in interstate
transportation and storage of natural gas for customers primarily in the
Mid-Atlantic, New England and Midwest states. The interstate natural gas
transmission and storage operations are also subject to the rules and
regulations of the FERC.
The Energy Services segment is comprised of several separate business
units: Field Services gathers and processes natural gas, produces and markets
natural gas liquids and transports and trades crude oil; Trading and Marketing
markets natural gas, electricity and other energy-related products; Global
Asset Development develops, owns and operates energy-related facilities
worldwide; and Other Energy Services provides engineering consulting,
construction and integrated energy solutions.
Other Operations include the real estate operations of Crescent Resources,
Inc. (Crescent Resources), communications services, corporate costs and
intersegment eliminations.
The merger was accounted for as a pooling of interests and, accordingly,
the Consolidated Financial Statements included in this Annual Report are
presented as if the merger was consummated as of the beginning of the earliest
period presented. Portions of the following discussion provide information
related to material changes in the Corporation's consolidated results of
operations and financial condition between the periods presented, based on the
combined historical information of Duke Power and PanEnergy.
Management's Discussion and Analysis should be read in conjunction with
the Consolidated Financial Statements of the Corporation.
RESULTS OF OPERATIONS
Earnings available for common stockholders of the Corporation decreased
12% in 1997 as compared to 1996, from $1,030.1 million or $2.85 per share in
1996 to $901.6 million or $2.51 per share in 1997. The decrease was due
primarily to increases in non-recurring merger related costs, a provision for
non-recurring severance costs associated with the work force reduction in
Electric Operations, premiums associated with the redemption and tender offer
for ten issues of preferred stock and higher expenses as a result of increased
outages at the Electric Operations' nuclear stations. Partially offsetting the
decrease were lower expenses in 1997 as compared to 1996 when major storms
affected the Electric Operations' distribution costs.
In 1996, earnings available for common stockholders increased 6% over
1995, from $969.2 million or $2.68 per share in 1995 to $1,030.1 million or
$2.85 per share in 1996. Contributing to the increase were Electric Operations'
customer growth, business expansion projects placed in service in both the
Natural Gas Transmission and the Energy Services segments and increased volumes
in Energy Services due primarily to the joint venture formed with Mobil
Corporation (Mobil)
16
<PAGE>
in August 1996. Partially offsetting the increase were expenses related to
major storms in 1996, which affected the Electric Operations' distribution
costs, non-recurring merger related costs and an extraordinary item related to
the early retirement of debt in 1996.
Operating income of the Corporation for 1997 was $1,970 million compared
to $2,158.6 million in 1996 and $2,068.3 million in 1995. Earnings before
interest and taxes (EBIT) were $2,108.1 million, $2,294.2 million and $2,190.5
million for 1997, 1996 and 1995, respectively. Operating income and earnings
before interest and taxes are not materially different, and are affected by the
same fluctuations for the Corporation and each of its business segments.
Earnings before interest and taxes by business segment are summarized below,
and the explanation of these results by business segment are discussed
thereafter.
Earnings Before Interest and Taxes by Business Segment is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
In Millions
<S> <C> <C> <C>
Electric Operations
Duke Power ................................ $ 1,266.1 $ 1,404.8 $ 1,370.9
Nantahala Power and Light Company ......... 15.7 14.7 10.3
---------- ---------- ----------
Total Electric Operations ............... 1,281.8 1,419.5 1,381.2
---------- ---------- ----------
Natural Gas Transmission
Northeast Pipelines ....................... 420.5 399.4 370.5
Midwest Pipelines ......................... 203.9 196.1 197.1
---------- ---------- ----------
Total Natural Gas Transmission .......... 624.4 595.5 567.6
---------- ---------- ----------
Energy Services
Field Services ............................ 157.0 151.6 106.1
Trading and Marketing ..................... 44.4 57.9 17.1
Global Asset Development .................. 4.5 -- 26.8
Other Energy Services ..................... 18.2 20.0 23.7
---------- ---------- ----------
Total Energy Services ................... 224.1 229.5 173.7
---------- ---------- ----------
Crescent Resources ......................... 97.6 87.7 64.0
Other Operations ........................... (119.8) (38.0) 4.0
---------- ---------- ----------
Consolidated EBIT .......................... $ 2,108.1 $ 2,294.2 $ 2,190.5
========== ========== ==========
</TABLE>
Net income for 1997 is net of a full year of the minority interests
associated with the August 1996 joint venture with Mobil in the Trading and
Marketing operations of the Energy Services segment (see Note 3 to the
Consolidated Financial Statements).
Included in the amounts discussed below are intercompany transactions that
do not have a material impact on consolidated earnings before interest and
taxes.
Electric Operations
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
Dollars In Millions
<S> <C> <C> <C>
Revenue ............................... $ 4,401.7 $ 4,498.4 $ 4,512.4
Operating Expenses .................... 3,221.4 3,194.8 3,203.7
---------- ---------- ----------
Operating Income ...................... 1,180.3 1,303.6 1,308.7
Other Income, Net of Expenses ......... 101.5 115.9 72.5
---------- ---------- ----------
EBIT .................................. $ 1,281.8 $ 1,419.5 $ 1,381.2
========== ========== ==========
Volumes, GWh Sales (a) ................ 77,541 76,852 76,737
</TABLE>
- ---------
(a) Gigawatt-hour sales
In 1997, earnings before interest and taxes for the Electric Operations
segment declined 10% as compared to 1996 primarily as a result of the provision
for non-recurring severance costs associated with the work force reduction and
the increase in nuclear expenses, due primarily to increased outage days. Also
contributing to the decrease were lower electric revenues,
17
<PAGE>
which were due primarily to mild weather and to the South Carolina rate
reduction, which was effective June 1, 1996. Partially offsetting the decrease
in earnings were lower expenses in 1997 as compared to 1996 when major storms
affected distribution costs.
Although the unusually mild weather reduced residential sales during the
year, general service and industrial sales continued to show strong growth.
Residential kilowatt-hour sales, the most sensitive to weather, declined 4.7%
during the year. Textile sales increased 3.0% and other industrial sales were
up 1.3%, for a total growth in industrial sales of 2.0%. Sales to general
service customers increased 0.5%. The number of customers in the Electric
Operations' service territory increased 2.7% over 1996.
In 1996, earnings before interest and taxes for Electric Operations
increased 3% over 1995 due to growth in the number of residential and general
service customers and increased retail kilowatt-hour sales to weather-sensitive
customer classes. Increased retail sales were partially offset by the South
Carolina rate reduction, which was effective June 1, 1996 and by a 16% decrease
in wholesale sales primarily due to a decrease of 24% in supplemental sales
requirements to the other joint owners of the Catawba Nuclear Station
(Catawba). The effect on earnings before interest and taxes of the decrease in
supplemental sales was partially offset by declines in purchased power expense
from the other joint owners.
For more information on the Catawba joint ownership, see Note 6 to the
Consolidated Financial Statements.
Natural Gas Transmission
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
Dollars In Millions
<S> <C> <C> <C>
Revenue ............................... $ 1,572.1 $ 1,556.3 $ 1,533.4
Operating Expenses .................... 964.4 972.5 971.1
---------- ---------- ----------
Operating Income ...................... 607.7 583.8 562.3
Other Income, Net of Expenses ......... 16.7 11.7 5.3
---------- ---------- ----------
EBIT .................................. $ 624.4 $ 595.5 $ 567.6
========== ========== ==========
Volumes, TBtu (a) ..................... 2,862 2,939 2,703
</TABLE>
- ---------
(a) Trillion British thermal units
During 1997, the Natural Gas Transmission segment completed the
organization of its operations into the Northeast Pipelines, which includes
Texas Eastern Transmission Corporation (TETCO) and Algonquin Gas Transmission
Company (Algonquin), and the Midwest Pipelines, which includes Panhandle
Eastern Pipe Line Company (PEPL) and Trunkline Gas Company (Trunkline).
Earnings before interest and taxes for the Natural Gas Transmission segment
increased 5% in 1997 over the prior year, with increases in earnings at
Northeast Pipelines and Midwest Pipelines of 5% and 4%, respectively. Earnings
before interest and taxes increased primarily due to market-expansion projects
placed in service and the favorable resolution of regulatory matters in 1997 in
amounts in excess of those resolved in 1996. The resolution of regulatory
matters was reflected as additional revenue and other income. The increases
were partially offset by certain litigation expenses recorded in 1997.
In 1996, earnings before interest and taxes for the Natural Gas
Transmission segment increased 5% over 1995. This was primarily due to a 9%
increase in throughput resulting from new pipeline expansion projects placed in
service in late 1995 and due to colder weather, which increased revenues.
Operating expenses in 1995 included a charge for higher Order 636 transition
cost estimates, partially offset by the benefit of lower-than-projected PCB
(polychlorinated biphenyl) clean-up costs (see Note 5 to the Consolidated
Financial Statements).
Energy Services
Earnings before interest and taxes for the Energy Services segment in 1997
decreased slightly as compared to 1996, which was 32% higher than 1995 earnings
before interest and taxes. During 1997, 1996 and 1995, these fluctuations were
driven primarily by the results of operations of Field Services and Trading and
Marketing.
18
<PAGE>
Field Services
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
Dollars In Millions
<S> <C> <C> <C>
Revenue ............................................ $ 3,054.6 $ 2,636.5 $ 1,791.4
Operating Expenses ................................. 2,897.9 2,487.1 1,694.6
---------- ---------- ----------
Operating Income ................................... 156.7 149.4 96.8
Other Income, Net of Expenses ...................... 0.3 2.2 9.3
---------- ---------- ----------
EBIT ............................................... $ 157.0 $ 151.6 $ 106.1
========== ========== ==========
Volumes
Natural Gas Gathered/Processed, TBtu/d (a) ......... 3.4 2.9 1.9
NGL Production, MBbl/d (b) ......................... 103.9 76.5 54.8
</TABLE>
- ---------
(a) Trillion British thermal units per day
(b) Thousand barrels per day
Field Services' earnings before interest and taxes increased 4% for 1997
over 1996 primarily due to higher volumes as a result of acquisitions in 1996.
Natural gas gathered and processed volumes increased 17% and natural gas
liquids (NGL) production increased 36%. Partially offsetting these increases
were higher natural gas prices, which increased operating expenses, and a
decrease in NGL prices of 8%, which decreased revenues.
Earnings before interest and taxes for Field Services increased 43% in
1996 as compared with 1995. Strong processing margins and increased gathering
and processing volumes related to expansion projects and asset acquisitions,
primarily the acquisition of assets from Mobil, contributed to the increase in
revenues. Average NGL prices increased 30%, while NGL production increased 40%.
These improvements were partially offset by increased operating expenses and
depreciation as a result of the Mobil asset acquisition and other projects
placed in service. A gain on the sale of an investment in Seagull Shoreline
System in 1995 caused a comparative reduction in other income.
Trading and Marketing
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
Dollars In Millions
<S> <C> <C> <C>
Revenue ............................... $ 7,488.7 $ 3,814.0 $ 1,866.7
Operating Expenses .................... 7,446.0 3,757.7 1,846.7
---------- ---------- ----------
Operating Income ...................... 42.7 56.3 20.0
Other Income, Net of Expenses ......... 1.7 1.6 (2.9)
---------- ---------- ----------
EBIT .................................. $ 44.4 $ 57.9 $ 17.1
========== ========== ==========
Volumes
Natural Gas Marketed, TBtu/d .......... 6.9 5.5 3.6
Electricity Marketed, GWh (a) ......... 64,650 4,229 513
</TABLE>
- ---------
(a) Gigawatt-hours
A wholly owned subsidiary of the Corporation acquired the remaining 50%
ownership interest in the Duke/Louis Dreyfus, L.L.C. (D/LD) joint venture in
June 1997. This acquisition, coupled with a full year of operations of the
joint venture with Mobil formed in August 1996, accounted for the significant
increases in Trading and Marketing revenues, related operating expenses and
volumes in 1997 over 1996. Natural gas marketed volumes increased 25%, in
addition to increases in natural gas margins from trading activities, which
were largely offset by the emerging electric power trading and marketing
activities. Higher operating expenses, driven mainly by increased personnel
levels and system development costs to provide the necessary infrastructure for
growth in the trading and marketing business, resulted in a decrease in
earnings before interest and taxes in 1997 as compared to 1996.
In 1996, Trading and Marketing's earnings before interest and taxes
increased $40.8 million as compared to 1995 primarily as a result of expanded
operations due to the joint venture with Mobil formed in August 1996. The
increase resulted primarily from higher gas volumes, improved margins resulting
from colder weather and gas price volatility, and higher trading margins. Total
gas volumes marketed increased 53%. The increase in margins was partially
offset by higher operating expenses related to the joint venture with Mobil.
19
<PAGE>
Other Operations
Earnings before interest and taxes for Crescent Resources increased 11% in
1997 over 1996. The increase is primarily due to gains associated with bulk
land sales in 1997. In 1996, earnings before interest and taxes for Crescent
Resources increased 37% over 1995 resulting from increased developed lot sales
as well as bulk land sales.
Earnings before interest and taxes for Other Operations, excluding
Crescent Resources, declined $81.8 million in 1997 as compared to 1996.
Contributing to the decrease were merger related expenses of $71.2 million in
1997, compared to 1996 merger expenses of $13.9 million, and the 1997
amortization of goodwill associated with the purchase of the remaining 50%
ownership interest of the D/LD joint venture. This decline was partially offset
by the sale of the Corporation's ownership interest in the Midland Cogeneration
Venture in 1997.
In 1996, earnings before interest and taxes for Other Operations,
excluding Crescent Resources, decreased $42 million as compared to 1995
primarily as a result of 1996 expenses related to the merger and losses related
to the start-up activities of a wireless communications joint venture.
Other Impacts on Earnings Available for Common Stockholders
In 1997, interest expense decreased $27.4 million, or 5%, as compared to
1996 as a result of lower interest rates. Interest expense in 1996 decreased 2%
compared with 1995 as a result of lower average interest rates and lower
average debt balances outstanding.
Minority interests in 1997 and 1996 relate primarily to the joint venture
with Mobil formed in August 1996.
On October 1, 1996, a subsidiary of the Corporation redeemed its $150
million, 10% debentures and its $100 million, 10 1/8% debentures both due 2011.
The Corporation recorded a non-cash extraordinary item of $16.7 million (net of
income tax of $10.3 million) related to the unamortized discount on this early
retirement of debt.
In December 1997, the Corporation redeemed four issues of preferred stock
and commenced a tender offer to purchase a portion of an additional six issues
of preferred stock. Premiums related to these redemptions were included in
Dividends and Premiums on Redemptions of Preferred and Preference Stock in the
Consolidated Statements of Income.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING CASH FLOW. Operating cash flows decreased $195.1 million from
1996 to 1997. This decrease primarily reflects the cash impact of costs
associated with the merger and natural gas transition cost recoveries.
Operating cash flows increased $503 million from 1995 to 1996. This
increase primarily reflects the cash impact of purchased capacity levelization
and natural gas transition cost recoveries. Additionally, improved working
capital caused cash flows from operations to increase in 1996.
Assets and liabilities recorded in the Consolidated Balance Sheets related
to purchased capacity levelization and the natural gas transition cost
recoveries and the related cash flow impacts are effected by state and federal
regulatory initiatives and specific agreements. For more information on the
purchased capacity levelization and the natural gas transition cost recoveries,
see Notes 6 and 5, respectively, to the Consolidated Financial Statements.
INVESTING CASH FLOW. Capital and investment expenditures were
approximately $2.0 billion in 1997 compared with approximately $1.6 billion in
1996. Increased capital and investment expenditures were partially due to the
acquisition of the remaining 50% ownership interest in the D/LD joint venture
and the acquisition of an ownership interest in American Ref-Fuel Company.
Additionally, increased Electric Operations' construction costs, primarily due
to steam generator replacements at certain of the Corporation's nuclear plants
and increased distribution line construction and business expansion for the
Natural Gas Transmission segment caused expenditures to increase. These
increases were partially offset by the 1996 acquisition of certain assets from
Mobil.
The Corporation participated in the marketing of electric power and
natural gas through its 50% ownership interest in D/LD. On June 17, 1997, the
Corporation, through one of its subsidiaries, acquired the remaining 50%
ownership interest in D/LD from affiliates of Louis Dreyfus Corp. for $247
million. The purchase price substantially represents goodwill, which will be
amortized over 10 years.
Also in June 1997, the Corporation signed a letter of intent to build a
$265 million, 520-megawatt combined cycle natural gas fired merchant generation
plant in Bridgeport, Connecticut. The Corporation will be majority owner, with
the first phase of the project scheduled to provide power in mid-1998. The
project is currently under construction.
20
<PAGE>
During December 1997, a wholly owned subsidiary of the Corporation formed
a joint venture with UAE Ref-Fuel L.L.C. (UAE), a wholly owned subsidiary of
United American Energy Corp. The Corporation owns a 65% interest in the joint
venture, with UAE owning a 35% minority interest. The joint venture acquired a
50% ownership interest in American Ref-Fuel Company, a waste-to-energy firm,
with operations primarily in New York and New Jersey. Thus, the Corporation has
an indirect 32.5% ownership interest in American Ref-Fuel Company and provided
$237 million of investment and financing to the venture.
During 1997, the Corporation sold its ownership in trading and marketing
operations in the United Kingdom and its equity interest in certain affiliates.
Proceeds from these sales were $87 million.
Capital and investment expenditures in 1996 included the acquisition of
certain assets of Mobil for approximately $300 million by Field Services. The
increase in capital and investment expenditures in 1996 over 1995 was a result
of this acquisition and other Energy Services expansion projects, partially
offset by decreased Electric Operations' construction costs as a result of the
completion of certain generating facilities in 1995.
The Corporation plans to maintain its regulated facilities and pursue
business expansion of its regulated operations as opportunities arise.
Projected 1998 capital and investment expenditures for the Electric Operations
and the Natural Gas Transmission segments, including allowance for funds used
during construction, are approximately $700 million and $300 million,
respectively. These projections are subject to periodic review and revisions.
Actual expenditures incurred may vary from such estimates due to various
factors, including revised electric load estimates, business expansion
opportunities, environmental matters and cost and availability of capital.
The Energy Services segment plans to spend approximately $100 million in
1998 for required capital expenditures at its existing facilities. In addition,
the Corporation is seeking to significantly grow its Energy Services
businesses, primarily through the Global Asset Development business unit. One
expansion opportunity includes the 520-megawatt combined cycle natural gas
fired merchant generation plant in Bridgeport, Connecticut already under
construction. Another growth opportunity includes the recently announced
agreement to purchase from Pacific Gas & Electric Company three power plants in
California. The power plants have a combined capacity of 2,645 megawatts. The
purchase price is estimated at approximately $500 million and the transaction
is expected to close during 1998. Other similar initiatives in 1998 will likely
require significant capital and investment expenditures, which will be subject
to periodic review and revision and may vary significantly depending on the
value-added opportunities presented.
Projected capital and investment expenditures for 1998 of the Other
Operations segment are approximately $200 million. These projected capital and
investment expenditures are subject to periodic review and revision and may
vary significantly depending on the value-added opportunities presented.
FINANCING CASH FLOW. The Corporation's consolidated capital structure at
December 31, 1997, including short-term debt, was 45% debt, 3% preferred stock,
50% common equity and 2% other capitalization. Fixed charges coverage, using
the SEC method, was 4.1 times for 1997 compared to 4.3 and 4.0 times for 1996
and 1995, respectively.
Subsequent to the merger, several rating agencies reviewed and in some
cases revised their debt ratings for the Corporation and its subsidiaries
PanEnergy, PEPL, and TETCO. As of December 31, 1997, Duke Energy Corporation's
senior indebtedness ratings were as follows: AA- by Standard & Poor's Group and
Fitch Investors Service; Aa3 by Moody's Investors Service; and AA by Duff &
Phelps. The Corporation's intent is to maintain these current credit ratings.
During August 1997, the Corporation instituted a new commercial paper
program, increasing its available commercial paper facilities to $2.5 billion.
The commercial paper facilities consist of $1.25 billion for the Corporation
and $1.25 billion for Duke Capital Corporation (Duke Capital), a wholly owned
subsidiary of the Corporation. Duke Capital serves as the parent for the
Corporation's business segments except the Electric Operations and certain
other operations. The Corporation's total commercial paper facilities were $780
million at December 31, 1996. These facilities are supported by various bank
credit agreements which totaled $2.7 billion and $1.5 billion at December 31,
1997 and 1996, respectively. As a result of the revised commercial paper
program and the related credit facilities, the Corporation terminated the prior
commercial paper program and related bank facilities held by the Corporation
and PanEnergy. At December 31, 1997, $1.7 billion of commercial paper and $93
million of bank borrowings were outstanding.
On December 8, 1997, Duke Energy Capital Trust I (the Trust), a business
trust which is treated as a subsidiary of the Corporation for financial
reporting purposes, issued $350 million of its 7.2% trust preferred securities,
at an $11 million discount, representing preferred undivided beneficial
interests in the assets of the Trust. Payment of distributions on such
preferred securities is guaranteed by the Corporation, but only to the extent
the Trust has funds legally and immediately available to make such
distributions.
21
<PAGE>
Since December 31, 1996, $647.6 million of the Corporation's first and
refunding mortgage bonds and $114.5 million of the Corporation's medium term
notes matured or were redeemed. These retirements were funded primarily through
the Corporation's commercial paper facilities.
During July 1996, the Corporation began purchasing shares of its common
stock. In 1996, the Corporation repurchased approximately 3.3 million shares of
common stock for $159 million. On January 28, 1997, the Board of Directors
amended the program to expressly limit the number of shares authorized for
repurchase under the program, from the initiation of the program through a date
two years after the consummation of the merger, to an amount not to exceed 15
million shares. No repurchases of common stock were made in 1997, and none are
anticipated in the future.
The Corporation plans to use authorized but unissued shares of its common
stock to meet 1998 employee benefit plan contribution requirements instead of
purchasing shares on the open market.
The Corporation and its subsidiaries have authority to issue up to $1.3
billion aggregate principal amount of debt and other securities under shelf
registration statements filed with the Securities and Exchange Commission. Such
securities may be issued as First and Refunding Mortgage Bonds, Senior Notes,
Subordinated Debentures, or Preferred Stock.
Dividends and debt repayments, along with operating and investing
requirements, are expected to be funded by cash from operations, debt and
commercial paper issuances and available credit facilities. As noted
previously, the Corporation is seeking to significantly grow its Energy
Services businesses, which will likely require significant additional
financing.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. The Corporation is exposed to changes in interest
rates as a result of significant financing through its issuance of
variable-rate debt, fixed-rate debt, commercial paper and auction market
preferred stock, as well as fixed-to-floating interest rate swaps. The
Corporation manages its interest rate exposure by limiting its variable-rate
exposure to a certain percentage of total capitalization, as set by policy, and
by monitoring the effects of market changes in interest rates. (See Notes 11
and 14 to the Consolidated Financial Statements.)
If market interest rates average 1% more in 1998 than in 1997, the
Corporation's interest expense, after considering the effect of the interest
rate swap agreements, would increase, and income before taxes would decrease by
approximately $23.6 million. This amount has been determined by considering the
impact of the hypothetical interest rates on the Corporation's variable-rate
debt balances, commercial paper balances, auction market preferred stock
balances and interest rate swap agreements as of December 31, 1997. These
analyses do not consider the effects of the reduced level of overall economic
activity that could exist in such an environment. In the event of a significant
change in interest rates, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in the Corporation's financial
structure.
COMMODITY PRICE RISK. The Corporation, substantially through its
subsidiaries, is exposed to the impact of market fluctuations in the price and
transportation costs of natural gas, electricity and petroleum products
marketed and employs established policies and procedures to manage its risks
associated with these market fluctuations using various commodity derivatives,
including futures, swaps and options. (See Note 8 to the Consolidated Financial
Statements.) The Corporation measures the risk in its commodity derivative
portfolio on a daily basis utilizing a Value-at-Risk (VAR) model to determine
the maximum potential one-day favorable or unfavorable impact on its earnings
and monitors its risk in comparison to established thresholds. The Corporation
also utilizes other measures to monitor the risk in its commodity derivative
portfolio on a monthly, quarterly and annual basis. The VAR computations are
based on an historical simulation, which utilizes price movements over a
specified period to simulate forward price curves in the energy markets to
estimate the favorable or unfavorable impact of one-day's price movement on the
existing portfolio. The VAR computations utilize several key assumptions,
including the confidence level for the resultant price movement and the holding
period chosen for the calculation. The Corporation's calculation includes
commodity derivative instruments held for trading purposes and excludes the
effects of written and embedded physical options in the trading portfolio. At
December 31, 1997, the Corporation's estimated potential one-day favorable or
unfavorable impact on income before taxes, as measured by VAR, related to its
commodity derivatives held for trading purposes was approximately $2 million.
Changes in markets inconsistent with historical trends could cause actual
results to exceed predicted limits. Market risks associated with commodity
derivatives held for purposes other than trading were not material at December
31, 1997.
Subsidiaries of the Corporation are also exposed to market fluctuations in
the price of natural gas liquids (NGLs) related to their ongoing gathering and
processing operating activities. Because the Corporation generally does not
maintain an
22
<PAGE>
inventory of NGLs or actively trade commodity derivatives related to NGLs, the
Corporation was not exposed to this risk at December 31, 1997. However, the
Corporation closely monitors the risks associated with NGL price changes on its
future operations.
EQUITY PRICE RISK. The Corporation maintains trust funds, as required by
the Nuclear Regulatory Commission, to fund certain costs of nuclear
decommissioning. (See Note 12 to the Consolidated Financial Statements.) As of
December 31, 1997, these funds were invested primarily in domestic and
international equity securities, fixed-rate, fixed income securities and cash
and cash equivalents. By maintaining a portfolio that includes long-term equity
investments, the Corporation is maximizing the returns to be utilized to fund
nuclear decommissioning, which in the long-term will better correlate to
inflationary increases in decommissioning costs. However, the equity securities
included in the Corporation's portfolio are exposed to price fluctuation in
equity markets, and the fixed-rate, fixed income securities are exposed to
changes in interest rates. The Corporation actively monitors its portfolio by
benchmarking the performance of its investments against certain indexes and by
maintaining, and periodically reviewing, established target allocation
percentages of the assets in its trusts to various investment options. Because
the accounting for nuclear decommissioning recognizes that costs are recovered
through the Corporation's Electric Operations' rates, fluctuations in equity
prices or interest rates do not affect the earnings of the Corporation.
FOREIGN OPERATIONS RISK. The Corporation has investments in several
international operations, many of which are joint ventures. At December 31,
1997, the Corporation had investments in international affiliates of $230.1
million. These investments represent primarily investments in affiliates which
own energy-related production, generation and transmission facilities.
The Corporation is exposed to foreign currency risk, sovereign risk and
other foreign operations risks, primarily through investments in affiliates of
$43.6 million in Asia and $100.7 million in South America. In order to mitigate
risks associated with foreign currency fluctuations, the majority of contracts
entered into by the Corporation or its affiliates are denominated in or indexed
to the U.S. dollar. Other exposures to foreign currency risk, sovereign risk or
other foreign operations risk are periodically reviewed by management and were
not material to the Corporation's consolidated results of operations or
financial position during the period.
CURRENT ISSUES
OPERATIONS OUTLOOK. The Electric Operations segment is expected to grow
moderately, consistent with historical trends. Expansion will be primarily as a
result of continued economic growth in its service territory. In 1997, as a
result of the merger, the Corporation signed various agreements with the NCUC,
PSCSC and the FERC in which the Corporation agreed to cap base rates to retail
and wholesale electric customers at existing levels through 2000. In addition,
the Corporation signed agreements with the other joint owners of Catawba
providing for a cap on certain rates charged under interconnection agreements.
In response to these rate agreements and competitive pressures, the Electric
Operations segment is striving to maintain low costs and competitive rates for
its customers and to provide high quality customer service. The Corporation
does not expect a negative impact as a result of such agreements on its results
of operations or financial position. (See further discussion in the Electric
Competition section below.)
Due to increased competition, especially for the Midwest Pipelines,
relatively slow growth is expected for future operations of the Corporation's
Natural Gas Transmission segment. The Natural Gas Transmission segment
continues to offer selective discounting to maximize revenues from existing
capacity and to advance projects that provide expanded services to meet the
specific needs of customers. Several projects have been announced that position
the Natural Gas Transmission segment to meet increasing demand for gas in
northeast markets by providing continuous paths from new supplies in both
eastern and western Canada in addition to traditional domestic supply basins.
The Corporation is seeking to significantly grow its Energy Services
segment. Deregulation of energy markets in the U.S. and abroad is providing
substantial opportunities for the Energy Services business units to capitalize
on their broad capabilities. Growth is expected to be achieved through
acquisitions, construction of greenfield projects and expansion of existing
facilities as value-added opportunities present themselves.
The strong real estate market in the southeast continues to present
substantial growth opportunities for Crescent Resources. In 1997, Crescent
Resources initiated development of significant office and industrial facilities
in each of its established markets to capitalize on market conditions.
ELECTRIC COMPETITION. The Energy Policy Act of 1992 (EPACT) and the FERC's
subsequent rulemaking activities are major drivers towards a more competitive
market for electric operations. EPACT amended provisions of the Public Utility
23
<PAGE>
Holding Corporation Act of 1935 (PUHCA) and Part II of the Federal Power Act to
remove certain barriers to electric competition. EPACT permits utilities to
participate in the development of independent electric generating plants for
sales to wholesale customers, and also permits the FERC to order transmission
access for third parties to transmission facilities owned by another entity. It
does not, however, permit the FERC to issue an order requiring transmission
access to retail customers. The FERC, responsible in large measure for
implementation of the EPACT, has moved vigorously to implement its mandate,
interpreting the statute broadly and issuing orders for third-party
transmission service and a number of rules of general applicability, including
Orders 888 and 889.
Open-access transmission for wholesale customers as defined by the FERC's
final rules provides energy suppliers, including the Corporation, with
opportunities to sell and deliver capacity and energy at market-based prices.
The Corporation and several of the Corporation's non-regulated subsidiaries
were granted authority by the FERC to act as power marketers in late 1995. The
Electric Operations obtained from the FERC open-access rights to sell at
market-based rates up to 2,500 megawatts of capacity and energy from its own
assets. Open-access provides another supply option through which the
Corporation can purchase at attractive rates a portion of capacity and energy
requirements resulting in lower overall costs to customers and thus improving
the Corporation's competitive position. Open-access also provides the
Corporation's existing wholesale customers with competitive opportunities to
seek other suppliers for their capacity and energy requirements.
Wholesale sales represented approximately 9.4 percent of the Corporation's
total gigawatt-hour sales for the Electric Operations segment in 1997.
Supplemental sales to the other joint owners of Catawba comprised the majority
of wholesale sales. Such supplemental sales will continue to decline in 1998 as
a result of the retention of larger portions of ownership entitlement by the
other joint owners. Two of the Catawba joint owners gave notice of their intent
to end their supplemental capacity requirements on January 1, 2001 and January
1, 2002, respectively. In addition, as a result of the merger, the other joint
owners have the right to end their supplemental capacity requirements as of
January 1, 2001 with written notice to the Corporation due by December 31,
1999. Another joint owner gave notice of its intent to end its interconnection
agreement with the Corporation effective January 1, 2006 (see Note 6 to the
Consolidated Financial Statements).
Competition for retail electric customers is not generally allowed in the
Corporation's service territory. However, there are discussions and events at
the national level and within certain states regarding retail competition which
are resulting in changes in the industry. Such changes will impact all entities
owning electric generating assets. During 1997, both North and South Carolina
have taken steps to address retail competition among electric utilities.
In May 1997, North Carolina passed a bill that created a study commission
to assess deregulation of electric utilities in the state. The commission's
report to the state General Assembly is expected to be completed by early 1999.
Members of the study commission include legislators, utility representatives,
customers and a member of an environmental group.
South Carolina has considered several proposals during 1997 to restructure
the electric industry, the most significant of which would have provided retail
customers with a choice of suppliers by January 1, 1998. None of these
proposals has been approved. However, in May 1997, the PSCSC requested
interested parties to file restructuring proposals for the electric industry.
On June 30, 1997, the Corporation filed its proposal for introducing electric
competition in South Carolina with the PSCSC. The Corporation's plan proposes
that electric generation be deregulated while transmission and distribution
continue to be regulated by the FERC and the PSCSC, respectively, providing for
an orderly transition to competition that takes all stakeholders into
consideration. The Corporation's plan also provides for recovery of stranded
investment. The PSCSC held hearings on August 19, 1997 on the various
restructuring proposals it received and presented its report to the state
legislature on February 3, 1998. The report proposes a five year transition
period before starting full-fledged electric competition. In addition,
customers could receive two separate electric bills, one from the distribution
company, and one from the generator or supplier of electricity. The report
leaves the final decisions to the General Assembly of South Carolina.
Currently, the electric utility industry is predominantly regulated on a
basis designed to recover the cost of providing electric power to its
customers. If cost-based regulation were to be discontinued in the industry,
for any reason, including competitive pressure on the cost-based prices of
electricity, profits could be reduced and electric utilities might be required
to reduce their asset balances to reflect a market basis less than cost.
Discontinuance of cost-based regulation would also require affected utilities
to write off their associated regulatory assets. The regulatory assets of the
Corporation are included in the Consolidated Balance Sheets. The portion of
these regulatory assets related to electric operations is $1.7 billion,
including primarily purchased capacity costs, debt expense, and deferred taxes
related to regulatory assets. Currently, the Corporation is recovering
substantially all of these regulatory assets through its wholesale and retail
electric rates and would attempt to continue to recover these assets should
cost-based regulation be discontinued. In addition, the Corporation would seek
to recover the costs of its electric generating facilities in excess of the
market price of power at the time of transition.
24
<PAGE>
The Corporation seeks to move toward an orderly transition to retail
competition that provides for consideration of the interests of all
stakeholders in the retail electric sales arena. Management cannot predict the
potential impact, if any, of these competitive forces on the Corporation's
future financial position and consolidated results of operations.
NUCLEAR DECOMMISSIONING COSTS. The Corporation's estimated site-specific
nuclear decommissioning costs, including the cost of decommissioning plant
components not subject to radioactive contamination, total approximately $1.3
billion stated in 1994 dollars based on decommissioning studies completed in
1994. In order to fund these costs, the Corporation contributes to an external
decommissioning trust fund and maintains an internal reserve.
The balance of the external funds as of December 31, 1997 and 1996, was
$471.1 million and $362.6 million respectively. The balance of the internal
reserve as of December 31, 1997 and 1996, was $210.8 million and $207.8
million, respectively, and is reflected in Accumulated Depreciation and
Amortization in the Consolidated Balance Sheets.
Both the NCUC and the PSCSC have granted the Corporation recovery of
estimated decommissioning costs through retail rates over the expected
remaining service periods of the Corporation's nuclear plants. Management is of
the opinion that funding of the decommissioning costs will not have a material
adverse effect on the consolidated results of operations and financial position
of the Corporation. (See Note 12 to the Consolidated Financial Statements.)
ENVIRONMENTAL. The Corporation is subject to federal, state and local
regulations regarding air and water quality, hazardous and solid waste disposal
and other environmental matters.
Manufactured Gas Plants and Superfund Sites. The Corporation was an
operator of manufactured gas plants until the early 1950s. The Corporation has
entered into a cooperative effort with the State of North Carolina and other
owners of certain former manufactured gas plant sites to investigate and, where
necessary, remediate these contaminated sites. The State of South Carolina has
expressed interest in entering into a similar arrangement. The Corporation is
considered by regulators to be a potentially responsible party and may be
subject to future liability at nine federal Superfund sites and one state
Superfund site. While the cost of remediation of the remaining sites may be
substantial, the Corporation will share in any liability associated with
remediation of contamination at such sites with other potentially responsible
parties. Management is of the opinion that resolution of these matters will not
have a material adverse effect on the consolidated results of operations or
financial position of the Corporation.
PCB (Polychlorinated Biphenyl) Assessment and Clean-up Programs. TETCO, a
wholly owned subsidiary of the Corporation, is currently conducting PCB
assessment and clean-up programs at certain of its compressor station sites
under conditions stipulated by a U.S. Consent Decree. The programs include on-
and off-site assessment, installation of on-site source control equipment and
groundwater monitoring wells, and on- and off-site clean-up work. TETCO expects
to complete these clean-up programs during 1998. Groundwater monitoring
activities will continue at several sites beyond 1998.
In 1987, the Commonwealth of Kentucky instituted a suit in state court
against TETCO, alleging improper disposal of PCBs at TETCO's three compressor
station sites in Kentucky. This suit is still pending. In 1996, TETCO completed
clean-up of these sites under the U.S. Consent Decree.
The Corporation has also identified environmental contamination at certain
sites on the PEPL and Trunkline systems and is undertaking clean-up programs at
these sites. The contamination resulted from the past use of lubricants
containing PCBs and the prior use of wastewater collection facilities and other
on-site disposal areas. Soil and sediment testing, to date, has detected no
significant off-site contamination. The Corporation has communicated with the
Environmental Protection Agency (EPA) and appropriate state regulatory agencies
on these matters. Environmental clean-up programs are expected to continue
until 2002.
At December 31, 1997 and 1996, the Corporation had accrued liabilities for
remaining estimated clean-up costs on the TETCO, PEPL and Trunkline systems,
which were included in Environmental Clean-up Liabilities in the Consolidated
Balance Sheets. These cost estimates represent gross clean-up costs expected to
be incurred, have not been discounted or reduced by customer recoveries and do
not include fines, penalties or third-party claims. Costs expected to be
recovered from customers are included in the Consolidated Balance Sheets as of
December 31, 1997 and 1996, as Regulatory Assets and Deferred Debits.
The federal and state clean-up programs are not expected to interrupt or
diminish the Corporation's ability to deliver natural gas to customers. Based
on the Corporation's experience to date and costs incurred for clean-up
operations, management believes the resolution of matters relating to the
environmental issues discussed above will not have a material adverse effect on
the consolidated results of operations or financial position of the
Corporation.
25
<PAGE>
Air Quality Control. The Clean Air Act Amendments of 1990 require a
two-phase reduction by electric utilities in aggregate annual emissions of
sulfur dioxide and nitrogen oxide by 2000. The Corporation currently meets all
requirements of Phase I. The Corporation supports the national objective of
protecting air quality in the most cost-effective manner, and has already
reduced emissions by operating plants efficiently, using nuclear and
hydroelectric generation and implementing various compliance strategies. To
meet Phase II requirements by 2000, the Corporation's current strategy includes
using low-sulfur coal, purchasing sulfur dioxide emission allowances, and
installing low-nitrogen oxide burners and emission monitoring equipment.
Construction activities needed to comply with Phase II requirements are
substantially complete, and future one-time capital costs associated with
meeting Phase II requirements range from $14 million to $24 million. Additional
annual operating expenses of approximately $25 million for low-sulfur coal
premiums, emission allowance purchases and other compliance activities will
occur after 2000. This strategy is contingent upon developments in future
markets for emission allowances, low-sulfur coal, future regulatory and
legislative actions, and advances in clean air technologies.
Additionally, the Corporation would be effected by a proposed call for new
State Implementation Plans (SIP) issued by the EPA to 22 states related to
existing and new national ambient air quality standards for ozone. Costs to the
Corporation related to the SIP call may range from $123 million to $517
million, depending on final EPA implementation plans and schedules.
In 1994, the State of Missouri issued a Notice of Violation to PEPL
alleging violations of Missouri air pollution regulations at the Corporation's
Houstonia compressor station. The Corporation is in negotiations with the State
to resolve this matter. The State is seeking a penalty and correction of the
alleged violations.
In December 1997, the United Nations held negotiations in Kyoto, Japan to
determine how to achieve worldwide stabilization of greenhouse gas emissions,
including carbon dioxide emissions from fossil-fired generating facilities.
Because this matter is in the early stages of discussion, the Corporation
cannot estimate the effects on future consolidated results of operations or
financial position of the Corporation.
LITIGATION AND CONTINGENCIES. For information concerning litigation and
other commitments and contingencies, see Note 15 to the Consolidated Financial
Statements.
COMPUTER SYSTEMS CHANGES FOR THE YEAR 2000. The Corporation is incurring
incremental costs to modify existing computer systems to accommodate the year
2000 and beyond. The Corporation is currently making modifications to its
programs and is of the opinion that remaining modifications will be completed
before they become problematic. Management is of the opinion that the costs
associated with these modifications will not have a material adverse effect on
the consolidated results of operations or financial position of the
Corporation.
FORWARD-LOOKING STATEMENTS. From time to time, the Corporation may make
statements regarding its expectations, intent or beliefs about future events.
These statements are intended as "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. The Corporation cautions that
assumptions, projections and expectations about future events may and often do
vary from actual results, the differences between assumptions, projections and
expectations and actual results can be material, and there can be no assurance
that the forward-looking statements will be realized. The following are some of
the factors that could cause actual achievements and events to differ
materially from those expressed or implied in such forward-looking statements:
state and federal legislative and regulatory initiatives that affect cost and
investment recovery, have an impact on rate structures, and affect the speed
and degree to which competition enters the electric and natural gas industries;
industrial, commercial and residential growth in the service territories of the
Corporation and its subsidiaries; the weather and other natural phenomena; the
timing and extent of changes in commodity prices and interest rates; changes in
environmental and other laws and regulations to which the Corporation and its
subsidiaries are subject or other external factors over which the Corporation
has no control; the results of financing efforts; growth in opportunities for
the Corporation's subsidiaries and diversified operations; and the effect of
the Corporation's accounting policies, in each case during the periods covered
by the forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition, Quantitative and Qualitative Disclosures About Market
Risk."
26
<PAGE>
Item 8. Financial Statements and Supplementary Data.
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------
1997 1996 1995
------------- ------------- --------------
(In Millions, except per share amounts)
<S> <C> <C> <C>
Operating Revenues
Natural gas and petroleum products (Notes 2 and 5)
Sales, trading and marketing of natural gas and petroleum products ........... $ 8,150.7 $ 5,848.0 $ 3,397.2
Transportation and storage of natural gas .................................... 1,503.5 1,522.9 1,500.6
Electric (Notes 2 and 5)
Generation, transmission and distribution .................................... 4,334.5 4,436.6 4,454.6
Trading and marketing of electricity ......................................... 1,664.9 77.8 9.8
Other (Note 9) ................................................................. 655.3 417.1 332.5
---------- ---------- ----------
Total operating revenues .................................................... 16,308.9 12,302.4 9,694.7
---------- ---------- ----------
Operating Expenses
Natural gas and petroleum products purchased (Note 2) .......................... 7,705.2 5,414.3 3,119.3
Fuel used in electric generation (Note 2) ...................................... 742.8 758.5 744.2
Net interchange and purchased power (Notes 2, 5 and 6) ......................... 1,960.2 456.8 480.2
Other operation and maintenance (Notes 5, 12 and 15) ........................... 2,720.9 2,382.8 2,209.0
Depreciation and amortization (Notes 2 and 6) .................................. 841.0 789.4 737.1
Property and other taxes ....................................................... 368.8 342.0 336.6
---------- ---------- ----------
Total operating expenses .................................................... 14,338.9 10,143.8 7,626.4
---------- ---------- ----------
Operating Income ................................................................ 1,970.0 2,158.6 2,068.3
---------- ---------- ----------
Other Income and Expenses
Deferred returns and allowance for funds used during construction (Note 2) ..... 109.4 104.8 113.9
Other, net ..................................................................... 28.7 30.8 8.3
---------- ---------- ----------
Total other income and expenses ............................................. 138.1 135.6 122.2
---------- ---------- ----------
Earnings Before Interest and Taxes .............................................. 2,108.1 2,294.2 2,190.5
Interest Expense (Notes 8 and 11) ............................................... 471.8 499.2 508.2
Minority Interests (Note 3) ..................................................... 23.0 6.2 --
---------- ---------- -----------
Earnings Before Income Taxes .................................................... 1,613.3 1,788.8 1,682.3
Income Taxes (Notes 2 and 7) .................................................... 638.9 697.8 664.2
---------- ---------- -----------
Income Before Extraordinary Item ................................................ 974.4 1,091.0 1,018.1
Extraordinary Item (net of tax) ................................................. -- 16.7 --
---------- ---------- -----------
Net Income ...................................................................... 974.4 1,074.3 1,018.1
---------- ---------- -----------
Dividends and Premiums on Redemptions of Preferred
and Preference Stock (Note 14) ................................................. 72.8 44.2 48.9
---------- ---------- -----------
Earnings Available for Common Stockholders ...................................... $ 901.6 $ 1,030.1 $ 969.2
========== ========== ===========
Common Stock Data (Note 2)
Average shares outstanding ..................................................... 359.8 361.2 361.2
Earnings per share (before extraordinary item)
Basic ........................................................................ $ 2.51 $ 2.90 $ 2.68
Dilutive ..................................................................... $ 2.50 $ 2.88 $ 2.67
Earnings per share
Basic ........................................................................ $ 2.51 $ 2.85 $ 2.68
Dilutive ..................................................................... $ 2.50 $ 2.83 $ 2.67
Dividends per share ............................................................ $ 1.90 $ 1.57 $ 1.50
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------
1997 1996 1995
------------- ------------- -------------
(In Millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ....................................................... $ 974.4 $ 1,074.3 $ 1,018.1
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .................................... 982.5 964.9 953.8
Deferred income taxes and investment tax credit amortization ..... 105.7 74.7 115.2
Purchased capacity levelization .................................. 56.4 73.5 (33.1)
Transition cost recoveries ....................................... (35.6) 90.9 (85.2)
(Increase) Decrease in
Receivables ..................................................... (266.5) (645.6) (286.0)
Inventory ....................................................... (6.6) 45.1 (26.2)
Other current assets ............................................ (18.4) 16.7 90.5
Increase (Decrease) in
Accounts payable ................................................ ( 72.1) 576.7 53.5
Taxes accrued ................................................... 50.0 (11.0) 25.7
Interest accrued ................................................ ( 13.1) (18.5) 5.6
Other current liabilities ....................................... 326.2 (10.0) 17.7
Other, net ....................................................... 57.2 103.5 (17.4)
---------- ---------- ----------
Net cash provided by operating activities ....................... 2,140.1 2,335.2 1,832.2
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ............................................. (1,323.2) (1,393.9) (1,223.0)
Investment expenditures .......................................... (704.4) (156.1) (67.7)
Decommissioning, retirements and other ........................... 33.9 (18.2) (26.9)
---------- ---------- ----------
Net cash used in investing activities ........................... (1,993.7) (1,568.2) (1,317.6)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of
Long-term debt .................................................. 1,617.6 362.8 421.5
Guaranteed preferred beneficial interests in Corporation's
subordinated notes ............................................. 339.0 -- --
Common stock and stock options .................................. 14.9 11.8 16.5
Payments for the redemption of
Long-term debt .................................................. (868.5) (527.0) (480.9)
Common stock .................................................... (25.4) (159.0) --
Preferred stock ................................................. (223.6) -- (100.5)
Net change in notes payable and commercial paper ................. (290.2) 159.3 193.2
Dividends paid ................................................... (726.4) (609.3) (590.5)
Other ............................................................ (40.4) (12.1) (4.8)
---------- ---------- ----------
Net cash used in financing activities ........................... (203.0) (773.5) (545.5)
---------- ---------- ----------
Net decrease in cash and cash equivalents ........................ (56.6) (6.5) (30.9)
Cash and cash equivalents at beginning of year ................... 166.0 172.5 203.4
---------- ---------- ----------
Cash and cash equivalents at end of year ......................... $ 109.4 $ 166.0 $ 172.5
========== ========== ==========
Supplemental Disclosures
Cash paid for interest (net of amount capitalized) ............... $ 475.9 $ 493.1 $ 481.6
Cash paid for income taxes ....................................... $ 469.8 $ 549.9 $ 519.9
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
---------------------------
1997 1996
------------- -------------
(In Millions)
<S> <C> <C>
ASSETS
Current Assets (Note 2)
Cash and cash equivalents (Note 8) ............................ $ 109.4 $ 166.0
Receivables (Note 8) .......................................... 2,280.8 1,888.0
Inventory ..................................................... 440.1 433.5
Current portion of natural gas transition costs ............... 66.9 67.9
Current portion of purchased capacity costs ................... 76.2 51.3
Unrealized gains on mark to market transactions (Note 8) ...... 551.3 397.2
Other (Note 8) ................................................ 160.5 142.1
---------- ----------
Total current assets ......................................... 3,685.2 3,146.0
---------- ----------
Investments and Other Assets
Investments in affiliates (Notes 9 and 15) .................... 685.9 502.9
Nuclear decommissioning trust funds (Notes 8 and 12) .......... 471.1 362.6
Pre-funded pension costs (Note 18) ............................ 337.5 360.6
Goodwill, net (Notes 2, 3 and 7) .............................. 503.6 222.1
Notes receivable .............................................. 239.6 63.5
Other ......................................................... 209.9 108.0
---------- ----------
Total investments and other assets ........................... 2,447.6 1,619.7
---------- ----------
Property, Plant and Equipment (Notes 2, 6, 10, 11, 12 and 15)
Cost .......................................................... 25,448.1 24,468.2
Less accumulated depreciation and amortization ................ 9,712.2 9,199.1
---------- ----------
Net property, plant and equipment ............................ 15,735.9 15,269.1
---------- ----------
Regulatory Assets and Deferred Debits (Note 2)
Purchased capacity costs (Note 6) ............................. 759.4 840.7
Debt expense .................................................. 253.1 244.0
Regulatory asset related to income taxes ...................... 511.0 493.5
Natural gas transition costs .................................. 193.7 250.0
Environmental clean-up costs .................................. 103.6 153.2
Other ......................................................... 339.3 350.0
---------- ----------
Total regulatory assets and deferred debits .................. 2,160.1 2,331.4
---------- ----------
Total Assets .................................................... $ 24,028.8 $ 22,366.2
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE>
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS -- (Continued)
<TABLE>
<CAPTION>
December 31
---------------------------
1997 1996
------------- -------------
(In Millions)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ....................................................................... $ 1,358.7 $ 1,286.5
Notes payable and commercial paper (Notes 8 and 11) .................................... 169.5 459.7
Taxes accrued (Note 2) ................................................................. 124.8 74.8
Interest accrued ....................................................................... 111.2 124.3
Current portion of natural gas transition liabilities (Note 2) ......................... 35.0 84.4
Current portion of environmental clean-up liabilities (Notes 2 and 15) ................. 26.4 32.4
Current maturities of long-term debt (Note 11) ......................................... 77.3 350.6
Unrealized losses on mark to market transactions (Notes 2 and 8) ....................... 537.8 388.5
Other (Note 2) ......................................................................... 834.5 508.3
---------- ----------
Total current liabilities ............................................................. 3,275.2 3,309.5
---------- ----------
Long-term Debt (Notes 8 and 11) .......................................................... 6,530.0 5,485.1
---------- ----------
Deferred Credits and Other Liabilities (Note 2)
Deferred income taxes (Note 7) ......................................................... 3,706.5 3,568.5
Investment tax credit (Note 7) ......................................................... 238.9 250.1
Nuclear decommissioning costs externally funded (Notes 8 and 12) ....................... 471.1 362.6
Natural gas transition liabilities ..................................................... 78.4 121.9
Environmental clean-up liabilities (Note 15) ........................................... 157.6 188.9
Other .................................................................................. 1,035.1 971.0
---------- ----------
Total deferred credits and other liabilities .......................................... 5,687.6 5,463.0
---------- ----------
Minority Interests (Note 3) .............................................................. 168.3 83.4
---------- ----------
Guaranteed Preferred Beneficial Interests in Corporation's Subordinated Notes
(Notes 8 and 13) ....................................................................... 339.0 --
---------- ----------
Preferred and Preference Stock (Notes 8 and 14)
Preferred and preference stock with sinking fund requirements .......................... 149.0 234.0
Preferred and preference stock without sinking fund requirements ....................... 340.0 450.0
---------- ----------
Total preferred and preference stock .................................................. 489.0 684.0
---------- ----------
Commitments and Contingencies (Notes 6, 12 and 15)
Common Stockholders' Equity (Notes 16 and 17)
Common stock, no par, 500 million shares authorized; 359.8 million and 359.4 million
shares outstanding at December 31, 1997 and 1996, respectively ........................... 4,283.7 4,289.3
Retained earnings ...................................................................... 3,256.0 3,051.9
---------- ----------
Total common stockholders' equity ..................................................... 7,539.7 7,341.2
---------- ----------
Total Liabilities and Stockholders' Equity ............................................... $ 24,028.8 $ 22,366.2
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE>
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------
1997 1996 1995
------------- ------------- -------------
(In Millions)
<S> <C> <C> <C>
Common Stock
Balance at beginning of year ....................................................... $ 4,289.3 $ 4,296.8 $ 4,275.8
Stock issued for purchase of assets ................................................ -- -- 2.5
Stock repurchased (Note 16) ........................................................ -- (30.8) --
Dividend reinvestment and employee benefits ........................................ (9.9) 23.3 18.5
Other capital stock transactions, net .............................................. 4.3 -- --
---------- ---------- ----------
Balance at end of year ............................................................ 4,283.7 4,289.3 4,296.8
---------- ---------- ----------
Retained Earnings
Balance at beginning of year ....................................................... 3,051.9 2,715.7 2,292.2
Net income ......................................................................... 974.4 1,074.3 1,018.1
Common stock dividends ............................................................. (682.2) (565.6) (542.2)
Preferred and preference stock dividends and premiums on redemptions (Note 14) ..... (72.8) (44.2) (48.9)
Other capital stock transactions, net .............................................. (15.3) (128.3) (3.5)
---------- ---------- ----------
Balance at end of year ............................................................ 3,256.0 3,051.9 2,715.7
---------- ---------- ----------
Total Common Stockholders' Equity .................................................... $ 7,539.7 $ 7,341.2 $ 7,012.5
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 1997, 1996 and 1995
NOTE 1. NATURE OF OPERATIONS
On June 18, 1997, Duke Power Company (Duke Power) changed its name to Duke
Energy Corporation (the Corporation) in accordance with the terms of a merger
agreement with PanEnergy Corp (PanEnergy), pursuant to which the Corporation
issued 158.3 million shares of its common stock in exchange for all of the
outstanding common stock of PanEnergy (the merger). PanEnergy was involved in
the gathering, processing, transportation and storage of natural gas, the
production of natural gas liquids, and the marketing of natural gas,
electricity, liquefied petroleum gases and related energy services. Pursuant to
the merger, each share of PanEnergy common stock outstanding was converted into
the right to receive 1.0444 shares of the Corporation's common stock. In
addition, each outstanding option to purchase PanEnergy common stock became an
option to purchase common stock of the Corporation, adjusted accordingly. The
merger was accounted for as a pooling of interests and, accordingly, the
consolidated financial statements for periods prior to the combination were
restated to include the operations of PanEnergy.
Operating revenues and net income previously reported by the separate
companies and the combined amounts presented in the accompanying consolidated
financial statements for the years ended December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
Duke Power PanEnergy Adjustments Combined
-------------- -------------- ------------- ---------------
In Millions
<S> <C> <C> <C> <C>
1996
Operating revenues ........................ $ 4,758.0 $ 7,505.6 $ 38.8 $ 12,302.4
Net income before extraordinary item ...... $ 729.9 $ 361.1 -- $ 1,091.0
Net income ................................ $ 729.9 $ 344.4 -- $ 1,074.3
1995
Operating revenues ........................ $ 4,676.6 $ 4,967.5 $ 50.6 $ 9,694.7
Net income ................................ $ 714.5 $ 303.6 -- $ 1,018.1
</TABLE>
The adjustment to operating revenues reflects a reclassification of
PanEnergy's equity in earnings of unconsolidated affiliates from other income
to revenues to be consistent with the Corporation's financial statement
presentation.
The Corporation is an integrated energy and energy services provider with
the ability to offer physical delivery and management of both electricity and
natural gas throughout the United States and abroad. The Corporation provides
these services through its four business segments:
Electric Operations -- Generation, transmission, distribution and sale of
electric energy in central and western North Carolina and the western portion
of South Carolina. Duke Energy Corporation (doing business as Duke Power) and
its wholly owned subsidiary Nantahala Power and Light Company serve this area.
These electric operations are subject to the rules and regulations of the
Federal Energy Regulatory Commission (FERC), the North Carolina Utilities
Commission (NCUC) and The Public Service Commission of South Carolina (PSCSC).
Natural Gas Transmission -- Interstate transportation and storage of
natural gas for customers in the Mid-Atlantic, New England and Midwest states.
The interstate natural gas transmission and storage operations of the
Corporation's wholly owned subsidiaries Texas Eastern Transmission Corporation
(TETCO), Algonquin Gas Transmission Company (Algonquin), Panhandle Eastern Pipe
Line Company (PEPL), and Trunkline Gas Company (Trunkline) are also subject to
the rules and regulations of the FERC.
Energy Services -- Comprised of several separate business units: Field
Services -- gathers and processes natural gas, produces and markets natural gas
liquids and transport and trades crude oil; Trading and Marketing -- markets
natural gas, electricity and other energy-related products; Global Asset
Development -- develops, owns and operates energy-related facilities worldwide;
and Other Energy Services -- provides engineering consulting, construction and
integrated energy solutions.
Other Operations -- Real estate operations of Crescent Resources, Inc.,
communications services, corporate costs and intersegment eliminations.
32
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The consolidated financial statements reflect consolidation
of all of the Corporation's majority-owned subsidiaries after the elimination
of intercompany transactions. Investments in other entities that are not
majority owned and where the Company has significant influence over operations
are accounted for using the equity method.
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles appropriate in the circumstances to
reflect in all material respects the substance of events and transactions which
should be included. In preparing these statements, management makes informed
judgments and estimates of the expected effects of events and transactions that
are currently being reported. However, actual results could differ from these
estimates.
CASH AND CASH EQUIVALENTS. All liquid investments with maturities at date
of purchase of three months or less are considered cash equivalents.
INVENTORY. Inventory consists primarily of materials and supplies, gas
held for transmission, processing and sales commitments and coal held for
electric generation. Inventory is recorded at the lower of cost or market,
primarily using the average cost method.
COMMODITY DERIVATIVE INSTRUMENTS. The Corporation, primarily through its
subsidiaries, holds and issues instruments that reduce exposure to market
fluctuations in the price and transportation costs of natural gas, petroleum
products and electric power marketed. The Corporation uses futures, swaps and
options to manage and hedge price and location risk related to market
exposures. In order to qualify as a hedge, the price movements in the commodity
derivatives must be highly correlated with the underlying hedged commodity.
Gains and losses related to commodity derivatives which qualify as hedges of
commodity commitments are recognized in income when the underlying hedged
physical transaction closes (the deferral method) and are included in Natural
Gas and Petroleum Products Purchased or Net Interchange and Purchased Power in
the Consolidated Statements of Income. Gains and losses related to such
instruments, to the extent not yet settled in cash, are reported as Current
Assets or Liabilities, as appropriate, in the Consolidated Balance Sheets until
recognized in income. If the derivative instrument is no longer sufficiently
correlated to the underlying commodity, or if the underlying commodity
transaction closes earlier than anticipated, the deferred gains or losses are
recognized in income.
In addition to non-trading activities, the Corporation also engages in the
trading of commodity derivatives and therefore experiences net open positions.
Gains and losses on derivatives utilized for trading are recognized in income
on a current basis (the mark to market method) and are also included in Natural
Gas and Petroleum Products Purchased or Net Interchange and Purchased Power.
GOODWILL AMORTIZATION. The Corporation amortizes goodwill related to the
purchases of Duke/Louis Dreyfus, L.L.C. (D/LD) and Texas Eastern Corporation
(TEC), and certain other natural gas gathering, transmission and processing
facilities and engineering consulting businesses on a straight-line basis over
10 years, 40 years, and 15 years, respectively. Accumulated amortization of
goodwill at December 31, 1997 and 1996 was $123.6 million and $99.7 million,
respectively.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated at
original cost. The Corporation capitalizes all construction-related direct
labor and materials, as well as indirect construction costs. Indirect costs
include general engineering, taxes and the cost of money. The cost of renewals
and betterments that extend the useful life of property is also capitalized.
The cost of repairs and replacements is charged to expense. Depreciation is
generally computed using the straight-line method. The Corporation's composite
weighted-average depreciation rates, excluding nuclear fuel, were
3.67, 3.77 and 3.97 percent for 1997, 1996, and 1995, respectively.
At the time property, plant and equipment maintained by the Corporation's
regulated operations are retired, the original cost plus the cost of
retirement, less salvage, is charged to accumulated depreciation and
amortization. When entire regulated operating units are sold or non-regulated
properties are retired or sold, the property and related accumulated
depreciation and amortization accounts are reduced and any gain or loss is
recorded in income, unless otherwise required by the FERC.
33
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
UNAMORTIZED DEBT PREMIUM, DISCOUNT AND EXPENSE. Expenses incurred in
connection with the issuance of presently outstanding long-term debt, and
premiums and discounts relating to such debt, are amortized over the terms of
the respective issues. Also, any call premiums or unamortized expenses
associated with refinancing higher-cost debt obligations used to finance
regulated assets and operations are amortized consistent with regulatory
treatment of these items.
ENVIRONMENTAL EXPENDITURES. Expenditures that relate to an existing
condition caused by past operations, and do not contribute to current or future
revenue generation, are expensed. Environmental expenditures relating to
current or future revenues are expensed or capitalized as appropriate.
Liabilities are recorded when environmental assessments and/or clean-ups are
probable and the costs can be reasonably estimated. Certain of these
environmental assessments and clean-up costs have been deferred and are
included in Regulatory Assets and Deferred Debits as they are expected to be
recovered from Natural Gas Transmission customers.
COST-BASED REGULATION. The regulated operations of the Corporation are
subject to the provisions of Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation."
Accordingly, the Corporation records certain assets and liabilities that result
from the effects of the ratemaking process that would not be recorded under
generally accepted accounting principles for non-regulated entities. The
regulatory assets and regulatory liabilities of the Corporation are classified
as Regulatory Assets and Deferred Debits and Deferred Credits and Other
Liabilities, respectively, in the Consolidated Balance Sheets. The Corporation
regularly evaluates the continued applicability of SFAS No. 71, considering
such factors as regulatory changes and the impact of competition.
Discontinuance of cost-based regulation or increased competition might require
entities to reduce their asset balances to reflect a market basis less than
cost and would also require entities to write off their associated regulatory
assets. Management cannot predict the potential impact, if any, of
discontinuance of cost-based regulation or increased competition on the
Corporation's future financial position and results of operations. However, the
Corporation continues to position itself to effectively meet these challenges
by maintaining prices that are competitive.
COMMON STOCK OPTIONS. The Corporation follows the intrinsic value method
of accounting for common stock options and awards issued to employees.
REVENUES. The Corporation recognizes revenues on sales of electricity and
transportation and storage of natural gas as service is provided and on sales
of natural gas and petroleum products in the period of delivery. Receivables on
the Consolidated Balance Sheets included $231.6 million and $210 million as of
December 31, 1997 and 1996, respectively, for electric service that has been
provided but not yet billed to customers. When rate cases associated with the
transportation of natural gas are pending final FERC approval, a portion of the
revenues collected by the interstate natural gas pipelines is subject to
possible refund. The Corporation has established reserves where required for
such cases.
NUCLEAR FUEL. Amortization of nuclear fuel is included in Fuel Used in
Electric Generation in the Consolidated Statements of Income. The amortization
is recorded using the units-of-production method.
DEFERRED RETURNS AND ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC).
Deferred returns represent the estimated financing costs associated with
funding certain regulatory assets. These regulatory assets primarily arose from
the Corporation's funding of purchased capacity costs above levels collected in
rates. Deferred returns are non-cash items and are primarily recognized as an
addition to Purchased Capacity Costs with an offsetting credit to Other Income
and Expenses.
AFUDC represents the estimated debt and equity costs of capital funds
necessary to finance the construction of new regulated facilities. AFUDC is a
non-cash item and is recognized as a cost of Property, Plant and Equipment,
with offsetting credits to Other Income and Expenses and to Interest Expense.
After construction is completed, the Corporation is permitted to recover these
costs, including a fair return, through their inclusion in rate base and in the
provision for depreciation.
Rates used for capitalization of deferred returns and AFUDC by the
Corporation's regulated operations are calculated in compliance with FERC
rules.
DERIVATIVE FINANCIAL INSTRUMENTS. The Corporation uses interest rate swaps
to manage the interest rate characteristics of its outstanding debt. Interest
rate differentials to be paid or received as interest rates change are accrued
and recognized
34
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
as an adjustment of interest expense related to the designated debt (the
accrual method). The amount payable to or receivable from counterparties
related to the interest rate differential is included in Regulatory Assets and
Deferred Debits in the Consolidated Balance Sheets. The fair values of interest
rate swaps are not recognized in the financial statements.
INCOME TAXES. Prior to the merger, Duke Power and PanEnergy filed separate
consolidated federal income tax returns. Subsequent to the merger, the
Corporation and its subsidiaries file a consolidated federal income tax return.
Federal income taxes have been provided by the Corporation on the basis of its
separate company income and deductions in accordance with established practices
of the consolidated group.
Deferred income taxes have been provided for temporary differences.
Temporary differences occur when events and transactions recognized for
financial reporting result in taxable or tax-deductible amounts in different
periods. Duke Power's investment tax credits have been deferred and are being
amortized over the estimated useful lives of the related properties.
EARNINGS PER COMMON SHARE. The Financial Accounting Standards Board issued
SFAS No. 128, "Earnings per Share" which replaces the presentation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share is computed by dividing net earnings available for
common stockholders by the weighted average number of common shares outstanding
for the year. Basic earnings per share in the Consolidated Statements of Income
is identical to the primary earnings per share previously presented for all
periods. Diluted earnings per share reflects the potential dilution that could
occur if securities or other agreements to issue common stock were exercised or
converted into common stock. Dilutive earnings per share is computed based upon
the weighted average number of common shares and dilutive common equivalent
shares outstanding. Common stock options, which are common stock equivalents,
had a dilutive effect on earnings per share and increased the weighted average
number of common shares by 1.9 million, 2.3 million and 2.6 million shares for
1997, 1996, and 1995, respectively. The weighted average number of common
shares, for dilutive purposes, was 361.7 million, 363.5 million and 363.8
million shares for 1997, 1996 and 1995, respectively.
RECLASSIFICATIONS. Certain amounts have been reclassified in the
consolidated financial statements to conform to the current presentation.
NOTE 3. BUSINESS COMBINATIONS AND ACQUISITIONS
DUKE/LOUIS DREYFUS, L.L.C. (D/LD). On June 17, 1997, a wholly owned
subsidiary of the Corporation acquired the remaining 50% ownership interest in
D/LD from affiliates of Louis Dreyfus Corp. for $247 million. D/LD markets
electric power, natural gas and energy-related services to utilities,
municipalities and other large energy users in North America. The acquisition
was accounted for by the purchase method, and the assets and liabilities and
results of operations of D/LD have been consolidated in the Corporation's
financial statements since the date of purchase. The purchase price
substantially represents goodwill.
DUKE/UAE L.L.C. During December 1997, a wholly owned subsidiary of the
Corporation formed a joint venture with UAE Ref-Fuel L.L.C. (UAE), a wholly
owned subsidiary of United American Energy Corp. The Corporation owns a 65%
interest in the joint venture, with UAE owning a 35% minority interest. The
joint venture acquired a 50% ownership interest in American Ref-Fuel Company, a
waste-to-energy firm with operations primarily in New York and New Jersey.
Thus, the Corporation has an indirect 32.5% ownership interest in American
Ref-Fuel Company and provided $237 million of investment and financing to the
venture.
DUKE ENERGY TRADING AND MARKETING, L.L.C. On August 1, 1996, a wholly
owned subsidiary of the Corporation formed a natural gas and power marketing
joint venture with Mobil Corporation (Mobil) affiliates. The marketing company
(DETM) conducts business as Duke Energy Trading and Marketing, L.L.C. (formerly
PanEnergy Trading and Market Services, L.L.C.) in the United States and as Duke
Energy Marketing L.P. (formerly PanEnergy Marketing L.P.) in Canada. The
Corporation operates the joint venture and owns a 60% interest, with Mobil
owning a 40% minority interest.
35
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 4. BUSINESS SEGMENTS
Business segment financial information follows for each of the three years
in the period ended December 31, 1997. Other Operations include intersegment
eliminations.
<TABLE>
<CAPTION>
Unaffiliated Intersegment Total
Revenues Revenues Revenues
-------------- -------------- --------------
1997 In Millions
<S> <C> <C> <C>
Electric Operations ................ $ 4,401.7 $ -- $ 4,401.7
Natural Gas Transmission ........... 1,467.8 104.3 1,572.1
Energy Services
Trading and Marketing ............. 7,411.0 77.7 7,488.7
Field Services .................... 2,480.5 574.1 3,054.6
Global Asset Development .......... 109.2 14.2 123.4
Other Energy Services ............. 342.8 32.8 375.6
Energy Services' Eliminations ..... -- (655.1) (655.1)
----------- ---------- -----------
Total Energy Services ........... 10,343.5 43.7 10,387.2
Other Operations ................... 95.9 (148.0) (52.1)
----------- ---------- -----------
Total Consolidated ................ $ 16,308.9 $ -- $ 16,308.9
=========== ========== ===========
1996
Electric Operations ................ $ 4,498.4 $ -- $ 4,498.4
Natural Gas Transmission ........... 1,470.2 86.1 1,556.3
Energy Services
Trading and Marketing ............. 3,773.5 40.5 3,814.0
Field Services .................... 2,215.6 420.9 2,636.5
Global Asset Development .......... 65.0 6.6 71.6
Other Energy Services ............. 182.8 21.4 204.2
Energy Services' Eliminations ..... -- (456.5) (456.5)
----------- ---------- -----------
Total Energy Services ........... 6,236.9 32.9 6,269.8
Other Operations ................... 96.9 (119.0) (22.1)
----------- ---------- -----------
Total Consolidated ................ $ 12,302.4 $ -- $ 12,302.4
=========== ========== ===========
1995
Electric Operations ................ $ 4,512.4 $ -- $ 4,512.4
Natural Gas Transmission ........... 1,480.3 53.1 1,533.4
Energy Services
Trading and Marketing ............. 1,838.3 28.4 1,866.7
Field Services .................... 1,607.1 184.3 1,791.4
Global Asset Development .......... 75.3 4.0 79.3
Other Energy Services ............. 94.5 0.8 95.3
Energy Services' Eliminations ..... -- (216.9) (216.9)
----------- ---------- -----------
Total Energy Services ........... 3,615.2 0.6 3,615.8
Other Operations ................... 86.8 (53.7) 33.1
----------- ---------- -----------
Total Consolidated ................ $ 9,694.7 $ -- $ 9,694.7
=========== ========== ===========
<CAPTION>
Operating Earnings Before Depreciation &
Income Interest & Taxes Amortization
-------------- ------------------ ---------------
1997 In Millions
<S> <C> <C> <C>
Electric Operations ................ $ 1,180.3 $ 1,281.8 $ 497.8
Natural Gas Transmission ........... 607.7 624.4 229.6
Energy Services
Trading and Marketing ............. 42.7 44.4 7.0
Field Services .................... 156.7 157.0 71.4
Global Asset Development .......... (6.4) 4.5 8.7
Other Energy Services ............. 23.2 18.2 5.8
Energy Services' Eliminations ..... -- -- --
----------- ----------- ---------
Total Energy Services ........... 216.2 224.1 92.9
Other Operations ................... (34.2) (22.2) 20.7
----------- ----------- ---------
Total Consolidated ................ $ 1,970.0 $ 2,108.1 $ 841.0
=========== =========== =========
1996
Electric Operations ................ $ 1,303.6 $ 1,419.5 $ 481.1
Natural Gas Transmission ........... 583.8 595.5 228.2
Energy Services
Trading and Marketing ............. 56.3 57.9 3.8
Field Services .................... 149.4 151.6 58.7
Global Asset Development .......... (1.2) -- 6.9
Other Energy Services ............. 19.9 20.0 3.5
Energy Services' Eliminations ..... -- -- --
----------- ----------- ---------
Total Energy Services ........... 224.4 229.5 72.9
Other Operations ................... 46.8 49.7 7.2
----------- ----------- ---------
Total Consolidated ................ $ 2,158.6 $ 2,294.2 $ 789.4
=========== =========== =========
1995
Electric Operations ................ $ 1,308.7 $ 1,381.2 $ 451.2
Natural Gas Transmission ........... 562.3 567.6 228.5
Energy Services
Trading and Marketing ............. 20.0 17.1 2.3
Field Services .................... 96.8 106.1 40.3
Global Asset Development .......... 24.9 26.8 6.8
Other Energy Services ............. 23.6 23.7 0.8
Energy Services' Eliminations ..... -- -- --
----------- ----------- ---------
Total Energy Services ........... 165.3 173.7 50.2
Other Operations ................... 32.0 68.0 7.2
----------- ----------- ---------
Total Consolidated ................ $ 2,068.3 $ 2,190.5 $ 737.1
=========== =========== =========
</TABLE>
36
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 4. BUSINESS SEGMENTS -- Continued
<TABLE>
<CAPTION>
Capital and Investment Expenditures Identifiable Assets
-------------------------------------- -------------------------------
1997 1996 1995 1997 1996
------------ ------------ ------------ --------------- ---------------
In Millions
<S> <C> <C> <C> <C> <C>
Electric Operations .................... $ 742.6 $ 609.8 $ 704.0 $ 12,958.5 $ 12,625.2
Natural Gas Transmission ............... 247.3 194.0 230.5 5,088.9 5,216.4
Energy Services
Trading and Marketing ................. 17.9 6.6 15.3 1,857.3 1,403.5
Field Services ........................ 156.5 530.8 187.2 1,979.8 1,769.4
Global Asset Development .............. 348.3 34.8 53.5 987.6 522.3
Other Energy Services ................. 47.2 39.1 1.0 223.2 130.1
Energy Services' Eliminations ......... -- -- -- (169.1) (247.0)
---------- ---------- ---------- ------------ ------------
Total Energy Services ............... 569.9 611.3 257.0 4,878.8 3,578.3
Other Operations ....................... 467.8 134.9 99.2 1,102.6 946.3
---------- ---------- ---------- ------------ ------------
Total Consolidated .................... $ 2,027.6 $ 1,550.0 $ 1,290.7 $ 24,028.8 $ 22,366.2
========== ========== ========== ============ ============
</TABLE>
NOTE 5. REGULATORY MATTERS
Electric Operations. The NCUC and the PSCSC approve rates for retail
electric sales within their respective states. The FERC approves the
Corporation's rates for electric sales to wholesale customers. Electric sales
to the other joint owners of the Catawba Nuclear Station (Catawba), which
represent a substantial majority of the Corporation's electric wholesale
revenues, are set through contractual agreements.
In 1997, the Corporation signed stipulation agreements with the NCUC and
the PSCSC as a result of the merger in which the Corporation agreed to cap the
base electric rates at existing levels through 2000, with very limited
exceptions, for retail customers. The Corporation also signed an agreement with
the FERC to freeze rates, except for the market-based rates, for the
Corporation's transmission and wholesale electric sales. In addition, the
Corporation signed agreements with the other joint owners of Catawba providing
for a cap on the rates charged under interconnection agreements and on the
reimbursement of certain costs related to administration and general expenses
and general plant costs under operation and fuel agreements. Management is of
the opinion that these agreements will not have a material adverse effect on
the consolidated results of operations or financial position of the
Corporation.
Fuel costs are reviewed semiannually in the wholesale jurisdiction and
annually in the South Carolina retail jurisdiction, with provisions for
changing such costs in base rates. In the North Carolina retail jurisdiction, a
review of fuel costs in rates is required annually and during general rate case
proceedings. All jurisdictions allow the Corporation to adjust electric rates
for past over- or under-recovery of fuel costs. Therefore, the Corporation
reflects in revenues the difference between actual fuel costs incurred for
electric operations and fuel costs recovered through rates. The stipulation
agreements related to the merger do not apply to the fuel cost adjustments.
The PSCSC, on May 7, 1996, ordered a rate reduction in the form of a
decrement rider of 0.432 cents per kilowatt-hour, or an average of
approximately 8 percent, affecting South Carolina retail customers. South
Carolina retail sales represent approximately 30 percent of the Corporation's
total regulated electric sales. The rate reduction was reflected on bills
rendered on or after June 1, 1996. This net decrement rider reflects an interim
true-up decrement adjustment associated with the levelization of Catawba
purchased capacity costs and an interim true-up increment associated with
amortization of the demand-side management deferral account. The rate
adjustment was made because, in the South Carolina retail jurisdiction,
cumulative levelized revenues associated with the recovery of Catawba purchased
capacity costs had exceeded purchased capacity payments and accrual of deferred
returns, and certain demand-side costs had exceeded the level reflected in
rates.
Certain of the Corporation's electric wholesale customers, excluding the
other Catawba joint owners, initiated proceedings in 1995 before the FERC
concerning rate related matters. The Corporation and nine of its eleven
wholesale customers entered into a settlement in July 1996 which reduced the
customers' electric rates by approximately 9 percent and renewed their
contracts with the Corporation through 2000. Both of the customers that did not
enter into the settlement have signed
37
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 5. REGULATORY MATTERS -- Continued
agreements and have begun purchasing electricity from other suppliers in 1997.
Early in 1998, the Corporation reached agreements, subject to FERC approval,
with both of these former customers to recover the stranded costs incurred to
serve these customers. Management is of the opinion that these agreements will
not have a material adverse impact on the consolidated results of operations or
financial position of the Corporation.
Natural Gas Operations.
FERC Order 636 and Natural Gas Transition Costs. The Corporation's
interstate natural gas pipelines primarily provide transportation and storage
services pursuant to FERC Order 636. Order 636 allows pipelines to recover
eligible costs resulting from implementation of the order (transition costs).
In 1994, the FERC approved TETCO's settlement resolving regulatory issues
related primarily to Order 636 transition costs and a number of other issues
related to services prior to Order 636. TETCO's liability for transition costs
is estimated based on the amount of producers' natural gas reserves and other
factors. TETCO's final and nonappealable settlement provides for the recovery
of certain of these transition costs from customers through volumetric and
reservation charges through 2002 and beyond, if necessary. Pursuant to the
settlement, TETCO will absorb a certain portion of the transition costs, the
amount of which continues to be subject to change dependent upon natural gas
prices and deliverability levels. In 1995, based upon producers' discoveries of
additional natural gas reserves, TETCO increased the estimated liabilities for
transition costs by $125.8 million. Under the terms of the existing settlement,
regulatory assets were increased $85.8 million for amounts expected to be
collected from customers and TETCO recognized a $40 million charge to operating
expenses ($26 million after tax).
On July 16, 1996, the U.S. Court of Appeals for the District of Columbia
upheld, in general, all aspects of Order 636 and remanded certain issues for
further explanation. One of the issues remanded for further explanation is
whether pipelines should be entitled to recover 100% of gas supply realignment
(GSR) costs. This matter is substantially mitigated by TETCO's transition cost
settlements.
The Corporation believes the exposure associated with gas purchase
contract commitments is substantially mitigated by transition cost recoveries
pursuant to customer settlements, Order 636 and other mechanisms, and that this
issue will not have a material adverse effect on consolidated results of
operations or financial position of the Corporation.
Jurisdictional Transportation and Sales Rates. On April 1, 1992 and
November 1, 1992, PEPL placed into effect, subject to refund, general rate
increases. On February 26, 1997, the FERC approved PEPL's settlement agreement
which provided final resolution of refund matters and established prospective
rates. The agreement terminated other actions relating to these proceedings as
well as PEPL's restructuring of rates and transition cost recoveries related to
FERC Order 636. The settlement will not have a material impact on future
operating revenues or financial position of the Corporation.
As a result of the resolution of these and certain other proceedings, PEPL
recorded earnings before interest and taxes of $32.7 million, $8 million, and
$20.6 million in 1997, 1996, and 1995, respectively.
NOTE 6. JOINT OWNERSHIP OF GENERATING FACILITIES
The Corporation previously sold interests in both units of Catawba. The
other owners of portions of Catawba and supplemental information regarding
their ownership are as follows:
<TABLE>
<CAPTION>
Owner Ownership Interest in the Station
- --------------------------------------------------------------- ----------------------------------
<S> <C>
North Carolina Municipal Power Agency Number 1 (NCMPA) .. 37.5%
North Carolina Electric Membership Corporation (NCEMC) .. 28.125%
Piedmont Municipal Power Agency (PMPA) .................. 12.5%
Saluda River Electric Cooperative, Inc. (Saluda River) .. 9.375%
</TABLE>
Each owner has provided its own financing for its ownership interest in
Catawba.
The Corporation retains a 12.5 percent ownership interest in Catawba. As
of December 31, 1997, $507.8 million of Property, Plant and Equipment
represented the Corporation's investment in Units 1 and 2. Accumulated
depreciation and
38
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 6. JOINT OWNERSHIP OF GENERATING FACILITIES -- Continued
amortization of $198.3 million associated with Catawba was recorded as of
year-end 1997. The Corporation's share of operating costs of Catawba is
included in the Consolidated Statements of Income.
In connection with the joint ownership, the Corporation has entered into
contractual interconnection agreements with the other joint owners to purchase
declining percentages of the generating capacity and energy from the plant.
These purchased power agreements were effective beginning with the commercial
operation of each unit. Units 1 and 2 began commercial operation in June 1985
and August 1986, respectively. The purchased power agreements were established
for 15 years for NCMPA and PMPA and 10 years for NCEMC and Saluda River. While
the purchased power agreements with NCMPA and PMPA extend for 15 years, a
significant decrease in the percentage of capacity and energy the Corporation
is obligated to purchase occurs in the 11th calendar year of operation for each
unit. This significant decrease occurred in 1995 for Unit 1 and 1996 for Unit
2.
The interconnection agreements also provide for supplemental power sales
by the Corporation to the other joint owners. Such power sales are to satisfy
capacity and energy needs of the other joint owners beyond the capacity and
energy which they retain from Catawba or potentially acquire in the form of
other resources. The agreements further provide the other joint owners the
ability to secure such supplemental requirements outside of these contractual
agreements following an appropriate notice period. NCEMC and Saluda River have
given appropriate notice that they intend to acquire their supplemental
capacity requirements outside of these agreements effective January 1, 2001 and
January 1, 2002, respectively, thus relieving the Corporation of the obligation
to serve this portion of load. In addition, as a result of the merger, the
other joint owners of Catawba have the right to end their supplemental capacity
requirements as of January 1, 2001 with written notice to the Corporation due
by December 31, 1999. As the joint owners retain more capacity and energy from
Catawba or a third party, supplemental power sales are expected to decline.
Management is of the opinion that this will not have a material adverse effect
on the consolidated results of operations or the financial position of the
Corporation.
The interconnection agreements with each of the other joint owners include
provisions that the Corporation will provide generating reserves to backstand
the other joint owners' retained capacity in the Catawba plant at the system
average cost of installed capacity. Additionally, the agreements include
certain reliability exchanges designed to manage outage-related risks by
exchanging energy entitlements between Catawba and the McGuire Nuclear Station,
impacting the Corporation as well as all the other joint owners. The agreements
also provide the other joint owners the ability to terminate the
interconnection agreements in their entirety upon eight years written notice to
the Corporation. PMPA has rendered such notice effective January 1, 2006. This
termination will relieve the Corporation of the obligation to serve this
portion of load as well as provide the reserves associated with PMPA's retained
capacity. Management is of the opinion that this will not have a material
adverse effect on the consolidated results of operations or the financial
position of the Corporation.
Purchased energy cost payments are based on variable operating costs and
are a function of the generation output of Catawba. Purchased capacity payments
are based on the fixed costs of the plant and include the capital costs and
fixed operating and maintenance costs. Actual purchased capacity costs for 1997
and projected obligations through 2000, the last year of the purchase
buy-backs, are $99.8 million, $72 million, $52.9 million and $6.6 million,
respectively.
Effective in its November 1991 rate order, the NCUC reaffirmed the
Corporation's recovery from retail electric customers, on a levelized basis, of
the capital costs and fixed operating and maintenance costs of capacity
purchased from the other joint owners. The PSCSC in its November 1991 rate
order reaffirmed the Corporation's recovery on a levelized basis of the capital
costs of capacity purchased from the other joint owners. Levelization was
reaffirmed through inclusion in rates approved in March 1992 by the FERC. The
portion of purchased capacity subject to levelization not currently recovered
in rates is being deferred, and the Corporation is recording a deferred return
on the accumulated balance. The Corporation is recovering the accumulated
balance, including the deferred return, when the sum of the declining purchased
capacity payments and accrual of deferred returns for the current period drops
below the levelized revenues. Jurisdictional levelizations are intended to
recover total costs, including deferred returns, and are subject to
adjustments, including final true-ups. The Corporation recovers the costs of
purchased energy and the non-levelized portion of purchased capacity on a
current basis.
The current levelized revenues approved in the Corporation's last general
rate proceedings are $211.4 million, $94.1 million and $6.8 million for North
Carolina retail, South Carolina retail and Other Wholesale (FERC),
respectively. Purchased power costs, subject to levelization, are deferred
based on allocation factors of approximately 62 percent, 26 percent
39
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 6. JOINT OWNERSHIP OF GENERATING FACILITIES -- Continued
and 2 percent for North Carolina retail, South Carolina retail and Other
Wholesale (FERC), respectively. The PSCSC, on May 7, 1996, ordered a rate
reduction in the form of a decrement rider for an interim true-up adjustment.
The Corporation also recovers an allocated amount of purchased power costs in
the pricing of supplemental sales made to the other joint owners on a current
basis.
During 1996, in the North Carolina retail and the FERC wholesale
jurisdictions, annual levelized revenues exceeded purchased capacity payments
and the accrual of deferred returns for the first time. In the South Carolina
retail jurisdiction, cumulative levelized revenues have exceeded purchased
capacity payments and accrual of deferred returns.
For the years ended December 31, 1997, 1996 and 1995, the Corporation
recorded purchased capacity and energy costs from the other joint owners of
$120.1 million, $151.2 million, and $388.2 million, respectively. These
amounts, after adjustments for the costs of capacity purchased not reflected in
current rates, are included in Net Interchange and Purchased Power in the
Consolidated Statements of Income. As of December 31, 1997 and 1996, $835.6
million and $892 million, respectively, associated with the cost of capacity
purchased but not reflected in current rates have been accumulated in the
Consolidated Balance Sheets as Purchased Capacity Costs and Current Portion of
Purchased Capacity Costs.
NOTE 7. INCOME TAXES
Income tax expense as presented in the Consolidated Statements of Income
is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
In Millions
<S> <C> <C> <C>
Current income taxes
Federal ................................... $ 432.7 $ 514.3 $ 452.0
State ..................................... 100.5 108.8 97.0
--------- --------- ---------
Total current income taxes ............... 533.2 623.1 549.0
--------- --------- ---------
Deferred income taxes, net
Federal ................................... 111.9 73.1 105.2
State ..................................... 8.9 12.8 21.2
--------- --------- ---------
Total deferred income taxes, net ......... 120.8 85.9 126.4
--------- --------- ---------
Investment tax credit amortization .......... (15.1) (11.2) (11.2)
--------- --------- ---------
Total income tax expense .................... $ 638.9 $ 697.8 $ 664.2
========= ========= =========
</TABLE>
Total income tax differs from the amount computed by applying the federal
income tax rate of 35% to income before income taxes. The reasons for this
difference are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
In Millions
<S> <C> <C> <C>
Income tax, computed at the statutory rate .......... $ 564.7 $ 626.1 $ 588.8
Adjustments resulting from:
State income tax, net of federal income tax effect 70.8 78.6 76.5
Other items, net .................................. 3.4 (6.9) (1.1)
-------- --------- ---------
Total income tax expense ............................ $ 638.9 $ 697.8 $ 664.2
======== ========= =========
Effective tax rate .................................. 39.6% 39.0% 39.5%
</TABLE>
40
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 7. INCOME TAXES -- Continued
The tax effects of temporary differences that resulted in deferred income
tax assets and liabilities, and a description of the significant items that
created these differences as of December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
In Millions
<S> <C> <C>
Deferred credits and other liabilities ..................... $ 408.4 $ 418.2
Alternative minimum tax credit carryforward ................ 30.3 72.6
Other ...................................................... 46.3 --
----------- -----------
Total deferred income tax assets ......................... 485.0 490.8
Valuation allowance and other tax reserves ................. (146.1) (141.1)
----------- -----------
Net deferred income tax assets ........................... 338.9 349.7
----------- -----------
Investments and other assets ............................... (263.1) (208.8)
Property, plant and equipment .............................. (2,357.7) (2,268.7)
Regulatory assets and deferred debits ...................... (623.2) (642.6)
Regulatory asset related to restating to pre-tax basis ..... (437.8) (433.2)
Other ...................................................... -- (5.9)
----------- -----------
Total deferred income tax liabilities .................... (3,681.8) (3,559.2)
----------- -----------
State deferred income tax, net of federal tax effect ....... (363.6) (359.0)
----------- -----------
Net deferred income tax liability .......................... $ (3,706.5) $ (3,568.5)
============ ============
</TABLE>
The alternative minimum tax credit carryforward can be carried forward
indefinitely.
In 1990, PanEnergy established a provision for certain tax issues related
to the purchase of TEC, which resulted in an increase in goodwill and deferred
income tax liability. Following discussions with the Internal Revenue Service,
PanEnergy revised its estimates in 1995 and 1996 with respect to these issues.
As a result, the related goodwill and deferred income tax liability were
reduced by approximately $40 million and $100 million in 1996 and 1995,
respectively. If tax benefits relating to the valuation allowance for deferred
income tax assets and other tax reserves are recognized subsequent to December
31, 1997, approximately $29.4 million will be allocated as an adjustment to
goodwill.
NOTE 8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
FINANCIAL INSTRUMENTS. In order to obtain variable rate financing at an
attractive cost, the Corporation entered into interest rate swap agreements in
which the Corporation effectively exchanged $200 million of 8% Series B First
and Refunding Mortgage Bonds for floating rate debt at the three month London
Interbank Offered Rate (LIBOR) plus a .074% margin and $100 million of 7.5%
Series B First and Refunding Mortgage Bonds for floating rate debt at three
month LIBOR plus a 1.1272% margin. The interest rate swaps expire in 1999 and
2000, respectively, and rates are reset quarterly. As a result of the interest
rate swap contracts, interest expense on the Consolidated Statements of Income
is recognized at the weighted average rate for the year tied to LIBOR. The
weighted average rates for 1997, 1996 and 1995 are as follows (dollars in
millions):
<TABLE>
<CAPTION>
Weighted Average Rate
--------------------------------
Series Issued Year Due Face Value 1997 1996 1995
- ----------------------------- -------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
8% Series B ........... 1994 1999 $ 200 5.78% 5.64% 6.14%
7.5% Series B ......... 1995 2025 $ 100 6.83% 6.69% 7.06%
</TABLE>
In 1996, TETCO received $98.6 million from the financing of the right to
collect certain Order 636 natural gas transition costs, with limited recourse.
At December 31, 1997 and 1996, $52.8 million and $87.3 million, respectively,
remained outstanding related to the transition cost recovery rights and were
included in Other Current Liabilities in the Consolidated Balance Sheets. In
the opinion of management, the probability that the Corporation will be
required to perform under the recourse provisions is remote.
41
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT -- Continued
During 1997, the Corporation terminated its agreement to sell accounts
receivable which was entered into in 1996. Also in 1997, the LNG settlement
receivables sale agreement, which was entered into in 1993, expired, as all the
receivables were collected. Amounts outstanding at December 31, 1996 under
these agreements were $100 million and $29.9 million, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The fair value of the Corporation's
financial instruments is summarized below. Judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
determined as of December 31, 1997 and 1996 are not necessarily indicative of
the amounts the Corporation could have realized in current market exchanges.
<TABLE>
<CAPTION>
1997 1996
Assets (Liabilities) Assets (Liabilities)
---------------------------- -----------------------------
Approximate Approximate
Book Value Fair Value Book Value Fair Value
-------------- ------------- -------------- --------------
In Millions
<S> <C> <C> <C> <C>
Long-term debt (a) ............................. $ (6,607.3) $ (6,842.8) $ (5,835.7) $ (5,999.0)
Interest rate swaps (b) ........................ -- 9.5 -- 12.0
Guaranteed preferred beneficial interests in
Corporation's subordinated notes (a) .......... (339.0) (356.2) -- --
Preferred stock (a) ............................ (489.0) (530.2) (684.0) (699.0)
</TABLE>
- ---------
(a) The majority of the estimated fair value amounts of long-term debt,
guaranteed preferred beneficial interests in Corporation's subordinated
notes and preferred stock were obtained from independent parties.
(b) Amounts shown for interest rate swaps represent estimated amounts the
Corporation would receive if agreements were settled at current market
rates.
The fair value of cash and cash equivalents, notes receivable, notes
payable and commercial paper and nuclear decommissioning trust funds are not
materially different from their carrying amounts because of the short-term
nature of these instruments or the stated rates approximating market rates.
The following financial instruments have no book value associated with
them and there are no fair values readily determinable since quoted market
prices are not available: guarantees made to affiliates or recourse provisions
from affiliates and sales agreements for trade accounts receivables, LNG
project settlement and Order 636 natural gas transition cost recovery.
COMMODITY DERIVATIVE INSTRUMENTS. At December 31, 1997 and 1996, the
Corporation held or issued several instruments that reduce exposure to market
fluctuations relative to price and transportation costs of natural gas,
electricity and petroleum products. The Corporation's market exposure,
primarily within DETM and D/LD, arises from natural gas storage inventory
balances and fixed-price purchase and sale commitments that extend for periods
of up to 9 years. The Corporation uses futures, swaps and options to manage and
hedge price and location risk related to these market exposures.
DETM and D/LD also provide risk management services to its customers
through a variety of energy commodity instruments including forward contracts
involving physical delivery of an energy commodity, energy commodity futures,
over-the-counter swap agreements and options. In addition to hedging
activities, the Corporation also engages in the trading of such instruments,
and therefore experiences net open positions. The Corporation manages open
positions with strict policies which limit its exposure to market risk and
require daily reporting to management of potential financial exposure. These
policies include statistical risk tolerance limits using historical price
movements to calculate a daily earnings at risk as well as a total
Value-at-Risk (VAR) measurement. The weighted-average life of the Corporation's
commodity risk portfolio was approximately 7 months at December 31, 1997.
Energy commodity futures involve the buying or selling of natural gas,
electricity or other energy-related commodities at a fixed price.
Over-the-counter swap agreements require the Corporation to receive or make
payments based on the difference between a specified price and the actual price
of the underlying commodity. The Corporation uses futures and swaps to manage
margins on underlying fixed-price purchase or sale commitments for physical
quantities of natural gas, electricity and other energy-related commodities.
Energy commodity options held to mitigate price risk provide the right, but not
42
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT -- Continued
the requirement, to buy or sell energy-related commodities at a fixed price.
The Corporation utilizes options to manage margins and to limit overall price
risk exposure. DETM and D/LD account for these activities using the mark to
market method of accounting.
At December 31, 1997 and 1996, the Corporation had outstanding futures,
swaps and options for an absolute notional contract quantity of 4,810 billion
cubic feet (Bcf) and 3,425 Bcf of natural gas, respectively, some of which were
in place to offset the risk of price fluctuations under fixed-price commitments
for purchasing and delivering natural gas. At December 31, 1997 and 1996,
outstanding futures, swaps and options related to electric contracts and other
energy-related commodities were not material. The gains, losses and costs
related to those commodity instruments that qualify as a hedge are not
recognized until the underlying physical transaction occurs. At December 31,
1997 and 1996, the Corporation had current unrecognized net gains of $13.5
million and $8.7 million, respectively, related to commodity instruments. The
fair value of energy commodity swaps held at December 31, 1997 was a liability
of $158.6 million.
During 1997, 1996 and 1995, the Corporation recognized net gains of $33.6
million, $25.4 million, and $10.5 million, respectively, from trading
activities. The values of energy commodity futures, swaps and options held for
trading purposes were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ---------------------
Assets Liabilities Assets Liabilities
---------- ------------- -------- ------------
In Millions
<S> <C> <C> <C> <C>
Fair value at December 31 ........... $ 1,626 $ 1,470 $ 833 $ 941
Notional amount at December 31 ...... 2,009 1,825 407 530
Average fair value for the year ..... 595 700 588 653
</TABLE>
MARKET AND CREDIT RISK. New York Mercantile Exchange (Exchange) traded
futures and option contracts are guaranteed by the Exchange and have nominal
credit risk. On all other transactions described above, the Corporation is
exposed to credit risk in the event of nonperformance by the counterparties.
For each counterparty, the Corporation analyzes the financial condition prior
to entering into an agreement, establishes credit limits and monitors the
appropriateness of these limits on an ongoing basis. The change in market value
of Exchange-traded futures and options contracts requires daily cash settlement
in margin accounts with brokers. Swap contracts and most other over-the-counter
instruments are generally settled at the expiration of the contract term and
may be subject to margin requirements with the counterparty.
NOTE 9. INVESTMENT IN AFFILIATES
Certain investments, where the Corporation's ownership in domestic and
international affiliates is 50 percent or less, are accounted for by the equity
method. These investments include undistributed earnings of $20.6 million in
1997 and $49.7 million in 1996. The Corporation's proportionate share of net
income from these affiliates for the years ended December 31, 1997, 1996 and
1995 was $38.4 million, $32.7 million, and $59.8 million, respectively. These
amounts are reflected in Other Operating Revenues in the Consolidated
Statements of Income. Investment in affiliates as of December 31, 1997 and 1996
includes the following:
43
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 9. INVESTMENT IN AFFILIATES -- Continued
<TABLE>
<CAPTION>
1997 1996
----------- -----------
In Millions
<S> <C> <C>
Natural Gas Transmission -- domestic ......... $ 67.5 $ 46.5
-------- --------
Energy Services
Field Services -- domestic .................. 159.8 129.6
Global Asset Development
Domestic .................................. 174.5 14.5
International ............................. 207.8 183.5
Other Energy Services
Domestic .................................. 15.9 49.5
International ............................. 9.7 1.4
-------- --------
Total Energy Services .................... 567.7 378.5
-------- --------
Other Operations
Domestic .................................... 38.1 65.3
International ............................... 12.6 12.6
-------- --------
Total Other Operations ................... 50.7 77.9
-------- --------
Total Investments in Affiliates .............. $ 685.9 $ 502.9
======== ========
</TABLE>
NATURAL GAS TRANSMISSION. Investments primarily include ownership
interests in natural gas pipeline joint ventures which transport gas from
Canada to the United States.
FIELD SERVICES. Among other investments, Field Services holds an interest
in a partnership which owns natural gas gathering systems in the Gulf of
Mexico, a master limited partnership that owns and operates a petroleum
pipeline, and a joint venture that provides gathering, processing and marketing
services for natural gas producers in Oklahoma.
GLOBAL ASSET DEVELOPMENT. Global Asset Development has investments in
various natural gas and electric generation and transmission facilities
world-wide, and in a joint venture that owns and operates a methanol plant and
a MTBE (methyl tertiary butyl ether) plant in Jubail, Saudi Arabia.
OTHER ENERGY SERVICES. Investments include the participation in various
construction and support activities for fossil-fueled generating plants.
OTHER OPERATIONS. This segment holds investments in various real estate
development projects and a joint venture that provides wireless personal
communication services.
44
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 9. INVESTMENT IN AFFILIATES -- Continued
Summarized combined balance sheet and income statement information of the
entities that are accounted for using the equity method are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- -------------- ------------
In Millions
<S> <C> <C> <C>
Assets
Current Assets ........................ $ 642.0 $ 1,025.2 $ 617.0
Noncurrent Assets ..................... 5,867.8 5,660.5 5,090.2
---------- ----------- ----------
Total Assets ......................... $ 6,509.8 $ 6,685.7 $ 5,707.2
========== =========== ==========
Liabilities and Equity
Current Liabilities ................... $ 757.4 $ 879.3 $ 468.5
Noncurrent Liabilities ................ 3,257.2 3,461.4 3,376.0
Equity ................................ 2,495.2 2,345.0 1,862.7
---------- ----------- ----------
Total Liabilities and Equity ......... $ 6,509.8 $ 6,685.7 $ 5,707.2
========== =========== ==========
Income
Operating Revenues .................... $ 905.0 $ 3,133.2 $ 1,391.2
Operating Expenses .................... 702.8 2,494.1 667.1
Net Income ............................ 72.4 160.1 236.2
</TABLE>
The Corporation had outstanding loans to certain affiliates of $87.1
million and $2.9 million at December 31, 1997 and 1996, respectively.
45
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 10. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment by classification as of
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
In Millions
<S> <C> <C>
Electric Plant In Service
Production ............................................................. $ 7,575.5 $ 7,278.4
Transmission ........................................................... 1,566.3 1,543.7
Distribution ........................................................... 4,517.5 4,303.9
General plant .......................................................... 1,118.6 1,068.3
Nuclear fuel ........................................................... 643.9 604.8
Construction work in progress .......................................... 222.5 389.0
----------- -----------
Total electric plant in service ....................................... 15,644.3 15,188.1
----------- -----------
Natural Gas Plant In Service
Transmission ........................................................... 6,094.4 5,994.1
Gathering .............................................................. 812.5 643.0
Processing ............................................................. 502.4 508.4
Underground storage .................................................... 488.8 450.6
LNG facilities and vessels ............................................. 751.7 751.0
General plant .......................................................... 310.7 348.7
Construction work in progress .......................................... 159.9 126.7
----------- -----------
Total natural gas plant in service .................................... 9,120.4 8,822.5
----------- -----------
Other Property and Equipment ............................................. 683.4 457.6
----------- -----------
Total Property, Plant and Equipment ...................................... 25,448.1 24,468.2
Less accumulated depreciation (including amortization of nuclear fuel:
1997-- $370.0 million; 1996 -- $363.3 million).......................... 9,712.2 9,199.1
----------- -----------
Net property, plant and equipment ..................................... $ 15,735.9 $ 15,269.1
=========== ===========
</TABLE>
A summary of accumulated depreciation for property, plant and equipment by
classification as of December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
In Millions
<S> <C> <C>
Electric Plant In Service ............ $ 6,067.7 $ 5,801.8
Natural Gas Plant In Service ......... 3,602.9 3,365.8
Other Property and Equipment ......... 41.6 31.5
----------- -----------
Total Accumulated Depreciation ......... $ 9,712.2 $ 9,199.1
=========== ===========
</TABLE>
46
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 11. DEBT AND CREDIT FACILITIES
The following credit facilities were available to the Corporation at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
Credit Credit
Facilities Outstanding Facilities Outstanding
------------ ------------- ------------ ------------
In Millions
<S> <C> <C> <C> <C>
Annually renewable facilities .......... $ 54.0 $ 16.3 $ 64.9 $ 8.6
364-day facilities ..................... 300.0 -- 400.0 --
Two-year revolving facilities (a) ...... 40.0 -- 40.0 --
Four-year revolving facilities (b) ..... 125.0 77.0 235.0 42.0
Five-year revolving facilities ......... 2,200.0 -- 755.0 --
---------- -------- ---------- -------
Total Consolidated ................... $ 2,719.0 $ 93.3 $ 1,494.9 $ 50.6
========== ======== ========== =======
</TABLE>
- ---------
(a) At December 31, 1997 and 1996, the Corporation had $40 million of pollution
control bonds, included in long-term debt, backed by the two-year
revolving facilities.
(b) The outstanding balance was included in long-term debt.
The 364-day and five-year credit facilities support the Corporation's
commercial paper facilities of $2.5 billion and $780 million at December 31,
1997 and 1996, respectively. Amounts outstanding under the commercial paper
facilities at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- ------------
In Millions
<S> <C> <C>
Total commercial paper outstanding ......... $ 1,749.2 $ 324.2
Less portion classified as short-term ...... 149.2 194.2
----------- ---------
Portion classified as long-term debt ....... $ 1,600.0 $ 130.0
=========== =========
</TABLE>
In addition to amounts borrowed under the credit facilities and commercial
paper facilities, the Corporation had $251.9 million of short-term borrowings
from banks outstanding at December 31, 1996. Also, at December 31, 1997 and
1996, the Corporation had a note payable to an affiliate of $4 million and $5
million, respectively.
A summary of short-term debt is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
Dollars In Millions
<S> <C> <C> <C>
Amount outstanding at end of year .................. $ 169.5 $ 459.7 $ 300.3
Weighted-average rate at end of year ............... 6.04% 6.16% 6.09%
Maximum amount outstanding during the year ......... $ 889.1 $ 501.4 $ 409.3
Average amount outstanding during the year ......... $ 417.6 $ 182.4 $ 152.8
Weighted-average interest rate for the year --
computed on a daily basis ......................... 5.65% 5.92% 6.15%
</TABLE>
47
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 11. DEBT AND CREDIT FACILITIES -- Continued
<TABLE>
<CAPTION>
Year Due 1997 1996
----------- ------------ -------------
In Millions
<S> <C> <C> <C>
Duke Energy Corporation (a)
First and refunding mortgage bonds:
5.17% ................................................................. 1998 $ 50.0 $ 50.0
5.76% - 8% ............................................................ 1999 425.0 425.0
7% .................................................................... 2000 200.0 200.0
5 7/8% - 7.41% ........................................................ 2001-2004 600.0 600.0
6 3/8% - 7% ........................................................... 2005-2008 325.0 325.0
6 3/4% - 8.30% ........................................................ 2023-2025 878.0 878.0
7% - 8.95% ............................................................ 2027-2033 165.5 165.6
Mortgage bonds redeemed or matured during 1997 ........................ -- 647.6
Pollution control bonds -- 3.58% - 7.75% ................................ 2012-2017 172.0 172.0
Commercial paper, 5.9% and 6.23% weighted average rate at
December 31, 1997 and 1996, respectively .............................. 800.0 130.0
Other debt .............................................................. 25.7 27.8
Duke Capital Corp.
Commercial paper, 6.03% weighted-average rate at December 31, 1997 ...... 800.0 --
PanEnergy
Bonds:
7 3/4% ................................................................ 2022 328.0 328.0
8 5/8% Debentures ..................................................... 2025 100.0 100.0
Notes:
9.55%, maturing serially .............................................. 1996-1999 27.5 41.3
9.9%, maturing serially ............................................... 2000-2003 45.0 45.0
7% - 8 5/8% ........................................................... 1999-2006 450.0 450.0
Notes converted or matured during 1997 ................................ -- 124.5
TETCO
Notes:
8% - 10 3/8% .......................................................... 2000-2004 500.0 500.0
Medium term, Series A, 7.64 - 9.07% ................................... 1999-2012 100.0 100.0
Algonquin
9.13% Notes ............................................................. 2001-2003 100.0 100.0
PEPL
7 7/8% Notes ............................................................ 2004 100.0 100.0
7.2% - 7.95% Debentures ................................................. 2023-2024 200.0 200.0
Crescent Resources, Inc. (b)
Construction and mortgage loans, 6.02% - 7.10% .......................... 1998-2011 116.7 76.0
Revolving credit facilities, 6.30% and 5.95% weighted-average rate at
December 31, 1997 and 1996, respectively .............................. 2001 77.0 42.0
Nantahala Power and Light Company
6.90% - 9.21% Senior Notes, maturing serially ........................... 2011-2016 67.3 68.0
Other ................................................................... 1998-2001 .2 .4
Unamortized debt discount and premium, net .............................. (45.6) (60.5)
---------- ----------
Total long-term debt .................................................... 6,607.3 5,835.7
Current maturities of long-term debt .................................... (77.3) (350.6)
---------- ----------
Total long-term portion ................................................. $ 6,530.0 $ 5,485.1
========== ==========
</TABLE>
- ---------
(a) Substantially all of the Corporation's electric plant was mortgaged as of
December 31, 1997.
(b) Substantial amounts of Crescent Resources, Inc.'s real estate development
projects, land and buildings are pledged as collateral.
48
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 11. DEBT AND CREDIT FACILITIES -- Continued
The annual maturities of consolidated long-term debt at December 31, 1997
were $77.3 million, $612.1 million, $427 million, $403 million and $192.5
million for 1998 through 2002, respectively.
On October 1, 1996, TETCO redeemed its $150 million, 10% debentures and
its $100 million, 10 1/8% debentures due 2011. TETCO recorded a non-cash
extraordinary item of $16.7 million (net of income tax of $10.3 million)
related to the unamortized discount on this early retirement of debt. Earnings
per common share for 1996 were reduced $0.05 as a result of this charge.
NOTE 12. NUCLEAR DECOMMISSIONING COSTS & SPENT NUCLEAR FUEL
NUCLEAR DECOMMISSIONING COSTS. Estimated site-specific nuclear
decommissioning costs, including the cost of decommissioning plant components
not subject to radioactive contamination, total approximately $1.3 billion
stated in 1994 dollars based on decommissioning studies completed in 1994. This
amount includes the Corporation's 12.5 percent ownership in Catawba. The other
joint owners of Catawba are responsible for decommissioning costs related to
their ownership interests in the station. Both the NCUC and the PSCSC have
granted the Corporation recovery of estimated decommissioning costs through
retail rates over the expected remaining service periods of the Corporation's
nuclear plants. Such estimates presume each unit will be decommissioned as soon
as possible following the end of its license life. Although subject to
extension, the current operating licenses for the Corporation's nuclear units
expire as follows: Oconee 1 and 2 - 2013, Oconee 3 - 2014; McGuire 1 - 2021,
McGuire 2 - 2023; and Catawba 1 - 2024, Catawba 2 - 2026.
During 1997 and 1996, the Corporation expensed approximately $56.5 million
which was contributed to the external funds for decommissioning costs and
accrued an additional $3.0 million and $1.6 million to the internal reserve in
1997 and 1996, respectively. Nuclear units are depreciated at an annual rate of
4.7 percent, of which 1.61 percent is for decommissioning. The balance of the
external funds as of December 31, 1997 and 1996, was $471.1 million and $362.6
million respectively. The balance of the internal reserve as of December 31,
1997 and 1996, was $210.8 million and $207.8 million, respectively, and is
reflected in Accumulated Depreciation and Amortization in the Consolidated
Balance Sheets. Management's opinion is that the decommissioning costs being
recovered through rates, when coupled with assumed after-tax fund earnings of
5.5 to 5.9 percent, are currently sufficient to provide for the cost of
decommissioning.
A provision in the Energy Policy Act of 1992 established a fund for the
decontamination and decommissioning of the uranium enrichment plants of the
Department of Energy (DOE). Licensees are subject to an annual assessment for
15 years based on their pro rata share of past enrichment services. The annual
assessment is recorded as Fuel Used in Electric Generation in the Consolidated
Statements of Income. The Corporation paid $9.7 million during 1997 and has
paid $54.7 million cumulatively related to its ownership interests in nuclear
plants. The Corporation has reflected the remaining liability and regulatory
asset of $87.1 million and $94.7 million in the Consolidated Balance Sheets at
December 31, 1997 and 1996, respectively, and were classified as Deferred
Credits and Other Liabilities and Regulatory Assets and Deferred Debits,
respectively.
SPENT NUCLEAR FUEL. Under provisions of the Nuclear Waste Policy Act of
1982, the Corporation has entered into contracts with the DOE for the disposal
of spent nuclear fuel. The DOE delayed in accepting the waste materials on the
contract date of January 31, 1998. The Corporation has satisfactory plans in
place to provide storage of spent nuclear fuel if the DOE cannot accept it.
Payments made to the DOE for disposal costs are based on nuclear output and are
included in Fuel Used in Electric Generation in the Consolidated Statements of
Income.
NOTE 13. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN CORPORATION'S
SUBORDINATED NOTES
On December 8, 1997, Duke Energy Capital Trust I (the Trust), issued $350
million of its 7.2% trust preferred securities, at an $11 million discount,
representing preferred undivided beneficial interests in the assets of the
Trust. Payment of distributions on such preferred securities is guaranteed by
the Corporation, but only to the extent the Trust has funds legally and
immediately available to make such distributions. The Trust is a statutory
business trust, of which the Corporation owns all the common securities,
established for the purpose of issuing and selling such preferred securities
and investing the gross proceeds in the 7.2% Series A Junior Subordinated Notes
of the Corporation due September 30, 2037.
49
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 14. PREFERRED AND PREFERENCE STOCK
The following shares of stock were authorized with or without sinking fund
requirements as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Shares
Par Value (in millions)
----------- --------------
<S> <C> <C>
Preferred Stock ............. $100 12.5
Preferred Stock A ........... $ 25 10.0
Preference Stock ............ $100 1.5
</TABLE>
As of December 31, 1997 and 1996, there were no shares of preference stock
outstanding. Preferred stock with sinking fund requirements as of December 31,
1997 and 1996, was as follows (dollars in millions):
<TABLE>
<CAPTION>
Rate/Series Year Issued Shares Outstanding 1997 1996
- ---------------------------------- ------------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
5.95% B (Preferred Stock A) 1992 800,000 $ 20.0 $ 20.0
6.10% C (Preferred Stock A) 1992 800,000 20.0 20.0
6.20% D (Preferred Stock A) 1992 800,000 20.0 20.0
6.20% T .................... 1992 130,000 13.0 13.0
6.30% U .................... 1992 130,000 13.0 13.0
6.40% V .................... 1992 130,000 13.0 13.0
6.75% X .................... 1993 500,000 50.0 50.0
7.50% R .................... 1992 850,000 -- 85.0
-------- --------
Total .................... $ 149.0 $ 234.0
======== ========
</TABLE>
The annual sinking fund requirements for 1998 through 2002 are $0, $20.0
million, $33.0 million, $33.0 million and $13.0 million, respectively. Some
additional redemptions are permitted at the Corporation's option.
The call provisions for the outstanding preferred stock specify various
redemption prices not exceeding 104 percent of par value, plus accumulated
dividends to the redemption date.
Preferred stock without sinking fund requirements as of December 31, 1997
and 1996, was as follows (dollars in millions):
<TABLE>
<CAPTION>
Rate/Series Year Issued Shares Outstanding 1997 1996
- --------------------------------------- ------------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
4.50% C ......................... 1964 350,000 $ 35.0 $ 35.0
7.85% S ......................... 1992 600,000 60.0 60.0
7.00% W ......................... 1993 500,000 50.0 50.0
7.04% Y ......................... 1993 600,000 60.0 60.0
6.375% (Preferred Stock A) ...... 1993 2,400,000 60.0 60.0
Auction Series A ................ 1990 750,000 75.0 75.0
5.72% D ......................... 1966 350,000 -- 35.0
6.72% E ......................... 1968 350,000 -- 35.0
7.72% (Preferred Stock A) ....... 1992 1,600,000 -- 40.0
-------- --------
Total ......................... $ 340.0 $ 450.0
======== ========
</TABLE>
During December 1997, the Corporation redeemed approximately 3.2 million
shares of preferred stock for $203.4 million. On December 18, 1997, the
Corporation also commenced a tender offer to purchase a portion of six of its
preferred issues totaling $315 million. The tender offer expired on February 3,
1998, with acceptances limited to a maximum of 50 percent of the outstanding
shares of each issue. The premiums related to these redemptions were included
in Dividends and Premiums on Redemptions of Preferred and Preference Stock in
the Consolidated Statements of Income.
50
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 15. COMMITMENTS AND CONTINGENCIES
FUTURE CONSTRUCTION COSTS. The Corporation plans to maintain its regulated
facilities, and pursue business expansion of its regulated operations as
opportunities arise. Projected 1998 capital and investment expenditures for the
Electric Operations and the Natural Gas Transmission segments, including AFUDC,
are approximately $700 million and $300 million, respectively. These
projections are subject to periodic review and revisions. Actual expenditures
incurred may vary from such estimates due to various factors, including revised
electric load estimates, business expansion opportunities, environmental
matters and cost and availability of capital.
The Energy Services segment plans to spend approximately $100 million in
1998 for required capital expenditures at its existing facilities. In addition,
the Corporation is seeking to significantly grow its Energy Services
businesses, primarily through the Global Asset Development business unit. One
opportunity includes the 520-megawatt combined cycle natural gas fired merchant
generation plant in Bridgeport, Connecticut already under construction. Another
growth opportunity includes the recently announced agreement to purchase from
Pacific Gas & Electric Company three power plants in California. The power
plants have a combined capacity of 2,645 megawatts. The purchase price is
estimated at approximately $500 million and this transaction is expected to
close during 1998. Other similar initiatives in 1998 will likely require
significant capital and investment expenditures which will be subject to
periodic review and revision and may vary significantly depending on the
value-added opportunities presented.
Projected capital and investment expenditures for 1998 of the Other
Operations segment are approximately $200 million. These projected capital and
investment expenditures are also subject to periodic review and revision and
may vary significantly depending on the value-added opportunities presented.
NUCLEAR INSURANCE. The Corporation owns and operates the McGuire and
Oconee nuclear facilities with two and three nuclear reactors, respectively,
and operates and has a partial ownership interest in the Catawba nuclear
facility with two nuclear reactors. The Corporation maintains nuclear insurance
coverage in three program areas: liability coverage; property, decontamination
and decommissioning coverage; and business interruption and/or extra expense
coverage. The Corporation is being reimbursed by the other joint owners of
Catawba for certain expenses associated with nuclear insurance premiums paid by
the Corporation.
Pursuant to the Price-Anderson Act, the Corporation is required to insure
against public liability claims resulting from nuclear incidents to the full
limit of liability of approximately $8.9 billion.
Primary Liability Insurance. The maximum required private primary
liability insurance of $200 million has been purchased along with a like amount
to cover certain worker tort claims.
Excess Liability Insurance. This policy currently provides approximately
$8.7 billion of coverage through the Price-Anderson Act's mandatory
industry-wide excess secondary insurance program of risk pooling. The $8.7
billion of coverage is the sum of the current potential cumulative
retrospective premium assessments of $79.3 million per licensed commercial
nuclear reactor. This $8.7 billion will be increased by $79.3 million as each
additional commercial nuclear reactor is licensed, or reduced by $79.3 million
for certain nuclear reactors that are no longer operational and may be exempted
from the risk pooling insurance program. Under this program, licensees could be
assessed retrospective premiums to compensate for damages in the event of a
nuclear incident at any licensed facility in the nation. If such an incident
occurs and public liability damages exceed primary insurances, licensees may be
assessed up to $79.3 million for each of their licensed reactors, payable at a
rate not to exceed $10 million a year per licensed reactor for each incident.
The $79.3 million amount is subject to indexing for inflation and may be
subject to state premium taxes.
The Corporation is a member of Nuclear Electric Insurance Limited (NEIL),
which provides property and business interruption insurance coverages for the
Corporation's nuclear facilities under the following three policy programs:
Primary Property Insurance. This policy provides $500 million in primary
property damage coverage for each of the Corporation's nuclear facilities.
Excess Property Insurance. This policy provides excess property,
decontamination and decommissioning liability insurance in the following
amounts; $2.25 billion for Catawba and $1.5 billion for each of the Oconee and
McGuire Nuclear Stations.
51
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 15. COMMITMENTS AND CONTINGENCIES -- Continued
Business Interruption Insurance. This policy provides business
interruption and/or extra expense coverage resulting from an accidental outage
of a nuclear unit. Each unit of the McGuire and Catawba Nuclear Stations is
insured for up to approximately $3.5 million per week and the Oconee Nuclear
Station units are insured for up to approximately $2.8 million per week.
Coverage amounts per unit decline if more than one unit is involved in an
accidental outage. Initial coverage begins after a 17-week deductible period
and continues at 100 percent for 52 weeks and 80 percent for the next 104
weeks.
If NEIL's losses ever exceed its reserves for any of the above three
programs, the Corporation will be liable for assessments of up to five times
the Corporation's annual premiums. The current potential maximum assessments
are as follows: Primary Property Insurance - $30 million; Excess Property
Insurance - $31 million; Business Interruption Insurance - $27 million.
The other joint owners of Catawba are obligated to assume their pro rata
share of any liabilities for retrospective premiums and other premium
assessments resulting from the Price-Anderson Act's excess secondary insurance
program of risk pooling or the NEIL policies.
ENVIRONMENTAL. The Corporation is subject to federal, state and local
regulations regarding air and water quality, hazardous and solid waste
disposal, and other environmental matters.
TETCO is currently conducting PCB (polychlorinated biphenyl) assessment
and clean-up programs at certain of its compressor station sites under
conditions stipulated by a U.S. Consent Decree. The programs include on- and
off-site assessment, installation of on-site source control equipment and
groundwater monitoring wells, and on- and off-site clean-up work. TETCO expects
to complete these clean-up programs during 1998. Groundwater monitoring
activities will continue at several sites beyond 1998.
In 1987, the Commonwealth of Kentucky instituted a suit in state court
against TETCO, alleging improper disposal of PCBs at TETCO's three compressor
station sites in Kentucky. This suit is still pending. In 1996, TETCO completed
clean-up of these sites under the U.S. Consent Decree.
The Corporation has also identified environmental contamination at certain
sites on the PEPL and Trunkline systems and is undertaking clean-up programs at
these sites. The contamination resulted from the past use of lubricants
containing PCBs and the prior use of wastewater collection facilities and other
on-site disposal areas. Soil and sediment testing, to date, has detected no
significant off-site contamination. The Corporation has communicated with the
Environmental Protection Agency and appropriate state regulatory agencies on
these matters. Environmental clean-up programs are expected to continue until
2002.
At December 31, 1997 and 1996, the Corporation had accrued liabilities for
remaining estimated clean-up costs on the TETCO, PEPL and Trunkline systems
which are included in Environmental Clean-up Liabilities in the Consolidated
Balance Sheets. These cost estimates represent gross clean-up costs expected to
be incurred, have not been discounted or reduced by customer recoveries and do
not include fines, penalties or third-party claims. Costs to be recovered from
customers are included in the Consolidated Balance Sheets as of December 31,
1997 and 1996, as Regulatory Assets and Deferred Debits.
The federal and state clean-up programs are not expected to interrupt or
diminish the Corporation's ability to deliver natural gas to customers. Based
on the Corporation's experience to date and costs incurred for clean-up
operations, management believes the resolution of matters relating to the
environmental issues discussed above will not have a material adverse effect on
results of operations or financial position of the Corporation.
LITIGATION. In December 1996, TETCO received notification that Marathon
Oil Company (Marathon) intended to commence substitution of other gas reserves,
deliverability and leases for those dedicated to a certain natural gas purchase
contract (the Marathon Contract) with TETCO. In TETCO's view, the tendered
substitute gas reserves, deliverability and leases are not subject to the
Marathon Contract; therefore TETCO filed a declaratory judgment action on
December 17, 1996 in the U.S. District Court for the Eastern District of
Louisiana seeking a ruling that Marathon's interpretation of the Marathon
Contract is incorrect. Marathon filed a counterclaim seeking a declaratory
judgment enforcing its interpretation of the Marathon Contract. On January 7,
1997, Marathon filed an answer and a counterclaim to TETCO's complaint seeking
declaratory judgment enforcing its interpretation of the Marathon Contract.
52
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 15. COMMITMENTS AND CONTINGENCIES -- Continued
On February 18, 1997, Amerada Hess Corporation (Amerada Hess) notified
TETCO that it intended to commence substitution of other gas reserves,
deliverability and leases for those dedicated to its natural gas purchase
contract (the Amerada Hess Contract) with TETCO. On the same date, Amerada Hess
also filed a petition in the District Court of Harris County, Texas, 157th
Judicial District, seeking a declaratory judgment that its interpretation of
the Amerada Hess Contract, which covers the same leases and reserves as the
Marathon Contract, is correct. TETCO filed a declaratory judgment action with
respect to Amerada Hess' contentions in the U.S. District Court for the Eastern
District of Louisiana on February 21, 1997. The two actions have been
transferred to the judge presiding over the Marathon Contract matter.
On September 26, 1997, the judge presiding over the Marathon and Amerada
Hess contract matters issued summary judgments in both actions in favor of
TETCO. Marathon and Amerada Hess subsequently filed notices of appeal of the
summary judgments. On January 5, 1998, TETCO entered into an agreement with
Marathon settling all issues associated with the Marathon Contract. The
potential liability of the Company associated with the Amerada Hess Contract
should TETCO be contractually obligated to purchase natural gas based upon the
substitute gas reserves, deliverability and leases, and the effect of
transition cost recoveries pursuant to TETCO's Order 636 settlement involves
numerous complex legal and factual matters which will take a substantial period
of time to resolve. However, the Corporation does not believe that Amerada Hess
will prevail on its appeal of the lower court's summary judgment. Management is
of the opinion that the final disposition of this matter will not have a
material adverse effect on the consolidated results of operations or financial
position of the Corporation.
On April 25, 1997, a group of affiliated plaintiffs that own and/or
operate various pipeline and marketing companies and partnerships primarily in
Kansas filed suit against PEPL in the U.S. District Court for the Western
District of Missouri. The plaintiffs allege that PEPL has engaged in unlawful
and anti-competitive conduct with regard to requests for interconnects with the
PEPL system for service to the Kansas City area. Asserting that PEPL has
violated the antitrust laws and tortiously interfered with the plaintiffs'
contracts with third parties, the plaintiffs seek compensatory and punitive
damages in unspecified amounts. Periodically, similar disputes arise with other
natural gas marketers and pipeline companies concerning interconnections and
other issues involving access to the Corporation's natural gas transmission
systems. Management is of the opinion that the final disposition of these
proceedings will not have a material adverse effect on the consolidated results
of operations or financial position of the Corporation.
The Corporation and its subsidiaries are also involved in legal, tax and
regulatory proceedings before various courts, regulatory commissions and
governmental agencies regarding matters arising in the ordinary course of
business, some of which involve substantial amounts. Where appropriate, the
Corporation has made accruals in accordance with SFAS No. 5, "Accounting for
Contingencies," in order to provide for such matters. Management is of the
opinion that the final disposition of these matters will not have a material
adverse effect on the consolidated results of operations or financial position
of the Corporation.
OTHER COMMITMENTS AND CONTINGENCIES. The Corporation has a 10% ownership
interest in TEPPCO Partners, L.P., a master limited partnership (MLP) that owns
and operates a petroleum products pipeline. A subsidiary partnership of the MLP
had $326.5 million in First Mortgage Notes outstanding at December 31, 1997
with recourse to the general partner, a subsidiary of the Corporation.
In January 1998, the Corporation acquired a 9.8% ownership in Alliance
Pipeline. This pipeline is designed to transport natural gas from western
Canada to the Chicago-area market center for distribution throughout North
America. The pipeline is scheduled to begin commercial operation in late 1999,
provided the necessary U.S. and Canadian regulatory approvals are secured. In
addition to buying an ownership interest in the pipeline project, the
Corporation has a contractual commitment for 67.25 million cubic feet per day
of capacity on the line over 15 years for an estimated total of $315 million.
Periodically, the Corporation may become involved in contractual disputes
with natural gas transmission customers involving potential or threatened
abrogation of contracts by the customers, including for example attempted
transfers of contractual obligations to less creditworthy subsidiaries of the
customers. If the customers are successful, the Corporation may not receive the
full value of anticipated benefits under the contracts.
53
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 15. COMMITMENTS AND CONTINGENCIES -- Continued
In the normal course of business, certain of the Corporation's affiliates
enter into various contracts, including agreements for debt, natural gas
transmission service and construction contracts, which contain certain schedule
and performance requirements. Such affiliates use risk management techniques to
mitigate their exposure associated with such contracts. Certain subsidiaries of
the Corporation have guaranteed performance by such affiliates under some of
these contracts.
Management is of the opinion that these commitments and contingencies will
not have a material adverse effect on the consolidated results of operations or
the financial position of the Corporation.
LEASES. The Corporation utilizes assets under operating leases in several
areas of operations. Consolidated rental expense amounted to $91.7 million,
$84.2 million, and $61.7 million in 1997, 1996, and 1995, respectively. Future
minimum rental payments under the Corporation's various operating leases for
the years 1998 through 2002 are $87.4 million, $76.3 million, $68.9 million,
$66.5 million, and $48.7 million, respectively.
NOTE 16. COMMON STOCK
On February 27, 1996, the Board of Directors authorized the Corporation to
repurchase up to $1 billion of its common stock over the next five years. As of
December 31, 1996, approximately 3.3 million shares had been repurchased for
$159 million. On January 28, 1997, the Board of Directors amended the program
to expressly limit the number of shares authorized for repurchase under the
program, from the initiation of the program through a date two years after the
consummation of the merger, to an amount not to exceed 15 million shares. No
repurchases of common stock were made in 1997, and none are anticipated in the
future.
NOTE 17. STOCK BASED COMPENSATION
STOCK OPTIONS AND AWARDS. Effective with the merger, each share of
PanEnergy common stock outstanding immediately prior to the merger was
converted into the right to receive 1.0444 shares of the Corporation's common
stock. Each option to purchase PanEnergy common stock that was outstanding
prior to the merger was assumed by the Corporation and became exercisable upon
the same terms as under the applicable PanEnergy stock option plan and option
agreement, except that such options became an option to purchase shares of the
Corporation's common stock, appropriately adjusted. Each award of restricted
shares of PanEnergy common stock outstanding and not vested prior to the merger
was assumed by the Corporation and such restricted shares of PanEnergy common
stock were exchanged for restricted shares of the Corporation's common stock.
Under the Corporation's 1996 Stock Incentive Plan, stock options and
awards for up to two million shares of common stock may be granted to key
employees. Under the plan, the exercise price of each option granted equals the
market price of the Corporation's common stock on the date of grant. Vesting
periods range from one to five years with a maximum exercise term of 10 years.
In 1997, the Corporation granted 115,615 shares of performance-based stock
awards and 1,000 fixed stock awards with an average grant date fair value of
$44 per share. The Corporation recognized compensation expense of $4.4 million
in 1997, $8.3 million in 1996 and none in 1995 for such stock awards.
54
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 17. STOCK BASED COMPENSATION -- Continued
A summary of the Corporation's stock option grants follows:
<TABLE>
<CAPTION>
Options Average
(000's) Exercise Price
----------- ---------------
<S> <C> <C>
Outstanding at December 31, 1994 3,737 $ 16
Granted ........................ 959 20
Exercised ...................... (1,075) 13
Forfeited ...................... (62) 22
------
Outstanding at December 31, 1995 3,559 18
Granted ........................ 498 28
Exercised ...................... (712) 16
Forfeited ...................... (71) 22
------
Outstanding at December 31, 1996 3,274 20
Granted ........................ 388 44
Exercised ...................... (873) 19
Forfeited ...................... (60) 27
------
Outstanding at December 31, 1997 2,729 24
======
</TABLE>
The Corporation had 2.2 million options and 2.4 million options
exercisable at December 31, 1996 and 1995, with average exercise prices of $19
and $16 per option, respectively. Details of stock options outstanding and
options exercisable at December 31, 1997 follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------- -------------------
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices (000's) Life (Years) Price (000's) Price
- --------------------------- --------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
$10 to $14 ......... 193 3.5 $ 11 193 $ 11
$15 to $20 ......... 966 5.8 18 966 18
$21 to $25 ......... 808 5.6 22 808 22
$26 to $31 ......... 396 8.1 28 396 28
$41 to $50 ......... 366 9.1 44 14 42
--- ---
Total ............. 2,729 2,377 21
===== =====
</TABLE>
FAIR VALUE INFORMATION. The weighted-average fair value of options granted
was $10, $9, and $7 per option during 1997, 1996 and 1995, respectively. The
fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for 1997, 1996 and 1995, respectively: stock dividend yield of
3.5%, 2.6% and 2.6%; expected stock price volatility of 20.7%, 26% and 26%;
risk-free interest rates of 6.5%, 5.7% and 7.7%; and expected option lives of
seven years. Had compensation expense for stock-based compensation been
determined based on the fair value at the grant dates, the Corporation's 1997
net income would have been $971.4 million, or $2.50 per share; 1996 net income
would have been $1,073.7 million, or $2.85 per share; and 1995 net income would
have been $1,016.9 million, or $2.68 per share.
NOTE 18. BENEFIT PLANS
RETIREMENT PLANS. The Corporation and its subsidiaries have multiple
non-contributory defined benefit retirement plans covering most employees with
minimum service requirements. Effective January 1, 1997, the Duke Power
retirement plan was amended to a plan under which benefits are based upon a
cash balance formula. Under a cash balance formula, a plan participant
accumulates a benefit based upon a percentage of current salary, which may vary
with age and years of service, and interest credits. Prior to January 1, 1997,
the Duke Power retirement plan benefits were based on an age-related formula
which took into account years of benefit accrual service and the employee's
highest average eligible earnings.
55
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 18. BENEFIT PLANS -- Continued
The PanEnergy plan provides retirement benefits (i) for eligible employees
of certain subsidiaries that are generally based on an employee's years of
benefit accrual service and highest average eligible earnings, and (ii) for
eligible employees of certain other subsidiaries under a cash balance formula.
The Corporation's policy is to fund amounts, as necessary, on an actuarial
basis to provide assets sufficient to meet benefits to be paid to plan members.
On December 30, 1997 assets and related liabilities of $235.6 million and $204
million, respectively, for certain PanEnergy participants were transferred to
the Duke Power plan. As a result of this transfer, no contributions to the Duke
Power plan were necessary in 1997.
Net periodic pension cost includes the following components for the years
ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
In Millions
<S> <C> <C> <C>
Actual return on plan assets ...................... $ (455.3) $ (302.6) $ (413.1)
Amount deferred for recognition ................... 246.5 110.4 237.4
---------- ---------- ----------
Expected return on plan assets .................... (208.8) (192.2) ( 175.7)
Service cost benefit earned during the year ....... 62.2 62.7 57.8
Interest cost on projected benefit obligation ..... 163.7 152.8 147.9
Net amortization .................................. 7.8 6.4 3.3
---------- ---------- ----------
Net periodic pension cost ....................... $ 24.9 $ 29.7 $ 33.3
========== ========== ==========
</TABLE>
A reconciliation of the funded status of the plans to the amounts
recognized in the Consolidated Balance Sheets as of December 31, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
In Millions
<S> <C> <C>
Accumulated benefit obligation
Vested benefits ............................. $ (2,011.9) $ (1,814.9)
Nonvested benefits .......................... (18.3) (26.7)
------------ ------------
Accumulated benefit obligation ................ $ (2,030.2) $ (1,841.6)
============ ============
Fair market value of plan assets (a) .......... $ 2,724.7 $ 2,445.3
Projected benefit obligation .................. (2,372.1) (2,126.4)
Unrecognized net experience loss .............. 81.3 123.1
Unrecognized prior service cost reduction ..... (64.8) (45.1)
Unrecognized net asset ........................ (31.6) (36.3)
------------ ------------
Pre-funded pension cost ..................... $ 337.5 $ 360.6
============ ============
</TABLE>
- ---------
(a) Principally equity and fixed income securities
Assumptions used in the Corporation's pension accounting (reflecting
weighted averages across all plans) include:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
Percent (%)
<S> <C> <C> <C>
Discount rate ................................... 7.25 7.50 7.50
Salary increase ................................. 4.15 4.80 4.81
Expected long-term rate of return on plan assets 9.25 9.18 9.18
</TABLE>
During 1995, the Corporation offered to certain employees an Enhanced
Vested Benefits program (EVB). The Corporation recorded an additional one-time
expense for special termination benefits associated with the EVB of
approximately $42.2 million, including $21.6 million of additional retirement
plan costs.
56
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 18. BENEFIT PLANS -- Continued
The Corporation also sponsors employee savings plans which cover
substantially all employees. The Corporation expensed plan contributions of
$52.8 million, $34.8 million and $34.9 million in 1997, 1996 and 1995,
respectively.
OTHER POSTRETIREMENT BENEFITS. The Corporation and most of its
subsidiaries provide certain health care and life insurance benefits for
retired employees on a contributory and non-contributory basis. Employees
become eligible for these benefits if they have met certain age and service
requirements at retirement, as defined in the plans.
The Corporation accrues such benefit costs over the active service period
of employees to the date of full eligibility for the benefits. The net
unrecognized transition obligation, resulting from the implementation of
accrual accounting, is being amortized over approximately 20 years.
The Corporation is using an investment account under section 401(h) of the
Internal Revenue Code, a retired lives reserve (RLR) and multiple voluntary
employees' beneficiary association (VEBA) trusts under section 501(c)(9) of the
Internal Revenue Code to partially fund postretirement benefits. The 401(h)
vehicles, which provide for tax deductions for contributions and tax-free
accumulation of investment income, partially fund the Corporation's
postretirement health care benefits. The Corporation uses the RLR, which has
tax attributes similar to 401(h) funding, to partially fund its postretirement
life insurance obligations. Certain subsidiaries use the VEBA trusts to
partially fund accrued postretirement health care benefits and fund
postretirement life insurance obligations.
Net periodic postretirement benefit cost of the plans include the
following components for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
In Millions
<S> <C> <C> <C>
Actual return on plan assets ....................................... $ (45.1) $ (20.5) $ (29.6)
Amount deferred for recognition .................................... 26.4 4.2 16.2
--------- --------- ---------
Expected return on plan assets ..................................... (18.7) (16.3) (13.4)
Service cost benefit earned during the year ........................ 10.0 8.4 7.6
Interest cost on accumulated postretirement benefit obligation ..... 46.2 43.3 43.5
Net amortization ................................................... 20.3 19.3 16.5
--------- --------- ---------
Net periodic postretirement benefit cost ......................... $ 57.8 $ 54.7 $ 54.2
========= ========= =========
</TABLE>
A reconciliation of the funded status of the plans to the amounts
recognized in the Consolidated Balance Sheets as of December 31, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
In Millions
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees ............................................ $ (428.6) $ (440.5)
Fully eligible active plan participants ............. (57.0) (42.6)
Other active plan participants ...................... (181.4) (158.6)
---------- ----------
Accumulated post retirement benefit obligation ..... (667.0) (641.7)
Fair market value of plan assets (a) .................. 266.2 225.3
Unrecognized prior service cost ....................... 64.6 66.7
Unrecognized net experience loss ...................... 3.7 27.0
Unrecognized transitional obligation .................. 255.9 273.0
---------- ----------
Accrued postretirement benefit cost ................. $ (76.6) $ (49.7)
========== ==========
</TABLE>
- ---------
(a) Principally equity and fixed income securities
57
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 18. BENEFIT PLANS -- Continued
Assumptions used in the Corporation's postretirement benefits accounting
(reflecting weighted-averages across all plans) include:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
Percent (%)
<S> <C> <C> <C>
Discount rate ..................................... 7.25 7.50 7.50
Salary increase ................................... 4.33 4.84 4.84
Expected long-term rate of return on 401(h) assets 9.25 9.00 9.00
Expected long-term rate of return on RLR assets ... 6.75 6.50 8.00
Expected long-term rate of return on VEBA assets .. 9.25 9.50 9.50
Assumed tax rate (a) .............................. 39.60 39.60 39.60
</TABLE>
- ---------
(a) Health care portion of postretirement benefits in VEBA trusts.
The weighted-average health care cost trend rate used to estimate
postretirement benefits was 7.75% in 1997. This rate is expected to decrease,
with a 4.75% weighted-average ultimate trend rate expected to be achieved by
2005. The effect of a 1% increase in the assumed health care cost trend rate
for each future year would result in a $2.4 million increase in the annual
aggregate postretirement benefit cost and a $29.5 million increase in the
accumulated postretirement benefit obligation at December 31, 1997.
NOTE 19. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Second Quarter
--------------- ----------------
In Millions
(except per share data)
<S> <C> <C>
1997
Operating revenues ............................... $ 3,785.8 $ 3,112.8
Operating income ................................. 610.0 352.0
Net income ....................................... 311.7 168.6
Basic earnings per share ......................... $ 0.84 $ 0.43
1996
Operating revenues ............................... $ 2,859.1 $ 2,559.3
Operating income ................................. 575.7 479.2
Income before extraordinary item ................. 293.1 237.1
Net income ....................................... 293.1 237.1
Basic earnings per share (before extraordinary
item) ........................................... $ 0.78 $ 0.62
Basic earnings per share ......................... $ 0.78 $ 0.62
<CAPTION>
Third Quarter Fourth Quarter Total
--------------- ---------------- ---------------
In Millions
(except per share data)
<S> <C> <C> <C>
1997
Operating revenues ............................... $ 4,820.6 $ 4,589.7 $ 16,308.9
Operating income ................................. 606.3 401.7 1,970.0
Net income ....................................... 309.5 184.6 974.4
Basic earnings per share ......................... $ 0.83 $ 0.41 $ 2.51
1996
Operating revenues ............................... $ 3,133.4 $ 3,750.6 $ 12,302.4
Operating income ................................. 653.1 450.6 2,158.6
Income before extraordinary item ................. 351.2 209.6 1,091.0
Net income ....................................... 351.2 192.9 1,074.3
Basic earnings per share (before extraordinary
item) ........................................... $ 0.94 $ 0.56 $ 2.90
Basic earnings per share ......................... $ 0.94 $ 0.51 $ 2.85
</TABLE>
Amounts reported on a quarterly basis are not necessarily indicative of
amounts expected for the respective years due to the effects of seasonal
temperature variations on energy consumption and the timing of maintenance of
certain electric generating units.
58
<PAGE>
DUKE ENERGY CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Allowance for Doubtful
Accounts (a) Other Reserves (a), (b)
----------------------- ------------------------
In Millions
<S> <C> <C>
Balance at December 31, 1997 ...... $ 22.5 $ 306.2
Balance at December 31, 1996 ...... 20.0 261.4
Balance at December 31, 1995 ...... 16.5 271.1
</TABLE>
- ---------
(a) Financial information reflects accounting for the merger with PanEnergy
Corp as a pooling of interests. As a result, the financial information
gives effect to the merger as if it had occurred December 31, 1995.
(b) Principally consists of injuries and damages reserves, property insurance
reserves and litigation and other contingency reserves which are included
in "Other Current Liabilities" or "Deferred Credits and Other Liabilities"
in the Consolidated Balance Sheets.
59
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF DUKE ENERGY CORPORATION
We have audited the consolidated balance sheets of Duke Energy Corporation
and subsidiaries (the Corporation) as of December 31, 1997 and 1996, and the
related consolidated statements of income, common stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. Our
audits also included the consolidated financial statement schedule listed in the
accompanying index at Item 14. These financial statements and financial
statement schedule are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits. The consolidated financial
statements and consolidated financial statement schedule give retroactive effect
to the merger of Duke Power Company and PanEnergy Corp, which has been accounted
for as a pooling of interests as described in Note 1 to the consolidated
financial statements. We did not audit the balance sheet of PanEnergy Corp and
subsidiaries as of December 31, 1996, or the related statements of income,
common stockholders' equity, and cash flows of PanEnergy Corp and subsidiaries
for each of the two years in the period ended December 31, 1996, which
statements reflect total assets of (in millions) $8,567.8 as of December 31,
1996 and total operating revenues of (in millions), $7,536.8 and $4,967.5 for
the years ended December 31, 1996, and 1995, respectively. Those financial
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for PanEnergy
Corp and subsidiaries for 1996, and 1995, is based solely on the report of such
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Corporation as of December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles. Also, in our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Charlotte, North Carolina
February 13, 1998
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements of Duke Energy Corporation are prepared by
management, which is responsible for their integrity and objectivity. The
statements are prepared in conformity with generally accepted accounting
principles appropriate in the circumstances to reflect in all material respects
the substance of events and transactions which should be included. The other
information in the annual report is consistent with the financial statements.
In preparing these statements, management makes informed judgments and
estimates of the expected effects of events and transactions that are currently
being reported.
The Corporation's system of internal accounting control is designed to
provide reasonable assurance that assets are safeguarded and transactions are
executed according to management's authorization. Internal accounting controls
also provide reasonable assurance that transactions are recorded properly, so
that financial statements can be prepared according to generally accepted
accounting principles. In addition, the Corporation's accounting controls
provide reasonable assurance that errors or irregularities which could be
material to the financial statements are prevented or are detected by employees
within a timely period as they perform their assigned functions. The
Corporation's accounting controls are continually reviewed for effectiveness.
In addition, written policies, standards and procedures, and a strong internal
audit program augment the Corporation's accounting controls.
The Board of Directors pursues its oversight role for the financial
statements through the audit committee, which is composed entirely of directors
who are not employees of the Corporation. The audit committee meets with
management and internal auditors periodically to review the work of each group
and to monitor each group's discharge of its responsibilities. The audit
committee also meets periodically with the Corporation's independent auditors,
Deloitte & Touche LLP. The independent auditors have free access to the audit
committee and the Board of Directors to discuss internal accounting control,
auditing and financial reporting matters without the presence of management.
JEFFREY L. BOYER
Vice President and Controller
60
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
Reference is made to "Executive Officers of the Corporation" included in
"Item 1. Business" of this report. See "Election of Directors", "Information
Regarding the Board of Directors" and "Other Matters" in the proxy statement
relating to the Corporation's 1998 annual meeting of shareholders (the Proxy
Statement), incorporated herein by reference.
Item 11. Executive Compensation.
See "Executive Compensation" and "Compensation of Directors" in the Proxy
Statement, incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See "Security Ownership of Nominees, Directors and Executive Officers" in
the Proxy Statement, incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
See "Information Regarding the Board of Directors" in the Proxy Statement,
incorporated herein by reference.
61
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Consolidated Financial Statements, Supplemental Financial Data and
Supplemental Schedules included in Part II of this annual report are as
follows:
Consolidated Financial Statements
Consolidated Statements of Income for the Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Common Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Quarterly Financial Data (unaudited) (included in Note 19 to the
Consolidated Financial Statements)
Consolidated Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts and Reserves for the
Years Ended December 31, 1997, 1996 and 1995
All other schedules are omitted because of the absence of the conditions
under which they are required or because the required information is
included in the financial statements or notes thereto.
(b) Reports on Form 8-K
A Current Report on Form 8-K filed on November 18, 1997 contained
disclosures under Item 5, Other Events, and Item 7, Financial Statements and
Exhibits.
A Current Report on Form 8-K filed on December 4, 1997 contained
disclosures under Item 7, Financial Statements and Exhibits. The following
audited consolidated financial statements were filed as Exhibit 99.1 to such
report:
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Common Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
(c) Exhibits -- See Exhibit Index immediately following the signature
page.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 27, 1998
DUKE ENERGY CORPORATION
(Registrant)
By: RICHARD B. PRIORY
Richard B. Priory
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
(i) Principal executive officer:
Richard B. Priory
Chairman of the Board and Chief Executive Officer
(ii) Principal financial officer:
Richard J. Osborne
Executive Vice President and Chief Financial Officer
(iii) Principal accounting officer:
Jeffrey L. Boyer
Vice President and Corporate Controller
(iv) A majority of the Directors:
Richard B. Priory
Paul M. Anderson
G. Alex Bernhardt, Sr.
Robert J. Brown
William A. Coley
William T. Esrey
Ann Maynard Gray
Dennis R. Hendrix
George Dean Johnson, Jr.
Max Lennon
Leo E. Linbeck, Jr.
James G. Martin
Buck Mickel
Russell M. Robinson, II
Date: March 27, 1998
Richard J. Osborne, by signing his name hereto, does hereby sign this
document on behalf of the registrant and on behalf of each of the above-named
persons pursuant to a power of attorney duly executed by the registrant and
such persons, filed with the Securities and Exchange Commission as an exhibit
hereto.
By: /s/ RICHARD J. OSBORNE
------------------------------------
Richard J. Osborne
Attorney-In-Fact
63
<PAGE>
EXHIBIT INDEX
Exhibits filed herewith are designated by an asterisk (*). All exhibits
not so designated are incorporated by reference to a prior filing, as
indicated. Items constituting management contracts or compensatory plans or
arrangements are designated by a double asterisk (**).
<TABLE>
<CAPTION>
Exhibit
Number
- --------
<S> <C> <C>
2 -- Agreement and Plan of Merger, dated as of November 24, 1996, as amended and restated as of March 10,
1997, among registrant, Duke Transaction Corporation and PanEnergy Corp (filed with Form 8-K dated
March 20, 1997, File No. 1-4928, as Exhibit 2(a)).
3-A -- Restated Articles of Incorporation of registrant, dated June 18, 1997 (filed with Form S-8, No. 333-29563,
effective June 19, 1997, as Exhibit 4(G)).
3-B -- By-Laws of registrant, as amended (filed with Form S-8, No. 333-34655, effective August 29, 1997, as
Exhibit 4(D)).
4-B-1 -- First and Refunding Mortgage from registrant to Guaranty Trust Company of New York, Trustee, dated as of
December 1, 1927 (filed with Form S-1, File No. 2-7224, effective October 15, 1947, as Exhibit 7(a)).
4-B-2 -- Supplemental Indenture, dated as of March 12, 1930, supplementing said Mortgage (filed with Form S-1,
File No. 2-7224, effective October 15, 1947, as Exhibit 7(b)).
4-B-5 -- Supplemental Indenture, dated as of September 1, 1936, supplementing said Mortgage (filed with Form S-1,
File No. 2-7224, effective October 15, 1947, as Exhibit 7(e)).
4-B-6 -- Supplemental Indenture, dated as of January 1, 1941, supplementing said Mortgage (filed with Form S-1,
File No. 2-7224, effective October 15, 1947, as Exhibit 7(f)).
4-B-7 -- Supplemental Indenture, dated as of April 1, 1944, supplementing said Mortgage (filed with Form S-1, File
No. 2-7224, effective October 15, 1947, as Exhibit 7(g)).
4-B-8 -- Supplemental Indenture, dated as of September 1, 1947, supplementing said Mortgage (filed with Form S-1,
File No. 2-7224, effective October 15, 1947, as Exhibit 7(h)).
4-B-9 -- Supplemental Indenture, dated as of September 8, 1947, supplementing said Mortgage (filed with Form S-1,
File No. 2-10401, effective August 21, 1953, as Exhibit 4-B-9).
4-B-10 -- Supplemental Indenture, dated as of February 1, 1949, supplementing said Mortgage (filed with Form S-1,
File No. 2-7808, effective February 3, 1949, as Exhibit 7(j)).
4-B-11 -- Supplemental Indenture, dated as of March 1, 1949, supplementing said Mortgage (filed with Form S-1, File
No. 2-8877, effective April 6, 1951, as Exhibit 7(k)).
4-B-14 -- Supplemental Indenture, dated as of October 1, 1954, supplementing said Mortgage (filed with Form S-9,
File No. 2-11297, effective December 30, 1954, as Exhibit 2-B-14).
4-B-17 -- Supplemental Indenture, dated as of January 1, 1960, supplementing said Mortgage (filed with Form 10,
effective June 29, 1961, as Exhibit 3-B-18).
4-B-18 -- Supplemental Indenture, dated as of February 1, 1960, supplementing said Mortgage (filed with Form 10,
effective June 29, 1961, as Exhibit 3-B-19).
4-B-21 -- Supplemental Indenture, dated as of June 15, 1964, supplementing said Mortgage (filed with Form S-1, File
No. 2-25367, effective August 3, 1966, as Exhibit 4-B-20).
4-B-24 -- Supplemental Indenture, dated as of February 1, 1968, supplementing said Mortgage (filed with Form S-9,
File No. 2-31304, effective January 21, 1969, as Exhibit 2-B-26).
4-B-48 -- Supplemental Indenture, dated as of September 1, 1983, supplementing said Mortgage (filed with Form S-3,
File No. 2-95931, effective April 1, 1985, as Exhibit 4-B-48).
4-B-49 -- Supplemental Indenture, dated as of September 1, 1984, supplementing said Mortgage (filed with Form S-3,
File No. 2-95931, effective April 1, 1985, as Exhibit 4-B-49).
4-B-56 -- Supplemental Indenture, dated as of February 15, 1987, supplementing said Mortgage (filed with Form 10-K
for the year ended December 31, 1986, File No. 1-4928, as Exhibit 4-B-56).
4-B-58 -- Supplemental Indenture, dated as of October 1, 1987, supplementing said Mortgage (filed with Form 10-K
for the year ended December 31, 1987, File No. 1-4928, as Exhibit 4-B-58).
4-B-60 -- Supplemental Indenture, dated as of March 1, 1990, supplementing said Mortgage (filed with Form 10-K for
the year ended December 31, 1990, File No. 1-4928, as Exhibit 4-B-60).
4-B-62 -- Supplemental Indenture, dated as of May 15, 1990, supplementing said Mortgage (filed with Form 10-K for
the year ended December 31, 1990, File No. 1-4928, as Exhibit 4-B-62).
4-B-64 -- Supplemental Indenture, dated as of July 1, 1991, supplementing said Mortgage (filed with Form S-3, File
No. 33-45501, effective February 13, 1992, as Exhibit 4-B-64).
4-B-67 -- Supplemental Indenture, dated as of June 1, 1992, supplementing said Mortgage (filed with Form S-3, File
No. 33-50592, effective August 11, 1992, as Exhibit 4-B-67).
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
- --------
<S> <C> <C>
4-B-68 -- Supplemental Indenture, dated as of July 1, 1992, supplementing said Mortgage (filed with Form S-3, File
No. 33-50592, effective August 11, 1992, as Exhibit 4-B-68).
4-B-69 -- Supplemental Indenture, dated as of September 1, 1992, supplementing said Mortgage (filed with Form S-3,
File No. 33-53308, effective November 24, 1992, as Exhibit 4-B-69).
4-B-70 -- Supplemental Indenture, dated as of February 1, 1993, supplementing said Mortgage (filed with Form 10-K
for the year ended December 31, 1992, File No. 1-4928, as Exhibit 4-B-70).
4-B-71 -- Supplemental Indenture, dated as of March 1, 1993, supplementing said Mortgage (filed with Form S-3, File
No. 33-59448, effective March 17, 1993, as Exhibit 4-B-71).
4-B-72 -- Supplemental Indenture, dated as of April 1, 1993, supplementing said Mortgage (filed with Form S-3, File
No. 33-50543, effective October 20, 1993, as Exhibit 4-B-72).
4-B-73 -- Supplemental Indenture, dated as of May 1, 1993, supplementing said Mortgage (filed with Form S-3, File
No. 33-50543, effective October 20, 1993, as Exhibit 4-B-73).
4-B-74 -- Supplemental Indenture, dated as of June 1, 1993, supplementing said Mortgage (filed with Form S-3, File
No. 33-50543, effective October 20, 1993, as Exhibit 4-B-74).
4-B-75 -- Supplemental Indenture, dated as of July 1, 1993, supplementing said Mortgage (filed with Form S-3, File
No. 33-50543, effective October 20, 1993, as Exhibit 4-B-75).
4-B-76 -- Supplemental Indenture, dated as of August 1, 1993, supplementing said Mortgage (filed with Form S-3, File
No. 33-50543, effective October 20, 1993, as Exhibit 4-B-76).
4-B-77 -- Supplemental Indenture, dated as of August 20, 1993, supplementing said Mortgage (filed with Form S-3,
File No. 33-50543, effective October 20, 1993, as Exhibit 4-B-77).
4-B-78 -- Supplemental Indenture, dated as of May 1, 1994, supplementing said Mortgage (filed with Form 10-K for
the year ended December 31, 1994, File No. 1-4928, as Exhibit 4-B-78).
4-B-79 -- Supplemental Indenture, dated as of November 1, 1994, supplementing said Mortgage (filed with Form 10-K
for the year ended December 31, 1994, File No. 1-4928, as Exhibit 4-B-79).
4-B-80 -- Supplemental Indenture, dated as of August 1, 1995, supplementing said Mortgage (filed with Form 10-K for
the year ended December 31, 1995, File No. 1-4928, as Exhibit 4-B-80).
4-C -- Instrument of Resignation, Appointment and Acceptance among Duke Power Company, Morgan Guaranty
Trust Company of New York, as Trustee, and Chemical Bank, as Successor Trustee, dated as of August 30,
1994 (filed with Form 10-K for the year ended December 31, 1994, File No. 1-4928, as Exhibit 4-C).
10-A -- Agreement, dated March 6, 1978, between the registrant and the North Carolina Municipal Power Agency
No. 1 (filed with Form 8-K for the month of March 1978, File No. 1-4928).
10-B -- Agreement, dated August 1, 1980, between the registrant and Piedmont Municipal Power Agency (filed with
Form 8-K for the month of August 1980, File No. 1-4928).
10-C -- Agreement, dated October 14, 1980, between the registrant and North Carolina Electric Membership
Corporation (filed with Form 10-Q for the quarter ended September 30, 1980, File No. 1-4928).
10-D -- Agreement, dated October 14, 1980, between the registrant and Saluda River Electric Cooperative, Inc. (filed
with Form 10-Q for the quarter ended September 30, 1980, File No. 1-4928).
10-E** -- Employee Incentive Plan (filed with Form 10-K for the year ended December 31, 1993, File No. 1-4928, as
Exhibit 10-F).
10-F** -- Directors' Charitable Giving Program (filed with Form 10-K for the year ended December 31, 1992, File No.
1-4928, as Exhibit 10-P).
10-G** -- Estate Conservation Plan (filed with Form 10-K for the year ended December 31, 1992, File No. 1-4928, as
Exhibit 10-R).
10-H** -- Supplemental Insurance Plan (filed with Form 10-K for the year ended December 31, 1992, File No. 1-4928,
as Exhibit 10-S).
10-I** -- Executive Short-Term Incentive Plan (filed with Form 10-K for the year ended December 31, 1994, File No.
1-4928, as Exhibit 10-V).
10-J** -- Executive Savings Plan (filed with Form 10-K for the year ended December 31, 1996, File No. 1-4928, as
Exhibit 10-Z).
10-K** -- Executive Cash Balance Plan (filed with Form 10-K for the year ended December 31, 1996, File No. 1-4928,
as Exhibit 10-AA).
10-L** -- Directors' Savings Plan (filed with Form 10-K for the year ended December 31, 1996, File No. 1-4928, as
Exhibit 10-BB).
10-M** -- Duke Power Company Stock Incentive Plan (filed as Appendix A to Schedule 14A of registrant, March 18,
1996, File No. 1-4928).
10-N** -- 1989 Nonemployee Directors Stock Option Plan of Panhandle Eastern
Corporation, adopted February 1, 1989 (filed with Form S-8
Registration Statement of Panhandle Eastern Corporation File No.
33-28912, as Exhibit 28(a)).
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
- --------
<S> <C> <C>
10-O** -- 1982 Key Employee Stock Option Plan of Panhandle Eastern Corporation, as amended through December 3,
1986 (and related Agreement) (filed with Form 10-K of Panhandle Eastern Corporation for the year ended
December 31, 1986, File No. 1-8157, as Exhibit 10(g)).
10-P** -- Employees Savings Plan of Panhandle Eastern Corporation and Participating Affiliates (filed with Form 10-K
of Panhandle Eastern Corporation for the year ended December 31, 1990, File No. 1-8157, as Exhibit 10.12).
10-Q** -- Panhandle Eastern Corporation 1994 Long Term Incentive Plan (filed with Form 10-K of Panhandle Eastern
Corporation for the year ended December 31, 1993, File No. 1-8157, as Exhibit 10.18).
*10-R -- $1,250,000,000 Five-Year Credit Agreement dated as of August 25, 1997, among registrant, the banks listed
therein and Morgan Guaranty Trust Company of New York, as Administrative Agent.
*10-S -- $950,000,000 Five-Year Credit Agreement dated as of August 25, 1997, among Duke Capital Corporation,
the banks listed therein and The Chase Manhattan Bank, as Administrative Agent.
*10-T -- $300,000,000 364-Day Credit Agreement dated as of August 25, 1997, among Duke Capital Corporation, the
banks listed therein and The Chase Manhattan Bank, as Administrative Agent.
10-U** -- Employment Agreement by and between the registrant and Richard B. Priory dated November 24, 1996
(incorporated by reference to Exhibit C-1 of Exhibit 2 to this Form 10-K), and the First Amendment thereto
dated October 22, 1997, filed herewith.
10-V** -- Employment Agreement by and among PanEnergy Corp, the registrant and Paul M. Anderson dated
November 24, 1996 (incorporated by reference to Exhibit B-1 of Exhibit 2 to this Form 10-K), and the First
Amendment thereto dated October 24, 1997, filed herewith.
10-W** --- Employment Agreement by and among PanEnergy Corp, the registrant and James T. Hackett dated
November 24, 1996 (incorporated by reference to Exhibit B-2 of Exhibit 2 to this Form 10-K), and the First
Amendment thereto dated October 24, 1997, filed herewith.
10-X** -- Employment Agreement by and between the registrant and William A. Coley dated November 24, 1996
(incorporated by reference to Exhibit C-2 of Exhibit 2 to this Form 10-K), and the First Amendment thereto
dated October 24, 1997, filed herewith.
10-Y** -- Employment Agreement by and between the registrant and Richard J. Osborne dated November 24, 1996
(incorporated by reference to Exhibit C-3 of Exhibit 2 to this Form 10-K), and the First Amendment thereto
dated October 27, 1997, filed herewith.
10-Z** -- 1990 Long-Term Incentive Plan of Panhandle Eastern Corporation (filed with Form 10-K of Panhandle Eastern
Corporation for the year ended December 31, 1990, File No. 1-8157, as Exhibit 10.14).
10-AA -- Formation Agreement between PanEnergy Trading and Market Services, Inc. and Mobil Natural Gas Inc. dated
May 29, 1996 (filed with Form 10-Q of PanEnergy Corp for the quarter ended June 30, 1996, File No. 1-8157,
as Exhibit 2).
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*21 -- List of Subsidiaries.
*23(a) -- Consent of Deloitte & Touche LLP.
*23(b) -- Consent of KPMG Peat Marwick LLP.
*24(a) -- Power of attorney authorizing Richard J. Osborne and others to sign the annual report on behalf of the
registrant and certain of its directors and officers.
*24(b) -- Certified copy of resolution of the Board of Directors of the registrant authorizing power of attorney.
*27 -- Financial Data Schedule.
*99 -- Independent Auditors' Report of KPMG Peat Marwick LLP to the Board of Directors of PanEnergy Corp,
dated January 16, 1997.
</TABLE>
The total amount of securities of the registrant or its subsidiaries
authorized under any instrument with respect to long-term debt not filed as an
exhibit does not exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis. The registrant agrees, upon request of
the Securities and Exchange Commission, to furnish copies of any or all of such
instruments.
66
<PAGE>
CONFORMED COPY
$1,250,000,000
FIVE-YEAR
CREDIT AGREEMENT
dated as of
August 25, 1997
among
Duke Energy Corporation,
The Banks Listed Herein
and
Morgan Guaranty Trust Company of New York,
as Administrative Agent
--------------------------------------------------------
J.P. Morgan Securities Inc.,
Arranger
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TABLE OF CONTENTS
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<TABLE>
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ARTICLE 1
DEFINITIONS
<S> <C> <C>
SECTION 1.01. DEFINITIONS......................................................................1
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS.............................................11
SECTION 1.03. TYPES OF BORROWINGS.............................................................11
ARTICLE 2
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND.............................................................12
SECTION 2.02. NOTICE OF COMMITTED BORROWINGS..................................................13
SECTION 2.03. BID RATE BORROWINGS.............................................................14
SECTION 2.04. NOTICE TO BANKS; FUNDING OF LOANS...............................................18
SECTION 2.05. REGISTRY; NOTES.................................................................19
SECTION 2.06. MATURITY OF LOANS...............................................................19
SECTION 2.07. INTEREST RATES..................................................................19
SECTION 2.08. FEES............................................................................21
SECTION 2.09. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS................................22
SECTION 2.10. METHOD OF ELECTING INTEREST RATES...............................................22
SECTION 2.11. MANDATORY TERMINATION OF COMMITMENTS............................................24
SECTION 2.12. OPTIONAL PREPAYMENTS............................................................24
SECTION 2.13. GENERAL PROVISIONS AS TO PAYMENTS...............................................24
SECTION 2.14. FUNDING LOSSES..................................................................25
SECTION 2.15. COMPUTATION OF INTEREST AND FEES................................................25
SECTION 2.16. LETTERS OF CREDIT...............................................................26
SECTION 2.17. REGULATION D COMPENSATION.......................................................29
SECTION 2.18. TAKEOUT OF SWINGLINE LOANS......................................................30
SECTION 2.19. INCREASED COMMITMENTS; ADDITIONAL BANKS.........................................31
ARTICLE 3
CONDITIONS
SECTION 3.01. EFFECTIVENESS...................................................................32
SECTION 3.02. BORROWINGS AND ISSUANCE OF LETTERS OF CREDITS...................................33
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. CORPORATE EXISTENCE AND POWER...................................................34
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION;
NO CONTRAVENTION............................................................34
SECTION 4.03. BINDING EFFECT..................................................................35
SECTION 4.04. FINANCIAL INFORMATION...........................................................35
SECTION 4.05. LITIGATION......................................................................36
SECTION 4.06. COMPLIANCE WITH LAWS............................................................36
SECTION 4.07. TAXES...........................................................................36
SECTION 4.08. PUBLIC UTILITY HOLDING COMPANY ACT..............................................36
ARTICLE 5
COVENANTS
SECTION 5.01. INFORMATION.....................................................................37
SECTION 5.02. PAYMENT OF TAXES................................................................38
SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE..............................................39
SECTION 5.04. MAINTENANCE OF EXISTENCE........................................................39
SECTION 5.05. COMPLIANCE WITH LAWS............................................................39
SECTION 5.06. BOOKS AND RECORDS...............................................................40
SECTION 5.07. NEGATIVE PLEDGE.................................................................40
SECTION 5.08. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS.....................................41
SECTION 5.09. USE OF PROCEEDS.................................................................42
ARTICLE 6
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT...............................................................42
SECTION 6.02. NOTICE OF DEFAULT...............................................................44
SECTION 6.03. CASH COVER......................................................................44
ARTICLE 7
THE ADMINISTRATIVE AGENT
SECTION 7.01. APPOINTMENT AND AUTHORIZATION...................................................45
SECTION 7.02. ADMINISTRATIVE AGENT AND AFFILIATES.............................................45
SECTION 7.03. ACTION BY ADMINISTRATIVE AGENT..................................................45
SECTION 7.04. CONSULTATION WITH EXPERTS.......................................................45
SECTION 7.05. LIABILITY OF ADMINISTRATIVE AGENT...............................................45
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SECTION 7.06. INDEMNIFICATION.................................................................46
SECTION 7.07. CREDIT DECISION.................................................................46
SECTION 7.08. SUCCESSOR ADMINISTRATIVE AGENT..................................................46
SECTION 7.09. ADMINISTRATIVE AGENT'S FEE......................................................47
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR........................47
SECTION 8.02. ILLEGALITY......................................................................48
SECTION 8.03. INCREASED COST AND REDUCED RETURN...............................................48
SECTION 8.04. TAXES...........................................................................50
SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE LOANS.......................52
SECTION 8.06. SUBSTITUTION OF BANK; TERMINATION OPTION........................................53
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. NOTICES.........................................................................54
SECTION 9.02. NO WAIVERS......................................................................54
SECTION 9.03. EXPENSES; INDEMNIFICATION.......................................................54
SECTION 9.04. SHARING OF SET-OFFS.............................................................55
SECTION 9.05. AMENDMENTS AND WAIVERS..........................................................55
SECTION 9.06. SUCCESSORS AND ASSIGNS..........................................................56
SECTION 9.07. COLLATERAL......................................................................57
SECTION 9.08. CONFIDENTIALITY.................................................................58
SECTION 9.09. GOVERNING LAW; SUBMISSION TO JURISDICTION.......................................58
SECTION 9.10. COUNTERPARTS; INTEGRATION.......................................................58
SECTION 9.11. WAIVER OF JURY TRIAL............................................................58
PRICING SCHEDULE
SCHEDULE I - Duke Energy Corporation Credit Facility (Being Replaced by
$1,250,000,000 Revolving Credit Facility)
EXHIBIT A - Note
EXHIBIT B - Form of Bid Rate Quote Request
EXHIBIT C - Form of Invitation for Bid Rate Quotes
EXHIBIT D - Form of Bid Rate Quote
EXHIBIT E - Opinion of Counsel for the Borrower
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EXHIBIT F - Opinion of Davis Polk & Wardwell, Special Counsel for the
Administrative Agent
EXHIBIT G - Assignment and Assumption Agreement
EXHIBIT H - Extension Agreement
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<PAGE>
FIVE-YEAR
CREDIT AGREEMENT
FIVE-YEAR CREDIT AGREEMENT dated as of August 25, 1997 among DUKE
ENERGY CORPORATION, the BANKS listed on the signature pages hereof, and MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"ADDITIONAL BANK" means any financial institution that becomes a Bank
for purposes hereof in connection with (i) an increase in the aggregate amount
of the Commitments pursuant to Section 2.19 or (ii) the replacement of a Bank
pursuant to Section 8.06.
"ADMINISTRATIVE AGENT" means Morgan Guaranty Trust Company of New York
in its capacity as administrative agent for the Banks hereunder, and its
successors in such capacity.
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, the
administrative questionnaire in the form submitted to such Bank by the
Administrative Agent and submitted to the Administrative Agent (with a copy to
the Borrower) duly completed by such Bank.
"ANNIVERSARY DATE" means, for each calendar year succeeding 1997, the
month and day of the Effective Date.
"APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office, (iii) in the case of its Bid
Rate Loans, its Bid Rate Lending Office and (iv) in the case of its Swingline
Loans, its Swingline Lending Office.
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"APPROVED OFFICER" means the president, the chief financial officer,
the senior vice president and treasurer, a vice president or assistant treasurer
of the Borrower or such other representative of the Borrower as may be
designated by any one of the foregoing with the consent of the Administrative
Agent.
"ASSIGNEE" has the meaning set forth in Section 9.06(c).
"BANK" means each bank or other financial institution listed on the
signature pages hereof, each Additional Bank, each Assignee which becomes a Bank
pursuant to Section 9.06(c), and their respective successors.
"BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"BASE RATE LOAN" means (i) a Syndicated Loan which bears interest at
the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice
of Interest Rate Election or the provisions of Article 8 or (ii) an overdue
amount which was a Base Rate Loan immediately before it became overdue.
"BID RATE (GENERAL)" has the meaning set forth in Section 2.03(d).
"BID RATE (GENERAL) AUCTION" means a solicitation of Bid Rate Quotes
setting forth Bid Rates (General) pursuant to Section 2.03.
"BID RATE (GENERAL) LOAN" means a loan made or to be made by a Bank
pursuant to a Bid Rate (General) Auction.
"BID RATE (INDEXED) AUCTION" means a solicitation of Bid Rate Quotes
setting forth Bid Rate (Indexed) Margins based on the London Interbank Offered
Rate pursuant to Section 2.03.
"BID RATE LENDING OFFICE" means, as to each Bank, its Domestic Lending
Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Bid Rate Lending Office by notice to the Borrower and
the Administrative Agent; PROVIDED that any Bank may from time to time by notice
to the Borrower and the Administrative Agent designate separate Bid Rate Lending
Offices for its Bid Rate (Indexed) Loans, on the one hand, and its Bid Rate
(General) Loans, on the other hand, in which case all references herein to the
Bid Rate Lending Office of such Bank shall be deemed to refer to either or both
of such offices, as the context may require.
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<PAGE>
"BID RATE (INDEXED) LOAN" means a loan made or to be made by a Bank
pursuant to a Bid Rate (Indexed) Auction (including such a loan bearing interest
at the Base Rate pursuant to Section 8.01(a)).
"BID RATE LOAN" means a Bid Rate (Indexed) Loan or a Bid Rate
(General) Loan.
"BID RATE (INDEXED) MARGIN" has the meaning set forth in Section
2.03(d).
"BID RATE QUOTE" means an offer by a Bank to make a Bid Rate Loan in
accordance with Section 2.03.
"BORROWER" means Duke Energy Corporation, a North Carolina
corporation, and its successors.
"BORROWING" has the meaning set forth in Section 1.03.
"COMMITMENT" means (i) with respect to each Bank listed on the
signature pages hereof, the amount set forth opposite the name of such Bank on
the signature pages hereof, and (ii) with respect to each Additional Bank or
Assignee which becomes a bank pursuant to Sections 2.19(a), 2.01(c) and 9.06(c),
the amount of the Commitment thereby assumed by it, in each case as such amount
may from time to time be reduced pursuant to Section 2.09, 2.11 or 9.06(c) or
increased pursuant to Section 2.19(a), 8.06 or 9.06(c).
"COMMITTED LOAN" means a Syndicated Loan or a Swingline Loan.
"CONSOLIDATED SUBSIDIARY" means, for any Person, at any date any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date; unless otherwise specified "Consolidated
Subsidiary" means a Consolidated Subsidiary of the Borrower.
"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
3
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"DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent.
"EFFECTIVE DATE" means the date this Agreement becomes effective in
accordance with Section 3.01.
"ENDOWMENT" means the Duke Endowment, a charitable common law trust
established by James B. Duke by Indenture dated December 11, 1924.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA GROUP" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Internal Revenue Code.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Administrative Agent.
"EURO-DOLLAR LOAN" means (i) a Syndicated Loan which bears interest at
a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
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Notice of Interest Rate Election or (ii) an overdue amount which was a
Euro-Dollar Loan immediately before it became overdue.
"EURO-DOLLAR MARGIN" means a rate per annum determined in accordance
with the Pricing Schedule.
"EURO-DOLLAR REFERENCE BANKS" means the principal London offices of
Morgan Guaranty Trust Company of New York and The Chase Manhattan Bank.
"EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section
2.17.
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"EXISTING CREDIT AGREEMENT" means the credit facility identified in
Schedule I hereto, as amended and in effect on the Effective Date.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, PROVIDED that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York (or its successor as Administrative Agent) on such day on such transactions
as determined by the Administrative Agent.
"FIXED RATE LOANS" means Euro-Dollar Loans, Swingline Loans or Bid Rate
Loans (excluding Swingline Loans or Bid Rate (Indexed) Loans bearing interest at
the Base Rate) or any combination of the foregoing.
"GROUP OF LOANS" means at any time a group of Loans consisting of (i)
all Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans
having the same Interest Period at such time, PROVIDED that, if a Committed Loan
of any particular Bank is converted to or made as a Base Rate Loan pursuant to
Article 8, such Loan shall be included in the same Group or Groups of Loans from
time to time as it would have been if it had not been so converted or made.
5
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"INDEBTEDNESS" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services purchased,
(iii) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired, (iv) all
indebtedness under leases which shall have been or should be, in accordance with
generally accepted accounting principles, recorded as capital leases in respect
of which such Person is liable as lessee, (v) the face amount of letter of
credit indebtedness available or to be available to be drawn (other than letter
of credit obligations relating to indebtedness included in Indebtedness pursuant
to another clause of this definition) and, without duplication, the unreimbursed
amount of all drafts drawn thereunder, (vi) indebtedness secured by any Lien on
property or assets of such Person, whether or not assumed (but in any event not
exceeding the fair market value of the property or asset), (vii) all direct
guarantees of Indebtedness referred to above of another Person, (viii) all
amounts payable in connection with mandatory redemptions or repurchases of
preferred stock and (ix) any obligations of such Person (in the nature of
principal or interest) in respect of acceptances or similar obligations issued
or created for the account of such Person.
"INTEREST PERIOD" means: (1) with respect to each Euro-Dollar Loan, the
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in an applicable Notice of Interest Rate
Election and ending one, two, three or six, or, if deposits of a corresponding
maturity are generally available in the London interbank market, nine or twelve,
months thereafter, as the Borrower may elect in such notice; PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on
the next preceding Euro-Dollar Business Day; and
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Euro-Dollar Business Day of a calendar
month;
(2) with respect to each Swingline Loan, the period commencing on the
date of borrowing specified in the applicable Notice of Borrowing and ending
such number of days thereafter (but not more than 10 Euro-Dollar Business Days)
as the Borrower may elect in such notice; PROVIDED that any Interest Period
which
6
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would otherwise end on a day which is not a Euro-Dollar Business Day shall be
extended to the next succeeding Euro-Dollar Business Day;
(3) with respect to each Bid Rate (Index) Loan, the period commencing
on the date of borrowing specified in the applicable Notice of Borrowing and
ending such number of months thereafter (but not less than one month) as the
Borrower may elect in accordance with Section 2.03; PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on
the next preceding Euro-Dollar Business Day; and
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Euro-Dollar Business Day of a calendar
month; and
(4) with respect to each Bid Rate (General) Loan, the period commencing
on the date of borrowing specified in the applicable Notice of Borrowing and
ending such number of days thereafter (but not less than 7 days) as the Borrower
may elect in accordance with Section 2.03; PROVIDED that any Interest Period
which would otherwise end on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business Day; and
PROVIDED FURTHER that any Interest Period applicable to a Loan of any Bank which
would otherwise end after such Bank's Termination Date shall end on such Bank's
Termination Date.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"INVESTMENT GRADE STATUS" exists as to any Person at any date if all
senior debt securities of such Person outstanding at such date which had been
rated by S&P or Moody's are rated BBB- or higher by S&P OR Baa3 or higher by
Moody's, as the case may be.
"ISSUING BANK" means Morgan Guaranty Trust Company of New York and any
other Bank that may agree to issue letters of credit hereunder, in each case as
issuer of a Letter of Credit hereunder.
7
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"LETTER OF CREDIT" means a letter of credit to be issued or issued
hereunder by the Issuing Bank in accordance with Section 2.16.
"LETTER OF CREDIT LIABILITIES" means, for any Bank and at any time,
such Bank's ratable participation in the sum of (x) the amounts then owing by
the Borrower in respect of amounts drawn under Letters of Credit and (y) the
aggregate amount then available for drawing under all Letters of Credit.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"LOAN" means a Committed Loan or a Bid Rate Loan and "LOANS" means
Committed Loans or Bid Rate Loans or any combination of the foregoing.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section
2.07(b).
"MATERIAL DEBT" means Indebtedness of the Borrower or any of its
Subsidiaries in an aggregate principal amount exceeding $100,000,000.
"MATERIAL PLAN" has the meaning set forth in Section 6.01(i).
"MATERIAL SUBSIDIARY" means at any time any Subsidiary of the Borrower
having, together with its Subsidiaries, consolidated assets in excess of 10% of
the total assets of the Borrower and its Consolidated Subsidiaries, determined
on a consolidated basis as of such time.
"MOODY'S" means Moody's Investor Service, Inc.
"MORTGAGE INDENTURE" means the First and Refunding Mortgage between the
Borrower and The Chase Manhattan Bank, as successor trustee, dated as of
December 1, 1927, as amended or supplemented from time to time.
"NOTES" means promissory notes of the Borrower, in the form required by
Section 2.05, evidencing the obligation of the Borrower to repay the Loans, and
"NOTE" means any one of such promissory notes issued hereunder.
8
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"NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined
in Section 2.02) or a Notice of Bid Rate Borrowing (as defined in Section
2.03(f)).
"NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section
2.10(b).
"NOTICE OF ISSUANCE" has the meaning set forth in Section 2.16(b).
"PARENT" means, with respect to any Bank, any Person controlling such
Bank.
"PARTICIPANT" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLAN" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Internal Revenue Code and is either (i) maintained by a
member of the ERISA Group for employees of a member of the ERISA Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions.
"PRIME RATE" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate. Each change in the Prime Rate shall be effective from and including
the day such change is publicly announced.
"QUARTERLY PAYMENT DATE" means the first Domestic Business Day of each
January, April, July and October.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
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"REQUIRED BANKS" means at any time Banks having at least 51% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding at least 51% of the sum of the aggregate unpaid principal
amount of the Loans and the aggregate Letter of Credit Liabilities.
"REVOLVING CREDIT PERIOD" means, with respect to any Bank, the period
from and including the Effective Date to but not including its Commitment
Termination Date.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc.
"SUBSIDIARY" means, as to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"SUBSTANTIAL ASSETS" means assets sold or otherwise disposed of in a
single transaction or a series of related transactions representing 25% or more
of the consolidated assets of the Borrower and its Consolidated Subsidiaries,
taken as a whole.
"SWINGLINE BANK" means Morgan Guaranty Trust Company of New York and
its successors.
"SWINGLINE LENDING OFFICE" means, as to the Swingline Bank, its office
located at its address set forth in its Administrative Questionnaire (or
identified in its Administrative Questionnaire as its Swingline Lending Office)
or such other office as such Bank may hereafter designate as its Swingline
Lending Office by notice to the Borrower and the Administrative Agent.
"SWINGLINE LOAN" means a loan made by the Swingline Bank pursuant to
Section 2.01(b).
"SWINGLINE TAKEOUT LOAN" means a Base Rate Loan made pursuant to
Section 2.18.
"SYNDICATED LOAN" means a Loan made by a Bank pursuant to Section
2.01(a); PROVIDED that, if any loan or loans (or portions thereof) are combined
or subdivided pursuant to a Notice of Interest Rate Election, the term
"Syndicated Loan" shall refer to the combined principal amount resulting from
such
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combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
"TERMINATION DATE" means, for each Bank, August 25, 2002, or such later
date to which the Termination Date of such Bank may be extended pursuant to
Section 2.01(c) or, if such day is not a Euro-Dollar Business Day, the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case the Termination Date shall be the next
preceding Euro-Dollar Business Day.
"TRUST" means The Doris Duke Trust, a trust established by James B.
Duke by Indenture dated December 11, 1924 for the benefit of certain relatives.
"UNITED STATES" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"UNFUNDED VESTED LIABILITIES" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all benefits under
such Plan exceeds (ii) the fair market value of all Plan assets allocable to
such benefits, all determined as of the then most recent valuation date for such
Plan, but only to the extent that such excess represents a potential liability
of a member of the ERISA Group to the PBGC or the Plan under Title IV of ERISA.
"UNREFUNDED SWINGLINE LOANS" has the meaning set forth in Section
2.18(b).
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks.
SECTION 1.03. TYPES OF BORROWINGS. The term "BORROWING" denotes the
aggregation of Loans of one or more Banks to be made to the Borrower pursuant to
Article 2 on a single date and for a single Interest Period. Borrowings are
classified for purposes of this Agreement either by reference to the pricing of
Loans comprising such Borrowing (E.G., a "FIXED RATE BORROWING" is a Euro-Dollar
Borrowing, a Swingline Borrowing or a Bid Rate Borrowing (excluding any such
Borrowing consisting of Swingline Loans or Bid Rate (Indexed) Loans bearing
interest at the Base Rate), and a "EURO-DOLLAR
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BORROWING" is a Borrowing comprised of Euro Dollar Loans) or by reference to the
provisions of Article 2 under which participation therein is determined (I.E., a
"COMMITTED BORROWING" is a Borrowing under Section 2.01 in which all Banks
participate in proportion to their Commitments, while a "BID RATE BORROWING" is
a Borrowing under Section 2.03 in which the Bank participants are determined on
the basis of their bids in accordance therewith).
ARTICLE 2
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND. (a) SYNDICATED LOANS. During its
Revolving Credit Period, each Bank severally agrees, on the terms and conditions
set forth in this Agreement, to make loans to the Borrower pursuant to this
subsection from time to time in amounts such that the aggregate principal amount
of Committed Loans by such Bank, together with its Letter of Credit Liabilities
and its participating interests in any Unrefunded Swingline Loans, at any one
time outstanding shall not exceed the amount of its Commitment. Each Borrowing
under this subsection (other than a Swingline Takeout Borrowing) shall be in an
aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000
(except that any such Borrowing may be in the aggregate amount available in
accordance with Section 3.02(b)) and shall be made from the several Banks
ratably in proportion to their respective Commitments in effect on the date of
Borrowing; PROVIDED that, if the Interest Period selected by the Borrower for a
Borrowing would otherwise end after the Termination Dates of some but not all
Banks, the Borrower may in its Notice of Committed Borrowing elect not to borrow
from those Banks whose Termination Dates fall prior to the end of such Interest
Period. Within the foregoing limits, the Borrower may borrow under this
subsection (a), or to the extent permitted by Section 2.12, prepay Loans and
reborrow at any time during the Revolving Credit Periods under this subsection
(a).
(b) SWINGLINE LOANS. From time to time prior to its Termination Date,
the Swingline Bank agrees, on the terms and conditions set forth in this
Agreement, to make loans to the Borrower pursuant to this subsection from time
to time in amounts such that (i) the aggregate principal amount of its Committed
Loans at any one time outstanding together with its Letter of Credit Liabilities
shall not exceed the amount of its Commitment and (ii) the aggregate principal
amount of Swingline Loans at any time outstanding shall not exceed $100,000,000.
Within the foregoing limits, the Borrower may borrow under this subsection,
repay or, to the extent permitted by Section 2.11, prepay Loans and
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reborrow at any time; PROVIDED that the proceeds of a Swingline Borrowing may
not be used, in whole or in part, to refund any prior Swingline Borrowing. Each
Borrowing under this subsection shall be in an aggregate principal amount of
$10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing
may be in the aggregate amount available in accordance with Section 3.02).
(c) EXTENSION OF COMMITMENTS. On any Anniversary Date but on no more
than two separate occasions, the Borrower may, upon not less than 45 days notice
prior to such Anniversary Date to the Administrative Agent (which shall notify
each Bank of receipt of such request), propose to extend the Termination Dates
for an additional one-year period measured from the Termination Dates then in
effect. Each Bank shall endeavor to respond to such request, whether
affirmatively or negatively (such determination in the sole discretion of such
Bank), by notice to the Borrower and the Administrative Agent within 15 days of
receipt of such request. Subject to the execution by the Borrower, the
Administrative Agent and such Banks of a duly completed Extension Agreement in
substantially the form of Exhibit H, the Termination Date applicable to the
Commitment of each Bank so affirmatively notifying the Borrower and the
Administrative Agent shall be extended for the period specified above; PROVIDED
that no Termination Date of any Bank shall be extended unless Banks having at
least 66 2/3% in aggregate amount of the Commitments in effect at the time any
such extension is requested shall have elected so to extend their Commitments.
Any Bank which does not give such notice to the Borrower and the Administrative
Agent shall be deemed to have elected not to extend as requested, and the
Commitment of each non-extending Bank shall terminate on its Termination Date
determined without giving effect to such requested extension. The Borrower may,
in accordance with Section 8.06, designate another bank or other financial
institution (which may be, but need not be, an extending Bank) to replace a
non-extending Bank.
SECTION 2.02. NOTICE OF COMMITTED BORROWINGS. The Borrower shall give
the Administrative Agent notice (a "NOTICE OF COMMITTED BORROWING") not later
than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing
or Swingline Borrowing and (y) the third Euro-Dollar Business Day before each
Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business Day
in the case of a Domestic Borrowing or a Swingline Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
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(c) whether the Loans comprising such Borrowing are to be Swingline
Loans or Syndicated Loans,
(d) in the case of a Syndicated Borrowing, whether the Loans
comprising such Borrowing are to bear interest initially at the Base Rate or a
Euro-Dollar Rate; and,
(e) in the case of a Euro-Dollar Borrowing or a Swingline Borrowing,
the duration of the initial Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period.
SECTION 2.03. BID RATE BORROWINGS. (a) THE BID RATE OPTION. In addition
to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth
in this Section, request the Banks to make offers to make Bid Rate Loans to the
Borrower. The Banks may, but shall have no obligation to, make such offers and
the Borrower may, but shall have no obligation to, accept any such offers in the
manner set forth in this Section.
(b) BID RATE QUOTE REQUEST. When the Borrower wishes to request offers
to make Bid Rate Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile transmission a Bid Rate Quote Request
substantially in the form of Exhibit B hereto so as to be received no later than
10:00 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day prior
to the date of Borrowing proposed therein, in the case of a Bid Rate (Indexed)
Auction or (y) the Domestic Business Day next preceding the date of Borrowing
proposed therein, in the case of a Bid Rate (General) Auction (or, in either
case, such other time or date as the Borrower and the Administrative Agent shall
have mutually agreed and shall have notified to the Banks not later than the
date of the Bid Rate Quote Request for the first Bid Rate (Indexed) Auction or
Bid Rate (General) Auction for which such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day,
(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period, and
(iv) whether the Bid Rate Quotes requested are to set forth a Bid Rate
(Indexed) or a Bid Rate (General) Rate.
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The Borrower may request offers to make Bid Rate Loans for more than one
Interest Period in a single Bid Rate Quote Request.
(c) INVITATION FOR BID RATE QUOTES. Promptly upon receipt of a Bid
Rate Quote Request, the Administrative Agent shall send to the Banks by telex or
facsimile transmission an Invitation for Bid Rate Quotes substantially in the
form of Exhibit C hereto, which shall constitute an invitation by the Borrower
to each Bank to submit Bid Rate Quotes offering to make the Bid Rate Loans to
which such Bid Rate Quote Request relates in accordance with this Section.
(d) SUBMISSION AND CONTENTS OF BID RATE QUOTES. (i) Each Bank may
submit a Bid Rate Quote containing an offer or offers to make Bid Rate Loans in
response to any Invitation for Bid Rate Quotes. Each Bid Rate Quote must comply
with the requirements of this subsection (d) and must be submitted to the
Administrative Agent by telex or facsimile transmission at its offices specified
in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time)
on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing,
in the case of a Bid Rate (Indexed) Auction or (y) 9:30 A.M. (New York City
time) on the proposed date of Borrowing, in the case of an Bid Rate (General)
Auction (or, in either case, such other time or date as the Borrower and the
Administrative Agent shall have mutually agreed and shall have notified to the
Banks not later than the date of the Bid Rate Quote Request for the first Bid
Rate (Indexed) Auction or Bid Rate (General) Auction for which such change is to
be effective); PROVIDED that Bid Rate Quotes submitted by the Administrative
Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank
may be submitted, and may only be submitted, if the Administrative Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) 1:00 P.M. (New York City time) on the fourth
Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of
a Bid Rate (Indexed) Auction or (y) 9:15 A.M. (New York City time) on the
proposed date of Borrowing, in the case of an Bid Rate (General) Auctions.
Subject to Articles 3 and 6, any Bid Rate Quote so made shall be irrevocable
except with the written consent of the Administrative Agent given on the
instructions of the Borrower.
(ii) Each Bid Rate Quote shall be in substantially the form of Exhibit
D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Bid Rate Loan for which
each such offer is being made, which principal amount (w) may
be greater than or less than the Commitment of the quoting
Bank, (x) must be $5,000,000 or a larger multiple of
$1,000,000 and (y) may
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not exceed the principal amount of Bid Rate Loans for each
Interest Period for which offers were requested and (z) may be
subject to an aggregate limitation as to the principal amount
of Bid Rate Loans for which offers being made by such quoting
Bank may be accepted,
(C) in the case of a Bid Rate (Indexed) Auction, the
margin above or below the applicable London Interbank Offered
Rate (the "BID RATE (INDEXED) MARGIN") offered for each such
Bid Rate Loan, expressed as a percentage (specified to the
nearest 1/10,000th of 1%) to be added to or subtracted from
such base rate,
(D) in the case of a Bid Rate (General)Auction, the rate
of interest per annum (specified to the nearest 1/10,000th of
1%) (the "BID RATE (GENERAL)") offered for each such Bid Rate
Loan, and
(E) the identity of the quoting Bank.
A Bid Rate Quote may set forth up to five separate offers by the quoting Bank
with respect to each Interest Period specified in the related Invitation for Bid
Rate Quotes.
(iii) Any Bid Rate Quote shall be disregarded if:
(A) it is not substantially in conformity with Exhibit D
hereto or does not specify all of the information required by
subsection 2.03(d)(ii);
(B) it contains qualifying, conditional or similar
language beyond that contemplated by Exhibit D;
(C) it proposes terms other than or in addition to those
set forth in the applicable Invitation for Bid Rate Quotes;
(D) it arrives after the time set forth in subsection
2.03(d)(i); or
(E) the Termination Date of the Bank submitting such Bid
Rate Quote falls prior to the last day of the requested
Interest Period for which such Bank offers to make a Bid Rate
Loan.
(e) NOTICE TO BORROWER. The Administrative Agent shall promptly but in
no event later than 10:00 A.M. (New York City time) notify the Borrower of the
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terms (x) of any Bid Rate Quote submitted by a Bank that is in accordance with
subsection (d) and (y) of any Bid Rate Quote that amends, modifies or is
otherwise inconsistent with a previous Bid Rate Quote submitted by such Bank
with respect to the same Bid Rate Quote Request. Any such subsequent Quote shall
be disregarded by the Administrative Agent unless such subsequent Quote is
submitted solely to correct a manifest error in such former Quote. The
Administrative Agent's notice to the Borrower shall specify (A) the aggregate
principal amount of Loans for which offers have been received for each Interest
Period specified in the related Bid Rate Quote Request, (B) the respective
principal amounts and Bid Rate (Indexed) Margins or Bid Rate (General) Rates, as
the case may be, so offered and (C) if applicable, limitations on the aggregate
principal amount of Bid Rate Loans for which offers in any single Bid Rate Quote
may be accepted.
(f) ACCEPTANCE AND NOTICE BY BORROWER. Not later than 10:30 A.M. (New
York City time) on (x) the third Euro-Dollar Business Day prior to the proposed
date of Borrowing, in the case of a Bid Rate (Indexed) Auction or (y) the
proposed date of Borrowing, in the case of an Bid Rate (General) Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Bid Rate Quote Request for the first Bid Rate (Indexed)
Auction or Bid Rate (General) Auction for which such change is to be effective),
the Borrower shall notify the Administrative Agent of its acceptance or
non-acceptance of the offers so notified to it pursuant to subsection (e). In
the case of acceptance, such notice (a "NOTICE OF BID RATE BORROWING") shall
specify the aggregate principal amount of offers for each Interest Period that
are accepted. The Borrower may accept any Bid Rate Quote in whole or in part;
PROVIDED that:
(i) the aggregate principal amount of each Bid Rate Borrowing may not
exceed the applicable amount set forth in the related Bid Rate Quote
Request,
(ii) the principal amount of each Bid Rate Borrowing must be
$10,000,000 or a larger multiple of $1,000,000, and
(iii) acceptance of offers may only be made on the basis of ascending
Bid Rate (Indexed) Margins or Bid Rate (General) Rates, as the case may
be.
(g) ALLOCATION BY ADMINISTRATIVE AGENT. If offers are made by two more
Banks with the same Bid Rate (Indexed) Margins or Bid Rate (General), as the
case may be, for a greater aggregate principal amount than the amount in respect
of which such offers are accepted for the related Interest Period, the principal
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amount of Bid Rate Loans in respect of which such offers are accepted shall be
allocated by the Administrative Agent among such Banks as nearly as possible (in
multiples of $1,000,000, as the Administrative Agent may deem appropriate) in
proportion to the aggregate principal amounts of such offers. Determinations by
the Administrative Agent of the amounts of Bid Rate Loans shall be conclusive in
the absence of manifest error.
SECTION 2.04. NOTICE TO BANKS; FUNDING OF LOANS. (a) Upon receipt of a
Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of
the contents thereof and of such Bank's share (if any) of such Borrowing and
such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section) make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the
Administrative Agent at its address specified in or pursuant to Section 9.01.
Unless the Administrative Agent determines that any applicable condition
specified in Article 3 has not been satisfied, the Administrative Agent will
make the funds so received from the Banks available to the Borrower at the
Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsections (b) and (c) of this Section 2.04(a) and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Bank shall not have
so made such share available to the Administrative Agent, such Bank and, if such
Bank shall not have made such payment within two Domestic Business Days of
demand therefor, the Borrower severally agree to repay to the Administrative
Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Administrative Agent, at
(i) in the case of the Borrower, a rate per annum equal to the higher of the
Federal Funds Rate and the interest rate applicable thereto pursuant to Section
2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank
shall repay to the Administrative Agent such corresponding amount, such amount
so repaid shall constitute such Bank's Loan included in such Borrowing for
purposes of this Agreement.
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(d) The failure of any Bank to make the Loan to be made by it as part
of any Borrowing shall not relieve any other Bank of its obligation, if any,
hereunder to make a Loan on the date of such Borrowing, but no Bank shall be
responsible for the failure of any other Bank to make a Loan to be made by such
other Bank.
SECTION 2.05. REGISTRY; NOTES. (a) The Administrative Agent shall
maintain a register (the "REGISTER") on which it will record the Commitment of
each Bank, each Loan made by such Bank and each repayment of any Loan made by
such Bank. Any such recordation by the Administrative Agent on the Register
shall be conclusive, absent manifest error. Failure to make any such
recordation, or any error in such recordation, shall not affect the Borrower's
obligations hereunder.
(b) The Borrower hereby agrees that, promptly upon the request of any
Bank at any time, the Borrower shall deliver to such Bank a duly executed Note,
in substantially the form of Exhibit A hereto, payable to the order of such Bank
and representing the obligation of the Borrower to pay the unpaid principal
amount of the Loans made to the Borrower by such Bank, with interest as provided
herein on the unpaid principal amount from time to time outstanding.
(c) Each Bank shall record the date, amount and maturity of each Loan
made by it and the date and amount of each payment of principal made by the
Borrower with respect thereto, and each Bank receiving a Note pursuant to this
Section, if such Bank so elects in connection with any transfer or enforcement
of its Note, may endorse on the schedule forming a part thereof appropriate
notations to evidence the foregoing information with respect to each such Loan
then outstanding; PROVIDED that the failure of such Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes. Such Bank is hereby irrevocably authorized by the
Borrower so to endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
SECTION 2.06. MATURITY OF LOANS. (a) Each Syndicated Loan made by any
Bank shall mature, and the principal amount thereof shall be due and payable
together with accrued interest thereon, on the Termination Date of such Bank.
(b) Each Swingline Loan included in any Swingline Borrowing and each
Bid Rate Loan included in any Bid Rate Borrowing shall mature, and the principal
amount thereof shall be due and payable (together with interest accrued
thereon), on the last day of the Interest Period applicable to such Borrowing.
SECTION 2.07. INTEREST RATES. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan
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is made until it becomes due, at a rate per annum equal to the Base Rate for
such day. Such interest shall be payable quarterly in arrears on each Quarterly
Payment Date, at maturity and on the date of termination of the Commitments in
their entirety. Any overdue principal of or overdue interest on any Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 1% plus the Base Rate for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period
means the rate appearing on Page 3750 of the Telerate Service Company (or on any
successor or substitute page of such service, or any successor to or substitute
for such service, providing rate quotations comparable to those currently
provided on such page of the Telerate Service, as may be nominated by the
British Bankers' Association for purposes of providing quotations of interest
rates applicable to dollar deposits in the London interbank market) as of 11:00
A.M. (London time) two Euro-Dollar Business Days prior to the commencement of
such Interest Period, as the rate for dollar deposits with a maturity comparable
to such Interest Period. In the event that such rate is not so available at such
time for any reason, then the "LONDON INTERBANK OFFERED RATE" for such Interest
Period shall be the average (rounded upward, if necessary, to the next higher
1/16 of 1%) of the respective rates per annum at which deposits in dollars are
offered to each of the Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Loan of such Reference Bank to which such Interest
Period is to apply and for a period of time comparable to such Interest Period.
If any Reference Bank does not furnish a timely quotation, the Administrative
Agent shall determine the relevant interest rate on the basis of the quotation
furnished by the remaining Reference Bank or, if none of such quotations is
available on a timely basis, the provisions of Section 8.01 shall apply.
(c) Any overdue principal of or overdue interest on any Euro-Dollar
Loan shall bear interest, payable on demand, for each day from and including the
date payment thereof was due to but excluding the date of actual payment, at a
rate per annum equal to the sum of 1% plus the higher of (i) the sum of the
Euro-Dollar Margin for such day plus the London Interbank Offered Rate
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applicable to such Loan at the date such payment was due and (ii) the Base Rate
for such day.
(d) Each Swingline Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the Base Rate for such day or such other
rate as may be from time to time determined by mutual agreement between the
Swingline Bank and the Borrower. Interest on each Swingline Loan shall be
payable at the maturity of such Loan. Any overdue principal of or interest on
any Swingline Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day.
(e) Subject to Section 8.01(a), each Bid Rate (Indexed) Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.07(b) as if each Euro-Dollar Reference Bank were to participate in the
related Bid Rate (Indexed) Borrowing ratably in proportion to its Commitment)
plus (or minus) the Bid Rate (Indexed) Margin quoted by the Bank making such
Loan in accordance with Section 2.03. Each Bid Rate (General) Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the Bid Rate (General) quoted
by the Bank making such Loan in accordance with Section 2.03. Such interest
shall be payable for each Interest Period on the last day thereof and, if such
Interest Period is longer than three months, at intervals of three months after
the first day thereof. Any overdue principal of or overdue interest on any Bid
Rate Loan shall bear interest, payable on demand, for each day until paid at a
rate per annum equal to the sum of 1% plus the Base Rate for such day.
(f) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the participating Banks by telecopy, telex or cable
of each rate of interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error unless the Borrower raises an
objection thereto within five Domestic Business Days after receipt of such
notice.
SECTION 2.08. FEES. (a) FACILITY FEE. The Borrower shall pay to the
Administrative Agent for the account of each Bank a facility fee at the Facility
Fee Rate (determined daily in accordance with the Pricing Schedule). Such
facility fee shall accrue (i) from and including the earlier of (x) the
Effective Date and (y) September 5, 1997 to but excluding such Bank's
Termination Date, on the daily average aggregate amount of such Bank's
Commitment (whether used or unused) and (ii) from and including such Bank's
Termination Date to but
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excluding the date such Bank's Loans and Letter of Credit Liabilities shall be
repaid in their entirety, on the daily average aggregate outstanding principal
amount of such Bank's Committed Loans and Letter of Credit Liabilities.
(b) The Borrower shall pay to the Administrative Agent (i) for the
account of the Banks ratably a letter of credit fee accruing daily on the
aggregate amount then available for drawing under all outstanding Letters of
Credit at a rate per annum equal to the Euro-Dollar Margin and (ii) for the
account of each Issuing Bank a letter of credit fronting fee accruing daily on
the aggregate amount then available for drawing under all Letters of Credit
issued by such Issuing Bank at a rate per annum mutually agreed from time to
time by the Borrower and such Issuing Bank.
(c) PAYMENTS. Accrued fees under this Section for the account of any
Bank shall be payable quarterly in arrears on each Quarterly Payment Date and
upon the date of termination of such Bank's Commitment in its entirety (and, if
later, the date the Loans and Letter of Credit Liabilities of such Bank shall be
repaid in their entirety); PROVIDED, that accrued facility fees shall be paid in
equal quarterly installments on the Quarterly Payment Date following each full
quarter during which the aggregate amount of Commitments remains unchanged.
SECTION 2.09. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The
Borrower may, upon at least three Domestic Business Days' notice to the
Administrative Agent, (i) terminate the Commitments at any time, if no Loans or
Letter of Credit Liabilities are outstanding at such time or (ii) ratably reduce
from time to time by an aggregate amount of $10,000,000 or any larger multiple
of $1,000,000 the aggregate amount of the Commitments in excess of the aggregate
outstanding principal amount of the Loans and Letter of Credit Liabilities.
SECTION 2.10. METHOD OF ELECTING INTEREST RATES. (a) The Loans included
in each Syndicated Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the applicable Notice of Committed Borrowing.
Thereafter, the Borrower may from time to time elect to change or continue the
type of interest rate borne by each Group of Loans (subject in each case to the
provisions of Article 8 and the last sentence of this subsection (a)), as
follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business
Day; and
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
convert such Loans to Base Rate Loans or elect to continue such Loans
as Euro-Dollar Loans for an additional Interest Period, subject to
Section
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2.14 in the case of any such conversion or continuation effective on
any day other than the last day of the then current Interest Period
applicable to such Loans.
Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST
RATE ELECTION") to the Administrative Agent not later than 10:30 A.M. (New York
City time) on the third Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective. A Notice of Interest
Rate Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans, provided that (i) such portion
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which such notice applies, and the remaining portion to which it does not
apply, are each $10,000,000 or any larger multiple of $1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of subsection 2.10(a) above;
(iii) if the Loans comprising such Group are to be converted, the
new type of Loans and, if the Loans being converted are to be Fixed
Rate Loans, the duration of the next succeeding Interest Period
applicable thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of the term "INTEREST PERIOD".
(c) Promptly after receiving a Notice of Interest Rate Election from
the Borrower pursuant to subsection 2.10(a) above, the Administrative Agent
shall notify each Bank of the contents thereof and such notice shall not
thereafter be revocable by the Borrower. If no Notice of Interest Rate Election
is timely received prior to the end of an Interest Period for any Group of
Loans, the Borrower shall be deemed to have elected that such Group of Loans be
converted to Base Rate Loans as of the last day of such Interest Period.
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(d) An election by the Borrower to change or continue the rate of
interest applicable to any Group of Loans pursuant to this Section shall not
constitute a "BORROWING" subject to the provisions of Section 3.02.
SECTION 2.11. MANDATORY TERMINATION OF COMMITMENTS. The Commitment of
each Bank shall terminate on such Bank's Termination Date, and any Loans of such
Bank then outstanding (together with accrued interest thereon) shall be due and
payable on such date.
SECTION 2.12. OPTIONAL PREPAYMENTS. (a) The Borrower may (i) upon
notice to the Administrative Agent not later than 10:30 A.M. (New York City
time) on any Domestic Business Day prepay on such Domestic Business Day any
Group of Base Rate Loans, any Swingline Borrowing or any Bid Rate Borrowing
bearing interest at the Base Rate pursuant to Section 8.01(a) and (ii) upon at
least three Euro-Dollar Business Days' notice to the Administrative Agent not
later than 10:30 A.M. (New York City time) prepay any Group of Euro-Dollar
Loans, in each case in whole at any time, or from time to time in part in
amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying
the principal amount to be prepaid together with accrued interest thereon to the
date of prepayment and together with any additional amounts payable pursuant to
Section 2.14. Each such optional prepayment shall be applied to prepay ratably
the Loans of the several Banks included in such Group or Borrowing.
(b) Except as provided in subsection 2.12(a), the Borrower may not
prepay all or any portion of the principal amount of any Bid Rate Loan prior to
the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's share (if any) of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.13. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address referred to in Section 9.01. The
Administrative Agent will promptly distribute to each Bank its ratable share of
each such payment received by the Administrative Agent for the account of the
Banks. Whenever any payment of principal of, or interest on, the Base Rate
Loans, Swingline Loans or Letter of Credit Liabilities or of fees shall be due
on a day which is not a Domestic Business Day, the date for payment thereof
shall be extended to the next succeeding Domestic Business Day. Whenever any
payment
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of principal of, or interest on, the Euro-Dollar Loans shall be due on a day
which is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case the date for payment
thereof shall be the next preceding Euro-Dollar Business Day. Whenever any
payment of principal of, or interest on, the Bid Rate Loans shall be due on a
day which is not a Euro-Dollar Business Day, the date for payment thereof shall
be extended to the next succeeding Euro-Dollar Business Day. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
the Borrower shall not have so made such payment, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.14. FUNDING LOSSES. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Euro-Dollar Loan is
converted to a Base Rate Loan or continued as a Euro-Dollar Loan for a new
Interest Period (pursuant to Article 2, 6 or 8 or otherwise) on any day other
than the last day of an Interest Period applicable thereto, or if the Borrower
fails to borrow, prepay, convert or continue any Fixed Rate Loans after notice
has been given to any Bank in accordance with Section 2.04(a), 2.10(c) or
2.12(c), the Borrower shall reimburse each Bank within 15 days after demand for
any resulting loss or expense incurred by it (or by an existing or prospective
Participant in the related Loan), including (without limitation) any loss
incurred in obtaining, liquidating or employing deposits from third parties, but
excluding loss of margin for the period after any such payment or conversion or
failure to borrow, prepay, convert or continue, PROVIDED that such Bank shall
have delivered to the Borrower a certificate setting forth in reasonable detail
the calculation of the amount of such loss or expense, which certificate shall
be conclusive in the absence of manifest error.
SECTION 2.15. COMPUTATION OF INTEREST AND FEES. Interest based on the
Prime Rate and facility fees hereunder shall be computed on the basis of a year
of
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365 days (or 366 days in a leap year) and paid for the actual number of days
elapsed (including the first day but excluding the last day); PROVIDED that
facility fees for the account of any Bank shall be paid in equal quarterly
installments for each full quarter in which the Commitment of such Bank remains
unchanged. All other interest and Letter of Credit fees shall be computed on the
basis of a year of 360 days and paid for the actual number of days elapsed
(including the first day but excluding the last day).
SECTION 2.16. LETTERS OF CREDIT. (a) Subject to the terms and
conditions hereof, the Issuing Bank agrees to issue Letters of Credit hereunder
from time to time before the eleventh day before its Termination Date upon the
request of the Borrower; PROVIDED that, immediately after each Letter of Credit
is issued (i) the aggregate amount of the Letter of Credit Liabilities plus the
aggregate outstanding amount of all Loans shall not exceed the aggregate amount
of the Commitments and (ii) the aggregate Letter of Credit Liabilities shall not
exceed $250,000,000. Upon the date of issuance by the Issuing Bank of a Letter
of Credit, the Issuing Bank shall be deemed, without further action by any party
hereto, to have sold to each Bank, and each Bank shall be deemed, without
further action by any party hereto, to have purchased from the Issuing Bank, a
participation in such Letter of Credit and the related Letter of Credit
Liabilities in the proportion its Commitment bears to the aggregate Commitments;
PROVIDED that if the scheduled Termination Date of a Bank falls prior to the
expiry date of a Letter of Credit then outstanding, such Bank's participation in
such Letter of Credit shall terminate on its Termination Date, and the
participations of the other Banks therein shall be redetermined pro rata in
proportion to their Commitments after giving effect to the termination of the
Commitment of such former Bank.
(b) The Borrower shall give the Issuing Bank notice at least three
Domestic Business Days prior to the requested issuance of a Letter of Credit
specifying the date such Letter of Credit is to be issued, and describing the
terms of such Letter of Credit and the nature of the transactions to be
supported thereby (such notice, including any such notice given in connection
with the extension of a Letter of Credit, a "NOTICE OF ISSUANCE"). Upon receipt
of a Notice of Issuance, the Issuing Bank shall promptly notify the
Administrative Agent, and the Administrative Agent shall promptly notify each
Bank of the contents thereof and of the amount of such Bank's participation in
such Letter of Credit. The issuance by the Issuing Bank of each Letter of Credit
shall, in addition to the conditions precedent set forth in Article 3, be
subject to the conditions precedent that such Letter of Credit shall be in such
form and contain such terms as shall be reasonably satisfactory to the Issuing
Bank and that the Borrower shall have executed and delivered such other
instruments and agreements relating to such Letter of Credit as the Issuing Bank
shall have reasonably requested. The Borrower shall also pay to the Issuing Bank
for its own account issuance,
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drawing, amendment and extension charges in the amounts and at the times as
agreed between the Borrower and the Issuing Bank. The extension or renewal of
any Letter of Credit shall be deemed to be an issuance of such Letter of Credit,
and if any Letter of Credit contains a provision pursuant to which it is deemed
to be extended unless notice of termination is given by the Issuing Bank, the
Issuing Bank shall timely give such notice of termination unless it has
theretofore timely received a Notice of Issuance and the other conditions to
issuance of a Letter of Credit have also theretofore been met with respect to
such extension.
(c) No Letter of Credit shall have a term extending or extendible
beyond the tenth day preceding the Termination Date of the Issuing Bank.
(d) Upon receipt from the beneficiary of any Letter of Credit of any
notice of a drawing under such Letter of Credit, the Issuing Bank shall notify
the Administrative Agent and the Administrative Agent shall promptly notify the
Borrower and each other Bank as to the amount to be paid as a result of such
demand or drawing and the payment date. The Borrower shall be irrevocably and
unconditionally obligated forthwith to reimburse the Issuing Bank for any
amounts paid by the Issuing Bank upon any drawing under any Letter of Credit,
without presentment, demand, protest or other formalities of any kind. All such
amounts paid by the Issuing Bank and remaining unpaid by the Borrower shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the Base Rate for such day plus, if such amount remains unpaid for more than
two Domestic Business Days, 1%. In addition, each Bank will pay to the
Administrative Agent, for the account of the Issuing Bank, immediately upon the
Issuing Bank's demand at any time during the period commencing after such
drawing until reimbursement therefor in full by the Borrower, an amount equal to
such Bank's ratable share of such drawing (in proportion to its participation
therein), together with interest on such amount for each day from the date of
the Issuing Bank's demand for such payment (or, if such demand is made after
12:00 Noon (New York City time) on such date, from the next succeeding Domestic
Business Day) to the date of payment by such Bank of such amount at a rate of
interest per annum equal to the Federal Funds Rate. The Issuing Bank will pay to
each Bank ratably all amounts received from the Borrower for application in
payment of its reimbursement obligations in respect of any Letter of Credit, but
only to the extent such Bank has made payment to the Issuing Bank in respect of
such Letter of Credit pursuant hereto.
(e) The obligations of the Borrower and each Bank under subsection
2.16(d) above shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:
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(i) the use which may be made of the Letter of Credit by, or any
acts or omission of, a beneficiary of a Letter of Credit (or any Person
for whom the beneficiary may be acting);
(ii) the existence of any claim, set-off, defense or other rights
that the Borrower may have at any time against a beneficiary of a
Letter of Credit (or any Person for whom the beneficiary may be
acting), the Banks (including the Issuing Bank) or any other Person,
whether in connection with this Agreement or the Letter of Credit or
any document related hereto or thereto or any unrelated transaction;
(iii) any statement or any other document presented under a Letter
of Credit proving to be forged, fraudulent or invalid in any respect or
any statement therein being untrue or inaccurate in any respect
whatsoever;
(iv) payment under a Letter of Credit to the beneficiary of such
Letter of Credit against presentation to the Issuing Bank of a draft or
certificate that does not comply with the terms of the Letter of
Credit; PROVIDED that the determination by the Issuing Bank to make
such payment shall not have been the result of its willful misconduct
or gross negligence; or
(v) any other act or omission to act or delay of any kind by any
Bank (including the Issuing Bank), the Administrative Agent or any
other Person or any other event or circumstance whatsoever that might,
but for the provisions of this subsection (v), constitute a legal or
equitable discharge of the Borrower's or the Bank's obligations
hereunder.
(f) The Borrower hereby indemnifies and holds harmless each Bank
(including the Issuing Bank) and the Administrative Agent from and against any
and all claims, damages, losses, liabilities, costs or expenses which such Bank
or the Administrative Agent may incur (including, without limitation, any
claims, damages, losses, liabilities, costs or expenses which the Issuing Bank
may incur by reason of or in connection with the failure of any other Bank to
fulfill or comply with its obligations to such Issuing Bank hereunder (but
nothing herein contained shall affect any rights the Borrower may have against
such defaulting Bank)), and none of the Banks (including the Issuing Bank) nor
the Administrative Agent nor any of their officers or directors or employees or
agents shall be liable or responsible, by reason of or in connection with the
execution and delivery or transfer of or payment or failure to pay under any
Letter of Credit, including without limitation any of the circumstances
enumerated in subsection 2.16(d) above, as well as (i) any error, omission,
interruption or delay in
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transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, (ii) any loss or delay in the transmission of any document required
in order to make a drawing under a Letter of Credit, and (iii) any consequences
arising from causes beyond the control of the Issuing Bank, including without
limitation any government acts, or any other circumstances whatsoever in making
or failing to make payment under such Letter of Credit; PROVIDED that the
Borrower shall not be required to indemnify the Issuing Bank for any claims,
damages, losses, liabilities, costs or expenses, and the Borrower shall have a
claim for direct (but not consequential) damage suffered by it, to the extent
found by a court of competent jurisdiction to have been caused by (x) the
willful misconduct or gross negligence of the Issuing Bank in determining
whether a request presented under any Letter of Credit complied with the terms
of such Letter of Credit or (y) the Issuing Bank's failure to pay under any
Letter of Credit after the presentation to it of a request strictly complying
with the terms and conditions of the Letter of Credit. Nothing in this
subsection 2.16(f) is intended to limit the obligations of the Borrower under
any other provision of this Agreement. To the extent the Borrower does not
indemnify the Issuing Bank as required by this subsection, the Banks agree to do
so ratably in accordance with their Commitments.
SECTION 2.17. REGULATION D COMPENSATION. In the event that a Bank is
required to maintain reserves of the type contemplated by the definition of
"EURO-DOLLAR RESERVE PERCENTAGE", such Bank may require the Borrower to pay,
contemporaneously with each payment of interest on the Euro-Dollar Loans,
additional interest on the related Euro-Dollar Loan of such Bank at a rate per
annum determined by such Bank up to but not exceeding the excess of (i) (A) the
applicable London Interbank Offered Rate divided by (B) one MINUS the
Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered
Rate. Any Bank wishing to require payment of such additional interest (x) shall
so notify the Borrower and the Administrative Agent, in which case such
additional interest on the Euro-Dollar Loans of such Bank shall be payable to
such Bank at the place indicated in such notice with respect to each Interest
Period commencing at least three Euro-Dollar Business Days after the giving of
such notice and (y) shall notify the Borrower at least three Euro-Dollar
Business Days prior to each date on which interest is payable on the Euro-Dollar
Loans of the amount then due it under this Section. Each such notification shall
be accompanied by such information as the Borrower may reasonably request.
"EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
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respect of "EUROCURRENCY LIABILITIES" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
SECTION 2.18. TAKEOUT OF SWINGLINE LOANS. (a) In the event that any
Swingline Borrowing shall not be repaid in full at or prior to the maturity
thereof the Administrative Agent shall, on behalf of the Borrower (the Borrower
hereby irrevocably directing and authorizing the Administrative Agent so to act
on its behalf), give a Notice of Borrowing requesting the Banks, including the
Swingline Bank, to make a Base Rate Borrowing on the maturity date of such
Swingline Borrowing in an amount equal to the unpaid principal amount of such
Swingline Borrowing. Each Bank will make the proceeds of its Base Rate Loan
included in such Borrowing available to the Administrative Agent for the account
of the Swingline Bank on such date in accordance with Section 2.04. The proceeds
of such Base Rate Borrowing shall be immediately applied to repay such Swingline
Borrowing.
(b) If, for any reason, a Base Rate Borrowing may not be (as
determined by the Administrative Agent in its sole discretion), or is not, made
pursuant to subsection (a) above to refund Swingline Loans as required by said
clause, then, effective on the date such Borrowing would otherwise have been
made, each Bank severally, unconditionally and irrevocably agrees that it shall
purchase an undivided participating interest in such Swingline Loans
("UNREFUNDED SWINGLINE LOANS") in an amount equal to the amount of the Loan
which otherwise would have been made by such Bank pursuant to subsection (a),
which purchase shall be funded by the time such Loan would have been required to
be funded pursuant to Section 2.04 by transfer to the Administrative Agent, for
the account of the Swingline Bank, in immediately available funds, of the amount
of its participation.
(c) Whenever, at any time after the Swingline Bank has received from
any Bank payment in full for such Bank's participating interest in a Swingline
Loan, the Swingline Bank (or the Administrative Agent on its behalf) receives
any payment on account thereof, the Swingline Bank (or the Administrative Agent,
as the case may be) will promptly distribute to such Bank its participating
interest in such payment (appropriately adjusted, in the case of interest
payments, to reflect the period of time during which such Bank's participating
interest was outstanding and funded); provided, however, that in the event that
such payment is subsequently required to be returned, such Bank will return to
the Swingline Bank (or the Administrative Agent, as the case may be) any portion
thereof
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previously distributed by the Swingline Bank (or the Administrative Agent, as
the case may be) to it.
(d) Each Bank's obligation to purchase and fund participating
interests pursuant to this Section shall be absolute and unconditional and shall
not be affected by any circumstance, including, without limitation: (i) any
setoff, counterclaim, recoupment, defense or other right which such Bank or the
Borrower may have against the Swingline Bank, or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of a Default or the failure to
satisfy any of the conditions specified in Article 3; (iii) any adverse change
in the condition (financial or otherwise) of the Borrower; (iv) any breach of
this Agreement by the Borrower or any Bank; or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
SECTION 2.19. INCREASED COMMITMENTS; ADDITIONAL BANKS. (a) Subsequent
to the Effective Date, the Borrower may, on no more than three occasions, upon
at least 30 days' notice to the Administrative Agent (which shall promptly
provide a copy of such notice to the Banks), propose to increase the aggregate
amount of the Commitments by an amount not to exceed in the aggregate for all
such increases $250,000,000 (the amount of any such increase, the "INCREASED
COMMITMENTS"). Each Bank party to this Agreement at such time shall have the
right (but no obligation), for a period of 15 days following receipt of such
notice, to elect by notice to the Borrower and the Administrative Agent to
increase its Commitment by a principal amount which bears the same ratio to the
Increased Commitments as its then Commitment bears to the aggregate Commitments
then existing.
(b) If any Bank party to this Agreement shall not elect to increase
its Commitment pursuant to subsection (a) of this Section, the Borrower may,
with the approval of Morgan Guaranty Trust Company of New York, in its capacity
as Issuing Bank, each other Bank that has issued a Letter of Credit which is
still outstanding, each other Bank with a commitment outstanding to issue a
Letter of Credit and the Swingline Bank, designate one or more banks or other
financial institutions (which may be, but need not be, one or more of the
existing Banks) which at the time agree in the case of any existing Bank to
increase its Commitment and, in the case of any other such bank (an "ADDITIONAL
BANK"), to become a party to this Agreement and assume a Commitment hereunder.
The sum of the increases in the Commitments of the existing Banks pursuant to
this subsection (b) plus the Commitments of the Additional Banks shall not in
the aggregate exceed the unsubscribed amount of the Increased Commitments.
(c) An increase in the aggregate amount of the Commitments pursuant to
this Section 2.19 shall become effective upon the receipt of the Administrative
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Agent of an agreement in form and substance satisfactory to the Administrative
Agent signed by the Borrower, by each Additional Bank and by each other Bank
whose Commitment is to be increased, setting forth the new Commitments of such
Banks and setting forth the agreement of each Additional Bank to become a party
to this Agreement and to be bound by all the terms and provisions hereof,
together with such evidence of appropriate corporate authorization on the part
of the Borrower with respect to the Increased Commitments and such opinions of
counsel for the Borrower with respect to the Increased Commitments as the
Administrative Agent may reasonably request.
(d) Upon any increase in the aggregate amount of the Commitments
pursuant to this Section 2.19, within five Domestic Business Days, in the case
of Base Rate Loans then outstanding, and at the end of the then current Interest
Period with respect thereto, in the case of Euro-Dollar Loans then outstanding,
the Borrower shall prepay or repay such Loans in their entirety and, to the
extent the Borrower elects to do so and subject to the conditions specified in
Article 3, the Borrower shall reborrow Syndicated Loans from the Banks in
proportion to their respective Commitments after giving effect to such increase,
until such time as all outstanding Syndicated Loans are held by the Banks in
such proportion.
ARTICLE 3
CONDITIONS
SECTION 3.01. EFFECTIVENESS. This Agreement shall become effective on
the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.05):
(a) receipt by the Administrative Agent of counterparts hereof signed
by each of the parties hereto (or, in the case of any party as to which an
executed counterpart shall not have been received, receipt by the Administrative
Agent in form satisfactory to it of telegraphic, telecopy, telex or other
written confirmation from such party of execution of a counterpart hereof by
such party);
(b) receipt by the Administrative Agent of an opinion of Dewey
Ballantine, special counsel for the Borrower, substantially in the form of
Exhibit E hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably request;
(c) receipt by the Administrative Agent of an opinion of Davis Polk &
Wardwell, special counsel for the Administrative Agent, substantially in the
form of Exhibit F hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably request;
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(d) receipt by the Administrative Agent of a certificate signed by a
Vice President, the Treasurer or the Controller of the Borrower, dated the
Effective Date, to the effect set forth in clauses (c) and (d) of Section 3.02;
(e) receipt by the Administrative Agent of all documents it may have
reasonably requested prior to the date hereof relating to the existence of the
Borrower, the corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Administrative Agent; and
(f) receipt by the Administrative Agent of evidence satisfactory to it
of the payment of all principal of and interest on any loans outstanding under,
and all accrued commitment fees under, the Existing Credit Agreement;
PROVIDED that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
September 25, 1997. The Administrative Agent shall promptly notify the Borrower
and the Banks of the Effective Date, and such notice shall be conclusive and
binding on all parties hereto. The Borrower and the Banks party to the Existing
Credit Agreement, comprising the "Required Banks" as defined therein, hereby
agree that (i) the commitments of the lenders under the Existing Credit
Agreement shall terminate in their entirety immediately and automatically upon
the effectiveness of this Agreement, without further action by any party to the
Existing Credit Agreement, (ii) all accrued fees under the Existing Credit
Agreement shall be due and payable at such time and (iii) subject to the funding
loss indemnities in the Existing Credit Agreement, the Borrower may prepay any
and all loans outstanding thereunder on the date of effectiveness of this
Agreement.
SECTION 3.02. BORROWINGS AND ISSUANCE OF LETTERS OF CREDITS. The
obligation of any Bank to make a Loan on the occasion of any Borrowing and the
obligation of the Issuing Bank to issue (or renew or extend the term of) any
Letter of Credit is subject to the satisfaction of the following conditions;
PROVIDED that if such Borrowing is a Swingline Takeout Borrowing, only the
conditions set forth in clauses 3.02(a) and 3.02(b) must be satisfied:
(a) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.02 or 2.03 or receipt by the Issuing Bank of a Notice of
Issuance as required by Section 2.16(b), as the case may be;
(b) the facts that, immediately after such Borrowing or issuance of
such Letter of Credit (and, in the case of any Swingline Borrowing or issuance
of a
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Letter of Credit, at any time prior to the tenth day following the maturity or
expiry date thereof), (i) the sum of the aggregate outstanding principal amount
of the Loans and the aggregate amount of Letters of Credit Liabilities will not
exceed the aggregate amount of the Commitments, (ii) the aggregate outstanding
principal amount of Swingline Loans will not exceed $100,000,000 and (iii) the
aggregate amount of Letter of Credit Liabilities will not exceed $250,000,000;
(c) the fact that, immediately after such Borrowing or issuance of
such Letter of Credit, no Default shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the Borrower
contained in this Agreement (except the representations and warranties set forth
in Sections 4.04(c) and 4.05) shall be true on and as of the date of such
Borrowing or issuance of such Letter of Credit.
Each Borrowing and issuance of a Letter of Credit hereunder shall be deemed to
be a representation and warranty by the Borrower on the date of such Borrowing
as to the facts specified in clauses (b), (c) and (d) of this Section (unless
such Borrowing is a Swingline Takeout Borrowing, in which case the Borrower
shall be deemed to represent and warrant as to the facts specified in clause (b)
of this Section).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of North Carolina, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted and is duly qualified to do business as a
foreign corporation in each jurisdiction where such qualification is required,
except where the failure so to qualify would not have a material adverse effect
on the business, financial position or results of operations of the Borrower and
its Consolidated Subsidiaries, considered as a whole.
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
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duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official (except
for the approval of the obtaining of credit pursuant to this Agreement by the
North Carolina Utilities Commission and The Public Service Commission of South
Carolina which shall have been obtained not later than the Effective Date) and
do not contravene, or constitute a default under, any provision of applicable
law or regulation or of the articles of incorporation or by-laws of the Borrower
or of any agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or result in the creation or imposition of any Lien on
any asset of the Borrower or any of its Material Subsidiaries.
SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, if and when executed and
delivered in accordance with this Agreement, will constitute a valid and binding
obligation of the Borrower, in each case enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general principles of equity.
SECTION 4.04. FINANCIAL INFORMATION. (a) The consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of December 31, 1996 and
the related consolidated statements of income, cash flows, capitalization and
retained earnings for the fiscal year then ended, reported on by Deloitte &
Touche, copies of which have been delivered to each of the Banks, fairly
present, in conformity with generally accepted accounting principles, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of March 31, 1997 and the related unaudited
consolidated statements of income and cash flows for the three months then
ended, copies of which have been delivered to each of the Banks, fairly present,
in conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a) of this
Section, the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and changes in financial position for such three month period
(subject to normal year-end adjustments and the absence of footnotes).
(c) Since the respective dates set forth above, there has been no
material adverse change in the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole.
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SECTION 4.05. LITIGATION. Except as disclosed in the reports referred
to in Section 4.04 or in the Borrower's quarterly report on Form 10-Q for the
quarter ended June 30, 1997, copies of which have been delivered to each of the
Banks, there is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official which would be likely to be decided adversely to Borrower
and, as a result, have a material adverse effect upon the business, consolidated
financial position or results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, or which in any manner draws into question
the validity of this Agreement or any Note.
SECTION 4.06. COMPLIANCE WITH LAWS. The Borrower and each Material
Subsidiary is in compliance in all material respects with all applicable laws,
ordinances, rules, regulations and requirements of governmental authorities
(including, without limitation, ERISA and Environmental Laws) except where (i)
non-compliance would not have a material adverse affect on the business,
financial position or results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, or (ii) the necessity of compliance
therewith is contested in good faith by appropriate proceedings.
SECTION 4.07. TAXES. The Borrower and its Material Subsidiaries have
filed all United States Federal income tax returns and all other material tax
returns which are required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Borrower
or any Material Subsidiary except (i) where nonpayment would not have a material
adverse effect on the business, financial position or results of operations of
the Borrower and its Consolidated Subsidiaries, considered as a whole or (ii)
where the same are contested in good faith by appropriate proceedings. The
charges, accruals and reserves on the books of the Borrower and its Material
Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Borrower, adequate.
SECTION 4.08. PUBLIC UTILITY HOLDING COMPANY ACT. The Borrower is a
holding company exempt from all provisions of the Public Utility Holding Company
Act of 1935, as amended (the "1935 Act") except Section 9(a)(2) thereof under
Section 3(a)(2) pursuant to Rule 2 of the 1935 Act.
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ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any amount payable hereunder remains unpaid or any Letter of Credit
Liabilities remain outstanding:
SECTION 5.01. INFORMATION. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income, cash flows, capitalization and
retained earnings for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on in a
manner consistent with the requirements of the Securities and Exchange
Commission by Deloitte & Touche or other independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within 60 days after the end
of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income and
cash flows for such quarter and for the portion of the Borrower's fiscal year
ended at the end of such quarter, setting forth in each case in comparative form
the figures for the corresponding quarter and the corresponding portion of the
Borrower's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted accounting
principles and consistency by an Approved Officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of an
Approved Officer of the Borrower stating whether any Default exists on the date
of such certificate and, if any Default then exists, setting forth the details
thereof and the action which the Borrower is taking or proposes to take with
respect thereto;
(d) within five days after any officer of the Borrower with
responsibility relating thereto obtains knowledge of any Default, if such
Default is then continuing, a certificate of an Approved Officer of the Borrower
setting forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
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(e) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(f) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Borrower shall have filed with the Securities and
Exchange Commission;
(g) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "REPORTABLE EVENT" (as defined in Section 4043
of ERISA) with respect to any Material Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Material Plan has given or is required to give notice of
any such reportable event, a copy of the notice of such reportable event given
or required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Material Plan is
in reorganization, is insolvent or has been terminated, a copy of such notice;
(iii) receives notice from the PBGC under Title IV of ERISA of an intent to
terminate, impose material liability (other than for premiums under Section 4007
of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Material Plan under Section 4041(c) of ERISA,
a copy of such notice and other information filed with the PBGC; (vi) gives
notice of withdrawal from any Material Plan pursuant to Section 4063 of ERISA, a
copy of such notice; or (vii) fails to make any payment or contribution to any
Material Plan or makes any amendment to any Material Plan which has resulted or
could result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the chief financial officer or the chief accounting
officer of the Borrower setting forth details as to such occurrence and action,
if any, which the Borrower or applicable member of the ERISA Group is required
or proposes to take; and
(h) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Administrative Agent, at the request of any Bank, may reasonably request.
SECTION 5.02. PAYMENT OF TAXES. The Borrower will pay and discharge,
and will cause each Material Subsidiary to pay and discharge, at or before
maturity, all their tax liabilities, except where (i) nonpayment would not have
a material adverse effect on the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole, or (ii) the same may be contested in good faith by appropriate
proceedings, and will
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maintain, and will cause each Material Subsidiary to maintain, in accordance
with generally accepted accounting principles, appropriate reserves for the
accrual of any of the same.
SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE. (a) The Borrower will
keep, and will cause each Material Subsidiary to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted.
(b) The Borrower will, and will cause each of its Material
Subsidiaries to, maintain (either in the name of the Borrower or in such
Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such amounts
and against at least such risks (and with such risk retention) as are usually
insured against in the same general area by companies of established repute
engaged in the same or a similar business; PROVIDED that self-insurance by the
Borrower or any such Material Subsidiary shall not be deemed a violation of this
covenant to the extent that companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower or such
Material Subsidiary operates self-insure; and will furnish to the Banks, upon
request from the Administrative Agent, information presented in reasonable
detail as to the insurance so carried.
SECTION 5.04. MAINTENANCE OF EXISTENCE. The Borrower will preserve,
renew and keep in full force and effect, and will cause each Material Subsidiary
to preserve, renew and keep in full force and effect their respective corporate
existence and their respective rights, privileges and franchises material to the
normal conduct of their respective businesses; PROVIDED that nothing in this
Section 5.04 shall prohibit the termination of any right, privilege or franchise
of the Borrower or any Material Subsidiary or of the corporate existence of any
Material Subsidiary if the Borrower in good faith determines that such
termination is in the best interest of the Borrower and is not materially
disadvantageous to the Banks.
SECTION 5.05. COMPLIANCE WITH LAWS. The Borrower will comply, and cause
each Material Subsidiary to comply, in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, ERISA and Environmental Laws) except
where (i) noncompliance would not have a material adverse effect on the
business, financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
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SECTION 5.06. BOOKS AND RECORDS. The Borrower will keep, and will cause
each Material Subsidiary to keep, proper books of record and account in which
full, true and correct entries shall be made of all financial transactions in
relation to its business and activities in accordance with its customary
practices; and will permit, and will cause each Material Subsidiary to permit,
representatives of any Bank at such Bank's expense (accompanied by a
representative of the Borrower, if the Borrower so desires) to visit any of
their respective properties, to examine any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants, all
upon such reasonable notice, at such reasonable times and as often as may
reasonably be desired.
SECTION 5.07. NEGATIVE PLEDGE. The Borrower will not create, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired by it,
except:
(a) Liens granted by the Borrower existing on the date of this
Agreement securing Indebtedness outstanding on the date of this Agreement in an
aggregate principal amount not exceeding $100,000,000;
(b) the Lien of the Mortgage Indenture securing Indebtedness
outstanding on the date of this Agreement or issued hereafter;
(c) any Lien on any asset of any corporation existing at the time such
corporation is merged or consolidated with or into the Borrower and not created
in contemplation of such event;
(d) any Lien existing on any asset prior to the acquisition thereof by
the Borrower and not created in contemplation of such acquisition;
(e) any Lien on any asset securing Indebtedness incurred or assumed
for the purpose of financing all or any part of the cost of acquiring such
asset, PROVIDED that such Lien attaches to such asset concurrently with or
within 180 days after the acquisition thereof;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any Lien permitted by any of the
foregoing clauses of this Section, PROVIDED that such Indebtedness is not
increased and is not secured by any additional assets;
(g) Liens for taxes, assessments or other governmental charges or
levies not yet due or which are being contested in good faith by appropriate
proceedings
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and with respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with generally accepted accounting principles;
(h) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law, created in the ordinary
course of business and for amounts not past due for more than 60 days or which
are being contested in good faith by appropriate proceedings which are
sufficient to prevent imminent foreclosure of such Liens, are promptly
instituted and diligently conducted and with respect to which adequate reserves
or other appropriate provisions are being maintained in accordance with
generally accepted accounting principles;
(i) Liens incurred or deposits made in the ordinary course of business
(including, without limitation, surety bonds and appeal bonds) in connection
with workers' compensation, unemployment insurance and other types of social
security benefits or to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations or arising as a result of progress payments under
government contracts;
(j) easements (including, without limitation, reciprocal easement
agreements and utility agreements), rights-of-way, covenants, consents,
reservations, encroachments, variations and other restrictions, charges or
encumbrances (whether or not recorded) affecting the use of real property;
(k) Liens with respect to judgments and attachments which do not
result in an Event of Default;
(l) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other obligations arising in the
ordinary course of business; and
(m) other Liens including Liens imposed by Environmental Laws arising
in the ordinary course of its business which (i) do not secure Indebtedness,
(ii) do not secure any obligation in an amount exceeding $100,000,000 at any
time at which Investment Grade Status does not exist as to the Borrower and
(iii) do not in the aggregate materially detract from the value of its assets or
materially impair the use thereof in the operation of its business.
SECTION 5.08. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. The
Borrower will not (i) consolidate or merge with or into any other Person or (ii)
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sell, lease or otherwise transfer, directly or indirectly, Substantial Assets to
any Person (other than a Subsidiary); PROVIDED that the Borrower may merge with
another Person if the Borrower is the corporation surviving such merger and,
after giving effect thereto, no Default shall have occurred and be continuing.
SECTION 5.09. USE OF PROCEEDS. The proceeds of the Loans made under
this Agreement will be used by the Borrower for its general corporate purposes,
including liquidity support for outstanding commercial paper. None of such
proceeds will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any "MARGIN STOCK"
within the meaning of Regulation U.
ARTICLE 6
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following events
("EVENTS OF DEFAULT") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of any Loan
or shall fail to pay, within five days of the due date thereof, any interest,
fees or any other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.07, 5.08 or the second sentence of 5.09, inclusive;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) for 30 days after notice thereof has been given to the Borrower by
the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment in
respect of Material Debt (other than the Loans) when due or within any
applicable grace period;
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(f) any event or condition shall occur and shall continue beyond the
applicable grace or cure period, if any, provided with respect thereto so as to
result in the acceleration of the maturity of Material Debt;
(g) the Borrower or any Material Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced against
the Borrower or any Material Subsidiary seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against the Borrower or any Material Subsidiary under
the federal bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $25,000,000 which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of
intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities
in excess of $50,000,000 (collectively, a "MATERIAL PLAN") shall be filed under
Title IV of ERISA by any member of the ERISA Group, any plan administrator or
any combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan or a proceeding shall be instituted by a fiduciary
of any Material Plan against any member of the ERISA Group to enforce Section
515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed
within 90 days thereafter; or a condition shall exist by reason of which the
PBGC would be entitled to obtain a decree adjudicating that any Material Plan
must be terminated;
(j) a judgment or other court order for the payment of money in excess
of $50,000,000 shall be rendered against the Borrower or any Material Subsidiary
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and such judgment or order shall continue without being vacated, discharged,
satisfied or stayed or bonded pending appeal for a period of 45 days; or
(k) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
other than trustees and participants in employee benefit plans of the Borrower
and its Subsidiaries or the Endowment or Trust, shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 promulgated by the Securities and
Exchange Commission under the Exchange Act) of 50% or more of the outstanding
shares of common stock of the Borrower; or, during any period of twelve
consecutive calendar months, individuals who were directors of the Borrower on
the first day of such period (together with any successors nominated or
appointed by such directors in the ordinary course) shall cease to constitute a
majority of the board of directors of the Borrower;
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 66-2/3% in aggregate amount of the Commitments, by
notice to the Borrower terminate the Commitments and they shall thereupon
terminate and (ii) if requested by Banks holding more than 66-2/3% in aggregate
principal amount of the Loans, by notice to the Borrower declare the Loans
(together with accrued interest thereon) to be, and the Loans shall thereupon
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower;
PROVIDED that in the case of any of the Events of Default specified in clause
(g) or (h) above with respect to the Borrower, without any notice to the
Borrower or any other act by the Administrative Agent or the Banks, the
Commitments shall thereupon terminate and the Loans (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.
SECTION 6.02. NOTICE OF DEFAULT. The Administrative Agent shall give
notice to the Borrower under Section 6.01(c) promptly upon being requested to do
so by any Bank and shall thereupon notify all the Banks thereof.
SECTION 6.03. CASH COVER. The Borrower agrees, in addition to the
provisions of Section 6.01 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by the
Administrative Agent upon the instruction of the Banks having at least 66 2/3%
in the aggregate amount of the Commitments (or, if the Commitments shall have
been terminated, holding at least 66 2/3% of the Letter of Credit Liabilities),
pay to the Administrative Agent an amount in immediately available funds (which
funds shall be held as collateral pursuant to arrangements satisfactory to the
Administrative Agent) equal to the aggregate amount available for drawing under
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all Letters of Credit then outstanding at such time, PROVIDED that, upon the
occurrence of any Event of Default specified in Section 6.01(g) or 6.01(h) with
respect to the Borrower, the Borrower shall pay such amount forthwith without
any notice or demand or any other act by the Administrative Agent or the Banks.
ARTICLE 7
THE ADMINISTRATIVE AGENT
SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the Notes as are
delegated to the Administrative Agent by the terms hereof or thereof, together
with all such powers as are reasonably incidental thereto.
SECTION 7.02. ADMINISTRATIVE AGENT AND AFFILIATES. Morgan Guaranty
Trust Company of New York shall have the same rights and powers under this
Agreement as any other Bank and may exercise or refrain from exercising the same
as though it were not the Administrative Agent, and Morgan Guaranty Trust
Company of New York and its affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with the Borrower or any Subsidiary
or affiliate of the Borrower as if it were not the Administrative Agent
hereunder.
SECTION 7.03. ACTION BY ADMINISTRATIVE AGENT. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
SECTION 7.04. CONSULTATION WITH EXPERTS. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 7.05. LIABILITY OF ADMINISTRATIVE AGENT. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable to any Bank for any
action taken or not taken by it in connection herewith (i) with the consent or
at the request of the Required Banks or (ii) in the absence of its own gross
negligence or willful misconduct. Neither the Administrative Agent nor any of
its affiliates nor any of their respective directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or
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representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Borrower; (iii) the satisfaction of any condition specified in
Article 3, except receipt of items required to be delivered to the
Administrative Agent; or (iv) the validity, effectiveness or genuineness of this
Agreement, the Notes or any other instrument or writing furnished in connection
herewith. The Administrative Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex or similar writing) believed by it in good
faith to be genuine or to be signed by the proper party or parties. Without
limiting the generality of the foregoing, the use of the term "agent" in this
Agreement with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market custom and is intended to create or reflect only an administrative
relationship between independent contracting parties.
SECTION 7.06. INDEMNIFICATION. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Administrative Agent, its affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from the such indemnitees' gross negligence or willful misconduct) that
such indemnitees may suffer or incur in connection with this Agreement or any
action taken or omitted by such indemnitees thereunder.
SECTION 7.07. CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement.
SECTION 7.08. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent
may resign at any time by giving notice thereof to the Banks and the Borrower.
Upon any such resignation, the Borrower, with the consent of the Required Banks,
(such consent not to be unreasonably withheld or delayed), shall have the right
to appoint a successor Administrative Agent. If no successor Administrative
Agent shall have been so appointed, and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent gives notice of
resignation, then the retiring Administrative Agent may, on behalf of the
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Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$250,000,000. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder; PROVIDED
that if such successor Administrative Agent is appointed without the consent of
the Borrower, such successor Administrative Agent may be replaced by the
Borrower with the consent of the Required Banks. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Article shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent.
SECTION 7.09. ADMINISTRATIVE AGENT'S FEE. The Borrower shall pay to the
Administrative Agent for its own account fees in the amounts and at the times
previously agreed upon between the Borrower and the Administrative Agent.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR.
If on or prior to the first day of any Interest Period for any Euro-Dollar
Borrowing or Bid Rate (Indexed) Borrowing:
(a) the Administrative Agent is advised by the Euro-Dollar Reference
Banks that deposits in dollars (in the applicable amounts) are not being offered
to the Euro-Dollar Reference Banks in the relevant market for such Interest
Period, or
(b) in the case of a Euro-Dollar Borrowing, Banks having 66-2/3% or
more of the aggregate amount of the affected Loans advise the Administrative
Agent that the London Interbank Offered Rate as determined by the Administrative
Agent will not adequately and fairly reflect the cost to such Banks of funding
their Euro-Dollar Loans for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, (i) the
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obligations of the Banks to make Euro-Dollar Loans or to continue or convert
outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each
outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the
last day of the then current Interest Period applicable thereto. Unless the
Borrower notifies the Administrative Agent at least one Domestic Business Day
before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has
previously been given that it elects not to borrow on such date, (i) if such
Fixed Rate Borrowing is a Syndicated Borrowing, such Borrowing shall instead be
made as a Base Rate Borrowing and (ii) if such Borrowing is a Bid Rate (Indexed)
Borrowing, the Loans comprising such Borrowing shall bear interest for each day
from and including the first day to but excluding the last day of the Interest
Period applicable thereto at the Base Rate for such day.
SECTION 8.02. ILLEGALITY. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund any of its Euro-Dollar
Loans and such Bank shall so notify the Administrative Agent, the Administrative
Agent shall forthwith give notice thereof to the other Banks and the Borrower,
whereupon until such Bank notifies the Borrower and the Administrative Agent
that the circumstances giving rise to such suspension no longer exist, the
obligation of such Bank to make Euro-Dollar Loans, or to continue or convert
outstanding Loans as or into Euro-Dollar Loans, shall be suspended. Before
giving any notice to the Administrative Agent pursuant to this Section, such
Bank shall designate a different Euro-Dollar Lending Office if such designation
will avoid the need for giving such notice and will not be otherwise
disadvantageous to such Bank in the good faith exercise of its discretion. If
such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall
be converted to a Base Rate Loan either (a) on the last day of the then current
Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully
continue to maintain and fund such Loan to such day or (b) immediately if such
Bank shall determine that it may not lawfully continue to maintain and fund such
Loan to such day.
SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If on or after (x)
the date of this Agreement, in the case of any Committed Loan or Letter of
Credit or any obligation to make Committed Loans or issue or participate in any
Letter of Credit or (y) the date of any related Bid Rate Quote, in the case of
any Bid Rate Loan, the adoption of any applicable law, rule or regulation, or
any change in any
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applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Applicable Lending Office) with any request or directive
(whether or not having the force of law) issued on or after such date of any
such authority, central bank or comparable agency shall impose, modify or deem
applicable any reserve, special deposit or similar requirement (including,
without limitation, any such requirement imposed by the Board of Governors of
the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan
any such requirement included in an applicable Euro-Dollar Reserve Percentage)
against assets of, deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the London interbank market any other condition
(other than in respect of Taxes or Other Taxes) affecting its Fixed Rate Loans,
its Note or its obligation to make Fixed Rate Loans or its obligations hereunder
in respect of Letters of Credit and the result of any of the foregoing is to
increase the cost to such Bank (or its Applicable Lending Office) of making or
maintaining any Fixed Rate Loan or of issuing or participating in any Letter of
Credit, or to reduce the amount of any sum received or receivable by such Bank
(or its Applicable Lending Office) under this Agreement or under its Note with
respect thereto, by an amount deemed by such Bank to be material, then, within
15 days after demand by such Bank (with a copy to the Administrative Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank for such increased cost or reduction; PROVIDED that no such
amount shall be payable with respect to any period commencing more than 90 days
prior to the date such Bank first notifies the Borrower of its intention to
demand compensation therefor under this Section 8.03(a).
(b) If any Bank shall have determined that, on or after the date of
this Agreement, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change in any such law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency given or made after the date of this Agreement, has or would
have the effect of reducing the rate of return on capital of such Bank (or its
Parent) as a consequence of such Bank's obligations hereunder to a level below
that which such Bank (or its Parent) could have achieved but for such adoption,
change, request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Bank to be material,
then from time to time, within 15 days after demand by such Bank (with a copy to
the Administrative Agent), the Borrower shall pay to such Bank such additional
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amount or amounts as will compensate such Bank (or its Parent) for such
reduction; PROVIDED that no such amount shall be payable with respect to any
period commencing less than 30 days after the date such Bank first notifies the
Borrower of its intention to demand compensation under this Section 8.03(b).
(c) Each Bank will promptly notify the Borrower and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate
of any Bank claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount, such Bank may use any
reasonable averaging and attribution methods.
SECTION 8.04. TAXES. (a) For purposes of this Section 8.04, the
following terms have the following meanings:
"TAXES" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or any Note, and all liabilities with
respect thereto, EXCLUDING (i) in the case of each Bank and the Administrative
Agent, taxes imposed on its income, net worth or gross receipts and franchise or
similar taxes imposed on it by a jurisdiction under the laws of which such Bank
or the Administrative Agent (as the case may be) is organized or in which its
principal executive office is located or, in the case of each Bank, in which its
Applicable Lending Office is located and (ii) in the case of each Bank, any
United States withholding tax imposed on such payments except to the extent that
such Bank is subject to United States withholding tax by reason of a U.S. Tax
Law Change.
"OTHER TAXES" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or from
the execution or delivery of, or otherwise with respect to, this Agreement or
any Note.
"U.S. TAX LAW CHANGE" means with respect to any Bank or Participant the
occurrence (x) in the case of each Bank listed on the signature pages hereof,
after the date of its execution and delivery of this Agreement and (y) in the
case of any other Bank, after the date such Bank shall have become a Bank
hereunder, and (z) in the case of each Participant, after the date such
Participant became a Participant hereunder, of the adoption of any applicable
U.S. federal law, U.S.
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federal rule or U.S. federal regulation relating to taxation, or any change
therein, or the entry into force, modification or revocation of any income tax
convention or treaty to which the United States is a party.
(b) Any and all payments by the Borrower to or for the account of any
Bank or the Administrative Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; PROVIDED that, if the Borrower
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 8.04) such Bank or the Administrative Agent (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 9.01, the original or a certified copy of a receipt evidencing
payment thereof.
(c) The Borrower agrees to indemnify each Bank and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 8.04) paid by such Bank or the Administrative
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be paid within 15 days after such Bank or the Administrative Agent (as the case
may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter as required by law (but only so long as such
Bank remains lawfully able to do so), shall provide the Borrower two completed
and duly executed copies of Internal Revenue Service form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
or other documentation reasonably requested by the Borrower, certifying that
such Bank is entitled to benefits under an income tax treaty to which the United
States is a party which exempts the Bank from United States withholding tax or
reduces the rate of withholding tax on payments of interest for the account of
such Bank or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
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(e) For any period with respect to which a Bank has failed to provide
the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such
failure is due to a U.S. Tax Law Change), such Bank shall not be entitled to
indemnification under Section 8.04(b) or 8.04(c) with respect to any Taxes or
Other Taxes which would not have been payable had such form been so provided,
PROVIDED that if a Bank, which is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as such
Bank shall reasonably request to assist such Bank to recover such Taxes (it
being understood, however, that the Borrower shall have no liability to such
Bank in respect of such Taxes).
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section 8.04, then such Bank will take
such action (including changing the jurisdiction of its Applicable Lending
Office) as in the good faith judgment of such Bank (i) will eliminate or reduce
any such additional payment which may thereafter accrue and (ii) is not
otherwise disadvantageous to such Bank.
(g) If any Bank or the Administrative Agent receives a refund
(including a refund in the form of a credit against taxes that are otherwise
payable by the Bank or the Administrative Agent) of any Taxes or Other Taxes for
which the Borrower has made a payment under Section 8.04(b) or (c) and such
refund was received from the taxing authority which originally imposed such
Taxes or Other Taxes, such Bank or the Administrative Agent agrees to reimburse
the Borrower to the extent of such refund, PROVIDED that nothing contained in
this paragraph (g) shall require any Bank or the Administrative Agent to make
available its tax returns (or any other information relating to its taxes which
it deems to be confidential).
SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE
LOANS. If (i) the obligation of any Bank to make or to continue or convert
outstanding Loans as or into Euro-Dollar Loans has been suspended pursuant to
Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03(a) or
8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least
five Euro-Dollar Business Days' prior notice to such Bank through the
Administrative Agent, have elected that the provisions of this Section shall
apply to such Bank, then, unless and until such Bank notifies the Borrower that
the circumstances giving rise to such suspension or demand for compensation no
longer apply:
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted to) Euro-Dollar Loans, as the case may be, shall
instead
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be Base Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all payments
of principal which would otherwise be applied to repay such Loans shall be
applied to repay its Base Rate Loans instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer exist, the principal amount of
each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first
day of the next succeeding Interest Period applicable to the related Euro-Dollar
Loans of the other Banks.
SECTION 8.06. SUBSTITUTION OF BANK; TERMINATION OPTION. If (i) the
obligation of any Bank to make or to convert or continue outstanding Loans as or
into Euro-Dollar Loans has been suspended pursuant to Section 8.02, (ii) any
Bank has demanded compensation under Section 8.03 or 8.04, or (iii) any Bank
exercises its right not to extend its Termination Date pursuant to Section
2.01(c) or (iv) Investment Grade Status ceases to exist as to any Bank, then:
(a) the Borrower shall have the right, with the assistance of the
Administrative Agent, to designate a substitute bank or banks (which may be one
or more of the Banks) mutually satisfactory to the Borrower, the Administrative
Agent, the Issuing Banks and the Swingline Bank (whose consent shall not be
unreasonably withheld or delayed) to purchase for cash, pursuant to an
Assignment and Assumption Agreement in substantially the form of Exhibit G
hereto, the outstanding Loans of such Bank and assume the Commitment and Letter
of Credit Liabilities of such Bank, without recourse to or warranty by, or
expense to, such Bank, for a purchase price equal to the principal amount of all
of such Bank's outstanding Loans and funded Letter of Credit Liabilities plus
any accrued but unpaid interest thereon and the accrued but unpaid fees in
respect of such Bank's Commitment hereunder plus such amount, if any, as would
be payable pursuant to Section 2.14 if the outstanding Loans of such Bank were
prepaid in their entirety on the date of consummation of such assignment; and
(b) if at the time Investment Grade Status exists as to the Borrower,
the Borrower may elect to terminate this Agreement as to such Bank, PROVIDED
that (i) the Borrower notifies such Bank through the Administrative Agent of
such election at least three Euro-Dollar Business Days before the effective date
of such termination, (ii) the Borrower repays or prepays all outstanding Loans
made by such Bank not later than the effective date of such termination and
(iii) if at the effective date of such termination, any Letter of Credit
Liabilities or Swingline Loans are outstanding, the conditions specified in
Section 3.02 would be satisfied
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(after giving effect to such termination) were the related Letters of Credit and
Swingline Loans made on such date. Upon satisfaction of the foregoing
conditions, the Commitment of such Bank shall terminate on the effective date
specified in such notice.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile transmission or similar writing) and shall be given to such party: (x)
in the case of the Borrower or the Administrative Agent, at its address or
telecopy or telex number set forth on the signature pages hereof, (y) in the
case of any Bank, at its address or telecopy or telex number set forth in its
Administrative Questionnaire or (z) in the case of any party, such other address
or telecopy or telex number as such party may hereafter specify for the purpose
by notice to the Administrative Agent and the Borrower. Each such notice,
request or other communication shall be effective (i) if given by telecopy or
telex, when such telecopy or telex is transmitted to the telecopy or telex
number specified in this Section and the appropriate answerback or confirmation
slip, as the case may be, is received, (ii) if given by mail, 84 hours after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in this Section; PROVIDED that notices to the
Administrative Agent or any Issuing Bank under Article 2 or Article 3 shall not
be effective until delivered.
SECTION 9.02. NO WAIVERS. No failure or delay by the Administrative
Agent or any Bank in exercising any right, power or privilege hereunder or under
any Note shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i)
all reasonable out-of-pocket expenses of the Administrative Agent, including
reasonable fees and disbursements of special counsel for the Administrative
Agent, in connection with the preparation of this Agreement, any waiver or
consent hereunder or any amendment hereof or any Default or alleged Default
hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket
expenses incurred by the Administrative Agent or any Bank, including reasonable
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fees and disbursements of counsel, in connection with such Event of Default and
collection and other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify the Administrative Agent and each
Bank, their respective affiliates and the respective directors, officers, agents
and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) relating to or arising out
of this Agreement or any actual or proposed use of proceeds of Loans hereunder;
PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for
such Indemnitee's own gross negligence or willful misconduct as determined by a
court of competent jurisdiction.
SECTION 9.04. SHARING OF SET-OFFS. Each Bank agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount then due with respect to the Loans and
Letter of Credit Liabilities held by it which is greater than the proportion
received by any other Bank in respect of the aggregate amount then due with
respect to the Loans and Letter of Credit Liabilities held by such other Bank,
the Bank receiving such proportionately greater payment shall purchase such
participations in the Loans and Letter of Credit Liabilities held by the other
Banks, and such other adjustments shall be made, as may be required so that all
such payments with respect to the Loans and Letter of Credit Liabilities held by
the Banks shall be shared by the Banks pro rata; PROVIDED that nothing in this
Section shall impair the right of any Bank to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to the
payment of indebtedness of the Borrower other than its indebtedness under this
Agreement.
SECTION 9.05. AMENDMENTS AND WAIVERS. Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Administrative Agent, the Swingline Bank or any Issuing
Bank are affected thereby, by such Person); PROVIDED that no such amendment or
waiver shall, unless signed by all the Banks, (i) increase or decrease the
Commitment of any Bank (except (x) as contemplated by Section 2.19 or (y) for a
ratable decrease in the Commitments of all Banks) or subject any Bank to any
additional obligation, (ii) reduce the principal of or rate of interest on any
Loan or the amount to be reimbursed in respect of any Letter of Credit or any
interest thereon or any fees hereunder, (iii) postpone the date fixed for any
payment of principal of or interest on any Loan or for reimbursement in
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respect of any Letter of Credit or interest thereon or any fees hereunder or for
termination of any Commitment or (iv) change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Loans and Letter of Credit
Liabilities, or the number of Banks, which shall be required for the Banks or
any of them to take any action under this Section or any other provision of this
Agreement.
SECTION 9.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may, with the consent of the Borrower (such consent not
to be unreasonably withheld or delayed), at any time grant to one or more banks
or other institutions (each a "PARTICIPANT") participating interests in its
Commitment or any or all of its Loans and Letter of Credit Liabilities. In the
event of any such grant by a Bank of a participating interest to a Participant,
whether or not upon notice to the Administrative Agent, such Bank shall remain
responsible for the performance of its obligations hereunder, and the Borrower,
the Issuing Banks, the Swingline Bank and the Administrative Agent shall
continue to deal solely and directly with such Bank in connection with such
Bank's rights and obligations under this Agreement. Any agreement pursuant to
which any Bank may grant such a participating interest shall provide that such
Bank shall retain the sole right and responsibility to enforce the obligations
of the Borrower hereunder including, without limitation, the right to approve
any amendment, modification or waiver of any provision of this Agreement;
PROVIDED that such participation agreement may provide that such Bank will not
agree to any modification, amendment or waiver of this Agreement described in
clause (i), (ii) or (iii) of Section 9.05 without the consent of the
Participant. The Borrower agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Article
8 with respect to its participating interest, subject to the performance by such
Participant of the obligations of a Bank thereunder. An assignment or other
transfer which is not permitted by subsection (c) or (d) below shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
financial institutions (each an "ASSIGNEE") all, or a proportionate part
(equivalent to an initial Commitment of not less than $20,000,000) of all, of
its rights and obligations under this Agreement and its Note (if any), and such
Assignee shall assume such rights and obligations, pursuant to an Assignment and
Assumption
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Agreement in substantially the form of Exhibit G hereto executed by such
Assignee and such transferor Bank, with (and only with and subject to) the prior
written consent of the Borrower (given in its sole discretion), the Issuing
Banks, the Swingline Bank and the Administrative Agent (which shall not be
unreasonably withheld or delayed), PROVIDED that unless such assignment is of
the entire right, title and interest of the transferor Bank hereunder, after
making any such assignment such transferor Bank shall have a Commitment of at
least $20,000,000. Upon execution and delivery of such instrument of assumption
and payment by such Assignee to such transferor Bank of an amount equal to the
purchase price agreed between such transferor Bank and such Assignee, such
Assignee shall be a Bank party to this Agreement and shall have all the rights
and obligations of a Bank with a Commitment as set forth in such instrument of
assumption, and the transferor Bank shall be released from its obligations
hereunder to a corresponding extent, and no further consent or action by any
party shall be required. Upon the consummation of any assignment pursuant to
this subsection (c), the transferor Bank, the Administrative Agent and the
Borrower shall make appropriate arrangements so that, if required by the
Assignee, a Note is issued to the Assignee. If the Assignee is not incorporated
under the laws of the United States of America or a state thereof, it shall,
prior to the first date on which interest or fees are payable hereunder for its
account, deliver to the Borrower and the Administrative Agent certification as
to exemption from deduction or withholding of any United States federal income
taxes in accordance with Section 8.04. All assignments shall be subject to a
transaction fee established by, and payable by the transferor Bank to, the
Administrative Agent for its own account (which shall not exceed $5,000).
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note (if any) to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder or
modify any such obligations.
(e) No Assignee, Participant or other transferee of any Bank's rights
(including any Applicable Lending Office other than such Bank's initial
Applicable Lending Office) shall be entitled to receive any greater payment
under Section 8.03 or 8.04 than such Bank would have been entitled to receive
with respect to the rights transferred, unless such transfer is made by reason
of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate
a different Applicable Lending Office under certain circumstances or at a time
when the circumstances giving rise to such greater payment did not exist.
SECTION 9.07. COLLATERAL. Each of the Banks represents to the
Administrative Agent and each of the other Banks that it in good faith is not
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relying upon any "MARGIN STOCK" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.
SECTION 9.08. CONFIDENTIALITY. The Administrative Agent and each Bank
agrees to keep any information delivered or made available by the Borrower
pursuant to this Agreement confidential from anyone other than persons employed
or retained by such Bank and its affiliates who are engaged in evaluating,
approving, structuring or administering the credit facility contemplated hereby;
PROVIDED that nothing herein shall prevent any Bank from disclosing such
information (a) to any other Bank or to the Administrative Agent, (b) to any
other Person if reasonably incidental to the administration of the credit
facility contemplated hereby, (c) upon the order of any court or administrative
agency, (d) upon the request or demand of any regulatory agency or authority,
(e) which had been publicly disclosed other than as a result of a disclosure by
the Administrative Agent or any Bank prohibited by this Agreement, (f) in
connection with any litigation to which the Administrative Agent, any Bank or
its subsidiaries or Parent may be a party, (g) to the extent necessary in
connection with the exercise of any remedy hereunder, (h) to such Bank's or
Administrative Agent's legal counsel and independent auditors and (i) subject to
provisions substantially similar to those contained in this Section 9.08, to any
actual or proposed Participant or Assignee.
SECTION 9.09. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
and each Note (if any) shall be construed in accordance with and governed by the
law of the State of New York. The Borrower hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State court sitting in New York City for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. The Borrower irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
SECTION 9.10. COUNTERPARTS; INTEGRATION. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT, THE ISSUING BANKS,
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THE SWINGLINE BANK AND THE BANKS , TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO
SO UNDER APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
DUKE ENERGY CORPORATION
By /s/ Paul F. Ferguson, Jr.
----------------------------------
Title: Senior Vice President and
Treasurer
422 South Church Street
Charlotte, North Carolina 28242-1904
Attention: Paul F. Ferguson, Jr.
Telecopy number: (704) 382-4964
Commitments
- -----------
$ 88,750,000 MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ Oliver W. Wesson, Jr.
----------------------------------
Title: Vice President
$ 88,750,000 THE CHASE MANHATTAN BANK
By /s/ Paul V. Farrell
----------------------------------
Title: Vice President
$ 65,000,000 BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION
By /s/ Michael J. Dillon
----------------------------------
Title: Managing Director
<PAGE>
$ 65,000,000 THE BANK OF NEW YORK
By /s/ Ian K. Stewart
----------------------------------
Title: Senior Vice President
$ 65,000,000 BARCLAYS BANK PLC
NEW YORK BRANCH
By /s/ N.A. Bell
----------------------------------
Title: Director
Portfolio Management
$ 65,000,000 CITIBANK, N.A.
By /s/ Philip C. Kron
----------------------------------
Title: As Attorney In Fact
$65,000,000 THE FIRST NATIONAL BANK OF
CHICAGO
By /s/ Madeleine N. Pember
----------------------------------
Title: Corporate Banking Officer
$ 65,000,000 FIRST UNION NATIONAL BANK
By /s/ Michael J. Kolosowsky
----------------------------------
Title: Vice President
<PAGE>
$ 65,000,000 NATIONSBANK, N.A.
By /s/ Gretchen P. Burud
----------------------------------
Title: Vice President
$ 65,000,000 WACHOVIA BANK, N.A.
By /s/ Christopher L. Fincher
----------------------------------
Title: Vice President
$ 42,500,000 BANK OF MONTREAL
By /s/ Natasha Glossop
----------------------------------
Title: Director
$ 42,500,000 THE BANK OF TOKYO-
MITSUBISHI, LTD.
By /s/ William L. Otott, Jr.
----------------------------------
Title: Vice President
$ 42,500,000 BANKBOSTON, N.A.
By /s/ Rita M. Cahill
----------------------------------
Title: Vice President
<PAGE>
$ 42,500,000 CIBC, INC.
By /s/ Aleksandra K. Dymanus
----------------------------------
Title: Authorized Signatory
$ 42,500,000 DRESDNER BANK AG NEW YORK
AND/OR GRAND CAYMAN
BRANCHES
By /s/ Thomas Lake
----------------------------------
Title: Vice President
By /s/ Michael E. Terry
----------------------------------
Title: Assistant Vice President
$ 42,500,000 THE INDUSTRIAL BANK OF
JAPAN, LIMITED, ATLANTA
AGENCY
By /s/ Koichi Hasegawa
----------------------------------
Title: Senior Vice President and
Deputy General Manager
$ 42,500,000 MELLON BANK, N.A.
By /s/ Brad S. Miller
----------------------------------
Title: Assistant Vice President
<PAGE>
$ 42,500,000 THE NORTHERN TRUST
COMPANY
By /s/ John J. Conway
----------------------------------
Title: Vice President
$ 42,500,000 ROYAL BANK OF BANK OF
CANADA
By /s/ Tom J. Oberaigner
----------------------------------
Title: Manager
$ 42,500,000 THE SANWA BANK, LIMITED
By /s/ William M. Plough
----------------------------------
Title: Vice President
By /s/ Andrew N. Hammond
----------------------------------
Title: Vice President - Senior
Manager Credit
$ 42,500,000 SOCIETE GENERALE
By /s/ Gordon Eadon
----------------------------------
Title: Vice President
<PAGE>
$ 42,500,000 TORONTO DOMINION (NEW
YORK), INC.
By /s/ Jorge A. Garcia
----------------------------------
Title: Vice President
$ 42,500,000 UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By /s/ Paul R. Morrison
----------------------------------
Title: Director
By /s/ Michele von Kroemer
----------------------------------
Title: Assistant Treasurer
<PAGE>
- ---------------------------
Total Commitments
$1,250,000,000
- ---------------------------
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK,
as Administrative Agent
By /s/ Oliver W. Wesson, Jr.
----------------------------------
Title: Vice President
60 Wall Street
New York, NY 10260
Attention: Loan Department
Telex number: 177615 MGT
Telecopy number: (212) 648-5023
<PAGE>
PRICING SCHEDULE
The "EURO-DOLLAR MARGIN" and the "FACILITY FEE RATE" for any day are
the respective percentages set forth below in the applicable row under the
column corresponding to the Status that exists on such day:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Facility .055% .060% .065% .070% .085% .100%
Fee
- ---------------------------------------------------------------------------------------------------------
Euro- .095% .115% .135% .155% .165% .200%
Dollar
Margin
- ---------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"LEVEL I STATUS" exists at any date if, at such date, the Borrower is
rated "AA-" or higher by S&P OR "Aa3" or higher by Moody's.
"LEVEL II STATUS" exists at any date if, at such date, (i) the Borrower
is rated "A+" or higher by S&P OR "A1" or higher by Moody's and (ii) Level I
Status does not exist.
"LEVEL III STATUS" exists at any date if, at such date, (i) the
Borrower is rated "A" or higher by S&P OR "A2" or higher by Moody's and (ii)
neither Level I Status nor Level II Status exists.
"LEVEL IV STATUS" exists at any date if, at such date, (i) the Borrower
is rated "A-" by S&P OR "A3" by Moody's and (ii) neither Level I Status, Level
II Status nor Level III Status exists.
"LEVEL V STATUS" exists at any date if, at such date, (i) the Borrower
is rated "BBB+" by S&P OR "Baa1" by Moody's and (ii) neither Level I Status,
Level II Status, Level III Status nor Level IV Status exists.
"LEVEL VI STATUS" exists at any date if, at such date, no other Status
exists.
"STATUS" refers to the determination of which of Level I Status, Level
II Status, Level III Status, Level IV Status, Level V Status or Level VI Status
exists at any date.
<PAGE>
The credit ratings to be utilized for purposes of this Schedule are
those indicated for or assigned to the senior unsecured long-term debt
securities of the Borrower without third-party credit enhancement, and any
rating indicated for or assigned to any other debt security of the Borrower
shall be disregarded. The ratings in effect for any day are those in effect at
the close of business on such day. A change in credit rating will result in an
immediate change in the applicable Status. In the case of split ratings from S&P
and Moody's, the rating to be used to determine the applicable Status is the
higher of the two.
2
<PAGE>
SCHEDULE I
DUKE ENERGY CORPORATION
CREDIT FACILITY
(Being Replaced by $1,250,000,000 Revolving Credit Facility)
1. Credit Agreement dated as of August 16, 1989, as amended, among
Duke Energy Company, the lenders party thereto and Morgan Guaranty Trust Company
of New York, as agent.
<PAGE>
EXHIBIT A
NOTE
New York, New York
August 25, 1997
For value received, Duke Energy Corporation, a North Carolina
corporation (the "BORROWER"), promises to pay to the order of (the "BANK"), for
the account of its Applicable Lending Office, the unpaid principal amount of
each Loan made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below on the date specified in the Credit Agreement. The Borrower
promises to pay interest on the unpaid principal amount of each such Loan on the
dates and at the rate or rates provided for in the Credit Agreement. All such
payments of principal and interest shall be made in lawful money of the United
States in Federal or other immediately available funds at the office of Morgan
Guaranty Trust Company of New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types and maturities thereof
and all repayments of the principal thereof shall be recorded by the Bank and,
the Bank, if the Bank so elects in connection with any transfer or enforcement
of its Note, may endorse on the schedule attached hereto appropriate notations
to evidence the foregoing information with respect to the Loans then
outstanding; PROVIDED that the failure of the Bank to make any such recordation
or endorsement shall not affect the obligations of the Borrower hereunder or
under the Credit Agreement.
This note is one of the Notes referred to in the Five-Year Credit
Agreement dated as of August 25, 1997 among the Borrower, the banks listed on
the signature pages thereof and Morgan Guaranty Trust Company of New York, as
Administrative Agent (as the same may be amended from time to time, the "CREDIT
AGREEMENT"). Terms defined in the Credit Agreement are used herein with the same
meanings. Reference is made to the Credit Agreement for provisions for the
prepayment hereof and the acceleration of the maturity hereof.
DUKE ENERGY CORPORATION
By _____________________________________
Title:
<PAGE>
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Amount of
Amount Type Principal Maturity Notation
Date of Loan of Loan Repaid Date Made By
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
EXHIBIT B
FORM OF BID RATE QUOTE REQUEST
[Date]
To: Morgan Guaranty Trust Company of New York
(the "ADMINISTRATIVE AGENT")
From: Duke Energy Corporation
Re: Five-Year Credit Agreement (the "CREDIT AGREEMENT") dated as
of August 25, 1997 among the Borrower, the Banks listed on the
signature pages thereof and the Administrative Agent
We hereby give notice pursuant to Section 2.03 of the Credit Agreement
that we request Bid Rate Quotes for the following proposed Bid Rate
Borrowing(s):
Date of Borrowing: __________________
Principal Amount* Interest Period**
- ---------------- ---------------
$
Such Bid Rate Quotes should offer a Bid Rate [(General), (Indexed) or
both]. [The applicable base rate is the London Interbank Offered Rate.]
Terms used herein have the meanings assigned to them in the Credit
Agreement.
DUKE ENERGY CORPORATION
By ____________________________________
Title:
- --------
*Amount must be $10,000,000 or a larger multiple of $1,000,000.
**Not less than one month (Bid Rate (Indexed) Auction) or not less than
7 days (Bid Rate (General) Auction), subject to the provisions of the definition
of Interest Period.
<PAGE>
EXHIBIT C
FORM OF INVITATION FOR BID RATE QUOTES
To: [Name of Bank]
Re: Invitation for Bid Rate Quotes to Duke Energy Corporation (the
"BORROWER")
Pursuant to Section 2.03 of the Five-Year Credit Agreement dated as of
August 25, 1997 among the Borrower, the Banks parties thereto and the
undersigned, as Administrative Agent, we are pleased on behalf of the Borrower
to invite you to submit Bid Rate Quotes to the Borrower for the following
proposed Bid Rate Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
- ---------------- ---------------
$
Such Bid Rate Quotes should offer a Bid Rate [(Indexed), (General) or
both]. [The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30
A.M.] (New York City time) on [date].
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By ____________________________________
Authorized Officer
<PAGE>
EXHIBIT D
FORM OF BID RATE QUOTE
To: Morgan Guaranty Trust Company of New York,
as Administrative Agent
60 Wall Street
New York, New York 10260
Attention:
Re: Bid Rate Quote to Duke Energy Corporation (the "BORROWER")
In response to your invitation on behalf of the Borrower dated
_____________, 19__, we hereby make the following Bid Rate Quote on the
following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
_____________________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Bid Rate Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Principal Interest Bid Rate
Amount** Period*** [(Indexed)****] [(General)*****]
- -------- --------- --------------- ----------------
$
$
provided, that the aggregate principal amount of Bid Rate Loans for which the
above offers may be accepted shall not exceed $_______________.]**
- --------
*As specified in the related Invitation.
**Principal amount bid for each Interest Period may not exceed
principal amount requested. Specify aggregate limitation if the sum of the
individual offers exceeds the amount the Bank is willing to lend. Bids must be
made for $5,000,000 or a larger of multiple of $1,000,000.
***Not less than one month or less than 30 days, as specified in the
related Invitation, but no bid may be submitted for an Interest Period extending
beyond bidder's Termination Date. No more than five bids are permitted for each
Interest Period.
****Margin over or under the London Interbank Offered Rate determined
for the applicable Interest Period. Specify percentage (rounded to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
*****Specify rate of interest per annum (rounded to the nearest
1/10,000th of 1%).
<PAGE>
provided, that the aggregate principal amount of Bid Rate Loans for which the
above offers may be accepted shall not exceed $____________.]**
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Five-Year Credit
Agreement dated as of August 25, 1997 among the Borrower, the Banks listed on
the signature pages thereof and yourselves, as Administrative Agent, irrevocably
obligates us to make the Bid Rate Loan(s) for which any offer(s) are accepted,
in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: ____________________ By: ___________________________
Authorized Officer
2
<PAGE>
EXHIBIT E
OPINION OF COUNSEL FOR THE BORROWER
[Effective Date]
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company of New York
as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as counsel for Duke Energy Corporation (the "BORROWER")
in connection with the Five-Year Credit Agreement (the "CREDIT AGREEMENT") dated
as of August 25, 1997 among the Borrower, the banks listed on the signature
pages thereof and Morgan Guaranty Trust Company of New York, as Administrative
Agent. Terms defined in the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of North Carolina, and has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and any Notes are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official (except
for the approval of the obtaining of credit pursuant to this Agreement by the
North Carolina Utilities Commission and The South Carolina Public Service
<PAGE>
Commission which has been obtained) and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the articles
of incorporation or by-laws of the Borrower or, to our knowledge, of any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Borrower or, to our knowledge, result in the creation or imposition of any
Lien on any asset of the Borrower or any of its Material Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and the Notes, if and when issued, will constitute valid and
binding obligations of the Borrower enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by general principles of equity.
4. Except as disclosed in the reports referred to in Section 4.04 of
the Credit Agreement or in the Borrower's quarterly report on Form 10-Q for the
quarter ended June 30, 1997, to our knowledge (but without independent
investigation), there is no action, suit or proceeding pending or threatened
against or affecting, the Borrower or any of its Subsidiaries before any court
or arbitrator or any governmental body, agency or official, which would be
likely to be decided adversely to Borrower or such Subsidiary and, as a result,
to have a material adverse effect upon the business, consolidated financial
position or consolidated results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole or which in any manner draws
into question the validity of the Credit Agreement or any Notes.
5. The Borrower is a holding company exempt from all provisions of
the Public Utility Holding Company Act of 1935 (the "1935 Act") except Section
9(a)(2) thereof under Section 3(a)(2) pursuant to Rule 2 of the 1935 Act.
The phrase "to the best of our knowledge", as used in the foregoing
opinion, refers to the actual knowledge of this firm without any independent
investigation as to any such matters.
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the law of the State of
New York, and the federal law of the United States of America. In rendering the
foregoing opinion, we are, with your approval, relying as to all matters of
North Carolina law upon the opinion of _______ and as to matters of South
Carolina law upon the opinion of __________.
This opinion is rendered to you in connection with the above matter and
may not be relied upon by you for any other purpose, or relied upon by, or
2
<PAGE>
furnished to, any other person, firm or corporation without our prior written
consent, except for Additional Banks and all Participants.
Very truly yours,
3
<PAGE>
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE ADMINISTRATIVE AGENT
---------------------------------------------------------------------
[Effective Date]
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company of New York,
as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Five-Year Credit
Agreement (the "CREDIT AGREEMENT") dated as of August 25, 1997 among Duke Energy
Corporation, a North Carolina corporation (the "BORROWER"), the banks listed on
the signature pages thereof (the "BANKS") and Morgan Guaranty Trust Company of
New York, as Administrative Agent (the "ADMINISTRATIVE AGENT"), and have acted
as special counsel for the Administrative Agent for the purpose of rendering
this opinion pursuant to Section 3.01(c) of the Credit Agreement. Terms defined
in the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate powers and
have been duly authorized by all necessary corporate action.
2. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and the Notes, if and when issued, constitute valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms,
<PAGE>
except as the same may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by general principles of equity.
In giving the foregoing opinion, (i) we express no opinion as to the
effect (if any) of any law of any jurisdiction (except the State of New York) in
which any Bank is located which limits the rate of interest that such Bank may
charge or collect and (ii) we have relied, without independent investigation, as
to all matters governed by the laws of North Carolina, upon the opinion of
[counsel for the Borrower], dated _______ __, 1997, a copy of which has been
delivered to you.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by, or furnished to, any other person, firm or corporation without
our prior written consent, except for Additional Banks and all Participants.
Very truly yours,
2
<PAGE>
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the
"ASSIGNOR"), [ASSIGNEE] (the "ASSIGNEE"), DUKE ENERGY CORPORATION (the
"COMPANY"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK [AND OTHER ISSUING
BANK(S)], as Issuing Bank(s), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Swingline Bank and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative
Agent (the "ADMINISTRATIVE AGENT").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT")
relates to the Five-Year Credit Agreement dated as of August 25, 1997 among the
Company, the Assignor and the other Banks party thereto, as Banks, and the
Administrative Agent (the "CREDIT AGREEMENT");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans to the Borrower and participate in Letters of Credit in
an aggregate principal amount at any time outstanding not to exceed
$----------;
WHEREAS, Syndicated Loans made to the Borrower by the Assignor under
the Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, Letters of Credit with a total amount available for drawing
thereunder of $___________ are outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "ASSIGNED AMOUNT"),
together with a corresponding portion of its outstanding Committed Loans and
Letter of Credit Liabilities, and the Assignee proposes to accept assignment of
such rights and assume the corresponding obligations from the Assignor on such
terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
<PAGE>
SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. ASSIGNMENT. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
Syndicated Loans made by, and Letter of Credit Liabilities of, the Assignor
outstanding at the date hereof. Upon the execution and delivery hereof by the
Assignor, the Assignee, the Borrower, the Issuing Banks, the Swingline Bank and
the Administrative Agent, the payment of the amounts specified in Section 3
required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Bank under the Credit Agreement with a Commitment in an amount equal to the
Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have been
assumed by the Assignee. The assignment provided for herein shall be without
recourse to the Assignor.
SECTION 3. PAYMENTS. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them.* It is
understood that facility and Letter of Credit fees accrued to the date hereof in
respect of the Assigned Amount are for the account of the Assignor and such fees
accruing from and including the date hereof are for the account of the Assignee.
Each of the Assignor and the Assignee hereby agrees that if it receives any
amount under the Credit Agreement which is for the account of the other party
hereto, it shall receive the same for the account of such other party to the
extent of such other party's interest therein and shall promptly pay the same to
such other party.
SECTION 4. CONSENT TO ASSIGNMENT. This Agreement is conditioned upon
the consent of the Borrower, the Issuing Banks, the Swingline Bank and the
Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement. The
execution of this Agreement by the Borrower, the Issuing Banks, Swingline Bank
and the Administrative Agent is evidence of this consent. Pursuant to Section
- --------
*Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.
2
<PAGE>
9.06(c) the Borrower agrees to execute and deliver a Note, if required by the
Assignee, payable to the order of the Assignee to evidence the assignment and
assumption provided for herein.
SECTION 5. NON-RELIANCE ON ASSIGNOR. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of any
Borrower, or the validity and enforceability of the obligations of any Borrower
in respect of the Credit Agreement or any Note. The Assignee acknowledges that
it has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrowers.
SECTION 6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 8. ADMINISTRATIVE QUESTIONNAIRE. Attached is an Administrative
Questionnaire duly completed by the Assignee.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By ___________________________________
Title:
3
<PAGE>
[ASSIGNEE]
By ____________________________________
Title:
DUKE ENERGY CORPORATION
By ____________________________________
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Issuing Bank, Swingline Bank
and Administrative Agent
By _____________________________________
Title:
[ISSUING BANK]
By _____________________________________
Title:
4
<PAGE>
EXHIBIT H
EXTENSION AGREEMENT
Morgan Guaranty Trust Company of New York, as Administrative
Agent under the Credit Agreement
referred to below
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
Effective as of [date], the undersigned hereby agrees to extend its
Commitment and Termination Date under the Five-Year Credit Agreement dated as of
August 25, 1997 among Duke Energy Corporation, (the "BORROWER"), the banks
parties thereto and Morgan Guaranty Trust Company of New York, as Administrative
Agent (the "CREDIT AGREEMENT") for one year to [date to which its Termination
Date is to be extended] pursuant to Section 2.01(c) of the Credit Agreement.
Terms defined in the Credit Agreement are used herein as therein defined.
This Extension Agreement shall be construed in accordance with and
governed by the law of the State of New York. This Extension Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
[NAME OF BANK]
By ______________________________________
Title:
<PAGE>
Agreed and Accepted:
DUKE ENERGY CORPORATION,
as Borrower
By ______________________________________
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By ______________________________________
Title:
2
<PAGE>
CONFORMED COPY
$950,000,000
FIVE-YEAR
CREDIT AGREEMENT
dated as of
August 25, 1997
among
Duke Capital Corporation,
The Banks Listed Herein
and
The Chase Manhattan Bank,
as Administrative Agent
--------------------------------------------------------
Chase Securities Inc.,
Arranger
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
----------------------
PAGE
----
ARTICLE 1
DEFINITIONS
<S> <C> <C>
SECTION 1.01. DEFINITIONS......................................................................1
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS.............................................11
SECTION 1.03. TYPES OF BORROWINGS.............................................................12
ARTICLE 2
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND.............................................................12
SECTION 2.02. NOTICE OF COMMITTED BORROWINGS..................................................14
SECTION 2.03. BID RATE BORROWINGS.............................................................14
SECTION 2.04. NOTICE TO BANKS; FUNDING OF LOANS...............................................18
SECTION 2.05. REGISTRY; NOTES.................................................................19
SECTION 2.06. MATURITY OF LOANS...............................................................20
SECTION 2.07. INTEREST RATES..................................................................20
SECTION 2.08. FEES............................................................................22
SECTION 2.09. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS................................22
SECTION 2.10. METHOD OF ELECTING INTEREST RATES...............................................22
SECTION 2.11. MANDATORY TERMINATION OF COMMITMENTS............................................24
SECTION 2.12. OPTIONAL PREPAYMENTS............................................................24
SECTION 2.13. GENERAL PROVISIONS AS TO PAYMENTS...............................................25
SECTION 2.14. FUNDING LOSSES..................................................................25
SECTION 2.15. COMPUTATION OF INTEREST AND FEES................................................26
SECTION 2.16. LETTERS OF CREDIT...............................................................26
SECTION 2.17. REGULATION D COMPENSATION.......................................................29
SECTION 2.18. TAKEOUT OF SWINGLINE LOANS......................................................30
SECTION 2.19. INCREASED COMMITMENTS; ADDITIONAL BANKS.........................................31
ARTICLE 3
CONDITIONS
SECTION 3.01. EFFECTIVENESS...................................................................32
SECTION 3.02. BORROWINGS AND ISSUANCE OF LETTERS OF CREDITS...................................33
<PAGE>
PAGE
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. CORPORATE EXISTENCE AND POWER...................................................34
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION...................................................................35
SECTION 4.03. BINDING EFFECT..................................................................35
SECTION 4.04. FINANCIAL INFORMATION...........................................................35
SECTION 4.05. LITIGATION......................................................................36
SECTION 4.06. COMPLIANCE WITH LAWS............................................................37
SECTION 4.07. TAXES...........................................................................37
SECTION 4.08. PUBLIC UTILITY HOLDING COMPANY ACT..............................................37
ARTICLE 5
COVENANTS
SECTION 5.01. INFORMATION.....................................................................38
SECTION 5.02. PAYMENT OF TAXES................................................................39
SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE..............................................40
SECTION 5.04. MAINTENANCE OF EXISTENCE........................................................40
SECTION 5.05. COMPLIANCE WITH LAWS............................................................40
SECTION 5.06. BOOKS AND RECORDS...............................................................40
SECTION 5.07. MAINTENANCE OF OWNERSHIP OF PRINCIPAL SUBSIDIARIES..............................41
SECTION 5.08. NEGATIVE PLEDGE.................................................................41
SECTION 5.09. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS.....................................42
SECTION 5.10. USE OF PROCEEDS.................................................................43
SECTION 5.11. TRANSACTIONS WITH AFFILIATES....................................................43
SECTION 5.12. INDEBTEDNESS/CAPITALIZATION RATIO...............................................43
ARTICLE 6
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT...............................................................43
SECTION 6.02. NOTICE OF DEFAULT...............................................................45
SECTION 6.03. CASH COVER......................................................................45
ARTICLE 7
THE ADMINISTRATIVE AGENT
SECTION 7.01. APPOINTMENT AND AUTHORIZATION...................................................46
SECTION 7.02. ADMINISTRATIVE AGENT AND AFFILIATES.............................................46
ii
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PAGE
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SECTION 7.03. ACTION BY ADMINISTRATIVE AGENT..................................................46
SECTION 7.04. CONSULTATION WITH EXPERTS.......................................................46
SECTION 7.05. LIABILITY OF ADMINISTRATIVE AGENT...............................................46
SECTION 7.06. INDEMNIFICATION.................................................................47
SECTION 7.07. CREDIT DECISION.................................................................47
SECTION 7.08. SUCCESSOR ADMINISTRATIVE AGENT..................................................47
SECTION 7.09. ADMINISTRATIVE AGENT'S FEE......................................................48
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR........................48
SECTION 8.02. ILLEGALITY......................................................................49
SECTION 8.03. INCREASED COST AND REDUCED RETURN...............................................50
SECTION 8.04. TAXES...........................................................................51
SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE LOANS.......................53
SECTION 8.06. SUBSTITUTION OF BANK; TERMINATION OPTION........................................54
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. NOTICES.........................................................................55
SECTION 9.02. NO WAIVERS......................................................................55
SECTION 9.03. EXPENSES; INDEMNIFICATION.......................................................55
SECTION 9.04. SHARING OF SET-OFFS.............................................................56
SECTION 9.05. AMENDMENTS AND WAIVERS..........................................................56
SECTION 9.06. SUCCESSORS AND ASSIGNS..........................................................57
SECTION 9.07. COLLATERAL......................................................................59
SECTION 9.08. CONFIDENTIALITY.................................................................59
SECTION 9.09. GOVERNING LAW; SUBMISSION TO JURISDICTION.......................................59
SECTION 9.10. COUNTERPARTS; INTEGRATION.......................................................59
SECTION 9.11. WAIVER OF JURY TRIAL............................................................60
PRICING SCHEDULE
SCHEDULE I - Duke Capital Corporation Credit Facilities (Being Replaced by
$950,000,000 Revolving Credit Facility)
EXHIBIT A - Note
EXHIBIT B - Form of Bid Rate Quote Request
EXHIBIT C - Form of Invitation for Bid Rate Quotes
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EXHIBIT D - Form of Bid Rate Quote
EXHIBIT E - Opinion of Counsel for the Borrower
EXHIBIT F - Opinion of Davis Polk & Wardwell, Special Counsel for the
Administrative Agent
EXHIBIT G - Assignment and Assumption Agreement
EXHIBIT H - Extension Agreement
</TABLE>
iv
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FIVE-YEAR
CREDIT AGREEMENT
FIVE-YEAR CREDIT AGREEMENT dated as of August 25, 1997 among DUKE
CAPITAL CORPORATION, the BANKS listed on the signature pages hereof, and THE
CHASE MANHATTAN BANK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"ADDITIONAL BANK" means any financial institution that becomes a Bank
for purposes hereof in connection with (i) an increase in the aggregate amount
of the Commitments pursuant to Section 2.19 or (ii) the replacement of a Bank
pursuant to Section 8.06.
"ADMINISTRATIVE AGENT" means The Chase Manhattan Bank in its capacity
as administrative agent for the Banks hereunder, and its successors in such
capacity.
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, the
administrative questionnaire in the form submitted to such Bank by the
Administrative Agent and submitted to the Administrative Agent (with a copy to
the Borrower) duly completed by such Bank.
"AFFILIATE" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls the Borrower (a "CONTROLLING PERSON") or
(ii) any Person (other than the Borrower or a Subsidiary) which is controlled by
or is under common control with a Controlling Person. As used herein, the term
"CONTROL" means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"ANNIVERSARY DATE" means, for each calendar year succeeding 1997, the
month and day of the Effective Date.
<PAGE>
"APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office, (iii) in the case of its Bid
Rate Loans, its Bid Rate Lending Office and (iv) in the case of its Swingline
Loans, its Swingline Lending Office.
"APPROVED OFFICER" means the president, a vice president or the
treasurer or assistant treasurer of the Borrower or such other representative of
the Borrower as may be designated by any one of the foregoing with the consent
of the Administrative Agent.
"ASSIGNEE" has the meaning set forth in Section 9.06(c).
"BANK" means each bank or other financial institution listed on the
signature pages hereof, each Additional Bank, each Assignee which becomes a Bank
pursuant to Section 9.06(c), and their respective successors.
"BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"BASE RATE LOAN" means (i) a Syndicated Loan which bears interest at
the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice
of Interest Rate Election or the provisions of Article 8 or (ii) an overdue
amount which was a Base Rate Loan immediately before it became overdue.
"BID RATE (GENERAL)" has the meaning set forth in Section 2.03(d).
"BID RATE (GENERAL) AUCTION" means a solicitation of Bid Rate Quotes
setting forth Bid Rates (General) pursuant to Section 2.03.
"BID RATE (GENERAL) LOAN" means a loan made or to be made by a Bank
pursuant to a Bid Rate (General) Auction.
"BID RATE (INDEXED) AUCTION" means a solicitation of Bid Rate Quotes
setting forth Bid Rate (Indexed) Margins based on the London Interbank Offered
Rate pursuant to Section 2.03.
"BID RATE LENDING OFFICE" means, as to each Bank, its Domestic Lending
Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Bid Rate Lending Office by notice to the Borrower and
the Administrative Agent; PROVIDED that any Bank may from time to time by notice
to the Borrower and the Administrative Agent designate separate Bid Rate Lending
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Offices for its Bid Rate (Indexed) Loans, on the one hand, and its Bid Rate
(General) Loans, on the other hand, in which case all references herein to the
Bid Rate Lending Office of such Bank shall be deemed to refer to either or both
of such offices, as the context may require.
"BID RATE (INDEXED) LOAN" means a loan made or to be made by a Bank
pursuant to a Bid Rate (Indexed) Auction (including such a loan bearing interest
at the Base Rate pursuant to Section 8.01(a)).
"BID RATE LOAN" means a Bid Rate (Indexed) Loan or a Bid Rate
(General) Loan.
"BID RATE (INDEXED) MARGIN" has the meaning set forth in Section
2.03(d).
"BID RATE QUOTE" means an offer by a Bank to make a Bid Rate Loan in
accordance with Section 2.03.
"BORROWER" means Duke Capital Corporation, a Delaware corporation,
and its successors.
"BORROWING" has the meaning set forth in Section 1.03.
"CHURCH STREET CAPITAL CORP." is a former name of the Borrower.
"COMMITMENT" means (i) with respect to each Bank listed on the
signature pages hereof, the amount set forth opposite the name of such Bank on
the signature pages hereof, and (ii) with respect to each Additional Bank or
Assignee which becomes a bank pursuant to Sections 2.19(a), 2.01(c) and 9.06(c),
the amount of the Commitment thereby assumed by it, in each case as such amount
may from time to time be reduced pursuant to Section 2.09, 2.11 or 9.06(c) or
increased pursuant to Section 2.19(a), 8.06 or 9.06(c).
"COMMITTED LOAN" means a Syndicated Loan or a Swingline Loan.
"CONSOLIDATED CAPITALIZATION" means the sum of (i) Consolidated
Indebtedness, (ii) consolidated common stockholders' equity as would appear on a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries
prepared in accordance with generally accepted accounting principles, and (iii)
the aggregate liquidation preference of preferred stocks (other than preferred
stocks subject to mandatory redemption or repurchase) of the Borrower and its
Consolidated Subsidiaries upon involuntary liquidation.
3
<PAGE>
"CONSOLIDATED INDEBTEDNESS" means, at any date, all Indebtedness of
Borrower and its Consolidated Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles.
"CONSOLIDATED SUBSIDIARY" means, for any Person, at any date any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date; unless otherwise specified "Consolidated
Subsidiary" means a Consolidated Subsidiary of the Borrower.
"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent.
"EFFECTIVE DATE" means the date this Agreement becomes effective in
accordance with Section 3.01.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA GROUP" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
4
<PAGE>
which, together with the Borrower, are treated as a single employer under
Section 414 of the Internal Revenue Code.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Administrative Agent.
"EURO-DOLLAR LOAN" means (i) a Syndicated Loan which bears interest at
a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election or (ii) an overdue amount which was a
Euro-Dollar Loan immediately before it became overdue.
"EURO-DOLLAR MARGIN" means a rate per annum determined in accordance
with the Pricing Schedule.
"EURO-DOLLAR REFERENCE BANKS" means the principal London offices of The
Chase Manhattan Bank and Morgan Guaranty Trust Company of New York.
"EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section
2.17.
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"EXISTING CREDIT AGREEMENTS" means the credit facilities identified in
Schedule I hereto, as amended and in effect on the Effective Date.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, PROVIDED that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
5
<PAGE>
day shall be the average rate quoted to The Chase Manhattan Bank (or its
successor as Administrative Agent) on such day on such transactions as
determined by the Administrative Agent.
"FIXED RATE LOANS" means Euro-Dollar Loans, Swingline Loans or Bid Rate
Loans (excluding Swingline Loans or Bid Rate (Indexed) Loans bearing interest at
the Base Rate) or any combination of the foregoing.
"GROUP OF LOANS" means at any time a group of Loans consisting of (i)
all Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans
having the same Interest Period at such time, PROVIDED that, if a Committed Loan
of any particular Bank is converted to or made as a Base Rate Loan pursuant to
Article 8, such Loan shall be included in the same Group or Groups of Loans from
time to time as it would have been if it had not been so converted or made.
"INDEBTEDNESS" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services purchased,
(iii) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired, (iv) all
indebtedness under leases which shall have been or should be, in accordance with
generally accepted accounting principles, recorded as capital leases in respect
of which such Person is liable as lessee, (v) the face amount of letter of
credit indebtedness available or to be available to be drawn (other than letter
of credit obligations relating to indebtedness included in Indebtedness pursuant
to another clause of this definition) and, without duplication, the unreimbursed
amount of all drafts drawn thereunder, (vi) indebtedness secured by any Lien on
property or assets of such Person, whether or not assumed (but in any event not
exceeding the fair market value of the property or asset), (vii) all direct
guarantees of Indebtedness referred to above of another Person, (viii) all
amounts payable in connection with mandatory redemptions or repurchases of
preferred stock and (ix) any obligations of such Person (in the nature of
principal or interest) in respect of acceptances or similar obligations issued
or created for the account of such Person.
"INTEREST PERIOD" means: (1) with respect to each Euro-Dollar Loan, the
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in an applicable Notice of Interest Rate
Election and ending one, two, three or six, or, if deposits of a corresponding
maturity are generally available in the London interbank market, nine or twelve,
months thereafter, as the Borrower may elect in such notice; PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next
6
<PAGE>
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day; and
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Euro-Dollar Business Day of a calendar
month;
(2) with respect to each Swingline Loan, the period commencing on the
date of borrowing specified in the applicable Notice of Borrowing and ending
such number of days thereafter (but not more than 10 Euro-Dollar Business Days)
as the Borrower may elect in such notice; PROVIDED that any Interest Period
which would otherwise end on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business Day;
(3) with respect to each Bid Rate (Index) Loan, the period commencing
on the date of borrowing specified in the applicable Notice of Borrowing and
ending such number of months thereafter (but not less than one month) as the
Borrower may elect in accordance with Section 2.03; PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on
the next preceding Euro-Dollar Business Day; and
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Euro-Dollar Business Day of a calendar
month; and
(4) with respect to each Bid Rate (General) Loan, the period commencing
on the date of borrowing specified in the applicable Notice of Borrowing and
ending such number of days thereafter (but not less than 7 days) as the Borrower
may elect in accordance with Section 2.03; PROVIDED that any Interest Period
which would otherwise end on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business Day; and
7
<PAGE>
PROVIDED FURTHER that any Interest Period applicable to a Loan of any Bank which
would otherwise end after such Bank's Termination Date shall end on such Bank's
Termination Date.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"INVESTMENT GRADE STATUS" exists as to any Person at any date if all
senior debt securities of such Person outstanding at such date which had been
rated by S&P or Moody's are rated BBB- or higher by S&P OR Baa3 or higher by
Moody's, as the case may be.
"ISSUING BANK" means The Chase Manhattan Bank and any other Bank that
may agree to issue letters of credit hereunder, in each case as issuer of a
Letter of Credit hereunder.
"LETTER OF CREDIT" means a letter of credit to be issued or issued
hereunder by the Issuing Bank in accordance with Section 2.16.
"LETTER OF CREDIT LIABILITIES" means, for any Bank and at any time,
such Bank's ratable participation in the sum of (x) the amounts then owing by
the Borrower in respect of amounts drawn under Letters of Credit and (y) the
aggregate amount then available for drawing under all Letters of Credit.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"LOAN" means a Committed Loan or a Bid Rate Loan and "LOANS" means
Committed Loans or Bid Rate Loans or any combination of the foregoing.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section
2.07(b).
"MATERIAL DEBT" means Indebtedness of the Borrower or any of its
Subsidiaries in an aggregate principal amount exceeding $100,000,000.
"MATERIAL PLAN" has the meaning set forth in Section 6.01(i).
8
<PAGE>
"MATERIAL SUBSIDIARY" means at any time any Subsidiary of the Borrower
having, together with its Subsidiaries, consolidated assets in excess of 10% of
the total assets of the Borrower and its Consolidated Subsidiaries, determined
on a consolidated basis as of such time.
"MOODY'S" means Moody's Investor Service, Inc.
"NOTES" means promissory notes of the Borrower, in the form required by
Section 2.05, evidencing the obligation of the Borrower to repay the Loans, and
"NOTE" means any one of such promissory notes issued hereunder.
"NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined
in Section 2.02) or a Notice of Bid Rate Borrowing (as defined in Section
2.03(f)).
"NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section
2.10(b).
"NOTICE OF ISSUANCE" has the meaning set forth in Section 2.16(b).
"PARENT" means, with respect to any Bank, any Person controlling such
Bank.
"PARTICIPANT" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLAN" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Internal Revenue Code and is either (i) maintained by a
member of the ERISA Group for employees of a member of the ERISA Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions.
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<PAGE>
"PRIME RATE" means the rate of interest publicly announced by The Chase
Manhattan Bank in New York City from time to time as its Prime Rate. Each change
in the Prime Rate shall be effective from and including the day such change is
publicly announced.
"PRINCIPAL SUBSIDIARY" means each of Texas Eastern Transmission
Corporation, Algonquin Gas Transmission Company, PanEnergy Corp, Panhandle
Eastern Pipe Line Company and Trunkline Gas Company, and their respective
successors.
"QUARTERLY PAYMENT DATE" means the first Domestic Business Day of each
January, April, July and October.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REQUIRED BANKS" means at any time Banks having at least 51% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding at least 51% of the sum of the aggregate unpaid principal
amount of the Loans and the aggregate Letter of Credit Liabilities.
"REVOLVING CREDIT PERIOD" means, with respect to any Bank, the period
from and including the Effective Date to but not including its Commitment
Termination Date.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc.
"SUBSIDIARY" means, as to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"SUBSTANTIAL ASSETS" means assets sold or otherwise disposed of in a
single transaction or a series of related transactions representing 25% or more
of the consolidated assets of the Borrower and its Consolidated Subsidiaries,
taken as a whole.
"SWINGLINE BANK" means The Chase Manhattan Bank and its successors.
"SWINGLINE LENDING OFFICE" means, as to the Swingline Bank, its office
located at its address set forth in its Administrative Questionnaire (or
identified in
10
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its Administrative Questionnaire as its Swingline Lending Office) or such other
office as such Bank may hereafter designate as its Swingline Lending Office by
notice to the Borrower and the Administrative Agent.
"SWINGLINE LOAN" means a loan made by the Swingline Bank pursuant to
Section 2.01(b).
"SWINGLINE TAKEOUT LOAN" means a Base Rate Loan made pursuant to
Section 2.18.
"SYNDICATED LOAN" means a Loan made by a Bank pursuant to Section
2.01(a); PROVIDED that, if any loan or loans (or portions thereof) are combined
or subdivided pursuant to a Notice of Interest Rate Election, the term
"Syndicated Loan" shall refer to the combined principal amount resulting from
such combination or to each of the separate principal amounts resulting from
such subdivision, as the case may be.
"TERMINATION DATE" means, for each Bank, August 25, 2002, or such later
date to which the Termination Date of such Bank may be extended pursuant to
Section 2.01(c) or, if such day is not a Euro-Dollar Business Day, the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case the Termination Date shall be the next
preceding Euro-Dollar Business Day.
"UNITED STATES" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"UNFUNDED VESTED LIABILITIES" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all benefits under
such Plan exceeds (ii) the fair market value of all Plan assets allocable to
such benefits, all determined as of the then most recent valuation date for such
Plan, but only to the extent that such excess represents a potential liability
of a member of the ERISA Group to the PBGC or the Plan under Title IV of ERISA.
"UNREFUNDED SWINGLINE LOANS" has the meaning set forth in Section
2.18(b).
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public
11
<PAGE>
accountants) with the most recent audited consolidated financial statements of
the Borrower and its Consolidated Subsidiaries delivered to the Banks.
SECTION 1.03. TYPES OF BORROWINGS. The term "BORROWING" denotes the
aggregation of Loans of one or more Banks to be made to the Borrower pursuant to
Article 2 on a single date and for a single Interest Period. Borrowings are
classified for purposes of this Agreement either by reference to the pricing of
Loans comprising such Borrowing (E.G., a "FIXED RATE BORROWING" is a Euro-Dollar
Borrowing, a Swingline Borrowing or a Bid Rate Borrowing (excluding any such
Borrowing consisting of Swingline Loans or Bid Rate (Indexed) Loans bearing
interest at the Base Rate), and a "EURO-DOLLAR BORROWING" is a Borrowing
comprised of Euro Dollar Loans) or by reference to the provisions of Article 2
under which participation therein is determined (I.E., a "COMMITTED BORROWING"
is a Borrowing under Section 2.01 in which all Banks participate in proportion
to their Commitments, while a "BID RATE BORROWING" is a Borrowing under Section
2.03 in which the Bank participants are determined on the basis of their bids in
accordance therewith).
ARTICLE 2
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND. (a) SYNDICATED LOANS. During its
Revolving Credit Period, each Bank severally agrees, on the terms and conditions
set forth in this Agreement, to make loans to the Borrower pursuant to this
subsection from time to time in amounts such that the aggregate principal amount
of Committed Loans by such Bank, together with its Letter of Credit Liabilities
and its participating interests in any Unrefunded Swingline Loans, at any one
time outstanding shall not exceed the amount of its Commitment. Each Borrowing
under this subsection (other than a Swingline Takeout Borrowing) shall be in an
aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000
(except that any such Borrowing may be in the aggregate amount available in
accordance with Section 3.02(b)) and shall be made from the several Banks
ratably in proportion to their respective Commitments in effect on the date of
Borrowing; PROVIDED that, if the Interest Period selected by the Borrower for a
Borrowing would otherwise end after the Termination Dates of some but not all
Banks, the Borrower may in its Notice of Committed Borrowing elect not to borrow
from those Banks whose Termination Dates fall prior to the end of such Interest
Period. Within the foregoing limits, the Borrower may borrow under this
subsection (a), or to the extent permitted by Section 2.12, prepay Loans and
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reborrow at any time during the Revolving Credit Periods under this subsection
(a).
(b) SWINGLINE LOANS. From time to time prior to its Termination Date,
the Swingline Bank agrees, on the terms and conditions set forth in this
Agreement, to make loans to the Borrower pursuant to this subsection from time
to time in amounts such that (i) the aggregate principal amount of its Committed
Loans at any one time outstanding together with its Letter of Credit Liabilities
shall not exceed the amount of its Commitment and (ii) the aggregate principal
amount of Swingline Loans at any time outstanding shall not exceed $100,000,000.
Within the foregoing limits, the Borrower may borrow under this subsection,
repay or, to the extent permitted by Section 2.11, prepay Loans and reborrow at
any time; PROVIDED that the proceeds of a Swingline Borrowing may not be used,
in whole or in part, to refund any prior Swingline Borrowing. Each Borrowing
under this subsection shall be in an aggregate principal amount of $10,000,000
or any larger multiple of $1,000,000 (except that any such Borrowing may be in
the aggregate amount available in accordance with Section 3.02).
(c) EXTENSION OF COMMITMENTS. On any Anniversary Date but on no more
than two separate occasions, the Borrower may, upon not less than 45 days notice
prior to such Anniversary Date to the Administrative Agent (which shall notify
each Bank of receipt of such request), propose to extend the Termination Dates
for an additional one-year period measured from the Termination Dates then in
effect. Each Bank shall endeavor to respond to such request, whether
affirmatively or negatively (such determination in the sole discretion of such
Bank), by notice to the Borrower and the Administrative Agent within 15 days of
receipt of such request. Subject to the execution by the Borrower, the
Administrative Agent and such Banks of a duly completed Extension Agreement in
substantially the form of Exhibit H, the Termination Date applicable to the
Commitment of each Bank so affirmatively notifying the Borrower and the
Administrative Agent shall be extended for the period specified above; PROVIDED
that no Termination Date of any Bank shall be extended unless Banks having at
least 66 2/3% in aggregate amount of the Commitments in effect at the time any
such extension is requested shall have elected so to extend their Commitments.
Any Bank which does not give such notice to the Borrower and the Administrative
Agent shall be deemed to have elected not to extend as requested, and the
Commitment of each non-extending Bank shall terminate on its Termination Date
determined without giving effect to such requested extension. The Borrower may,
in accordance with Section 8.06, designate another bank or other financial
institution (which may be, but need not be, an extending Bank) to replace a
non-extending Bank.
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SECTION 2.02. NOTICE OF COMMITTED BORROWINGS. The Borrower shall give
the Administrative Agent notice (a "NOTICE OF COMMITTED BORROWING") not later
than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing
or Swingline Borrowing and (y) the third Euro-Dollar Business Day before each
Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business Day
in the case of a Domestic Borrowing or a Swingline Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be Swingline
Loans or Syndicated Loans,
(d) in the case of a Syndicated Borrowing, whether the Loans
comprising such Borrowing are to bear interest initially at the Base Rate or a
Euro-Dollar Rate; and,
(e) in the case of a Euro-Dollar Borrowing or a Swingline Borrowing,
the duration of the initial Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period.
SECTION 2.03. BID RATE BORROWINGS. (a) THE BID RATE OPTION. In addition
to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth
in this Section, request the Banks to make offers to make Bid Rate Loans to the
Borrower. The Banks may, but shall have no obligation to, make such offers and
the Borrower may, but shall have no obligation to, accept any such offers in the
manner set forth in this Section.
(b) BID RATE QUOTE REQUEST. When the Borrower wishes to request offers
to make Bid Rate Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile transmission a Bid Rate Quote Request
substantially in the form of Exhibit B hereto so as to be received no later than
10:00 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day prior
to the date of Borrowing proposed therein, in the case of a Bid Rate (Indexed)
Auction or (y) the Domestic Business Day next preceding the date of Borrowing
proposed therein, in the case of a Bid Rate (General) Auction (or, in either
case, such other time or date as the Borrower and the Administrative Agent shall
have mutually agreed and shall have notified to the Banks not later than the
date of the Bid Rate Quote Request for the first Bid Rate (Indexed) Auction or
Bid Rate (General) Auction for which such change is to be effective) specifying:
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(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day,
(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
(iv) whether the Bid Rate Quotes requested are to set forth a Bid
Rate (Indexed) or a Bid Rate (General) Rate.
The Borrower may request offers to make Bid Rate Loans for more than one
Interest Period in a single Bid Rate Quote Request.
(c) INVITATION FOR BID RATE QUOTES. Promptly upon receipt of a Bid
Rate Quote Request, the Administrative Agent shall send to the Banks by telex or
facsimile transmission an Invitation for Bid Rate Quotes substantially in the
form of Exhibit C hereto, which shall constitute an invitation by the Borrower
to each Bank to submit Bid Rate Quotes offering to make the Bid Rate Loans to
which such Bid Rate Quote Request relates in accordance with this Section.
(d) SUBMISSION AND CONTENTS OF BID RATE QUOTES. (i) Each Bank may
submit a Bid Rate Quote containing an offer or offers to make Bid Rate Loans in
response to any Invitation for Bid Rate Quotes. Each Bid Rate Quote must comply
with the requirements of this subsection (d) and must be submitted to the
Administrative Agent by telex or facsimile transmission at its offices specified
in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time)
on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing,
in the case of a Bid Rate (Indexed) Auction or (y) 9:30 A.M. (New York City
time) on the proposed date of Borrowing, in the case of an Bid Rate (General)
Auction (or, in either case, such other time or date as the Borrower and the
Administrative Agent shall have mutually agreed and shall have notified to the
Banks not later than the date of the Bid Rate Quote Request for the first Bid
Rate (Indexed) Auction or Bid Rate (General) Auction for which such change is to
be effective); PROVIDED that Bid Rate Quotes submitted by the Administrative
Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank
may be submitted, and may only be submitted, if the Administrative Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) 1:00 P.M. (New York City time) on the fourth
Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of
a Bid Rate (Indexed) Auction or (y) 9:15 A.M. (New York City time) on the
proposed date of Borrowing, in the case of an Bid Rate (General) Auctions.
Subject to Articles 3 and 6, any Bid
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Rate Quote so made shall be irrevocable except with the written consent of the
Administrative Agent given on the instructions of the Borrower.
(ii) Each Bid Rate Quote shall be in substantially the form of Exhibit
D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Bid Rate Loan for which
each such offer is being made, which principal amount (w) may
be greater than or less than the Commitment of the quoting
Bank, (x) must be $5,000,000 or a larger multiple of
$1,000,000 and (y) may not exceed the principal amount of Bid
Rate Loans for each Interest Period for which offers were
requested and (z) may be subject to an aggregate limitation as
to the principal amount of Bid Rate Loans for which offers
being made by such quoting Bank may be accepted,
(C) in the case of a Bid Rate (Indexed) Auction, the
margin above or below the applicable London Interbank Offered
Rate (the "BID RATE (INDEXED) MARGIN") offered for each such
Bid Rate Loan, expressed as a percentage (specified to the
nearest 1/10,000th of 1%) to be added to or subtracted from
such base rate,
(D) in the case of a Bid Rate (General)Auction, the rate
of interest per annum (specified to the nearest 1/10,000th of
1%) (the "BID RATE (GENERAL)") offered for each such Bid Rate
Loan, and
(E) the identity of the quoting Bank.
A Bid Rate Quote may set forth up to five separate offers by the quoting Bank
with respect to each Interest Period specified in the related Invitation for Bid
Rate Quotes.
(iii) Any Bid Rate Quote shall be disregarded if:
(A) it is not substantially in conformity with Exhibit D
hereto or does not specify all of the information required by
subsection 2.03(d)(ii);
(B) it contains qualifying, conditional or similar
language beyond that contemplated by Exhibit D;
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(C) it proposes terms other than or in addition to those
set forth in the applicable Invitation for Bid Rate Quotes;
(D) it arrives after the time set forth in subsection
2.03(d)(i); or
(E) the Termination Date of the Bank submitting such Bid
Rate Quote falls prior to the last day of the requested
Interest Period for which such Bank offers to make a Bid Rate
Loan.
(e) NOTICE TO BORROWER. The Administrative Agent shall promptly but in
no event later than 10:00 A.M. (New York City time) notify the Borrower of the
terms (x) of any Bid Rate Quote submitted by a Bank that is in accordance with
subsection (d) and (y) of any Bid Rate Quote that amends, modifies or is
otherwise inconsistent with a previous Bid Rate Quote submitted by such Bank
with respect to the same Bid Rate Quote Request. Any such subsequent Quote shall
be disregarded by the Administrative Agent unless such subsequent Quote is
submitted solely to correct a manifest error in such former Quote. The
Administrative Agent's notice to the Borrower shall specify (A) the aggregate
principal amount of Loans for which offers have been received for each Interest
Period specified in the related Bid Rate Quote Request, (B) the respective
principal amounts and Bid Rate (Indexed) Margins or Bid Rate (General) Rates, as
the case may be, so offered and (C) if applicable, limitations on the aggregate
principal amount of Bid Rate Loans for which offers in any single Bid Rate Quote
may be accepted.
(f) ACCEPTANCE AND NOTICE BY BORROWER. Not later than 10:30 A.M. (New
York City time) on (x) the third Euro-Dollar Business Day prior to the proposed
date of Borrowing, in the case of a Bid Rate (Indexed) Auction or (y) the
proposed date of Borrowing, in the case of an Bid Rate (General) Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Bid Rate Quote Request for the first Bid Rate (Indexed)
Auction or Bid Rate (General) Auction for which such change is to be effective),
the Borrower shall notify the Administrative Agent of its acceptance or
non-acceptance of the offers so notified to it pursuant to subsection (e). In
the case of acceptance, such notice (a "NOTICE OF BID RATE BORROWING") shall
specify the aggregate principal amount of offers for each Interest Period that
are accepted. The Borrower may accept any Bid Rate Quote in whole or in part;
PROVIDED that:
(i) the aggregate principal amount of each Bid Rate Borrowing may
not exceed the applicable amount set forth in the related Bid Rate
Quote Request,
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(ii) the principal amount of each Bid Rate Borrowing must be
$10,000,000 or a larger multiple of $1,000,000, and
(iii) acceptance of offers may only be made on the basis of
ascending Bid Rate (Indexed) Margins or Bid Rate (General) Rates, as
the case may be.
(g) ALLOCATION BY ADMINISTRATIVE AGENT. If offers are made by two more
Banks with the same Bid Rate (Indexed) Margins or Bid Rate (General), as the
case may be, for a greater aggregate principal amount than the amount in respect
of which such offers are accepted for the related Interest Period, the principal
amount of Bid Rate Loans in respect of which such offers are accepted shall be
allocated by the Administrative Agent among such Banks as nearly as possible (in
multiples of $1,000,000, as the Administrative Agent may deem appropriate) in
proportion to the aggregate principal amounts of such offers. Determinations by
the Administrative Agent of the amounts of Bid Rate Loans shall be conclusive in
the absence of manifest error.
SECTION 2.04. NOTICE TO BANKS; FUNDING OF LOANS. (a) Upon receipt of a
Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of
the contents thereof and of such Bank's share (if any) of such Borrowing and
such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section) make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the
Administrative Agent at its address specified in or pursuant to Section 9.01.
Unless the Administrative Agent determines that any applicable condition
specified in Article 3 has not been satisfied, the Administrative Agent will
make the funds so received from the Banks available to the Borrower at the
Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsections (b) and (c) of this Section 2.04(a) and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Bank shall not have
so made such share available to the Administrative Agent, such Bank and, if such
Bank
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shall not have made such payment within two Domestic Business Days of demand
therefor, the Borrower severally agree to repay to the Administrative Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Borrower until
the date such amount is repaid to the Administrative Agent, at (i) in the case
of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate
and the interest rate applicable thereto pursuant to Section 2.07 and (ii) in
the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement.
(d) The failure of any Bank to make the Loan to be made by it as part
of any Borrowing shall not relieve any other Bank of its obligation, if any,
hereunder to make a Loan on the date of such Borrowing, but no Bank shall be
responsible for the failure of any other Bank to make a Loan to be made by such
other Bank.
SECTION 2.05. REGISTRY; NOTES. (a) The Administrative Agent shall
maintain a register (the "REGISTER") on which it will record the Commitment of
each Bank, each Loan made by such Bank and each repayment of any Loan made by
such Bank. Any such recordation by the Administrative Agent on the Register
shall be conclusive, absent manifest error. Failure to make any such
recordation, or any error in such recordation, shall not affect the Borrower's
obligations hereunder.
(b) The Borrower hereby agrees that, promptly upon the request of any
Bank at any time, the Borrower shall deliver to such Bank a duly executed Note,
in substantially the form of Exhibit A hereto, payable to the order of such Bank
and representing the obligation of the Borrower to pay the unpaid principal
amount of the Loans made to the Borrower by such Bank, with interest as provided
herein on the unpaid principal amount from time to time outstanding.
(c) Each Bank shall record the date, amount and maturity of each Loan
made by it and the date and amount of each payment of principal made by the
Borrower with respect thereto, and each Bank receiving a Note pursuant to this
Section, if such Bank so elects in connection with any transfer or enforcement
of its Note, may endorse on the schedule forming a part thereof appropriate
notations to evidence the foregoing information with respect to each such Loan
then outstanding; PROVIDED that the failure of such Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes. Such Bank is hereby irrevocably authorized by the
Borrower so to endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
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SECTION 2.06. MATURITY OF LOANS. (a) Each Syndicated Loan made by any
Bank shall mature, and the principal amount thereof shall be due and payable
together with accrued interest thereon, on the Termination Date of such Bank.
(b) Each Swingline Loan included in any Swingline Borrowing and each
Bid Rate Loan included in any Bid Rate Borrowing shall mature, and the principal
amount thereof shall be due and payable (together with interest accrued
thereon), on the last day of the Interest Period applicable to such Borrowing.
SECTION 2.07. INTEREST RATES. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable quarterly in arrears on each
Quarterly Payment Date, at maturity and on the date of termination of the
Commitments in their entirety. Any overdue principal of or overdue interest on
any Base Rate Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period
means the rate appearing on Page 3750 of the Telerate Service Company (or on any
successor or substitute page of such service, or any successor to or substitute
for such service, providing rate quotations comparable to those currently
provided on such page of the Telerate Service, as may be nominated by the
British Bankers' Association for purposes of providing quotations of interest
rates applicable to dollar deposits in the London interbank market) as of 11:00
A.M. (London time) two Euro-Dollar Business Days prior to the commencement of
such Interest Period, as the rate for dollar deposits with a maturity comparable
to such Interest Period. In the event that such rate is not so available at such
time for any reason, then the "LONDON INTERBANK OFFERED RATE" for such Interest
Period shall be the average (rounded upward, if necessary, to the next higher
1/16 of 1%) of the respective rates per annum at which deposits in dollars are
offered to each of the Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Loan of such Reference Bank to which such Interest
Period is to apply and for a period of
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time comparable to such Interest Period. If any Reference Bank does not furnish
a timely quotation, the Administrative Agent shall determine the relevant
interest rate on the basis of the quotation furnished by the remaining Reference
Bank or, if none of such quotations is available on a timely basis, the
provisions of Section 8.01 shall apply.
(c) Any overdue principal of or overdue interest on any Euro-Dollar
Loan shall bear interest, payable on demand, for each day from and including the
date payment thereof was due to but excluding the date of actual payment, at a
rate per annum equal to the sum of 1% plus the higher of (i) the sum of the
Euro-Dollar Margin for such day plus the London Interbank Offered Rate
applicable to such Loan at the date such payment was due and (ii) the Base Rate
for such day.
(d) Each Swingline Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the Base Rate for such day or such other
rate as may be from time to time determined by mutual agreement between the
Swingline Bank and the Borrower. Interest on each Swingline Loan shall be
payable at the maturity of such Loan. Any overdue principal of or interest on
any Swingline Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day.
(e) Subject to Section 8.01(a), each Bid Rate (Indexed) Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.07(b) as if each Euro-Dollar Reference Bank were to participate in the
related Bid Rate (Indexed) Borrowing ratably in proportion to its Commitment)
plus (or minus) the Bid Rate (Indexed) Margin quoted by the Bank making such
Loan in accordance with Section 2.03. Each Bid Rate (General) Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the Bid Rate (General) quoted
by the Bank making such Loan in accordance with Section 2.03. Such interest
shall be payable for each Interest Period on the last day thereof and, if such
Interest Period is longer than three months, at intervals of three months after
the first day thereof. Any overdue principal of or overdue interest on any Bid
Rate Loan shall bear interest, payable on demand, for each day until paid at a
rate per annum equal to the sum of 1% plus the Base Rate for such day.
(f) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the participating Banks by telecopy, telex or cable
of
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each rate of interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error unless the Borrower raises an
objection thereto within five Domestic Business Days after receipt of such
notice.
SECTION 2.08. FEES. (a) FACILITY FEE. The Borrower shall pay to the
Administrative Agent for the account of each Bank a facility fee at the Facility
Fee Rate (determined daily in accordance with the Pricing Schedule). Such
facility fee shall accrue (i) from and including the Effective Date to but
excluding such Bank's Termination Date, on the daily average aggregate amount of
such Bank's Commitment (whether used or unused) and (ii) from and including such
Bank's Termination Date to but excluding the date such Bank's Loans and Letter
of Credit Liabilities shall be repaid in their entirety, on the daily average
aggregate outstanding principal amount of such Bank's Committed Loans and Letter
of Credit Liabilities.
(b) The Borrower shall pay to the Administrative Agent (i) for the
account of the Banks ratably a letter of credit fee accruing daily on the
aggregate amount then available for drawing under all outstanding Letters of
Credit at a rate per annum equal to the Euro-Dollar Margin and (ii) for the
account of each Issuing Bank a letter of credit fronting fee accruing daily on
the aggregate amount then available for drawing under all Letters of Credit
issued by such Issuing Bank at a rate per annum mutually agreed from time to
time by the Borrower and such Issuing Bank.
(c) PAYMENTS. Accrued fees under this Section for the account of any
Bank shall be payable quarterly in arrears on each Quarterly Payment Date and
upon the date of termination of such Bank's Commitment in its entirety (and, if
later, the date the Loans and Letter of Credit Liabilities of such Bank shall be
repaid in their entirety); PROVIDED, that accrued facility fees shall be paid in
equal quarterly installments on the Quarterly Payment Date following each full
quarter during which the aggregate amount of Commitments remains unchanged.
SECTION 2.09. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The
Borrower may, upon at least three Domestic Business Days' notice to the
Administrative Agent, (i) terminate the Commitments at any time, if no Loans or
Letter of Credit Liabilities are outstanding at such time or (ii) ratably reduce
from time to time by an aggregate amount of $10,000,000 or any larger multiple
of $1,000,000 the aggregate amount of the Commitments in excess of the aggregate
outstanding principal amount of the Loans and Letter of Credit Liabilities.
SECTION 2.10. METHOD OF ELECTING INTEREST RATES. (a) The Loans included
in each Syndicated Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the applicable Notice of Committed Borrowing.
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Thereafter, the Borrower may from time to time elect to change or continue the
type of interest rate borne by each Group of Loans (subject in each case to the
provisions of Article 8 and the last sentence of this subsection (a)), as
follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business
Day; and
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
convert such Loans to Base Rate Loans or elect to continue such Loans
as Euro-Dollar Loans for an additional Interest Period, subject to
Section 2.14 in the case of any such conversion or continuation
effective on any day other than the last day of the then current
Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST
RATE ELECTION") to the Administrative Agent not later than 10:30 A.M. (New York
City time) on the third Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective. A Notice of Interest
Rate Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans, provided that (i) such portion
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which such notice applies, and the remaining portion to which it does not
apply, are each $10,000,000 or any larger multiple of $1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of subsection 2.10(a) above;
(iii) if the Loans comprising such Group are to be converted, the
new type of Loans and, if the Loans being converted are to be Fixed
Rate Loans, the duration of the next succeeding Interest Period
applicable thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
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Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of the term "INTEREST PERIOD".
(c) Promptly after receiving a Notice of Interest Rate Election from
the Borrower pursuant to subsection 2.10(a) above, the Administrative Agent
shall notify each Bank of the contents thereof and such notice shall not
thereafter be revocable by the Borrower. If no Notice of Interest Rate Election
is timely received prior to the end of an Interest Period for any Group of
Loans, the Borrower shall be deemed to have elected that such Group of Loans be
converted to Base Rate Loans as of the last day of such Interest Period.
(d) An election by the Borrower to change or continue the rate of
interest applicable to any Group of Loans pursuant to this Section shall not
constitute a "BORROWING" subject to the provisions of Section 3.02.
SECTION 2.11. MANDATORY TERMINATION OF COMMITMENTS. The Commitment of
each Bank shall terminate on such Bank's Termination Date, and any Loans of such
Bank then outstanding (together with accrued interest thereon) shall be due and
payable on such date.
SECTION 2.12. OPTIONAL PREPAYMENTS. (a) The Borrower may (i) upon
notice to the Administrative Agent not later than 10:30 A.M. (New York City
time) on any Domestic Business Day prepay on such Domestic Business Day any
Group of Base Rate Loans, any Swingline Borrowing or any Bid Rate Borrowing
bearing interest at the Base Rate pursuant to Section 8.01(a) and (ii) upon at
least three Euro-Dollar Business Days' notice to the Administrative Agent not
later than 10:30 A.M. (New York City time) prepay any Group of Euro-Dollar
Loans, in each case in whole at any time, or from time to time in part in
amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying
the principal amount to be prepaid together with accrued interest thereon to the
date of prepayment and together with any additional amounts payable pursuant to
Section 2.14. Each such optional prepayment shall be applied to prepay ratably
the Loans of the several Banks included in such Group or Borrowing.
(b) Except as provided in subsection 2.12(a), the Borrower may not
prepay all or any portion of the principal amount of any Bid Rate Loan prior to
the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's share (if any) of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
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SECTION 2.13. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address referred to in Section 9.01. The
Administrative Agent will promptly distribute to each Bank its ratable share of
each such payment received by the Administrative Agent for the account of the
Banks. Whenever any payment of principal of, or interest on, the Base Rate
Loans, Swingline Loans or Letter of Credit Liabilities or of fees shall be due
on a day which is not a Domestic Business Day, the date for payment thereof
shall be extended to the next succeeding Domestic Business Day. Whenever any
payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a
day which is not a Euro-Dollar Business Day, the date for payment thereof shall
be extended to the next succeeding Euro-Dollar Business Day unless such
Euro-Dollar Business Day falls in another calendar month, in which case the date
for payment thereof shall be the next preceding Euro-Dollar Business Day.
Whenever any payment of principal of, or interest on, the Bid Rate Loans shall
be due on a day which is not a Euro-Dollar Business Day, the date for payment
thereof shall be extended to the next succeeding Euro-Dollar Business Day. If
the date for any payment of principal is extended by operation of law or
otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
the Borrower shall not have so made such payment, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.14. FUNDING LOSSES. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Euro-Dollar Loan is
converted to a Base Rate Loan or continued as a Euro-Dollar Loan for a new
Interest Period (pursuant to Article 2, 6 or 8 or otherwise) on any day other
than the last day of an Interest Period applicable thereto, or if the Borrower
fails to borrow, prepay, convert or continue any Fixed Rate Loans after notice
has been given to any Bank in accordance with Section 2.04(a), 2.10(c) or
2.12(c), the Borrower shall reimburse each Bank within 15 days after demand for
any
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resulting loss or expense incurred by it (or by an existing or prospective
Participant in the related Loan), including (without limitation) any loss
incurred in obtaining, liquidating or employing deposits from third parties, but
excluding loss of margin for the period after any such payment or conversion or
failure to borrow, prepay, convert or continue, PROVIDED that such Bank shall
have delivered to the Borrower a certificate setting forth in reasonable detail
the calculation of the amount of such loss or expense, which certificate shall
be conclusive in the absence of manifest error.
SECTION 2.15. COMPUTATION OF INTEREST AND FEES. Interest based on the
Prime Rate and facility fees hereunder shall be computed on the basis of a year
of 365 days (or 366 days in a leap year) and paid for the actual number of days
elapsed (including the first day but excluding the last day); PROVIDED that
facility fees for the account of any Bank shall be paid in equal quarterly
installments for each full quarter in which the Commitment of such Bank remains
unchanged. All other interest and Letter of Credit fees shall be computed on the
basis of a year of 360 days and paid for the actual number of days elapsed
(including the first day but excluding the last day).
SECTION 2.16. LETTERS OF CREDIT. (a) Subject to the terms and
conditions hereof, the Issuing Bank agrees to issue Letters of Credit hereunder
from time to time before the eleventh day before its Termination Date upon the
request of the Borrower; PROVIDED that, immediately after each Letter of Credit
is issued (i) the aggregate amount of the Letter of Credit Liabilities plus the
aggregate outstanding amount of all Loans shall not exceed the aggregate amount
of the Commitments and (ii) the aggregate Letter of Credit Liabilities shall not
exceed $250,000,000. Upon the date of issuance by the Issuing Bank of a Letter
of Credit, the Issuing Bank shall be deemed, without further action by any party
hereto, to have sold to each Bank, and each Bank shall be deemed, without
further action by any party hereto, to have purchased from the Issuing Bank, a
participation in such Letter of Credit and the related Letter of Credit
Liabilities in the proportion its Commitment bears to the aggregate Commitments;
PROVIDED that if the scheduled Termination Date of a Bank falls prior to the
expiry date of a Letter of Credit then outstanding, such Bank's participation in
such Letter of Credit shall terminate on its Termination Date, and the
participations of the other Banks therein shall be redetermined pro rata in
proportion to their Commitments after giving effect to the termination of the
Commitment of such former Bank.
(b) The Borrower shall give the Issuing Bank notice at least three
Domestic Business Days prior to the requested issuance of a Letter of Credit
specifying the date such Letter of Credit is to be issued, and describing the
terms of such Letter of Credit and the nature of the transactions to be
supported thereby (such notice, including any such notice given in connection
with the extension of
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a Letter of Credit, a "NOTICE OF ISSUANCE"). Upon receipt of a Notice of
Issuance, the Issuing Bank shall promptly notify the Administrative Agent, and
the Administrative Agent shall promptly notify each Bank of the contents thereof
and of the amount of such Bank's participation in such Letter of Credit. The
issuance by the Issuing Bank of each Letter of Credit shall, in addition to the
conditions precedent set forth in Article 3, be subject to the conditions
precedent that such Letter of Credit shall be in such form and contain such
terms as shall be reasonably satisfactory to the Issuing Bank and that the
Borrower shall have executed and delivered such other instruments and agreements
relating to such Letter of Credit as the Issuing Bank shall have reasonably
requested. The Borrower shall also pay to the Issuing Bank for its own account
issuance, drawing, amendment and extension charges in the amounts and at the
times as agreed between the Borrower and the Issuing Bank. The extension or
renewal of any Letter of Credit shall be deemed to be an issuance of such Letter
of Credit, and if any Letter of Credit contains a provision pursuant to which it
is deemed to be extended unless notice of termination is given by the Issuing
Bank, the Issuing Bank shall timely give such notice of termination unless it
has theretofore timely received a Notice of Issuance and the other conditions to
issuance of a Letter of Credit have also theretofore been met with respect to
such extension.
(c) No Letter of Credit shall have a term extending or extendible
beyond the tenth day preceding the Termination Date of the Issuing Bank.
(d) Upon receipt from the beneficiary of any Letter of Credit of any
notice of a drawing under such Letter of Credit, the Issuing Bank shall notify
the Administrative Agent and the Administrative Agent shall promptly notify the
Borrower and each other Bank as to the amount to be paid as a result of such
demand or drawing and the payment date. The Borrower shall be irrevocably and
unconditionally obligated forthwith to reimburse the Issuing Bank for any
amounts paid by the Issuing Bank upon any drawing under any Letter of Credit,
without presentment, demand, protest or other formalities of any kind. All such
amounts paid by the Issuing Bank and remaining unpaid by the Borrower shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the Base Rate for such day plus, if such amount remains unpaid for more than
two Domestic Business Days, 1%. In addition, each Bank will pay to the
Administrative Agent, for the account of the Issuing Bank, immediately upon the
Issuing Bank's demand at any time during the period commencing after such
drawing until reimbursement therefor in full by the Borrower, an amount equal to
such Bank's ratable share of such drawing (in proportion to its participation
therein), together with interest on such amount for each day from the date of
the Issuing Bank's demand for such payment (or, if such demand is made after
12:00 Noon (New York City time) on such date, from the next succeeding Domestic
Business Day) to the date of payment by such Bank of such amount at a rate of
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interest per annum equal to the Federal Funds Rate. The Issuing Bank will pay to
each Bank ratably all amounts received from the Borrower for application in
payment of its reimbursement obligations in respect of any Letter of Credit, but
only to the extent such Bank has made payment to the Issuing Bank in respect of
such Letter of Credit pursuant hereto.
(e) The obligations of the Borrower and each Bank under subsection
2.16(d) above shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:
(i) the use which may be made of the Letter of Credit by, or any
acts or omission of, a beneficiary of a Letter of Credit (or any Person
for whom the beneficiary may be acting);
(ii) the existence of any claim, set-off, defense or other rights
that the Borrower may have at any time against a beneficiary of a
Letter of Credit (or any Person for whom the beneficiary may be
acting), the Banks (including the Issuing Bank) or any other Person,
whether in connection with this Agreement or the Letter of Credit or
any document related hereto or thereto or any unrelated transaction;
(iii) any statement or any other document presented under a Letter
of Credit proving to be forged, fraudulent or invalid in any respect or
any statement therein being untrue or inaccurate in any respect
whatsoever;
(iv) payment under a Letter of Credit to the beneficiary of such
Letter of Credit against presentation to the Issuing Bank of a draft or
certificate that does not comply with the terms of the Letter of
Credit; PROVIDED that the determination by the Issuing Bank to make
such payment shall not have been the result of its willful misconduct
or gross negligence; or
(v) any other act or omission to act or delay of any kind by any
Bank (including the Issuing Bank), the Administrative Agent or any
other Person or any other event or circumstance whatsoever that might,
but for the provisions of this subsection (v), constitute a legal or
equitable discharge of the Borrower's or the Bank's obligations
hereunder.
(f) The Borrower hereby indemnifies and holds harmless each Bank
(including the Issuing Bank) and the Administrative Agent from and against any
and all claims, damages, losses, liabilities, costs or expenses which such Bank
or
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the Administrative Agent may incur (including, without limitation, any claims,
damages, losses, liabilities, costs or expenses which the Issuing Bank may incur
by reason of or in connection with the failure of any other Bank to fulfill or
comply with its obligations to such Issuing Bank hereunder (but nothing herein
contained shall affect any rights the Borrower may have against such defaulting
Bank)), and none of the Banks (including the Issuing Bank) nor the
Administrative Agent nor any of their officers or directors or employees or
agents shall be liable or responsible, by reason of or in connection with the
execution and delivery or transfer of or payment or failure to pay under any
Letter of Credit, including without limitation any of the circumstances
enumerated in subsection 2.16(d) above, as well as (i) any error, omission,
interruption or delay in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, (ii) any loss or delay in the transmission
of any document required in order to make a drawing under a Letter of Credit,
and (iii) any consequences arising from causes beyond the control of the Issuing
Bank, including without limitation any government acts, or any other
circumstances whatsoever in making or failing to make payment under such Letter
of Credit; PROVIDED that the Borrower shall not be required to indemnify the
Issuing Bank for any claims, damages, losses, liabilities, costs or expenses,
and the Borrower shall have a claim for direct (but not consequential) damage
suffered by it, to the extent found by a court of competent jurisdiction to have
been caused by (x) the willful misconduct or gross negligence of the Issuing
Bank in determining whether a request presented under any Letter of Credit
complied with the terms of such Letter of Credit or (y) the Issuing Bank's
failure to pay under any Letter of Credit after the presentation to it of a
request strictly complying with the terms and conditions of the Letter of
Credit. Nothing in this subsection 2.16(f) is intended to limit the obligations
of the Borrower under any other provision of this Agreement. To the extent the
Borrower does not indemnify the Issuing Bank as required by this subsection, the
Banks agree to do so ratably in accordance with their Commitments.
SECTION 2.17. REGULATION D COMPENSATION. In the event that a Bank is
required to maintain reserves of the type contemplated by the definition of
"EURO-DOLLAR RESERVE PERCENTAGE", such Bank may require the Borrower to pay,
contemporaneously with each payment of interest on the Euro-Dollar Loans,
additional interest on the related Euro-Dollar Loan of such Bank at a rate per
annum determined by such Bank up to but not exceeding the excess of (i) (A) the
applicable London Interbank Offered Rate divided by (B) one MINUS the
Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered
Rate. Any Bank wishing to require payment of such additional interest (x) shall
so notify the Borrower and the Administrative Agent, in which case such
additional interest on the Euro-Dollar Loans of such Bank shall be payable to
such Bank at the place indicated in such notice with respect to each Interest
Period
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commencing at least three Euro-Dollar Business Days after the giving of such
notice and (y) shall notify the Borrower at least three Euro-Dollar Business
Days prior to each date on which interest is payable on the Euro-Dollar Loans of
the amount then due it under this Section. Each such notification shall be
accompanied by such information as the Borrower may reasonably request.
"EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "EUROCURRENCY LIABILITIES" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
SECTION 2.18. TAKEOUT OF SWINGLINE LOANS. (a) In the event that any
Swingline Borrowing shall not be repaid in full at or prior to the maturity
thereof the Administrative Agent shall, on behalf of the Borrower (the Borrower
hereby irrevocably directing and authorizing the Administrative Agent so to act
on its behalf), give a Notice of Borrowing requesting the Banks, including the
Swingline Bank, to make a Base Rate Borrowing on the maturity date of such
Swingline Borrowing in an amount equal to the unpaid principal amount of such
Swingline Borrowing. Each Bank will make the proceeds of its Base Rate Loan
included in such Borrowing available to the Administrative Agent for the account
of the Swingline Bank on such date in accordance with Section 2.04. The proceeds
of such Base Rate Borrowing shall be immediately applied to repay such Swingline
Borrowing.
(b) If, for any reason, a Base Rate Borrowing may not be (as
determined by the Administrative Agent in its sole discretion), or is not, made
pursuant to subsection (a) above to refund Swingline Loans as required by said
clause, then, effective on the date such Borrowing would otherwise have been
made, each Bank severally, unconditionally and irrevocably agrees that it shall
purchase an undivided participating interest in such Swingline Loans
("UNREFUNDED SWINGLINE LOANS") in an amount equal to the amount of the Loan
which otherwise would have been made by such Bank pursuant to subsection (a),
which purchase shall be funded by the time such Loan would have been required to
be funded pursuant to Section 2.04 by transfer to the Administrative Agent, for
the account of the Swingline Bank, in immediately available funds, of the amount
of its participation.
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(c) Whenever, at any time after the Swingline Bank has received from
any Bank payment in full for such Bank's participating interest in a Swingline
Loan, the Swingline Bank (or the Administrative Agent on its behalf) receives
any payment on account thereof, the Swingline Bank (or the Administrative Agent,
as the case may be) will promptly distribute to such Bank its participating
interest in such payment (appropriately adjusted, in the case of interest
payments, to reflect the period of time during which such Bank's participating
interest was outstanding and funded); provided, however, that in the event that
such payment is subsequently required to be returned, such Bank will return to
the Swingline Bank (or the Administrative Agent, as the case may be) any portion
thereof previously distributed by the Swingline Bank (or the Administrative
Agent, as the case may be) to it.
(d) Each Bank's obligation to purchase and fund participating
interests pursuant to this Section shall be absolute and unconditional and shall
not be affected by any circumstance, including, without limitation: (i) any
setoff, counterclaim, recoupment, defense or other right which such Bank or the
Borrower may have against the Swingline Bank, or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of a Default or the failure to
satisfy any of the conditions specified in Article 3; (iii) any adverse change
in the condition (financial or otherwise) of the Borrower; (iv) any breach of
this Agreement by the Borrower or any Bank; or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
SECTION 2.19. INCREASED COMMITMENTS; ADDITIONAL BANKS. (a) Subsequent
to the Effective Date, the Borrower may, on no more than three occasions, upon
at least 30 days' notice to the Administrative Agent (which shall promptly
provide a copy of such notice to the Banks), propose to increase the aggregate
amount of the Commitments by an amount not to exceed in the aggregate for all
such increases $190,000,000 (the amount of any such increase, the "INCREASED
COMMITMENTS"). Each Bank party to this Agreement at such time shall have the
right (but no obligation), for a period of 15 days following receipt of such
notice, to elect by notice to the Borrower and the Administrative Agent to
increase its Commitment by a principal amount which bears the same ratio to the
Increased Commitments as its then Commitment bears to the aggregate Commitments
then existing.
(b) If any Bank party to this Agreement shall not elect to increase
its Commitment pursuant to subsection (a) of this Section, the Borrower may,
with the approval of The Chase Manhattan Bank, in its capacity as Issuing Bank,
each other Bank that has issued a Letter of Credit which is still outstanding,
each other Bank with a commitment outstanding to issue a Letter of Credit and
the Swingline Bank, designate one or more banks or other financial institutions
(which may be,
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but need not be, one or more of the existing Banks) which at the time agree in
the case of any existing Bank to increase its Commitment and, in the case of any
other such bank (an "ADDITIONAL BANK"), to become a party to this Agreement and
assume a Commitment hereunder. The sum of the increases in the Commitments of
the existing Banks pursuant to this subsection (b) plus the Commitments of the
Additional Banks shall not in the aggregate exceed the unsubscribed amount of
the Increased Commitments.
(c) An increase in the aggregate amount of the Commitments pursuant to
this Section 2.19 shall become effective upon the receipt of the Administrative
Agent of an agreement in form and substance satisfactory to the Administrative
Agent signed by the Borrower, by each Additional Bank and by each other Bank
whose Commitment is to be increased, setting forth the new Commitments of such
Banks and setting forth the agreement of each Additional Bank to become a party
to this Agreement and to be bound by all the terms and provisions hereof,
together with such evidence of appropriate corporate authorization on the part
of the Borrower with respect to the Increased Commitments and such opinions of
counsel for the Borrower with respect to the Increased Commitments as the
Administrative Agent may reasonably request.
(d) Upon any increase in the aggregate amount of the Commitments
pursuant to this Section 2.19, within five Domestic Business Days, in the case
of Base Rate Loans then outstanding, and at the end of the then current Interest
Period with respect thereto, in the case of Euro-Dollar Loans then outstanding,
the Borrower shall prepay or repay such Loans in their entirety and, to the
extent the Borrower elects to do so and subject to the conditions specified in
Article 3, the Borrower shall reborrow Syndicated Loans from the Banks in
proportion to their respective Commitments after giving effect to such increase,
until such time as all outstanding Syndicated Loans are held by the Banks in
such proportion.
ARTICLE 3
CONDITIONS
SECTION 3.01. EFFECTIVENESS. This Agreement shall become effective on
the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.05):
(a) receipt by the Administrative Agent of counterparts hereof signed
by each of the parties hereto (or, in the case of any party as to which an
executed counterpart shall not have been received, receipt by the Administrative
Agent in form satisfactory to it of telegraphic, telecopy, telex or other
written confirmation from such party of execution of a counterpart hereof by
such party);
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(b) receipt by the Administrative Agent of an opinion of Dewey
Ballantine, special counsel for the Borrower, substantially in the form of
Exhibit E hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably request;
(c) receipt by the Administrative Agent of an opinion of Davis Polk &
Wardwell, special counsel for the Administrative Agent, substantially in the
form of Exhibit F hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably request;
(d) receipt by the Administrative Agent of a certificate signed by a
Vice President, the Treasurer or the Controller of the Borrower, dated the
Effective Date, to the effect set forth in clauses (c) and (d) of Section 3.02;
(e) receipt by the Administrative Agent of all documents it may have
reasonably requested prior to the date hereof relating to the existence of the
Borrower, the corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Administrative Agent; and
(f) receipt by the Administrative Agent of evidence satisfactory to it
of the payment of all principal of and interest on any loans outstanding under,
and all accrued commitment fees under, the Existing Credit Agreements and the
cancellation or the expiration of any letter of credit issued thereunder;
PROVIDED that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
August 29, 1997. The Administrative Agent shall promptly notify the Borrower and
the Banks of the Effective Date, and such notice shall be conclusive and binding
on all parties hereto. The Borrower and the Banks party to the Existing Credit
Agreements, comprising the "Required Lenders" as defined therein, hereby agree
that (i) the commitments of the lenders under the Existing Credit Agreements
shall terminate in their entirety immediately and automatically upon the
effectiveness of this Agreement, without further action by any party to the
Existing Credit Agreements, (ii) all accrued fees under the Existing Credit
Agreements shall be due and payable at such time and (iii) subject to the
funding loss indemnities in the Existing Credit Agreements, the Borrower may
prepay any and all loans outstanding thereunder on the date of effectiveness of
this Agreement.
SECTION 3.02. BORROWINGS AND ISSUANCE OF LETTERS OF CREDITS. The
obligation of any Bank to make a Loan on the occasion of any Borrowing and the
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obligation of the Issuing Bank to issue (or renew or extend the term of) any
Letter of Credit is subject to the satisfaction of the following conditions;
PROVIDED that if such Borrowing is a Swingline Takeout Borrowing, only the
conditions set forth in clauses 3.02(a) and 3.02(b) must be satisfied:
(a) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.02 or 2.03 or receipt by the Issuing Bank of a Notice of
Issuance as required by Section 2.16(b), as the case may be;
(b) the facts that, immediately after such Borrowing or issuance of
such Letter of Credit (and, in the case of any Swingline Borrowing or issuance
of a Letter of Credit, at any time prior to the tenth day following the maturity
or expiry date thereof), (i) the sum of the aggregate outstanding principal
amount of the Loans and the aggregate amount of Letters of Credit Liabilities
will not exceed the aggregate amount of the Commitments, (ii) the aggregate
outstanding principal amount of Swingline Loans will not exceed $100,000,000 and
(iii) the aggregate amount of Letter of Credit Liabilities will not exceed
$250,000,000;
(c) the fact that, immediately after such Borrowing or issuance of
such Letter of Credit, no Default shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the Borrower
contained in this Agreement (except the representations and warranties set forth
in Sections 4.04(f) and 4.05) shall be true on and as of the date of such
Borrowing or issuance of such Letter of Credit.
Each Borrowing and issuance of a Letter of Credit hereunder shall be deemed to
be a representation and warranty by the Borrower on the date of such Borrowing
as to the facts specified in clauses (b), (c) and (d) of this Section (unless
such Borrowing is a Swingline Takeout Borrowing, in which case the Borrower
shall be deemed to represent and warrant as to the facts specified in clause (b)
of this Section).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
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laws of Delaware and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted and is duly qualified to do business as a foreign
corporation in each jurisdiction where such qualification is required, except
where the failure so to qualify would not have a material adverse effect on the
business, financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the articles of incorporation or by-laws of the Borrower or of
any agreement, judgment, injunction, order, decree or other instrument binding
upon the Borrower or result in the creation or imposition of any Lien on any
asset of the Borrower or any of its Material Subsidiaries.
SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, if and when executed and
delivered in accordance with this Agreement, will constitute a valid and binding
obligation of the Borrower, in each case enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general principles of equity.
SECTION 4.04. FINANCIAL INFORMATION. (a) The consolidated balance sheet
of Church Street Capital Corp. and its Consolidated Subsidiaries as of December
31, 1996 and the related consolidated statements of income, cash flows,
capitalization and retained earnings for the fiscal year then ended, reported on
by Deloitte & Touche, copies of which have been delivered to each of the Banks,
fairly present, in conformity with generally accepted accounting principles, the
consolidated financial position of Church Street Capital Corp. and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of Church Street Capital
Corp. and its Consolidated Subsidiaries as of March 31, 1997 and the related
unaudited consolidated statements of income and cash flows for the three months
then ended, copies of which have been delivered to each of the Banks, fairly
present, in conformity with generally accepted accounting principles applied on
a basis consistent with the financial statements referred to in subsection (a)
of this Section, the consolidated financial position of Church Street Capital
Corp. and its
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Consolidated Subsidiaries as of such date and their consolidated results of
operations and changes in financial position for such three month period
(subject to normal year-end adjustments and the absence of footnotes).
(c) The consolidated balance sheet of PanEnergy Corp and its
Consolidated Subsidiaries as of December 31, 1996 and the related consolidated
statements of income, cash flows, capitalization and retained earnings for the
fiscal year then ended, reported on by KPMG Peat Marwick LLP, copies of which
have been delivered to each of the Banks, fairly present, in conformity with
generally accepted accounting principles, the consolidated financial position of
PanEnergy Corp and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such fiscal year.
(d) The unaudited consolidated balance sheet of PanEnergy Corp and its
Consolidated Subsidiaries as of March 31, 1997 and the related unaudited
consolidated statements of income and cash flows for the three months then
ended, copies of which have been delivered to each of the Banks, fairly present,
in conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a) of this
Section, the consolidated financial position of PanEnergy Corp and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and changes in financial position for such three month period
(subject to normal year-end adjustments and the absence of footnotes).
(e) The unaudited pro forma consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as of December 31, 1996 and the related
unaudited pro forma consolidated statement of earnings for the year then ended,
copies of which have been delivered to each of the Banks, are complete and
correct in all material respects and have been prepared on the basis described
therein and otherwise in conformity with generally accepted accounting
principles applied on a basis consistent with the financial statements referred
to in subsection (a) of this Section and show the consolidated financial
position and results of operations of the Borrower as if the Borrower had
acquired PanEnergy Corp, in the case of the pro forma consolidated balance
sheet, on December 31, 1996, and in the case of the pro forma consolidated
statement of earnings, as of January 1, 1996.
(f) Since the respective dates set forth above, there has been no
material adverse change in the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole.
SECTION 4.05. LITIGATION. Except as disclosed in the reports referred
to in Section 4.04 or in the PanEnergy Corp quarterly report on Form 10-Q for
the
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quarter ended June 30, 1997, copies of which have been delivered to each of the
Banks, there is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official which would be likely to be decided adversely to Borrower
and, as a result, have a material adverse effect upon the business, consolidated
financial position or results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, or which in any manner draws into question
the validity of this Agreement or any Note.
SECTION 4.06. COMPLIANCE WITH LAWS. The Borrower and each Material
Subsidiary is in compliance in all material respects with all applicable laws,
ordinances, rules, regulations and requirements of governmental authorities
(including, without limitation, ERISA and Environmental Laws) except where (i)
non-compliance would not have a material adverse affect on the business,
financial position or results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, or (ii) the necessity of compliance
therewith is contested in good faith by appropriate proceedings.
SECTION 4.07. TAXES. The Borrower and its Material Subsidiaries have
filed all United States Federal income tax returns and all other material tax
returns which are required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Borrower
or any Material Subsidiary except (i) where nonpayment would not have a material
adverse effect on the business, financial position or results of operations of
the Borrower and its Consolidated Subsidiaries, considered as a whole or (ii)
where the same are contested in good faith by appropriate proceedings. The
charges, accruals and reserves on the books of the Borrower and its Material
Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Borrower, adequate.
SECTION 4.08. PUBLIC UTILITY HOLDING COMPANY ACT. The Borrower is not
a holding company under the Public Utility Holding Company Act of 1935, as
amended.
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ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any amount payable hereunder remains unpaid or any Letter of Credit
Liabilities remain outstanding:
SECTION 5.01. INFORMATION. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income, cash flows, capitalization and
retained earnings for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on in a
manner consistent with the requirements of the Securities and Exchange
Commission by Deloitte & Touche or other independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within 60 days after the end
of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income and
cash flows for such quarter and for the portion of the Borrower's fiscal year
ended at the end of such quarter, setting forth in each case in comparative form
the figures for the corresponding quarter and the corresponding portion of the
Borrower's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted accounting
principles and consistency by an Approved Officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of an
Approved Officer of the Borrower stating whether any Default exists on the date
of such certificate and, if any Default then exists, setting forth the details
thereof and the action which the Borrower is taking or proposes to take with
respect thereto;
(d) within five days after any officer of the Borrower with
responsibility relating thereto obtains knowledge of any Default, if such
Default is then continuing, a certificate of an Approved Officer of the Borrower
setting forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
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(e) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Borrower shall have filed with the Securities and
Exchange Commission;
(f) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "REPORTABLE EVENT" (as defined in Section 4043
of ERISA) with respect to any Material Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Material Plan has given or is required to give notice of
any such reportable event, a copy of the notice of such reportable event given
or required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Material Plan is
in reorganization, is insolvent or has been terminated, a copy of such notice;
(iii) receives notice from the PBGC under Title IV of ERISA of an intent to
terminate, impose material liability (other than for premiums under Section 4007
of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Material Plan under Section 4041(c) of ERISA,
a copy of such notice and other information filed with the PBGC; (vi) gives
notice of withdrawal from any Material Plan pursuant to Section 4063 of ERISA, a
copy of such notice; or (vii) fails to make any payment or contribution to any
Material Plan or makes any amendment to any Material Plan which has resulted or
could result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the chief financial officer or the chief accounting
officer of the Borrower setting forth details as to such occurrence and action,
if any, which the Borrower or applicable member of the ERISA Group is required
or proposes to take; and
(g) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Administrative Agent, at the request of any Bank, may reasonably request.
SECTION 5.02. PAYMENT OF TAXES. The Borrower will pay and discharge,
and will cause each Material Subsidiary to pay and discharge, at or before
maturity, all their tax liabilities, except where (i) nonpayment would not have
a material adverse effect on the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole, or (ii) the same may be contested in good faith by appropriate
proceedings, and will maintain, and will cause each Material Subsidiary to
maintain, in accordance with generally accepted accounting principles,
appropriate reserves for the accrual of any of the same.
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SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE. (a) The Borrower will
keep, and will cause each Material Subsidiary to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted.
(b) The Borrower will, and will cause each of its Material
Subsidiaries to, maintain (either in the name of the Borrower or in such
Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such amounts
and against at least such risks (and with such risk retention) as are usually
insured against in the same general area by companies of established repute
engaged in the same or a similar business; PROVIDED that self-insurance by the
Borrower or any such Material Subsidiary shall not be deemed a violation of this
covenant to the extent that companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower or such
Material Subsidiary operates self-insure; and will furnish to the Banks, upon
request from the Administrative Agent, information presented in reasonable
detail as to the insurance so carried.
SECTION 5.04. MAINTENANCE OF EXISTENCE. The Borrower will preserve,
renew and keep in full force and effect, and will cause each Material Subsidiary
to preserve, renew and keep in full force and effect their respective corporate
existence and their respective rights, privileges and franchises material to the
normal conduct of their respective businesses; PROVIDED that nothing in this
Section 5.04 shall prohibit the termination of any right, privilege or franchise
of the Borrower or any Material Subsidiary or of the corporate existence of any
Material Subsidiary if the Borrower in good faith determines that such
termination is in the best interest of the Borrower and is not materially
disadvantageous to the Banks.
SECTION 5.05. COMPLIANCE WITH LAWS. The Borrower will comply, and cause
each Material Subsidiary to comply, in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, ERISA and Environmental Laws) except
where (i) noncompliance would not have a material adverse effect on the
business, financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.06. BOOKS AND RECORDS. The Borrower will keep, and will cause
each Material Subsidiary to keep, proper books of record and account in which
full, true and correct entries shall be made of all financial transactions in
relation to its business and activities in accordance with its customary
practices; and will permit, and will cause each Material Subsidiary to permit,
representatives
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of any Bank at such Bank's expense (accompanied by a representative of the
Borrower, if the Borrower so desires) to visit any of their respective
properties, to examine any of their respective books and records and to discuss
their respective affairs, finances and accounts with their respective officers,
employees and independent public accountants, all upon such reasonable notice,
at such reasonable times and as often as may reasonably be desired.
SECTION 5.07. MAINTENANCE OF OWNERSHIP OF PRINCIPAL SUBSIDIARIES. The
Borrower will maintain ownership of all shares of the common stock of each
Principal Subsidiary, directly or indirectly through Subsidiaries, free and
clear of all Liens, PROVIDED that any Principal Subsidiary may merge with and
into the Borrower or another Subsidiary.
SECTION 5.08. NEGATIVE PLEDGE. The Borrower will not create, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired by it,
except:
(a) Liens granted by the Borrower existing on the date of this
Agreement securing Indebtedness outstanding on the date of this Agreement in an
aggregate principal amount not exceeding $100,000,000;
(b) any Lien on any asset of any corporation existing at the time such
corporation is merged or consolidated with or into the Borrower and not created
in contemplation of such event;
(c) any Lien existing on any asset prior to the acquisition thereof by
the Borrower and not created in contemplation of such acquisition;
(d) any Lien on any asset securing Indebtedness incurred or assumed
for the purpose of financing all or any part of the cost of acquiring such
asset, PROVIDED that such Lien attaches to such asset concurrently with or
within 180 days after the acquisition thereof;
(e) any Lien arising out of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any Lien permitted by any of the
foregoing clauses of this Section, PROVIDED that such Indebtedness is not
increased and is not secured by any additional assets;
(f) Liens for taxes, assessments or other governmental charges or
levies not yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with generally accepted accounting
principles;
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(g) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law, created in the ordinary
course of business and for amounts not past due for more than 60 days or which
are being contested in good faith by appropriate proceedings which are
sufficient to prevent imminent foreclosure of such Liens, are promptly
instituted and diligently conducted and with respect to which adequate reserves
or other appropriate provisions are being maintained in accordance with
generally accepted accounting principles;
(h) Liens incurred or deposits made in the ordinary course of business
(including, without limitation, surety bonds and appeal bonds) in connection
with workers' compensation, unemployment insurance and other types of social
security benefits or to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations or arising as a result of progress payments under
government contracts;
(i) easements (including, without limitation, reciprocal easement
agreements and utility agreements), rights-of-way, covenants, consents,
reservations, encroachments, variations and other restrictions, charges or
encumbrances (whether or not recorded) affecting the use of real property;
(j) Liens with respect to judgments and attachments which do not
result in an Event of Default;
(k) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other obligations arising in the
ordinary course of business; and
(l) other Liens including Liens imposed by Environmental Laws arising
in the ordinary course of its business which (i) do not secure Indebtedness,
(ii) do not secure any obligation in an amount exceeding $100,000,000 at any
time at which Investment Grade Status does not exist as to the Borrower and
(iii) do not in the aggregate materially detract from the value of its assets or
materially impair the use thereof in the operation of its business.
SECTION 5.09. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. The Borrower
will not (i) consolidate or merge with or into any other Person or (ii) sell,
lease or otherwise transfer, directly or indirectly, Substantial Assets to any
Person (other than a Subsidiary); PROVIDED that the Borrower may merge with
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another Person if the Borrower is the corporation surviving such merger and,
after giving effect thereto, no Default shall have occurred and be continuing.
SECTION 5.10. USE OF PROCEEDS. The proceeds of the Loans made under
this Agreement will be used by the Borrower for its general corporate purposes,
including liquidity support for outstanding commercial paper. None of such
proceeds will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any "MARGIN STOCK"
within the meaning of Regulation U.
SECTION 5.11. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, pay any funds to or
for the account of, make any investment in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or participate in, or effect,
any transaction with, any Affiliate unless all such transactions between the
Borrower and its Subsidiaries on the one hand and any Affiliate on the other,
taken in the aggregate and not individually, shall be on an arms-length basis on
terms no less favorable to the Borrower or such Subsidiary than could have been
obtained from a third party who was not an Affiliate; PROVIDED that the
foregoing provisions of this Section shall not prohibit the Borrower and each
Subsidiary from declaring or paying any lawful dividend so long as, after giving
effect thereto, no Default shall have occurred and be continuing.
SECTION 5.12. INDEBTEDNESS/CAPITALIZATION RATIO. The ratio of
Consolidated Indebtedness to Consolidated Capitalization will at no time exceed
65%.
ARTICLE 6
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following events
("EVENTS OF DEFAULT") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of any Loan
or shall fail to pay, within five days of the due date thereof, any interest,
fees or any other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.08, 5.09, 5.12 or the second sentence of 5.10,
inclusive;
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(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) for 30 days after notice thereof has been given to the Borrower by
the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment in
respect of Material Debt (other than the Loans) when due or within any
applicable grace period;
(f) any event or condition shall occur and shall continue beyond the
applicable grace or cure period, if any, provided with respect thereto so as to
result in the acceleration of the maturity of Material Debt;
(g) the Borrower or any Material Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced against
the Borrower or any Material Subsidiary seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against the Borrower or any Material Subsidiary under
the federal bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $25,000,000 which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of
intent to terminate a Plan or Plans having aggregate Unfunded Vested
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Liabilities in excess of $50,000,000 (collectively, a "MATERIAL PLAN") shall be
filed under Title IV of ERISA by any member of the ERISA Group, any plan
administrator or any combination of the foregoing; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate or to cause a trustee to be
appointed to administer any Material Plan or a proceeding shall be instituted by
a fiduciary of any Material Plan against any member of the ERISA Group to
enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have
been dismissed within 90 days thereafter; or a condition shall exist by reason
of which the PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated;
(j) a judgment or other court order for the payment of money in excess
of $50,000,000 shall be rendered against the Borrower or any Material Subsidiary
and such judgment or order shall continue without being vacated, discharged,
satisfied or stayed or bonded pending appeal for a period of 45 days; or
(k) the Borrower shall cease to be a Subsidiary of Duke Energy
Corporation;
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 66-2/3% in aggregate amount of the Commitments, by
notice to the Borrower terminate the Commitments and they shall thereupon
terminate and (ii) if requested by Banks holding more than 66-2/3% in aggregate
principal amount of the Loans, by notice to the Borrower declare the Loans
(together with accrued interest thereon) to be, and the Loans shall thereupon
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower;
PROVIDED that in the case of any of the Events of Default specified in clause
(g) or (h) above with respect to the Borrower, without any notice to the
Borrower or any other act by the Administrative Agent or the Banks, the
Commitments shall thereupon terminate and the Loans (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.
SECTION 6.02. NOTICE OF DEFAULT. The Administrative Agent shall give
notice to the Borrower under Section 6.01(c) promptly upon being requested to do
so by any Bank and shall thereupon notify all the Banks thereof.
SECTION 6.03. CASH COVER. The Borrower agrees, in addition to the
provisions of Section 6.01 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by the
Administrative Agent upon the instruction of the Banks having at least 66 2/3%
in the aggregate amount of the Commitments (or, if the Commitments shall have
been terminated,
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holding at least 66 2/3% of the Letter of Credit Liabilities), pay to the
Administrative Agent an amount in immediately available funds (which funds shall
be held as collateral pursuant to arrangements satisfactory to the
Administrative Agent) equal to the aggregate amount available for drawing under
all Letters of Credit then outstanding at such time, PROVIDED that, upon the
occurrence of any Event of Default specified in Section 6.01(g) or 6.01(h) with
respect to the Borrower, the Borrower shall pay such amount forthwith without
any notice or demand or any other act by the Administrative Agent or the Banks.
ARTICLE 7
THE ADMINISTRATIVE AGENT
SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the Notes as are
delegated to the Administrative Agent by the terms hereof or thereof, together
with all such powers as are reasonably incidental thereto.
SECTION 7.02. ADMINISTRATIVE AGENT AND AFFILIATES. The Chase Manhattan
Bank shall have the same rights and powers under this Agreement as any other
Bank and may exercise or refrain from exercising the same as though it were not
the Administrative Agent, and The Chase Manhattan Bank and its affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or affiliate of the Borrower as if
it were not the Administrative Agent hereunder.
SECTION 7.03. ACTION BY ADMINISTRATIVE AGENT. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
SECTION 7.04. CONSULTATION WITH EXPERTS. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 7.05. LIABILITY OF ADMINISTRATIVE AGENT. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable to any Bank for any
action taken or not taken by it in connection herewith (i) with the consent or
at the request of the
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Required Banks or (ii) in the absence of its own gross negligence or willful
misconduct. Neither the Administrative Agent nor any of its affiliates nor any
of their respective directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with this Agreement or
any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Borrower; (iii) the satisfaction of any condition
specified in Article 3, except receipt of items required to be delivered to the
Administrative Agent; or (iv) the validity, effectiveness or genuineness of this
Agreement, the Notes or any other instrument or writing furnished in connection
herewith. The Administrative Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex or similar writing) believed by it in good
faith to be genuine or to be signed by the proper party or parties. Without
limiting the generality of the foregoing, the use of the term "agent" in this
Agreement with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market custom and is intended to create or reflect only an administrative
relationship between independent contracting parties.
SECTION 7.06. INDEMNIFICATION. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Administrative Agent, its affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from the such indemnitees' gross negligence or willful misconduct) that
such indemnitees may suffer or incur in connection with this Agreement or any
action taken or omitted by such indemnitees thereunder.
SECTION 7.07. CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement.
SECTION 7.08. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent
may resign at any time by giving notice thereof to the Banks and the Borrower.
Upon any such resignation, the Borrower, with the consent of the Required Banks,
(such consent not to be unreasonably withheld or delayed), shall
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have the right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$250,000,000. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder; PROVIDED
that if such successor Administrative Agent is appointed without the consent of
the Borrower, such successor Administrative Agent may be replaced by the
Borrower with the consent of the Required Banks. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Article shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent.
SECTION 7.09. ADMINISTRATIVE AGENT'S FEE. The Borrower shall pay to the
Administrative Agent for its own account fees in the amounts and at the times
previously agreed upon between the Borrower and the Administrative Agent.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR.
If on or prior to the first day of any Interest Period for any Euro-Dollar
Borrowing or Bid Rate (Indexed) Borrowing:
(a) the Administrative Agent is advised by the Euro-Dollar Reference
Banks that deposits in dollars (in the applicable amounts) are not being offered
to the Euro-Dollar Reference Banks in the relevant market for such Interest
Period, or
(b) in the case of a Euro-Dollar Borrowing, Banks having 66-2/3% or
more of the aggregate amount of the affected Loans advise the Administrative
Agent that the London Interbank Offered Rate as determined by the Administrative
Agent will not adequately and fairly reflect the cost to such Banks of funding
their Euro-Dollar Loans for such Interest Period,
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the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make Euro-Dollar Loans or to continue or convert
outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each
outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the
last day of the then current Interest Period applicable thereto. Unless the
Borrower notifies the Administrative Agent at least one Domestic Business Day
before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has
previously been given that it elects not to borrow on such date, (i) if such
Fixed Rate Borrowing is a Syndicated Borrowing, such Borrowing shall instead be
made as a Base Rate Borrowing and (ii) if such Borrowing is a Bid Rate (Indexed)
Borrowing, the Loans comprising such Borrowing shall bear interest for each day
from and including the first day to but excluding the last day of the Interest
Period applicable thereto at the Base Rate for such day.
SECTION 8.02. ILLEGALITY. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund any of its Euro-Dollar
Loans and such Bank shall so notify the Administrative Agent, the Administrative
Agent shall forthwith give notice thereof to the other Banks and the Borrower,
whereupon until such Bank notifies the Borrower and the Administrative Agent
that the circumstances giving rise to such suspension no longer exist, the
obligation of such Bank to make Euro-Dollar Loans, or to continue or convert
outstanding Loans as or into Euro-Dollar Loans, shall be suspended. Before
giving any notice to the Administrative Agent pursuant to this Section, such
Bank shall designate a different Euro-Dollar Lending Office if such designation
will avoid the need for giving such notice and will not be otherwise
disadvantageous to such Bank in the good faith exercise of its discretion. If
such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall
be converted to a Base Rate Loan either (a) on the last day of the then current
Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully
continue to maintain and fund such Loan to such day or (b) immediately if such
Bank shall determine that it may not lawfully continue to maintain and fund such
Loan to such day.
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SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If on or after (x)
the date of this Agreement, in the case of any Committed Loan or Letter of
Credit or any obligation to make Committed Loans or issue or participate in any
Letter of Credit or (y) the date of any related Bid Rate Quote, in the case of
any Bid Rate Loan, the adoption of any applicable law, rule or regulation, or
any change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) issued on or after
such date of any such authority, central bank or comparable agency shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
(including, without limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System, but excluding with respect to any
Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar
Reserve Percentage) against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Applicable Lending Office) or shall impose
on any Bank (or its Applicable Lending Office) or on the London interbank market
any other condition (other than in respect of Taxes or Other Taxes) affecting
its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans or its
obligations hereunder in respect of Letters of Credit and the result of any of
the foregoing is to increase the cost to such Bank (or its Applicable Lending
Office) of making or maintaining any Fixed Rate Loan or of issuing or
participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by such Bank (or its Applicable Lending Office) under
this Agreement or under its Note with respect thereto, by an amount deemed by
such Bank to be material, then, within 15 days after demand by such Bank (with a
copy to the Administrative Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such increased
cost or reduction; PROVIDED that no such amount shall be payable with respect to
any period commencing more than 90 days prior to the date such Bank first
notifies the Borrower of its intention to demand compensation therefor under
this Section 8.03(a).
(b) If any Bank shall have determined that, on or after the date of
this Agreement, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change in any such law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency given or made after the date of this Agreement, has or would
have the effect of reducing the rate of return on capital of such Bank (or its
Parent) as a consequence of such Bank's obligations hereunder to a level below
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that which such Bank (or its Parent) could have achieved but for such adoption,
change, request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Bank to be material,
then from time to time, within 15 days after demand by such Bank (with a copy to
the Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank (or its Parent) for such
reduction; PROVIDED that no such amount shall be payable with respect to any
period commencing less than 30 days after the date such Bank first notifies the
Borrower of its intention to demand compensation under this Section 8.03(b).
(c) Each Bank will promptly notify the Borrower and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate
of any Bank claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount, such Bank may use any
reasonable averaging and attribution methods.
SECTION 8.04. TAXES. (a) For purposes of this Section 8.04, the
following terms have the following meanings:
"TAXES" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or any Note, and all liabilities with
respect thereto, EXCLUDING (i) in the case of each Bank and the Administrative
Agent, taxes imposed on its income, net worth or gross receipts and franchise or
similar taxes imposed on it by a jurisdiction under the laws of which such Bank
or the Administrative Agent (as the case may be) is organized or in which its
principal executive office is located or, in the case of each Bank, in which its
Applicable Lending Office is located and (ii) in the case of each Bank, any
United States withholding tax imposed on such payments except to the extent that
such Bank is subject to United States withholding tax by reason of a U.S. Tax
Law Change.
"OTHER TAXES" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or from
the execution or delivery of, or otherwise with respect to, this Agreement or
any Note.
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"U.S. TAX LAW CHANGE" means with respect to any Bank or Participant the
occurrence (x) in the case of each Bank listed on the signature pages hereof,
after the date of its execution and delivery of this Agreement and (y) in the
case of any other Bank, after the date such Bank shall have become a Bank
hereunder, and (z) in the case of each Participant, after the date such
Participant became a Participant hereunder, of the adoption of any applicable
U.S. federal law, U.S. federal rule or U.S. federal regulation relating to
taxation, or any change therein, or the entry into force, modification or
revocation of any income tax convention or treaty to which the United States is
a party.
(b) Any and all payments by the Borrower to or for the account of any
Bank or the Administrative Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; PROVIDED that, if the Borrower
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 8.04) such Bank or the Administrative Agent (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 9.01, the original or a certified copy of a receipt evidencing
payment thereof.
(c) The Borrower agrees to indemnify each Bank and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 8.04) paid by such Bank or the Administrative
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be paid within 15 days after such Bank or the Administrative Agent (as the case
may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter as required by law (but only so long as such
Bank remains lawfully able to do so), shall provide the Borrower two completed
and duly executed copies of Internal Revenue Service form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
or other documentation reasonably requested by the Borrower, certifying that
such Bank is entitled to benefits under an income tax treaty to which the United
States
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is a party which exempts the Bank from United States withholding tax or reduces
the rate of withholding tax on payments of interest for the account of such Bank
or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such
failure is due to a U.S. Tax Law Change), such Bank shall not be entitled to
indemnification under Section 8.04(b) or 8.04(c) with respect to any Taxes or
Other Taxes which would not have been payable had such form been so provided,
PROVIDED that if a Bank, which is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as such
Bank shall reasonably request to assist such Bank to recover such Taxes (it
being understood, however, that the Borrower shall have no liability to such
Bank in respect of such Taxes).
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section 8.04, then such Bank will take
such action (including changing the jurisdiction of its Applicable Lending
Office) as in the good faith judgment of such Bank (i) will eliminate or reduce
any such additional payment which may thereafter accrue and (ii) is not
otherwise disadvantageous to such Bank.
(g) If any Bank or the Administrative Agent receives a refund
(including a refund in the form of a credit against taxes that are otherwise
payable by the Bank or the Administrative Agent) of any Taxes or Other Taxes for
which the Borrower has made a payment under Section 8.04(b) or (c) and such
refund was received from the taxing authority which originally imposed such
Taxes or Other Taxes, such Bank or the Administrative Agent agrees to reimburse
the Borrower to the extent of such refund, PROVIDED that nothing contained in
this paragraph (g) shall require any Bank or the Administrative Agent to make
available its tax returns (or any other information relating to its taxes which
it deems to be confidential).
SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE
LOANS. If (i) the obligation of any Bank to make or to continue or convert
outstanding Loans as or into Euro-Dollar Loans has been suspended pursuant to
Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03(a) or
8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least
five Euro-Dollar Business Days' prior notice to such Bank through the
Administrative Agent, have elected that the provisions of this Section shall
apply to such Bank, then, unless and until such Bank notifies the Borrower that
the
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circumstances giving rise to such suspension or demand for compensation no
longer apply:
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted to) Euro-Dollar Loans, as the case may be, shall
instead be Base Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all payments
of principal which would otherwise be applied to repay such Loans shall be
applied to repay its Base Rate Loans instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer exist, the principal amount of
each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first
day of the next succeeding Interest Period applicable to the related Euro-Dollar
Loans of the other Banks.
SECTION 8.06. SUBSTITUTION OF BANK; TERMINATION OPTION. If (i) the
obligation of any Bank to make or to convert or continue outstanding Loans as or
into Euro-Dollar Loans has been suspended pursuant to Section 8.02, (ii) any
Bank has demanded compensation under Section 8.03 or 8.04, or (iii) any Bank
exercises its right not to extend its Termination Date pursuant to Section
2.01(c) or (iv) Investment Grade Status ceases to exist as to any Bank, then:
(a) the Borrower shall have the right, with the assistance of the
Administrative Agent, to designate a substitute bank or banks (which may be one
or more of the Banks) mutually satisfactory to the Borrower, the Administrative
Agent, the Issuing Banks and the Swingline Bank (whose consent shall not be
unreasonably withheld or delayed) to purchase for cash, pursuant to an
Assignment and Assumption Agreement in substantially the form of Exhibit G
hereto, the outstanding Loans of such Bank and assume the Commitment and Letter
of Credit Liabilities of such Bank, without recourse to or warranty by, or
expense to, such Bank, for a purchase price equal to the principal amount of all
of such Bank's outstanding Loans and funded Letter of Credit Liabilities plus
any accrued but unpaid interest thereon and the accrued but unpaid fees in
respect of such Bank's Commitment hereunder plus such amount, if any, as would
be payable pursuant to Section 2.14 if the outstanding Loans of such Bank were
prepaid in their entirety on the date of consummation of such assignment; and
(b) if at the time Investment Grade Status exists as to the Borrower,
the Borrower may elect to terminate this Agreement as to such Bank, PROVIDED
that (i) the Borrower notifies such Bank through the Administrative Agent of
such
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election at least three Euro-Dollar Business Days before the effective date of
such termination, (ii) the Borrower repays or prepays all outstanding Loans made
by such Bank not later than the effective date of such termination and (iii) if
at the effective date of such termination, any Letter of Credit Liabilities or
Swingline Loans are outstanding, the conditions specified in Section 3.02 would
be satisfied (after giving effect to such termination) were the related Letters
of Credit and Swingline Loans made on such date. Upon satisfaction of the
foregoing conditions, the Commitment of such Bank shall terminate on the
effective date specified in such notice.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile transmission or similar writing) and shall be given to such party: (x)
in the case of the Borrower or the Administrative Agent, at its address or
telecopy or telex number set forth on the signature pages hereof, (y) in the
case of any Bank, at its address or telecopy or telex number set forth in its
Administrative Questionnaire or (z) in the case of any party, such other address
or telecopy or telex number as such party may hereafter specify for the purpose
by notice to the Administrative Agent and the Borrower. Each such notice,
request or other communication shall be effective (i) if given by telecopy or
telex, when such telecopy or telex is transmitted to the telecopy or telex
number specified in this Section and the appropriate answerback or confirmation
slip, as the case may be, is received, (ii) if given by mail, 84 hours after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in this Section; PROVIDED that notices to the
Administrative Agent or any Issuing Bank under Article 2 or Article 3 shall not
be effective until delivered.
SECTION 9.02. NO WAIVERS. No failure or delay by the Administrative
Agent or any Bank in exercising any right, power or privilege hereunder or under
any Note shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i)
all reasonable out-of-pocket expenses of the Administrative Agent, including
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reasonable fees and disbursements of special counsel for the Administrative
Agent, in connection with the preparation of this Agreement, any waiver or
consent hereunder or any amendment hereof or any Default or alleged Default
hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket
expenses incurred by the Administrative Agent or any Bank, including reasonable
fees and disbursements of counsel, in connection with such Event of Default and
collection and other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify the Administrative Agent and each
Bank, their respective affiliates and the respective directors, officers, agents
and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) relating to or arising out
of this Agreement or any actual or proposed use of proceeds of Loans hereunder;
PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for
such Indemnitee's own gross negligence or willful misconduct as determined by a
court of competent jurisdiction.
SECTION 9.04. SHARING OF SET-OFFS. Each Bank agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount then due with respect to the Loans and
Letter of Credit Liabilities held by it which is greater than the proportion
received by any other Bank in respect of the aggregate amount then due with
respect to the Loans and Letter of Credit Liabilities held by such other Bank,
the Bank receiving such proportionately greater payment shall purchase such
participations in the Loans and Letter of Credit Liabilities held by the other
Banks, and such other adjustments shall be made, as may be required so that all
such payments with respect to the Loans and Letter of Credit Liabilities held by
the Banks shall be shared by the Banks pro rata; PROVIDED that nothing in this
Section shall impair the right of any Bank to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to the
payment of indebtedness of the Borrower other than its indebtedness under this
Agreement.
SECTION 9.05. AMENDMENTS AND WAIVERS. Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Administrative Agent, the Swingline Bank or any Issuing
Bank are affected thereby, by such Person); PROVIDED that no such amendment or
waiver shall, unless signed by all the Banks, (i) increase or decrease the
Commitment of any Bank (except (x) as contemplated
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by Section 2.19 or (y) for a ratable decrease in the Commitments of all Banks)
or subject any Bank to any additional obligation, (ii) reduce the principal of
or rate of interest on any Loan or the amount to be reimbursed in respect of any
Letter of Credit or any interest thereon or any fees hereunder, (iii) postpone
the date fixed for any payment of principal of or interest on any Loan or for
reimbursement in respect of any Letter of Credit or interest thereon or any fees
hereunder or for termination of any Commitment or (iv) change the percentage of
the Commitments or of the aggregate unpaid principal amount of the Loans and
Letter of Credit Liabilities, or the number of Banks, which shall be required
for the Banks or any of them to take any action under this Section or any other
provision of this Agreement.
SECTION 9.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may, with the consent of the Borrower (such consent not
to be unreasonably withheld or delayed), at any time grant to one or more banks
or other institutions (each a "PARTICIPANT") participating interests in its
Commitment or any or all of its Loans and Letter of Credit Liabilities. In the
event of any such grant by a Bank of a participating interest to a Participant,
whether or not upon notice to the Administrative Agent, such Bank shall remain
responsible for the performance of its obligations hereunder, and the Borrower,
the Issuing Banks, the Swingline Bank and the Administrative Agent shall
continue to deal solely and directly with such Bank in connection with such
Bank's rights and obligations under this Agreement. Any agreement pursuant to
which any Bank may grant such a participating interest shall provide that such
Bank shall retain the sole right and responsibility to enforce the obligations
of the Borrower hereunder including, without limitation, the right to approve
any amendment, modification or waiver of any provision of this Agreement;
PROVIDED that such participation agreement may provide that such Bank will not
agree to any modification, amendment or waiver of this Agreement described in
clause (i), (ii) or (iii) of Section 9.05 without the consent of the
Participant. The Borrower agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Article
8 with respect to its participating interest, subject to the performance by such
Participant of the obligations of a Bank thereunder. An assignment or other
transfer which is not permitted by subsection (c) or (d) below shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this subsection (b).
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(c) Any Bank may at any time assign to one or more banks or other
financial institutions (each an "ASSIGNEE") all, or a proportionate part
(equivalent to an initial Commitment of not less than $20,000,000) of all, of
its rights and obligations under this Agreement and its Note (if any), and such
Assignee shall assume such rights and obligations, pursuant to an Assignment and
Assumption Agreement in substantially the form of Exhibit G hereto executed by
such Assignee and such transferor Bank, with (and only with and subject to) the
prior written consent of the Borrower (given in its sole discretion), the
Issuing Banks, the Swingline Bank and the Administrative Agent (which shall not
be unreasonably withheld or delayed), PROVIDED that unless such assignment is of
the entire right, title and interest of the transferor Bank hereunder, after
making any such assignment such transferor Bank shall have a Commitment of at
least $20,000,000. Upon execution and delivery of such instrument of assumption
and payment by such Assignee to such transferor Bank of an amount equal to the
purchase price agreed between such transferor Bank and such Assignee, such
Assignee shall be a Bank party to this Agreement and shall have all the rights
and obligations of a Bank with a Commitment as set forth in such instrument of
assumption, and the transferor Bank shall be released from its obligations
hereunder to a corresponding extent, and no further consent or action by any
party shall be required. Upon the consummation of any assignment pursuant to
this subsection (c), the transferor Bank, the Administrative Agent and the
Borrower shall make appropriate arrangements so that, if required by the
Assignee, a Note is issued to the Assignee. If the Assignee is not incorporated
under the laws of the United States of America or a state thereof, it shall,
prior to the first date on which interest or fees are payable hereunder for its
account, deliver to the Borrower and the Administrative Agent certification as
to exemption from deduction or withholding of any United States federal income
taxes in accordance with Section 8.04. All assignments shall be subject to a
transaction fee established by, and payable by the transferor Bank to, the
Administrative Agent for its own account (which shall not exceed $5,000).
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note (if any) to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder or
modify any such obligations.
(e) No Assignee, Participant or other transferee of any Bank's rights
(including any Applicable Lending Office other than such Bank's initial
Applicable Lending Office) shall be entitled to receive any greater payment
under Section 8.03 or 8.04 than such Bank would have been entitled to receive
with respect to the rights transferred, unless such transfer is made by reason
of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate
a
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different Applicable Lending Office under certain circumstances or at a time
when the circumstances giving rise to such greater payment did not exist.
SECTION 9.07. COLLATERAL. Each of the Banks represents to the
Administrative Agent and each of the other Banks that it in good faith is not
relying upon any "MARGIN STOCK" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.
SECTION 9.08. CONFIDENTIALITY. The Administrative Agent and each Bank
agrees to keep any information delivered or made available by the Borrower
pursuant to this Agreement confidential from anyone other than persons employed
or retained by such Bank and its affiliates who are engaged in evaluating,
approving, structuring or administering the credit facility contemplated hereby;
PROVIDED that nothing herein shall prevent any Bank from disclosing such
information (a) to any other Bank or to the Administrative Agent, (b) to any
other Person if reasonably incidental to the administration of the credit
facility contemplated hereby, (c) upon the order of any court or administrative
agency, (d) upon the request or demand of any regulatory agency or authority,
(e) which had been publicly disclosed other than as a result of a disclosure by
the Administrative Agent or any Bank prohibited by this Agreement, (f) in
connection with any litigation to which the Administrative Agent, any Bank or
its subsidiaries or Parent may be a party, (g) to the extent necessary in
connection with the exercise of any remedy hereunder, (h) to such Bank's or
Administrative Agent's legal counsel and independent auditors and (i) subject to
provisions substantially similar to those contained in this Section 9.08, to any
actual or proposed Participant or Assignee.
SECTION 9.09. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
and each Note (if any) shall be construed in accordance with and governed by the
law of the State of New York. The Borrower hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State court sitting in New York City for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. The Borrower irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
SECTION 9.10. COUNTERPARTS; INTEGRATION. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties
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hereto and supersedes any and all prior agreements and understandings, oral or
written, relating to the subject matter hereof.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT, THE ISSUING BANKS, THE SWINGLINE BANK AND THE BANKS, TO
THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
DUKE CAPITAL CORPORATION
By /s/ Paul F. Ferguson, Jr.
-----------------------------------
Title: Treasurer
Address: 1105 North Market Street
Wilmington, DE 19899
Attention: Paul F. Ferguson, Jr.
Telecopy number: (704) 382-4964
Commitments
$ 67,450,000 THE CHASE MANHATTAN BANK
By /s/ Paul V. Farrell
-----------------------------------
Title: Vice President
$ 67,450,000 MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ Oliver W. Wesson, Jr.
-----------------------------------
Title: Vice President
$ 49,400,000 BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION
By /s/ Michael J. Dillon
-----------------------------------
Title: Managing Director
<PAGE>
$ 49,400,000 THE BANK OF NEW YORK
By /s/ Ian K. Stewart
-----------------------------------
Title: Senior Vice President
$ 49,400,000 BARCLAYS BANK PLC
NEW YORK BRANCH
By /s/ N. A. Bell
-----------------------------------
Title: Director
Portfolio Management
$ 49,400,000 CITIBANK, N.A.
By /s/ Philip C. Kron
-----------------------------------
Title: As Attorney-In-Fact
$49,400,000 THE FIRST NATIONAL BANK OF
CHICAGO
By /s/ Madeleine N. Pember
-----------------------------------
Title: Corporate Banking Officer
$ 49,400,000 FIRST UNION NATIONAL BANK
By /s/ Michael J. Kolosowsky
-----------------------------------
Title: Vice President
<PAGE>
$ 49,400,000 NATIONSBANK, N.A.
By /s/ Gretchen P. Burud
-----------------------------------
Title: Vice President
$ 49,400,000 WACHOVIA BANK, N.A.
By /s/ Christopher L. Fincher
-----------------------------------
Title: Vice President
$ 32,300,000 BANK OF MONTREAL
By /s/ Natasha Glossop
-----------------------------------
Title: Director
$ 32,300,000 THE BANK OF TOKYO-
MITSUBISHI, LTD.
By /s/ William L. Otott, Jr.
-----------------------------------
Title: Vice President
$ 32,300,000 BANKBOSTON, N.A.
By /s/ Rita M. Cahill
-----------------------------------
Title: Vice President
<PAGE>
$ 32,300,000 CIBC, INC.
By /s/ Aleksandra K. Dymanus
-----------------------------------
Title: Authorized Signatory
$ 32,300,000 DRESDNER BANK AG NEW YORK
AND/OR GRAND CAYMAN
BRANCHES
By /s/ Thomas Lake
-----------------------------------
Title: Vice President
By /s/ Michael E. Terry
-----------------------------------
Title: Assistant Vice President
$ 32,300,000 THE INDUSTRIAL BANK OF
JAPAN, LIMITED, ATLANTA
AGENCY
By /s/ Koichi Hasegawa
-----------------------------------
Title: Senior Vice President and
Deputy General Manager
$ 32,300,000 MELLON BANK, N.A.
By /s/ Brad S. Miller
-----------------------------------
Title: Assistant Vice President
<PAGE>
$ 32,300,000 THE NORTHERN TRUST
COMPANY
By /s/ John J. Conway
-----------------------------------
Title: Vice President
$ 32,300,000 ROYAL BANK OF BANK OF
CANADA
By /s/ Tom J. Oberaigner
-----------------------------------
Title: Manager
$ 32,300,000 THE SANWA BANK, LIMITED
By /s/ William M. Plough
-----------------------------------
Title: Vice President
By /s/ Andrew N. Hammond
-----------------------------------
Title: Vice President - Senior
Manager Credit
$ 32,300,000 SOCIETE GENERALE
By /s/ Gordon Eadon
-----------------------------------
Title: Vice President
<PAGE>
$ 32,300,000 TORONTO DOMINION (NEW
YORK), INC.
By /s/ Jorge A. Garcia
-----------------------------------
Title: Vice President
$ 32,300,000 UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By /s/ Paul R. Morrison
-----------------------------------
Title: Director
By /s/ Michele von Kroemer
-----------------------------------
Title: Assistant Treasurer
<PAGE>
- ---------------------------
Total Commitments
$950,000,000
- -----------------------
- -----------------------
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ Paul V. Farrell
Title: Vice President
Address: 270 Park Avenue
New York, NY 10017
Attention: Paul V. Farrell
Telecopy number: (212) 270-7625
<PAGE>
PRICING SCHEDULE
The "EURO-DOLLAR MARGIN" and the "FACILITY FEE RATE" for any day are
the respective percentages set forth below in the applicable row under the
column corresponding to the Status that exists on such day:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Facility .055% .060% .065% .070% .085% .100%
Fee
- ------------------------------------------------------------------------------------------------------------
Euro- .095% .115% .135% .155% .165% .200%
Dollar
Margin
- ------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"LEVEL I STATUS" exists at any date if, at such date, the Borrower is
rated "AA-" or higher by S&P OR "Aa3" or higher by Moody's.
"LEVEL II STATUS" exists at any date if, at such date, (i) the Borrower
is rated "A+" or higher by S&P OR "A1" or higher by Moody's and (ii) Level I
Status does not exist.
"LEVEL III STATUS" exists at any date if, at such date, (i) the
Borrower is rated "A" or higher by S&P OR "A2" or higher by Moody's and (ii)
neither Level I Status nor Level II Status exists.
"LEVEL IV STATUS" exists at any date if, at such date, (i) the Borrower
is rated "A-" by S&P OR "A3" by Moody's and (ii) neither Level I Status, Level
II Status nor Level III Status exists.
"LEVEL V STATUS" exists at any date if, at such date, (i) the Borrower
is rated "BBB+" by S&P OR "Baa1" by Moody's and (ii) neither Level I Status,
Level II Status, Level III Status nor Level IV Status exists.
"LEVEL VI STATUS" exists at any date if, at such date, no other Status
exists.
"STATUS" refers to the determination of which of Level I Status, Level
II Status, Level III Status, Level IV Status, Level V Status or Level VI Status
exists at any date.
<PAGE>
The credit ratings to be utilized for purposes of this Schedule are
those indicated for or assigned to the senior unsecured long-term debt
securities of the Borrower without third-party credit enhancement, and any
rating indicated for or assigned to any other debt security of the Borrower
shall be disregarded. The ratings in effect for any day are those in effect at
the close of business on such day. A change in credit rating will result in an
immediate change in the applicable Status. In the case of split ratings from S&P
and Moody's, the rating to be used to determine the applicable Status is the
higher of the two.
2
<PAGE>
SCHEDULE I
DUKE CAPITAL CORPORATION
CREDIT FACILITIES
(Being Replaced by $950,000,000 Revolving Credit Facility)
1. Revolving Credit Agreement dated as of December 1, 1995 among
Church Street Capital Corp., the lenders party thereto and The First National
Bank of Chicago, as administrative agent.
2. Credit Agreement dated as of January 31, 1996 among Panhandle
Eastern Corporation (d/b/a/ PanEnergy Corp), the lenders party thereto and The
Chase Manhattan Bank, as administrative agent.
3. Credit Agreement (Five-Year Facility) dated as of January 31,
1996 among Panhandle Eastern Corporation (d/b/a/ PanEnergy Corp), the lenders
party thereto and The Chase Manhattan Bank, as administrative agent.
<PAGE>
EXHIBIT A
NOTE
New York, New York
August 25, 1997
For value received, Duke Capital Corporation, a North Carolina
corporation (the "BORROWER"), promises to pay to the order of (the "BANK"), for
the account of its Applicable Lending Office, the unpaid principal amount of
each Loan made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below on the date specified in the Credit Agreement. The Borrower
promises to pay interest on the unpaid principal amount of each such Loan on the
dates and at the rate or rates provided for in the Credit Agreement. All such
payments of principal and interest shall be made in lawful money of the United
States in Federal or other immediately available funds at the office of The
Chase Manhattan Bank, 270 Park Avenue, New York, New York.
All Loans made by the Bank, the respective types and maturities thereof
and all repayments of the principal thereof shall be recorded by the Bank and,
the Bank, if the Bank so elects in connection with any transfer or enforcement
of its Note, may endorse on the schedule attached hereto appropriate notations
to evidence the foregoing information with respect to the Loans then
outstanding; PROVIDED that the failure of the Bank to make any such recordation
or endorsement shall not affect the obligations of the Borrower hereunder or
under the Credit Agreement.
This note is one of the Notes referred to in the Five-Year Credit
Agreement dated as of August 25, 1997 among the Borrower, the banks listed on
the signature pages thereof and The Chase Manhattan Bank, as Administrative
Agent (as the same may be amended from time to time, the "CREDIT AGREEMENT").
Terms defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the prepayment
hereof and the acceleration of the maturity hereof.
DUKE CAPITAL CORPORATION
By ____________________________________
Title:
<PAGE>
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Amount of
Amount Type Principal Maturity Notation
Date of Loan of Loan Repaid Date Made By
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
EXHIBIT B
FORM OF BID RATE QUOTE REQUEST
[Date]
To: The Chase Manhattan Bank
(the "ADMINISTRATIVE AGENT")
From: Duke Capital Corporation
Re: Five-Year Credit Agreement (the "CREDIT AGREEMENT") dated as
of August 25, 1997 among the Borrower, the Banks listed on the
signature pages thereof and the Administrative Agent
We hereby give notice pursuant to Section 2.03 of the Credit Agreement
that we request Bid Rate Quotes for the following proposed Bid Rate
Borrowing(s):
Date of Borrowing: __________________
Principal Amount* Interest Period**
$
Such Bid Rate Quotes should offer a Bid Rate [(General), (Indexed) or
both]. [The applicable base rate is the London Interbank Offered Rate.]
Terms used herein have the meanings assigned to them in the Credit
Agreement.
DUKE CAPITAL CORPORATION
By ____________________________________
Title:
- --------
*Amount must be $10,000,000 or a larger multiple of $1,000,000.
**Not less than one month (Bid Rate (Indexed) Auction) or not less than
7 days (Bid Rate (General) Auction), subject to the provisions of the definition
of Interest Period.
<PAGE>
EXHIBIT C
FORM OF INVITATION FOR BID RATE QUOTES
To: [Name of Bank]
Re: Invitation for Bid Rate Quotes to Duke Capital Corporation (the
"BORROWER")
Pursuant to Section 2.03 of the Five-Year Credit Agreement dated as of
August 25, 1997 among the Borrower, the Banks parties thereto and the
undersigned, as Administrative Agent, we are pleased on behalf of the Borrower
to invite you to submit Bid Rate Quotes to the Borrower for the following
proposed Bid Rate Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
- ---------------- ---------------
$
Such Bid Rate Quotes should offer a Bid Rate [(Indexed), (General) or
both]. [The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30
A.M.] (New York City time) on [date].
THE CHASE MANHATTAN BANK
By ___________________________________
Authorized Officer
<PAGE>
EXHIBIT D
FORM OF BID RATE QUOTE
To: The Chase Manhattan Bank,
as Administrative Agent
270 Park Avenue
New York, New York 10017
Attention:
Re: Bid Rate Quote to Duke Capital Corporation (the "BORROWER")
In response to your invitation on behalf of the Borrower dated
_____________, 19__, we hereby make the following Bid Rate Quote on the
following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
_____________________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Bid Rate Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Principal Interest Bid Rate
Amount** Period*** [(Indexed)****] [(General)*****]
- -------- --------- --------------- ----------------
$
$
provided, that the aggregate principal amount of Bid Rate Loans for which the
above offers may be accepted shall not exceed $___________.]**
- --------
*As specified in the related Invitation.
**Principal amount bid for each Interest Period may not exceed
principal amount requested. Specify aggregate limitation if the sum of the
individual offers exceeds the amount the Bank is willing to lend. Bids must be
made for $5,000,000 or a larger of multiple of $1,000,000.
***Not less than one month or less than 30 days, as specified in the
related Invitation, but no bid may be submitted for an Interest Period extending
beyond bidder's Termination Date. No more than five bids are permitted for each
Interest Period.
****Margin over or under the London Interbank Offered Rate determined
for the applicable Interest Period. Specify percentage (rounded to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
*****Specify rate of interest per annum (rounded to the nearest
1/10,000th of 1%).
<PAGE>
provided, that the aggregate principal amount of Bid Rate Loans for which the
above offers may be accepted shall not exceed $____________.]**
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Five-Year Credit
Agreement dated as of August 25, 1997 among the Borrower, the Banks listed on
the signature pages thereof and yourselves, as Administrative Agent, irrevocably
obligates us to make the Bid Rate Loan(s) for which any offer(s) are accepted,
in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: __________________________ By: __________________________________
Authorized Officer
2
<PAGE>
EXHIBIT E
OPINION OF COUNSEL FOR THE BORROWER
[Effective Date]
To the Banks and the Administrative Agent
Referred to Below
c/o The Chase Manhattan Bank
as Administrative Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
We have acted as counsel for Duke Capital Corporation (the "BORROWER")
in connection with the Five-Year Credit Agreement (the "CREDIT AGREEMENT") dated
as of August 25, 1997 among the Borrower, the banks listed on the signature
pages thereof and The Chase Manhattan Bank, as Administrative Agent. Terms
defined in the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware, and has all corporate powers
and all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and any Notes are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the articles of incorporation or by-laws of the Borrower or,
to our knowledge, of any agreement, judgment, injunction, order, decree or other
<PAGE>
instrument binding upon the Borrower or, to our knowledge (but without
independent investigation), result in the creation or imposition of any Lien on
any asset of the Borrower or any of its Material Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and the Notes, if and when issued, will constitute valid and
binding obligations of the Borrower enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by general principles of equity.
4. Except as disclosed in the reports referred to in Section 4.04 of
the Credit Agreement or in the PanEnergy Corp quarterly report on Form 10-Q for
the quarter ended June 30, 1997, to our knowledge (but without independent
investigation), there is no action, suit or proceeding pending or threatened
against or affecting, the Borrower or any of its Subsidiaries before any court
or arbitrator or any governmental body, agency or official, which would be
likely to be decided adversely to Borrower or such Subsidiary and, as a result,
to have a material adverse effect upon the business, consolidated financial
position or consolidated results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole or which in any manner draws
into question the validity of the Credit Agreement or any Notes.
5. Borrower is not a holding company under the Public Utility
Holding Company Act of 1935.
The phrase "TO THE BEST OF OUR KNOWLEDGE", as used in the foregoing
opinion, refers to the actual knowledge of this firm without any independent
investigation as to any such matters.
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the law of the State of
New York, the General Corporation Law of the State of Delaware and the federal
law of the United States of America.
This opinion is rendered to you in connection with the above matter and
may not be relied upon by you for any other purpose, or relied upon by, or
furnished to, any other person, firm or corporation without prior written
consent, except for Additional Banks and Participants.
Very truly yours,
2
<PAGE>
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE ADMINISTRATIVE AGENT
---------------------------------------------------------------------
[Effective Date]
To the Banks and the Administrative Agent
Referred to Below
c/o The Chase Manhattan Bank,
as Administrative Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
We have participated in the preparation of the Five-Year Credit
Agreement (the "CREDIT AGREEMENT") dated as of August 25, 1997 among Duke
Capital Corporation, a Delaware corporation (the "BORROWER"), the banks listed
on the signature pages thereof (the "BANKS") and The Chase Manhattan Bank, as
Administrative Agent (the "ADMINISTRATIVE AGENT"), and have acted as special
counsel for the Administrative Agent for the purpose of rendering this opinion
pursuant to Section 3.01(c) of the Credit Agreement. Terms defined in the Credit
Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate powers and
have been duly authorized by all necessary corporate action.
2. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and the Notes, if and when issued, constitute valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms,
<PAGE>
except as the same may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by general principles of equity.
In giving the foregoing opinion, we express no opinion as to the effect
(if any) of any law of any jurisdiction (except the State of New York) in which
any Bank is located which limits the rate of interest that such Bank may charge
or collect.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by or furnished to any other person, firm or corporation without our
prior written consent, except for Additional Banks and all Participants.
Very truly yours,
2
<PAGE>
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the
"ASSIGNOR"), [ASSIGNEE] (the "ASSIGNEE"), DUKE CAPITAL CORPORATION (the
"COMPANY"), THE CHASE MANHATTAN BANK [AND OTHER ISSUING BANK(S)], as Issuing
Bank(s), THE CHASE MANHATTAN BANK, as Swingline Bank, and THE CHASE MANHATTAN
BANK, as Administrative Agent (the "ADMINISTRATIVE AGENT").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT")
relates to the Five-Year Credit Agreement dated as of August 25, 1997 among the
Company, the Assignor and the other Banks party thereto, as Banks, and the
Administrative Agent (the "CREDIT AGREEMENT");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans to the Borrower and participate in Letters of Credit in
an aggregate principal amount at any time outstanding not to exceed
$----------;
WHEREAS, Syndicated Loans made to the Borrower by the Assignor under
the Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, Letters of Credit with a total amount available for drawing
thereunder of $___________ are outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "ASSIGNED AMOUNT"),
together with a corresponding portion of its outstanding Committed Loans and
Letter of Credit Liabilities, and the Assignee proposes to accept assignment of
such rights and assume the corresponding obligations from the Assignor on such
terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
<PAGE>
SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. ASSIGNMENT. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
Syndicated Loans made by, and Letter of Credit Liabilities of, the Assignor
outstanding at the date hereof. Upon the execution and delivery hereof by the
Assignor, the Assignee, the Borrower, the Issuing Banks, the Swingline Bank and
the Administrative Agent, the payment of the amounts specified in Section 3
required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Bank under the Credit Agreement with a Commitment in an amount equal to the
Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have been
assumed by the Assignee. The assignment provided for herein shall be without
recourse to the Assignor.
SECTION 3. PAYMENTS. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them.* It is
understood that facility and Letter of Credit fees accrued to the date hereof in
respect of the Assigned Amount are for the account of the Assignor and such fees
accruing from and including the date hereof are for the account of the Assignee.
Each of the Assignor and the Assignee hereby agrees that if it receives any
amount under the Credit Agreement which is for the account of the other party
hereto, it shall receive the same for the account of such other party to the
extent of such other party's interest therein and shall promptly pay the same to
such other party.
SECTION 4. CONSENT TO ASSIGNMENT. This Agreement is conditioned upon
the consent of the Borrower, the Issuing Banks, the Swingline Bank and the
Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement. The
execution of this Agreement by the Borrower, the Issuing Banks , the Swingline
Bank and the Administrative Agent is evidence of this consent. Pursuant to
- --------
*Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.
2
<PAGE>
Section 9.06(c) the Borrower agrees to execute and deliver a Note, if required
by the Assignee, payable to the order of the Assignee to evidence the assignment
and assumption provided for herein.
SECTION 5. NON-RELIANCE ON ASSIGNOR. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of any
Borrower, or the validity and enforceability of the obligations of any Borrower
in respect of the Credit Agreement or any Note. The Assignee acknowledges that
it has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrowers.
SECTION 6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 8. ADMINISTRATIVE QUESTIONNAIRE. Attached is an Administrative
Questionnaire duly completed by the Assignee.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By ______________________________________________
Title:
[ASSIGNEE]
By _______________________________________________
Title:
DUKE CAPITAL CORPORATION
By _______________________________________________
Title:
THE CHASE MANHATTAN BANK, as Issuing
Bank, Swingline Bank and Administrative Agent
By _______________________________________________
Title:
[ISSUING BANK]
By _______________________________________________
Title:
4
<PAGE>
EXHIBIT H
EXTENSION AGREEMENT
The Chase Manhattan Bank, as Administrative
Agent under the Credit Agreement
referred to below
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
Effective as of [date], the undersigned hereby agrees to extend its
Commitment and Termination Date under the Five-Year Credit Agreement dated as of
August 25, 1997 among Duke Capital Corporation, (the "BORROWER"), the banks
parties thereto and The Chase Manhattan Bank, as Administrative Agent (the
"CREDIT AGREEMENT") for one year to [date to which its Termination Date is to be
extended] pursuant to Section 2.01(c) of the Credit Agreement. Terms defined in
the Credit Agreement are used herein as therein defined.
This Extension Agreement shall be construed in accordance with and
governed by the law of the State of New York. This Extension Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
[NAME OF BANK]
By ________________________________________
Title:
<PAGE>
Agreed and Accepted:
DUKE CAPITAL CORPORATION,
as Borrower
By _____________________________
Title:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By _____________________________
Title:
2
<PAGE>
CONFORMED COPY
$300,000,000
364-DAY
CREDIT AGREEMENT
dated as of
August 25, 1997
among
Duke Capital Corporation,
The Banks Listed Herein
and
The Chase Manhattan Bank,
as Administrative Agent
--------------------------------------------------------
Chase Securities Inc.,
Arranger
<PAGE>
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
----
ARTICLE 1
DEFINITIONS
<S> <C> <C>
SECTION 1.01. DEFINITIONS......................................................................1
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS.............................................11
SECTION 1.03. TYPES AND CLASSES OF BORROWINGS.................................................11
ARTICLE 2
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND.............................................................12
SECTION 2.02. NOTICE OF COMMITTED BORROWINGS..................................................13
SECTION 2.03. BID RATE BORROWINGS.............................................................13
SECTION 2.04. NOTICE TO BANKS; FUNDING OF LOANS...............................................17
SECTION 2.05. REGISTRY; NOTES.................................................................18
SECTION 2.06. MATURITY OF LOANS...............................................................19
SECTION 2.07. INTEREST RATES..................................................................19
SECTION 2.08. FEES............................................................................21
SECTION 2.09. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS................................21
SECTION 2.10. METHOD OF ELECTING INTEREST RATES...............................................22
SECTION 2.11. MANDATORY TERMINATION OF COMMITMENTS............................................23
SECTION 2.12. OPTIONAL PREPAYMENTS............................................................23
SECTION 2.13. GENERAL PROVISIONS AS TO PAYMENTS...............................................24
SECTION 2.14. FUNDING LOSSES..................................................................24
SECTION 2.15. COMPUTATION OF INTEREST AND FEES................................................25
SECTION 2.16. REGULATION D COMPENSATION.......................................................25
SECTION 2.17. INCREASED COMMITMENTS; ADDITIONAL BANKS.........................................26
ARTICLE 3
CONDITIONS
SECTION 3.01. EFFECTIVENESS...................................................................27
SECTION 3.02. BORROWINGS......................................................................28
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. CORPORATE EXISTENCE AND POWER...................................................29
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SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION...............................................................29
SECTION 4.03. BINDING EFFECT..................................................................29
SECTION 4.04. FINANCIAL INFORMATION...........................................................30
SECTION 4.05. LITIGATION......................................................................31
SECTION 4.06. COMPLIANCE WITH LAWS............................................................31
SECTION 4.07. TAXES...........................................................................31
SECTION 4.08. PUBLIC UTILITY HOLDING COMPANY ACT..............................................32
ARTICLE 5
COVENANTS
SECTION 5.01. INFORMATION.....................................................................32
SECTION 5.02. PAYMENT OF TAXES................................................................34
SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE..............................................34
SECTION 5.04. MAINTENANCE OF EXISTENCE........................................................34
SECTION 5.05. COMPLIANCE WITH LAWS............................................................35
SECTION 5.06. BOOKS AND RECORDS...............................................................35
SECTION 5.07. MAINTENANCE OF OWNERSHIP OF PRINCIPAL SUBSIDIARIES..............................35
SECTION 5.08. NEGATIVE PLEDGE.................................................................35
SECTION 5.09. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS.....................................37
SECTION 5.10. USE OF PROCEEDS.................................................................37
SECTION 5.11. TRANSACTIONS WITH AFFILIATES....................................................37
SECTION 5.12. INDEBTEDNESS/CAPITALIZATION RATIO...............................................37
ARTICLE 6
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT...............................................................38
SECTION 6.02. NOTICE OF DEFAULT...............................................................40
ARTICLE 7
THE ADMINISTRATIVE AGENT
SECTION 7.01. APPOINTMENT AND AUTHORIZATION...................................................40
SECTION 7.02. ADMINISTRATIVE AGENT AND AFFILIATES.............................................40
SECTION 7.03. ACTION BY ADMINISTRATIVE AGENT..................................................40
SECTION 7.04. CONSULTATION WITH EXPERTS.......................................................40
SECTION 7.05. LIABILITY OF ADMINISTRATIVE AGENT...............................................40
SECTION 7.06. INDEMNIFICATION.................................................................41
SECTION 7.07. CREDIT DECISION.................................................................41
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SECTION 7.08. SUCCESSOR ADMINISTRATIVE AGENT..................................................41
SECTION 7.09. ADMINISTRATIVE AGENT'S FEE......................................................42
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR........................42
SECTION 8.02. ILLEGALITY......................................................................43
SECTION 8.03. INCREASED COST AND REDUCED RETURN...............................................44
SECTION 8.04. TAXES...........................................................................45
SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE LOANS.......................47
SECTION 8.06. SUBSTITUTION OF BANK TERMINATION OPTION.........................................48
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. NOTICES.........................................................................49
SECTION 9.02. NO WAIVERS......................................................................49
SECTION 9.03. EXPENSES; INDEMNIFICATION.......................................................49
SECTION 9.04. SHARING OF SET-OFFS.............................................................50
SECTION 9.05. AMENDMENTS AND WAIVERS..........................................................50
SECTION 9.06. SUCCESSORS AND ASSIGNS..........................................................51
SECTION 9.07. COLLATERAL......................................................................52
SECTION 9.08. CONFIDENTIALITY.................................................................52
SECTION 9.09. GOVERNING LAW; SUBMISSION TO JURISDICTION.......................................53
SECTION 9.10. COUNTERPARTS; INTEGRATION.......................................................53
SECTION 9.11. WAIVER OF JURY TRIAL............................................................53
PRICING SCHEDULE
SCHEDULE I - Duke Capital Corporation Credit Facilities (Being Replaced by
$300,000,000 Revolving Credit Facility)
EXHIBIT A - Note
EXHIBIT B - Form of Bid Rate Quote Request
EXHIBIT C - Form of Invitation for Bid Rate Quotes
EXHIBIT D - Form of Bid Rate Quote
EXHIBIT E - Opinion of Counsel for the Borrower
EXHIBIT F - Opinion of Davis Polk & Wardwell, Special Counsel for the
Administrative Agent
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EXHIBIT G - Assignment and Assumption Agreement
EXHIBIT H - Extension Agreement
</TABLE>
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364-DAY
CREDIT AGREEMENT
364-DAY CREDIT AGREEMENT dated as of August 25, 1997 among DUKE CAPITAL
CORPORATION, the BANKS listed on the signature pages hereof, and THE CHASE
MANHATTAN BANK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"ADDITIONAL BANK" means any financial institution that becomes a Bank
for purposes hereof in connection with (i) an increase in the aggregate amount
of the Commitments pursuant to Section 2.17 or (ii) the replacement of a Bank
pursuant to Section 8.06.
"ADMINISTRATIVE AGENT" means The Chase Manhattan Bank in its capacity
as administrative agent for the Banks hereunder, and its successors in such
capacity.
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, the
administrative questionnaire in the form submitted to such Bank by the
Administrative Agent and submitted to the Administrative Agent (with a copy to
the Borrower) duly completed by such Bank.
"AFFILIATE" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls the Borrower (a "CONTROLLING PERSON") or
(ii) any Person (other than the Borrower or a Subsidiary) which is controlled by
or is under common control with a Controlling Person. As used herein, the term
"CONTROL" means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
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Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Bid Rate Loans, its Bid Rate Lending Office.
"APPROVED OFFICER" means the president, a vice president or the
treasurer or assistant treasurer of the Borrower or such other representative of
the Borrower as may be designated by any one of the foregoing with the consent
of the Administrative Agent.
"ASSIGNEE" has the meaning set forth in Section 9.06(c).
"BANK" means each bank or other financial institution listed on the
signature pages hereof, each Additional Bank, each Assignee which becomes a Bank
pursuant to Section 9.06(c), and their respective successors.
"BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"BASE RATE LOAN" means (i) a Committed Loan which bears interest at the
Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or the provisions of Article 8 or (ii) an overdue amount
which was a Base Rate Loan immediately before it became overdue.
"BID RATE (GENERAL)" has the meaning set forth in Section 2.03(d).
"BID RATE (GENERAL) AUCTION" means a solicitation of Bid Rate Quotes
setting forth Bid Rates (General) pursuant to Section 2.03.
"BID RATE (GENERAL) LOAN" means a loan made or to be made by a Bank
pursuant to a Bid Rate (General) Auction.
"BID RATE (INDEXED) AUCTION" means a solicitation of Bid Rate Quotes
setting forth Bid Rate (Indexed) Margins based on the London Interbank Offered
Rate pursuant to Section 2.03.
"BID RATE LENDING OFFICE" means, as to each Bank, its Domestic Lending
Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Bid Rate Lending Office by notice to the Borrower and
the Administrative Agent; PROVIDED that any Bank may from time to time by notice
to the Borrower and the Administrative Agent designate separate Bid Rate Lending
Offices for its Bid Rate (Indexed) Loans, on the one hand, and its Bid Rate
(General) Loans, on the other hand, in which case all references herein to the
Bid
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Rate Lending Office of such Bank shall be deemed to refer to either or both of
such offices, as the context may require.
"BID RATE (INDEXED) LOAN" means a loan made or to be made by a Bank
pursuant to a Bid Rate (Indexed) Auction (including such a loan bearing interest
at the Base Rate pursuant to Section 8.01(a)).
"BID RATE LOAN" means a Bid Rate (Indexed) Loan or a Bid Rate
(General) Loan.
"BID RATE (INDEXED) MARGIN" has the meaning set forth in Section
2.03(d).
"BID RATE QUOTE" means an offer by a Bank to make a Bid Rate Loan in
accordance with Section 2.03.
"BORROWER" means Duke Capital Corporation, a Delaware corporation,
and its successors.
"BORROWING" has the meaning set forth in Section 1.03.
"CHURCH STREET CAPITAL CORP." is a former name of the Borrower.
"CLASS" refers to the determination whether a Loan is a Committed Loan
(and, if a Committed Loan, whether a Revolving Credit Loan or a Term Loan) or a
Bid Rate Loan.
"COMMITMENT" means (i) with respect to each Bank listed on the
signature pages hereof, the amount set forth opposite the name of such Bank on
the signature pages hereof, and (ii) with respect to each Additional Bank or
Assignee which becomes a bank pursuant to Sections 2.17(a), 2.01(c) and 9.06(c),
the amount of the Commitment thereby assumed by it, in each case as such amount
may from time to time be reduced pursuant to Section 2.09, 2.11 or 9.06(c) or
increased pursuant to Section 2.17(a), 8.06 or 9.06(c).
"COMMITMENT TERMINATION DATE" means, for each Bank, August 24, 1998, as
such date may be extended from time to time with respect to such Bank pursuant
to Section 2.01(c) or, if any such day is not a Euro-Dollar Business Day, the
next preceding Euro-Dollar Business Day.
"COMMITTED LOAN" means a Revolving Credit Loan or a Term Loan made by a
Bank pursuant to Section 2.01.
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"CONSOLIDATED CAPITALIZATION" means the sum of (i) Consolidated
Indebtedness, (ii) consolidated common stockholders' equity as would appear on a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries
prepared in accordance with generally accepted accounting principles, and (iii)
the aggregate liquidation preference of preferred stocks (other than preferred
stocks subject to mandatory redemption or repurchase) of the Borrower and its
Consolidated Subsidiaries upon involuntary liquidation.
"CONSOLIDATED INDEBTEDNESS" means, at any date, all Indebtedness of
Borrower and its Consolidated Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles.
"CONSOLIDATED SUBSIDIARY" means, for any Person, at any date any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date; unless otherwise specified "Consolidated
Subsidiary" means a Consolidated Subsidiary of the Borrower.
"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent.
"EFFECTIVE DATE" means the date this Agreement becomes effective in
accordance with Section 3.01.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing,
4
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distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA GROUP" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Internal Revenue Code.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Administrative Agent.
"EURO-DOLLAR LOAN" means (i) a Committed Loan which bears interest at a
Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election or (ii) an overdue amount which was a
Euro-Dollar Loan immediately before it became overdue.
"EURO-DOLLAR MARGIN" means a rate per annum determined in accordance
with the Pricing Schedule.
"EURO-DOLLAR REFERENCE BANKS" means the principal London offices of The
Chase Manhattan Bank and Morgan Guaranty Trust Company of New York.
"EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section
2.16.
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"EXISTING CREDIT AGREEMENTS" means the credit facilities identified in
Schedule I hereto, as amended and in effect on the Effective Date.
5
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"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, PROVIDED that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to The Chase Manhattan Bank (or its
successor as Administrative Agent) on such day on such transactions as
determined by the Administrative Agent.
"FINAL MATURITY DATE" means, for each Bank, the first anniversary of
its Commitment Termination Date or, if such day is not a Euro-Dollar Business
Day, the next preceding Euro-Dollar Business Day; PROVIDED that the Final
Maturity Date for all Banks shall be no later than August 25, 2004.
"FIXED RATE LOANS" means Euro-Dollar Loans or Bid Rate Loans
(excluding Bid Rate (Indexed) Loans bearing interest at the Base Rate) or any
combination of the foregoing.
"GROUP OF LOANS" means at any time a group of Committed Loans of the
same Class consisting of (i) all Base Rate Loans of such Class outstanding at
such time or (ii) all Euro-Dollar Loans of such Class having the same Interest
Period at such time, PROVIDED that, if a Committed Loan of any particular Bank
is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan
shall be included in the same Group or Groups of Loans from time to time as it
would have been if it had not been so converted or made.
"INDEBTEDNESS" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services purchased,
(iii) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired, (iv) all
indebtedness under leases which shall have been or should be, in accordance with
generally accepted accounting principles, recorded as capital leases in respect
of which such Person is liable as lessee, (v) the face amount of letter of
credit indebtedness available or to be available to be drawn (other than letter
of credit obligations relating to indebtedness included in Indebtedness pursuant
to another clause of this definition) and, without duplication, the unreimbursed
amount of all drafts drawn thereunder, (vi) indebtedness secured by any Lien on
property or assets of such
6
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Person, whether or not assumed (but in any event not exceeding the fair market
value of the property or asset), (vii) all direct guarantees of Indebtedness
referred to above of another Person, (viii) all amounts payable in connection
with mandatory redemptions or repurchases of preferred stock and (ix) any
obligations of such Person (in the nature of principal or interest) in respect
of acceptances or similar obligations issued or created for the account of such
Person.
"INTEREST PERIOD" means: (1) with respect to each Euro-Dollar Loan, the
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in an applicable Notice of Interest Rate
Election and ending one, two, three or six, or, if deposits of a corresponding
maturity are generally available in the London interbank market, nine or twelve,
months thereafter, as the Borrower may elect in such notice; PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on
the next preceding Euro-Dollar Business Day; and
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Euro-Dollar Business Day of a calendar
month;
(2) with respect to each Bid Rate (Index) Loan, the period commencing
on the date of borrowing specified in the applicable Notice of Borrowing and
ending such number of months thereafter (but not less than one month) as the
Borrower may elect in accordance with Section 2.03; PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on
the next preceding Euro-Dollar Business Day; and
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Euro-Dollar Business Day of a calendar
month; and
7
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(3) with respect to each Bid Rate (General) Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending such number of days thereafter (but not less than 7 days)
as the Borrower may elect in accordance with Section 2.03; PROVIDED that any
Interest Period which would otherwise end on a day which is not a Euro-Dollar
Business Day shall be extended to the next succeeding Euro-Dollar Business Day;
and
PROVIDED FURTHER that: (x) any Interest Period applicable to any Loan of any
Bank which begins before such Bank's Commitment Termination Date and would
otherwise end after such Bank's Commitment Termination Date shall end on such
Bank's Commitment Termination Date; and (y) any Interest Period applicable to
any Loan of any Bank which would otherwise end after such Bank's Final Maturity
Date shall end on such Bank's Final Maturity Date.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"INVESTMENT GRADE STATUS" exists as to any Person at any date if all
senior debt securities of such Person outstanding at such date which had been
rated by S&P or Moody's are rated BBB- or higher by S&P OR Baa3 or higher by
Moody's, as the case may be.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"LOAN" means a Base Rate Loan or a Euro-Dollar Loan or a Bid Rate
Loan and "LOANS" means Base Rate Loans or Euro-Dollar Loans or Bid Rate
Loans or any combination of the foregoing.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section
2.07(b).
"MATERIAL DEBT" means Indebtedness of the Borrower or any of its
Subsidiaries in an aggregate principal amount exceeding $100,000,000.
"MATERIAL PLAN" has the meaning set forth in Section 6.01(i).
8
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"MATERIAL SUBSIDIARY" means at any time any Subsidiary of the Borrower
having, together with its Subsidiaries, consolidated assets in excess of 10% of
the total assets of the Borrower and its Consolidated Subsidiaries, determined
on a consolidated basis as of such time.
"MOODY'S" means Moody's Investor Service, Inc.
"NOTES" means promissory notes of the Borrower, in the form required by
Section 2.05, evidencing the obligation of the Borrower to repay the Loans, and
"NOTE" means any one of such promissory notes issued hereunder.
"NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined
in Section 2.02) or a Notice of Bid Rate Borrowing (as defined in Section
2.03(f)).
"NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section
2.10(b).
"PARENT" means, with respect to any Bank, any Person controlling such
Bank.
"PARTICIPANT" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLAN" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Internal Revenue Code and is either (i) maintained by a
member of the ERISA Group for employees of a member of the ERISA Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions.
"PRIME RATE" means the rate of interest publicly announced by The Chase
Manhattan Bank in New York City from time to time as its Prime Rate. Each
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change in the Prime Rate shall be effective from and including the day such
change is publicly announced.
"PRINCIPAL SUBSIDIARY" means each of Texas Eastern Transmission
Corporation, Algonquin Gas Transmission Company, PanEnergy Corp, Panhandle
Eastern Pipe Line Company and Trunkline Gas Company, and their respective
successors.
"QUARTERLY PAYMENT DATE" means the first Domestic Business Day of each
January, April, July and October.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REQUIRED BANKS" means at any time Banks (i) having at least 51% of the
sum of the aggregate amount of the Commitments and the aggregate outstanding
principal amount of the Term Loans or (ii) if the Commitments shall have been
terminated, having at least 51% of the aggregate unpaid principal amount of the
Loans.
"REVOLVING CREDIT LOAN" means a loan made or to be made by a Bank
pursuant to Section 2.01(a); PROVIDED that, if any such loan or loans (or
portions thereof) are combined or subdivided pursuant to a Notice of Interest
Rate Election, the term "Revolving Credit Loan" shall refer to the combined
principal amount resulting from such combination or to each of the separate
principal amounts resulting from such subdivision, as the case may be.
"REVOLVING CREDIT PERIOD" means, with respect to any Bank, the period
from and including the Effective Date to but not including its Commitment
Termination Date.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc.
"SUBSIDIARY" means, as to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"SUBSTANTIAL ASSETS" means assets sold or otherwise disposed of in a
single transaction or a series of related transactions representing 25% or more
of
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the consolidated assets of the Borrower and its Consolidated Subsidiaries, taken
as a whole.
"TERM LOAN" means a loan made or to be made by a Bank pursuant to
Section 2.01(b); PROVIDED that, if any such loan or loans (or portions thereof)
are combined or subdivided pursuant to a Notice of Interest Rate Election, the
term "Term Loan" shall refer to the combined principal amount resulting from
such combination or to each of the separate principal amounts resulting from
such subdivision, as the case may be.
"UNITED STATES" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"UNFUNDED VESTED LIABILITIES" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all benefits under
such Plan exceeds (ii) the fair market value of all Plan assets allocable to
such benefits, all determined as of the then most recent valuation date for such
Plan, but only to the extent that such excess represents a potential liability
of a member of the ERISA Group to the PBGC or the Plan under Title IV of ERISA.
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks.
SECTION 1.03. TYPES AND CLASSES OF BORROWINGS. The term "BORROWING"
denotes the aggregation of Loans of one or more Banks to be made to the Borrower
pursuant to Article 2 on a single date and for a single Interest Period.
Borrowings are classified for purposes of this Agreement either by reference to
the pricing of Loans comprising such Borrowing (E.G., a "FIXED RATE BORROWING"
is a Euro-Dollar Borrowing or a Bid Rate Borrowing (excluding any such Borrowing
consisting of Bid Rate (Indexed) Loans bearing interest at the Base Rate), and a
"EURO-DOLLAR BORROWING" is a Borrowing comprised of Euro-Dollar Loans) or by
reference to the provisions of Article 2 under which participation therein is
determined (I.E., a "COMMITTED BORROWING" is a Borrowing under Section 2.01 in
which all Banks participate in proportion to their Commitments, while a "BID
RATE BORROWING" is a Borrowing under Section 2.03 in which the Bank participants
are determined on the basis of their bids in
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accordance therewith) or by reference to the Class of Loans comprising such
Borrowing (e.g. a "Term Borrowing" is a Borrowing comprised of Term Loans).
ARTICLE 2
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND. (a) REVOLVING CREDIT LOANS. During
its Revolving Credit Period, each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make loans to the Borrower pursuant
to this subsection from time to time in amounts such that the aggregate
principal amount of Revolving Credit Loans by such Bank at any one time
outstanding shall not exceed the amount of its Commitment. Each Borrowing under
this subsection shall be in an aggregate principal amount of $10,000,000 or any
larger multiple of $1,000,000 (except that any such Borrowing may be in the
aggregate amount available in accordance with Section 3.02(b)) and shall be made
from the several Banks ratably in proportion to their respective Commitments in
effect on the date of Borrowing; PROVIDED that, if the Interest Period selected
by the Borrower for a Borrowing would otherwise end after the Commitment
Termination Dates of some but not all Banks, the Borrower may in its Notice of
Committed Borrowing elect not to borrow from those Banks whose Commitment
Termination Dates fall prior to the end of such Interest Period. Within the
foregoing limits, the Borrower may borrow under this subsection (a), or to the
extent permitted by Section 2.12, prepay Loans and reborrow at any time during
the Revolving Credit Periods under this subsection (a).
(b) TERM LOANS. Each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make a loan to the Borrower on its
Commitment Termination Date in an amount up to but not exceeding the amount of
its Commitment. Each Borrowing under this subsection (b) shall be made from the
several Banks having the same Commitment Termination Date ratably in proportion
to their respective Commitments.
(c) EXTENSION OF COMMITMENTS. On no more than six separate occasions,
the Borrower may, upon not less than 45 days but no earlier than 60 days notice
prior to the then current Commitment Termination Dates to the Administrative
Agent (which shall notify each Bank of receipt of such request), propose to
extend the Revolving Credit Periods for an additional 364 days measured from the
Commitment Termination Dates then in effect. Each Bank shall endeavor to respond
to such request, whether affirmatively or negatively (such determination in the
sole discretion of such Bank), by notice to the Borrower and the
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Administrative Agent not less than 30 days prior to such Bank's Commitment
Termination Date. Subject to the execution by the Borrower, the Administrative
Agent and such Banks of a duly completed Extension Agreement in substantially
the form of Exhibit H, the Commitment Termination Date applicable to the
Commitment of each Bank so affirmatively notifying the Borrower and the
Administrative Agent shall be extended for the period specified above; PROVIDED
that no Commitment Termination Date of any Bank shall be extended unless Banks
having at least 66 2/3% in aggregate amount of the Commitments in effect at the
time any such extension is requested shall have elected so to extend their
Commitments. Any Bank which does not give such notice to the Borrower and the
Administrative Agent shall be deemed to have elected not to extend as requested,
and the Commitment of each non-extending Bank shall terminate on its Commitment
Termination Date determined without giving effect to such requested extension.
The Borrower may, in accordance with Section 8.06, designate another bank or
other financial institution (which may be, but need not be, an extending Bank)
to replace a non-extending Bank.
SECTION 2.02. NOTICE OF COMMITTED BORROWINGS. The Borrower shall give
the Administrative Agent notice (a "NOTICE OF COMMITTED BORROWING") not later
than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing
and (y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing,
specifying:
(a) the date of such Borrowing, which shall be a Domestic Business Day
in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of
a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to bear interest
initially at the Base Rate or a Euro-Dollar Rate,
(d) the Class of Loans comprising such Borrowing, and
(e) in the case of a Euro-Dollar Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
SECTION 2.03. BID RATE BORROWINGS. (a) THE BID RATE OPTION. In addition
to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth
in this Section, request the Banks at any time prior to their respective
Commitment Termination Dates to make offers to make Bid Rate Loans to the
Borrower. The Banks may, but shall have no obligation to, make such offers and
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the Borrower may, but shall have no obligation to, accept any such offers in the
manner set forth in this Section.
(b) BID RATE QUOTE REQUEST. When the Borrower wishes to request offers
to make Bid Rate Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile transmission a Bid Rate Quote Request
substantially in the form of Exhibit B hereto so as to be received no later than
10:00 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day prior
to the date of Borrowing proposed therein, in the case of a Bid Rate (Indexed)
Auction or (y) the Domestic Business Day next preceding the date of Borrowing
proposed therein, in the case of a Bid Rate (General) Auction (or, in either
case, such other time or date as the Borrower and the Administrative Agent shall
have mutually agreed and shall have notified to the Banks not later than the
date of the Bid Rate Quote Request for the first Bid Rate (Indexed) Auction or
Bid Rate (General) Auction for which such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day,
(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
(iv) whether the Bid Rate Quotes requested are to set forth a Bid
Rate (Indexed) or a Bid Rate (General) Rate.
The Borrower may request offers to make Bid Rate Loans for more than one
Interest Period in a single Bid Rate Quote Request.
(c) INVITATION FOR BID RATE QUOTES. Promptly upon receipt of a Bid
Rate Quote Request, the Administrative Agent shall send to the Banks by telex or
facsimile transmission an Invitation for Bid Rate Quotes substantially in the
form of Exhibit C hereto, which shall constitute an invitation by the Borrower
to each Bank to submit Bid Rate Quotes offering to make the Bid Rate Loans to
which such Bid Rate Quote Request relates in accordance with this Section.
(d) SUBMISSION AND CONTENTS OF BID RATE QUOTES. (i) Each Bank may
submit a Bid Rate Quote containing an offer or offers to make Bid Rate Loans in
response to any Invitation for Bid Rate Quotes. Each Bid Rate Quote must comply
with the requirements of this subsection (d) and must be submitted to the
Administrative Agent by telex or facsimile transmission at its offices specified
in
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or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on
the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in
the case of a Bid Rate (Indexed) Auction or (y) 9:30 A.M. (New York City time)
on the proposed date of Borrowing, in the case of an Bid Rate (General) Auction
(or, in either case, such other time or date as the Borrower and the
Administrative Agent shall have mutually agreed and shall have notified to the
Banks not later than the date of the Bid Rate Quote Request for the first Bid
Rate (Indexed) Auction or Bid Rate (General) Auction for which such change is to
be effective); PROVIDED that Bid Rate Quotes submitted by the Administrative
Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank
may be submitted, and may only be submitted, if the Administrative Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) 1:00 P.M. (New York City time) on the fourth
Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of
a Bid Rate (Indexed) Auction or (y) 9:15 A.M. (New York City time) on the
proposed date of Borrowing, in the case of an Bid Rate (General) Auctions.
Subject to Articles 3 and 6, any Bid Rate Quote so made shall be irrevocable
except with the written consent of the Administrative Agent given on the
instructions of the Borrower.
(ii) Each Bid Rate Quote shall be in substantially the form of Exhibit
D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Bid Rate Loan for which
each such offer is being made, which principal amount (w) may
be greater than or less than the Commitment of the quoting
Bank, (x) must be $5,000,000 or a larger multiple of
$1,000,000 and (y) may not exceed the principal amount of Bid
Rate Loans for each Interest Period for which offers were
requested and (z) may be subject to an aggregate limitation as
to the principal amount of Bid Rate Loans for which offers
being made by such quoting Bank may be accepted,
(C) in the case of a Bid Rate (Indexed) Auction, the
margin above or below the applicable London Interbank Offered
Rate (the "BID RATE (INDEXED) MARGIN") offered for each such
Bid Rate Loan, expressed as a percentage (specified to the
nearest 1/10,000th of 1%) to be added to or subtracted from
such base rate,
(D) in the case of a Bid Rate (General)Auction, the rate
of interest per annum (specified to the nearest 1/10,000th of
1%) (the "BID RATE (GENERAL)") offered for each such Bid Rate
Loan, and
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(E) the identity of the quoting Bank.
A Bid Rate Quote may set forth up to five separate offers by the quoting Bank
with respect to each Interest Period specified in the related Invitation for Bid
Rate Quotes.
(iii) Any Bid Rate Quote shall be disregarded if:
(A) it is not substantially in conformity with Exhibit D
hereto or does not specify all of the information required by
subsection 2.03(d)(ii);
(B) it contains qualifying, conditional or similar
language beyond that contemplated by Exhibit D;
(C) it proposes terms other than or in addition to those
set forth in the applicable Invitation for Bid Rate Quotes;
(D) it arrives after the time set forth in subsection
2.03(d)(i); or
(E) the Commitment Termination Date of the Bank
submitting such Bid Rate Quote falls prior to the last day of
the requested Interest Period for which such Bank offers to
make a Bid Rate Loan.
(e) NOTICE TO BORROWER. The Administrative Agent shall promptly but in
no event later than 10:00 A.M. (New York City time) notify the Borrower of the
terms (x) of any Bid Rate Quote submitted by a Bank that is in accordance with
subsection (d) and (y) of any Bid Rate Quote that amends, modifies or is
otherwise inconsistent with a previous Bid Rate Quote submitted by such Bank
with respect to the same Bid Rate Quote Request. Any such subsequent Quote shall
be disregarded by the Administrative Agent unless such subsequent Quote is
submitted solely to correct a manifest error in such former Quote. The
Administrative Agent's notice to the Borrower shall specify (A) the aggregate
principal amount of Loans for which offers have been received for each Interest
Period specified in the related Bid Rate Quote Request, (B) the respective
principal amounts and Bid Rate (Indexed) Margins or Bid Rate (General) Rates, as
the case may be, so offered and (C) if applicable, limitations on the aggregate
principal amount of Bid Rate Loans for which offers in any single Bid Rate Quote
may be accepted.
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(f) ACCEPTANCE AND NOTICE BY BORROWER. Not later than 10:30 A.M. (New
York City time) on (x) the third Euro-Dollar Business Day prior to the proposed
date of Borrowing, in the case of a Bid Rate (Indexed) Auction or (y) the
proposed date of Borrowing, in the case of an Bid Rate (General) Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Bid Rate Quote Request for the first Bid Rate (Indexed)
Auction or Bid Rate (General) Auction for which such change is to be effective),
the Borrower shall notify the Administrative Agent of its acceptance or
non-acceptance of the offers so notified to it pursuant to subsection (e). In
the case of acceptance, such notice (a "NOTICE OF BID RATE BORROWING") shall
specify the aggregate principal amount of offers for each Interest Period that
are accepted. The Borrower may accept any Bid Rate Quote in whole or in part;
PROVIDED that:
(i) the aggregate principal amount of each Bid Rate Borrowing may
not exceed the applicable amount set forth in the related Bid Rate
Quote Request,
(ii) the principal amount of each Bid Rate Borrowing must be
$10,000,000 or a larger multiple of $1,000,000, and
(iii) acceptance of offers may only be made on the basis of
ascending Bid Rate (Indexed) Margins or Bid Rate (General) Rates, as
the case may be.
(g) ALLOCATION BY ADMINISTRATIVE AGENT. If offers are made by two more
Banks with the same Bid Rate (Indexed) Margins or Bid Rate (General), as the
case may be, for a greater aggregate principal amount than the amount in respect
of which such offers are accepted for the related Interest Period, the principal
amount of Bid Rate Loans in respect of which such offers are accepted shall be
allocated by the Administrative Agent among such Banks as nearly as possible (in
multiples of $1,000,000, as the Administrative Agent may deem appropriate) in
proportion to the aggregate principal amounts of such offers. Determinations by
the Administrative Agent of the amounts of Bid Rate Loans shall be conclusive in
the absence of manifest error.
SECTION 2.04. NOTICE TO BANKS; FUNDING OF LOANS. (a) Upon receipt of a
Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of
the contents thereof and of such Bank's share (if any) of such Borrowing and
such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing, each Bank participating therein shall (except as provided in
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subsection (c) of this Section) make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the
Administrative Agent at its address specified in or pursuant to Section 9.01.
Unless the Administrative Agent determines that any applicable condition
specified in Article 3 has not been satisfied, the Administrative Agent will
make the funds so received from the Banks available to the Borrower at the
Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsections (b) and (c) of this Section 2.04(a) and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Bank shall not have
so made such share available to the Administrative Agent, such Bank and, if such
Bank shall not have made such payment within two Domestic Business Days of
demand therefor, the Borrower severally agree to repay to the Administrative
Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Administrative Agent, at
(i) in the case of the Borrower, a rate per annum equal to the higher of the
Federal Funds Rate and the interest rate applicable thereto pursuant to Section
2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank
shall repay to the Administrative Agent such corresponding amount, such amount
so repaid shall constitute such Bank's Loan included in such Borrowing for
purposes of this Agreement.
(d) The failure of any Bank to make the Loan to be made by it as part
of any Borrowing shall not relieve any other Bank of its obligation, if any,
hereunder to make a Loan on the date of such Borrowing, but no Bank shall be
responsible for the failure of any other Bank to make a Loan to be made by such
other Bank.
SECTION 2.05. REGISTRY; NOTES. (a) The Administrative Agent shall
maintain a register (the "REGISTER") on which it will record the Commitment of
each Bank, each Loan made by such Bank and each repayment of any Loan made by
such Bank. Any such recordation by the Administrative Agent on the Register
shall be conclusive, absent manifest error. Failure to make any such
recordation, or any error in such recordation, shall not affect the Borrower's
obligations hereunder.
(b) The Borrower hereby agrees that, promptly upon the request of any
Bank at any time, the Borrower shall deliver to such Bank a duly executed Note,
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in substantially the form of Exhibit A hereto, payable to the order of such Bank
and representing the obligation of the Borrower to pay the unpaid principal
amount of the Loans made to the Borrower by such Bank, with interest as provided
herein on the unpaid principal amount from time to time outstanding.
(c) Each Bank shall record the date, amount and maturity of each Loan
made by it and the date and amount of each payment of principal made by the
Borrower with respect thereto, and each Bank receiving a Note pursuant to this
Section, if such Bank so elects in connection with any transfer or enforcement
of its Note, may endorse on the schedule forming a part thereof appropriate
notations to evidence the foregoing information with respect to each such Loan
then outstanding; PROVIDED that the failure of such Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes. Such Bank is hereby irrevocably authorized by the
Borrower so to endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
SECTION 2.06. MATURITY OF LOANS. (a) Each Revolving Credit Loan made by
any Bank shall mature, and the principal amount thereof shall be due and payable
together with accrued interest thereon, on the Commitment Termination Date of
such Bank.
(b) The Term Loans of each Bank shall mature, and the principal amount
thereof shall be due and payable, together with accrued interest thereon, on the
Final Maturity Date of such Bank.
(c) Each Bid Rate Loan included in any Bid Rate Borrowing shall mature,
and the principal amount thereof shall be due and payable (together with
interest accrued thereon), on the last day of the Interest Period applicable to
such Bid Rate Borrowing.
SECTION 2.07. INTEREST RATES. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable quarterly in arrears on each
Quarterly Payment Date, at maturity and on the date of termination of the
Commitments in their entirety. Any overdue principal of or overdue interest on
any Base Rate Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
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day plus the London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period
means the rate appearing on Page 3750 of the Telerate Service Company (or on any
successor or substitute page of such service, or any successor to or substitute
for such service, providing rate quotations comparable to those currently
provided on such page of the Telerate Service, as may be nominated by the
British Bankers' Association for purposes of providing quotations of interest
rates applicable to dollar deposits in the London interbank market) as of 11:00
A.M. (London time) two Euro-Dollar Business Days prior to the commencement of
such Interest Period, as the rate for dollar deposits with a maturity comparable
to such Interest Period. In the event that such rate is not so available at such
time for any reason, then the "LONDON INTERBANK OFFERED RATE" for such Interest
Period shall be the average (rounded upward, if necessary, to the next higher
1/16 of 1%) of the respective rates per annum at which deposits in dollars are
offered to each of the Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Loan of such Reference Bank to which such Interest
Period is to apply and for a period of time comparable to such Interest Period.
If any Reference Bank does not furnish a timely quotation, the Administrative
Agent shall determine the relevant interest rate on the basis of the quotation
furnished by the remaining Reference Bank or, if none of such quotations is
available on a timely basis, the provisions of Section 8.01 shall apply.
(c) Any overdue principal of or overdue interest on any Euro-Dollar
Loan shall bear interest, payable on demand, for each day from and including the
date payment thereof was due to but excluding the date of actual payment, at a
rate per annum equal to the sum of 1% plus the higher of (i) the sum of the
Euro-Dollar Margin for such day plus the London Interbank Offered Rate
applicable to such Loan at the date such payment was due and (ii) the Base Rate
for such day.
(d) Subject to Section 8.01(a), each Bid Rate (Indexed) Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.07(b) as if each Euro-Dollar Reference Bank were to participate in the
related Bid Rate (Indexed) Borrowing ratably in proportion to its Commitment)
plus (or minus) the Bid Rate (Indexed) Margin quoted by the Bank making such
Loan in
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accordance with Section 2.03. Each Bid Rate (General) Loan shall bear interest
on the outstanding principal amount thereof, for the Interest Period applicable
thereto, at a rate per annum equal to the Bid Rate (General) quoted by the Bank
making such Loan in accordance with Section 2.03. Such interest shall be payable
for each Interest Period on the last day thereof and, if such Interest Period is
longer than three months, at intervals of three months after the first day
thereof. Any overdue principal of or overdue interest on any Bid Rate Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the sum of 1% plus the Base Rate for such day.
(e) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the participating Banks by telecopy, telex or cable
of each rate of interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error unless the Borrower raises an
objection thereto within five Domestic Business Days after receipt of such
notice.
SECTION 2.08. FEES. (a) FACILITY FEE. The Borrower shall pay to the
Administrative Agent for the account of each Bank a facility fee at the Facility
Fee Rate (determined daily in accordance with the Pricing Schedule). Such
facility fee shall accrue (i) from and including the Effective Date to but
excluding such Bank's Commitment Termination Date, on the daily average
aggregate amount of such Bank's Commitment (whether used or unused) and (ii)
from and including such Bank's Commitment Termination Date to but excluding the
date such Bank's Loans shall be repaid in their entirety, on the daily average
aggregate outstanding principal amount of such Bank's Committed Loans.
(b) PAYMENTS. Accrued fees under this Section for the account of any
Bank shall be payable quarterly in arrears on each Quarterly Payment Date and
upon such Bank's Commitment Termination Date and Final Maturity Date (and, if
later, the date the Loans of such Bank shall be repaid in their entirety);
PROVIDED, that accrued facility fees shall be paid in equal quarterly
installments on the Quarterly Payment Date following each full quarter during
which the aggregate amount of Commitments remains unchanged.
SECTION 2.09. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The
Borrower may, upon at least three Domestic Business Days' notice to the
Administrative Agent, (i) terminate the Commitments at any time, if no Loans are
outstanding at such time or (ii) ratably reduce from time to time by an
aggregate amount of $10,000,000 or any larger multiple of $1,000,000 the
aggregate amount of the Commitments in excess of the aggregate outstanding
principal amount of the Revolving Credit and Bid Rate Loans.
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SECTION 2.10. METHOD OF ELECTING INTEREST RATES. (a) The Loans included
in each Committed Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the applicable Notice of Committed Borrowing.
Thereafter, the Borrower may from time to time elect to change or continue the
type of interest rate borne by each Group of Loans (subject in each case to the
provisions of Article 8 and the last sentence of this subsection (a)), as
follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business
Day; and
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
convert such Loans to Base Rate Loans or elect to continue such Loans
as Euro-Dollar Loans for an additional Interest Period, subject to
Section 2.14 in the case of any such conversion or continuation
effective on any day other than the last day of the then current
Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST
RATE ELECTION") to the Administrative Agent not later than 10:30 A.M. (New York
City time) on the third Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective. A Notice of Interest
Rate Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans, provided that (i) such portion
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which such notice applies, and the remaining portion to which it does not
apply, are each $10,000,000 or any larger multiple of $1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of subsection 2.10(a) above;
(iii) if the Loans comprising such Group are to be converted, the
new type of Loans and, if the Loans being converted are to be Fixed
Rate Loans, the duration of the next succeeding Interest Period
applicable thereto; and
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(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of the term "INTEREST PERIOD".
(c) Promptly after receiving a Notice of Interest Rate Election from
the Borrower pursuant to subsection 2.10(a) above, the Administrative Agent
shall notify each Bank of the contents thereof and such notice shall not
thereafter be revocable by the Borrower. If no Notice of Interest Rate Election
is timely received prior to the end of an Interest Period for any Group of
Loans, the Borrower shall be deemed to have elected that such Group of Loans be
converted to Base Rate Loans as of the last day of such Interest Period.
(d) An election by the Borrower to change or continue the rate of
interest applicable to any Group of Loans pursuant to this Section shall not
constitute a "BORROWING" subject to the provisions of Section 3.02.
SECTION 2.11. MANDATORY TERMINATION OF COMMITMENTS. The Commitment of
each Bank shall terminate on such Bank's Commitment Termination Date, and any
Revolving Credit or Bid Rate Loans of such Bank then outstanding (together with
accrued interest thereon) shall be due and payable on such date.
SECTION 2.12. OPTIONAL PREPAYMENTS. (a) The Borrower may (i) upon
notice to the Administrative Agent not later than 10:30 A.M. (New York City
time) on any Domestic Business Day prepay on such Domestic Business Day any
Group of Base Rate Loans or any Bid Rate Borrowing bearing interest at the Base
Rate pursuant to Section 8.01(a) and (ii) upon at least three Euro-Dollar
Business Days' notice to the Administrative Agent not later than 10:30 A.M. (New
York City time) prepay any Group of Euro-Dollar Loans, in each case in whole at
any time, or from time to time in part in amounts aggregating $5,000,000 or any
larger multiple of $1,000,000, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment and together
with any additional amounts payable pursuant to Section 2.14. Each such optional
prepayment shall be applied to prepay ratably the Loans of the several Banks
included in such Group or Borrowing.
(b) Except as provided in subsection 2.12(a), the Borrower may not
prepay all or any portion of the principal amount of any Bid Rate Loan prior to
the maturity thereof.
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(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's share (if any) of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.13. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address referred to in Section 9.01. The
Administrative Agent will promptly distribute to each Bank its ratable share of
each such payment received by the Administrative Agent for the account of the
Banks. Whenever any payment of principal of, or interest on, the Base Rate
Loans, or of fees shall be due on a day which is not a Domestic Business Day,
the date for payment thereof shall be extended to the next succeeding Domestic
Business Day. Whenever any payment of principal of, or interest on, the
Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day,
the date for payment thereof shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case the date for payment thereof shall be the next
preceding Euro-Dollar Business Day. Whenever any payment of principal of, or
interest on, the Bid Rate Loans shall be due on a day which is not a Euro-Dollar
Business Day, the date for payment thereof shall be extended to the next
succeeding Euro-Dollar Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable for
such extended time.
(b) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
the Borrower shall not have so made such payment, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.14. FUNDING LOSSES. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Euro-Dollar Loan is
converted to a Base Rate Loan or continued as a Euro-Dollar Loan for a new
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Interest Period (pursuant to Article 2, 6 or 8 or otherwise) on any day other
than the last day of an Interest Period applicable thereto, or if the Borrower
fails to borrow, prepay, convert or continue any Fixed Rate Loans after notice
has been given to any Bank in accordance with Section 2.04(a), 2.10(c) or
2.12(c), the Borrower shall reimburse each Bank within 15 days after demand for
any resulting loss or expense incurred by it (or by an existing or prospective
Participant in the related Loan), including (without limitation) any loss
incurred in obtaining, liquidating or employing deposits from third parties, but
excluding loss of margin for the period after any such payment or conversion or
failure to borrow, prepay, convert or continue, PROVIDED that such Bank shall
have delivered to the Borrower a certificate setting forth in reasonable detail
the calculation of the amount of such loss or expense, which certificate shall
be conclusive in the absence of manifest error.
SECTION 2.15. COMPUTATION OF INTEREST AND FEES. Interest based on the
Prime Rate and facility fees hereunder shall be computed on the basis of a year
of 365 days (or 366 days in a leap year) and paid for the actual number of days
elapsed (including the first day but excluding the last day); PROVIDED that
facility fees for the account of any Bank shall be paid in equal quarterly
installments for each full quarter in which the Commitment of such Bank remains
unchanged. All other interest shall be computed on the basis of a year of 360
days and paid for the actual number of days elapsed (including the first day but
excluding the last day).
SECTION 2.16. REGULATION D COMPENSATION. In the event that a Bank is
required to maintain reserves of the type contemplated by the definition of
"EURO-DOLLAR RESERVE PERCENTAGE", such Bank may require the Borrower to pay,
contemporaneously with each payment of interest on the Euro-Dollar Loans,
additional interest on the related Euro-Dollar Loan of such Bank at a rate per
annum determined by such Bank up to but not exceeding the excess of (i) (A) the
applicable London Interbank Offered Rate divided by (B) one MINUS the
Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered
Rate. Any Bank wishing to require payment of such additional interest (x) shall
so notify the Borrower and the Administrative Agent, in which case such
additional interest on the Euro-Dollar Loans of such Bank shall be payable to
such Bank at the place indicated in such notice with respect to each Interest
Period commencing at least three Euro-Dollar Business Days after the giving of
such notice and (y) shall notify the Borrower at least three Euro-Dollar
Business Days prior to each date on which interest is payable on the Euro-Dollar
Loans of the amount then due it under this Section. Each such notification shall
be accompanied by such information as the Borrower may reasonably request.
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"EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "EUROCURRENCY LIABILITIES" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
SECTION 2.17. INCREASED COMMITMENTS; ADDITIONAL BANKS. (a) Subsequent
to the Effective Date, the Borrower may, on no more than three occasions, upon
at least 30 days' notice to the Administrative Agent (which shall promptly
provide a copy of such notice to the Banks), propose to increase the aggregate
amount of the Commitments by an amount not to exceed in the aggregate for all
such increases $60,000,000 (the amount of any such increase, the "INCREASED
COMMITMENTS"). Each Bank party to this Agreement at such time shall have the
right (but no obligation), for a period of 15 days following receipt of such
notice, to elect by notice to the Borrower and the Administrative Agent to
increase its Commitment by a principal amount which bears the same ratio to the
Increased Commitments as its then Commitment bears to the aggregate Commitments
then existing.
(b) If any Bank party to this Agreement shall not elect to increase
its Commitment pursuant to subsection (a) of this Section, the Borrower may
designate one or more banks or other financial institutions (which may be, but
need not be, one or more of the existing Banks) which at the time agree in the
case of any existing Bank to increase its Commitment and, in the case of any
other such bank (an "ADDITIONAL BANK"), to become a party to this Agreement and
assume a Commitment hereunder. The sum of the increases in the Commitments of
the existing Banks pursuant to this subsection (b) plus the Commitments of the
Additional Banks shall not in the aggregate exceed the unsubscribed amount of
the Increased Commitments.
(c) An increase in the aggregate amount of the Commitments pursuant to
this Section 2.17 shall become effective upon the receipt of the Administrative
Agent of an agreement in form and substance satisfactory to the Administrative
Agent signed by the Borrower, by each Additional Bank and by each other Bank
whose Commitment is to be increased, setting forth the new Commitments of such
Banks and setting forth the agreement of each Additional Bank to become a party
to this Agreement and to be bound by all the terms and provisions hereof,
together with such evidence of appropriate corporate authorization on the part
of
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the Borrower with respect to the Increased Commitments and such opinions of
counsel for the Borrower with respect to the Increased Commitments as the
Administrative Agent may reasonably request.
(d) Upon any increase in the aggregate amount of the Commitments
pursuant to this Section 2.17, within five Domestic Business Days, in the case
of Base Rate Loans then outstanding, and at the end of the then current Interest
Period with respect thereto, in the case of Euro-Dollar Loans then outstanding,
the Borrower shall prepay or repay such Loans in their entirety and, to the
extent the Borrower elects to do so and subject to the conditions specified in
Article 3, the Borrower shall reborrow Committed Loans from the Banks in
proportion to their respective Commitments after giving effect to such increase,
until such time as all outstanding Committed Loans are held by the Banks in such
proportion.
ARTICLE 3
CONDITIONS
SECTION 3.01. EFFECTIVENESS. This Agreement shall become effective on
the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.05):
(a) receipt by the Administrative Agent of counterparts hereof signed
by each of the parties hereto (or, in the case of any party as to which an
executed counterpart shall not have been received, receipt by the Administrative
Agent in form satisfactory to it of telegraphic, telecopy, telex or other
written confirmation from such party of execution of a counterpart hereof by
such party);
(b) receipt by the Administrative Agent of an opinion of Dewey
Ballantine, special counsel for the Borrower, substantially in the form of
Exhibit E hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably request;
(c) receipt by the Administrative Agent of an opinion of Davis Polk &
Wardwell, special counsel for the Administrative Agent, substantially in the
form of Exhibit F hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably request;
(d) receipt by the Administrative Agent of a certificate signed by a
Vice President, the Treasurer or the Controller of the Borrower, dated the
Effective Date, to the effect set forth in clauses (c) and (d) of Section 3.02;
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(e) receipt by the Administrative Agent of all documents it may have
reasonably requested prior to the date hereof relating to the existence of the
Borrower, the corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Administrative Agent; and
(f) receipt by the Administrative Agent of evidence satisfactory to it
of the payment of all principal of and interest on any loans outstanding under,
and all accrued commitment fees under, the Existing Credit Agreements and the
cancellation or the expiration of any letter of credit issued thereunder;
PROVIDED that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
August 29, 1997. The Administrative Agent shall promptly notify the Borrower and
the Banks of the Effective Date, and such notice shall be conclusive and binding
on all parties hereto. The Borrower and the Banks party to the Existing Credit
Agreements, comprising the "Required Lenders" as defined therein, hereby agree
that (i) the commitments of the lenders under the Existing Credit Agreements
shall terminate in their entirety immediately and automatically upon the
effectiveness of this Agreement, without further action by any party to the
Existing Credit Agreements, (ii) all accrued fees under the Existing Credit
Agreements shall be due and payable at such time and (iii) subject to the
funding loss indemnities in the Existing Credit Agreements, the Borrower may
prepay any and all loans outstanding thereunder on the date of effectiveness of
this Agreement.
SECTION 3.02. BORROWINGS. The obligation of any Bank to make a Loan
on the occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.02 or 2.03;
(b) the facts that, immediately after such Borrowing the aggregate
outstanding principal amount of the Revolving Credit Loans and the Bid Rate
Loans will not exceed the aggregate amount of the Commitments (exclusive of
Commitments terminating on the date of such Borrowing);
(c) the fact that, immediately after such Borrowing, no Default shall
have occurred and be continuing; and
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(d) the fact that the representations and warranties of the Borrower
contained in this Agreement (except the representations and warranties set forth
in Sections 4.04(f) and 4.05) shall be true on and as of the date of such
Borrowing.
Each Borrowing hereunder shall be deemed to be a representation
and warranty by the Borrower on the date of such Borrowing as to the facts
specified in clauses (b), (c) and (d) of this Section .
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted and is duly qualified to do business as a foreign
corporation in each jurisdiction where such qualification is required, except
where the failure so to qualify would not have a material adverse effect on the
business, financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the articles of incorporation or by-laws of the Borrower or of
any agreement, judgment, injunction, order, decree or other instrument binding
upon the Borrower or result in the creation or imposition of any Lien on any
asset of the Borrower or any of its Material Subsidiaries.
SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, if and when executed and
delivered in accordance with this Agreement, will constitute a valid and binding
obligation of the Borrower, in each case enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general principles of equity.
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SECTION 4.04. FINANCIAL INFORMATION. (a) The consolidated balance sheet
of Church Street Capital Corp. and its Consolidated Subsidiaries as of December
31, 1996 and the related consolidated statements of income, cash flows,
capitalization and retained earnings for the fiscal year then ended, reported on
by Deloitte & Touche, copies of which have been delivered to each of the Banks,
fairly present, in conformity with generally accepted accounting principles, the
consolidated financial position of Church Street Capital Corp. and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of Church Street Capital
Corp. and its Consolidated Subsidiaries as of March 31, 1997 and the related
unaudited consolidated statements of income and cash flows for the three months
then ended, copies of which have been delivered to each of the Banks, fairly
present, in conformity with generally accepted accounting principles applied on
a basis consistent with the financial statements referred to in subsection (a)
of this Section, the consolidated financial position of Church Street Capital
Corp. and its Consolidated Subsidiaries as of such date and their consolidated
results of operations and changes in financial position for such three month
period (subject to normal year-end adjustments and the absence of footnotes).
(c) The consolidated balance sheet of PanEnergy Corp and its
Consolidated Subsidiaries as of December 31, 1996 and the related consolidated
statements of income, cash flows, capitalization and retained earnings for the
fiscal year then ended, reported on by KPMG Peat Marwick LLP, copies of which
have been delivered to each of the Banks, fairly present, in conformity with
generally accepted accounting principles, the consolidated financial position of
PanEnergy Corp and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such fiscal year.
(d) The unaudited consolidated balance sheet of PanEnergy Corp and its
Consolidated Subsidiaries as of March 31, 1997 and the related unaudited
consolidated statements of income and cash flows for the three months then
ended, copies of which have been delivered to each of the Banks, fairly present,
in conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a) of this
Section, the consolidated financial position of PanEnergy Corp and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and changes in financial position for such three month period
(subject to normal year-end adjustments and the absence of footnotes).
(e) The unaudited pro forma consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as of December 31, 1996 and the related
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unaudited pro forma consolidated statement of earnings for the year then ended,
copies of which have been delivered to each of the Banks, are complete and
correct in all material respects and have been prepared on the basis described
therein and otherwise in conformity with generally accepted accounting
principles applied on a basis consistent with the financial statements referred
to in subsection (a) of this Section and show the consolidated financial
position and results of operations of the Borrower as if the Borrower had
acquired PanEnergy Corp, in the case of the pro forma consolidated balance
sheet, on December 31, 1996, and in the case of the pro forma consolidated
statement of earnings, as of January 1, 1996.
(f) Since the respective dates set forth above, there has been no
material adverse change in the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole.
SECTION 4.05. LITIGATION. Except as disclosed in the reports referred
to in Section 4.04 or in the PanEnergy Corp quarterly report on Form 10-Q for
the quarter ended June 30, 1997, copies of which have been delivered to each of
the Banks, there is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official which would be likely to be decided adversely to Borrower
and, as a result, have a material adverse effect upon the business, consolidated
financial position or results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, or which in any manner draws into question
the validity of this Agreement or any Note.
SECTION 4.06. COMPLIANCE WITH LAWS. The Borrower and each Material
Subsidiary is in compliance in all material respects with all applicable laws,
ordinances, rules, regulations and requirements of governmental authorities
(including, without limitation, ERISA and Environmental Laws) except where (i)
non-compliance would not have a material adverse affect on the business,
financial position or results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, or (ii) the necessity of compliance
therewith is contested in good faith by appropriate proceedings.
SECTION 4.07. TAXES. The Borrower and its Material Subsidiaries have
filed all United States Federal income tax returns and all other material tax
returns which are required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Borrower
or any Material Subsidiary except (i) where nonpayment would not have a material
adverse effect on the business, financial position or results of operations of
the Borrower and its Consolidated Subsidiaries, considered as a whole or (ii)
where
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the same are contested in good faith by appropriate proceedings. The charges,
accruals and reserves on the books of the Borrower and its Material Subsidiaries
in respect of taxes or other governmental charges are, in the opinion of the
Borrower, adequate.
SECTION 4.08. PUBLIC UTILITY HOLDING COMPANY ACT. The Borrower is not
a holding company under the Public Utility Holding Company Act of 1935, as
amended.
ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any amount payable hereunder remains unpaid:
SECTION 5.01. INFORMATION. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income, cash flows, capitalization and
retained earnings for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on in a
manner consistent with the requirements of the Securities and Exchange
Commission by Deloitte & Touche or other independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within 60 days after the end
of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income and
cash flows for such quarter and for the portion of the Borrower's fiscal year
ended at the end of such quarter, setting forth in each case in comparative form
the figures for the corresponding quarter and the corresponding portion of the
Borrower's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted accounting
principles and consistency by an Approved Officer of the Borrower;
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(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of an
Approved Officer of the Borrower stating whether any Default exists on the date
of such certificate and, if any Default then exists, setting forth the details
thereof and the action which the Borrower is taking or proposes to take with
respect thereto;
(d) within five days after any officer of the Borrower with
responsibility relating thereto obtains knowledge of any Default, if such
Default is then continuing, a certificate of an Approved Officer of the Borrower
setting forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
(e) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Borrower shall have filed with the Securities and
Exchange Commission;
(f) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "REPORTABLE EVENT" (as defined in Section 4043
of ERISA) with respect to any Material Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Material Plan has given or is required to give notice of
any such reportable event, a copy of the notice of such reportable event given
or required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Material Plan is
in reorganization, is insolvent or has been terminated, a copy of such notice;
(iii) receives notice from the PBGC under Title IV of ERISA of an intent to
terminate, impose material liability (other than for premiums under Section 4007
of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Material Plan under Section 4041(c) of ERISA,
a copy of such notice and other information filed with the PBGC; (vi) gives
notice of withdrawal from any Material Plan pursuant to Section 4063 of ERISA, a
copy of such notice; or (vii) fails to make any payment or contribution to any
Material Plan or makes any amendment to any Material Plan which has resulted or
could result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the chief financial officer or the chief accounting
officer of the Borrower setting forth details as to such occurrence and action,
if any, which the Borrower or applicable member of the ERISA Group is required
or proposes to take; and
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(g) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Administrative Agent, at the request of any Bank, may reasonably request.
SECTION 5.02. PAYMENT OF TAXES. The Borrower will pay and discharge,
and will cause each Material Subsidiary to pay and discharge, at or before
maturity, all their tax liabilities, except where (i) nonpayment would not have
a material adverse effect on the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole, or (ii) the same may be contested in good faith by appropriate
proceedings, and will maintain, and will cause each Material Subsidiary to
maintain, in accordance with generally accepted accounting principles,
appropriate reserves for the accrual of any of the same.
SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE. (a) The Borrower will
keep, and will cause each Material Subsidiary to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted.
(b) The Borrower will, and will cause each of its Material
Subsidiaries to, maintain (either in the name of the Borrower or in such
Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such amounts
and against at least such risks (and with such risk retention) as are usually
insured against in the same general area by companies of established repute
engaged in the same or a similar business; PROVIDED that self-insurance by the
Borrower or any such Material Subsidiary shall not be deemed a violation of this
covenant to the extent that companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower or such
Material Subsidiary operates self-insure; and will furnish to the Banks, upon
request from the Administrative Agent, information presented in reasonable
detail as to the insurance so carried.
SECTION 5.04. MAINTENANCE OF EXISTENCE. The Borrower will preserve,
renew and keep in full force and effect, and will cause each Material Subsidiary
to preserve, renew and keep in full force and effect their respective corporate
existence and their respective rights, privileges and franchises material to the
normal conduct of their respective businesses; PROVIDED that nothing in this
Section 5.04 shall prohibit the termination of any right, privilege or franchise
of the Borrower or any Material Subsidiary or of the corporate existence of any
Material Subsidiary if the Borrower in good faith determines that such
termination is in the best interest of the Borrower and is not materially
disadvantageous to the Banks.
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SECTION 5.05. COMPLIANCE WITH LAWS. The Borrower will comply, and cause
each Material Subsidiary to comply, in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, ERISA and Environmental Laws) except
where (i) noncompliance would not have a material adverse effect on the
business, financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.06. BOOKS AND RECORDS. The Borrower will keep, and will cause
each Material Subsidiary to keep, proper books of record and account in which
full, true and correct entries shall be made of all financial transactions in
relation to its business and activities in accordance with its customary
practices; and will permit, and will cause each Material Subsidiary to permit,
representatives of any Bank at such Bank's expense (accompanied by a
representative of the Borrower, if the Borrower so desires) to visit any of
their respective properties, to examine any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants, all
upon such reasonable notice, at such reasonable times and as often as may
reasonably be desired.
SECTION 5.07. MAINTENANCE OF OWNERSHIP OF PRINCIPAL SUBSIDIARIES. The
Borrower will maintain ownership of all shares of the common stock of each
Principal Subsidiary, directly or indirectly through Subsidiaries, free and
clear of all Liens, PROVIDED that any Principal Subsidiary may merge with and
into the Borrower or another Subsidiary.
SECTION 5.08. NEGATIVE PLEDGE. The Borrower will not create, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired by it,
except:
(a) Liens granted by the Borrower existing on the date of this
Agreement securing Indebtedness outstanding on the date of this Agreement in an
aggregate principal amount not exceeding $100,000,000;
(b) any Lien on any asset of any corporation existing at the time such
corporation is merged or consolidated with or into the Borrower and not created
in contemplation of such event;
(c) any Lien existing on any asset prior to the acquisition thereof by
the Borrower and not created in contemplation of such acquisition;
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(d) any Lien on any asset securing Indebtedness incurred or assumed
for the purpose of financing all or any part of the cost of acquiring such
asset, PROVIDED that such Lien attaches to such asset concurrently with or
within 180 days after the acquisition thereof;
(e) any Lien arising out of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any Lien permitted by any of the
foregoing clauses of this Section, PROVIDED that such Indebtedness is not
increased and is not secured by any additional assets;
(f) Liens for taxes, assessments or other governmental charges or
levies not yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with generally accepted accounting
principles;
(g) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law, created in the ordinary
course of business and for amounts not past due for more than 60 days or which
are being contested in good faith by appropriate proceedings which are
sufficient to prevent imminent foreclosure of such Liens, are promptly
instituted and diligently conducted and with respect to which adequate reserves
or other appropriate provisions are being maintained in accordance with
generally accepted accounting principles;
(h) Liens incurred or deposits made in the ordinary course of business
(including, without limitation, surety bonds and appeal bonds) in connection
with workers' compensation, unemployment insurance and other types of social
security benefits or to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations or arising as a result of progress payments under
government contracts;
(i) easements (including, without limitation, reciprocal easement
agreements and utility agreements), rights-of-way, covenants, consents,
reservations, encroachments, variations and other restrictions, charges or
encumbrances (whether or not recorded) affecting the use of real property;
(j) Liens with respect to judgments and attachments which do not
result in an Event of Default;
(k) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal,
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indemnity, performance or other obligations arising in the ordinary course of
business; and
(l) other Liens including Liens imposed by Environmental Laws arising
in the ordinary course of its business which (i) do not secure Indebtedness,
(ii) do not secure any obligation in an amount exceeding $100,000,000 at any
time at which Investment Grade Status does not exist as to the Borrower and
(iii) do not in the aggregate materially detract from the value of its assets or
materially impair the use thereof in the operation of its business.
SECTION 5.09. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. The Borrower
will not (i) consolidate or merge with or into any other Person or (ii) sell,
lease or otherwise transfer, directly or indirectly, Substantial Assets to any
Person (other than a Subsidiary); PROVIDED that the Borrower may merge with
another Person if the Borrower is the corporation surviving such merger and,
after giving effect thereto, no Default shall have occurred and be continuing.
SECTION 5.10. USE OF PROCEEDS. The proceeds of the Loans made under
this Agreement will be used by the Borrower for its general corporate purposes,
including liquidity support for outstanding commercial paper. None of such
proceeds will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any "MARGIN STOCK"
within the meaning of Regulation U.
SECTION 5.11. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, pay any funds to or
for the account of, make any investment in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or participate in, or effect,
any transaction with, any Affiliate unless all such transactions between the
Borrower and its Subsidiaries on the one hand and any Affiliate on the other,
taken in the aggregate and not individually, shall be on an arms-length basis on
terms no less favorable to the Borrower or such Subsidiary than could have been
obtained from a third party who was not an Affiliate; PROVIDED that the
foregoing provisions of this Section shall not prohibit the Borrower and each
Subsidiary from declaring or paying any lawful dividend so long as, after giving
effect thereto, no Default shall have occurred and be continuing.
SECTION 5.12. INDEBTEDNESS/CAPITALIZATION RATIO. The ratio of
Consolidated Indebtedness to Consolidated Capitalization will at no time exceed
65%.
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ARTICLE 6
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following events
("EVENTS OF DEFAULT") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of any Loan
or shall fail to pay, within five days of the due date thereof, any interest,
fees or any other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.08, 5.09, 5.12 or the second sentence of 5.10,
inclusive;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) for 30 days after notice thereof has been given to the Borrower by
the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment in
respect of Material Debt (other than the Loans) when due or within any
applicable grace period;
(f) any event or condition shall occur and shall continue beyond the
applicable grace or cure period, if any, provided with respect thereto so as to
result in the acceleration of the maturity of Material Debt;
(g) the Borrower or any Material Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
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(h) an involuntary case or other proceeding shall be commenced against
the Borrower or any Material Subsidiary seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against the Borrower or any Material Subsidiary under
the federal bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $25,000,000 which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of
intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities
in excess of $50,000,000 (collectively, a "MATERIAL PLAN") shall be filed under
Title IV of ERISA by any member of the ERISA Group, any plan administrator or
any combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan or a proceeding shall be instituted by a fiduciary
of any Material Plan against any member of the ERISA Group to enforce Section
515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed
within 90 days thereafter; or a condition shall exist by reason of which the
PBGC would be entitled to obtain a decree adjudicating that any Material Plan
must be terminated;
(j) a judgment or other court order for the payment of money in excess
of $50,000,000 shall be rendered against the Borrower or any Material Subsidiary
and such judgment or order shall continue without being vacated, discharged,
satisfied or stayed or bonded pending appeal for a period of 45 days; or
(k) the Borrower shall cease to be a Subsidiary of Duke Energy
Corporation;
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 66-2/3% in aggregate amount of the Commitments, by
notice to the Borrower terminate the Commitments and they shall thereupon
terminate and (ii) if requested by Banks holding more than 66-2/3% in aggregate
principal amount of the Loans, by notice to the Borrower declare the Loans
(together with accrued interest thereon) to be, and the Loans shall thereupon
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower;
PROVIDED that in the case of any of the Events of Default specified in clause
(g) or (h) above with respect to the Borrower, without any notice to the
Borrower or any
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other act by the Administrative Agent or the Banks, the Commitments shall
thereupon terminate and the Loans (together with accrued interest thereon) shall
become immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower.
SECTION 6.02. NOTICE OF DEFAULT. The Administrative Agent shall give
notice to the Borrower under Section 6.01(c) promptly upon being requested to do
so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7
THE ADMINISTRATIVE AGENT
SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the Notes as are
delegated to the Administrative Agent by the terms hereof or thereof, together
with all such powers as are reasonably incidental thereto.
SECTION 7.02. ADMINISTRATIVE AGENT AND AFFILIATES. The Chase Manhattan
Bank shall have the same rights and powers under this Agreement as any other
Bank and may exercise or refrain from exercising the same as though it were not
the Administrative Agent, and The Chase Manhattan Bank and its affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or affiliate of the Borrower as if
it were not the Administrative Agent hereunder.
SECTION 7.03. ACTION BY ADMINISTRATIVE AGENT. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
SECTION 7.04. CONSULTATION WITH EXPERTS. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 7.05. LIABILITY OF ADMINISTRATIVE AGENT. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors,
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officers, agents or employees shall be liable to any Bank for any action taken
or not taken by it in connection herewith (i) with the consent or at the request
of the Required Banks or (ii) in the absence of its own gross negligence or
willful misconduct. Neither the Administrative Agent nor any of its affiliates
nor any of their respective directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with this Agreement or
any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Borrower; (iii) the satisfaction of any condition
specified in Article 3, except receipt of items required to be delivered to the
Administrative Agent; or (iv) the validity, effectiveness or genuineness of this
Agreement, the Notes or any other instrument or writing furnished in connection
herewith. The Administrative Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex or similar writing) believed by it in good
faith to be genuine or to be signed by the proper party or parties. Without
limiting the generality of the foregoing, the use of the term "agent" in this
Agreement with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market custom and is intended to create or reflect only an administrative
relationship between independent contracting parties.
SECTION 7.06. INDEMNIFICATION. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Administrative Agent, its affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from the such indemnitees' gross negligence or willful misconduct) that
such indemnitees may suffer or incur in connection with this Agreement or any
action taken or omitted by such indemnitees thereunder.
SECTION 7.07. CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement.
SECTION 7.08. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative
Agent may resign at any time by giving notice thereof to the Banks and the
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Borrower. Upon any such resignation, the Borrower, with the consent of the
Required Banks, (such consent not to be unreasonably withheld or delayed), shall
have the right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$250,000,000. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder; PROVIDED
that if such successor Administrative Agent is appointed without the consent of
the Borrower, such successor Administrative Agent may be replaced by the
Borrower with the consent of the Required Banks. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Article shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent.
SECTION 7.09. ADMINISTRATIVE AGENT'S FEE. The Borrower shall pay to the
Administrative Agent for its own account fees in the amounts and at the times
previously agreed upon between the Borrower and the Administrative Agent.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR.
If on or prior to the first day of any Interest Period for any Euro-Dollar
Borrowing or Bid Rate (Indexed) Borrowing:
(a) the Administrative Agent is advised by the Euro-Dollar Reference
Banks that deposits in dollars (in the applicable amounts) are not being offered
to the Euro-Dollar Reference Banks in the relevant market for such Interest
Period, or
(b) in the case of a Euro-Dollar Borrowing, Banks having 66-2/3% or
more of the aggregate amount of the affected Loans advise the Administrative
Agent that the London Interbank Offered Rate as determined by the
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Administrative Agent will not adequately and fairly reflect the cost to such
Banks of funding their Euro-Dollar Loans for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make Euro-Dollar Loans or to continue or convert
outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each
outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the
last day of the then current Interest Period applicable thereto. Unless the
Borrower notifies the Administrative Agent at least one Domestic Business Day
before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has
previously been given that it elects not to borrow on such date, (i) if such
Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be
made as a Base Rate Borrowing and (ii) if such Borrowing is a Bid Rate (Indexed)
Borrowing, the Loans comprising such Borrowing shall bear interest for each day
from and including the first day to but excluding the last day of the Interest
Period applicable thereto at the Base Rate for such day.
SECTION 8.02. ILLEGALITY. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund any of its Euro-Dollar
Loans and such Bank shall so notify the Administrative Agent, the Administrative
Agent shall forthwith give notice thereof to the other Banks and the Borrower,
whereupon until such Bank notifies the Borrower and the Administrative Agent
that the circumstances giving rise to such suspension no longer exist, the
obligation of such Bank to make Euro-Dollar Loans, or to continue or convert
outstanding Loans as or into Euro-Dollar Loans, shall be suspended. Before
giving any notice to the Administrative Agent pursuant to this Section, such
Bank shall designate a different Euro-Dollar Lending Office if such designation
will avoid the need for giving such notice and will not be otherwise
disadvantageous to such Bank in the good faith exercise of its discretion. If
such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall
be converted to a Base Rate Loan either (a) on the last day of the then current
Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully
continue to maintain and fund such Loan to such day or (b) immediately if such
Bank shall determine that it may not lawfully continue to maintain and fund such
Loan to such day.
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SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If on or after (x)
the date of this Agreement, in the case of any Committed Loan or any obligation
to make Committed Loans or (y) the date of any related Bid Rate Quote, in the
case of any Bid Rate Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
issued on or after such date of any such authority, central bank or comparable
agency shall impose, modify or deem applicable any reserve, special deposit or
similar requirement (including, without limitation, any such requirement imposed
by the Board of Governors of the Federal Reserve System, but excluding with
respect to any Euro-Dollar Loan any such requirement included in an applicable
Euro-Dollar Reserve Percentage) against assets of, deposits with or for the
account of, or credit extended by, any Bank (or its Applicable Lending Office)
or shall impose on any Bank (or its Applicable Lending Office) or on the London
interbank market any other condition (other than in respect of Taxes or Other
Taxes) affecting its Fixed Rate Loans, its Note or its obligation to make Fixed
Rate Loans and the result of any of the foregoing is to increase the cost to
such Bank (or its Applicable Lending Office) of making or maintaining any Fixed
Rate Loan, or to reduce the amount of any sum received or receivable by such
Bank (or its Applicable Lending Office) under this Agreement or under its Note
with respect thereto, by an amount deemed by such Bank to be material, then,
within 15 days after demand by such Bank (with a copy to the Administrative
Agent), the Borrower shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such increased cost or reduction; PROVIDED that no
such amount shall be payable with respect to any period commencing more than 90
days prior to the date such Bank first notifies the Borrower of its intention to
demand compensation therefor under this Section 8.03(a).
(b) If any Bank shall have determined that, on or after the date of
this Agreement, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change in any such law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency given or made after the date of this Agreement, has or would
have the effect of reducing the rate of return on capital of such Bank (or its
Parent) as a consequence of such Bank's obligations hereunder to a level below
that which such Bank (or its Parent) could have achieved but for such adoption,
change, request or directive (taking into consideration its policies with
respect to
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capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, within 15 days after demand by such Bank (with a copy to the
Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank (or its Parent) for such
reduction; PROVIDED that no such amount shall be payable with respect to any
period commencing less than 30 days after the date such Bank first notifies the
Borrower of its intention to demand compensation under this Section 8.03(b).
(c) Each Bank will promptly notify the Borrower and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate
of any Bank claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount, such Bank may use any
reasonable averaging and attribution methods.
SECTION 8.04. TAXES. (a) For purposes of this Section 8.04, the
following terms have the following meanings:
"TAXES" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or any Note, and all liabilities with
respect thereto, EXCLUDING (i) in the case of each Bank and the Administrative
Agent, taxes imposed on its income, net worth or gross receipts and franchise or
similar taxes imposed on it by a jurisdiction under the laws of which such Bank
or the Administrative Agent (as the case may be) is organized or in which its
principal executive office is located or, in the case of each Bank, in which its
Applicable Lending Office is located and (ii) in the case of each Bank, any
United States withholding tax imposed on such payments except to the extent that
such Bank is subject to United States withholding tax by reason of a U.S. Tax
Law Change.
"OTHER TAXES" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or from
the execution or delivery of, or otherwise with respect to, this Agreement or
any Note.
"U.S. TAX LAW CHANGE" means with respect to any Bank or Participant the
occurrence (x) in the case of each Bank listed on the signature pages hereof,
after the date of its execution and delivery of this Agreement and (y) in the
case of
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any other Bank, after the date such Bank shall have become a Bank hereunder, and
(z) in the case of each Participant, after the date such Participant became a
Participant hereunder, of the adoption of any applicable U.S. federal law, U.S.
federal rule or U.S. federal regulation relating to taxation, or any change
therein, or the entry into force, modification or revocation of any income tax
convention or treaty to which the United States is a party.
(b) Any and all payments by the Borrower to or for the account of any
Bank or the Administrative Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; PROVIDED that, if the Borrower
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 8.04) such Bank or the Administrative Agent (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 9.01, the original or a certified copy of a receipt evidencing
payment thereof.
(c) The Borrower agrees to indemnify each Bank and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 8.04) paid by such Bank or the Administrative
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be paid within 15 days after such Bank or the Administrative Agent (as the case
may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter as required by law (but only so long as such
Bank remains lawfully able to do so), shall provide the Borrower two completed
and duly executed copies of Internal Revenue Service form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
or other documentation reasonably requested by the Borrower, certifying that
such Bank is entitled to benefits under an income tax treaty to which the United
States is a party which exempts the Bank from United States withholding tax or
reduces the rate of withholding tax on payments of interest for the account of
such Bank
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or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such
failure is due to a U.S. Tax Law Change), such Bank shall not be entitled to
indemnification under Section 8.04(b) or 8.04(c) with respect to any Taxes or
Other Taxes which would not have been payable had such form been so provided,
PROVIDED that if a Bank, which is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as such
Bank shall reasonably request to assist such Bank to recover such Taxes (it
being understood, however, that the Borrower shall have no liability to such
Bank in respect of such Taxes).
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section 8.04, then such Bank will take
such action (including changing the jurisdiction of its Applicable Lending
Office) as in the good faith judgment of such Bank (i) will eliminate or reduce
any such additional payment which may thereafter accrue and (ii) is not
otherwise disadvantageous to such Bank.
(g) If any Bank or the Administrative Agent receives a refund
(including a refund in the form of a credit against taxes that are otherwise
payable by the Bank or the Administrative Agent) of any Taxes or Other Taxes for
which the Borrower has made a payment under Section 8.04(b) or (c) and such
refund was received from the taxing authority which originally imposed such
Taxes or Other Taxes, such Bank or the Administrative Agent agrees to reimburse
the Borrower to the extent of such refund, PROVIDED that nothing contained in
this paragraph (g) shall require any Bank or the Administrative Agent to make
available its tax returns (or any other information relating to its taxes which
it deems to be confidential).
SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE
LOANS. If (i) the obligation of any Bank to make or to continue or convert
outstanding Loans as or into Euro-Dollar Loans has been suspended pursuant to
Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03(a) or
8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least
five Euro-Dollar Business Days' prior notice to such Bank through the
Administrative Agent, have elected that the provisions of this Section shall
apply to such Bank, then, unless and until such Bank notifies the Borrower that
the circumstances giving rise to such suspension or demand for compensation no
longer apply:
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(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted to) Euro-Dollar Loans, as the case may be, shall
instead be Base Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all payments
of principal which would otherwise be applied to repay such Loans shall be
applied to repay its Base Rate Loans instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer exist, the principal amount of
each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first
day of the next succeeding Interest Period applicable to the related Euro-Dollar
Loans of the other Banks.
SECTION 8.06. SUBSTITUTION OF BANK TERMINATION OPTION. If (i) the
obligation of any Bank to make or to convert or continue outstanding Loans as or
into Euro-Dollar Loans has been suspended pursuant to Section 8.02, (ii) any
Bank has demanded compensation under Section 8.03 or 8.04, or (iii) any Bank
exercises its right not to extend its Commitment Termination Date pursuant to
Section 2.01(c) or (iv) Investment Grade Status ceases to exist as to any Bank,
then:
(a) the Borrower shall have the right, with the assistance of the
Administrative Agent, to designate a substitute bank or banks (which may be one
or more of the Banks) mutually satisfactory to the Borrower and the
Administrative Agent (whose consent shall not be unreasonably withheld or
delayed) to purchase for cash, pursuant to an Assignment and Assumption
Agreement in substantially the form of Exhibit G hereto, the outstanding Loans
of such Bank and assume the Commitment of such Bank, without recourse to or
warranty by, or expense to, such Bank, for a purchase price equal to the
principal amount of all of such Bank's outstanding Loans plus any accrued but
unpaid interest thereon and the accrued but unpaid fees in respect of such
Bank's Commitment hereunder plus such amount, if any, as would be payable
pursuant to Section 2.14 if the outstanding Loans of such Bank were prepaid in
their entirety on the date of consummation of such assignment; and
(b) if at the time Investment Grade Status exists as to the Borrower,
the Borrower may elect to terminate this Agreement as to such Bank, PROVIDED
that (i) the Borrower notifies such Bank through the Administrative Agent of
such election at least three Euro-Dollar Business Days before the effective date
of such termination and (ii) the Borrower repays or prepays all outstanding
Loans made by such Bank not later than the effective date of such termination.
Upon
48
<PAGE>
satisfaction of the foregoing conditions, the Commitment of such Bank shall
terminate on the effective date specified in such notice.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile transmission or similar writing) and shall be given to such party: (x)
in the case of the Borrower or the Administrative Agent, at its address or
telecopy or telex number set forth on the signature pages hereof, (y) in the
case of any Bank, at its address or telecopy or telex number set forth in its
Administrative Questionnaire or (z) in the case of any party, such other address
or telecopy or telex number as such party may hereafter specify for the purpose
by notice to the Administrative Agent and the Borrower. Each such notice,
request or other communication shall be effective (i) if given by telecopy or
telex, when such telecopy or telex is transmitted to the telecopy or telex
number specified in this Section and the appropriate answerback or confirmation
slip, as the case may be, is received, (ii) if given by mail, 84 hours after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in this Section; PROVIDED that notices to the
Administrative Agent under Article 2 or Article 3 shall not be effective until
delivered.
SECTION 9.02. NO WAIVERS. No failure or delay by the Administrative
Agent or any Bank in exercising any right, power or privilege hereunder or under
any Note shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i)
all reasonable out-of-pocket expenses of the Administrative Agent, including
reasonable fees and disbursements of special counsel for the Administrative
Agent, in connection with the preparation of this Agreement, any waiver or
consent hereunder or any amendment hereof or any Default or alleged Default
hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket
expenses incurred by the Administrative Agent or any Bank, including reasonable
fees and disbursements of counsel, in connection with such Event of Default and
collection and other enforcement proceedings resulting therefrom.
49
<PAGE>
(b) The Borrower agrees to indemnify the Administrative Agent and each
Bank, their respective affiliates and the respective directors, officers, agents
and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) relating to or arising out
of this Agreement or any actual or proposed use of proceeds of Loans hereunder;
PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for
such Indemnitee's own gross negligence or willful misconduct as determined by a
court of competent jurisdiction.
SECTION 9.04. SHARING OF SET-OFFS. Each Bank agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount then due with respect to the Loans held
by it which is greater than the proportion received by any other Bank in respect
of the aggregate amount then due with respect to the Loans held by such other
Bank, the Bank receiving such proportionately greater payment shall purchase
such participations in the Loans held by the other Banks, and such other
adjustments shall be made, as may be required so that all such payments with
respect to the Loans held by the Banks shall be shared by the Banks pro rata;
PROVIDED that nothing in this Section shall impair the right of any Bank to
exercise any right of set-off or counterclaim it may have and to apply the
amount subject to such exercise to the payment of indebtedness of the Borrower
other than its indebtedness under this Agreement.
SECTION 9.05. AMENDMENTS AND WAIVERS. Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Administrative Agent, are affected thereby, by the
Administrative Agent); PROVIDED that no such amendment or waiver shall, unless
signed by all the Banks, (i) increase or decrease the Commitment of any Bank
(except (x) as contemplated by Section 2.17 or (y) for a ratable decrease in the
Commitments of all Banks) or subject any Bank to any additional obligation, (ii)
reduce the principal of or rate of interest on any Loan or any fees hereunder,
(iii) postpone the date fixed for any payment of principal of or interest on any
Loan or interest thereon or any fees hereunder or for termination of any
Commitment or (iv) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans, or the number of Banks, which shall be
required for the Banks or any of them to take any action under this Section or
any other provision of this Agreement.
50
<PAGE>
SECTION 9.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may, with the consent of the Borrower (such consent not
to be unreasonably withheld or delayed), at any time grant to one or more banks
or other institutions (each a "PARTICIPANT") participating interests in its
Commitment or any or all of its Loans. In the event of any such grant by a Bank
of a participating interest to a Participant, whether or not upon notice to the
Administrative Agent, such Bank shall remain responsible for the performance of
its obligations hereunder, and the Borrower and the Administrative Agent shall
continue to deal solely and directly with such Bank in connection with such
Bank's rights and obligations under this Agreement. Any agreement pursuant to
which any Bank may grant such a participating interest shall provide that such
Bank shall retain the sole right and responsibility to enforce the obligations
of the Borrower hereunder including, without limitation, the right to approve
any amendment, modification or waiver of any provision of this Agreement;
PROVIDED that such participation agreement may provide that such Bank will not
agree to any modification, amendment or waiver of this Agreement described in
clause (i), (ii) or (iii) of Section 9.05 without the consent of the
Participant. The Borrower agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Article
8 with respect to its participating interest, subject to the performance by such
Participant of the obligations of a Bank thereunder. An assignment or other
transfer which is not permitted by subsection (c) or (d) below shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
financial institutions (each an "ASSIGNEE") all, or a proportionate part
(equivalent to an initial Commitment of not less than $20,000,000) of all, of
its rights and obligations under this Agreement and its Note (if any), and such
Assignee shall assume such rights and obligations, pursuant to an Assignment and
Assumption Agreement in substantially the form of Exhibit G hereto executed by
such Assignee and such transferor Bank, with (and only with and subject to) the
prior written consent of the Borrower (given in its sole discretion) and the
Administrative Agent (which shall not be unreasonably withheld or delayed),
PROVIDED that unless such assignment is of the entire right, title and interest
of the transferor Bank hereunder, after making any such assignment such
transferor Bank shall have a Commitment of at least $20,000,000. Upon execution
and delivery of such instrument of assumption and payment by such Assignee to
such
51
<PAGE>
transferor Bank of an amount equal to the purchase price agreed between such
transferor Bank and such Assignee, such Assignee shall be a Bank party to this
Agreement and shall have all the rights and obligations of a Bank with a
Commitment as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection (c), the transferor
Bank, the Administrative Agent and the Borrower shall make appropriate
arrangements so that, if required by the Assignee, a Note is issued to the
Assignee. If the Assignee is not incorporated under the laws of the United
States of America or a state thereof, it shall, prior to the first date on which
interest or fees are payable hereunder for its account, deliver to the Borrower
and the Administrative Agent certification as to exemption from deduction or
withholding of any United States federal income taxes in accordance with Section
8.04. All assignments shall be subject to a transaction fee established by, and
payable by the transferor Bank to, the Administrative Agent for its own account
(which shall not exceed $5,000).
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note (if any) to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder or
modify any such obligations.
(e) No Assignee, Participant or other transferee of any Bank's rights
(including any Applicable Lending Office other than such Bank's initial
Applicable Lending Office) shall be entitled to receive any greater payment
under Section 8.03 or 8.04 than such Bank would have been entitled to receive
with respect to the rights transferred, unless such transfer is made by reason
of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate
a different Applicable Lending Office under certain circumstances or at a time
when the circumstances giving rise to such greater payment did not exist.
SECTION 9.07. COLLATERAL. Each of the Banks represents to the
Administrative Agent and each of the other Banks that it in good faith is not
relying upon any "MARGIN STOCK" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.
SECTION 9.08. CONFIDENTIALITY. The Administrative Agent and each Bank
agrees to keep any information delivered or made available by the Borrower
pursuant to this Agreement confidential from anyone other than persons employed
or retained by such Bank and its affiliates who are engaged in evaluating,
approving, structuring or administering the credit facility contemplated hereby;
PROVIDED that nothing herein shall prevent any Bank from disclosing such
52
<PAGE>
information (a) to any other Bank or to the Administrative Agent, (b) to any
other Person if reasonably incidental to the administration of the credit
facility contemplated hereby, (c) upon the order of any court or administrative
agency, (d) upon the request or demand of any regulatory agency or authority,
(e) which had been publicly disclosed other than as a result of a disclosure by
the Administrative Agent or any Bank prohibited by this Agreement, (f) in
connection with any litigation to which the Administrative Agent, any Bank or
its subsidiaries or Parent may be a party, (g) to the extent necessary in
connection with the exercise of any remedy hereunder, (h) to such Bank's or
Administrative Agent's legal counsel and independent auditors and (i) subject to
provisions substantially similar to those contained in this Section 9.08, to any
actual or proposed Participant or Assignee.
SECTION 9.09. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
and each Note (if any) shall be construed in accordance with and governed by the
law of the State of New York. The Borrower hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State court sitting in New York City for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. The Borrower irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
SECTION 9.10. COUNTERPARTS; INTEGRATION. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE BANKS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO
SO UNDER APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
53
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
DUKE CAPITAL CORPORATION
By /s/ Paul F. Ferguson, Jr.
-----------------------------------
Title: Treasurer
Address: 1105 North Market Street
Wilmington, DE 19899
Attention: Paul F. Ferguson, Jr.
Telecopy number: (704) 382-4964
Commitments
$ 21,300,000 THE CHASE MANHATTAN BANK
By /s/ Paul V. Farrell
-----------------------------------
Title: Vice President
$ 21,300,000 MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ Oliver W. Wesson, Jr.
-----------------------------------
Title: Vice President
$ 15,600,000 BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION
By /s/ Michael J. Dillon
-----------------------------------
Title: Managing Director
<PAGE>
$ 15,600,000 THE BANK OF NEW YORK
By /s/ Ian K. Stewart
-----------------------------------
Title: Senior Vice President
$ 15,600,000 BARCLAYS BANK PLC
NEW YORK BRANCH
By /s/ N. A. Bell
-----------------------------------
Title: Director
Portfolio Management
$ 15,600,000 CITIBANK, N.A.
By /s/ Philip C. Kron
-----------------------------------
Title: As Attorney-In-Fact
$ 15,600,000 THE FIRST NATIONAL BANK OF
CHICAGO
By /s/ Madeleine N. Pember
-----------------------------------
Title: Corporate Banking Officer
$ 15,600,000 FIRST UNION NATIONAL BANK
By /s/ Michael J. Kolosowsky
-----------------------------------
Title: Vice President
<PAGE>
$ 15,600,000 NATIONSBANK, N.A.
By /s/ Gretchen P. Burud
-----------------------------------
Title: Vice President
$ 15,600,000 WACHOVIA BANK, N.A.
By /s/ Christopher L. Fincher
-----------------------------------
Title: Vice President
$ 10,200,000 BANK OF MONTREAL
By /s/ Natasha Glossop
-----------------------------------
Title: Director
$ 10,200,000 THE BANK OF TOKYO-
MITSUBISHI, LTD.
By /s/ William L. Otott, Jr.
-----------------------------------
Title: Vice President
$ 10,200,000 BANKBOSTON, N.A.
By /s/ Rita M. Cahill
-----------------------------------
Title: Vice President
<PAGE>
$ 10,200,000 CIBC, INC.
By /s/ Aleksandra K. Dymanus
-----------------------------------
Title: Authorized Signatory
$ 10,200,000 DRESDNER BANK AG NEW YORK
AND/OR GRAND CAYMAN
BRANCHES
By /s/ Thomas Lake
-----------------------------------
Title: Vice President
By /s/ Michael E. Terry
-----------------------------------
Title: Assistant Vice President
$ 10,200,000 THE INDUSTRIAL BANK OF
JAPAN, LIMITED, ATLANTA
AGENCY
By /s/ Koichi Hasegawa
-----------------------------------
Title: Senior Vice President and
Deputy General Manager
$ 10,200,000 MELLON BANK, N.A.
By /s/ Brad S. Miller
-----------------------------------
Title: Assistant Vice President
<PAGE>
$ 10,200,000 THE NORTHERN TRUST
COMPANY
By /s/ John J. Conway
-----------------------------------
Title: Vice President
$ 10,200,000 ROYAL BANK OF BANK OF
CANADA
By /s/ Tom J. Oberaigner
-----------------------------------
Title: Manager
$ 10,200,000 THE SANWA BANK, LIMITED
By /s/ William M. Plough
-----------------------------------
Title: Vice President
By /s/ Andrew N. Hammond
-----------------------------------
Title: Vice President - Senior
Manager Credit
$ 10,200,000 SOCIETE GENERALE
By /s/ Gordon Eadon
-----------------------------------
Title: Vice President
<PAGE>
$ 10,200,000 TORONTO DOMINION (NEW
YORK), INC.
By /s/ Jorge A. Garcia
-----------------------------------
Title: Vice President
$ 10,200,000 UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By /s/ Paul R. Morrison
-----------------------------------
Title: Director
By /s/ Michele von Kroemer
-----------------------------------
Title: Assistant Treasurer
<PAGE>
- ------------------
Total Commitments
$300,000,000
- -------------------
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ Paul V. Farrell
-----------------------------------
Title: Vice President
Address: 270 Park Avenue
New York, NY 10017
Attention: Paul V. Farrell
Telecopy number: (212) 270-7625
<PAGE>
PRICING SCHEDULE
The "EURO-DOLLAR MARGIN" and the "FACILITY FEE RATE" for any day are
the respective percentages set forth below in the applicable row under the
column corresponding to the Status that exists on such day:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Facility .035% .040% .045% .050% .065% .080%
Fee
- -----------------------------------------------------------------------------------------------------
Euro- .115% .135% .155% .175% .185% .220%
Dollar
Margin
- -----------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"LEVEL I STATUS" exists at any date if, at such date, the Borrower is
rated "AA-" or higher by S&P OR "Aa3" or higher by Moody's.
"LEVEL II STATUS" exists at any date if, at such date, (i) the Borrower
is rated "A+" or higher by S&P OR "A1" or higher by Moody's and (ii) Level I
Status does not exist.
"LEVEL III STATUS" exists at any date if, at such date, (i) the
Borrower is rated "A" or higher by S&P OR "A2" or higher by Moody's and (ii)
neither Level I Status nor Level II Status exists.
"LEVEL IV STATUS" exists at any date if, at such date, (i) the Borrower
is rated "A-" by S&P OR "A3" by Moody's and (ii) neither Level I Status, Level
II Status nor Level III Status exists.
"LEVEL V STATUS" exists at any date if, at such date, (i) the Borrower
is rated "BBB+" by S&P OR "Baa1" by Moody's and (ii) neither Level I Status,
Level II Status, Level III Status nor Level IV Status exists.
"LEVEL VI STATUS" exists at any date if, at such date, no other Status
exists.
"STATUS" refers to the determination of which of Level I Status, Level
II Status, Level III Status, Level IV Status, Level V Status or Level VI Status
exists at any date.
<PAGE>
The credit ratings to be utilized for purposes of this Schedule are
those indicated for or assigned to the senior unsecured long-term debt
securities of the Borrower without third-party credit enhancement, and any
rating indicated for or assigned to any other debt security of the Borrower
shall be disregarded. The ratings in effect for any day are those in effect at
the close of business on such day. A change in credit rating will result in an
immediate change in the applicable Status. In the case of split ratings from S&P
and Moody's, the rating to be used to determine the applicable Status is the
higher of the two.
2
<PAGE>
SCHEDULE I
DUKE CAPITAL CORPORATION
CREDIT FACILITIES
(Being Replaced by $300,000,000 Revolving Credit Facility)
1. Revolving Credit Agreement dated as of December 1, 1995 among
Church Street Capital Corp., the lenders party thereto and The First National
Bank of Chicago, as administrative agent.
2. Credit Agreement dated as of January 31, 1996 among Panhandle
Eastern Corporation (d/b/a/ PanEnergy Corp), the lenders party thereto and The
Chase Manhattan Bank, as administrative agent.
3. Credit Agreement (Five-Year Facility) dated as of January 31,
1996 among Panhandle Eastern Corporation (d/b/a/ PanEnergy Corp), the lenders
party thereto and The Chase Manhattan Bank, as administrative agent.
<PAGE>
EXHIBIT A
NOTE
New York, New York
August 25, 1997
For value received, Duke Capital Corporation, a North Carolina
corporation (the "BORROWER"), promises to pay to the order of (the "BANK"), for
the account of its Applicable Lending Office, the unpaid principal amount of
each Loan made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below on the date specified in the Credit Agreement. The Borrower
promises to pay interest on the unpaid principal amount of each such Loan on the
dates and at the rate or rates provided for in the Credit Agreement. All such
payments of principal and interest shall be made in lawful money of the United
States in Federal or other immediately available funds at the office of The
Chase Manhattan Bank, 270 Park Avenue, New York, New York.
All Loans made by the Bank, the respective types and maturities thereof
and all repayments of the principal thereof shall be recorded by the Bank and,
the Bank, if the Bank so elects in connection with any transfer or enforcement
of its Note, may endorse on the schedule attached hereto appropriate notations
to evidence the foregoing information with respect to the Loans then
outstanding; PROVIDED that the failure of the Bank to make any such recordation
or endorsement shall not affect the obligations of the Borrower hereunder or
under the Credit Agreement.
This note is one of the Notes referred to in the 364-Day Credit
Agreement dated as of August 25, 1997 among the Borrower, the banks listed on
the signature pages thereof and The Chase Manhattan Bank, as Administrative
Agent (as the same may be amended from time to time, the "CREDIT AGREEMENT").
Terms defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the prepayment
hereof and the acceleration of the maturity hereof.
DUKE CAPITAL CORPORATION
By ____________________________________
Title:
<PAGE>
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Amount of
Amount Type Principal Maturity Notation
Date of Loan of Loan Repaid Date Made By
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
EXHIBIT B
FORM OF BID RATE QUOTE REQUEST
[Date]
To: The Chase Manhattan Bank
(the "ADMINISTRATIVE AGENT")
From: Duke Capital Corporation
Re: 364-Day Credit Agreement (the "CREDIT AGREEMENT") dated as of
August 25, 1997 among the Borrower, the Banks listed on the
signature pages thereof and the Administrative Agent
We hereby give notice pursuant to Section 2.03 of the Credit Agreement
that we request Bid Rate Quotes for the following proposed Bid Rate
Borrowing(s):
Date of Borrowing: __________________
Principal Amount* Interest Period**
- ----------------- -----------------
$
Such Bid Rate Quotes should offer a Bid Rate [(General), (Indexed) or
both]. [The applicable base rate is the London Interbank Offered Rate.]
Terms used herein have the meanings assigned to them in the Credit
Agreement.
DUKE CAPITAL CORPORATION
By _____________________________________
Title:
- --------
*Amount must be $10,000,000 or a larger multiple of $1,000,000.
**Not less than one month (Bid Rate (Indexed) Auction) or not less than
7 days (Bid Rate (General) Auction), subject to the provisions of the definition
of Interest Period.
<PAGE>
EXHIBIT C
FORM OF INVITATION FOR BID RATE QUOTES
To: [Name of Bank]
Re: Invitation for Bid Rate Quotes to Duke Capital Corporation (the
"BORROWER")
Pursuant to Section 2.03 of the 364-Day Credit Agreement dated as of
August 25, 1997 among the Borrower, the Banks parties thereto and the
undersigned, as Administrative Agent, we are pleased on behalf of the Borrower
to invite you to submit Bid Rate Quotes to the Borrower for the following
proposed Bid Rate Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
- ----------------- -----------------
$
Such Bid Rate Quotes should offer a Bid Rate [(Indexed) (General) or
both]. [The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30
A.M.] (New York City time) on [date].
THE CHASE MANHATTAN BANK
By ____________________________________
Authorized Officer
<PAGE>
EXHIBIT D
FORM OF BID RATE QUOTE
To: The Chase Manhattan Bank,
as Administrative Agent
270 Park Avenue
New York, New York 10017
Attention:
Re: Bid Rate Quote to Duke Capital Corporation (the "BORROWER")
In response to your invitation on behalf of the Borrower dated
_____________, 19__, we hereby make the following Bid Rate Quote on the
following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
_____________________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Bid Rate Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Principal Interest Bid Rate
Amount** Period*** [(Indexed)****] [(General)*****]
- -------- --------- --------------- ----------------
$
$
- --------
*As specified in the related Invitation.
**Principal amount bid for each Interest Period may not exceed
principal amount requested. Specify aggregate limitation if the sum of the
individual offers exceeds the amount the Bank is willing to lend. Bids must be
made for $5,000,000 or a larger of multiple of $1,000,000.
***Not less than one month or less than 30 days, as specified in the
related Invitation, but no bid may be submitted for an Interest Period extending
beyond bidder's Commitment Termination Date. No more than five bids are
permitted for each Interest Period.
****Margin over or under the London Interbank Offered Rate determined
for the applicable Interest Period. Specify percentage (rounded to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
*****Specify rate of interest per annum (rounded to the nearest
1/10,000th of 1%).
<PAGE>
provided, that the aggregate principal amount of Bid Rate Loans for which the
above offers may be accepted shall not exceed $____________.]**
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the 364-Day Credit
Agreement dated as of August 25, 1997 among the Borrower, the Banks listed on
the signature pages thereof and yourselves, as Administrative Agent, irrevocably
obligates us to make the Bid Rate Loan(s) for which any offer(s) are accepted,
in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: _________________________ By: __________________________________
Authorized Officer
2
<PAGE>
EXHIBIT E
OPINION OF COUNSEL FOR THE BORROWER
[Effective Date]
To the Banks and the Administrative Agent
Referred to Below
c/o The Chase Manhattan Bank
as Administrative Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
We have acted as counsel for Duke Capital Corporation (the "BORROWER")
in connection with the 364-Day Credit Agreement (the "CREDIT AGREEMENT") dated
as of August 25, 1997 among the Borrower, the banks listed on the signature
pages thereof and The Chase Manhattan Bank, as Administrative Agent. Terms
defined in the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and any Notes are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the articles of incorporation or by-laws of the Borrower or,
to our knowledge, of any agreement, judgment, injunction, order, decree or other
<PAGE>
instrument binding upon the Borrower or, to our knowledge, result in the
creation or imposition of any Lien on any asset of the Borrower or any of its
Material Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and the Notes, if and when issued, will constitute valid and
binding obligations of the Borrower enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by general principles of equity.
4. Except as disclosed in the reports referred to in Section 4.04 of
the Credit Agreement or in the PanEnergy Corp quarterly report on Form 10-Q for
the quarter ended June 30, 1997, to our knowledge (but without independent
investigation), there is no action, suit or proceeding pending or threatened
against or affecting, the Borrower or any of its Subsidiaries before any court
or arbitrator or any governmental body, agency or official, which would be
likely to be decided adversely to Borrower or such Subsidiary and, as a result,
to have a material adverse effect upon the business, consolidated financial
position or consolidated results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole or which in any manner draws
into question the validity of the Credit Agreement or any Notes.
5. Borrower is not a holding company under the Public Utility
Holding Company Act of 1935, as amended.
The phrase "TO THE BEST OF OUR KNOWLEDGE", as used in the foregoing
opinion, refers to the actual knowledge of this firm without any independent
investigation as to any such matters.
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the law of the State of
New York, the General Corporation Law of the State of Delaware and the federal
law of the United States of America.
This opinion is rendered to you in connection with the above matter and
may not be relied upon by you for any other purpose, or relied upon by, or
furnished to, any other person, firm or corporation without our prior written
consent, except for Additional Banks and Participants.
Very truly yours,
2
<PAGE>
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE ADMINISTRATIVE AGENT
- ---------------------------------------------------------------------
[Effective Date]
To the Banks and the Administrative Agent
Referred to Below
c/o The Chase Manhattan Bank,
as Administrative Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
We have participated in the preparation of the 364-Day Credit Agreement
(the "CREDIT AGREEMENT") dated as of August 25, 1997 among Duke Capital
Corporation, a Delaware corporation (the "BORROWER"), the banks listed on the
signature pages thereof (the "BANKS") and The Chase Manhattan Bank, as
Administrative Agent (the "ADMINISTRATIVE AGENT"), and have acted as special
counsel for the Administrative Agent for the purpose of rendering this opinion
pursuant to Section 3.01(c) of the Credit Agreement. Terms defined in the Credit
Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate powers and
have been duly authorized by all necessary corporate action.
2. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and the Notes, if and when issued, constitute valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms,
<PAGE>
except as the same may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by general principles of equity.
In giving the foregoing opinion, we express no opinion as to the effect
(if any) of any law of any jurisdiction (except the State of New York) in which
any Bank is located which limits the rate of interest that such Bank may charge
or collect.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by or furnished to any other person, firm or corporation without our
prior written consent, except for Additional Banks and all Participants.
Very truly yours,
2
<PAGE>
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the
"ASSIGNOR"), [ASSIGNEE] (the "ASSIGNEE"), DUKE CAPITAL CORPORATION (the
"COMPANY") and THE CHASE MANHATTAN BANK, as Administrative Agent (the
"ADMINISTRATIVE AGENT").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT")
relates to the 364-Day Credit Agreement dated as of August 25, 1997 among the
Company, the Assignor and the other Banks party thereto, as Banks, and the
Administrative Agent (the "CREDIT AGREEMENT");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans in an aggregate principal amount at any time
outstanding not to exceed $__________;*
WHEREAS, Committed Loans made to the Borrower by the Assignor under the
Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "ASSIGNED AMOUNT"),
together with a corresponding portion of its outstanding Committed Loans, and
the Assignee proposes to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms;*
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
- --------
*The asterisked provisions shall be appropriately revised in the event
of an assignment after the Commitment Termination Date.
<PAGE>
SECTION 2. ASSIGNMENT. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
Committed Loans made by the Assignor outstanding at the date hereof. Upon the
execution and delivery hereof by the Assignor, the Assignee, the Company and the
Administrative Agent and the payment of the amounts specified in Section 3
required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Bank under the Credit Agreement with a Commitment in an amount equal to the
Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have been
assumed by the Assignee. The assignment provided for herein shall be without
recourse to the Assignor.
SECTION 3. PAYMENTS. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them.* It is
understood that facility fees accrued to the date hereof in respect of the
Assigned Amount are for the account of the Assignor and such fees accruing from
and including the date hereof are for the account of the Assignee. Each of the
Assignor and the Assignee hereby agrees that if it receives any amount under the
Credit Agreement which is for the account of the other party hereto, it shall
receive the same for the account of such other party to the extent of such other
party's interest therein and shall promptly pay the same to such other party.
SECTION 4. CONSENT OF THE BORROWER AND THE ADMINISTRATIVE AGENT. This
Agreement is conditioned upon the consent of the Borrower and the Administrative
Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this
Agreement by the Borrower and the Administrative Agent is evidence of this
consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver
a Note, if required by the Assignee, payable to the order of the Assignee to
evidence the assignment and assumption provided for herein.
SECTION 5. NON-RELIANCE ON ASSIGNOR. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
- --------
*Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.
2
<PAGE>
with respect to, the solvency, financial condition, or statements of any
Borrower, or the validity and enforceability of the obligations of any Borrower
in respect of the Credit Agreement or any Note. The Assignee acknowledges that
it has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrowers.
SECTION 6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 8. ADMINISTRATIVE QUESTIONNAIRE. Attached is an Administrative
Questionnaire duly completed by the Assignee.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By ____________________________________
Title:
[ASSIGNEE]
By ____________________________________
Title:
3
<PAGE>
DUKE CAPITAL CORPORATION
By ____________________________________
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent
By ____________________________________
Title:
4
<PAGE>
EXHIBIT H
EXTENSION AGREEMENT
The Chase Manhattan Bank, as Administrative
Agent under the Credit Agreement
referred to below
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
Effective as of [date], the undersigned hereby agrees to extend its
Commitment and Commitment Termination Date under the 364-Day Credit Agreement
dated as of August 25, 1997 among Duke Capital Corporation, (the "BORROWER"),
the banks parties thereto and The Chase Manhattan Bank, as Administrative Agent
(the "CREDIT AGREEMENT") for 364 days to [date to which its Commitment
Termination Date is to be extended] pursuant to Section 2.01(c) of the Credit
Agreement. Terms defined in the Credit Agreement are used herein as therein
defined.
This Extension Agreement shall be construed in accordance with and
governed by the law of the State of New York. This Extension Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
[NAME OF BANK]
By ____________________________________
Title:
<PAGE>
Agreed and Accepted:
DUKE CAPITAL CORPORATION,
as Borrower
By _____________________________________
Title:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By _____________________________________
Title:
2
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, by and between
Duke Energy Corporation, a North Carolina corporation (the "Company"), and
Richard B. Priory (the "Executive"), is made as of this 22nd day of October,
1997.
WHEREAS, the Executive has entered into an employment
agreement, dated November 24, 1996, with the Company (f.k.a. Duke Power Company)
(the "Employment Agreement");
WHEREAS, the Employment Agreement provides that it may be
amended by the written agreement of the parties; and
WHEREAS, the Company and the Executive now wish to amend the
Employment Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter contained, the parties do hereby amend the
Employment Agreement as follows:
1. Section 3(b) (ii) of the Employment Agreement is hereby amended by deleting
the text thereof in its entirety and replacing it with the following:
"(ii) Annual Bonus. (a) In respect of calendar year 1997, the
Executive shall be eligible, based upon the achievement of performance
goals during such year, to receive a bonus with a target level not less
than the target level applicable to the Executive for the 1996 calendar
year under the Company's Executive Short Term Incentive Plan. The
establishment of the performance goals, the evaluation of the actual
performance against such goals, and the determination of the bonus (if
any) actually payable to the Executive (which may be at, above or below
the target level) shall be made by the Compensation Committee of the
Board acting in its sole discretion.
(b) Commencing in calendar year 1998, the Executive shall be
eligible, based upon the achievement of performance goals during such
year, to receive an annual bonus with a target level of 100% of the
Executive's base salary for purposes of the applicable annual bonus
plan. The establishment of the performance goals, the evaluation of the
actual performance against such goals, and the determination of the
bonus (if any) actually payable to the Executive (which may be at,
above or below the target level) shall be made by the Compensation
Committee of the Board acting in its sole discretion. At the discretion
of the Board, such bonus may be made payable pursuant to the terms of
an annual bonus plan
<PAGE>
that is intended to comply with the requirements of Section 162(m) of
the Internal Revenue Code, and that is subject to the approval of the
Company's stockholders at its 1998 annual meeting.
(c) For purposes of Section 5(a) hereof concerning the
Company's obligations upon termination of employment, the term "Target
Annual Bonus" shall mean the target level of the Executive's annual
bonus multiplied by his Annual Base Salary, each as in effect under
this Section 3 immediately prior to the Date of Termination."
2. Section 3(b)(iii) of the Employment Agreement is hereby
amended by deleting the text thereof in its entirety and by replacing it with
the following:
"(iii) Long-Term Incentives. The Compensation Committee of the
Board shall award to the Executive one or more nonqualified stock
options to purchase an aggregate of 500,000 shares of the Company's
common stock, without par value (the "Option"), pursuant to the terms
of the Company's Stock Incentive Plan (the "Plan"). The number of
shares covered by the Option in excess of 100,000 (400,000 shares)
shall be subject to the approval by the stockholders of the Company of
an amendment to the Plan to increase the number of shares that may be
subject to stock options granted during a year to any one participant.
The option may be granted in one or more installments at the discretion
of the Compensation Committee, but in any event shall be fully granted
by the date of the 1998 annual meeting (subject to stockholder approval
as described above). The exercise price per share of the Option shall
be the fair market value of the Common Stock on the date(s) of grant,
determined in accordance with the terms of the Plan. The Option shall
vest in accordance with a schedule no less favorable than equal annual
installments of 20 percent each as to the number of shares subject to
the Option, commencing on the first anniversary of the date(s) of
grant, and shall have a maximum term of exercise of 10 years from the
date(s) of grant (subject in each case to your continued employment by
the Company). The Option shall also include provisions consistent with
the Plan with respect to the vesting and term of the Option in
connection with a "change of control" of the Company and the death or
disability of the Executive. The foregoing and other applicable terms
and conditions of the Option shall be set forth in a stock option
agreement approved by the Compensation Committee of the Board.
Notwithstanding any prior agreement between the Company and the
Executive, the Company is under no obligation to make any other stock
option or other long-term incentive awards to the Executive during the
Employment Period."
Except as amended and modified hereby, the terms of the
Employment Agreement shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
First Amendment to Employment Agreement as of the day and year first above
written.
/s/ R. B. Priory
----------------
Richard B. Priory
DUKE ENERGY CORPORATION
/s/ P.M. Anderson
-----------------
By: P.M. Anderson
Title: President & COO
3
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, by and between
Duke Energy Corporation, a North Carolina corporation ("Duke"), PanEnergy Corp,
a Delaware corporation ("PanEnergy"), and Paul M. Anderson (the "Executive"), is
made as of this 24th day of October, 1997.
WHEREAS, the Executive has entered into an employment
agreement, dated November 24, 1996, with Duke and PanEnergy (the "Employment
Agreement");
WHEREAS, the Employment Agreement provides that it may be
amended by the written agreement of the parties; and
WHEREAS, the parties hereto now wish to amend the Employment
Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter contained, the parties do hereby amend the
Employment Agreement as follows:
1. Section 3(b) (ii) of the Employment Agreement is hereby amended by deleting
the text thereof in its entirety and replacing it with the following:
"(ii) Annual Bonus. (a) In respect of calendar year 1997, the
Executive shall be eligible, based upon the Executive's achievement of
performance goals (set by the Compensation Committee of the Board, in
consultation with the Executive, at levels substantially consistent
with past practice) during such fiscal year, to receive a bonus at a
target level of not less than 70% of the Annual Base Salary, with the
opportunity, substantially consistent with past practice, to earn in
excess of such amount based upon the attainment of agreed upon
performance goals. Such bonus shall be paid no later than March 31,
1998.
(b) Commencing in calendar year 1998, the Executive shall be
eligible, based upon the achievement of performance goals during such
year, to receive an annual bonus with a target level of 90% of the
Executive's base salary for purposes of the applicable annual bonus
plan. The establishment of the performance goals, the evaluation of the
actual performance against such goals, and the determination of the
bonus (if any) actually payable to the Executive (which may be at,
above or below the target level) shall be made by the Compensation
Committee of the Board acting in its sole discretion. At the discretion
of the Board, such bonus may be made payable pursuant to the terms of
an annual bonus plan that is intended to comply with the requirements
of Section 162(m) of the
<PAGE>
Internal Revenue Code, and that is subject to the approval of the
Company's stockholders at its 1998 annual meeting.
(c) For purposes of Section 5(a) hereof concerning the
Company's obligations upon termination of employment, the term "Target
Annual Bonus" shall mean the target level of the Executive's annual
bonus multiplied by his annual Base Salary, each as in effect under
this Section 3 immediately prior to the Date of Termination."
2. Section 3(b)(iii) of the Employment Agreement is hereby
amended by deleting the text thereof in its entirety and by replacing it with
the following:
"(iii) Long-Term Incentives. The Compensation Committee of the
Board shall award to the Executive one or more nonqualified stock
options to purchase an aggregate of 400,000 shares of the Company's
common stock, without par value (the "Option"), pursuant to the terms
of the Company's Stock Incentive Plan (the "Plan"). The number of
shares covered by the Option in excess of 100,000 (300,000 shares)
shall be subject to the approval by the stockholders of the Company of
an amendment to the Plan to increase the number of shares that may be
subject to stock options granted during a year to any one participant.
The option may be granted in one or more installments at the discretion
of the Compensation Committee, but in any event shall be fully granted
by the date of the 1998 annual meeting (subject to stockholder approval
as described above). The exercise price per share of the Option shall
be the fair market value of the Common Stock on the date(s) of grant,
determined in accordance with the terms of the Plan. The Option shall
vest in accordance with a schedule no less favorable than equal annual
installments of 20 percent each as to the number of shares subject to
the Option, commencing on the first anniversary of the date(s) of
grant, and shall have a maximum term of exercise of 10 years from the
date(s) of grant (subject in each case to your continued employment by
the Company). The Option shall also include provisions consistent with
the Plan with respect to the vesting and term of the Option in
connection with a "change of control" of the Company and the death or
disability of the Executive. The foregoing and other applicable terms
and conditions of the Option shall be set forth in a stock option
agreement approved by the Compensation Committee of the Board.
Notwithstanding any prior agreement between the Company and the
Executive, the Company is under no obligation to make any other stock
option or other long-term incentive awards to the Executive during the
Employment Period."
Except as amended and modified hereby, the terms of the
Employment Agreement shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
First Amendment to Employment Agreement as of the day and year first above
written.
/s/ P.M. Anderson
-----------------
Paul M. Anderson
DUKE ENERGY CORPORATION
/s/ R.B. Priory
---------------
By: R.B. Priory
Title: Chairman & CEO
PANENERGY CORP
/s/ James T. Hackett
--------------------
By: James T. Hackett
Title: President Energy Services
3
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, by and between
Duke Energy Corporation, a North Carolina corporation ("Duke"), PanEnergy Corp,
a Delaware corporation ("PanEnergy"), and James T. Hackett (the "Executive"), is
made as of this 24th day of October, 1997.
WHEREAS, the Executive has entered into an employment
agreement, dated November 24, 1996, with PanEnergy (the "Employment Agreement");
WHEREAS, the parties hereto intend that all rights and
obligations of PanEnergy under the Employment Agreement be assumed by Duke;
WHEREAS, the Employment Agreement provides that it may be
amended by the written agreement of the parties; and
WHEREAS, the parties hereto now wish to amend the Employment
Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter contained, the parties do hereby amend the
Employment Agreement as follows:
1. Section 3(b) (ii) of the Employment Agreement is hereby amended by deleting
the text thereof in its entirety and replacing it with the following:
"(ii) Annual Bonus. (a) In respect of calendar year 1997, the
Executive shall be eligible, based upon the Executive's achievement of
performance goals (set by the Compensation Committee of the Board, in
consultation with the Executive, at levels substantially consistent
with past practice) during such fiscal year, to receive a bonus at a
target level of not less than 55% of the Annual Base Salary, with the
opportunity, substantially consistent with past practice, to earn in
excess of such amount based upon the attainment of agreed upon
performance goals. Such bonus shall be paid no later than March 31,
1998.
(b) Commencing in calendar year 1998, the Executive shall be
eligible, based upon the achievement of performance goals during such
year, to receive an annual bonus with a target level of 70% of the
Executive's base salary for purposes of the applicable annual bonus
plan. The establishment of the performance goals, the evaluation of the
actual performance against such goals, and the determination of the
bonus (if any) actually payable to the Executive (which may be at,
above or below
<PAGE>
the target level) shall be made by the Compensation Committee of the
Board acting in its sole discretion. At the discretion of the Board,
such bonus may be made payable pursuant to the terms of an annual bonus
plan that is intended to comply with the requirements of Section 162(m)
of the Internal Revenue Code, and that is subject to the approval of
the Company's stockholders at its 1998 annual meeting.
(c) For purposes of Section 5(a) hereof concerning the
Company's obligations upon termination of employment, the term "Target
Annual Bonus" shall mean the target level of the Executive's annual
bonus multiplied by his Annual Base Salary, each as in effect under
this Section 3 immediately prior to the Date of Termination."
2. Section 3(b)(iii) of the Employment Agreement is hereby
amended by deleting the text thereof in its entirety and by replacing it with
the following:
"(iii) Long-Term Incentives. The Compensation Committee of the
Board shall award to the Executive one or more nonqualified stock
options to purchase an aggregate of 250,000 shares of the Company's
common stock, without par value (the "Option"), pursuant to the terms
of the Company's Stock Incentive Plan (the "Plan"). The number of
shares covered by the Option in excess of 100,000 (150,000 shares)
shall be subject to the approval by the stockholders of the Company of
an amendment to the Plan to increase the number of shares that may be
subject to stock options granted during a year to any one participant.
The option may be granted in one or more installments at the discretion
of the Compensation Committee, but in any event shall be fully granted
by the date of the 1998 annual meeting (subject to stockholder approval
as described above). The exercise price per share of the Option shall
be the fair market value of the Common Stock on the date(s) of grant,
determined in accordance with the terms of the Plan. The Option shall
vest in accordance with a schedule no less favorable than equal annual
installments of 20 percent each as to the number of shares subject to
the Option, commencing on the first anniversary of the date(s) of
grant, and shall have a maximum term of exercise of 10 years from the
date(s) of grant (subject in each case to your continued employment by
the Company). The Option shall also include provisions consistent with
the Plan with respect to the vesting and term of the Option in
connection with a "change of control" of the Company and the death or
disability of the Executive. The foregoing and other applicable terms
and conditions of the Option shall be set forth in a stock option
agreement approved by the Compensation Committee of the Board.
Notwithstanding any prior agreement between the Company and the
Executive, the Company is under no obligation to make any other stock
option or other long-term incentive awards to the Executive during the
Employment Period."
2
<PAGE>
3. All rights and obligations of PanEnergy under the
Employment Agreement are hereby assigned to and assumed by Duke, and all
references to "the Company" in the Employment Agreement, as amended hereby,
shall hereinafter be deemed to be references to Duke.
Except as amended and modified hereby, the terms of the
Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have entered into this
First Amendment to Employment Agreement as of the day and year first above
written.
/s/ James T. Hackett
--------------------
James T. Hackett
DUKE ENERGY CORPORATION
/s/ P.M. Anderson
-----------------
By: P.M. Anderson
Title: President & COO
PANENERGY CORP
/s/ P.M. Anderson
-----------------
By: P.M. Anderson
Title: President & CEO
3
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, by and between
Duke Energy Corporation, a North Carolina corporation (the "Company"), and
William A. Coley (the "Executive"), is made as of this 24th day of October,
1997.
WHEREAS, the Executive has entered into an employment
agreement, dated November 24, 1996, with the Company (f.k.a. Duke Power Company)
(the "Employment Agreement");
WHEREAS, the Employment Agreement provides that it may be
amended by the written agreement of the parties; and
WHEREAS, the Company and the Executive now wish to amend the
Employment Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter contained, the parties do hereby amend the
Employment Agreement as follows:
1. Section 3(b) (ii) of the Employment Agreement is hereby amended by deleting
the text thereof in its entirety and replacing it with the following:
"(ii) Annual Bonus. (a) In respect of calendar year 1997, the
Executive shall be eligible, based upon the achievement of performance
goals during such year, to receive a bonus with a target level not less
than the target level applicable to the Executive for the 1996 calendar
year under the Company's Executive Short Term Incentive Plan. The
establishment of the performance goals, the evaluation of the actual
performance against such goals, and the determination of the bonus (if
any) actually payable to the Executive (which may be at, above or below
the target level) shall be made by the Compensation Committee of the
Board acting in its sole discretion.
(b) Commencing in calendar year 1998, the Executive shall be
eligible, based upon the achievement of performance goals during such
year, to receive an annual bonus with a target level of 60% of the
Executive's base salary for purposes of the applicable annual bonus
plan. The establishment of the performance goals, the evaluation of the
actual performance against such goals, and the determination of the
bonus (if any) actually payable to the Executive (which may be at,
above or below the target level) shall be made by the Compensation
Committee of the Board acting in its sole discretion. At the discretion
of the Board, such bonus may be made payable pursuant to the terms of
an annual bonus plan
<PAGE>
that is intended to comply with the requirements of Section 162(m) of
the Internal Revenue Code, and that is subject to the approval of the
Company's stockholders at its 1998 annual meeting.
(c) For purposes of Section 5(a) hereof concerning the
Company's obligations upon termination of employment, the term "Target
Annual Bonus" shall mean the target level of the Executive's annual
bonus multiplied by his Annual Base Salary, each as in effect under
this Section 3 immediately prior to the Date of Termination."
2. Section 3(b)(iii) of the Employment Agreement is hereby
amended by deleting the text thereof in its entirety and by replacing it with
the following:
"(iii) Long-Term Incentives. The Compensation Committee of the
Board shall award to the Executive one or more nonqualified stock
options to purchase an aggregate of 200,000 shares of the Company's
common stock, without par value (the "Option"), pursuant to the terms
of the Company's Stock Incentive Plan (the "Plan"). The number of
shares covered by the Option in excess of 100,000 (100,000 shares)
shall be subject to the approval by the stockholders of the Company of
an amendment to the Plan to increase the number of shares that may be
subject to stock options granted during a year to any one participant.
The option may be granted in one or more installments at the discretion
of the Compensation Committee, but in any event shall be fully granted
by the date of the 1998 annual meeting (subject to stockholder approval
as described above). The exercise price per share of the Option shall
be the fair market value of the Common Stock on the date(s) of grant,
determined in accordance with the terms of the Plan. The Option shall
vest in accordance with a schedule no less favorable than equal annual
installments of 20 percent each as to the number of shares subject to
the Option, commencing on the first anniversary of the date(s) of
grant, and shall have a maximum term of exercise of 10 years from the
date(s) of grant (subject in each case to your continued employment by
the Company). The Option shall also include provisions consistent with
the Plan with respect to the vesting and term of the Option in
connection with a "change of control" of the Company and the death or
disability of the Executive. The foregoing and other applicable terms
and conditions of the Option shall be set forth in a stock option
agreement approved by the Compensation Committee of the Board.
Notwithstanding any prior agreement between the Company and the
Executive, the Company is under no obligation to make any other stock
option or other long-term incentive awards to the Executive during the
Employment Period."
Except as amended and modified hereby, the terms of the
Employment Agreement shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
First Amendment to Employment Agreement as of the day and year first above
written.
/s/ William A. Coley
--------------------
William A. Coley
DUKE ENERGY CORPORATION
/s/ R.B. Priory
---------------
By: R.B. Priory
Title: Chairman & CEO
3
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, by and between
Duke Energy Corporation, a North Carolina corporation (the "Company"), and
Richard J. Osborne (the "Executive"), is made as of this 27th day of October,
1997.
WHEREAS, the Executive has entered into an employment
agreement, dated November 24, 1996, with the Company (f.k.a. Duke Power Company)
(the "Employment Agreement");
WHEREAS, the Employment Agreement provides that it may be
amended by the written agreement of the parties; and
WHEREAS, the Company and the Executive now wish to amend the
Employment Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter contained, the parties do hereby amend the
Employment Agreement as follows:
1. Section 3(b) (ii) of the Employment Agreement is hereby amended by deleting
the text thereof in its entirety and replacing it with the following:
"(ii) Annual Bonus. (a) In respect of calendar year 1997, the
Executive shall be eligible, based upon the achievement of performance
goals during such year, to receive a bonus with a target level not less
than the target level applicable to the Executive for the 1996 calendar
year under the Company's Executive Short Term Incentive Plan. The
establishment of the performance goals, the evaluation of the actual
performance against such goals, and the determination of the bonus (if
any) actually payable to the Executive (which may be at, above or below
the target level) shall be made by the Compensation Committee of the
Board acting in its sole discretion.
(b) Commencing in calendar year 1998, the Executive shall be
eligible, based upon the achievement of performance goals during such
year, to receive an annual bonus with a target level of 60% of the
Executive's base salary for purposes of the applicable annual bonus
plan. The establishment of the performance goals, the evaluation of the
actual performance against such goals, and the determination of the
bonus (if any) actually payable to the Executive (which may be at,
above or below the target level) shall be made by the Compensation
Committee of the Board acting in its sole discretion. At the discretion
of the Board, such bonus may be made payable pursuant to the terms of
an annual bonus plan
<PAGE>
that is intended to comply with the requirements of Section 162(m) of
the Internal Revenue Code, and that is subject to the approval of the
Company's stockholders at its 1998 annual meeting.
(c) For purposes of Section 5(a) hereof concerning the
Company's obligations upon termination of employment, the term "Target
Annual Bonus" shall mean the target level of the Executive's annual
bonus multiplied by his Annual Base Salary, each as in effect under
this Section 3 immediately prior to the Date of Termination."
2. Section 3(b)(iii) of the Employment Agreement is hereby
amended by deleting the text thereof in its entirety and by replacing it with
the following:
"(iii) Long-Term Incentives. The Compensation Committee of the
Board shall award to the Executive one or more nonqualified stock
options to purchase an aggregate of 100,000 shares of the Company's
common stock, without par value (the "Option"), pursuant to the terms
of the Company's Stock Incentive Plan (the "Plan"). The option may be
granted in one or more installments at the discretion of the
Compensation Committee, but in any event shall be fully granted by the
date of the 1998 annual meeting (subject to stockholder approval as
described above). The exercise price per share of the Option shall be
the fair market value of the Common Stock on the date(s) of grant,
determined in accordance with the terms of the Plan. The Option shall
vest in accordance with a schedule no less favorable than equal annual
installments of 20 percent each as to the number of shares subject to
the Option, commencing on the first anniversary of the date(s) of
grant, and shall have a maximum term of exercise of 10 years from the
date(s) of grant (subject in each case to your continued employment by
the Company). The Option shall also include provisions consistent with
the Plan with respect to the vesting and term of the Option in
connection with a "change of control" of the Company and the death or
disability of the Executive. The foregoing and other applicable terms
and conditions of the Option shall be set forth in a stock option
agreement approved by the Compensation Committee of the Board.
Notwithstanding any prior agreement between the Company and the
Executive, the Company is under no obligation to make any other stock
option or other long-term incentive awards to the Executive during the
Employment Period."
Except as amended and modified hereby, the terms of the
Employment Agreement shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
First Amendment to Employment Agreement as of the day and year first above
written.
/s/ Richard J. Osborne
----------------------
Richard J. Osborne
DUKE ENERGY CORPORATION
/s/ R.B. Priory
---------------
By: R.B. Priory
Title: Chairman & CEO
3
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------
1997 (a) 1996 (a) 1995 (a) 1994 (a) 1993 (a)
-------------- -------------- -------------- -------------- --------------
Dollars in Millions
<S> <C> <C> <C> <C> <C>
Earnings before income taxes ............ $ 1,613.3 $ 1,788.8 $ 1,682.3 $ 1,422.5 $ 1,326.9
Fixed charges ........................... 519.8 540.2 556.2 537.7 576.6
----------- ----------- ----------- ----------- -----------
Total ................................. $ 2,133.1 $ 2,329.0 $ 2,238.5 $ 1,960.2 $ 1,903.5
=========== =========== =========== =========== ===========
Fixed charges:
Interest on debt ...................... $ 496.7 $ 513.6 $ 535.7 $ 519.8 $ 559.9
Interest component of rentals ......... 23.1 26.6 20.5 17.9 16.7
----------- ----------- ----------- ----------- -----------
Fixed charges ........................ $ 519.8 $ 540.2 $ 556.2 $ 537.7 $ 576.6
=========== =========== =========== =========== ===========
Ratio of earnings to fixed charges ...... 4.1 4.3 4.0 3.6 3.3
</TABLE>
- ---------
(a) Financial information reflects accounting for the merger with PanEnergy
Corp as a pooling of interests. As a result, the financial information
gives effect to the merger as if it had occurred January 1, 1993.
67
EXHIBIT 21
LIST OF SUBSIDIARIES
The following is a list of certain subsidiaries of the registrant and
their respective states of incorporation (100% owned unless otherwise
indicated):
Algonquin Gas Transmission Company (Delaware)
Crescent Resources, Inc. (South Carolina)
Duke Capital Corporation (Delaware)
Duke Energy Field Services, Inc. (Colorado)
Duke Energy Natural Gas Corporation (Delaware)
Duke Energy Trading and Marketing, L.L.C. (Delaware) (60% owned)
Duke Engineering and Services, Inc. (North Carolina)
Nantahala Power and Light Company (North Carolina)
PanEnergy Corp (Delaware)
Panhandle Eastern Pipe Line Company (Delaware)
Texas Eastern Transmission Corporation (Delaware)
Trunkline Gas Company (Delaware)
68
Exhibit No. 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos.
33-50543, 33-50617, 33-50715, 333-02571, 33-59926, 33-60314, 333-02575,
333-14209 and 333-30263 of Duke Energy Corporation on Form S-3 and Registration
Statement Nos. 333-29563, 333-29585, 333-29587, and 333-34655 of Duke Energy
Corporation on Form S-8 of our report dated February 13, 1998, appearing in this
Form 10-K of Duke Energy Corporation for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE, LLP
----------------------------------------
Charlotte, North Carolina
March 27, 1998
Exhibit No. 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos.
33-50543, 33-50617, 33-50715, 333-02571, 33-59926, 33-60314, 333-02575,
333-14209 and 333-30263 of Duke Energy Corporation on Form S-3 and Registration
Statement Nos. 333-29563, 333-29585, 333-29587, and 333-34655 of Duke Energy
Corporation on Form S-8 of our report on the consolidated financial statements
of PanEnergy Corp as of and for the years ended December 31, 1996 and 1995,
dated January 16, 1997, appearing in this Form 10-K of Duke Energy Corporation
for the year ended December 31, 1997.
/s/ KPMG PEAT MARWICK LLP
----------------------------------------
Houston, Texas
March 27, 1998
DUKE ENERGY CORPORATION
Power of Attorney
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
(Annual Report)
The undersigned Duke Energy Corporation, a North Carolina corporation, and
certain of its officers and/or directors, do each hereby constitute and appoint
Richard J. Osborne, Robert S. Lilien, W. Edward Poe, Jr. and Jeffrey L. Boyer,
and each of them, to act as attorneys-in-fact for and in the respective names,
places, and stead of the undersigned, to execute, seal, sign, and file with the
Securities and Exchange Commission the Annual Report of said Duke Energy
Corporation on Form 10-K and any and all amendments thereto, hereby granting to
said attorneys-in-fact, and each of them, full power and authority to do and
perform all and every act and thing whatsoever requisite, necessary, or proper
to be done in and about the premises, as fully to all intents and purposes as
the undersigned, or any of them, might or could do if personally present, hereby
ratifying and approving the acts of said attorneys-in-fact.
Executed the 18th day of February, 1998
DUKE ENERGY CORPORATION
By: R. B. PRIORY
------------------------------------
Chairman and Chief Executive Officer
(Corporate Seal)
ATTEST:
<TABLE>
<S> <C>
ROBERT T. LUCAS III Assistant Secretary
- ------------------------------
Robert T. Lucas III
R. B. PRIORY Chairman and Chief Executive Officer
- ------------------------------ (Principal Executive Officer and Director)
R. B. Priory
RICHARD J. OSBORNE Executive Vice President and Chief Financial
- ------------------------------ Officer (Principal Financial Officer)
Richard J. Osborne
JEFFREY L. BOYER Vice President and Corporate Controller
- ------------------------------ (Principal Accounting Officer)
Jeffrey L. Boyer
PAUL M. ANDERSON (Director)
- ------------------------------
Paul M. Anderson
G. ALEX BERNHARDT (Director)
- ------------------------------
G. Alex Bernhardt
ROBERT J. BROWN (Director)
- ------------------------------
Robert J. Brown
</TABLE>
<PAGE>
<TABLE>
<S> <C>
WILLIAM A. COLEY (Director)
------------------------------
William A. Coley
WILLIAM T. ESREY (Director)
------------------------------
William Esrey
ANN M. GRAY (Director)
------------------------------
Ann M. Gray
DENNIS R. HENDRIX (Director)
------------------------------
Dennis R. Hendrix
HAROLD S. HOOK (Director)
------------------------------
Harold S. Hook
GEORGE DEAN JOHNSON, JR. (Director)
------------------------------
George Dean Johnson, Jr.
(Director)
------------------------------
W. W. Johnson
MAX LENNON (Director)
------------------------------
Max Lennon
LEO E. LINBECK, JR. (Director)
------------------------------
Leo E. Linbeck, Jr.
JAMES G. MARTIN (Director)
------------------------------
James G. Martin
BUCK MICKEL (Director)
------------------------------
Buck Mickel
RUSSELL M. ROBINSON, II (Director)
------------------------------
Russell M. Robinson, II
</TABLE>
Exhibit No. 24(b)
Certified Copy of Resolutions from the Minutes of
a Regular Meeting of the Board of Directors of
Duke Energy Corporation Held on February 18, 1998
FURTHER RESOLVED, That the Power of Attorney as presented to the meeting
and executed by all the Directors present be and hereby is approved in form and
content for purposes of filing the Form 10-K Annual Report with the Securities
and Exchange Commission.
***************
I, Robert T. Lucas III, Assistant Secretary of Duke Energy Corporation,
do hereby certify that the above is a full, true and complete extract from the
Minutes of the regular meeting of the Board of Directors of Duke Energy
Corporation held on February 18, 1998, at which meetings a quorum was present,
as taken from and compared with the original Minutes of said meeting.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
Corporate Seal of said Duke Energy Corporation this 27th day of March, 1998.
Robert T. Lucas III
-------------------
Robert T. Lucas III
Assistant Secretary
[SEAL]
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS,
AND CONSOLIDATED BALANCE SHEETS AS OF AND FOR YEAR TO DATE 12/31/97 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000030371
<NAME> DUKE ENERGY CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,576,500
<OTHER-PROPERTY-AND-INVEST> 8,607,000
<TOTAL-CURRENT-ASSETS> 3,685,200
<TOTAL-DEFERRED-CHARGES> 2,160,100
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 24,028,800
<COMMON> 4,283,700
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 3,256,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 7,539,700
149,000
340,000
<LONG-TERM-DEBT-NET> 6,530,000
<SHORT-TERM-NOTES> 35,700
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 1,733,800
<LONG-TERM-DEBT-CURRENT-PORT> 77,300
0
<CAPITAL-LEASE-OBLIGATIONS> 9,744
<LEASES-CURRENT> 1,640
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,223,300
<TOT-CAPITALIZATION-AND-LIAB> 24,028,800
<GROSS-OPERATING-REVENUE> 16,308,900
<INCOME-TAX-EXPENSE> 638,900
<OTHER-OPERATING-EXPENSES> 14,338,900
<TOTAL-OPERATING-EXPENSES> 14,977,800
<OPERATING-INCOME-LOSS> 1,970,000
<OTHER-INCOME-NET> 138,100
<INCOME-BEFORE-INTEREST-EXPEN> 1,446,200
<TOTAL-INTEREST-EXPENSE> 471,800
<NET-INCOME> 974,400
72,800
<EARNINGS-AVAILABLE-FOR-COMM> 901,600
<COMMON-STOCK-DIVIDENDS> 682,200
<TOTAL-INTEREST-ON-BONDS> 228,738
<CASH-FLOW-OPERATIONS> 2,140,100
<EPS-PRIMARY> 2.51
<EPS-DILUTED> 2.50
</TABLE>
Exhibit 99
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PanEnergy Corp:
We have audited the consolidated balance sheet of PanEnergy Corp and
Subsidiaries as of December 31, 1996, and the related consolidated statements
of income, common stockholders' equity, and cash flows for the year ended
December 31, 1996 and 1995 (not presented herein). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PanEnergy
Corp and Subsidiaries as of December 31, 1996 and the results of their
operations and their cash flows for the years ended December 31, 1996 and 1995
in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
----------------------------------------
Houston, Texas
January 16, 1997
