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UNITED STATES
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, 1998
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 1-2700
EL PASO NATURAL GAS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 74-0608280
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
EL PASO ENERGY BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 420-2131
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
9.45% Notes due 1999.................. New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT...........................................................NONE
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Common Stock, par value $1 per share. Shares outstanding on March 16, 1999:
1,000
EL PASO NATURAL GAS COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION
I(1)(a) AND (b) TO FORM 10-K AND IS THEREFORE FILING THIS REPORT WITH A REDUCED
DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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NOTICE
Effective August 1, 1998, by virtue of a merger conducted pursuant to
Section 251(g) of the Delaware General Corporation Law, the Company reorganized
into a holding company form of organizational structure whereby El Paso Energy
Corporation ("EPEC") became the holding company, and the equity securities of El
Paso Natural Gas Company (the "Company") ceased to be publicly traded. The
holding company reorganization is discussed further in Item 8, Note 1, Summary
of Significant Accounting Policies -- Holding Company Reorganization of this
Annual Report on Form 10-K.
All of the Company's outstanding capital stock was converted, on a share
for share basis, into the capital stock of EPEC. Previous stockholders of the
Company are now stockholders of EPEC, and are advised to read the 1998 Annual
Report of EPEC on Form 10-K.
<PAGE> 3
EL PASO NATURAL GAS COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
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<S> <C> <C>
Glossary.............................................................. ii
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 3
Item 3. Legal Proceedings........................................... 4
Item 4. Submission of Matters to a Vote of Security Holders......... *
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 5
Item 6. Selected Financial Data..................................... *
Item 7. Management's Discussion and Analysis of Financial Condition
and Results
of Operations............................................. 6
Risk Factors -- Cautionary Statement for Purposes of the
"Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995... 7
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 9
Item 8. Financial Statements and Supplementary Data................. 10
Item 9. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure...................................... 33
PART III
Item 10. Directors and Executive Officers of the Registrant.......... *
Item 11. Executive Compensation...................................... *
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ *
Item 13. Certain Relationships and Related Transactions.............. *
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 33
Signatures.................................................. 35
</TABLE>
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* No response to this item is included herein for the reason that no response is
required pursuant to the reduced disclosure format permitted by General
Instruction I to Form 10-K.
i
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GLOSSARY
The following abbreviations, acronyms, or defined terms used in this Form
10-K are defined below:
<TABLE>
<S> <C>
ALJ............................... Administrative Law Judge
BBtu(/d).......................... Billion British thermal units (per day)
Bcf(/d)........................... Billion cubic feet (per day)
Company........................... El Paso Natural Gas Company and its subsidiaries
Court of Appeals.................. United States Court of Appeals for the District of Columbia Circuit
Dynegy............................ Dynegy Inc., formerly known as NGC Corporation
Edison............................ Southern California Edison Company
EPA............................... United States Environmental Protection Agency
EPEC.............................. El Paso Energy Corporation, the parent company of El Paso Natural
Gas Company subsequent to August 1, 1998
EPFS.............................. El Paso Field Services Company, a wholly owned subsidiary of El
Paso Tennessee Pipeline Co.
EPNG.............................. El Paso Natural Gas Company, unless the context otherwise requires
EPTPC............................. El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), a direct
subsidiary of El Paso Energy Corporation
FERC.............................. Federal Energy Regulatory Commission
IRS............................... Internal Revenue Service
MMcf(/d).......................... Million cubic feet (per day)
MPC............................... Mojave Pipeline Company, a wholly owned indirect partnership of El
Paso Natural Gas Company
PG&E.............................. Pacific Gas & Electric Company
PRP(s)............................ Potentially Responsible Party(ies)
SFAS.............................. Statement of Financial Accounting Standards
SoCal............................. Southern California Gas Company
TGP............................... Tennessee Gas Pipeline Company, a wholly owned subsidiary of El
Paso Tennessee Pipeline Co.
</TABLE>
ii
<PAGE> 5
PART I
ITEM 1. BUSINESS
GENERAL
EPNG is a Delaware corporation incorporated in 1928. Pursuant to the
holding company reorganization described below, EPNG became a wholly owned
subsidiary of EPEC. The major business of the Company consists of the interstate
transportation of natural gas, which generally is subject to regulation by FERC.
Prior to the tax-free internal reorganization described below, the Company's
operations included certain other non-regulated business operations, such as the
intrastate transportation, gathering , and processing of natural gas, the
marketing of natural gas, power and other commodities, and the development and
operation of energy infrastructure facilities.
Effective August 1, 1998, the Company reorganized into a holding company
form of organizational structure, whereby EPEC, a Delaware corporation, became
the corporate parent holding company. The holding company organizational
structure was effected by a merger conducted pursuant to Section 251(g) of the
Delaware General Corporation Law, which provides for the formation of a holding
company structure without a vote of the stockholders of EPNG. In the merger, El
Paso Energy Merger Company, a Delaware corporation and wholly owned subsidiary
of EPEC, merged with and into EPNG, with EPNG as the surviving corporation. By
virtue of the merger, EPNG became a direct, wholly owned subsidiary of EPEC, and
all of EPNG's outstanding capital stock was converted, on a share for share
basis, into capital stock of EPEC.
On December 31, 1998, EPEC completed a tax-free internal reorganization of
its assets and operations and those of its subsidiaries, in accordance with a
private letter ruling received from the IRS. In the reorganization, the Company
transferred a substantial number of its subsidiaries (and their assets,
liabilities, and operations) to EPEC or other entities owned by EPEC. After
giving effect to the reorganization, the Company's primary assets are its
interstate pipeline systems known as the EPNG System and the MPC System. In the
reorganization, the Company transferred the following assets, liabilities, and
operations to EPEC or other EPEC subsidiaries, and eliminated them from its
consolidated financial statements: (i) its trading and marketing operations;
(ii) its international operations; (iii) its field services operations; (iv) the
interstate pipeline systems known as the TGP system, Midwestern system, and East
Tennessee system; and (v) all subsidiaries with corporate operations.
The EPNG system. The EPNG system consists of approximately 9,800 miles of
pipeline with a design capacity of 4,744 MMcf/d. During 1998, EPNG transported
natural gas volumes averaging approximately 77 percent of its capacity. The EPNG
system serves California, which is its single largest market, and also serves
markets in Nevada, Arizona, New Mexico, Texas, Oklahoma, and northern Mexico.
The EPNG system delivers natural gas from the San Juan Basin of northern New
Mexico and southern Colorado, and also accesses natural gas supplies in the
Permian and Anadarko Basins of west Texas.
The MPC system. The MPC system consists of approximately 400 miles of
pipeline with a design capacity of approximately 400 MMcf/d. During 1998, MPC
transported natural gas volumes averaging approximately 81 percent of its
capacity. The MPC system is connected with the EPNG transmission system at
Topock, Arizona and Kern River Gas Transmission Company in California and
extends to customers in the vicinity of Bakersfield, California.
Other -- The Samalayuca Pipeline, a 45-mile 212 MMcf/d pipeline system,
commenced gas deliveries in December 1997. The pipeline delivers natural gas to
the Samalayuca Power Project from EPNG's existing pipeline system in west Texas
and the pipeline system in northern Mexico of Pemex Gas y Petroquimica Basica, a
Mexican state-owned company. This system consists of 22 miles of pipeline in the
U.S. (currently owned by the Company) and 23 miles of pipeline in Mexico
(currently 10 percent owned by the Company).
1
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REGULATORY ENVIRONMENT
EPNG and MPC are subject to the jurisdiction of FERC in accordance with the
Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978.
In the mid-1980s, FERC initiated a series of actions which ultimately had
the effect of substantially removing interstate pipelines from the gas purchase
and resale business and confining their role to transportation of gas owned by
others. In Order No. 436, issued in 1985, FERC began this transition by
requiring interstate pipelines to provide non-discriminatory access to their
facilities for all transporters of natural gas. This requirement enabled
consumers to purchase their own gas and have it transported on the interstate
pipeline system, rather than purchase gas from the pipelines. The transition was
completed with Order No. 636, issued in 1992, in which FERC required all
interstate pipelines to "unbundle" their sales and transportation services so
that the transportation services they provided to third parties would be
"comparable" to the transportation services provided to gas owned by the
pipeline. FERC's stated purpose was to ensure that the pipelines' monopoly over
the transportation of natural gas did not distort the competition in the gas
producer sales market, which had, by then, been essentially deregulated.
One of the obstacles to this transition was the existence of long-term gas
purchase contracts between pipelines and producers which required the pipelines
to take or pay for a significant percentage of the gas the producer was capable
of delivering. While FERC did not deal with this issue initially, it eventually
adopted rate recovery procedures which facilitated negotiations between
pipelines and producers to address take-or-pay issues. Such procedures were
established in Order Nos. 500, 528 and 636, in the last of which FERC provided
that pipelines could recover 100 percent of the costs prudently incurred to
terminate their gas purchase obligations. In July 1996, the Court of Appeals
issued its decision upholding, in large part, Order No. 636.
In June 1995, EPNG filed with FERC for approval of new system rates for
mainline transportation to be effective January 1, 1996. In March 1996, EPNG
filed a comprehensive offer of settlement to resolve that proceeding as well as
issues surrounding certain contract reductions and expirations that were to
occur from January 1, 1996, through December 31, 1997. In April 1997, FERC
approved EPNG's settlement as filed and determined that only the contesting
party, Edison, should be severed for separate determination of the rates it
directly pays EPNG. In July 1997, FERC issued an order denying requests for
rehearing of the April 1997 order, and the settlement was implemented effective
July 1, 1997. Hearings to determine Edison's rates were completed in May 1998,
and an initial decision was issued by the presiding ALJ in July 1998. EPNG and
Edison have filed exceptions to the decision with FERC. If the ALJ's decision is
affirmed by FERC, EPNG believes that the resulting rates to Edison would be such
that no significant, if any, refunds in excess of the amounts reserved would be
required. Pending the final outcome, Edison continues to pay the filed rates,
subject to refund, and EPNG continues to provide a reserve for such potential
refunds.
Edison filed with the Court of Appeals a petition for review of FERC's
April 1997 and July 1997 orders, in which it challenged the propriety of FERC's
approving the settlement over Edison's objections to the settlement in its
capacity as a customer of SoCal. In December 1998, the Court of Appeals issued
its decision vacating and remanding FERC's order. EPNG will file a motion with
FERC proposing procedures for FERC to address deficiencies which the Court of
Appeals found in FERC's earlier orders. EPNG cannot predict the outcome with
certainty but it believes that FERC will ultimately approve the settlement.
For a further discussion of regulatory matters related to EPNG, see Item 8,
Financial Statements and Supplementary Data, Note 4.
MARKETS AND COMPETITION
EPNG and MPC face varying degrees of competition from alternative energy
sources, such as electricity, hydroelectric power, coal, and fuel oil. The
potential consequences of proposed and ongoing restructuring and deregulation of
the electric power industry are currently unclear. It may benefit the natural
gas industry by creating more demand for natural gas turbine generated electric
power, or it may hamper demand by allowing more effective use of surplus
electric capacity through increased wheeling as a result of open access. At this
2
<PAGE> 7
time, the Company is not projecting a significant change in natural gas demand
as a result of such restructuring.
EPNG faces significant competition from three other
companies -- Transwestern Pipeline Company, Kern River Gas Transmission Company,
and PG&E -- all of which transport natural gas to the California market. The
combined capacity of these three companies and EPNG to the California market is
approximately 6.9 Bcf/d. In 1998, the demand for interstate pipeline capacity to
California averaged 5.1 Bcf/d. Competition generally occurs on the basis of the
delivered cost of natural gas, including transportation costs, into the SoCal
and PG&E distribution systems. In addition to being the principal transporter to
certain markets east of California, EPNG maintains a significant competitive
position in the California market because its pipeline is currently the
lowest-cost transporter of, and the principal means of moving, natural gas from
the San Juan Basin to the California border. EPNG's current capacity to deliver
natural gas to California is approximately 3.3 Bcf/d, equivalent to
approximately 48 percent of the total interstate pipeline capacity serving that
state. Natural gas shipped to California across the EPNG System represented
approximately 33 percent of the natural gas consumed in the state in 1998. The
significant customers served by EPNG in California during 1998 include SoCal,
with capacity of 1,150 MMcf/d under contract until August 2006, and Dynegy, with
capacity of 1,311 MMcf/d under contract until December 1999.
Interstate pipeline capacity utilization to California is currently
approximately 74 percent and is not expected to reach 100 percent until sometime
in the next decade, assuming no new interstate pipeline construction. Currently,
EPNG and MPC have firm transportation contracts covering substantially all of
their available capacity to California. As a part of its effort to remarket
capacity relinquished by PG&E at the end of 1997, EPNG entered into three
contracts with Dynegy for the sale of all of its then available firm capacity
for a two-year period beginning January 1, 1998 at rates negotiated pursuant to
EPNG's tariff provisions and FERC policies. For a further discussion of capacity
relinquishments, see Item 8, Financial Statements and Supplementary Data, Note
4. MPC's transportation agreements which aggregate 393 MMcf/d expire in March
2007.
ENVIRONMENTAL
A description of the Company's environmental activities is included in Item
8, Financial Statements and Supplementary Data, Note 4, Commitments and
Contingencies, Environmental, which is incorporated by reference herein.
EMPLOYEES
The Company had approximately 800 full-time employees on December 31, 1998.
The Company has no collective bargaining arrangements, and no significant
changes in the workforce have occurred since December 31, 1998.
ITEM 2. PROPERTIES
A description of the Company's properties is included in Item 1, Business
and is incorporated by reference herein.
The Company is of the opinion that it has generally satisfactory title to
the properties owned and used in its businesses, subject to liens for current
taxes, liens incident to minor encumbrances, and easements and restrictions that
do not materially detract from the value of such property or the interests
therein or the use of such properties in its businesses. In addition, the
Company's physical properties are adequate and suitable for the conduct of its
business in the future.
3
<PAGE> 8
ITEM 3. LEGAL PROCEEDINGS
See Item 8, Financial Statements and Supplementary Data, Note 4,
Commitments and Contingencies, Legal Proceedings, which is incorporated herein
by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4, Submission of Matters to a Vote of Security Holders, has been
omitted from this report pursuant to the reduced disclosure format permitted by
General Instruction I to Form 10-K.
4
<PAGE> 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of EPNG's common stock, par value $1 per share (the "Common Stock"), is
owned by EPEC and, accordingly, there is no public trading market for such
securities.
Dividends in such amounts as may be determined by the Board of Directors of
EPNG may be declared and paid on the Common Stock from time to time out of any
funds legally available therefore. On December 31, 1998, as part of the tax-free
internal reorganization, the Company declared and paid to EPEC a non-cash
dividend of its investment in subsidiaries in the amount of $1,864 million.
ITEM 6. SELECTED FINANCIAL DATA
Item 6, Selected Financial Data, has been omitted from this report pursuant
to the reduced disclosure format permitted by General Instruction I to Form
10-K.
5
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This item is presented pursuant to the reduced disclosure format permitted
by General Instruction I to Form 10-K.
GENERAL
Effective August 1, 1998, the Company reorganized into a holding company
form of organizational structure, whereby EPEC became the corporate parent
holding company. See Item 8, Financial Statements and Supplementary Data, Note
1, for a further discussion of the holding company reorganization.
On December 31, 1998, EPEC completed a tax-free internal reorganization of
its assets and operations and those of its subsidiaries. After giving effect to
the reorganization, the Company's primary assets are its interstate pipeline
systems known as the EPNG System and the MPC System. See Item 8, Financial
Statements and Supplementary Data, Note 1, for a further discussion of the
tax-free internal reorganization.
RESULTS OF OPERATIONS FROM CONTINUING OPERATIONS
The Company evaluates performance based on earnings before interest expense
and income taxes, excluding affiliated interest income ("EBIT"). Accordingly,
results of operations are presented on that basis. Information below is
presented giving effect to the holding company and the tax-free internal
reorganization.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1998 1997
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(IN MILLIONS)
<S> <C> <C>
Operating revenues.......................................... $ 475 $ 521
Operating expenses.......................................... (262) (281)
Other -- net................................................ 4 5
----- -----
EBIT...................................................... $ 217 $ 245
===== =====
</TABLE>
Included in other -- net in the consolidated income statements are
affiliated interest income of $56 million and $12 million in 1998 and 1997,
respectively.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Operating revenues for the year ended December 31, 1998, were $46 million
lower than for the same period of 1997 primarily due to lower net revenues
resulting from the PG&E contract expiration which was effective December 31,
1997. The decrease in revenues from the loss of the PG&E contract was
significantly offset by risk sharing revenue, other non-traditional revenues
including revenue from the sale of capacity to Dynegy, and the favorable
resolution of a contested rate matter. (See Item 8, Financial Statements and
Supplementary Data, Note 4, for a discussion of risk sharing revenues and the
Dynegy contracts.)
Operating expenses for the year ended December 31, 1998, were $19 million
lower than for the same period of 1997 primarily due to lower fuel costs and
recovery of a receivable previously deemed uncollectible. Partially offsetting
the decrease were higher administrative and depreciation expenses.
INTEREST AND DEBT EXPENSE
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Interest and debt expense for the year ended December 31, 1998, was $15
million higher than for the same period of 1997 primarily as a result of
additional short-term borrowings during 1998 to fund capital expenditures. In
preparation for the tax-free internal reorganization, short-term debt was
reduced substantially during December 1998. The increase in interest expense was
partially offset by interest accruals on the 1997 rate refund to EPNG's
customers.
COMMITMENTS AND CONTINGENCIES
For a discussion of the Company's commitments and contingencies, see Item
8, Financial Statements and Supplementary Data, Note 4.
6
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RISK FACTORS -- CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, we caution that,
while such assumptions or bases are believed to be reasonable and are made in
good faith, assumed facts or bases almost always vary from the actual results,
and the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, we or our management express an expectation or belief as to future
results, such expectation or belief is expressed in good faith and is believed
to have a reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions may
identify forward-looking statements.
With this in mind, you should consider the following important factors that
could cause actual results to differ materially from those expressed in any
forward-looking statement made by us or on our behalf:
OUR INDUSTRY IS HIGHLY COMPETITIVE
The hydrocarbons that we transport are owned by third parties. As a result,
the volume of hydrocarbons involved in such activities is dependent upon the
actions of those third parties, and are beyond our control. Further, our ability
to maintain or increase current transmission volumes or to remarket unsubscribed
capacity, is subject to the impact of the following:
- future weather conditions, including those that favor hydroelectric
generation or other alternative energy sources;
- price competition;
- drilling activity and supply availability;
- expiration of the Dynegy contracts at the end of 1999;
- expiration of MPC's contracts in March 2007; and
- service competition, especially due to current excess pipeline capacity
into California.
Our future profitability may be affected by our ability to compete with the
services offered by other energy enterprises which may be larger, offer more
services, and possess greater resources.
For a further discussion see Part 1, Item 1, Business, Markets and
Competition.
FLUCTUATIONS IN NATURAL GAS PRICES COULD ADVERSELY AFFECT OUR BUSINESS
Our ability to compete with other transporters is impacted by natural gas
prices in the supply basins connected to our pipeline systems as compared to
prices in other gas producing regions, especially Canada.
ATTRACTIVE ACQUISITION AND INVESTMENT OPPORTUNITIES MAY NOT BE AVAILABLE
Our ability to grow will depend, in part, upon our ability to identify and
complete attractive acquisition and investment opportunities. Opportunities for
growth through acquisitions and investments in joint ventures, and the future
operating results and success of such acquisitions and joint ventures within and
outside the U.S. may be subject to the effects of, and changes in the following:
- U.S. and foreign trade and monetary policies;
- laws and regulations;
- political and economic developments;
- inflation rates;
- taxes; and
- operating conditions.
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<PAGE> 12
Such legal and regulatory events and other unforeseeable obstacles may be beyond
our control or ability to manage.
WE COULD INCUR SUBSTANTIAL ENVIRONMENTAL LIABILITIES
We may incur significant costs and liabilities in order to comply with
existing environmental laws and regulations. It is also possible that other
developments, such as increasingly strict environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property, employees,
other persons and the environment resulting from current or discontinued
operations, could result in substantial costs and liabilities in the future. For
additional information concerning the Company's environmental matters, see Item
8, Financial Statements and Supplementary Data, Note 4.
OUR ACTIVITIES INVOLVE OPERATING HAZARDS AND UNINSURED RISKS
While we maintain insurance against certain of the risks normally
associated with the transportation of natural gas, including explosions,
pollution and fires, the occurrence of a significant event that is not fully
insured against could have a material adverse effect on our business.
WE ARE SUBJECT TO FINANCING AND INTEREST RATE EXPOSURE RISKS
Our business and operating results can be adversely affected by factors
such as the availability or cost of capital, changes in interest rates, changes
in the tax rates due to new tax laws, market perceptions of the natural gas
industry, EPNG or EPEC, or credit ratings.
The Company uses interest rate swaps which are intended to reduce our
exposure to changes in interest rates. We could incur financial losses in the
future as a result of changes in interest rates or if one of our counterparties
fails to perform under a contract. For additional information concerning our
financial instruments, see Item 7A, Quantitative and Qualitative Disclosures
About Market Risks and Item 8, Financial Statements and Supplementary Data, Note
3.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH YEAR 2000 ISSUES
EPEC and its subsidiaries, including the Company, are taking steps to
mitigate any adverse effects of the Year 2000 date change on our customers and
business operations including the assessment, remediation, testing of our
applications, hardware and software, and the implementation of necessary change.
Nevertheless, our failure, or the failure of third-parties with whom we deal, to
achieve Year 2000 compliance may adversely affect our business. For more
information regarding the Year 2000 compliance project, see EPEC's Annual Report
on Form 10-K for the year ended December 31, 1998.
8
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is changing interest rates. The
table below presents the related weighted average interest rates by expected
maturity dates. As of December 31, 1998, and 1997, the carrying amounts of
short-term borrowings are representative of fair value because of the short-term
maturity of these instruments. The fair value of the long-term debt has been
estimated based on quoted market prices for the same or similar issues.
The interest rate swap agreements entered into by MPC effectively convert
$114 million of floating-rate debt to fixed-rate debt (see Item 8, Financial
Statements and Supplementary Data, Note 3). MPC makes payments to counterparties
at fixed rates and in return receives payments at floating rates. The two swap
agreements were entered into in March 1992 and have remaining terms of
approximately 1 year and 3 years, respectively. This transaction is recorded
using accrual accounting. For the interest rate swaps, the table below presents
notional amounts and weighted average interest rates by expected or contractual
maturity dates. Notional amounts are used to calculate the contractual payments
to be exchanged under the contract. The fair value of the derivative financial
instruments is the estimated amount at which management believes they could be
liquidated over a reasonable period of time, based on quoted market prices,
current market conditions, or other estimates obtained from third-party dealers.
The tabular presentation related to the Company's interest rate risk as of
December 31, 1998, and 1997, is illustrated below:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
EXPECTED FISCAL YEAR OF MATURITY
--------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
---- ----- ---- ---- ---- ---------- ------ ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES:
Short-term debt -- variable rate.......... $210 $ 210 $ 210
--------------------------------
Average interest rate................. 5.7%
Long-term debt, including
--------------------------
current portion -- fixed rate........... $ 58 $ 11 $12 $228 $215 $ 514 $1,038 $1,127
------------------------------
Average interest rate................. 8.0% 9.7% 9.7% 7.8% 7.8% 8.5%
INTEREST RATE DERIVATIVES:
Interest rate swap
-------------------
Variable to fixed rate -- notional
amounts............................... $ 29 $ 85 $ 114 $ (9)
Average interest rate................. 8.3% 8.4% 8.4% 8.4%
Average received rate(a).............. 4.9% 5.0% 5.1% 5.1%
Net cash flow effect.................. $ (4) $ (3) $(3) $ (3)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------
TOTAL FAIR VALUE
------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
LIABILITIES:
Short-term debt -- variable rate.......................... $ 396 $ 396
Average interest rate paid in 1998...................... 5.8%
Long-term debt, including current portion -- fixed rate... $1,063 $1,135
Average interest rate paid in 1998.................... 8.9%
INTEREST RATE DERIVATIVES:
Interest rate swap
Variable to fixed rate -- notional amounts.............. $ 114 $ (9)
Average interest rate paid in 1998.................... 8.3%
Average received rate in 1998(a)...................... 5.8%
Net cash flow effect for 1998......................... $ (3)
</TABLE>
- ---------------
(a) The variable rates presented are the average forward rates for the remaining
term of each contract.
9
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EL PASO NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Operating revenues
Transportation........................ $452 $499 $491
Other................................. 23 22 20
---- ---- ----
475 521 511
---- ---- ----
Operating expenses
Cost of gas and other products........ -- 5 2
Operation and maintenance............. 172 191 214
Depreciation, depletion, and
amortization....................... 61 57 59
Employee separation and asset
impairment charge.................. -- -- 99
Taxes, other than income taxes........ 29 28 34
---- ---- ----
262 281 408
---- ---- ----
Operating income........................ 213 240 103
---- ---- ----
Other (income) and expense
Interest and debt expense............. 123 108 101
Other, net............................ (60) (17) (4)
---- ---- ----
63 91 97
---- ---- ----
Income before income taxes.............. 150 149 6
Income tax expense...................... 58 60 3
---- ---- ----
Income before discontinued operations... 92 89 3
Discontinued operations, net of income
tax................................... 158 97 35
---- ---- ----
Net income.............................. $250 $186 $ 38
==== ==== ====
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
10
<PAGE> 15
EL PASO NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current assets
Cash and temporary investments........ $ 9 $ 62
Accounts and notes receivable, net
Customer........................... 53 62
Affiliated companies............... 1,043 770
Other.............................. 11 7
Materials and supplies................ 28 26
Deferred income taxes................. 1 46
Prepaid expenses and other............ 6 9
------ ------
Total current assets.......... 1,151 982
------ ------
Property, plant, and equipment, net..... 1,537 1,597
Other................................... 98 97
Net assets of discontinued operations... -- 1,685
------ ------
Total assets.................. $2,786 $4,361
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts and notes payable
Trade.............................. $ 30 $ 40
Affiliated companies............... -- 225
Other.............................. 4 31
Short-term borrowings (including
current maturities of long-term
debt).............................. 268 422
Accrual for regulatory issues......... 24 22
Accrued interest...................... 24 30
Taxes payable......................... 38 41
Other................................. 31 53
------ ------
Total current liabilities..... 419 864
------ ------
Long-term debt, less current
maturities............................ 980 1,037
------ ------
Deferred income taxes................... 173 189
------ ------
Other................................... 170 234
------ ------
Commitments and contingencies (See Note
4)
Stockholders' equity
Preferred stock, 1,000,000 shares
authorized;
8%, par value $0.01 per share;
500,000 shares issued; stated at
liquidation value.................. 350 --
Common stock, par value $3 per share;
authorized 275,000,000 shares;
issued 122,581,816 shares at
December 31, 1997.................. 368
Common stock, par value $1 per share;
authorized 1,000 shares; issued
1,000 shares at December 31,
1998............................... --
Additional paid-in capital............ 694 1,389
Retained earnings..................... -- 327
Treasury stock (at cost) 2,946,832
shares at December 31, 1997........ -- (47)
------ ------
Total stockholders' equity.... 1,044 2,037
------ ------
Total liabilities and
stockholders' equity........ $2,786 $4,361
====== ======
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
11
<PAGE> 16
EL PASO NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------- ----- -----
<S> <C> <C> <C>
Cash flows from operating activities
Net income.............................. $ 250 $ 186 $ 38
Less income from discontinued
operations, net of income tax....... 158 97 35
------- ----- -----
Income from continuing operations....... 92 89 3
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation, depletion, and
amortization...................... 61 57 59
Deferred income taxes (benefit)..... 42 (11) (51)
Unearned risk-sharing revenue....... (31) -- --
Net take-or-pay recoveries.......... -- -- 10
Net employee separation and asset
impairment charge................. -- -- 76
Working capital changes, net of
non-cash transactions
Accounts and notes receivable.... (138) 131 2
Inventories...................... (1) (1) 5
Regulatory asset................. (1) 8 20
Other current assets............. 3 2 1
Accrual for regulatory issues.... 3 (110) 132
Accounts payable................. (16) (36) 8
Other current liabilities........ (7) 216 7
Other................................. 10 (154) (224)
------- ----- -----
Cash provided by continuing
operations....................... 17 191 48
Cash provided by discontinued
operations....................... 616 380 244
------- ----- -----
Net cash provided by operating
activities................... 633 571 292
------- ----- -----
Cash flows from investing activities
Capital expenditures.................. (31) (84) (34)
Proceeds from disposal of property and
investments......................... 3 10 4
Net change in other affiliated
advances............................ (512) (635) 27
Increase in notes receivable with
affiliate........................... -- 45 --
Other................................. -- (16) 7
Cash used in investing activities by
discontinued operations............. (632) (26) (10)
------- ----- -----
Net cash used in investing
activities................... (1,172) (706) (6)
------- ----- -----
Cash flows from financing activities
Net commercial paper borrowings
(repayments)........................ (201) 351 (203)
Revolving credit borrowings........... 15 28
Revolving credit repayments........... -- -- (58)
Long-term debt retirements............ (26) (108) (8)
Long-term debt issuance............... -- -- 396
Dividends paid........................ (68) (77) (48)
Net proceeds from stock issuance...... 645 176 23
Other................................. 91 -- 4
Cash provided by (used in) financing
activities by discontinued
operations.......................... 28 (319) (231)
------- ----- -----
Net cash provided by (used in)
financing activities......... 484 51 (125)
------- ----- -----
Increase (decrease) in cash and
temporary investments................. (55) (84) 161
Less increase (decrease) in cash and
temporary investments related to
discontinued operations............. (2) 16 3
------- ----- -----
Increase (decrease) in cash and
temporary investments from continuing
operations............................ (53) (100) 158
Cash and temporary investments
Beginning of period................... 62 162 4
------- ----- -----
End of period......................... $ 9 $ 62 $ 162
======= ===== =====
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
12
<PAGE> 17
EL PASO NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK 8% ADDITIONAL TREASURY STOCK TOTAL
--------------- PREFERRED PAID-IN RETAINED --------------- STOCKHOLDERS'
SHARES AMOUNT STOCK CAPITAL EARNINGS SHARES AMOUNT EQUITY
------ ------ --------- ---------- -------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1996................... 75 $ 224 $ -- $ 343 $240 (6) $(95) $ 712
Net income...................... 38 38
Common stock dividend ($.695 per
share)....................... (50) (50)
Issuance of common stock for
acquisition of EPTPC......... 37 113 800 913
Restricted stock issuances...... 23 2 41 64
Options exercised............... 1 3 18 (1) 1 9 29
Other........................... 1 1
---- ----- ---- ------- ---- --- ---- -------
December 31, 1996................. 113 340 -- 1,185 227 (3) (45) 1,707
Net income...................... 186 186
Common stock dividend ($.730 per
share)....................... (86) (86)
Issuance of common stock, net of
related costs................ 7 20 152 172
Restricted stock issuances...... 1 4 20 1 25
Restricted stock forfeitures.... (3) (3)
Options exercised............... 2 4 21 25
Income tax benefit of options
exercised.................... 11 11
---- ----- ---- ------- ---- --- ---- -------
December 31, 1997................. 123 368 -- 1,389 327 (3) (47) 2,037
Net income...................... 250 250
Common stock dividend ($.383 per
share)....................... (46) (46)
Issuance of common stock, net of
related costs................ 1 6 7
Purchase of treasury stock...... (1) (33) (33)
Restricted stock issuances...... 1 11 12
Restricted stock forfeitures.... (4) (4)
Options exercised............... 1 2 9 (1) 10
Corporate restructuring......... (124) (372) 612 4 85 325
Issuance of 8% Preferred
Stock........................ 350 350
Distribution relating to
Reorganization............... (1,333) (531) (1,864)
---- ----- ---- ------- ---- --- ---- -------
December 31, 1998................. -- $ -- $350 $ 694 $ -- $-- $ -- $ 1,044
==== ===== ==== ======= ==== === ==== =======
</TABLE>
The accompanying Notes are an integral part of
these Consolidated Financial Statements.
13
<PAGE> 18
EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Holding Company Reorganization
Effective August 1, 1998, the Company reorganized into a holding company
organizational structure, whereby EPEC, a Delaware corporation, became the
corporate parent holding company. The holding company organizational structure
was effected by a merger conducted pursuant to Section 251(g) of the Delaware
General Corporation Law, which provides for the formation of a holding company
structure without a vote of the stockholders of EPNG. In the merger, El Paso
Energy Merger Company, a Delaware corporation and wholly owned subsidiary of
EPEC, merged with and into EPNG, with EPNG as the surviving corporation. By
virtue of the reorganization, EPNG became a direct, wholly owned subsidiary of
EPEC, and all of EPNG's outstanding capital stock was converted, on a share for
share basis, into capital stock of EPEC. As a result of such restructuring, each
outstanding share of $3.00 par value common stock of EPNG was converted into one
share of $3.00 par value common stock of EPEC, and each one-half outstanding
preferred stock purchase right of EPNG was converted into one preferred stock
purchase right of EPEC common stock, with such right representing the right to
purchase one two-hundredth (subject to adjustment) of a share of Series A Junior
Participating Preferred Stock of EPEC. EPEC assumed ownership of the Trust (as
defined in Note 6) as well as EPNG's obligations related to the Trust. See Note
6, Trust Preferred Securities for a further discussion. Also, as part of the
reorganization, $66 million in cash and certain assets and liabilities
associated with the equity compensation programs were transferred to EPEC, and
EPEC became the successor to EPNG's previous shelf registration in the amount of
$565 million.
The December 31, 1998, stockholders' equity reflects the change in the
number of shares outstanding, other reorganization related reclassifications,
the transfer of ownership of the Trust, and the transfer of certain assets and
liabilities as discussed above.
Tax-free Internal Reorganization (Discontinued Operations)
On December 31, 1998, EPEC effected a tax-free internal reorganization of
its assets and operations and those of a majority of its subsidiaries in
accordance with a private letter ruling received from the IRS. In the
reorganization, a substantial number of subsidiaries (and their assets,
liabilities and operations) were transferred to EPEC or other entities owned by
EPEC. After giving effect to the reorganization, the Company's primary assets
are its interstate pipeline systems known as the EPNG System and the MPC System.
In the reorganization, EPNG or its subsidiaries transferred the following
assets, liabilities, and operations to EPEC or other EPEC subsidiaries, and
eliminated them from its consolidated financial statements: (i) its trading and
marketing operations; (ii) its international operations; (iii) its field
services operations; (iv) the interstate pipeline systems known as the TGP
System, Midwestern System, and East Tennessee System; and (v) all subsidiaries
with corporate operations. The total value of the assets, liabilities, and
operations transferred was $1,864 million.
The Company accomplished the reorganization primarily through a series of
intercompany transactions, including a dividend of its interests in those
subsidiaries transferred in the reorganization. The Company has treated the
effect of the transfers as though they were discontinued operations as of
December 31, 1998, and accordingly has reclassified all prior periods to reflect
this treatment. Revenues related to those items treated as discontinued
operations were $5,307 million, $5,117 million, and $2,501 million for the years
ended December 31, 1998, 1997, and 1996, respectively.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of all
majority-owned, controlled subsidiaries of the Company after the elimination of
all significant intercompany accounts and transactions. Investments in companies
where the Company has the ability to exert significant influence over, but not
control operating and
14
<PAGE> 19
financial policies are accounted for using the equity method. The financial
statements for previous periods include certain reclassifications that were made
to conform to the current year presentation. Such reclassifications have no
impact on reported net income or stockholders' equity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities that exist at
the date of the financial statements. Actual results are likely to differ from
those estimates.
Accounting for Regulated Operations
The Company's businesses that are subject to the regulations and accounting
requirements of FERC have followed the accounting requirements of SFAS No. 71,
Accounting for the Effects of Certain Types of Regulation, which may differ from
the accounting requirements of the Company's non-regulated entities.
Transactions that have been recorded differently as a result of regulatory
accounting requirements include: certain benefits and other costs and taxes
included in or expected to be included in future rates, including costs to
refinance debt. When the accounting method followed is prescribed by or allowed
by the regulatory authority for rate-making purposes, such method conforms to
the generally accepted accounting principle of matching costs with the revenues
to which they apply.
Cash and Temporary Investments
Short-term investments purchased with an original maturity of three months
or less are considered cash equivalents.
Allowance for Doubtful Accounts and Notes Receivable
The Company has established a provision for losses on accounts and notes
receivable, as well as for gas imbalances due from shippers and operators, which
may become uncollectible. Collectibility is reviewed regularly, and the
allowance is adjusted as necessary primarily under the specific identification
method. The balances of this provision at December 31, 1998 and 1997, were $2
million and $3 million, respectively.
Gas Imbalances
The Company values gas imbalances due to or due from shippers and operators
at the appropriate index price. Natural gas imbalances are settled in cash or
made up in-kind.
Inventories
Inventories, consisting of materials and supplies, are valued at the lower
of cost or market with cost determined using the average cost method.
Property, Plant, and Equipment
Included in the Company's property, plant, and equipment is construction
work in progress of approximately $18 million and $65 million at December 31,
1998, and 1997, respectively. An allowance for both debt and equity funds used
during construction of regulated projects is included in the cost of the
Company's property, plant, and equipment.
Accounting for a substantial portion of property, plant, and equipment is
subject to regulation by the FERC. The objectives of this regulation are to
ensure the proper recovery of capital investments in rates. Such recovery is
generally accomplished by allowing a return of the investment through inclusion
of depreciation expense in the cost of service. Rates also allow for a return on
the net unrecovered rate base. Specific procedures are prescribed by FERC to
control capitalized costs, depreciation, and the disposal of assets. SFAS
15
<PAGE> 20
No. 71 specifically acknowledges the obligation of regulated companies to comply
with regulated accounting procedures, even when they conflict with other
generally accepted accounting principle pronouncements.
Regulated property, plant, and equipment is recorded at original cost of
construction or, on acquisition, the cost of first party committing the asset to
utility services. Construction cost includes direct labor and materials, as well
as indirect charges such as overheads and allowance for funds used during
construction. Replacements or betterments of major units of property are
capitalized. Replacements or additions of minor units of property are expensed.
Depreciation for regulated property, plant, and equipment is calculated
using the composite method, except in the case of MPC which uses rates that
reflect a levelized cost of service for a life of 25 years. The composite method
groups assets with similar economic characteristics. The depreciation rate
prescribed in the rate settlement is applied to the gross investment for the
group until net book value of the group is equal to the salvage value.
Currently, depreciation rates vary from 2 percent to 33 percent. This results in
remaining economic lives of groups ranging from 2 to 36 years. Depreciation
rates are reevaluated in conjunction with the rate making process.
When regulated property, plant, and equipment is retired, due to
abandonment or replacement, the original cost, plus the cost of retirement, less
salvage, is charged to accumulated depreciation and amortization. No gain or
loss is recognized unless an entire operating unit, as defined by FERC, has been
retired. Gains or losses on dispositions of operating units are included in
income.
Additional acquisition cost assigned to utility plant primarily represents
the excess of allocated purchase costs over historical costs that resulted from
the 1983 acquisition of EPNG's former parent, The El Paso Company, by Burlington
Northern Inc., the former parent of Burlington Resources Inc. These costs are
being amortized on a straight-line basis using FERC approved rates.
The Company evaluates impairment of its property, plant, and equipment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of.
Environmental Costs
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments indicate that
remediation efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into consideration
the likely effects of inflation and other societal and economic factors, and
include estimates of associated legal costs. All available evidence is
considered including prior experience in remediation of contaminated sites,
other companies' clean-up experience and data released by the EPA or other
organizations. These estimated liabilities are subject to revision in future
periods based on actual costs or new circumstances. These liabilities are
included in the balance sheets at their undiscounted amounts. Recoveries are
evaluated separately from the liability and, when recovery is assured, are
recorded and reported separately from the associated liability in the
consolidated financial statements as an asset.
Price Risk Management Activities
The Company utilizes derivative financial instruments to manage interest
rate risks associated with certain liabilities. These financial instruments are
in the form of interest rate swaps, and changes in the market value are deferred
until the gains or losses in the underlying item are recognized.
Income Taxes
Income taxes are based on income reported for tax return purposes along
with a provision for deferred income taxes. Deferred income taxes are provided
to reflect the tax consequences in future years of differences between the
financial statement and tax bases of assets and liabilities at each year end.
Tax credits are
16
<PAGE> 21
accounted for under the flow-through method, which reduces the provision for
income taxes in the year the tax credits first become available. Deferred tax
assets are reduced by a valuation allowance when, based upon management's
estimates, it is more likely than not that a portion of the deferred tax assets
will not be realized in a future period. The estimates utilized in the
recognition of deferred tax assets are subject to revision in future periods
based on new facts or circumstances.
On behalf of itself and all members filing in its consolidated federal
income tax return, EPNG adopted a tax sharing policy (the "Policy") which
provides, among other things, that (i) each company in a taxable income position
will be currently charged with an amount equivalent to its federal income tax
computed on a separate return basis, and (ii) each company in a tax loss
position will be reimbursed currently to the extent its deductions, including
general business credits, were utilized in the consolidated return. Under the
Policy, EPNG paid all federal income taxes through 1998 directly to the IRS and
will bill or refund, as applicable, its subsidiaries for their applicable
portion of such income tax payments. The subsidiaries that were transferred to
EPTPC as part of the tax-free internal reorganization will be included in the
1998 EPEC consolidated federal income tax return. These subsidiaries will
continue to be included in the EPNG tax sharing policy through 1998. Starting in
1999, EPEC and its 80 percent or more owned subsidiaries, including the company,
will file a consolidated federal income tax return.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which established standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This pronouncement is
effective for the financial statements for periods beginning after December 15,
1997. At December 31, 1998 and 1997, the Company had no items which would be
treated as components of other comprehensive income.
New Accounting Pronouncements Not Yet Adopted
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This statement provides guidance on
accounting for such costs, and also defines internal-use computer software. The
statement is effective for fiscal years beginning after December 15, 1998. The
application of this pronouncement will not have a material impact on the
Company's financial position, results of operations, or cash flows.
Reporting on the Costs of Start-Up Activities
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities. The statement defines start-up activities and requires start-up and
organization costs to be expensed as incurred. In addition, it requires that any
such cost that exists on the balance sheet be expensed upon adoption of this
pronouncement. The statement is effective for fiscal years beginning after
December 15, 1998. The application of this pronouncement will not have a
material impact on the Company's financial position, results of operations, or
cash flows.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued by the Financial Accounting Standards Board to
establish accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires that an entity classify all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may
17
<PAGE> 22
be specifically designated as (i) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(ii) a hedge of the exposure to variable cash flows of a forecasted transaction,
or (iii) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security, or a
foreign-currency-denominated forecasted transaction. The accounting for the
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The standard is effective for all
quarters in fiscal years beginning after June 15, 1999. The Company is currently
evaluating the effects of this pronouncement.
2. FINANCING TRANSACTIONS
The average interest rate of short-term borrowings was 5.8% and 5.9% at
December 31, 1998, and 1997, respectively. The Company had short-term
borrowings, including current maturities of long-term debt, at December 31, 1998
and December 31, 1997, as follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
Revolving Credit Facility................................... $ -- $ 45
Commercial paper............................................ 150 326
Other credit facilities..................................... 60 25
Current maturities of other long-term debt.................. 58 26
---- ----
$268 $422
==== ====
</TABLE>
Long-term debt outstanding at December 31, 1998, and 1997, consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Long-term debt
EPNG
Debentures due 1998 and 2012 through 2026, average
effective interest rates of 8.3% in 1998 and 8.2% in
1997, net of unamortized discount of $1.3 in 1998
($1.4 in 1997)........................................ $ 459 $ 475
Notes due 1999 through 2003, average effective interest
rates of 7.6% in 1997 and 7.4% in 1996, net of
unamortized discount of $0.5 in 1998 ($0.7 in 1997)... 462 462
MPC
Project financing loan, due 1998 through March 2007,
average effective interest rates of 9.7% in 1998 and
9.4% in 1997.......................................... 117 126
------ ------
1,038 1,063
Less current maturities................................... 58 26
------ ------
Total long-term debt.............................. $ 980 $1,037
====== ======
</TABLE>
18
<PAGE> 23
The following are aggregate maturities of long-term debt for the next 5
years and in total thereafter:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
1999........................................................ $ 58
2000........................................................ 11
2001........................................................ 12
2002........................................................ 228
2003........................................................ 215
Thereafter.................................................. 514
------
Total long-term debt, including current
maturities....................................... $1,038
======
</TABLE>
Other Financing Arrangements
In October 1997, EPNG established a new $750 million five-year revolving
credit and competitive advance facility and a new $750 million 364-day renewable
revolving credit and competitive advance facility (collectively, the "Revolving
Credit Facility"). The availability under the Revolving Credit Facility is
expected to be used for general corporate purposes including, but not limited
to, backstopping EPNG's and TGP's $1 billion commercial paper programs.
In August 1998, EPEC became a guarantor of the Revolving Credit Facility.
In October 1998, the $750 million 364-day portion of the Revolving Credit
Facility was amended to extend the termination date to October 27, 1999.
Further, in October 1998, the Revolving Credit Facility was amended to permit
TGP to issue commercial paper, provided that the total amount of commercial
paper outstanding at EPNG and TGP is equal to or less than the unused capacity
under the Revolving Credit Facility. In December 1998, EPEC became a borrower
under the Revolving Credit Facility. The interest rate is 40 basis points above
LIBOR with the spread varying based on EPEC's long-term debt credit rating.
The availability of borrowings under the Revolving Credit Facility is
subject to specified conditions, which management believes the Company currently
meets. These conditions include compliance with the financial covenants and
ratios required by such agreements, absence of default under such agreements,
and continued accuracy of the representations and warranties contained in such
agreements (including the absence of any material adverse changes since the
specified dates).
In March 1998, EPNG retired its outstanding 8 5/8% debentures in the amount
of $17 million.
3. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the requirements of SFAS No. 107.
The estimated fair value amounts have been determined by the Company using
available market information and valuation methodologies.
As of December 31, 1998, and 1997, the carrying amounts of certain
financial instruments held by the Company, including cash, cash equivalents,
short-term borrowings and investments, and trade receivables and payables are
representative of fair value because of the short-term maturity of these
instruments. The fair value of long-term debt with variable interest rates is
the carrying value because of the variable nature of the respective debt's
interest rate, and the fair value of debt with fixed interest rates has been
estimated based on quoted market prices for the same or similar issues. The
project financing debt is at market interest rates and therefore, the fair value
of the project financing debt is representative of the carrying amount. The fair
value of all derivative financial instruments is the estimated amount at which
management believes the instruments could be liquidated over a reasonable period
of time, based on quoted market prices, current market conditions, or other
estimates obtained from third-party brokers or dealers.
19
<PAGE> 24
The following table reflects the carrying amount and estimated fair value
of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Balance sheet financial instruments:
Long-term debt, excluding project financing........ $921 $1,010 $937 $1,009
Project financing debt............................. 117 117 126 126
</TABLE>
MPC Swaps
MPC has entered into interest rate swap agreements which effectively
convert $114 million of floating-rate debt to fixed-rate debt. MPC makes
payments to counterparties at fixed rates and in return receives payments at
floating rates. The two swap agreements were entered into in March 1992 and have
remaining terms of approximately 1 year and 3 years, respectively. This
transaction is recorded using accrual accounting. Interest expense and cash
requirements were $3 million higher in 1998, 1997, and 1996, respectively, as a
result of these swaps.
4. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company's minimum annual rental commitments at December 31, 1998, were
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, OPERATING LEASES
- ------------------------------------------------------------ ----------------
(IN MILLIONS)
<S> <C>
1999..................................................... $ 10
2000..................................................... 11
2001..................................................... 11
2002..................................................... 12
2003..................................................... 12
Thereafter............................................... 47
----
Total............................................. $103
====
</TABLE>
Aggregate minimum commitments have not been reduced by minimum sublease
rentals of approximately $14 million due in the future under noncancelable
subleases.
Rental expense for operating leases for the years ended December 31, 1998,
1997, and 1996 was $10 million, $11 million, and $9 million, respectively.
Guarantees
At December 31, 1998, EPNG had guarantees of up to $555 million related to
obligations of those entities which were treated as discontinued operations.
Additionally, the Company had letters of credit of approximately $40 million
outstanding at December 31, 1998, related to those operations.
Rates and Regulatory Matters
In July 1998, FERC issued a Notice of Proposed Rulemaking ("NOPR") in which
it seeks comments on a wide range of initiatives to change the manner in which
short-term (less than one year) transportation markets are regulated. Among
other things, the NOPR proposes the following: (i) removing the price cap for
the short-term capacity market; (ii) establishing procedures to make pipeline
and shipper-owned capacity comparable; (iii) auctioning all available short-term
pipeline capacity on a daily basis with the pipeline unable to set a reserve
price above variable costs; (iv) changing policies or pipeline penalties,
nomination procedures
20
<PAGE> 25
and services; (v) increasing pipeline reporting requirements; (vi) permitting
the negotiation of terms and conditions of service; and (vii) potentially
modifying the procedures for certificating new pipeline construction. Also in
July 1998, FERC issued a Notice of Inquiry ("NOI") seeking comments on FERC's
policy for pricing long-term capacity. Comments on the NOPR and NOI are due in
April 1999, and it is unclear when and what action, if any, FERC will take in
connection with the NOPR and NOI and the comments received in response to them.
In June 1995, EPNG filed with FERC for approval of new system rates for
mainline transportation to be effective January 1, 1996. In March 1996, EPNG
filed a comprehensive offer of settlement to resolve that proceeding as well as
issues surrounding certain contract reductions and expirations that were to
occur from January 1, 1996, through December 31, 1997. In April 1997, FERC
approved EPNG's settlement as filed and determined that only the contesting
party, Edison, should be severed for separate determination of the rates it
ultimately pays EPNG. In July 1997, FERC issued an order denying the requests
for rehearing of the April 1997 order and the settlement was implemented
effective July 1, 1997. Hearings to determine Edison's rates were completed in
May 1998, and an initial decision was issued by the presiding ALJ in July 1998.
EPNG and Edison have filed exceptions to the decision with FERC. If the ALJ's
decision is affirmed by FERC, EPNG believes that the resulting rates to Edison
would be such that no significant, if any, refunds in excess of the amounts
reserved would be required. Pending the final outcome, Edison continues to pay
the originally filed rates, subject to refund, and EPNG continues to provide a
reserve for such potential refunds.
Edison filed with the Court of Appeals a petition for review of FERC's
April 1997 and July 1997 orders, in which it challenged the propriety of FERC's
approving the settlement over Edison's objections to the settlement as a
customer of SoCal. In December 1998, the Court of Appeals issued its decision
vacating and remanding FERC's order. EPNG will file a motion with FERC proposing
procedures to address deficiencies which the Court of Appeals found in FERC's
earlier orders. EPNG cannot predict the outcome with certainty, but it believes
that FERC will ultimately approve the settlement.
The rate settlement establishes, among other things, base rates through
December 31, 2005. Such rates escalate annually beginning in 1998. In addition,
the settlement provides for settling customers to (i) pay $295 million
(including interest) as a risk sharing obligation, which approximates 35 percent
of anticipated revenue shortfalls over an 8 year period, resulting from the
contract reductions and expirations referred to above, (ii) receive 35 percent
of additional revenues received by EPNG, above a threshold, for the same
eight-year period, and (iii) have the base rates increase or decrease if certain
changes in laws or regulations result in increased or decreased costs in excess
of $10 million a year. In accordance with the terms of the rate settlement,
EPNG's refund obligation (including interest) was approximately $194 million.
EPNG refunded $61 million to customers in August 1997 and, in accordance with
certain customers' elections, the remaining $133 million of refund obligation
was applied towards their $295 million risk sharing obligation. Through December
31, 1998, an additional $94 million of the risk sharing obligation was paid and
the remaining $68 million balance, including interest, will be collected by the
end of 2003. From 1996 through December 31, 1998, $69 million of the risk
sharing obligation had been recognized as revenue. The remaining unearned risk
sharing amounts, totaling $226 million, excluding interest, will be recognized
ratably through the year 2003.
In addition to other arrangements to offset the effects of the reduction in
firm capacity commitments referred to above, EPNG entered into three contracts
with Dynegy for the sale of substantially all of its turned back firm capacity
available to California as of January 1, 1998, (approximately 1.3 Bcf) for a
two-year period beginning January 1, 1998, at rates negotiated pursuant to
EPNG's tariff provisions and FERC policies. EPNG realized $29 million in revenue
in 1998 and anticipates realizing at least $41 million in revenues in 1999
(which are and will be subject to the revenue sharing provisions of the rate
settlement) for this capacity. The contracts have a transport-or-pay provision
requiring Dynegy to pay a minimum charge equal to the reservation component of
the contractual charge on at least 50 percent of the contracted volumes in each
month in 1998 and on at least 72 percent of the contracted volumes each month in
1999. In the third quarter of 1999, EPNG intends to remarket this capacity
pursuant to EPNG's tariff provisions and FERC regulations, subject to Dynegy's
right of first refusal.
21
<PAGE> 26
In December 1997, EPNG filed to implement several negotiated rate
contracts, including those with Dynegy. In a protest to this filing, three
shippers (producers/marketers) requested that FERC require EPNG to eliminate
certain provisions from the Dynegy contracts, to publicly disclose and repost
the contracts for competitive bidding, and to suspend their effectiveness. In an
order issued in January 1998, FERC rejected several of the arguments made in the
protest and allowed the contracts to become effective as of January 1, 1998,
subject to refund, and to the outcome of a technical conference, which was held
in March 1998. In June 1998, FERC issued an order rejecting the protests to the
Dynegy contracts, but required EPNG to file modifications with FERC to the
contracts clarifying the credits under the reservation reduction mechanism and
the recall rights of certain capacity. In addition, EPNG agreed to separately
post capacity covered by the Dynegy contracts which becomes available in the
future. Several parties have protested EPNG's compliance filing and/or requested
rehearing of FERC's June 1998 order. In June 1998, EPNG filed a letter agreement
in compliance with the June 1998 FERC order. In September 1998, FERC issued an
order accepting the letter agreement subject to EPNG making additional
modifications. The additional modifications to the letter agreement required
further clarification of credits available to Dynegy under the reservation
reduction mechanism and the recall rights of certain capacity. In October 1998,
EPNG filed a revised letter agreement with FERC and requested rehearing of the
September 1998 order.
Under the revenue sharing provisions of its rate case settlement, EPNG is
obligated to return approximately $12 million of non-traditional revenues to
certain customers. Approximately $5 million had been credited to such customers'
transportation invoices at December 31, 1998, and the balance of the $7 million
has been or will be credited ratably over January, February, and March 1999. At
December 31, 1998, EPNG had a reserve for the $7 million.
Under FERC procedures, take-or-pay cost recovery filings may be challenged
by pipeline customers on prudence and certain other grounds. Certain parties
sought review in the Court of Appeals of FERC's determination in an October 1992
order that certain buy-down/buy-out costs were eligible for recovery. In January
1996, the Court of Appeals remanded the order to FERC with direction to clarify
the basis for its decision that the take-or-pay buy-down/buy-out costs were
eligible for recovery. In March 1997, following a technical conference and the
submission of statements of position and replies, FERC issued an order
determining that the costs related to all but one of EPNG's disputed contracts
were eligible for recovery. The costs ruled ineligible for recovery totaled
approximately $3 million, including interest, and were refunded to customers in
the second quarter of 1997. In October 1997, FERC issued an order denying the
challenging parties' request for rehearing of the March 1997 order in most
respects, but determined that the costs incurred pursuant to two additional EPNG
contracts were ineligible for recovery. These costs, including interest, totaled
approximately $9 million and were refunded to customers in February 1998. The
challenging parties, which claim that EPNG should be required to refund up to an
additional $31 million filed a petition for review of the FERC order in the
Court of Appeals. In February 1999, the Court of Appeals affirmed FERC's October
1997 order.
In November 1996, GPM Corporation filed a complaint, as amended, with FERC
alleging that EPNG's South Carlsbad compression facilities were gathering
facilities and were improperly functionalized by EPNG as transmission
facilities. In accordance with the FERC orders, the South Carlsbad compressor
facilities were transferred to EPFS in April 1998.
In a November 1997 order, FERC reversed its previous decision and found
that EPNG's Chaco Station should be functionalized as gathering, not
transmission, facility and should be transferred to EPFS. FERC has denied all
requests for rehearing. EPNG and two other parties filed petitions for review
with the Court of Appeals. The matter has been briefed and will be argued in
September 1999. In accordance with the FERC orders, the Chaco Station was
transferred to EPFS in April 1998.
Pursuant to FERC Order No. 636, MPC filed its restructuring plan in
November 1992. In March 1993, FERC issued an order essentially approving MPC's
compliance filing, subject to changes, which were made in an amended
restructuring plan in March 1993. Several of MPC's customers filed protests and
requests for rehearing of the March 1993, order. The rehearing requests were
denied, and FERC approved the amended restructuring plan in July 1993, with an
effective date of August 1, 1993. In October 1993, FERC issued an
22
<PAGE> 27
order that denied requests for rehearing of the July 1993, order. Several of
MPC's customers filed petitions for review of the March, July, and October 1993,
orders with the Court of Appeals. The primary issue on appeal pertained to
FERC's requirement that MPC's rates for firm transportation service be based
upon a straight fixed variable ("SFV") rate design rather than a modified fixed
variable ("MFV") rate design. The application of SFV rates requires MPC's
existing firm shippers to pay a higher portion of their total transportation
rate in the reservation component of the rate, increasing aggregate
transportation revenues from other shippers. The appealing shippers contended
that FERC's application of the SFV rate design to MPC unlawfully abrogates the
rate provisions of MPC's service agreements and constitutes an unlawful rate
increase. In July 1998, the Court of Appeals issued a decision which affirmed
MPC's SFV rates.
In February 1995, MPC made a filing with FERC seeking authorization to
maintain its existing rates. In March 1995, FERC accepted the filing,
established hearing procedures to determine the justness and reasonableness of
the rates proposed by MPC, and allowed those rates to become effective as of
March 30, 1995. In September 1995, MPC filed a settlement of its rate filing
supported by FERC staff and a majority of its firm transportation customers. The
settlement continues MPC's rates at existing levels for a 5-year period. FERC
approved the settlement agreement as it relates to the supporting parties in
December 1995. Two of MPC's firm customers did not enter into the settlement and
are not bound by its terms. Those customers raised numerous cost-of-service,
rate design, and engineering design and prudence issues, which were the subject
of an evidentiary hearing before an ALJ in April 1996. The ALJ issued an initial
decision in December 1996, which sustained MPC's filed cost-of-service and rate
design elements in some respects and adopted the contesting parties' position on
cost-of-service and rate design issues in others. In January 1997, both MPC and
the contesting parties filed exceptions to certain findings and conclusions of
the December 1996 decision. In an order issued in November 1997, FERC granted
most of the exceptions to the December 1996 decision sought by MPC and approved
a cost of service somewhat higher than that underlying MPC's settlement rates.
Under the order, MPC is not required to reduce its rates and has no refund
liability. The contesting parties have sought rehearing on the rates. MPC sought
rehearing on a limited issue. In June 1998, FERC denied all of the rehearing
requests and accepted MPC's compliance filing implementing the rates approved in
its earlier order, subject to a minor modification.
FERC Compliance Audits
EPNG and MPC as interstate pipelines, are subject to FERC audits of their
books and records. EPNG currently has an open audit covering the years 1990
through 1995. FERC is expected to issue its audit report in 1999. In addition,
EPNG's property retirements are currently under review by the FERC audit staff.
Management believes the ultimate resolution of the aforementioned rate and
regulatory matters, which are in various stages of finalization, will not have a
material adverse effect on the Company's financial position, results of
operations, or cash flows.
Legal Proceedings
In November 1993, TransAmerican filed a complaint in a Texas state court,
TransAmerican Natural Gas Corporation v. El Paso Natural Gas Company, et al.,
alleging fraud, tortious interference with contractual relationships, negligent
misrepresentation, economic duress, civil conspiracy, and violation of state
antitrust laws arising from a settlement agreement entered into by EPNG,
TransAmerican Natural Gas Corporation ("TransAmerican"), and others in 1990 to
settle litigation then pending and other potential claims. The complaint, as
amended, seeks actual damages of $1.5 billion and exemplary damages of $6
billion. EPNG is defending the matter in the State District Court of Dallas
County, Texas. In April 1996, a former employee of TransAmerican filed a related
case in Harris County, Texas, Vickroy E. Stone v. Godwin & Carlton, P.C., et al.
(including EPNG), seeking indemnification and other damages in unspecified
amounts relating to litigation consulting work allegedly performed for various
entities, including EPNG, in cases involving TransAmerican. EPNG filed a motion
for summary judgment in the TransAmerican case arguing that plaintiff's claims
are barred by a prior release executed by TransAmerican, by statutes of
limitations, and by the final court judgment ending the original litigation in
1990. Following a hearing in January 1998, the court granted summary judgment in
EPNG's favor on TransAmerican's claims based on economic duress and
23
<PAGE> 28
negligent misrepresentation, but denied the motion as to the remaining claims.
In February 1998, EPNG filed a motion for summary judgment in the Stone
litigation arguing that all claims are baseless, barred by statutes of
limitations, subject to executed releases, or have been assigned to
TransAmerican. In June 1998, the court granted EPNG's motion in its entirety and
dismissed all the remaining claims in the Stone litigation. In August 1998, the
court denied Stone's motion for a new trial seeking reconsideration of that
ruling. Stone has appealed the court's ruling to the Texas Court of Appeals in
Houston, Texas. The TransAmerican trial is set to commence in September 1999.
Based on information available at this time, management believes that the claims
asserted against it in both cases have no factual or legal basis and that the
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial position, results of operations, or cash flows.
EPNG has been named a defendant in United States ex rel Grynberg v. El Paso
Natural Gas Company, et al. Generally, the complaint in this motion alleges an
industry-wide conspiracy to underreport the heating value as well as the volumes
of the natural gas produced from federal and Indian lands, thereby depriving the
U.S. government of royalties. The complaint remains sealed. The Company believes
the complaint to be without merit.
The Company is a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of business.
While the outcome of such lawsuits or other proceedings against the Company
cannot be predicted with certainty, management currently does not expect these
matters to have a material adverse effect on the Company's financial position,
results of operations, or cash flows.
Environmental
The Company is subject to extensive federal, state, and local laws and
regulations governing environmental quality and pollution control. These laws
and regulations require the Company to remove or remedy the effect on the
environment of the disposal or release of specified substances at current and
former operating sites. As of December 31, 1998, the Company had a reserve of
approximately $23 million for expected remediation costs and associated onsite,
offsite and groundwater technical studies which the Company anticipates
incurring through 2027.
In addition, the Company estimates that it will make capital expenditures
for environmental matters of approximately $9 million relating to compliance
with air regulations.
EPNG has been designated, has received notice that it could be designated,
or has been asked for information to determine whether it could be designated as
a PRP with respect to 5 sites under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or Superfund) or state equivalents. The
Company has sought to resolve its liability as a PRP with respect to these
Superfund sites through indemnification by third parties and/or settlements
which provide for payment of the Company's allocable share of remediation costs.
As of December 31, 1998, the Company has estimated its share of the remediation
costs at these sites to be between $16 million and $20 million and has provided
reserves that it believes are adequate for such costs. Since the clean-up costs
are estimates and are subject to revision as more information becomes available
about the extent of remediation required, and because in some cases the Company
has asserted a defense to any liability, the Company's estimate of its share of
remediation costs could change. Moreover, liability under the federal Superfund
statute is joint and several, meaning that the Company could be required to pay
in excess of its pro rata share of remediation costs. The Company's
understanding of the financial strength of other PRPs has been considered, where
appropriate, in its determination of its estimated liability as described
herein. The Company presently believes that the costs associated with the
current status of such entities as PRPs at the Superfund sites referenced above
will not have a material adverse effect on the Company's financial position,
results of operations, or cash flows.
The Company has initiated proceedings against its historic liability
insurers seeking payment or reimbursement of costs and liabilities associated
with environmental matters. In these proceedings, the Company contends that
certain environmental costs and liabilities associated with various entities or
sites,
24
<PAGE> 29
including costs associated with former operating sites, must be paid or
reimbursed by certain of its historic insurers. The proceedings are in the
discovery stage, and it is not yet possible to predict the outcome.
It is possible that new information or future developments could require
the Company to reassess its potential exposure related to environmental matters.
The Company may incur significant costs and liabilities in order to comply with
existing environmental laws and regulations. It is also possible that other
developments, such as increasingly strict environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property, employees,
other persons and the environment resulting from current or discontinued
operations, could result in substantial costs and liabilities in the future. As
such information becomes available, or developments occur, related accrual
amounts will be adjusted accordingly. While there are still uncertainties
relating to the ultimate costs which may be incurred, based upon the Company's
evaluation and experience to date, the Company believes the recorded reserve is
adequate.
Management is not aware of other commitments or contingent liabilities
which would have a materially adverse effect on the Company's financial
condition, results of operations, or cash flows.
5. INCOME TAXES
The following table reflects the components of income tax expense from
continuing operations for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current
Federal................................................... $13 $ 57 $ 44
State..................................................... 3 14 10
--- ---- ----
16 71 54
--- ---- ----
Deferred
Federal................................................... 37 (7) (45)
State..................................................... 5 (4) (6)
--- ---- ----
42 (11) (51)
--- ---- ----
Total tax expense................................. $58 $ 60 $ 3
=== ==== ====
</TABLE>
Tax expense of the Company from continuing operations differs from the
amount computed by applying the statutory federal income tax rate (35 percent)
to income before taxes. The following table outlines the reasons for the
differences for the periods ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Tax expense at the statutory federal rate of 35%........... $52 $52 $ 2
Increase (decrease)
State income tax, net of federal income tax benefit...... 5 6 3
Contribution of appreciated property..................... -- -- (3)
Other.................................................... 1 2 1
--- --- ---
Income tax expense......................................... $58 $60 $ 3
=== === ===
Effective tax rate......................................... 39% 40% 50%
=== === ===
</TABLE>
Total income tax expense related to those assets, liabilities, and
operations treated as discontinued operations as a result of the tax-free
internal reorganization was $74 million, $69 million, and $22 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
25
<PAGE> 30
The following table reflects the components of the net deferred tax
liabilities from continuing operations at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets
Accrual for regulatory issues............................. $157 $157
Other liabilities......................................... 196 209
---- ----
Total deferred tax asset.......................... 353 366
---- ----
Deferred tax liabilities
Property, plant, and equipment............................ 394 376
Regulatory and other assets............................... 131 134
---- ----
Total deferred tax liability...................... 525 510
---- ----
Net deferred tax liability(a)............................... $172 $144
==== ====
</TABLE>
- ---------------
(a) As of December 31, 1997, $1 million of deferred tax liabilities are included
in other current liabilities in the Consolidated Balance Sheets.
As of December 31, 1998, approximately $1 million of alternative minimum
tax credits were available to offset future regular tax liabilities. These
alternative minimum tax credit carryovers have no expiration date.
6. TRUST PREFERRED SECURITIES
In March 1998, El Paso Energy Capital Trust I (the "Trust"), issued 6.5
million of 4 3/4% trust convertible preferred securities (the "Trust Preferred
Securities") for $325 million ($317 million, net of issuance costs). The net
proceeds to EPNG were used to pay down commercial paper. At the time of the
issuance, the Trust, a Delaware business trust, was a wholly owned consolidated
subsidiary of EPNG by virtue of its holding Trust convertible common securities
of approximately $10 million. As a result of the holding company reorganization,
EPEC assumed the ownership of the Trust.
7. EMPLOYEE SEPARATION AND ASSET IMPAIRMENT CHARGE
During the first quarter of 1996, the Company adopted a program to reduce
operating costs through work force reductions and improved work processes and
adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. As a result of the workforce reduction
program and the adoption of SFAS No. 121, the Company recorded a special charge
of $99 million ($47 million for employee separation costs and $52 million for
asset impairments) in the first quarter of 1996.
The employee separation charge included approximately $26 million for
expected severance-related costs and $21 million for pension costs related to
special termination benefits and work force reductions. The special charge for
pension-related costs will have no cash impact outside of the normal funding of
the Company's pension plan.
In accordance with SFAS No. 121, the Company determined the fair value of
certain assets based on discounted future cash flows. The resultant non-cash
charge for asset impairments included approximately $44 million for the
impairment of certain natural gas gathering, processing, and production
facilities and $8 million for the write-off of a regulatory asset established
upon the adoption of SFAS No. 112, Employers' Accounting for Postemployment
Benefits, but not recoverable through the Company's rate settlement filed with
FERC in March 1996.
26
<PAGE> 31
8. RETIREMENT BENEFITS
Pension Benefits
Prior to January 1, 1997, EPEC maintained a defined benefit pension plan
covering substantially all employees of EPNG. Pension benefits were based on
years of credited service and final 5-year average compensation, subject to
maximum limitations as defined in the pension plan.
Effective January 1, 1997, EPEC amended the plan to provide benefits
determined by a cash balance formula. Employees who were participants on
December 31, 1996, receive the greater of cash balance benefits or prior plan
benefits accrued through December 31, 2001.
Other Postretirement Benefits
EPNG provides postretirement medical benefits for a closed group of
employees who retired on or before March 1, 1986, and limited postretirement
life insurance for employees who retired after January 1, 1985. As such, EPNG's
obligation to accrue for other postretirement employee benefits ("OPEB") is
primarily limited to the fixed population of retirees who retired on or before
March 1, 1986. The medical plan is pre-funded to the extent employer
contributions are recoverable through rates. To the extent actual OPEB costs
differ from the amounts recovered in rates, a regulatory asset or liability is
recorded.
Several plan amendments were made effective January 1, 1998, including
increases in deductibles, increases in out-of-pocket limits, and changes to the
prescription drug provisions. These changes resulted in a $9 million decrease in
the postretirement benefits obligation.
The following table sets forth the change in benefit obligation, change in
plan assets, funded status, and components of net periodic benefit cost for
other postretirement benefits. In 1998, the Company changed the measurement date
for measuring OPEB obligations from December 31 to September 30. Traditionally,
timing of the receipt of this information has limited the Company's ability to
maximize planning and budgeting opportunities with respect to projected costs of
its various plans. The Company changed its benefit reporting date to facilitate
the planning process and gather necessary financial reporting information in a
more timely manner. Management believes the date change is preferable to the
method previously employed. This change in measurement date has been accounted
for as a change in accounting principle and had no material cumulative effect on
retirement benefit expense for the current or prior periods.
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
Change in benefit obligation
Actuarial present value of benefit obligation at January
1,..................................................... $ 67 $ 74
Interest cost............................................. 6 4
Plan amendments........................................... (9) --
Actuarial (gain) or loss.................................. 29 (5)
Benefits paid............................................. (4) (6)
---- ----
Actuarial present value of benefit obligation for 1998 at
September 30 and for 1997 at December 31............... $ 89 $ 67
==== ====
Change in plan assets
Fair value of plan assets at January 1,................... $ 48 $ 37
Actual return on plan assets.............................. 3 7
Employer contributions.................................... 8 10
Benefits paid............................................. (4) (6)
---- ----
Fair value of plan assets for 1998 at September 30 and for
1997 at December 31.................................... $ 55 $ 48
==== ====
</TABLE>
27
<PAGE> 32
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
Reconciliation of funded status
Funded status for 1998 at September 30 and for 1997 at
December 31............................................ $(34) $(19)
Fourth quarter contributions.............................. 3 --
Unrecognized net actuarial gain........................... (14) (43)
Unrecognized net transition obligation.................... 54 70
---- ----
Net accrued benefit cost at December 31................... $ 9 $ 8
==== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
----- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Benefit cost for the plans includes the following components
Interest cost............................................. $ 6 $ 4 $ 6
Expected return on plan assets............................ (3) (2) (2)
Amortization of net actuarial gain........................ -- (4) (2)
Amortization of transition obligation..................... 7 9 9
--- ---- ----
Net benefit cost.......................................... $10 $ 7 $ 11
=== ==== ====
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Weighted average assumptions
Discount rate............................................. 6.75% 7.00%
Expected return on plan assets............................ 7.50% 8.50%
</TABLE>
Actuarial estimates for the Company's postretirement benefits plans assumed
a weighted average annual rate of increase in the per capita costs of covered
health care benefits of 10 percent through 2000, gradually decreasing to 6
percent by the year 2008. Assumed health care cost trends have a significant
effect on the amounts reported for other postretirement benefit plans. A
one-percentage point change in assumed health care cost trends would have the
following effects:
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
One Percentage Point Increase
Aggregate of Service Cost and Interest Cost for 1998 at
September 30 and for 1997 at December 31............... $ 0.5 $ 0.4
Accumulated Postretirement Benefit Obligation for 1998 at
September 30 and for 1997 at December 31............... $ 7.3 $ 5.7
One Percentage Point Decrease
Aggregate of Service Cost and Interest Cost for 1998 at
September 30 and for 1997 at December 31............... $(0.4) $(0.4)
Accumulated Postretirement Benefit Obligation for 1998 at
September 30 and for 1997 at December 31............... $(6.7) $(5.2)
</TABLE>
28
<PAGE> 33
Retirement Savings Plan
EPNG's employees participate in EPEC's defined contribution plan.
9. PREFERRED STOCK
In December 1998, the Company issued 500,000 shares of 8% Preferred Stock
to EPEC. The proceeds of $350 million were used to reduce outstanding debt of
the Company. EPEC is entitled to receive dividends at the rate of 8% of the
liquidation value of $700 per share annually. On or after January 1, 2003, the
shares of the 8% Preferred Stock shall be redeemable at the option of the
Company, in whole or in part, upon not less than 30 days' notice at a redemption
price of $700 per share, plus unpaid dividends.
10. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Property, plant, and equipment, at cost..................... $2,417 $2,454
Less accumulated depreciation and depletion................. 961 940
------ ------
1,456 1,514
Additional acquisition cost assigned to utility plant, net
of accumulated amortization............................... 81 83
------ ------
Total property, plant, and equipment, net......... $1,537 $1,597
====== ======
</TABLE>
11. SUPPLEMENTAL CASH FLOW INFORMATION
The following table contains supplemental cash flow information for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Interest.................................................. $138 $129 $89
Income tax payments....................................... 20 54 58
</TABLE>
12. TRANSACTIONS WITH AFFILIATES
General and Administrative Expenses
EPEC allocates certain general and administrative expenses to the Company.
The allocation is based on the estimated level of effort devoted to the
Company's operations and relative size based on revenues, gross property and
payroll. Costs allocated to the Company included in operation and maintenance
expense in the Consolidated Income Statements were $84 million, $51 million, and
$48 million for the years ended December 31, 1998, 1997, and 1996, respectively.
Accounts Receivable and Accounts Payable -- Affiliated Companies
Balances in accounts receivable and accounts payable -- affiliated
companies relate to activities in the normal course of business.
13. EMPLOYEE SEPARATION AND ASSET IMPAIRMENT CHARGE
During the first quarter of 1996, the Company adopted a program to reduce
operating costs through work force reductions and improved work processes and
adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. As a result of the workforce reduction
program and the adoption of SFAS No. 121, the Company recorded a special charge
of $99 million ($47 million for employee separation costs and $52 million for
asset impairments) in the first quarter of 1996.
29
<PAGE> 34
The employee separation charge included approximately $26 million for
expected severance-related costs and $21 million for pension costs related to
special termination benefits and work force reductions. The special charge for
pension-related costs will have no cash impact outside of the normal funding of
the Company's pension plan.
In accordance with SFAS No. 121, the Company determined the fair value of
certain assets based on discounted future cash flows. The resultant non-cash
charge for asset impairments included approximately $44 million for the
impairment of certain natural gas gathering, processing, and production
facilities and $8 million for the write-off of a regulatory asset established
upon the adoption of SFAS No. 112, Employers' Accounting for Postemployment
Benefits, but not recoverable through the Company's rate settlement filed with
FERC in March 1996.
14. SEGMENT INFORMATION
The Company adopted the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, effective January 1, 1998.
The EPNG system serves California, which is its single largest market, and also
serves markets in Nevada, Arizona, New Mexico, Texas, Oklahoma, and northern
Mexico. The EPNG system delivers natural gas from the San Juan Basin of northern
New Mexico and southern Colorado, and also accesses natural gas supplies in the
Permian and Anadarko Basins of west Texas. The MPC system is connected with the
EPNG transmission system of Topock, Arizona and Kern River Gas Transmission
Company in California and extends to customers in the vicinity of Bakersfield,
California. Management of the Company evaluates the EPNG and MPC systems'
performance, based on EBIT.
The Company had combined gross revenues from 4 customers that exceeded 50
percent of consolidated operating revenue for the year ended December 31, 1998.
The 4 customers, and their respective percentages of consolidated operating
revenue are SoCal: 23 percent, Southwest Gas Corporation: 11 percent, Burlington
Resources Inc.: 10 percent, and Texaco Natural Gas Inc.: 9 percent.
15. SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
OPERATING OPERATING NET
QUARTER REVENUES INCOME INCOME
------- --------- --------- ------
(IN MILLIONS)
<S> <C> <C> <C>
1998 1st.................................................... $115 $ 50 $ 58
2nd................................................... 124 57 55
3rd................................................... 118 57 60
4th................................................... 118 49 77
---- ---- ----
$475 $213 $250
==== ==== ====
1997 1st.................................................... $129 $ 61 $ 52
2nd................................................... 126 70 44
3rd................................................... 131 58 43
4th................................................... 135 51 47
---- ---- ----
$521 $240 $186
==== ==== ====
</TABLE>
30
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
El Paso Natural Gas Company:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14. (a) 1. present fairly, in all material respects, the
consolidated financial position of El Paso Natural Gas Company as of December
31, 1998 and 1997, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule listed in the index appearing under
Item 14. (a) 2. presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and the financial statement schedule are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinions expressed
above.
PricewaterhouseCoopers LLP
Houston, Texas
March 9, 1999
31
<PAGE> 36
SCHEDULE II
EL PASO NATURAL GAS COMPANY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- --------------------- ---------- ---------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful accounts......... $ 3 $ -- $ -- $ 1 $ 2
1997
Allowance for doubtful accounts......... $ 5 $ 1 $ (1) $ 2 $ 3
1996
Allowance for doubtful accounts......... $ 6 $ -- $ -- $ 1 $ 5
</TABLE>
32
<PAGE> 37
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;" Item 11,
"Executive Compensation;" Item 12, "Security Ownership of Certain Beneficial
Owners and Management;" and Item 13, "Certain Relationships and Related
Transaction," have been omitted from this report pursuant to the reduced
disclosure format permitted by General Instruction I to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
1. Financial statements.
The following consolidated financial statements of the Company are included
in Part II, Item 8 of this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Income...................... 10
Consolidated Balance Sheets............................ 11
Consolidated Statements of Cash Flows.................. 12
Consolidated Statements of Stockholders' Equity........ 13
Notes to Consolidated Financial Statements............. 14
Report of independent accountants...................... 31
2. Financial statement schedules and supplementary information
required to be submitted.
Schedule II -- Valuation and qualifying accounts....... 32
Schedules other than that listed above are omitted
because they are not applicable
3. Exhibit list............................................. 34
</TABLE>
(b) REPORTS ON FORM 8-K:
On October 16, 1998, EPNG filed a report under Item 5 on Form 8-K, dated
October 16, 1998 with respect to the tax-free internal reorganization.
33
<PAGE> 38
EL PASO NATURAL GAS COMPANY
EXHIBIT LIST
DECEMBER 31, 1998
Exhibits not incorporated by reference to a prior filing are designated by
an asterisk. All exhibits not so designated are incorporated herein by reference
to a prior filing as indicated.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 -- Amended and Restated Merger Agreement dated as of June
19, 1996 by and among EPNG, El Paso Merger Company and
EPTPC (Exhibit 2.A to EPNG's Registration Statement on
Form S-4, filed August 27, 1996, File No. 333-10911).
*3.A -- Restated Certificate of Incorporation of EPNG dated
August 3, 1998 as amended.
3.B -- By-laws of EPNG, as amended October 22, 1997 (Exhibit 3.B
to EPNG's Form 10-Q, filed November 13, 1997, File No.
1-2700).
*4.A -- Indenture dated as of January 1, 1992, between EPNG and
Citibank, N.A., Trustee with respect to 7 3/4% Notes due
2002 and 8 5/8% Debentures due 2022.
4.B -- Indenture dated as of November 13, 1996, between EPNG and
The Chase Manhattan Bank, as Trustee, (Exhibit 4.1 to
EPNG's Form 8-K, filed November 13, 1996, File No.
1-2700); Form of 6 3/4% Notes Due 2003, (Exhibit 4.2 to
EPNG's Form 8-K, filed November 13, 1996, File No.
1-2700); Form of 7 1/2% Debentures Due 2026 (Exhibit 4.2
to EPNG's Form 8-K, filed November 13, 1996, File No.
1-2700).
10.A -- $750 million 364-Day Revolving Credit and Competitive
Advance Facility Agreement dated as of October 29, 1997,
by and among EPNG, TGP, The Chase Manhattan Bank,
Citibank, N.A., Morgan Guaranty Trust Company of New
York, and certain other banks (Exhibit 10.A to EPEC's
Form 10-Q, filed November 12, 1998, File No. 1-143650
(the "EPEC 1998 Third Quarter 10-Q")); First Amendment to
the $750 million 364-Day Revolving Credit and Competitive
Advance Facility dated as of October 9, 1998, among EPNG,
TGP, The Chase Manhattan Bank, Citibank, N.A., Morgan
Guaranty Trust Company of New York, and certain other
banks (Exhibit 10.B to the EPEC 1998 Third Quarter 10-Q).
10.B -- $750 million 5-Year Revolving Credit and Competitive
Advance Facility Agreement dated as of October 29, 1997,
by and among EPNG, TGP, The Chase Manhattan Bank,
Citibank, N.A., Morgan Guaranty Trust Company of New
York, and certain other banks (Exhibit 10.D to the EPEC
1998 Third Quarter 10-Q); First Amendment to the $750
million 5-Year Revolving Credit and Competitive Advance
Facility dated as of October 9, 1998, among EPNG, TGP,
The Chase Manhattan Bank, Citibank, N.A., Morgan Guaranty
Trust Company of New York, and certain other banks
(Exhibit 10.E to the EPEC 1998 Third Quarter 10-Q).
*18 -- Letter Regarding Change in Accounting Principles.
21 -- Omitted pursuant to the reduced disclosure format
permitted by General Instruction I to Form 10-K.
*27 -- Financial Data Schedule.
</TABLE>
UNDERTAKING.
The undersigned Registrant hereby undertakes, pursuant to Regulation S-K,
Item 601(b), paragraph (4)(iii), to furnish to the Securities and Exchange
Commission upon request all constituent instruments defining the rights of
holders of long-term debt of Registrant and its consolidated subsidiaries not
filed herewith for the reason that the total amount of securities authorized
under any of such instruments does not exceed 10 percent of the total
consolidated assets of Registrant and its consolidated subsidiaries.
34
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 as amended, El Paso Natural Gas Company has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 18th day of March 1999.
EL PASO NATURAL GAS COMPANY
Registrant
By /s/ WILLIAM A. WISE
------------------------------------
William A. Wise
Chairman of the Board,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934 as
amended, this report has been signed below by the following persons on behalf of
El Paso Natural Gas Company and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM A. WISE Chairman of the Board, Chief March 18, 1999
- ----------------------------------------------------- Executive Officer and
(William A. Wise) Director
/s/ RICHARD OWEN BAISH President and Director March 18, 1999
- -----------------------------------------------------
(Richard Owen Baish)
/s/ H. BRENT AUSTIN Executive Vice President, Chief March 18, 1999
- ----------------------------------------------------- Financial Officer and
(H. Brent Austin) Director
/s/ JEFFREY I. BEASON Vice President and Controller March 18, 1999
- ----------------------------------------------------- (Chief Accounting Officer)
(Jeffrey I. Beason)
</TABLE>
35
<PAGE> 40
EXHIBIT INDEX
Exhibits not incorporated by reference to a prior filing are designated by
an asterisk. All exhibits not so designated are incorporated herein by reference
to a prior filing as indicated.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 -- Amended and Restated Merger Agreement dated as of June
19, 1996 by and among EPNG, El Paso Merger Company and
EPTPC (Exhibit 2.A to EPNG's Registration Statement on
Form S-4, filed August 27, 1996, File No. 333-10911).
*3.A -- Restated Certificate of Incorporation of EPNG dated
August 3, 1998 as amended.
3.B -- By-laws of EPNG, as amended October 22, 1997 (Exhibit 3.B
to EPNG's Form 10-Q, filed November 13, 1997, File No.
1-2700).
*4.A -- Indenture dated as of January 1, 1992, between EPNG and
Citibank, N.A., Trustee with respect to 7 3/4% Notes due
2002 and 8 5/8% Debentures due 2022.
4.B -- Indenture dated as of November 13, 1996, between EPNG and
The Chase Manhattan Bank, as Trustee, (Exhibit 4.1 to
EPNG's Form 8-K, filed November 13, 1996, File No.
1-2700); Form of 6 3/4% Notes Due 2003, (Exhibit 4.2 to
EPNG's Form 8-K, filed November 13, 1996, File No.
1-2700); Form of 7 1/2% Debentures Due 2026 (Exhibit 4.2
to EPNG's Form 8-K, filed November 13, 1996, File No.
1-2700).
10.A -- $750 million 364-Day Revolving Credit and Competitive
Advance Facility Agreement dated as of October 29, 1997,
by and among EPNG, TGP, The Chase Manhattan Bank,
Citibank, N.A., Morgan Guaranty Trust Company of New
York, and certain other banks (Exhibit 10.A to EPEC's
Form 10-Q, filed November 12, 1998, File No. 1-143650
(the "EPEC 1998 Third Quarter 10-Q")); First Amendment to
the $750 million 364-Day Revolving Credit and Competitive
Advance Facility dated as of October 9, 1998, among EPNG,
TGP, The Chase Manhattan Bank, Citibank, N.A., Morgan
Guaranty Trust Company of New York, and certain other
banks (Exhibit 10.B to the EPEC 1998 Third Quarter 10-Q).
10.B -- $750 million 5-Year Revolving Credit and Competitive
Advance Facility Agreement dated as of October 29, 1997,
by and among EPNG, TGP, The Chase Manhattan Bank,
Citibank, N.A., Morgan Guaranty Trust Company of New
York, and certain other banks (Exhibit 10.D to the EPEC
1998 Third Quarter 10-Q); First Amendment to the $750
million 5-Year Revolving Credit and Competitive Advance
Facility dated as of October 9, 1998, among EPNG, TGP,
The Chase Manhattan Bank, Citibank, N.A., Morgan Guaranty
Trust Company of New York, and certain other banks
(Exhibit 10.E to the EPEC 1998 Third Quarter 10-Q).
*18 -- Letter Regarding Change in Accounting Principles.
21 -- Omitted pursuant to the reduced disclosure format
permitted by General Instruction I to Form 10-K.
*27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3.A
RESTATED
CERTIFICATE OF INCORPORATION
OF
EL PASO NATURAL GAS COMPANY
E1 Paso Natural Gas Company, a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby
certify:
1. The original Certificate of Incorporation was filed with the
Secretary of State on November 28, 1928. The name under which it was
originally incorporated is El Paso Natural Gas Company.
2. The following Restated Certificate of Incorporation was duly
proposed by the corporation's Board of Directors pursuant to the applicable
provisions of Section 245 of the General Corporation Law of the State of
Delaware. The following Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the corporation's
certificate of incorporation as heretofore amended and supplemented, and there
is no discrepancy between those provisions and the following Restated
Certificate of Incorporation, except for such provisions as are expressly
permitted to be omitted by Section 245 of the General Corporation law of the
State of Delaware.
ARTICLE 1. NAME
The name of this corporation is EL PASO NATURAL GAS COMPANY.
ARTICLE 2. REGISTERED OFFICE AND AGENT
The address of the registered office of this corporation is
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware 19801, and the name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE 3. PURPOSES
The purpose of this corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
<PAGE> 2
ARTICLE 4. SHARES
The total number of authorized shares of all classes of stock of this
corporation shall consist of 1,000 shares of common stock having a par value of
$1.00 per share and 1,000,000 shares of preferred stock having a par value of
$0.01 per share. Authority is hereby expressly granted to the Board of
Directors to fix by resolution or resolutions any of the designations and the
powers, preferences and rights, and the qualifications, limitations or
restrictions which are permitted by the General Corporation Law of the State of
Delaware in respect of any class or classes of stock or any series of any class
of stock of the corporation.
ARTICLE 5. BY-LAWS
The Board of Directors shall have the power to adopt, amend or repeal
the By-laws of this corporation, subject to the power of the stockholders to
amend or repeal such By-laws. The stockholders having voting power shall also
have the power to adopt, amend or repeal the By-laws of this corporation.
ARTICLE 6. ELECTION OF DIRECTORS
Except as may be otherwise required by the By-laws, written ballots
are not required in the election of Directors.
ARTICLE 7. PREEMPTIVE RIGHTS
Preemptive rights shall not exist with respect to shares of stock or
securities convertible into shares of stock of this corporation.
ARTICLE 8. CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not
exist with respect to shares of stock of this corporation.
ARTICLE 9. AMENDMENTS TO RESTATED CERTIFICATE OF INCORPORATION
This corporation reserves the right to amend or repeal any of the
provisions contained in this Restated Certificate of Incorporation in any
manner now or hereafter permitted by law, and the rights of the stockholders of
this corporation are granted subject to this reservation.
-2-
<PAGE> 3
ARTICLE 10. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the General Corporation Law of the State of
Delaware, as it exists on the date hereof or may hereafter be amended, permits
the limitation or elimination of the liability of Directors, a Director of this
corporation shall not be liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a Director. Any amendment to
or repeal of this Article 10 shall not adversely affect any right or protection
of a Director of this corporation for or with respect to any acts or omissions
of such Director occurring prior to such amendment or repeal.
ARTICLE 11. ACTION BY STOCKHOLDERS WITHOUT A MEETING
Any action by the stockholders of this corporation shall be taken at a
meeting of stockholders and no action may be taken by written consent of
stockholders entitled to vote on such action.
ARTICLE 12. SPECIAL VOTING REQUIREMENTS
In addition to any affirmative vote required by law, by this Restated
Certificate of Incorporation, by any agreement with any national securities
exchange, or as may be otherwise required, any "Business Combination" (as
hereinafter defined) involving this corporation shall be subject to approval in
the manner set forth in this Article 12.
12.1 Definitions.
For the purposes of this Article 12:
(a) "Affiliate" and "beneficial owner" are used herein as
defined in Rule 12b-2 and Rule 13d-3, respectively, under the
Securities Exchange Act of 1934 as in effect on January 1, 1992 (the
"1934 Act"). The term "Affiliate" as used herein shall exclude this
corporation, but shall include the definition of "Associate" as
contained in said Rule 12b-2.
(b) An "Interested Stockholder" is a person other than
(i) the corporation or (ii) Burlington Resources Inc., a Delaware
corporation ("BRI"), as long as BRI continues to own at least a
majority of the stock of this corporation entitled to vote for the
election of Directors ("Voting Stock") and there has been no Change in
Control of BRI since January 1, 1992, who is (A) the beneficial owner
of ten percent or more of the Voting Stock or (B) an Affiliate of this
corporation which (1) at any time within a two-year period prior to
the record date for the vote on a Business Combination was the
beneficial owner of ten percent or more of the Voting Stock, or (2) at
the completion of the Business Combination will be the beneficial
owner of ten percent or more of the Voting Stock.
-3-
<PAGE> 4
(c) A "Person" is a natural person or a legal entity of
any kind, together with any Affiliate of such person or entity, or any
person or entity with whom such person, entity or any Affiliate has
any agreement or understanding relating to acquiring, voting or
holding Voting Stock.
(d) A "Disinterested Director" is a member of the Board
of Directors of this corporation (other than the Interested
Stockholder) who was a Director prior to the time the Interested
Stockholder became an Interested Stockholder, or any Director who was
recommended for election by the Disinterested Directors. Any action
to be taken by the Disinterested Directors shall require the
affirmative vote of at least two-thirds of the Disinterested
Directors.
(e) A "Business Combination" is (i) a merger or
consolidation of this corporation or any of its subsidiaries with an
Interested Stockholder; (ii) the sale, lease, exchange, pledge,
transfer or other disposition (A) by this corporation or any of its
subsidiaries of all or a Substantial Part of the corporation's Assets
to an Interested Stockholder, or (B) by an Interested Stockholder of
any of its assets, except in the ordinary course of business, to this
corporation or any of its subsidiaries; (iii) the issuance of stock or
other securities of this corporation or any of its subsidiaries to an
Interested Stockholder, other than on a pro rata basis to all holders
of Voting Stock of the same class held by the Interested Stockholder
pursuant to a stock spilt, stock dividend or distribution of warrants
or rights; (iv) the adoption of any plan or proposal for the
liquidation or dissolution of this corporation proposed by or on
behalf of an Interested Stockholder; (v) any reclassification of
securities, recapitalization, merger or consolidation or other
transaction which has the effect, directly or indirectly, of
increasing the proportionate share of any Voting Stock beneficially
owned by an Interested Stockholder; or (vi) any agreement, contract or
other arrangement providing for any of the foregoing transactions.
(f) A "Substantial Part of the corporation's Assets"
shall mean assets of this corporation or any of its subsidiaries in an
amount equal to twenty percent or more of the fair market value, as
determined by the Disinterested Directors, of the total consolidated
assets of this corporation and its subsidiaries taken as a whole as of
the end of its most recent fiscal year ended prior to the time the
determination is made.
(g) A "Change in Control" shall be deemed to occur (i) if
any Person is or becomes the "beneficial owner" (as defined in Rule
13d-3 of the 1934 Act), directly or indirectly, of securities of BRI
representing twenty percent or more of the stock of BRI entitled to
vote for Directors of BRI, (ii) upon the first purchase of BRI's
common stock pursuant to a tender or exchange offer (other than a
tender or exchange offer made by BRI), (iii) upon the approval by
BRI's stockholders of a merger or consolidation, a sale or disposition
of all or substantially all of BRI's assets or a plan of liquidation
or dissolution of BRI, or (iv) if, during any period of two
consecutive years, individuals who at the beginning of such period
constitute the BRI Board of Directors cease for any reason to
constitute at least a majority thereof, unless the election or
nomination of the election by
-4-
<PAGE> 5
BRI's stockholders of each new Director was approved by a vote of at
least two-thirds of the Directors then still in office who were
Directors at the beginning of the period.
12.2 Vote Required for Business Combinations.
The affirmative vote of not less than fifty-one percent of the Voting
Stock, excluding the Voting Stock of an Interested Stockholder who is a party
to the Business Combination, shall be required for the adoption or
authorization of a Business Combination, unless the Disinterested Directors
determine that:
(a) The Interested Stockholder is the beneficial owner of
not less than eighty percent of the Voting Stock and has declared its
intention to vote in favor of or to approve such Business Combination;
or
(b) (i) The fair market value of the consideration per
share to be received or retained by the holders of each class or
series of stock of this corporation in a Business Combination is equal
to or greater than the consideration per share (including brokerage
commissions and soliciting dealer's fees) paid by such Interested
Stockholder in acquiring the largest number of shares of such class of
stock previously acquired in any one transaction or series of related
transactions, whether before or after the Interested Stockholder
became an Interested Stockholder and (ii) the Interested Stockholder
shall not have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances, guarantees,
pledges or other financial assistance provided by this corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
12.3 Information Requirements.
In the event any vote of holders of Voting Stock is required for the
adoption or approval of any Business Combination, a proxy or information
statement describing the Business Combination and complying with the
requirements of the 1934 Act shall be mailed at a date determined by the
Disinterested Directors to all stockholders of this corporation whether or not
such statement is required under the 1934 Act. The statement shall contain any
recommendations as to the advisabi1ity of the Business Combination which the
Disinterested Directors, or any of them, may choose to state and, if deemed
advisable by the Disinterested Directors, an opinion of an investment banking
firm as to the fairness of the terms of such Business Combination. Such firm
shall be selected by the Disinterested Directors and be paid a fee for its
services by this corporation as approved by the Disinterested Directors.
12.4 Amendment.
No amendment to this Restated Certificate of Incorporation shall
amend, alter, change or repeal any of the provisions of Article 11 or of this
Article 12 unless such amendment shall receive the affirmative vote of not less
than fifty-one percent of the Voting Stock, excluding the Voting Stock of any
Interested Stockholder as defined in Section 12.1 of this Article 12.
-5-
<PAGE> 6
ARTICLE 13. VOTE OF STOCKHOLDERS OF EL PASO ENERGY
CORPORATION REQUIRED TO APPROVE CERTAIN ACTIONS
Any act or transaction by or involving this corporation that requires
for its adoption under the General Corporation Law of the State of Delaware or
this Restated Certificate of Incorporation the approval of the stockholders of
this corporation shall, pursuant to Section 251(g) of the General Corporation
Law of the State of Delaware, require, in addition, the approval of the
stockholders of El Paso Energy Corporation, a Delaware corporation, or any
successor thereto by merger, by the same vote that is required by the General
Corporation Law of the State of Delaware and/or the Restated Certificate of
Incorporation of this corporation.
IN WITNESS WHEREOF, the undersigned has executed this document and
affirms, under penalties of perjury, that the statements herein are true and
that this instrument is the act and deed of El Paso Natural Gas Company as of
this 3rd day of August 1998.
EL PASO NATURAL GAS COMPANY
/s/ H. Brent Austin
----------------------------------------
H. Brent Austin
Executive Vice President and Chief
Financial Executive Officer
Attest:
/s/ David L. Siddall
- --------------------------------------
David L. Siddall
Corporate Secretary
-6-
<PAGE> 7
EL PASO NATURAL GAS COMPANY
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF PREFERRED STOCK
BY RESOLUTION OF THE BOARD OF DIRECTORS
PROVIDING FOR AN ISSUE OF 500,000
SHARES OF PREFERRED STOCK DESIGNATED
"8% PREFERRED STOCK"
-----------------------
I, Kelly J. Jameson, Assistant Secretary of El Paso Natural Gas Company
(hereinafter referred to as the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 151 thereof, DO HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation, as amended, of said Corporation, the Board of
Directors, by unanimous written consent, pursuant to Section 141(f) of the
General Corporation Law of the State of Delaware, dated as of December 30,
1998, adopted a resolution providing for the issuance of a series of Preferred
Stock, to be designated "8% Preferred Stock," which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of the Corporation by the Certificate of Incorporation, as
amended (as such may be further amended from time to time, the
"Certificate of Incorporation"), a series of Preferred Stock, par value
$0.01 per share, of the Corporation (the "Preferred Stock") be, and
hereby is, created to be designated "8% Preferred Stock" (hereinafter
referred to as the "8% Preferred Stock"), consisting of 500,000 shares,
and the designations, powers, preferences and relative and other
special rights and the qualifications, limitations and restrictions of
the 8% Preferred Stock are hereby fixed and stated to be as follows
(all terms used herein that are defined in the Certificate of
Incorporation shall be deemed to have the meanings provided therein):
SECTION 1. Dividends. (a) The dividend rate on the 8%
Preferred Stock shall be 8% of $700 per share of Preferred Stock per
annum. Dividends on shares of the 8% Preferred Stock shall be
cumulative and shall accrue from the date of issuance of such shares,
whether or not declared by the Board of Directors of the Corporation
(or a duly authorized committee thereof). Accrued but unpaid dividends
shall not bear interest.
<PAGE> 8
(b) Dividends on the 8% Preferred Stock shall be payable,
when, as, and if declared by the Board of Directors of the Corporation
(or a duly authorized committee thereof) out of assets legally
available therefor, annually on the last day of November in each year
(each, a "Dividend Payment Date"), with the first dividend payment date
being the next Dividend Payment Date following the date of issuance.
Dividends on each Dividend Payment Date will be payable to holders of
record of the 8% Preferred Stock as they appear on the records of the
Corporation on a record date, not more than 60 days preceding such
Dividend Payment Date, fixed for such purpose by the Board of Directors
(or a duly authorized committee thereof) in advance of such Dividend
Payment Date. Accrued dividends not paid on a Dividend Payment Date may
be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the holders of record on such record date,
not more than 60 days preceding the payment date thereof, as may be
fixed by the Board of Directors (or a duly authorized committee
thereof). Dividends payable on shares of 8% Preferred Stock for the
initial dividend period following issuance of such shares or any other
dividend period shorter than a year shall be computed on the basis of a
360-day year of twelve 30-day months. The 8% Preferred Stock shall rank
on a parity with each other series of Preferred Stock as to the payment
of dividends, except to the extent otherwise provided in the resolution
or resolutions of the Board of Directors of the Corporation fixing
the designations and the powers, preferences, and rights, and the
qualifications, limitations, and restrictions in respect of such other
series of Preferred Stock.
SECTION 2. Voting. The 8% Preferred Stock shall not have any
voting rights except as required by law or the Certificate of
Incorporation.
SECTION 3. Redemption. (a) At any time or from time to time,
on or after January 1, 2003, the shares of the 8% Preferred Stock shall
be redeemable at the option of the corporation (by resolution of the
Board of Directors or a duly authorized committee thereof), in whole or
in part, out of funds legally available therefor, at a redemption price
equal to $700.00 per share, plus an amount equal to all accrued and
unpaid dividends, if any, to but excluding the date fixed for
redemption. If fewer than all outstanding shares of 8% Preferred Stock
are to be redeemed, the Corporation will select those shares to be
redeemed pro rata, by lot, or by a substantially equivalent method.
(b) Notice of redemption pursuant to paragraph (a) of this
Section 3 shall be given by mail, not less than 30 days prior to the
date fixed for redemption, to each record holder of the shares of 8%
Preferred Stock to be redeemed at the address of such holder on the
records of the
<PAGE> 9
Corporation. If a notice of redemption has been given pursuant to this
subsection (b) and if, on or before the date fixed for redemption, the
funds necessary for such redemption shall have been irrevocably
deposited or set aside by the Corporation, separate and apart from its
other funds, to pay the redemption price to the holders of the shares
of 8% Preferred Stock so called for redemption upon surrender of the
certificates therefor, then, notwithstanding that any certificates for
such shares have not been surrendered for cancellation, from and after
the date fixed for redemption, dividends on the shares of 8% Preferred
Stock so called for redemption will cease to accrue, such shares will
no longer be deemed outstanding, and all rights of the holders thereof
as stockholders of the Corporation (except the right to receive payment
of the redemption price) will cease. Subject to applicable escheat and
similar abandoned property laws, any moneys so deposited or set aside
by the Corporation for such redemption and unclaimed at the end of the
six months from the date fixed for redemption shall revert to the
general funds of the Corporation, after which reversion the holders of
such shares so called for redemption shall look only to the general
funds of the Corporation for payment of the amounts payable upon such
redemption. Any interest accrued on funds so deposited or set aside
shall be paid to the Corporation from time to time.
SECTION 4. Liquidation Rights. (a) The shares of 8% Preferred
Stock shall rank, as to distributions upon dissolution, liquidation,
and winding up of the Corporation, prior to the shares of Common Stock
and on parity with each other series of Preferred Stock, except to the
extent otherwise provided in the resolution or resolutions of the
Board of Directors of the Corporation on fixing the designations and
the powers, preferences, and rights, and the qualifications,
limitations, and restrictions in respect of such other series of
Preferred Stock. Subject to subsection (b) of this Section 4, the
amount that the holders of 8% Preferred Stock shall be entitled to
receive in the event of any dissolution, liquidation, or winding up of
the affairs of the Corporation, whether voluntary or involuntary,
shall be $700.00 per share, plus an amount equal to all accrued and
unpaid dividends, if any, to the date of dissolution or liquidation.
After such amount is paid in full, no further distributions or
payments shall be made in respect of shares of 8% Preferred Stock,
such shares of 8% Preferred Stock shall no longer be deemed to be
outstanding or be entitled to any powers, preferences, rights, or
privileges, and certificates representing such shares of 8% Preferred
Stock shall be surrendered for cancellation to the Corporation.
(b) In the event of any dissolution, liquidation, or winding
up of the Corporation, then, before any distribution or payment shall
be made to the holders of Common Stock or any other class or series of
stock of the
<PAGE> 10
Corporation ranking junior to the 8% Preferred Stock with respect to
distributions upon dissolution, liquidation, or winding up, the holders
of the 8% Preferred Stock (subject to the rights of the holders of any
class or series of stock ranking prior to the 8% Preferred Stock with
respect to distributions upon dissolution, liquidation, or winding up)
shall be entitled to be paid in full the amounts set forth in
subsection (a) of this Section 4. After such payment shall have been
made in full to the holders of the 8% Preferred Stock, the remaining
assets and funds of the Corporation shall be distributed to the holders
of the stock of the Corporation ranking junior to the 8% Preferred
Stock with respect to distributions upon dissolution, liquidation, or
winding up according to their respective rights. In the event that the
assets of the Corporation available for distribution to the holders of
8% Preferred Stock shall not be sufficient to pay in full the
preferential payment herein required to be paid to the holders of
shares of 8% Preferred Stock and to pay in full the liquidation
preference on all other shares of stock of the Corporation ranking on
parity with the 8% Preferred Stock with respect to distributions upon
dissolution, liquidation, and winding up of the Corporation, then such
assets shall be distributed to the holders of shares of 8% Preferred
Stock and any such other parity stock ratably in proportion to the full
amounts to which they otherwise would be respectively entitled if all
amounts payable thereon were paid in full.
SECTION 5. Maturity. Unless otherwise redeemed as provided
herein, the term of the 8% Preferred Stock shall be perpetual.
IN WITNESS WHEREOF, said El Paso Natural Gas Company has caused this
Certificate of Designation, Preferences and Rights of Preferred Stock to be
signed by Kelly J. Jameson, as Assistant Secretary, this 30th day of December
1998.
EL PASO NATURAL GAS COMPANY
By: /s/ Kelly J. Jameson
-----------------------------
Kelly J. Jameson
Assistant Secretary
<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 4.A
EL PASO NATURAL GAS COMPANY,
Issuer
and
CITIBANK, N.A.,
Trustee
-------------------
INDENTURE
Dated as of January 1, 1992
---------------------
DEBT SECURITIES
- --------------------------------------------------------------------------------
<PAGE> 2
EL PASO NATURAL GAS COMPANY
CROSS REFERENCE SHEET
This Cross Reference Sheet shows the location in this Indenture of the
provisions inserted pursuant to Section 310-318 (a), inculsive of the Trust
Indenture Acto of 1939, as amended. This Cross Reference Sheet shall not, for
any purpose, be deemed to be a part of this Indenture.
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
<S> <C>
Section 310 (a) (1), (2).................................6.09
(a) (3), (4).................................Not Applicable
(a) (5)......................................6.09
(b)..........................................6.08, 6.10
(c)..........................................Not Applicable
Section 311 (a), (b).....................................6.13
(c)..........................................Not Applicable
Section 312 (a)..........................................7.01, 7.02 (a)
(b)..........................................7.02 (b)
(c)..........................................7.02 (c)
Section 313 (a) (1) - (4), (6) - (8).....................7.03 (a)
(a) (5)......................................Not Applicable
(b) (1)......................................Not Applicable
(b) (2)......................................7.03 (b)
(c), (d).....................................7.03
Section 314 (a)..........................................7.04
(b)..........................................Not Applicable
(c) (1), (2).................................1.03
(c) (3)......................................Not Applicable
(d)..........................................Not Applicable
(e)..........................................1.03
(f)..........................................Not Applicable
Section 315 (a)..........................................6.01 (a)
(b)..........................................6.02
(c)..........................................6.01 (b)
(d)..........................................6.01 (c)
(d) (1)......................................6.01 (a)
(d) (2)......................................6.01 (c) (2)
(d) (3)......................................6.01 (c) (3)
(e)..........................................5.14
Section 316 (a)..........................................1.01
(a) (1) (A)..................................5.12
(a) (1) (B)..................................5.13
(a) (2)......................................Not Applicable
(b)..........................................5.08
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 317 (a) (1)......................................5.03
(a) (2)......................................5.04
(b)..........................................10.03
Section 318 (a)..........................................1.08
</TABLE>
<PAGE> 4
CONTENTS
<TABLE>
<S> <C>
ARTICLE ONE - DEFINITIONS AND OTHER PROVISIONS OF GENERAL
APPLICATION.................................................................................1
SECTION 1.01. Definitions...........................................................1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.....................6
SECTION 1.03. Compliance Certificates and Opinions..................................6
SECTION 1.04. Form of Documents Delivered to Trustee................................7
SECTION 1.05. Acts of Holders.......................................................7
SECTION 1.06. Notices, Etc., to Trustee and Company.................................8
SECTION 1.07. Notices to Holders; Waiver............................................9
SECTION 1.08. Conflict with Trust Indenture Act.....................................9
SECTION 1.09. Effect of Headings and Table of Contents..............................9
SECTION 1.10. Successors and Assigns................................................9
SECTION 1.11. Separability Clause...................................................10
SECTION 1.12. Benefits of Indenture.................................................10
SECTION 1.13. Governing Law.........................................................10
SECTION 1.14. Legal Holidays........................................................10
ARTICLE TWO - FORM OF SECURITIES 10
SECTION 2.01. Forms Generally.......................................................10
SECTION 2.02. Form of Trustee's Certificate of Authentication.......................11
ARTICLE THREE - THE SECURITIES 11
SECTION 3.01. Title and Terms.......................................................11
SECTION 3.02. Denominations.........................................................13
SECTION 3.03. Execution, Authentication, Delivery and Dating........................14
SECTION 3.04. Temporary Securities..................................................15
SECTION 3.05. Registration, Registration of Transfer and Exchange...................15
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities......................16
SECTION 3.07. Payment of Interest; Interest Rights Preserved........................17
SECTION 3.08. Persons Deemed Owners.................................................18
SECTION 3.09. Cancellation..........................................................18
SECTION 3.10. Computation of Interest...............................................19
ARTICLE FOUR - SATISFACTION AND DISCHARGE: UNCLAIMED MONEYS...............................................19
SECTION 4.01. Satisfaction and Discharge of Indenture...............................19
SECTION 4.02. Deposited Moneys to Be Held in Trust by Trustee.......................21
SECTION 4.03. Paying Agent to Repay Moneys Held.....................................21
SECTION 4.04. Return of Unclaimed Moneys............................................21
SECTION 4.05. Reinstatement.........................................................22
ARTICLE FIVE - REMEDIES 22
SECTION 5.01. Events of Default.....................................................22
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment....................23
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee................................................25
SECTION 5.04. Trustee May File Proofs of Claim......................................25
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
SECTION 5.05. Trustee May Enforce Claims Without
Possesion of Securities...............................................26
SECTION 5.06. Application of Money Collected........................................26
SECTION 5.07. Limitation of Suits...................................................27
SECTION 5.08. Unconditional Right of Holders to Receive
Principal and Interest................................................27
SECTION 5.09. Restoration of Rights and Remedies....................................28
SECTION 5.10. Rights and Remedies Cumulative........................................28
SECTION 5.11. Delay or Omission Not Waiver..........................................28
SECTION 5.12. Control by Holders....................................................28
SECTION 5.13. Waiver of Past Defaults...............................................29
SECTION 5.14. Undertaking for Costs.................................................29
SECTION 5.15. Waiver of Stay or Extension Laws......................................29
ARTICLE SIX - THE TRUSTEE 30
SECTION 6.01. Certain Duties and Responsibilities...................................30
SECTION 6.02. Notice of Defaults....................................................31
SECTION 6.03. Certain Rights of Trustee.............................................31
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities................32
SECTION 6.05. May Hold Securities...................................................32
SECTION 6.06. Money Held in Trust...................................................32
SECTION 6.07. Compensation and Reimbursement........................................32
SECTION 6.08. Disqualification; Conflicting Interests...............................33
SECTION 6.09. Corporate Trustee Required; Eligibility...............................33
SECTION 6.10. Resignation and Removal; Appointment of Successor.....................34
SECTION 6.11. Acceptance and Appointment by Successor...............................35
SECTION 6.12. Merger, Conversion, Consolidation or Succession
to Business...........................................................36
SECTION 6.13. Preferential Collection of Claims Against Company.....................36
ARTICLE SEVEN - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND
COMPANY .............................................................................36
SECTION 7.01. Company to Furnish Trustee Names and
Addresses of Holders..................................................36
SECTION 7.02. Preservation of Information; Communication to Holders.................37
SECTION 7.03. Reports by Trustee....................................................37
SECTION 7.04. Reports by Company....................................................38
ARTICLE EIGHT - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR
LEASE 38
SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms..................38
SECTION 8.02. Successor Corporation Substituted.....................................39
ARTICLE NINE - SUPPLEMENTAL INDENTURES....................................................................39
SECTION 9.01. Supplemental Indentures Without Consent of Holders....................39
SECTION 9.02. Supplemental Indentures With Consent of Holders.......................40
SECTION 9.03. Execution of Supplemental Indentures..................................41
SECTION 9.04. Effect of Supplemental Indentures.....................................41
SECTION 9.05. Conformity With Trust Indenture Act...................................41
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C>
SECTION 9.06. Reference in Securities to Supplemental Indentures....................41
ARTICLE TEN - COVENANTS 42
SECTION 10.01. Payment of Principal and Interest.....................................42
SECTION 10.02. Maintenance of Office or Agency.......................................42
SECTION 10.03. Money for Security Payments to be Held in Trust.......................42
SECTION 10.04. Limitation on Liens and Sale-Leasebacks...............................43
SECTION 10.05. Dividends on and Acquisitions of Stock................................45
SECTION 10.06. Waiver of Certain Covenants...........................................46
ARTICLE ELEVEN - REDEMPTION OF SECURITIES.................................................................46
SECTION 11.01. Applicability of Article..............................................46
SECTION 11.02. Election to Redeem; Notice to Trustee.................................47
SECTION 11.03. Selection by Trustee of Securities to Be Redeemed.....................47
SECTION 11.04. Notice of Redemption..................................................47
SECTION 11.05. Deposit of Redemption Price...........................................48
SECTION 11.06. Securities Payable on Redemption Date.................................48
SECTION 11.07. Securities Redeemed in Part...........................................48
ARTICLE TWELVE - SINKING FUNDS 49
SECTION 12.01. Applicability of Article..............................................49
SECTION 12.02. Satisfaction of Sinking Fund Payments With Securities.................49
SECTION 12.03. Redemption of Securities for Sinking Fund.............................49
</TABLE>
-iii-
<PAGE> 7
INDENTURE
INDENTURE, dated as of January 1, 1992, between EL PASO NATURAL GAS
COMPANY, a Delaware corporation (herein called the "Company") with its principal
office at One Paul Kayser Center, 304 Texas Avenue, El Paso, Texas 79901, and
CITIBANK, N.A., a national banking association duly incorporated and existing
under the laws of the United States of America, as Trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities") to be issued in one or more series as provided in this Indenture.
All things necessary to make this Indenture a valid agreement of the
Company and the Trustee, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the
Securities are made, executed, authenticated, issued and delivered, the Company
and the Trustee covenant and agree with each other, for the equal and
proportionate benefit of all Holders (as defined below) of the securities or of
any series thereof, as follows:
ARTICLE ONE - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. DEFINITIONS
For all purposes of this Indenture and any indenture supplemental
hereto, except as otherwise expressly provided or unless the context otherwise
requires:
(1) the terms defined in this Article One have the meanings assigned to
them in this Article One and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and, except as otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or permitted
hereunder shall mean such accounting principles as are generally accepted at the
date of this Indenture; and
<PAGE> 8
(3) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision. Certain terms, used principally in
Article Six, are defined in Section 1.02.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.05.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authorized Newspaper" means a newspaper of general circulation in the
New York, New York area, printed in the English language and customarily
published on each Business Day, whether or not published on Saturdays, Sundays
or holidays. Whenever successive weekly publications in an Authorized Newspaper
are required hereunder they may be made (unless otherwise expressly provided
herein) on the same or different days of the week and in the same or in
different Authorized Newspapers.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the State of New York
are authorized or obligated by law or executive order to close.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, or, if
at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President, a
Vice Chairman or a Vice President, and by its Treasurer, an Assistant Treasurer,
its Secretary or an Assistant Secretary, and delivered to the Trustee.
-2-
<PAGE> 9
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office is, at the date as of which this Indenture is dated,
located at 120 Wall Street, New York, New York 10043 except that, with respect
to presentation of Securities for payment or registration of transfer and
exchange and the location of the Securities Registrar, such term means the
office or agency of the Trustee in said city at which, at any particular time,
its corporate agency business shall be conducted, which is, at the date as of
which this Indenture is dated, located at 111 Wall Street, New York, New York
10043.
"Corporation" includes corporations, associations, companies and
business trusts.
"Debt" means indebtedness for money borrowed.
"Defaulted Interest" has the meaning specified in section 3.07.
"Event of Default" has the meaning specified in Section 5.01.
"Funded Debt" means all Debt maturing one year or more from the date of
the creation thereof, all Debt directly or indirectly renewable or extendible,
at the option of the debtor, by its terms or by the terms of any instrument or
agreement relating thereto, to a date one year or more from the date of the
creation thereof, and all Debt under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of one year or
more.
"Holder" means a Person in whose name a Security is registered in the
Securities Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Maturity," when used with respect to one of the Securities, means the
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the Stated Maturity or by declaration of
acceleration or otherwise.
"Mortgage" means and includes any mortgage, pledge, lien, charge,
security interest, conditional sale or other title retention agreement or other
similar encumbrance.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President, a Vice Chairman or a Vice President, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of
the Company, and delivered to the Trustee, which shall to the extent applicable
contain the statements required by Section 1.03.
-3-
<PAGE> 10
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee, which shall
to the extent applicable contain the statements required by Section 1.03.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment money
in the necessary amount has been theretofore deposited with the Trustee
or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; and
(iii) Securities in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to this
Indenture;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.06 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Principal Property" means (i) any pipeline assets of the Company or
any Subsidiary, including any related facilities employed in the transportation,
distribution or marketing of
4-
<PAGE> 11
natural gas, and (ii) any processing plant owned or leased by the Company or any
Subsidiary and located within the United States of America or any state thereof
or the Dominion of Canada or any province or territory thereof, except any such
assets or plant which in the opinion of the Board of Directors are not Principal
Properties in relation to the activities of the Company and its Subsidiaries as
a whole.
"Record Date" for the interest payable on any Interest Payment Date
means the date specified pursuant to Section 3.01.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed by or pursuant to this
Indenture.
"Responsible Officer," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any securities authenticated and delivered
under this Indenture.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.05.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
Voting Stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries.
"Trustee" means the person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
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"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, as in force at the date as of which this instrument was executed,
except as provided in Section 9.05.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Voting Stock" means stock which ordinarily has voting power for the
election of a majority of directors, whether at all times or only so long as no
senior class of stock has such voting power by reason of any contingency.
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the Trust Indenture
Act, the provision is incorporated by reference in and made a part of this
Indenture. The following Trust Indenture Act terms used in this Indenture have
the following meanings:
"Bankruptcy Act" means the Bankruptcy Act (Title 11 of the United
States Code).
"indenture securities" means the Securities.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the Securities means the Company or any other obligor on
the Securities.
All the other Trust Indenture Act terms used in this Indenture that are
defined by the Trust Indenture Act, defined by Trust Indenture Act. Reference to
another statute or defined by Commission rule have the meanings assigned to them
thereby.
SECTION 1.03. COMPLIANCE CERTIFICATES AND OPINIONS
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers, Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
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Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether such covenant or condition has been complied
with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 1.04. FORM OF DOCUMENTS DELIVERED TO TRUSTEE
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.05. ACTS OF HOLDERS
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders of the Outstanding Securities of all series or one or more series, as
the case may be, may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an
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agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holder
or Holders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 6.01) conclusive in
favor of the Trustee and the Company, if made in the manner provided in this
Section 1.05. The Company may set a record date for purposes of determining the
identity of Holders entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture, which record date shall be not
earlier than 30 days prior to the first solicitation of such vote or consent. If
a record date is fixed, those persons who were Holders of Securities at such
record date (or their duly designated proxies), and only those persons, shall be
entitled to take such action by vote or consent or to revoke any vote or consent
previously given, whether or not such persons continue to be Holders after such
record date. No such vote or consent shall be valid or effective for more than
120 days after such record date.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Securities
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
SECTION 1.06. NOTICES, ETC., TO TRUSTEE AND COMPANY
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or with
the Trustee at its Corporate Trust Office, Attention: Corporate Trust
Administration or
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(b) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to it
at the address of its principal office specified in the first paragraph of this
Indenture or at any other address previously furnished in writing to the Trustee
by the Company, Attention: Senior Vice President and Chief Financial Officer.
SECTION 1.07. NOTICES TO HOLDERS; WAIVER
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Securities Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Holders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder shall affect the sufficiency of such notice
with respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impracticable to give notice as required
by this Indenture, then such method of notification as shall be made with the
approval of the Trustee shall constitute a sufficient notice.
SECTION 1.08. CONFLICT WITH TRUST INDENTURE ACT
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
SECTION 1.09. EFFECT OF READINGS AND TABLE OF CONTENTS
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 1.10. SUCCESSORS AND ASSIGNS
All covenants and agreements in this Indenture by the Company shall bind its
successors and assigns, whether so expressed or not.
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SECTION 1.11. SEPARABILITY CLAUSE
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.12. BENEFITS OF INDENTURE
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder and the Holders of Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 1.13. GOVERNING LAW
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 1.14. LEGAL HOLIDAYS
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest on
or principal (and premium, if any) of such Security need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Redemption Date or at the
Stated Maturity; and if so made, no interest shall accrue for the period from
and after such Interest Payment Date, Redemption Date or Stated Maturity, as the
case may be.
ARTICLE TWO - FORM OF SECURITIES
SECTION 2.01. FORMS GENERALLY
The Securities of each series and the Trustee's certificates of
authentication shall be in substantially such form (not inconsistent with this
Indenture) as shall be established by or pursuant to one or more Board
Resolutions and set forth in such Board Resolutions, or, to the extent
established pursuant to, rather than set forth in, such Board Resolutions, an
officers' Certificate detailing such establishment, or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have imprinted or otherwise reproduced thereon such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon, not inconsistent with the provisions of this Indenture, as may be
required to comply with any law or with any rules or regulations pursuant
thereto, or with any rules of any securities exchange or to conform to general
usage, all as determined by the Officers executing such Securities, as evidenced
by such execution. If the form or forms of Securities of any series are
established by action taken pursuant to a Board Resolution of the Company, a
copy of an
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appropriate record of such action shall be certified by the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee at or prior to
the delivery of the Company order contemplated by Section 3.03 for the
authentication and delivery of such Securities.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange
on which the Securities may be listed, all as determined by the officers
executing such Securities, as evidenced by their execution of such Securities.
SECTION 2.02. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
The Trustee's certificate of authentication on all Securities shall be
in substantially the following form:
This is one of the Securities of the series designated herein and
referred to in the within-mentioned Indenture.
CITIBANK, N.A.
as Trustee
By: __________________
Authorized Signatory
ARTICLE THREE - THE SECURITIES
SECTION 3.01. TITLE AND TERMS
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is not limited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to Board Resolutions and set forth in an Officers'
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of any series, any or all of the following as
applicable:
(1) the title of the Securities of the series (which shall
distinguish the Securities of the series from all other series of
Securities);
(2) any limit upon the aggregate principal amount of the
Securities of the series that may be authenticated and delivered under
this Indenture (except for Securities
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authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities of the series pursuant
to Section 3.04, 3.05, 3.06, 9.06 or 11.07);
(3) the date or dates on which the principal of the Securities
of the series is payable or the manner in which such dates are
determined;
(4) the rate or rates at which the Securities of the series
shall bear interest, or the manner in which such rates are to be
determined, the date or dates from which such interest shall accrue, or
the manner in which such dates are to be determined, the Interest
Payment Dates on which such interest shall be payable and the Record
Dates, if any, for the interest payable on any Interest Payment Date;
(5) the place or places where the principal of (and premium,
if any, on) and interest, if any, on Securities of the series shall be
payable;
(6) the period or periods within which, the date or dates on
which, the price or prices at which and the terms and conditions upon
which Securities of the series may be redeemed, in whole or in part, at
the option of the Company;
(7) the obligation, if any, of the Company to redeem, purchase
or repay Securities of the series pursuant to any sinking fund,
amortization or other provisions and the period or periods within which
or the date or dates on which, the price or prices at which and the
terms and conditions upon which Securities of the series shall be
redeemed, purchased or repaid, in whole or in part, pursuant to such
obligation;
(8) if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which Securities of the series
shall be issuable;
(9) if other than the Trustee, the identity of the Securities
Registrar and/or the Paying Agent;
(10) if other than the principal amount thereof, the portion of
the principal amount of Securities of the series which shall be payable
upon declaration of acceleration of the Maturity thereof pursuant to
Section 5.02;
(11) if other than such coin or currency of the United States
of America as at the time of payment is legal tender for payment of
public or private debts, the coin or currency or currency unit in which
payment of the principal of (and premium, if any, on) or interest, if
any, on the Securities of the series shall be payable;
(12) if the amount of payment of principal of (and premium, if
any, on) or interest, if any, on the Securities of the series may be
determined with reference to an index, formula or other method based on
a coin or currency or currency unit other than that in which the
Securities are stated to be payable, the manner in which such amounts
shall be determined;
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(13) if the principal of (and premium, if any, on) or interest,
if any, on the Securities of the series are to be payable, at the
election of the Company or a Holder thereof, in a coin or currency or
currency unit other than that in which the Securities are stated to be
payable, the period or periods within which, or the date or dates on
which and the terms and conditions upon which, such election may be
made;
(14) whether the Securities of the series are subject to
defeasance or covenant defeasance, or such other means of satisfaction
and discharge as may be specified for a series;
(15) any deletions or modifications of or additions to the
Events of Default set forth in Section 5.01 or covenants of the Company
set forth in Article Eight or Ten pertaining to the Securities of the
series;
(16) the forms of the Securities of any series; and
(17) any other terms, conditions, rights and preferences (or
limitations on such rights and preferences) relating to the series
(which terms shall not be inconsistent with the provisions of this
Indenture).
Not all Securities of any one series need be issued at the same time,
and, unless otherwise provided, a series may be reopened for issuances of
additional Securities of such series.
If any of the terms of the series are established by action taken
pursuant to a Board Resolution, such Board Resolution and the officers,
Certificate setting forth the terms of the series shall be delivered to the
Trustee at or prior to the delivery of the Company order for authentication and
delivery of Securities of such series.
The principal of (and premium, if any, on) and interest on the
Securities shall be payable at the office or agency of the Company in the
Borough of Manhattan, The City of New York, maintained for such purpose and at
any other office or agency maintained by the Company for such purpose; provided,
however, that interest may be payable at the option of the Company by check
mailed to the address of the person entitled thereto as such address shall
appear on the Securities Register.
SECTION 3.02. DENOMINATIONS
The Securities of each series shall be issuable in definitive
registered form without coupons and in such denominations as shall be specified
as contemplated by Section 3.01. In the absence of any such provision with
respect to the Securities of any series, the Securities of such series shall be
issuable in denominations of $1,000 and any integral multiple thereof.
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SECTION 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING
The Securities shall be executed on behalf of the company by its
Chairman of the Board, its President, a Vice Chairman or one of its Vice
Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise. If not all the Securities of any
series are to be issued at one time and if the Board Resolution or supplemental
indenture establishing such series shall so permit, such Company Order may set
forth procedures acceptable to the Trustee for the issuance of such securities
and the determination of the terms of particular Securities of such series such
as interest rate, Stated Maturity, date of issuance and date from which interest
shall accrue. In authenticating such Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and shall be fully protected in relying
upon, an opinion of Counsel stating:
(a) that the form or forms and terms of such Securities have
been established in conformity with the provisions of this Indenture
and
(b) that such Securities, when completed by appropriate
insertions and executed by the Company and delivered to the Trustee
for authentication in accordance with this Indenture, authenticated
and delivered by the Trustee in accordance with this Indenture and
issued by the company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute the legal, valid
and binding obligations of the Company.
If not all the Securities of any series are to be issued at one time,
it shall not be necessary to deliver an Opinion of Counsel at the time of
issuance of each Security, but such opinion with appropriate modifications
shall be delivered at or before the time of issuance of the first Security of
such series. The Trustee shall not be required to authenticate Securities if
the issuance of such Securities pursuant to this Indenture will affect the
Trustee's own rights, duties or immunities under the Securities and this
Indenture or otherwise in a manner which is not reasonably acceptable to the
Trustee.
Each Security shall be dated the date of its authentication.
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No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder.
SECTION 3.04. TEMPORARY SECURITIES
Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued, with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Securities may determine, as evidenced
by their execution of such Securities.
If temporary Securities of any series are issued, the Company will
cause definitive Securities of each such series to be prepared without
unreasonable delay. After the preparation of definitive Securities of any
series, the temporary Securities of each such series shall be exchangeable for
definitive Securities upon surrender of the temporary Securities of such series
at any office or agency of the Company designated pursuant to Section 10.02,
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations of the same series. Until so
exchanged the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities of
such series.
SECTION 3.05. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 10.02 being herein sometimes
collectively referred to as the "Securities Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Securities Registrar" for the purposes of registration and transfer
of Securities as herein provided.
Upon surrender for registration of transfer of any Securities of a
series at an office or agency of the Company designated pursuant to Section
10.02 for such purpose, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of the same series of any authorized
denominations, of a like aggregate principal amount.
At the option of the Holder, Securities of a series may be exchanged
for other Securities of the same series, of any authorized denominations, of a
like aggregate principal amount, upon
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surrender of the Securities of such series to be exchanged at such office or
agency, and upon payment, if the Company shall so require, of the charges
hereinafter provided. Whenever any Securities are so surrendered for exchange,
the Company shall execute, and the Trustee shall authenticate and deliver, the
securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
exchange shall (if so required by the Company or the Securities Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 3.04 or 9.06 not involving any transfer.
The Company shall not be required to (i) issue, register the transfer
of or exchange Securities of any series during a period beginning at the opening
of business 15 days before the day of the selection for redemption of Securities
of that series under Section 11.03 and ending at the close of business on the
day of the mailing of notice of redemption or (ii) register the transfer of or
exchange any Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
SECTION 3.06. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like series, tenor and principal amount and bearing a
number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like series, tenor and principal amount and bearing
a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
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Upon the issuance of any new Security under this Section 3.06, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section 3.06 in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section 3.06 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.07. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date or within five days thereafter
shall be paid to the Person in whose name such Security (or one or more
Predecessor Securities) is registered at the close of business on the Record
Date for such interest; provided, however, that each installment of interest on
any Security may at the Company's option be paid by mailing a check for such
interest, payable to or upon the written order of the Person entitled thereto
pursuant to Section 3.08, to the address of such Person as it appears on the
Securities Register.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date or within five days
thereafter (herein called "Defaulted Interest") shall forthwith cease to be
payable to the registered Holder on the relevant Record Date; and, except as
hereinafter provided, such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted interest which
shall be not more than 15 and not less than 10 days prior to the date
of the proposed payment and not less
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than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of
such Special Record Date, and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first
class postage prepaid, to each Holder at his address as it appears in
the Securities Register not less than 10 days prior to such Special
Record Date. The Trustee may, in its discretion, in the name and at
the expense of the Company, cause a similar notice to be published at
least once in an Authorized Newspaper in the Borough of Manhattan, The
City of New York, but such publication shall not be a condition
precedent to the establishment of such Special Record Date. Notice of
the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been mailed as aforesaid, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities), are registered on such Special
Record Date and shall no longer be payable pursuant to the following
Clause (2).
(2) The Company may make payment of any Defaulted Interest on
the Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on which
such Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this Clause, such payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 3.07, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Security.
SECTION 3.08. PERSONS DEEMED OWNERS
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of (and premium, if
any, on) and (subject to Section 3.07) interest, if any, on such Security and
for all other purposes whatsoever, whether or not such Security be overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 3.09. CANCELLATION
All securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly cancelled by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section
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3.09, except as expressly permitted by this Indenture. All cancelled Securities
held by the Trustee shall be destroyed unless otherwise directed by a Company
Order.
SECTION 3.10. COMPUTATION OF INTEREST
Except as otherwise specified as contemplated by Section 3.01 for
Securities of any series, any interest on the Securities of each series shall be
computed on the basis of a 360-day year of twelve 30-day months.
ARTICLE FOUR - SATISFACTION AND DISCHARGE: UNCLAIMED MONEYS
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE
(A) If at any time
(a) the Company shall have paid or caused to be paid the
principal of and interest on all the Securities of any series outstanding
hereunder, as and when the same shall have become due and payable, or
(b) the Company shall have delivered to the Trustee for
cancellation all Securities of any series theretofore authenticated (other than
any Securities which shall have been destroyed, lost or stolen and which shall
have been replaced or paid as provided in Section 3.06), or
(c) (i) all the Securities of such series not theretofore
delivered to the Trustee for cancellation shall have become due and payable, are
by their terms to become due and payable within one year or are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption; and (ii) the Company shall have irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or an escrow
agent satisfactory to the Trustee) as trust funds the entire amount in cash
(other than moneys repaid by the Trustee or any paying agent to the Company in
accordance with Section 4.04) or direct noncallable obligations of, or
noncallable obligations guaranteed by, the United States of America or an agency
thereof for the payment of which guarantee or obligation the full faith and
credit of the United States is pledged ("U.S. Government Obligations"), maturing
as to principal and interest in such amounts and at such times without
consideration of any reinvestment of such principal and interest as will ensure
the availability of cash, or a combination of U.S. Government obligations and
cash, sufficient to pay at Stated Maturity all the Securities of such series not
theretofore delivered to the Trustee for cancellation, including principal (and
premium, if any) and interest due or to become due to such date of Stated
Maturity (including any mandatory sinking fund payments) or Redemption Date, as
the case may be, and if, in any such case, the Company shall also pay or cause
to be paid all other sums payable hereunder by the Company with respect to
Securities of such series, then this Indenture shall cease to be of further
effect with respect to Securities of such series (except as to (i) rights of
registration of transfer
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and exchange, (ii) substitution of apparently mutilated, defaced, destroyed,
lost or stolen Securities, (iii) rights of Holders to receive payments of
principal thereof and interest thereon, upon the original stated due dates
therefor(including any mandatory sinking fund payments or Redemption Date (but
not upon acceleration), (iv) the rights, obligations and immunities of the
Trustee hereunder, and (v) the rights of the Holders of Securities of such
series as beneficiaries hereof with respect to the property so deposited with
the Trustee payable to all or any of them), and the Trustee, on demand of the
Company accompanied by an officers' Certificate and an Opinion of Counsel, each
stating that all conditions precedent herein provided relating to the
satisfaction and discharge of this Indenture with respect to Securities of such
series have been complied with and at the cost and expense of the Company, shall
execute proper instruments acknowledging such satisfaction of and discharging of
this Indenture with respect to Securities of such series.
The Company agrees to reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred and to compensate the Trustee for
any services thereafter reasonably and properly rendered by the Trustee in
connection with this Indenture or the Securities of such series.
Notwithstanding the foregoing provisions of this Section 4.01(A), the Company's
obligations in Section 6.07 shall survive.
(B) In addition to the provisions of the next preceding paragraph, the
Company may terminate its obligations under the Securities of any series and
this Indenture, except those obligations referred to in the penultimate
paragraph of this Section 4.01, if all Securities of such series previously
authenticated and delivered (other than destroyed, lost or stolen Securities of
such series which have been replaced or paid or Securities of such series for
whose payment money or securities have theretofore been held in trust and
thereafter repaid to the Company, as provided in Section 4.04) have been
delivered to the Trustee for cancellation and the Company has paid all sums
payable by it hereunder, or if the Company has irrevocably deposited or caused
to be deposited with the Trustee (or an escrow agent satisfactory to the
Trustee), under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee, as trust funds in trust solely for the
benefit of the Holders for that purpose, (i) money or (ii) U.S. Government
obligations, or a combination thereof, maturing as to principal and interest in
such amounts and at such times as are sufficient without consideration of any
reinvestment of such principal or interest, to pay principal of and interest on
the outstanding Securities of such series to maturity, provided that the
Trustee shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of said principal
of and interest with respect to the outstanding Securities of such series.
Such irrevocable trust agreement shall include, among other things,
provision for (1) payment of the principal of and interest on the Securities of
such series, when due, including any mandatory sinking fund payments (2) payment
of the fees and expenses of the Trustee, its agents and counsel incurred or to
be incurred in connection with carrying out such trust provisions, (3) rights of
registration, transfer, substitution and exchange of Securities of such series
in accordance with the terms stated in this Indenture, and (4) continuation of
the rights and obligations and immunities of the Trustee as against the Holders
as stated in this Indenture.
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Notwithstanding the first paragraph of this Section 4.01(B), the
Company's obligations in Sections 3.05, 3.06, 4.04, 4.05, 5.02, 6.07, 6.10,
10.01 and 10.02 shall survive until the Securities of such series are no longer
outstanding; provided, however, that the Company's obligations in Section 5.02
shall survive only with respect to an Event of Default defined in Section
5.01(2) or 5.01(3). Thereafter the Company's obligations in Sections 4.04, 4.05
and 6.07 shall survive.
After any such irrevocable deposit, accompanied by an officers'
Certificate which shall state that the provisions of the first two paragraphs of
this Section 4.01(B) have been complied with, and upon delivery by the Company
to the Trustee of an opinion of independent legal counsel who shall be
acceptable to the Trustee, or, in lieu thereof, a favorable determination by the
Internal Revenue Service to the effect that Holders of the Securities of such
series will not recognize income, gain or loss for federal income tax purposes
as a result of such deposit and discharge and will be subject to federal income
tax on the same amount and in the same manner and at the same time as would have
been the case if such deposit and discharge had not occurred, then the Company
shall be discharged of its obligations under the Securities of such series and
this Indenture except for those surviving obligations specified above, and the
Trustee upon request shall acknowledge in writing such discharge. Prior to the
delivery of such acknowledgement, the Trustee may require the Company to deliver
to it an Officers, Certificate and opinion of Counsel, each stating that all
conditions precedent provided for relating to the deposit and discharge
contemplated by this provision have been complied with, and the opinion of
Counsel shall also state that such deposit does not violate applicable law.
SECTION 4.02. DEPOSITED MONEYS TO BE HELD IN TRUST BY TRUSTEE
All moneys deposited with the Trustee pursuant to Section 4.01 shall be
held in trust and applied by it to the payment, either directly or through any
paying agent (including the Company if acting as its own paying agent), to the
Holders of the particular Securities of such series for the payment of which
such moneys have been deposited with the Trustee of all sums due and to become
due thereon for principal and interest.
SECTION 4.03. PAYING AGENT TO REPAY MONEYS HELD
Upon the satisfaction and discharge of this Indenture with respect to
Securities of any series, all moneys then held by any paying agent of the
Securities of such series (other than the Trustee) shall, upon demand of the
Company, be repaid to it or paid to the Trustee, and thereupon such paying agent
shall be released from all further liability with respect to such moneys.
SECTION 4.04. RETURN OF UNCLAIMED MONEYS
Any moneys deposited with or paid to the Trustee for payment of the
principal of or interest on Securities and not applied but remaining unclaimed
by the Holders of Securities of any series for two years after the date upon
which the principal of or interest on such Securities, as the case may be, shall
have become due and payable, shall be repaid to the Company by the Trustee on
written demand and all liability of the Trustee shall thereupon cease; and the
Holder
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of any of the Securities of any series shall thereafter look only to the Company
for any payment which such Holder may be entitled to collect.
SECTION 4.05. REINSTATEMENT
If the Trustee is unable to apply any money or U.S. Government
Obligations in accordance with Section 4.01 by reason of any legal proceeding or
by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture with respect to Securities of any series and
the Securities of such series shall be revived and reinstated as though no
deposit had occurred pursuant to Section 4.01 until such time as the Trustee is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 4.01; provided, however, that if the Company has made any payment
of interest on or principal of any Securities of such series because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money or U.S.
Government Obligations held by the Trustee.
ARTICLE FIVE - REMEDIES
SECTION 5.01. EVENTS OF DEFAULT
"Event of Default" with respect to Securities of any series, wherever
used herein, means any one of the following events which shall have occurred and
be continuing (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of the principal of any Security of such
series as and when the same shall become due and payable, either at its Maturity
or otherwise; or
(2) default in the payment of any installment of interest on any
Security of such series when it becomes due and payable, and the continuance of
such default for a period of 30 days; or
(3) default in the payment of any sinking fund payment, when and as
due by the terms of the Security of that series; or
(4) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture or the Securities in respect of the Securities
of such series (other than a covenant or warranty in respect of the Securities
of such series a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default or breach
for a period of 60 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding Securities of all
series affected thereby, a
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written notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder; or
(5) a default under any bond, debenture, note or other evidence of
Debt of the Company or any Subsidiary (including any other series of Securities)
or under any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any Debt of the Company or any
Subsidiary, whether such Debt now exists or shall hereafter be created, which
default shall involve the failure to pay principal of, or interest on, Debt in
excess of $25,000,000 at the stated maturity thereof or shall have resulted in
Debt in excess of $25,000,000 becoming or being declared due and payable prior
to the date on which it would otherwise have become due and payable, without
such acceleration having been rescinded, stayed or annulled, or such Debt having
been discharged, within a period of 15 days after there shall have been given,
by registered or certified mail, to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities (or 25% of the Outstanding Securities of all series of
Securities not in default in case of a default with respect to one or more other
series of Securities) a written notice specifying such default and requiring the
Company to cause such acceleration to be rescinded or annulled or cause such
Debt to be discharged and stating that such notice is a "Notice of Default"
hereunder; or
(6) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking relief, reorganization, arrangement,
adjustment or composition of or in respect of the Company under federal
bankruptcy law or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator, custodian or other
similar official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 60 consecutive
days; or
(7) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under federal bankruptcy law or any
other applicable federal or state law, or the consent by it to the filing of
such petition or to the appointment of or taking of possession by a receiver,
liquidator, assignee, trustee, sequestrator, custodian or similar official of
the Company or of any substantial part of its property, or the making by it of a
general assignment for the benefit of creditors, or the failure of the Company
generally to pay its debts as they become due, or the taking of corporate action
by the Company in furtherance of any such action; or
(8) any other Event of Default provided with respect to Securities of
that series.
SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT
If an Event of Default described in Section 5.01(l), (2), (3), (4) (if
the Event of Default under clause (4) is with respect to less than all series of
Securities then outstanding) or (8) above
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occurs and is continuing, then and in every such case the Trustee or the Holders
of not less than 25% in principal amount of the Securities of such series then
Outstanding (each such series voting as a separate class) may declare the
principal of all the Securities of such series to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such principal shall become and shall
be immediately due and payable, anything in this Indenture or in the Security
contained to the contrary notwithstanding. Upon payment of such amount, all
obligations of the Company in respect of the payment of principal of the
Securities of such series shall terminate. If an Event of Default described in
Section 5.01(4) (if the Event of Default under clause (4) is with respect to all
series of Securities then outstanding), Section 5.01(5), (6) or (7) above occurs
and is continuing, then and in every such case, unless the principal of all the
Securities shall have already become due and payable, the Trustee or the Holders
of not less than 25% in principal amount of all the Securities then Outstanding
(treated as one class) which have not previously become due and payable may
declare the entire principal of all the Securities then outstanding to be due
and payable immediately, by notice in writing to the Company (and to the Trustee
if given by Holders) and upon any such declaration such principal shall become
and shall be immediately due and payable, anything in this Indenture or in the
Securities contained to the contrary notwithstanding. Upon payment of such
amount, all obligations of the Company in respect of the payment of principal of
the Securities shall terminate.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities of each series so affected, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay
(A) all overdue installments of interest on the Securities of such
series, and
(B) the principal of (and premium, if any, on) and any sinking
fund payments with respect to any Securities of such series which have become
due otherwise than by such declaration of acceleration, with interest thereon
from the date such principal became due at the rate borne by the Securities of
such series, and
(C) to the extent that payment of such interest is lawful, interest
upon overdue installments of interest at the rate borne by the Securities of
such series, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(2) all Events of Default, other than the nonpayment of the principal
of Securities of such series which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 5.13.
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No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE
The Company covenants that if default is made in the payment of (1) any
installment of interest on any Security of any series when such interest becomes
due and payable and such default continues for a period of 30 days or (2) the
principal of (and premium, if any, on) any Security of any series at the
Maturity thereof or otherwise, the Company will, upon demand of the Trustee, pay
to the Trustee, for the benefit of the Holders of such Securities of each series
so affected, the whole amount then due and payable on such Securities of such
series for principal (and premium, if any) or interest, if any, or both, as the
case may be, with interest upon the overdue principal and, to the extent that
payment of such interest shall be legally enforceable, upon overdue installments
of interest, at the rate per annum borne by the Securities during the period of
such default; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities of each series so
affected and collect the moneys adjudged or decreed to be payable in the manner
provided by law out of the property of the Company or any other obligor upon the
Securities of each series so affected, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.04. TRUSTEE MAY FILE PROOFS OF CLAIM
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
of each series so affected shall then be due and payable as therein expressed or
by declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(a) to file and prove a claim for the amount of principal (and premium,
if any) and interest, if any, owing and unpaid in respect of the Securities of
each series so affected and to
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file such other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Holders allowed in such judicial proceeding and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator, custodian or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 5.06. APPLICATION OF MONEY COLLECTED
Any money collected by the Trustee pursuant to this Article Five shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal (and
premium, if any) or interest, if any, upon presentation of the Securities and
the notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.07;
SECOND: To the payment of the amounts then due and unpaid for principal
of (and premium, if any, on) and interest, if any, on the Securities of the
series in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal (and premium, if any)
and interest, if any, respectively; and
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THIRD: The balance, if any, to the Persons entitled thereto.
SECTION 5.07. LIMITATION ON SUITS
No Holder of any Security of any series shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless
(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Securities of each series affected (with each series voting as a
separate class) shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of each series affected (with
each series voting as a separate class);
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND INTEREST
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any, on) and (subject to
Section 3.07) interest, if any, on such Security on or after the Stated Maturity
expressed in such Security (or, in the case of redemption, the Redemption Date),
and to institute suit for the enforcement of any such payment, and such rights
shall not be impaired without the consent of such Holder.
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SECTION 5.09. RESTORATION OF RIGHTS AND REMEDIES
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
an though no such proceeding had been instituted.
SECTION 5.10. RIGHTS AND REMEDIES CUMULATIVE
No right or remedy herein conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.11. DELAY OR OMISSION NOT WAIVER
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 5.12. CONTROL BY HOLDERS
The Holders of a majority in principal amount of the outstanding
Securities of each series affected (each series voting as a separate class)
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, with respect to the Securities of such series,
provided that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture and
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
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SECTION 5.13. WAIVER OF PAST DEFAULTS
The Holders of not less than a majority in principal amount of the
Outstanding Securities of each series (each series voting as a separate class)
may on behalf of the Holders of all the Securities of such series waive any past
default hereunder with respect to such series and its consequences, except a
default
(a) in the payment of the principal of (and premium, if any, on) or
interest, if any, on any Security or
(b) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 5.14. UNDERTAKING FOR COSTS
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.14 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities of
each series affected, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of (or premium, if any, on) or
interest, if any, on any Security of such series on or after the Stated Maturity
expressed in such Security (or, in the case of redemption, on or after the
Redemption Date).
SECTION 5.15. WAIVER OF STAY OR EXTENSION LAWS
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
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ARTICLE SIX - THE TRUSTEE
SECTION 6.01. CERTAIN DUTIES AND RESPONSIBILITIES
(a) With respect to the Securities of any series, except during the
continuance of an Event of Default with respect to Securities of such series,
(1) the Trustee undertaken to perform such duties and only
such duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the Trustee
and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(b) In case an Event of Default with respect to the Securities of any
series has occurred and is continuing, the Trustee shall, with respect to the
Securities of such series, exercise such of the rights and powers vested in it
by this Indenture, and use the same degree of care and skill in their exercise,
as a prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the
effect of paragraph (a) of this Section 6.01;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it with respect to the Securities of any series
in good faith in accordance with the direction of the Holders of a majority in
principal amount of the outstanding Securities of such series relating to the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee, under
this Indenture.
No provision of this Indenture shall require the Trustee to expend or risk its
own funds or otherwise incur any financial liability in the performance of any
of its duties hereunder, or in the
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exercise of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
SECTION 6.02. NOTICE OF DEFAULTS
Within 90 days after the occurrence of any default hereunder with
respect to the Securities of any series, the Trustee shall transmit by mail to
all Holders of such series entitled to receive reports pursuant to Section
7.04(c), notice of such default hereunder known to the Trustee, unless such
default shall have been cured or waived; provided, however, that, except in the
case of a default in the payment of the principal of (and premium, if any) or
interest, if any, on any Security of such series, the Trustee shall be protected
in withholding such notice if and so long as the Board of Directors, the
executive committee or a trust committee of directors or Responsible Officers of
the Trustee in good faith determine that the withholding of such notice is in
the interest of the Holders; and provided, further, that in the case of any
default of the character specified in section 5.01(4) with respect to Securities
of such series, no such notice to Holders shall be given until at least 30 days
after the occurrence thereof. For the purpose of this Section 6.02, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default with respect to Securities of such series.
SECTION 6.03. CERTAIN RIGHTS OF TRUSTEE
Except as otherwise provided in section 6.01:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity
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against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note or other paper or document, but the Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and promises
of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of Securities or the proceeds thereof.
SECTION 6.05. MAY HOLD SECURITIES
The Trustee, any Paying Agent, any Securities Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may
otherwise deal with the Company with the same rights it would have if it were
not the Trustee, Paying Agent, Securities Registrar or such other agent.
SECTION 6.06. MONEY HELD IN TRUST
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 6.07. COMPENSATION AND REIMBURSEMENT
The Company agrees
(a) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust);
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(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel) except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
trust, including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder.
As security for the performance of the obligations of the Company
under this Section 6.07, the Trustee shall have a lien prior to the Securities
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of or interest, if any, on the
Securities.
SECTION 6.08. DISQUALIFICATION; CONFLICTING INTERESTS
If the Trustee has or shall acquire any conflicting interest within
the meaning of the Trust Indenture Act with respect to the Securities of any
series, it shall either eliminate such conflicting interest or resign with
respect to the Securities of such series, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act and this
Indenture.
The following Indentures between the Company and the Trustee shall be
excluded from the application of Section 310(b)(1) of the Trust Indenture Act:
Indentures dated as of October 1, 1988; May 1, 1987 and August 1, 1987.
SECTION 6.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY
There shall at all times be a Trustee hereunder with respect to each
series of Securities which shall be a Person eligible under the Trust Indenture
Act, having a combined capital and surplus of at least $50,000,000 and subject
to supervision or examination by Federal or State authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section 6.09, the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. No obligor of the Securities or Person
directly or indirectly controlling, controlled by or under common control with
such obligor shall serve as Trustee upon such Securities. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 6.09, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article Six.
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SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article Six shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and to
the Company.
(d) If at any time with respect to any series of Securities:
(1) the Trustee shall fail to comply with Section 6.08 after
written request therefor by the Company or by any Holder who has been a bona
fide Holder of a Security of such series for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.09
and shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or control
of the Trustee or of its property or affair for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to such series of Securities or (ii) subject to Section
5.14, any Holder who has been a bona fide Holder of a Security for at least six
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause with
respect to the Securities of one or more series, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with respect
to the Securities of that or those series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of one or more
or all of such series and that at any time there shall be only one Trustee with
respect to the Securities of any particular series). If, within one year after
such resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee with respect to the Securities of any series shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding
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Securities of such series delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment in accordance with Section 6.11, become the successor Trustee with
respect to the securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders and accepted appointment in the
manner hereinafter provided, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of the
Securities of one or more or all series, as the case may be, to which the
resignation, removal or appointment relates, as their names and addresses appear
in the Securities Register. Each notice shall include the name of the successor
Trustee and the address of its Corporate Trust Office.
SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on request of
the Company or the successor Trustee, such retiring Trustee shall, upon payment
of its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder, subject, nevertheless to its lien, if
any, provided for in Section 6.07.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (i) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (ii)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(iii) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee
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of a trust or trusts hereunder separate and apart from any trust or trusts
hereunder administered by any other such Trustee; and, upon the execution and
delivery of such supplemental indenture, the resignation or removal of the
retiring Trustee shall become effective to the extent provided therein and each
such successor Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Securities of that or those series to which the
appointment of such successor Trustee relates; but, on request of the Company or
any successor Trustee, such retiring Trustee shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder with respect to the Securities of that or those series to
which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in paragraph (a) or (b) of this Section 6.11, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article Six.
SECTION 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article Six,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY
If and when the Trustee shall become a creditor of the Company (or any
other obligor of the Securities), the Trustee shall be subject to the terms of
the Trust Indenture Act regarding collection of claims against the Company (or
such obligor).
ARTICLE SEVEN - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND
COMPANY
SECTION 7.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS
The Company will furnish or cause to be furnished to the Trustee:
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(a) semiannually, not more than 15 days after each Record Date, a list,
in such form as the Trustee may reasonably require, of the names and addresses
of the Holders as of such Record Date and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar.
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, (i) the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.01 and (ii) the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.01 upon receipt of a new list so furnished.
(b) Holders may communicate as provided in Section 312(b) of the Trust
Indenture Act with other Holders with respect to their rights under this
Indenture or under the Securities.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with paragraph (b) of this Section 7.02, regardless of the source
from which such information was derived, and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
paragraph (b) of this Section 7.02.
SECTION 7.03. REPORTS BY TRUSTEE
(a) Within 60 days after June 15 of each year commencing with June 15,
1992, the Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required under the Trust
Indenture Act at the time and in the manner provided therein.
(b) A copy of each such report shall, at the time of transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.
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SECTION 7.04. REPORTS BY COMPANY
(a) The Company shall file with the Trustee, within 15 days after the
Company is required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company in required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended; or, if the Company is not required to file information,
documents or reports pursuant to either of such Sections, then to file with the
Trustee and the Commission, in accordance with rules and regulations prescribed
by the Commission, such of the supplementary and periodic information, documents
and reports which may be required pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, in respect of a security listed and registered
on a national securities exchange as may be prescribed in such rules and
regulations.
(b) The Company shall file with the Trustee and the Commission, in
accordance with the rules and regulations prescribed by the Commission, such
additional information, documents, and reports with respect to compliance by the
Company with the conditions and covenants provided for in this Indenture as may
be required by such rules and regulations.
(c) The Company shall transmit to the Holders within 30 days after the
filing thereof with the Trustee, by first-class mail, such summaries of any
information, documents and reports required to be filed by the Company pursuant
to paragraphs (a) and (b) of this Section 7.04 as may be required by rules and
regulations prescribed by the Commission.
(d) The Company shall furnish to the Trustee, within 120 days after the
end of each fiscal year, a brief certificate from the principal executive
officer, principal financial officer or principal accounting officer as to his
or her knowledge of the Company's compliance with all conditions and covenants
under this Indenture. For purposes of this paragraph (d), such compliance shall
be determined without regard to any period of grace or requirement of notice
provided under this Indenture.
ARTICLE EIGHT - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR
LEASE
SECTION 8.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS
The Company shall not consolidate with or merge into any other
corporation or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, unless:
(1) in case the Company shall consolidate with or merge into another
corporation or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the corporation formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the
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Company substantially as an entirety shall be a corporation organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, the due and punctual payment of the principal of and interest,
if any, on all the Securities and the performance of every covenant of this
Indenture on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing; and
(3) the Company has delivered to the Trustee an officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with this
Article Eight and that all conditions precedent herein provided for relating to
such transaction have been complied with.
SECTION 8.02. SUCCESSOR CORPORATION SUBSTITUTED
Upon any consolidation or merger by the Company with or into any other
corporation or any conveyance, transfer or lease of the properties and assets of
the Company substantially as an entirety to any Person in accordance with
Section 8.01, the successor corporation formed by such consolidation or into
which the Company in merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor corporation had been named as the Company herein, and thereafter,
except in the case of a lease to another Person, the predecessor corporation
shall be relieved of all obligations and covenants under this Indenture and the
Securities.
ARTICLE NINE - SUPPLEMENTAL INDENTURES
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities, or to surrender any right or power
herein conferred upon the Company; or
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(3) to secure the Securities; or
(4) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising under this
Indenture, provided such action shall not adversely affect the interests of the
Holders in any material respect; or
(5) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities of one or more
series and to add to or change any of the provisions of this Indenture as shall
be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of Section
6.11.
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS
With the consent of the Holders of not less than a majority in
principal amount of the Securities at the time outstanding of all series
affected by such supplemental indenture (each such series voting as a separate
class), by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by a Board Resolution, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of
Securities of such series under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of (or premium, if any,
on), or any installment of principal of or interest, if any, on, any Security,
or reduce the principal amount thereof or the interest thereon, or change the
place of payment where, or the coin or currency in which, any Security or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof, or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver (of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section 9.02, Section 5.13 or
Section 10.05, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
A supplemental indenture that changes or eliminates any covenant or
other provision of this Indenture which has expressly been included solely for
the benefit of one or more particular series of Securities, or that modifies the
rights of the Holders of Securities of such series with
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<PAGE> 47
respect to such covenant or other provision, shall be deemed not to affect the
rights under this Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURES
Upon the execution of any supplemental indenture under this Article
Nine, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 9.06. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article Nine may, and shall, if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
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<PAGE> 48
ARTICLE TEN - COVENANTS
SECTION 10.01. PAYMENT OF PRINCIPAL AND INTEREST
For the benefit of each series of Securities, the Company will duly and
punctually pay the principal of (and premium, if any) and interest, if any, on
the Securities of that series in accordance with the terms of such Securities
and this Indenture.
SECTION 10.02. MAINTENANCE OF OFFICE OR AGENCY
The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be presented or surrendered for
payment, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain Any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind such designations; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the Borough of Manhattan, The City of New York,
for such purposes. The Company will give prompt written notice to the Trustee of
any such designation or rescission and of any change in the location of any such
other office or agency.
SECTION 10.03. MONEY FOR SECURITY PAYMENTS TO BE HOLD IN TRUST
If the Company shall at any time act as its own Paying Agent with
respect to any series of Securities, it will, on or before each due date of the
principal of (or premium, if any) or interest, if any, on any of the Securities
of that series, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (or premium, if any) or
interest, if any, so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, on
each due date of the principal of (or premium, if any) or interest, if any, on
any Securities, deposit with a Paying Agent a sum sufficient to pay the
principal or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal or interest, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of its
action or failure so to act.
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<PAGE> 49
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section 10.3,
that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of (or
premium, if any) or interest, if any, on Securities in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities of that series) in the making of any payment of
principal of (or premium, if any, on) or interest, if any, on the Securities of
that series when the same shall be due and payable; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
SECTION 10.04. LIMITATION ON LIENS AND SALE-LEASEBACKS
(a) The Company will not, nor will it permit any Subsidiary to, create,
assume, incur or suffer to exist any Mortgage upon any Principal Property,
whether owned or leased on the date of this Indenture or hereafter acquired, to
secure any Debt of the Company or any other Person (other than the Securities),
without in any such case making effective provision whereby all of the
Securities Outstanding shall be directly secured equally and ratably with such
Debt, excluding, however, the following:
(i) any Mortgage upon property owned or leased by any
corporation existing at the time such corporation becomes a Subsidiary;
(ii) any Mortgage upon property existing at the time of
acquisition thereof;
(iii) any Mortgage to secure the payment of all or any part of
the purchase price of property or to secure any Debt incurred prior to, at the
time of or within 180 days after the acquisition of such property for the
purpose of financing all or any part of the purchase price thereof;
(iv) any Mortgage upon property to secure all or any part of
the cost of construction, alteration, repair or improvement of all or any part
of such property, or Debt incurred prior to, at the time of or within 180 days
after the completion of such construction, alteration, repair or improvement or
commencement of full operations on such property for the purpose of financing
all or any part of such cost;
(v) any Mortgage securing Debt of a Subsidiary owing to the
Company or to another Subsidiary;
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<PAGE> 50
(vi) any Mortgage existing at the date of this Indenture; and
(vii) any extension, renewal or replacement (or successive
extensions, renewals or replacements) in whole or in part of any Mortgage
referred to in the foregoing clauses (i) to (vi), inclusive; provided, however,
that the principal amount of Debt secured thereby shall not exceed the principal
amount of Debt so secured at the time of such extension, renewal or replacement;
and provided, further, that such Mortgage shall be limited to all or such part
of the property which was subject to the Mortgage so extended, renewed or
replaced (plus improvements on such property).
Notwithstanding the foregoing provisions of this paragraph (a), the
Company may, and may permit any Subsidiary to, create, assume, incur or suffer
to exist any Mortgage upon any Principal Property which is not excepted by
clauses (i) through (vii) above without equally and ratably securing the
Securities, provided that the aggregate amount of all Debt then outstanding
secured by such Mortgage and all similar Mortgages, together with all net sale
proceeds from Sale-Leaseback Transactions (as defined in paragraph (b) of this
Section 10.4) which are not permitted pursuant to clauses (i) and (ii) of
paragraph (b) of this Section 10.4, does not exceed 10% of the total
consolidated stockholders' equity of the Company as shown on the audited
consolidated balance sheet contained or incorporated by reference in the
Company's latest Annual Report on Form 10-K. For the purpose of this paragraph
(a), no Mortgage to secure any Debt will be deemed to be created by any Mortgage
in favor of the United States of America or any state thereof, or any other
country, or any political subdivision of any of the foregoing, to secure
partial, progress, advance or other payments pursuant to the provisions of any
contract or statute, or any Mortgage securing industrial development, pollution
control or similar revenue bonds.
(b) The Company will not, nor will it permit any Subsidiary to, sell or
transfer any Principal Property with the Company or any Subsidiary taking back a
lease of such Principal Property (a "Sale-Leaseback Transaction"), unless (i)
such Sale-Leaseback Transaction occurs within 180 days from the date of
acquisition of such Principal Property or the date of the completion of
construction or commencement of full operations on such Principal Property,
whichever is later, or (ii) the Company, within 120 days after such
Sale-Leaseback Transaction, applies or causes to be applied to the retirement of
Funded Debt of the Company or any Subsidiary (other than Funded Debt of the
Company which by its terms or the terms of the instrument pursuant to which it
was issued is subordinate in right of payment to the Securities) an amount not
less than the net proceeds of the sale of such Principal Property.
Notwithstanding the foregoing provisions of this paragraph (b), the
Company may, and may permit any Subsidiary to, effect any Sale-Leaseback
Transaction involving any Principal Property, provided that the net sale
proceeds from such Sale-Leaseback Transaction, together with all Debt secured by
Mortgages not specifically excluded pursuant to clauses (i) through (vii) of
paragraph (a) of this Section 10.4 from the operation of such paragraph (a),
does not exceed 10% of the total consolidated stockholders' equity of the
Company as shown on the audited consolidated balance sheet contained or
incorporated by reference in the Company's latest Annual Report on Form 10-K.
The provisions of this paragraph (b) shall also not prevent any
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<PAGE> 51
Sale-Leaseback Transaction involving a lease for a period, including renewals,
of not more than 36 months.
SECTION 10.05. DIVIDENDS ON AND ACQUISITIONS OF STOCK
As long as more than 50% of the Company's Common Stock is owned by
Burlington Resources Inc. ("BR"), the company will not declare or pay any
dividend or make any distribution upon any of its stock (other than in Common
Stock of the Company), or make, cause or permit any of its Subsidiaries to make
any payment (other than in Common Stock of the Company) for the purchase,
redemption or retirement of any shares of Common Stock of the Company, unless
immediately after such payment or distribution the aggregate amount of all such
payments and distributions made subsequent to December 31, 1991 shall not have
exceeded the total of (i) the consolidated net income of the Company and its
Subsidiaries arising subsequent to December 31, 1991, (ii) any contribution to
the capital of the Company, and any consideration which shall have been received
by the Company after December 31, 1991, with respect to the issue or sale of any
of its Common Stock in excess of amounts expended after such date for the
purchase, redemption or other acquisition of any shares of such Common Stock,
(iii) the aggregate principal amount of any indebtedness and the aggregate
involuntary liquidation preference (other than accrued and unpaid dividends) of
any shares of any class of stock ranking senior to the Common Stock in respect
of dividends or assets of the Company or a Subsidiary which after such date
shall have been converted into Common Stock of the Company, and (iv) $50
million; provided, however, that the provisions of this Section 10.05 shall not
prevent or restrict (A) the dividend to BR of the balance owed by BR to the
Company under an intercorporate cash management arrangement, and such dividend
shall not be included in any computation made under this Section 10.05; (B) any
payment of any dividend on any shares of stock of the Company ranking senior to
the Common Stock in respect of dividends or assets (other than shares of such
senior stock issued in exchange for Common Stock of the Company), but the
amounts of any such payments shall be included in the calculations contemplated
by the foregoing provisions of this Section 10.05; (C) the redemption,
acquisition or retirement of any shares of Common Stock of the Company in
exchange for, or out of the proceeds of the concurrent sale of, other shares of
its Common Stock, and neither any such redemption, acquisition or retirement nor
the proceeds of any such sale (to the extent used for such purposes) shall be
included in any computation made under this Section 10.05; (D) the purchase of
any shares of Common Stock of the Company with moneys accumulated for such
purpose pursuant to or in connection with any retirement, bonus, profit sharing,
thrift, savings, stock option or compensation plan for officers or employees of
the Company or any Subsidiary, and no payment made for any such purchase (or
funds received by the Company with respect to any such shares) shall be included
in any computation made under this Section 10.05; or (E) the conversion of
shares of any class of stock of the Company into shares of any other class of
stock of the Company, and no such conversion shall be included in any
computation made under this Section 10.05 otherwise than in accordance with
clause (iii) above.
For the purpose of this Section 10.05, in determining at any time the
amount of consolidated net income arising subsequent to December 31, 1991,
adjustments, if any, required to eliminate the effect of charges or credits to
income or to retained earnings which result in a
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reduction or addition to consolidated net income or retained earnings arising
subsequent to December 31, 1991 shall be made for the following:
(A) charges for the write-down or write-off or amortization of
the excess of the cost to the Company or a Subsidiary of properties acquired
as entireties or otherwise over the original cost of such properties when
first devoted to public use, which may be required by any rule, regulation or
order of any public body or authority exercising regulatory authority over the
accounts of the Company or such Subsidiary; and
(B) charges or credits applicable to a period or periods prior
to January 1, 1992, regardless of when recorded.
For the purposes of this Section 10.05, in determining at any time the
amount of any distribution upon, or consideration applied to the purchase,
redemption or other acquisition of, shares of stock of the company in any case
in which such distribution or consideration is, in whole or in part, in the form
of property of any nature owned by the Company or a Subsidiary, the amount of
such distribution or consideration represented by such property shall be taken
as the net amount (after deducting any applicable reserves) at which such
property is carried on the books of the Company or such Subsidiary, as the case
may be, at the date of such distribution, purchase, redemption or other
acquisition.
SECTION 10.06. WAIVER OF CERTAIN COVENANTS
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 10.04 or 10.05 if, before or after
the time for such compliance, the Holders of at least a majority in principal
amount of the Outstanding Securities of each series shall, by notice to the
Trustee, either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company
and the duties of the Trustee in respect of any such covenant or condition shall
remain in full force and effect.
ARTICLE ELEVEN - REDEMPTION OF SECURITIES
SECTION 11.01. APPLICABILITY OF ARTICLE
Securities of any series which are redeemable before their Stated
Maturity shall be redeemable in accordance with their terms and (except as
otherwise specified, as contemplated by Section 3.01 for Securities of any
series) in accordance with this Article Eleven; Provided, however, that if any
provision of any such Security shall conflict with any provision of this Article
Eleven, the provision of such Security shall govern. Except as otherwise set
forth in any Security, each Security shall be subject to partial redemption only
in the amount of $1,000 or integral multiples thereof.
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<PAGE> 53
SECTION 11.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE
The right of the Company to elect to redeem any Securities of any
series shall be set forth in the terms of such Securities of such series
established in accordance with Section 3.01. In case of any redemption at the
election of the Company of less than all the Securities of any series, the
Company shall, at least 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the principal amount of Securities of
such series to be redeemed and shall deliver to the Trustee such documentation
and records as shall enable the Trustee to select the Securities to be redeemed
pursuant to Section 11.03. In the case of any redemption of Securities prior to
the expiration of any restriction on such redemption provided in the terms of
such Securities or elsewhere in this Indenture, the Company shall furnish the
Trustee with an Officers' Certificate evidencing compliance with such
restriction.
SECTION 11.03. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED
If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the outstanding Securities of
such series not previously called for redemption, by such method as may be
specified by the terms of such Securities or, if no such method is so specified,
by such method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions of the principal amount of
Securities of such series.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
SECTION 11.04. NOTICE OF REDEMPTION
Notice of redemption shall be given by the Company or, at the Company's
request, by the Trustee to the Holders of the Securities to be redeemed, by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date, to each Holder of Securities to be redeemed, at
such Holder's address appearing in the Securities Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
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(3) if less than all the Outstanding Securities of any series
are to be redeemed, the identification (and, in the case of partial redemption,
the principal amounts) of the particular Securities to be redeemed;
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and, if
applicable, that interest thereon will cease to accrue on and after said date;
(5) the place or places where such Securities are to be
surrendered for payment of the Redemption Price; and
(6) that the redemption is for a sinking fund, if such is the
case.
SECTION 11.05. DEPOSIT OF REDEMPTION PRICE
on or before any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 10.03) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date.
SECTION 11.06. SECURITIES PAYABLE ON REDEMPTION DATE
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price and at the place or places therein specified, and from and
after such date (unless the Company shall default in the payment of the
Redemption Price and accrued interest, if any) such Securities shall cease to
bear interest. Upon surrender of any such Security for redemption in accordance
with said notice, such Security shall be paid by the Company at the Redemption
Price, together with accrued interest to the Redemption Date; provided, however,
that installments of interest whose Stated Maturity in on or prior to the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
3.07.
If any Security called for redemption shall not be so paid upon
surrender therefor, the Redemption Price shall, until paid, bear interest from
the Redemption Date at the rate prescribed therefor in the Security.
SECTION 11.07. SECURITIES REDEEMED IN PART
Any Security that is to be redeemed only in part shall be surrendered
at the place of payment therefor (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to, the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and deliver to the Holder of such
Security without
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<PAGE> 55
service charge, a new Security or Securities of the same series, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.
ARTICLE TWELVE - SINKING FUNDS
SECTION 12.01. APPLICABILITY OF ARTICLE
The provisions of this Article Twelve shall be applicable to any
sinking fund for the retirement of Securities of a series except as otherwise
contemplated by Section 3.01 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series is herein referred to as a "mandatory sinking
fund payment," and any payment in excess of such minimum amount provided for by
the terms of Securities of any series is herein referred to as an "optional
sinking fund payment." If provided for by the terms of Securities of any series,
the cash amount of any sinking fund payment may be subject to reduction as
provided in Section 12.02. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of
Securities of such series.
SECTION 12.02. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES
The Company may (i) deliver to the Trustee Outstanding Securities of a
series (other than any previously called for redemption) theretofore purchased
or otherwise acquired by the Company and (ii) receive credit for securities of a
series which have been previously delivered to the Trustee by the Company or for
Securities of a series which have been redeemed either at the election of the
Company pursuant to the terms of such Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities, in each case in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of the same series required to be made
pursuant to the terms of such Securities as provided for by the terms of such
series, provided, that such Securities have not been previously so credited.
Such Securities shall be received and credited for such purpose by the Trustee
at the Redemption Price specified in such Securities for redemption through
operation of the sinking fund and the amount of such sinking fund payment shall
be reduced accordingly.
SECTION 12.03. REDEMPTION OF SECURITIES FOR SINKING FUND
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers,
Certificate specifying the amount of the next ensuing sinking fund payment for
that series pursuant to the terms of that series, the portion thereof, if any,
which is to be satisfied by payment of cash and the portion thereof, if any,
which is to be satisfied by delivering or crediting Securities of that series
pursuant to Section 12.02 (which Securities will, if not previously delivered,
accompany such certificate) and whether the Company intends to exercise its
right to make a permitted optional sinking fund payment with
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<PAGE> 56
respect to such series. Such certificate shall be irrevocable and upon its
delivery the Company shall be obligated to make the cash payment or payments
therein referred to, if any, on or before the next succeeding sinking fund
payment date. In the case of the failure of the Company to deliver such
certificate, the sinking fund payment due on the next succeeding sinking fund
payment date for that series shall be paid entirely in cash and shall be
sufficient to redeem the principal amount of such Securities subject to a
mandatory sinking fund payment without the option to deliver or credit
Securities of such series as provided in Section 12.02 and without the right to
make any optional sinking fund payment, if any, with respect to such series.
Not more than 60 days before each such sinking fund payment date, the
Trustee shall select the Securities of such series to be redeemed upon such
sinking fund payment date in the manner specified in Section 11.03 and cause
notice of the redemption thereof to be given in the name of and at the expense
of the Company in the manner provided in Section 11.04. Such notice having been
duly given, the redemption of such Securities shall be made upon the terms and
in the manner stated in Sections 11.06 and 11.07.
On or prior to any sinking fund payment date, the Company shall pay to
the Trustee in cash a sum equal to any interest accrued to the date fixed for
redemption of Securities or portions thereof to be redeemed on such sinking fund
payment date pursuant to this Section 12.03.
This instrument may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
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<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
EL PASO NATURAL GAS COMPANY
By: /s/ Francis J. Boyle
-------------------------------------------
Attest:
By: /s/ Eldon J. Mitrisin
-------------------------
CITIBANK, N.A.
By: /s/ P. DeFelice
-------------------------------------------
Attest:
By: /s/ Pam J. Cote
-------------------------
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<PAGE> 58
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On the 16th day of January, 1992, before me personally came Francis J.
Boyle to me known, who being by me duly sworn, did depose and say that he
resides at El Paso, Texas, that he is the Senior Vice President and Chief
Financial Officer of EL PASO NATURAL GAS COMPANY, one of the corporations
described in and which executed the foregoing instrument, and that he signed his
name thereto by like authority.
/s/ Olive M. Hibbert
-----------------------------------
Notary Public in and for the
State of Texas
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On the 15TH day of January, 1992, before me personally came P. DeFelice
to me known, who being by me duly sworn, did depose and say that he resides at
4709 100th Street, Flushing, N. Y. 11358; that he is an Vice President of
CITIBANK, N.A., one of the corporations described in and which executed the
foregoing instrument, and that he signed his name thereto by like authority.
/s/ Nancy H. Forte
-----------------------------------
Notary Public
<PAGE> 1
EXHIBIT 18
Board of Directors
El Paso Natural Gas Company
1001 Louisiana
Houston, Texas 77002
We are providing this letter to you for inclusion as an exhibit to your Form
10-K filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in the measurement date
used in accounting for other post-retirement benefits from December 31 to
September 30 reflected in the Company's Form 10-K for the year ended December
31, 1998. Based on our reading of the data and discussions with Company
officials about the business judgment and business planning factors relating to
the change, we believe management's justification to be reasonable. Accordingly,
in reliance on management's determination as regards elements of business
judgment and business planning, we concur that the newly adopted accounting
principle described above is preferable in the Company's circumstances to the
method previously applied.
PricewaterhouseCoopers LLP
Houston, Texas
January 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9
<SECURITIES> 0
<RECEIVABLES> 1,107
<ALLOWANCES> 0<F1>
<INVENTORY> 28
<CURRENT-ASSETS> 1,151
<PP&E> 1,537
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 2,786
<CURRENT-LIABILITIES> 419
<BONDS> 980
0
350
<COMMON> 0
<OTHER-SE> 694
<TOTAL-LIABILITY-AND-EQUITY> 2,786
<SALES> 0
<TOTAL-REVENUES> 475
<CGS> 0
<TOTAL-COSTS> 262
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123
<INCOME-PRETAX> 150
<INCOME-TAX> 58
<INCOME-CONTINUING> 92
<DISCONTINUED> 158
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 250
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
<FN>
<F1>NOT SEPARATELY IDENTIFIED IN THE CONSOLIDATED FINANCIAL STATEMENTS OR
ACCOMPANYING NOTES THERETO.
</FN>
</TABLE>
