United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 1996
Commission File Number 1-3880
National Fuel Gas Company
(Exact name of registrant as specified in its charter)
New Jersey 13-1086010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Lafayette Square 14203
Buffalo, New York (Zip Code)
(Address of principal executive offices)
(716) 857-6980
Registrant's telephone number, including area code
-----------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange
Title of each class on which registered
Common Stock, $1 Par Value, and New York Stock Exchange
Common Stock Purchase Rights
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 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant amounted to $1,559,340,000 as of November 30, 1996.
Common Stock, $1 Par Value, outstanding as of November 30, 1996:
37,992,960 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for 1996 are
incorporated by reference into Part I of this report. Portions of the
registrant's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held February 20, 1997 are incorporated by reference into Part III of this
report.
<PAGE>
National Fuel Gas Company
Form 10-K Annual Report
For the Fiscal Year Ended September 30, 1996
Table of Contents
Page
----
Part I
- ------
Item 1. Business
The Company and its Subsidiaries 15
Rates and Regulation 16
The Utility Segment 17
The Pipeline and Storage Segment 17
The Exploration and Production Segment 18
The Other Nonregulated Segment 18
Sources and Availability of Raw Materials 19
Competition 19
Seasonality 21
Capital Expenditures 21
Environmental Matters 21
Miscellaneous 21
Executive Officers of the Company 22
Item 2. Properties
General Information on Facilities 23
Exploration and Production Activities 23
Item 3. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Part II
- -------
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters 25
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
Item 8. Financial Statements and Supplementary Data 45
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 73
Part III
- --------
Item 10. Directors and Executive Officers of the Registrant 73
Item 11. Executive Compensation 74
Item 12. Security Ownership of Certain Beneficial Owners and
Management 74
Item 13. Certain Relationships and Related Transactions 74
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 75
Signatures 78
- ----------
<PAGE>
This combined Annual Report to Shareholders/Form 10-K contains "forward-looking
statements" as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements should be read with the cautionary statements
included in this combined Annual Report to Shareholders/Form 10-K at Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (MD&A), under the heading "Safe Harbor for Forward-Looking
Statements." Forward-looking statements are all statements other than statements
of historical fact, including, without limitation, those statements that are
designated with a "1" following the statement, as well as those statements that
are identified by the use of the words "anticipates," "estimates," "expects,"
"intends," "plans," "predicts," "projects," and similar expressions.
PART I
------
ITEM 1 Business
The Company and its Subsidiaries
National Fuel Gas Company (the Company or Registrant), a registered holding
company under the Public Utility Holding Company Act of 1935, as amended (the
Holding Company Act), was organized under the laws of the State of New Jersey in
1902. The Company is engaged in the business of owning and holding securities
issued by its subsidiary companies. Except as otherwise indicated below, the
Company owns all of the outstanding securities of its subsidiaries. Reference to
"the Company" in this report means the Registrant or the Registrant and its
subsidiaries collectively, as appropriate in the context of the disclosure.
The Company is an integrated natural gas operation consisting of three
major business segments:
1. The Utility segment is carried out by National Fuel Gas Distribution
Corporation (Distribution Corporation), a New York corporation. Distribution
Corporation sells natural gas and provides natural gas transportation services
through a local distribution system located in western New York and northwestern
Pennsylvania (principal metropolitan areas: Buffalo, Niagara Falls and
Jamestown, New York; Erie and Sharon, Pennsylvania).
2. The Pipeline and Storage segment is carried out by National Fuel Gas Supply
Corporation (Supply Corporation), a Pennsylvania corporation. Supply Corporation
provides interstate natural gas transportation and storage services for
affiliated and nonaffiliated companies through (i) an integrated gas pipeline
system extending from southwestern Pennsylvania to the New York-Canadian border
at the Niagara River, and (ii) 30 underground natural gas storage fields owned
and operated by Supply Corporation and four other underground natural gas
storage fields operated jointly with various major interstate gas pipeline
companies.
3. The Exploration and Production segment is carried out by Seneca Resources
Corporation (Seneca), a Pennsylvania corporation. Seneca is engaged in the
exploration for, and the development and purchase of, natural gas and oil
reserves in the Gulf Coast of Texas and Louisiana, in California and in the
Appalachian region of the United States.
The Other Nonregulated segment is carried out by the following
subsidiaries:
* National Fuel Resources, Inc. (NFR), a New York corporation engaged in the
marketing and brokerage of natural gas and the performance of energy management
services for utilities and end-users located in the northeastern and midwestern
United States;
* Leidy Hub, Inc. (Leidy), a New York corporation engaged in providing various
natural gas hub services to customers in the northeastern, mid-Atlantic, Chicago
and Los Angeles areas of the United States and Ontario, Canada, through (i)
Leidy's 50% ownership of Ellisburg-Leidy Northeast Hub Company (a Pennsylvania
general partnership) and (ii) Leidy's 14.5% ownership of Enerchange, L.L.C.
(Enerchange) (a Delaware limited liability company which in turn owns 50% of
QuickTrade, L.L.C., another Delaware limited liability company);
<PAGE>
* Horizon Energy Development, Inc. (Horizon), a New York corporation formed in
1995 to engage in foreign and domestic energy projects through investment as a
sole or partial owner in various business entities including
Beheer-en-Beleggingsmaatschappij Bruwabel B.V. (Bruwabel), a Dutch company whose
principal assets are a power development group and a district heating plant
located in the eastern part of the Czech Republic;
* Seneca is also engaged in the marketing of timber from its Pennsylvania land
holdings;
* Highland Land & Minerals, Inc. (Highland), a Pennsylvania corporation which
operates a sawmill and kiln in Kane, Pennsylvania;
* Data-Track Account Services, Inc. (Data-Track), a New York corporation which
provides collection services (principally issuing collection notices) for the
Company's subsidiaries (principally Distribution Corporation); and
* Utility Constructors, Inc. (UCI), a Pennsylvania corporation which
discontinued its operations (primarily pipeline construction) in 1995 and whose
affairs are being wound down.
Financial information about each of the Company's business segments can
be found in Item 8 at Note I "Business Segment Information." No single customer,
or group of customers under common control, accounted for more than 10% of the
Company's consolidated revenues in 1996. All references to years in this report
are to the Company's fiscal year ended September 30 unless otherwise noted.
The discussion of the Company's business segments as contained in the
Letter to Shareholders, which is included in the paper copy of the Company's
combined Annual Report to Shareholders/Form 10-K, is included in this electronic
filing as Exhibit 13 and incorporated herein by reference.
Rates and Regulation
The Company is subject to regulation by the Securities and Exchange Commission
(SEC) under the broad regulatory provisions of the Holding Company Act,
including provisions relating to issuance of securities, sales and acquisitions
of securities and utility assets, intra-Company transactions and limitations on
diversification. The SEC has recommended legislation to repeal conditionally the
Holding Company Act, in conjunction with legislation which would allow the
various state regulatory commissions to have access to such books and records of
companies in a holding company system as would be necessary for effective
regulation, and allow for federal audit authority and oversight of affiliate
transactions. However, the additional proposed access to Company books and
records by state regulatory commissions would correspondingly increase the
amount of regulatory burden at the state level. In addition, recent SEC rule
changes, and proposed rule changes, if implemented, have reduced and could
reduce further the number of applications filed under the Holding Company Act,
exempt routine financings and expand diversification opportunities. The Company
is unable to predict at this time what the ultimate outcome of legislative
and/or regulatory changes will be, and therefore what the impact on the Company
might be.1
The Utility segment's rates, services and other matters are regulated
by the Public Service Commission of the State of New York (PSC) with respect to
services provided within New York, and by the Pennsylvania Public Utility
Commission (PaPUC) with respect to services provided within Pennsylvania. For
additional discussion of the Utility segment's rates and regulation, see Item 7
under the heading "Rate Matters," and Item 8 at Note B-Regulatory Matters. The
discussion under Item 8 at Note B-Regulatory Matters, includes a description of
the regulatory assets and liabilities reflected on the Company's consolidated
balance sheets in accordance with applicable accounting standards. To the extent
that the criteria set forth in such accounting standards are not met by the
operations of the Utility segment or the Pipeline and Storage segment, as the
case may be, the related regulatory assets and liabilities would be eliminated
from the Company's consolidated balance sheets and such accounting treatment
would be discontinued. The Company is not currently facing any requirement to
discontinue such accounting standards.1
<PAGE>
The Pipeline and Storage segment's rates, services and other matters
are regulated by the Federal Energy Regulatory Commission (FERC). For additional
discussion of the Pipeline and Storage segment's rates and regulation, see Item
7 under the heading "Rate Matters," and Item 8 at Note B-Regulatory Matters.
This report occasionally refers collectively to the Utility segment and
the Pipeline and Storage segment as the Regulated Operations.
In addition, the Company is subject to the same federal, state and
local regulations on various subjects as other companies doing business in the
same locations.
The Company's operations other than Supply Corporation and Distribution
Corporation are not regulated as to prices or rates for services. Accordingly,
this report occasionally refers collectively to the Exploration and Production
segment and the Other Nonregulated segment as the Nonregulated Operations.
The Utility Segment
The Utility segment contributed approximately 51% of the Company's operating
income before income taxes in 1996.
Additional discussion of the Utility segment appears in the Letter to
Shareholders contained in this combined Annual Report to Shareholders/Form 10-K,
below under the headings "Sources and Availability of Raw Materials" and
"Competition," in Item 7 "MD&A," and in Item 8 at Notes B-Regulatory Matters,
H-Commitments and Contingencies and I-Business Segment Information.
The Pipeline and Storage Segment
The Pipeline and Storage segment contributed approximately 33% of the Company's
operating income before income taxes in 1996.
The Pipeline and Storage segment currently has service agreements for
substantially all of its firm transportation capacity, which totals
approximately 1,896 million cubic feet (MMcf) per day. The Utility segment has
contracted for approximately 1,126 MMcf per day or 59% of that capacity until
2003 and continuing year-to-year thereafter. An additional 22% of that capacity
is subject to firm contracts with nonaffiliated customers until 2003 or later.
The Pipeline and Storage segment has available for sale to customers
approximately 61.6 billion cubic feet (Bcf) of firm storage capacity. The
Utility segment has contracted for 26.0 Bcf or 42% of that capacity, in service
agreements with initial terms of approximately 7 to 10 years and continuing
year-to-year thereafter, effective beginning in 1993 (23.3 Bcf - 10 years), 1996
(2.0 Bcf - 10 years) and 1997 (0.7 Bcf - 7 years).
Nonaffiliated customers are contracted for the remaining firm storage capacity.
The primary terms of current firm storage service agreements
representing 23.3 Bcf of the firm storage capacity contracted for by
nonaffiliated customers expired in 1995. Service continues year-to-year and can
be terminated by the customer on one year's notice. Five of these customers
terminated or reduced contracts effective March 31, 1996. The resulting 3.3 Bcf
of storage capacity was marketed and is under firm contracts, at discounted
rates, with new customers until at least March 31, 1999. Three additional
customers terminated contracts effective March 31, 1997 resulting in 2.1 Bcf of
available storage capacity. Approximately 1.0 Bcf of this capacity is under
contract, at discounted rates, with a new customer until March 31, 2001. The
Pipeline and Storage segment is actively marketing the remaining 1.1 Bcf of
available capacity.
Additional discussion of the Pipeline and Storage segment appears in
the Letter to Shareholders contained in this combined Annual Report to
Shareholders/Form 10-K, below under the headings "Sources and Availability of
<PAGE>
Raw Materials" and "Competition," Item 7 "MD&A," and Item 8 at Notes
B-Regulatory Matters, H-Commitments and Contingencies and I-Business Segment
Information.
The Exploration and Production Segment
The Exploration and Production segment contributed approximately 21% of the
Company's operating income before income taxes in 1996.
Additional discussion of the Exploration and Production segment appears
in the Letter to Shareholders contained in this combined Annual Report to
Shareholders/Form 10-K, below under the heading "Competition," Item 7 "MD&A,"
and Item 8 at Notes F-Financial Instruments, I-Business Segment Information and
L-Supplementary Information for Oil and Gas Producing Activities.
The Other Nonregulated Segment
The Other Nonregulated segment reduced the Company's operating income before
income taxes by approximately 4% in 1996. Corporate operations also reduced the
Company's operating income before income taxes by approximately 1%.
Additional discussion of the Other Nonregulated segment appears in the
Letter to Shareholders contained in this combined Annual Report to
Shareholders/Form 10-K, below under the headings "Sources and Availability of
Raw Materials" and "Competition," Item 7 "MD&A," and Item 8 at Notes F-Financial
Instruments and I-Business Segment Information.
Sources and Availability of Raw Materials
Natural gas is the principal raw material for the Utility segment and some of
the subsidiaries in the Other Nonregulated segment, as discussed below. The
Pipeline and Storage segment transports and stores gas owned by its customers,
whose gas originates in the southwestern United States, Canada and Appalachia.
Highland and Seneca's timber operations rely to a large degree upon timber
located on Seneca's lands, so that source and availability are not issues. The
Exploration and Production segment seeks to discover and produce raw materials
(natural gas, oil and hydrocarbon liquids) as described in the Letter to
Shareholders contained in this combined Annual Report to Shareholders/Form 10-K,
Item 7 "MD&A" and Item 8 at Notes I-Business Segment Information and L
Supplementary Information for Oil and Gas Producing Activities.
In 1996, the Utility segment purchased 149.5 Bcf of gas. Gas purchases
from various producers and marketers in the southwestern United States under
long-term (two years or longer) contracts accounted for 70% of these purchases.
Purchases of gas in Canada under long-term contracts, purchases of gas in Canada
and the United States on the spot market (contracts of less than a year) and
purchases from Appalachian producers accounted for 3%, 24% and 3%, respectively,
of the Utility segment's 1996 gas purchases. Gas purchases from Vastar
Resources, Inc. and Natural Gas Clearinghouse (southwest gas under long-term
contract) represented 13% and 11%, respectively, of total 1996 gas purchases by
the Utility segment. No other producer or marketer provided the Utility segment
with 10% or more of its gas requirements in 1996. A portion of the Utility
segment's gas purchase agreements with nonaffiliated gas producers require
payment of fixed monthly charges. These charges are tied to various indices. At
September 30, 1996, the projected aggregate amount of such required future
payments, based on current indices, is approximately $10.8 million annually for
the next five years.1
To move its gas from the point of purchase to its distribution system
in New York and Pennsylvania, the Utility segment purchases contracted firm
transportation and storage services from various interstate pipeline companies
including Supply Corporation. These contracts provide for payment of a demand or
reservation charge for contracted capacity and storage. At September 30, 1996,
the projected aggregate amounts of such required future payments to
nonaffiliated companies, based on current FERC approved rates, where applicable,
are approximately $98.1 million and $2.4 million annually for the next five
years, for pipeline capacity and storage service, respectively.1
<PAGE>
The Other Nonregulated segment needs natural gas for NFR's marketing
and Leidy's hub services, but is relatively indifferent as to the source.
Competition
Competition in the natural gas industry exists among providers of natural gas,
as well as between natural gas and other sources of energy. The continuing
deregulation of the natural gas industry should enhance the competitive position
of natural gas relative to other energy sources by removing some of the
regulatory impediments to adding customers and responding to market forces.1 In
addition, the environmental advantages of natural gas compared with other fuels
should increase the role of natural gas as an energy source.1 Moreover, natural
gas is abundantly available in North America, which makes it a dependable
alternative to imported oil.
The electric industry is moving toward a more competitive environment
as a result of the federal Energy Policy Act of 1992 and initiatives undertaken
by the FERC and various states. It is unclear at this point what impact this
restructuring will have on the Company.1
The Company competes on the basis of price, service and reliability,
product performance and other factors. Sources and providers of energy, other
than those described under this "Competition" heading, do not compete with the
Company to any significant extent.
Competition: The Utility Segment
The changes precipitated by the FERC's restructuring of the gas industry in
Order No. 636 are redefining the roles of the gas utility industry and the state
regulatory commissions. The PSC issued an order in 1995 providing for the
Utility segment to implement unbundling of its services. The Utility segment has
implemented most of the provisions contained in the PSC's 1995 order, and now
offers unbundled, flexible services to its residential, commercial and
industrial customers. At present, these provisions are not advantageous to the
residential customers because of high cost and the resulting lack of interest by
gas marketers in offering residential gas sales. In large part, the high cost is
due to the significant customer protections required of utilities which are then
passed along in rates. Such protections include sufficient contracts to
purchase, transport and store natural gas in the event that it is needed by
residential customers.
Competition for large-volume customers continues, with local
producers or pipeline companies attempting to sell or transport gas directly to
end-users located within the Utility segment's service territories (i.e.,
bypass). In addition, competition continues with fuel oil suppliers, and may
increase with electric utilities making retail energy sales.1
Responding to those developments, the Utility segment is now better
able to compete, through its unbundled flexible services, in its most vulnerable
markets (the large commercial and industrial markets). The Utility segment
continues to (i) develop or promote new sources and uses of natural gas and/or
new services, rates and contracts and (ii) emphasize and provide high quality
service to its customers.
Competition: The Pipeline and Storage Segment
The Pipeline and Storage segment competes for market growth in the natural gas
market with other pipeline companies transporting gas in the northeastern United
States and with other companies providing gas storage services. The Pipeline and
Storage segment has some unique characteristics which enhance its competitive
position. Its facilities are located adjacent to Canada and the northeastern
United States, and provide part of the link between gas-consuming regions of the
northeastern United States and gas-producing regions of Canada and the
southwestern, southern and midwestern regions of the United States. This
location offers the opportunity for increased transportation and storage
services in the future.1
<PAGE>
Competition: The Exploration and Production Segment
The Exploration and Production segment competes with other gas and oil
producers, and with fuel oil and electricity wholesalers and producers, with
respect to its sales of oil and gas. The Exploration and Production segment also
competes, by competitive bidding and otherwise, with other oil and gas
exploration and production companies of various sizes for leases and drilling
rights for exploration and development prospects.
To compete in this environment, the Exploration and Production segment
originates and acts as operator on most prospects, minimizes risk of exploratory
efforts through partnership-type arrangements, applies the latest technology for
both exploratory studies and drilling operations and focuses on market niches
that suit its size, operating expertise and financial criteria.
Competition: The Other Nonregulated Segment
In the Other Nonregulated segment, NFR competes with other gas marketers and
energy management services providers. Leidy competes with other natural gas hub
service providers. Highland competes with other sawmills in northwestern
Pennsylvania. Horizon competes with other entities seeking to develop foreign
and domestic energy projects.
Seasonality
Variations in weather conditions can materially affect the volume of gas
delivered by the Utility segment, as virtually all of its residential and
commercial customers use gas for space heating. The effect on the Utility
segment in New York is mitigated by a weather normalization clause which is
designed to adjust the rates of retail customers to reflect the impact of
deviations from normal weather. Weather that is more than 2.2% warmer than
normal results in a surcharge being added to customers' current bills, while
weather that is more than 2.2% colder than normal results in a refund being
credited to customers' current bills.
The Pipeline and Storage segment's volumes transported and stored may
vary materially depending on weather, without materially affecting its earnings.
The Pipeline and Storage segment's rates are based on a straight fixed-variable
rate design which allows recovery of all fixed costs in fixed monthly
reservation charges. Variable charges based on volumes are designed only to
reimburse the variable costs caused by actual transportation or storage of gas.
Capital Expenditures
A discussion of capital expenditures by business segment is included in Item 7
under the heading "Investing Cash Flow," subheading "Capital Expenditures."
Environmental Matters
A discussion of material environmental matters involving the Company is included
in Item 8, Note H-Commitments and Contingencies.
Miscellaneous
The Company had 2,843 full-time employees at September 30, 1996, a decrease of
2.8% from the 2,925 employed at September 30, 1995.
Agreements covering employees in collective bargaining units in New
York were last renegotiated in October 1994 and are scheduled to expire in
February 1998. Agreements covering most employees in collective bargaining units
in Pennsylvania were renegotiated, effective April and May 1996, and are
scheduled to expire in April and May 1999.
The Company has numerous county and municipal franchises under which it
uses public roads and certain other rights-of-way and public property for the
location of facilities. The Company has regularly renewed such franchises at
expiration and expects no difficulty in continuing to renew them.1
<PAGE>
Executive Officers of the Company*
Age as of Current Company Date Elected To
Name 9/30/96 Positions Current Positions
---- --------- --------------- -----------------
Bernard J. Kennedy 65 Chairman of the
Board of Directors. March 21, 1989
Chief Executive
Officer. August 1, 1988
President. January 1, 1987
Director. March 29, 1978
Philip C. Ackerman 52 Director. March 16, 1994
Senior Vice President. June 1, 1989
President of
Distribution Corporation. October 1, 1995
President of Seneca until
October 1, 1996. June 1, 1989
Executive Vice President
of Supply Corporation. October 1, 1994
President of Horizon. September 13, 1995
President of certain
other subsidiaries of
the Company from prior
to 1991.
Richard Hare 58 President of Supply
Corporation. June 1, 1989
Senior Vice President of
Penn-York Energy Corpor-
ation until its merger
into Supply Corporation
on July 1, 1994. June 1, 1989
James A. Beck 49 President of Seneca. October 1, 1996**
Joseph P. Pawlowski 55 Treasurer. December 11, 1980
Senior Vice President of
Distribution Corporation. February 20, 1992
Treasurer of
Distribution Corporation. January 1, 1981
Treasurer of
Supply Corporation. June 1, 1985
Secretary of
Supply Corporation. October 1, 1995
Officer of certain other
subsidiaries of the
Company from prior
to 1991.
Gerald T. Wehrlin 58 Controller. December 11, 1980
Senior Vice President of
Distribution Corporation. April 1, 1991
Controller of
Distribution Corporation. January 1, 1981
Controller of Seneca. September 1, 1981
Secretary and Treasurer
of Leidy. September 1, 1993
Secretary and Treasurer
of Horizon. September 13, 1995
Officer of certain other
subsidiaries of the
Company from prior
to 1991.
Walter E. DeForest 55 Senior Vice President of
Distribution Corporation. August 1, 1993
President of Leidy. September 1, 1993
<PAGE>
Age as of Current Company Date Elected To
Name 9/30/96 Positions Current Positions
---- --------- --------------- -----------------
Bruce H. Hale 47 Senior Vice President of
Distribution Corporation. April 1, 1991 through
February 20, 1992,
and again on
January 1, 1993***
Vice President of Horizon. September 13, 1995
Dennis J. Seeley 53 Senior Vice President of
Supply Corporation. January 1, 1993
David F. Smith 43 Senior Vice President of
Distribution Corporation. January 1, 1993
Secretary of
Distribution Corporation. June 20, 1986
Officer of certain other
subsidiaries of the
Company from prior
to 1991.
* The Company has been advised that there are no family relationships
among any of the officers listed, and that there is no arrangement or
understanding among any one of them and any other persons pursuant to
which he was elected as an officer.
** Vice President of Seneca from January 1, 1994 through April 30, 1995,
Executive Vice President of Seneca from May 1, 1995 through September
30, 1996.
*** Senior Vice President of Supply Corporation from February 21, 1992 through
December 31, 1992.
ITEM 2 PROPERTIES
General Information on Facilities
The investment of the Company in net property, plant and equipment was $1,709.6
million at September 30, 1996. Approximately 76% of this investment is in the
Utility and Pipeline and Storage segments, which are primarily located in
western New York and western Pennsylvania. The remaining investment in property,
plant and equipment is mainly in the Exploration and Production segment, which
is primarily located in the Gulf Coast, southwestern, western and Appalachian
regions of the United States. During the past five years, the Company has made
significant additions to plant in order to expand and improve transmission and
distribution facilities for both retail and transportation customers and to
augment the reserve base of oil and gas. Net plant has increased $395.9 million,
or 30%, since 1991.
The Utility segment has the largest net investment in property, plant
and equipment, compared with the Company's other business segments. Its net
investment in its gas distribution network (including 14,764 miles of
distribution pipeline) and its services represent approximately 58% and 27%,
respectively, of the Utility segment's net investment of $855.2 million.
The Pipeline and Storage segment represents a net investment of $452.3
million in transmission and storage facilities at September 30, 1996.
Transmission pipeline, with a net cost of $143.9 million, represents 32% of this
segment's total net investment and includes 2,747 miles of pipeline required to
move large volumes of gas throughout its service area. Storage facilities
consist of 34 storage fields, 4 of which are jointly operated with certain
pipeline suppliers, and 494 miles of pipeline. Included in the storage
facilities net investment is $85.3 million of gas stored underground-
<PAGE>
noncurrent, representing the cost of the gas required to maintain pressure
levels for normal operating purposes as well as gas maintained for system
balancing and other purposes, including that needed for no-notice transportation
service. The Pipeline and Storage segment has 31 compressor stations with 73,450
installed compressor horsepower.
The Exploration and Production segment had a net investment in
properties amounting to $376.0 million at September 30, 1996. Of this amount,
Seneca's net investment in oil and gas properties in the Gulf Coast/West Coast
regions was $319.0 million, and Seneca's net investment in oil and gas
properties in the Appalachian region aggregated $57.0 million.
The Regulated Operations' facilities provided the capacity to meet its
1996 peak day sendout, including transportation service, of 1,982 MMcf, which
occurred on February 4, 1996. Withdrawals from storage provided approximately
42% of the requirements on that day.
Company maps, which are included on the inside fold out cover of the
paper copy of the combined Annual Report to Shareholders/Form 10-K, are
narratively described in the Appendix to this electronic filing and are
incorporated herein by reference.
Exploration and Production Activities
The information that follows is disclosed in accordance with SEC regulations,
and relates to the Company's oil and gas producing activities. A further
discussion of oil and gas producing activities is included in Item 8, Note
L-Supplementary Information for Oil and Gas Producing Activities. Note L sets
forth proved developed and undeveloped reserve information for Seneca. Supply
Corporation holds reserves related to held for future use storage wells.
Information on such reserves is included on Supply Corporation's Form 2 "Annual
Report of Natural Gas Companies" and Form 15 "Annual Report of Gas Supply" filed
with the FERC.
Seneca is not regulated by the FERC, and thus is not required to file
Forms 2 and 15. Seneca's oil and gas reserves reported in Note L as of September
30, 1996, were estimated by Seneca's qualified geologists and engineers and were
audited by independent petroleum engineers from Ralph E. Davis, Inc.
The following is a summary of certain oil and gas information taken
from Seneca's records:
Production
For the Year Ended September 30 1996 1995 1994
- ------------------------------- ---- ---- ----
Average Sales Price per Mcf of Gas $ 2.35 $ 1.67 $ 2.18
Average Sales Price per Barrel of Oil $19.50 $16.16 $14.86
Average Production (Lifting) Cost per Mcf
Equivalent of Gas and Oil Produced $ 0.31 $ 0.44 $ 0.45
Productive Wells
At September 30, 1996 Gas Oil
- --------------------- --- ---
Productive Wells - gross 2,054 285
- net 1,931 215
Developed and Undeveloped Acreage
At September 30, 1996
- ---------------------
Developed Acreage - gross 602,684
- net 533,535
Undeveloped Acreage - gross 602,706
- net 563,827
<PAGE>
Drilling Activity
Productive Dry
------------------ ------------------
For the Year Ended September 30 1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
Net Wells Completed - Exploratory 3 5 5 7 0 4
- Development 7 6 8 0 0 0
Present Activities
At September 30, 1996
Wells in Process of Drilling - gross 4
- net 2
There are currently no waterflood projects or pressure maintenance
operations of material importance.
ITEM 3 Legal Proceedings
None
ITEM 4 Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth quarter
of 1996.
PART II
-------
ITEM 5 Market for the Registrant's Common Stock and Related Shareholder
Matters
Information regarding the market for the Registrant's common stock and related
shareholder matters appears in Note D-Capitalization and Note K-Market for
Common Stock and Related Shareholder Matters (unaudited), under Item 8 of this
Form 10-K, and reference is made thereto.
<PAGE>
ITEM 6 Selected Financial Data
<TABLE>
<CAPTION>
Year Ended September 30: 1996 1995 1994 1993 1992
- ----------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations (Thousands)
Operating Revenues $1,208,017 $975,496 $1,141,324 $1,020,382 $920,450
---------- -------- ---------- ---------- --------
Operating Expenses:
Purchased Gas 477,357 351,094 497,687 409,005 363,690
Operation and Maintenance 309,206 292,505 291,390 283,230 263,084
Property, Franchise and Other
Taxes 99,456 91,837 103,788 95,393 89,158
Depreciation, Depletion and
Amortization 98,231 71,782 74,764 69,425 55,726
Income Taxes - Net 66,321 43,879 47,792 41,046 35,231
--------- -------- ---------- ---------- --------
1,050,571 851,097 1,015,421 898,099 806,889
--------- -------- ---------- ---------- --------
Operating Income 157,446 124,399 125,903 122,283 113,561
Other Income 3,869 5,378 3,656 4,833 5,790
--------- -------- ---------- ---------- --------
Income Before Interest Charges 161,315 129,777 129,559 127,116 119,351
Interest Charges 56,644 53,883 47,124 51,899 59,041
--------- -------- ---------- ---------- --------
Income Before Cumulative Effect 104,671 75,894 82,435 75,217 60,310
Cumulative Effect of Changes in
Accounting - - 3,237 - -
--------- -------- ---------- ---------- --------
Net Income Available for Common
Stock $104,671 $ 75,894 $ 85,672 $ 75,217 $ 60,310
======== ======== ========== ========== ========
Per Common Share Data
Earnings $2.78 $2.03 $2.32* $2.15 $1.94
Dividends Declared $1.65 $1.60 $1.56 $1.52 $1.48
Dividends Paid $1.64 $1.59 $1.55 $1.51 $1.47
Dividend Rate at Year-End $1.68 $1.62 $1.58 $1.54 $1.50
At September 30:
Number of Common Shareholders 21,640 21,429 22,465 22,893 23,218
====== ======== ========== ========== ========
Net Property, Plant and Equipment (Thousands)
Regulated:
Utility $ 855,161 $ 822,764 $ 787,794 $ 754,466 $ 719,755
Pipeline and Storage 452,305 463,647 443,622 436,547 423,383
---------- ---------- ---------- ---------- ----------
1,307,466 1,286,411 1,231,416 1,191,013 1,143,138
---------- ---------- ---------- ---------- ----------
Nonregulated:
Exploration and Production 375,958 339,950 295,418 273,470 261,446
Other 26,167 22,690 18,579 16,209 11,670
---------- ---------- ---------- ---------- ----------
402,125 362,640 313,997 289,679 273,116
---------- ---------- ---------- ---------- ----------
Corporate 15 131 137 122 128
---------- ---------- ---------- ---------- ----------
Total Net Plant $1,709,606 $1,649,182 $1,545,550 $1,480,814 $1,416,382
========== ========== ========== ========== ==========
Total Assets (Thousands) $2,149,772 $2,036,823 $1,980,806 $1,801,540 $1,760,830
========== ========== ========== ========== ==========
Capitalization (Thousands)
Common Stock Equity $ 855,998 $ 800,588 $ 780,288 $ 736,245 $ 632,333
Long-Term Debt, Net of Current
Portion 574,000 474,000 462,500 478,417 479,500
---------- ---------- ---------- ---------- ----------
Total Capitalization $1,429,998 $1,274,588 $1,242,788 $1,214,662 $1,111,833
========== ========== ========== ========== ==========
</TABLE>
* 1994 includes Cumulative Effect of Changes in Accounting of $0.09. See Notes
A and G to Consolidated Financial Statements.
ITEM 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
1996 Compared with 1995
National Fuel's earnings were $104.7 million, or $2.78 per common share, in
1996. This compares with earnings of $75.9 million, or $2.03 per common share,
in 1995.
<PAGE>
The earnings increase in 1996 was attributable to higher earnings of
the Company's Exploration and Production, Utility, and Pipeline and Storage
segments, partly offset by lower earnings of the Other Nonregulated segment.
Exploration and Production earnings increased because of significant
increases in natural gas and oil production combined with higher gas and oil
prices. The earnings increase of the Utility segment reflects the positive
impact of colder weather, new rates that became effective in September 1995 in
both the New York and Pennsylvania jurisdictions, and the results of
management's emphasis on controlling operation and maintenance expense. Also,
purchased gas expense adjustments in the Utility segment's New York jurisdiction
increased 1996 earnings. The Pipeline and Storage segment's earnings increase
was attributable to the February 1996 Federal Energy Regulatory Commission
(FERC) approval of Supply Corporation's rate case, which became effective on
April 1, 1996 retroactive to June 1, 1995. In addition, 1995 Pipeline and
Storage earnings included a reserve for previously deferred preliminary survey
and investigation charges for the Laurel Fields Storage Project. Partly
offsetting the increased earnings of the Pipeline and Storage segment were lower
revenues related to unbundled pipeline sales and open access transportation. A
special early retirement offer (SERO) to certain salaried, non-union hourly and
union employees of both the Utility and Pipeline and Storage segments resulted
in a reduction to 1996 earnings for both segments. The decrease in earnings of
the Other Nonregulated segment was mainly attributable to withdrawing from an
international energy project, which resulted in the expensing of certain
pre-operating costs, as well as discontinuance of operations at the Company's
pipeline construction subsidiary in 1995.
1995 Compared with 1994
National Fuel's earnings were $75.9 million, or $2.03 per common share, in 1995.
This compares with earnings of $82.4 million, or $2.23 per common share in 1994
(before the cumulative effect of the mandated changes in accounting for income
taxes and post-employment benefits, which added a net $3.2 million, or $0.09 per
common share of earnings in 1994).
The earnings decrease in 1995 was attributable to lower earnings of the
Company's Exploration and Production and Utility segments, partly offset by
higher earnings of the Pipeline and Storage segment, Other Nonregulated segment,
and Corporate operations.
Exploration and Production earnings declined because of low gas prices
coupled with management's decision, based on those low gas prices, to delay Gulf
Coast activity causing reduced levels of gas and oil production. The Utility
segment's earnings suffered from the warm weather and the impact of lower
normalized usage per residential and commercial account. Additionally, the
Utility segment's New York jurisdiction recorded additional purchased gas
expense associated with lost and unaccounted-for gas. The Pipeline and Storage
segment earnings reflect increased revenues associated with unbundled pipeline
sales and open access transportation. This increase in earnings was partly
offset by higher operating and interest expense as well as the recording of a
reserve for previously deferred preliminary survey and investigation charges for
the Laurel Fields Storage Project. Increased earnings of the Company's Other
Nonregulated segment resulted mainly from a gain on the sale of equipment, net
of accrued expenses, by the Company's pipeline construction subsidiary. This
sale pertained to a strategic decision to discontinue the operations of this
subsidiary. The Company's gas marketing subsidiary also increased earnings on a
year-to-year basis as a result of increased margins and an increase in
customers. In addition, Corporate operations benefited from cost saving
measures, including the relocation of corporate headquarters.
<PAGE>
Operating Revenues
Year Ended September 30 (Thousands) 1996 1995 1994
- -----------------------------------------------------------------------------
Utility
Retail Revenues:
Residential $ 678,395 $569,603 $ 677,068
Commercial 165,824 137,869 177,249
Industrial 25,648 18,269 31,096
- -----------------------------------------------------------------------------
869,867 725,741 885,413
Off-System Sales 30,907 18,255 6,930
Transportation 49,180 37,183 34,419
Other 4,372 4,885 4,911
- -----------------------------------------------------------------------------
954,326 786,064 931,673
- -----------------------------------------------------------------------------
Pipeline and Storage
Storage Service 67,975 59,826 58,971
Transportation 92,401 88,766 90,416
Other 16,177 15,995 3,734
- -----------------------------------------------------------------------------
176,553 164,587 153,121
- -----------------------------------------------------------------------------
Exploration and Production 114,462 56,232 70,261
Other Nonregulated 68,930 57,075 72,036
- -----------------------------------------------------------------------------
183,392 113,307 142,297
- -----------------------------------------------------------------------------
Less: Intersegment Revenues 106,254 88,462 85,767
- -----------------------------------------------------------------------------
Total Operating Revenues $1,208,017 $975,496 $1,141,324
=============================================================================
Operating Income (Loss) Before Income
Taxes
Year Ended September 30 (Thousands) 1996 1995 1994
- -----------------------------------------------------------------------------
Utility $115,257 $ 83,774 $ 90,584
Pipeline and Storage 72,914 67,884 62,302
Exploration and Production 46,408 16,404 21,767
Other Nonregulated (8,581) 3,021 2,505
Corporate (2,231) (2,805) (3,463)
- -----------------------------------------------------------------------------
Total Operating Income Before Income
Taxes $223,767 $168,278 $173,695
=============================================================================
System Natural Gas Volumes
Year Ended September 30 (billion cubic feet) 1996 1995 1994
- -------------------------------------------------------------------------
Regulated Gas Sales
Residential 90.7 79.9 90.6
Commercial 24.9 22.2 26.9
Industrial 6.0 4.8 6.5
Off-System 11.1 9.4 3.3
- -------------------------------------------------------------------------
132.7 116.3 127.3
- -------------------------------------------------------------------------
Nonregulated Gas Sales
Gas Sales for Resale - 0.4 0.3
Production (equivalent billion cubic feet) 49.2 25.4 29.5
- -------------------------------------------------------------------------
49.2 25.8 29.8
- -------------------------------------------------------------------------
Total Gas Sales 181.9 142.1 157.1
- -------------------------------------------------------------------------
Transportation
Utility 58.2 52.8 52.2
Pipeline and Storage 325.0 290.8 296.6
Nonregulated 0.6 2.5 1.4
- -------------------------------------------------------------------------
383.8 346.1 350.2
- -------------------------------------------------------------------------
Marketing Volumes 20.5 18.8 18.2
- -------------------------------------------------------------------------
Less Intersegment Volumes:
Transportation 156.7 154.2 164.8
Production 4.8 5.0 2.5
Gas Sales 0.8 - 0.1
Marketing 0.1 - -
- -------------------------------------------------------------------------
162.4 159.2 167.4
- -------------------------------------------------------------------------
Total System Natural Gas Volumes 423.8 347.8 358.1
=========================================================================
<PAGE>
Utility
Operating Revenues
1996 Compared with 1995
Operating revenues increased $168.3 million in 1996 compared with 1995. This
increase reflects general rate increases of $14.2 million and $6.0 million,
respectively, in the New York and Pennsylvania rate jurisdictions, effective in
September 1995. The increase also reflects the recovery of increased gas costs
mainly because of higher gas sales of 16.4 billion cubic feet (Bcf) as well as a
25% increase in the average cost of purchased gas (see discussion of purchased
gas below under the heading "Purchased Gas"). In addition, higher transportation
volumes of 5.4 Bcf contributed to the increase in operating revenues. The
increase in gas sales and transportation volumes can be attributed mainly to
weather in Distribution Corporation's service territory that was, on average,
16.7% colder than the prior year. Transportation volumes also increased as a
result of new customers and increased production at various manufacturing
facilities in Distribution Corporation's service territory which more than
offset lower transportation volumes to a cogeneration customer. The increase in
off-system sales reflects the continued utilization of available capacity on the
upstream pipelines serving Distribution Corporation and other customers from the
southwestern to northeastern regions of the United States. Distribution
Corporation, in each of its jurisdictions, has a mechanism whereby it retains a
portion of the margin on these off-system sales.
1995 Compared with 1994
Operating revenues decreased $145.6 million in 1995 compared with 1994. This
decrease reflects the recovery of decreased gas costs mainly because of lower
gas sales of 11.0 Bcf as well as a 15% decline in the average cost of purchased
gas.
The decline in residential and commercial gas sales of 15.4 Bcf can be
attributed mainly to weather in Distribution Corporation's service territory
that was, on average, 12.3% warmer than 1994. The decline in industrial volumes
of 1.7 Bcf reflects lower sales to a cogeneration customer. These declines were
partly offset by an increase in off-system gas sales of 6.1 Bcf.
Operating Income
1996 Compared with 1995
Operating income before income taxes increased $31.5 million in 1996 compared
with 1995. The increase reflects higher gas revenue, as discussed above. It also
reflects certain purchased gas cost adjustments associated with lost and
unaccounted-for gas in Distribution Corporation's New York jurisdiction. In the
New York jurisdiction, an annual reconciliation of purchased gas costs is
performed in August of each year. Based on this reconciliation, an amount is
determined that is either over or under the amount that is allowed to be
recovered by the Public Service Commission of the State of New York (PSC). Any
amount over the recoverable amount increases purchased gas expense and any
amount under the recoverable amount decreases purchased gas expense. In 1995,
this reconciliation resulted in an additional $4.3 million of purchased gas
expense. However, based upon a recently completed thorough review by the
Company, it was determined that the estimated additional purchased gas expense
recognized in 1995 was overstated by $6.5 million. Therefore, purchased gas
expense for 1996 was reduced to reflect this adjustment. In 1996, the annual
reconciliation of purchased gas costs also resulted in the recognition of
purchased gas expense for excess lost and unaccounted-for gas. The amount
charged to purchased gas expense in 1996 based on the 1996 reconciliation was
$2.3 million. The net impact of these purchased gas cost adjustments was to
reduce 1996 purchased gas expense by $4.2 million.
Offsetting the net increases discussed above was the impact of the SERO
offered to certain salaried, non-union hourly and union employees of
Distribution Corporation. The SERO resulted in additional operating expenses in
the Utility segment of $6.4 million in 1996. The SERO was undertaken as a means
to reduce future costs.
<PAGE>
The impact of weather on Distribution Corporation's New York rate
jurisdiction is tempered by a weather normalization clause (WNC). The WNC in New
York, which covers the eight-month period from October through May, has had a
stabilizing effect on pretax operating income and earnings for the New York rate
jurisdiction. In addition, in periods of colder than normal weather, the WNC
benefits Distribution Corporation's New York customers. In 1996, the WNC in New
York resulted in a benefit to customers of $10.6 million as weather, overall,
was colder than normal for the period of October 1995 through May 1996. Since
the Pennsylvania rate jurisdiction does not have a WNC, uncontrollable weather
variations directly impact pretax operating income and earnings. In the
Pennsylvania service territory, weather was 17.1% colder than last year and 8.1%
colder than normal. The colder weather in 1996 compared with 1995 had a positive
impact on the Pennsylvania rate jurisdiction's pretax operating income of
approximately $7.6 million, of which approximately $3.9 million relates to
colder than normal weather in 1996 and approximately $3.7 million is because
1995 was warmer than normal.
1995 Compared with 1994
Operating income before income taxes decreased $6.8 million in 1995 compared
with 1994. This decrease reflects the lower gas sales, discussed above, coupled
with higher operating expenses. Although Distribution Corporation received
general rate increases in New York and Pennsylvania in July 1994 and December
1994, respectively, the weather related reduction in volumes sold, especially in
the Pennsylvania jurisdiction, negatively impacted margins. In both
jurisdictions, lower normalized usage per residential and commercial account
than was established in the ratemaking process also contributed to lower pretax
operating income. In addition, Distribution Corporation's annual reconciliation
of purchased gas costs in its New York jurisdiction, performed in August each
year, determined an amount of lost and unaccounted-for gas in excess of that
allowed to be recovered by the PSC. The Utility segment recognized an additional
$4.3 million of purchased gas expense as a result of this reconciliation.
In 1995, the WNC in New York preserved pretax operating income of $8.2
million as weather, overall, was warmer than normal for the period of October
1994 through May 1995. In the Pennsylvania service territory, weather was 14.2%
warmer than 1994 and 5.8% warmer than normal. The warmer weather in 1995
compared with 1994 had a negative impact on pretax operating income and earnings
for the Pennsylvania rate jurisdiction.
Degree Days
Percent Colder
(Warmer) Than
-------------------
Year Ended September 30 Normal Actual Normal Last Year
- ------------------------------------------------------------------------------
1996: Buffalo 6,728 7,203 7.1% 16.5%
Erie 6,258 6,764 8.1% 17.1%
- ------------------------------------------------------------------------------
1995: Buffalo 6,693 6,181 (7.6%) (11.4%)
Erie 6,128 5,774 (5.8%) (14.2%)
- ------------------------------------------------------------------------------
1994: Buffalo 6,710 6,975 3.9% 3.6%
Erie 6,202 6,726 8.4% 9.6%
- ------------------------------------------------------------------------------
Purchased Gas
The cost of purchased gas is by far the Company's single largest operating
expense. Annual variations in purchased gas costs can be attributed directly to
changes in gas sales volumes, the price of gas purchased and the operation of
purchased gas adjustment clauses.
Currently, Distribution Corporation has contracted for long-term firm
transportation capacity with Supply Corporation and five other upstream pipeline
companies, for long-term gas supplies with a combination of producers and
marketers and for storage service with Supply Corporation and three
nonaffiliated companies. In addition, Distribution Corporation can satisfy a
portion of its gas requirements through spot market purchases. Changes in
wellhead prices have a direct impact on the cost of purchased gas. Distribution
Corporation's average cost of purchased gas, including the cost of
transportation and storage, was $3.98 per thousand cubic feet (Mcf) in 1996, an
increase of 25% from the average cost of $3.19 per Mcf in 1995. The average cost
of purchased gas in 1995 was 15% lower than the $3.74 per Mcf in 1994.
<PAGE>
Pipeline and Storage
Operating Revenues
1996 Compared with 1995
Operating revenues increased $12.0 million in 1996 compared with 1995. Higher
transportation and storage revenues reflect the impact of a $6.0 million rate
increase effective on April 1, 1996 retroactive to June 1, 1995. The retroactive
rates added approximately $2.0 million to revenues in 1996 that relate to 1995.
Higher volumes of gas transported as well as certain surcharge adjustments also
increased revenues in 1996. Other operating revenues increased only slightly,
but include an increase of approximately $4.6 million related to cashouts (a
cash resolution of a gas imbalance whereby a customer pays Supply Corporation
for gas it receives in excess of amounts delivered into Supply Corporation's
system by the customer's shipper). Cashout revenues are offset by purchased gas
expense. A decrease of approximately $4.4 million related to unbundled pipeline
sales and open access transportation reduced other operating revenue for the
year.
1995 Compared with 1994
Operating revenues increased $11.5 million in 1995 compared with 1994. The
increase reflects the application of a final rule issued by the FERC in
September 1995, which addressed and clarified financial reporting aspects for
unbundled pipeline sales and open access transportation.
Operating Income
1996 Compared with 1995
Operating income before income taxes increased $5.0 million in 1996 compared
with 1995. This increase reflects the revenue increase discussed above as well
as the recording of a $3.7 million reserve in the fourth quarter of 1995 for
previously deferred preliminary survey and investigation charges for the Laurel
Fields Storage Project, as discussed below. Partly offsetting the increase was
the impact of higher operating expenses, including the SERO offered to certain
salaried, non-union hourly and union employees of Supply Corporation. The SERO
resulted in additional operating expenses in the Pipeline and Storage segment of
$1.8 million in 1996. The SERO was undertaken as a means to reduce future costs.
1995 Compared with 1994
Operating income before income taxes increased $5.6 million in 1995 compared
with 1994. This increase reflects the increase in operating revenues discussed
above, offset in part by higher operating expenses and the recording of a
reserve in the amount of $3.7 million for previously deferred preliminary survey
and investigation charges for the Laurel Fields Storage Project. This project
was delayed as there was not sufficient interest to proceed with the project at
the time.
Exploration and Production
Operating Revenues
1996 Compared with 1995
Operating revenues increased $58.2 million in 1996 compared with 1995. This
increase reflects higher natural gas and oil production coupled with increased
prices for both. As indicated in the tables below, natural gas production rose
to a level of 38.8 Bcf, an 85% increase over the prior year. Oil production of
1,742,000 barrels (bbls) was more than twice the prior year production. Last
year, natural gas and oil production was delayed when prices were low in order
to preserve the value received for reserves. Increased production continues to
be driven by this segment's Gulf Coast program. Offshore finds at West Cameron
552 and Vermilion 252 and the acquisition of West Delta Block 30 in September
1995 are the major contributors to production increases for the year. In the
West Coast program, the production increases are primarily a result of the 1995
Hamp Lease acquisition in California. Weighted average prices received for this
segment's natural gas production increased by $0.68 per Mcf to $2.35 per Mcf and
the weighted average prices received for oil production increased $3.34
<PAGE>
per bbl to $19.50 per bbl. These prices do not reflect gains and losses from
hedging activities. For 1996, this segment recognized a pre-tax loss on hedging
of approximately $11.8 million compared with a pre-tax gain of $6.9 million in
1995. Gains or losses on hedging activities are offset by lower or higher prices
received for actual natural gas and crude oil production. The Company utilizes
its hedging program to manage a portion of the market risk associated with
fluctuations in the price of natural gas and crude oil thereby providing more
stability to the operating results of this business segment.
1995 Compared with 1994
Operating revenues decreased $14.0 million in 1995 compared with 1994. This
decrease reflects lower natural gas prices and management's decision to delay
production activity in its Gulf Coast operations based on the decrease in
prices. Natural gas production decreased 2.3 Bcf, or 10%, 2.0 Bcf of which
occurred in the Gulf Coast operations. In addition, the weighted average price
received for natural gas in 1995 decreased $0.51 per Mcf, or 23%. Oil production
was down 291,000 barrels, or 28%. This drop reflects natural depletion and lower
condensate production related to decreased gas production. Although the weighted
average price received for oil in 1995 increased 9%, this was not enough to
offset the lower production level. The fluctuations in prices noted above do not
include the impact of hedging activities. A pre-tax gain of approximately $6.9
million was recognized from hedging activities in 1995.
Production Volumes
Year Ended September 30 1996 1995 1994
- -----------------------------------------------------------
Gas Production
(million cubic feet)
Gulf Coast 32,355 14,294 16,296
West Coast 990 840 706
Appalachia 5,422 5,808 6,271
- -----------------------------------------------------------
38,767 20,942 23,273
===========================================================
Oil Production
(thousands of barrels)
Gulf Coast 1,195 287 615
West Coast 533 433 404
Appalachia 14 19 11
- -----------------------------------------------------------
1,742 739 1,030
===========================================================
Weighted Average Prices
Year Ended September 30 1996 1995 1994
- ----------------------------------------------------------
Weighted Average Gas Price/Mcf
Gulf Coast $2.33 $1.56 $2.03
West Coast $1.25 $1.33 $1.58
Appalachia $2.65 $2.01 $2.65
Weighted Average Price $2.35 $1.67 $2.18
- ------------------------------------------------------------
Weighted Average Oil Price/bbl
Gulf Coast $20.45 $16.94 $15.54
West Coast $17.41 $15.66 $13.79
Appalachia $18.43 $15.72 $15.92
Weighted Average Price $19.50 $16.16 $14.86
Operating Income
1996 Compared with 1995
Operating income before income taxes increased $30.0 million in 1996 compared
with 1995. This increase reflects the higher operating revenues discussed above,
partly offset by higher depletion expense, which is directly related to higher
revenues. Higher other operating expense (lease operating expenses and
production taxes) due to increased production also partly offset the increase in
revenues.
<PAGE>
1995 Compared with 1994
Operating income before income taxes decreased $5.4 million in 1995 compared
with 1994. This decrease reflects the lower revenues discussed above, partly
offset by lower depletion expense. Lower other operating expense (lease
operating expenses and production taxes) also partly offset the decrease in
revenues.
Other Nonregulated
Operating Revenues
1996 Compared with 1995
Operating revenues increased $11.9 million in 1996 compared with 1995. The
increase primarily reflects higher operating revenues from NFR, the Company's
gas marketing subsidiary, largely because of an increase in marketing volumes
and higher natural gas prices. Offsetting this increase was a decrease in
operating revenues from UCI, the Company's discontinued pipeline construction
subsidiary.
1995 Compared with 1994
Operating revenues decreased $15.0 million in 1995 compared with 1994. This
decrease reflects lower operating revenues from UCI as a result of management's
decision to discontinue its pipeline construction operations. The decrease also
reflects lower revenues from NFR largely because of lower natural gas prices in
1995 compared with 1994.
Operating Income
1996 Compared with 1995
The Other Nonregulated segment experienced an operating loss before income taxes
of $8.6 million in 1996 compared with operating income before income taxes of
$3.0 million in 1995. Horizon, the Company's foreign and domestic energy
projects subsidiary, was the main factor in this decrease. In August 1996,
Horizon withdrew from participation in the development of a 151 megawatt power
plant near Kabirwala, Punjab Province, in east-central Pakistan (Kabirwala
Project). As a result of this withdrawal, certain pre-operating costs were
charged to earnings. Total pre-tax charges in 1996 associated with the Kabirwala
Project were approximately $9.0 million. UCI also experienced a significant
decrease in operating income before income taxes as a result of discontinuing
its pipeline construction operations late in 1995. NFR experienced an increase
in operating income before income taxes based primarily on increased volumes
marketed.
1995 Compared with 1994
Operating income before income taxes increased $0.5 million in 1995 compared
with 1994. This increase can be attributed to improved performance by NFR as a
result of improved margins and an increase in customers combined with better
performance by UCI prior to the discontinuance of its pipeline construction
operations.
Income Taxes, Other Income and Interest Charges
Income Taxes
Income taxes increased $22.4 million in 1996 mainly because of an increase in
pretax income. The opposite was true in 1995 as income taxes decreased because
of a decrease in pretax income. Income taxes in 1996 and 1995 reflect lower
Section 29 nonconventional fuel tax credits. These credits, which relate to
production from qualified gas wells drilled by December 31, 1992, decreased to
$0.5 million in 1996 from $0.9 million in 1995 and $1.7 million in 1994. These
credits are a direct reduction of income tax expense.
Other Income
Other income decreased $1.5 million in 1996, primarily because other income in
1995 reflected a gain of $2.5 million recorded by UCI on the sale of its
pipeline construction equipment. The sale of the equipment resulted from
management's decision to discontinue its pipeline construction operations.
<PAGE>
Interest Charges
Interest on long-term debt did not change significantly in 1996 and increased
$4.2 million in 1995. Although there was a higher average amount of long-term
debt outstanding in 1996 compared with 1995, this was offset by a lower average
interest rate. The increase in 1995 can be attributed to a higher average amount
of long-term debt in 1995 compared with 1994.
Other interest charges increased $2.8 million and $2.6 million,
respectively, in 1996 and 1995. The increase in 1996 resulted primarily from a
higher average balance of outstanding short-term borrowings offset partly by a
lower weighted average interest rate on such borrowings. The increase in 1995
resulted primarily from an increase in the weighted average interest rate on
short-term borrowings, partly offset by lower average outstanding balances.
Additionally, both 1996 and 1995 experienced an increase in interest expense as
a result of interest on Amounts Payable to Customers.
Capital Resources and Liquidity
The primary sources and uses of cash during the last three years are summarized
in the following condensed statement of cash flows:
Sources (Uses) of Cash
Year Ended September 30 (in millions) 1996 1995 1994
- -------------------------------------------------------------------
Provided by Operating Activities $168.5 $174.4 $199.8
Capital Expenditures (171.6) (182.8) (135.1)
Short-Term Debt, Net Change 52.1 35.1 (84.3)
Long-Term Debt, Net Change 11.2 3.1 79.5
Issuance of Common Stock 9.0 2.5 9.1
Common Dividends (61.2) (59.2) (57.2)
Other Investing Activities (1.4) 10.6 3.6
- -------------------------------------------------------------------
Net Increase (Decrease) in Cash
and Temporary Cash Investments $6.6 $(16.3) $ 15.4
===================================================================
Operating Cash Flow
Internally generated cash from operating activities consists of net income
available for common stock, adjusted for noncash expenses, noncash income and
changes in operating assets and liabilities. Noncash items include depreciation,
depletion and amortization, deferred income taxes and allowance for funds used
during construction. In 1994, noncash items also included the cumulative effect
of required changes in accounting for income taxes and post-employment benefits.
Cash provided by operating activities in the Utility and Pipeline and
Storage segments may vary substantially from year to year because of the impact
of rate cases. In the Utility segment, supplier refunds, over- or
under-recovered purchased gas costs and weather also significantly impact cash
flow. The Company considers supplier refunds and over-recovered purchased gas
costs as a substitute for short-term borrowings. The impact of weather on cash
flow is tempered in the Utility segment's New York rate jurisdiction by its WNC
and in the Pipeline and Storage segment by Supply Corporation's straight
fixed-variable (SFV) rate design.
Net cash provided by operating activities totalled $168.5 million in
1996, a decrease of $5.9 million compared with the $174.4 million provided by
operating activities in 1995. This decrease reflects higher receivable balances,
mainly in the Utility and Exploration and Production segments, and a decrease in
amounts owed to customers in the Utility segment. These are offset partly by
higher net income and higher payable balances in the Utility and Exploration and
Production segments.
<PAGE>
Investing Cash Flow
Capital Expenditures
Capital expenditures totalled $171.6 million in 1996. The table below presents
these expenditures by business segment:
Year Ended September 30 (in millions) 1996
- -------------------------------------------------
Utility $ 63.7
Pipeline and Storage 22.3
Exploration and Production 83.6
Other Nonregulated 3.2
- -------------------------------------------------
172.8
- -------------------------------------------------
Intersegment Elimination (1.2)
- -------------------------------------------------
$171.6
=================================================
Most of the Utility segment's capital expenditures were for the
replacement of mains and main extensions, as well as for the replacement of
service lines and, to a minor extent, the installation of new services.
The bulk of the Pipeline and Storage segment's capital expenditures
were made for additions, improvements and replacements to this segment's
transmission and storage systems.
The Exploration and Production segment spent approximately $60.2
million on its offshore program in the Gulf of Mexico, including offshore lease
acquisitions and drilling and construction expenditures. Lease acquisitions
included the acquisition of Galveston Block 225, Vermilion 309, and Viosca Knoll
432 through federal lease sales.
Approximately $23.4 million was spent on the Exploration and Production
segment's onshore program, including horizontal drilling in central Texas and
recompletion activity in California.
Finding and development costs, which exclude the effect of property
purchases and sales and provides an indicator of the efficiency and performance
of a company's drilling program, were $1.25 per Mcf equivalent in 1996. Going
back to 1991, the inception of Seneca's offshore program, the six-year average
of finding and development costs is $0.98 per Mcf equivalent.
Other Nonregulated capital expenditures consisted primarily of
timberland purchases.
The Company's estimated capital expenditures for the next three years
are:1
Year Ended September 30 (in millions) 1997 1998 1999
- --------------------------------------------------------------------
Utility $61.9 $57.9 $56.9
Pipeline and Storage 31.6 28.0 20.5
Exploration and Production 116.2 116.0 115.9
Other Nonregulated 4.3 4.3 4.3
- --------------------------------------------------------------------
$214.0 $206.2 $197.6
====================================================================
Estimated expenditures for the Utility segment during the next three
years will be concentrated in the areas of main replacements and extensions,
service line replacements and, to a minor extent, the installation of new
services.1
Estimated expenditures for the Pipeline and Storage segment in 1997
will be concentrated in the reconditioning of storage wells and the replacement
of storage and transmission lines.1 Approximately $6.4 million is included in
the 1997 budget for the proposed 1997 Niagara Expansion Project, which would
provide approximately 47.3 million cubic feet (MMcf) per day of firm winter
capacity and 21.0 MMcf per day of firm non-winter capacity from the Niagara
Falls, New York import point to interconnections at Leidy and Wharton,
Pennsylvania.1 An additional $4.9 million is included in the 1998 budget for
this proposed project.1 An open season was recently completed to ascertain
<PAGE>
customer interest in the proposed 1998/1999 Niagara Expansion Project, which
would expand transportation capacity from the Canadian border at Niagara Falls,
New York, to Leidy, Pennsylvania, by 250 - 500 MMcf per day.1 The preliminary
interest indicated the Company is substantially oversubscribed for such a
project. At an expansion level of 500 MMcf per day, the total project cost is
estimated to be approximately $240 million over a two-year period.1 However, no
amount has been included in the budget for this proposed project as the timing
of the "go-ahead" will depend on several factors, the major one being the number
of signed precedent agreements received as a result of the open season.1
Estimated capital expenditures in 1997 for the Exploration and
Production segment are approximately 39% higher than capital spending in 1996 as
the Company sees significant opportunities for growth in this segment.1 These
expenditures will be directed mainly toward developing Seneca's Gulf Coast
offshore prospects, reserve acquisitions and significantly expanding exploration
activities.1 In late September 1996, Seneca was the high bidder on five of
twelve bids placed at the federal Western Gulf of Mexico Sale 161. Two of those
leases have been awarded. In October 1996, Seneca was the successful bidder on
five state tracts in Texas state waters. At the State of Louisiana lease sale
held in October 1996, Seneca's bid on 1,229.55 acres in the Eugene Island area
was accepted.
The Company's capital expenditure program is under continuous review.
The amounts are subject to modification for opportunities such as the
acquisition of attractive oil and gas properties or storage facilities and the
expansion of transmission line capacities. While the majority of capital
expenditures in the Utility segment are necessitated by the continued need for
replacement and upgrading of mains and service lines, the magnitude of future
capital expenditures in the Company's other business segments depends, to a
large degree, upon market conditions.1
Other Investing Activities
Other cash provided by or used in investing activities reflects cash received on
the sale of the Company's investment in property, plant and equipment and cash
used for other investments.
The Company is continuing to pursue investment opportunities in the
international arena.1 On June 25, 1996, Horizon purchased
Beheer-en-Beleggingsmaatschappij Bruwabel B.V. (Bruwabel). Bruwabel is a Dutch
company that in turn directly or indirectly owns three Czech corporations.
Bruwabel's principal assets are a power development group, which is involved in
development initiatives for the conversion of district heating plants into
cogeneration facilities, and a district heating plant located in the eastern
part of the Czech Republic. Horizon plans to convert the heating plant to a
combined-cycle cogeneration facility, with electrical output of up to 50
Megawatts.1
In November 1996, Supply Corporation entered into a Memorandum of
Understanding (the MOU) with Green Canyon Gathering Company, a subsidiary of
Tenneco Energy, regarding a project to develop, construct, own and operate
natural gas gathering and processing facilities offshore and onshore Louisiana
(the Project). The total cost of the Project is estimated at approximately $200
million.1 The MOU provides for the parties to (i) share past and future
development costs for the Project through January 1, 1997, and thereafter as
agreed by the parties, (ii) negotiate toward definitive agreements to be signed
about January 1, 1997, to form one or more 50-50 partnerships, and (iii)
negotiate toward definitive agreements to finance, develop, build, own and
operate the Project. If the definitive agreements are not executed, or if the
Project is not constructed, Supply Corporation's share of the development costs
through January 1, 1997 is estimated not to exceed $2 million, for which it is
unlikely Supply Corporation would be reimbursed.1 Supply Corporation intends to
use short-term borrowings to finance construction of the Project.1
Financing Cash Flow
In order to meet the Company's capital requirements, cash from external sources
must periodically be obtained through short-term bank loans and
<PAGE>
commercial paper, as well as through issuances of long-term debt and equity
securities. The Company expects these traditional sources of cash to continue to
supplement its internally generated cash during the next several years.1
The Company retired $88.5 million of maturing medium-term notes during
1996. In December 1995, the Company retired $38.5 million of 8.90% medium-term
notes and $20.0 million of 8.875% medium-term notes. In September 1996, the
Company retired $30.0 million of 4.53% medium-term notes. Short-term borrowings
were used to retire these notes.
In March 1996, the Company issued $100.0 million of 5.58% medium-term
notes due in March 1999. After reflecting underwriting discounts and
commissions, the net proceeds to the Company amounted to $99.7 million.
The Company's embedded cost of long-term debt was 7.0% and 7.3% at
September 30, 1996 and 1995, respectively.
Consolidated short-term debt increased $52.1 million during 1996. The
Company continues to consider short-term bank loans and commercial paper
important sources of cash for temporarily financing capital expenditures,
gas-in-storage inventory, unrecovered purchased gas costs, exploration and
development expenditures and other working capital needs. In addition, the
Company considers supplier refunds and over-recovered purchased gas costs as a
substitute for short-term debt. Fluctuations in these items can have a
significant impact on the amount and timing of short-term debt.
The Company's present liquidity position is believed to be adequate to
satisfy known demands.1 Under the Company's covenants contained in its indenture
covering its long-term debt, as amended, the Company would have been permitted
to issue up to a maximum of approximately $689.0 million in additional long-term
unsecured indebtedness at September 30, 1996, in light of then current long-term
interest rates. In addition, at September 30, 1996, the Company had regulatory
authorizations and unused short-term credit lines that would have permitted it
to borrow an additional $400.3 million of short-term debt.
The Company currently has authorization from the Securities and
Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935,
as amended, to issue and sell up to $150.0 million of debentures and/or
medium-term notes. The amounts and timing of the issuance and sale of these
debentures and/or medium-term notes will depend on market conditions and the
requirements of the Company.1 The Company expects that it will issue new
debentures and/or medium-term notes late in calendar 1997 to retire $50.0
million of 6.42% medium-term notes maturing in November 1997.1
The Company, through Seneca, has entered into certain price swap
agreements to manage a portion of the market risk associated with fluctuations
in the market price of natural gas and crude oil. These price swap agreements
are not held for trading purposes. During 1996, Seneca utilized natural gas and
crude oil price swap agreements with notional amounts of 23.0 equivalent Bcf and
1,071,000 equivalent bbl, respectively. These hedging activities resulted in the
recognition of a pre-tax loss of approximately $11.8 million. This loss was
offset by higher prices received for actual natural gas and crude oil
production.
At September 30, 1996, Seneca had natural gas price swap agreements
outstanding with a notional amount of approximately 35.7 equivalent Bcf at
prices ranging from $1.71 per Mcf to $2.10 per Mcf. The weighted average fixed
price of these swap agreements is approximately $1.93 per Mcf. Seneca also had
crude oil price swap agreements outstanding at September 30, 1996 with a
notional amount of 1,818,000 equivalent bbl at prices ranging from $17.40 per
bbl to $18.71 per bbl. The weighted average fixed price of these swap agreements
is approximately $17.96 per bbl.
In addition, the Company has SEC authority to enter into certain
interest rate swap agreements. For further discussion of the Company's
derivative financial instruments, see disclosure in Note F - Financial
Instruments under the heading "Derivative Financial Instruments" in Item 8 of
this report.
<PAGE>
The Company's credit risk is the risk of loss that the Company would
incur as a result of nonperformance by counterparties pursuant to the terms of
their contractual obligations related to investments, such as temporary cash
investments and cash surrender values of insurance contracts, and derivative
financial instruments. The Company does not anticipate any material impact to
its financial position, results of operations or cash flow as a result of
nonperformance by counterparties.1 See further discussion in Note F-Financial
Instruments under the heading "Credit Risk" in Item 8 of this report.
The Company is involved in litigation arising in the normal course of
its business. In addition to the regulatory matters discussed in Note B -
Regulatory Matters, in Item 8 of this report, the Company is involved in other
regulatory matters arising in the normal course of business that involve rate
base, cost of service and purchased gas cost issues. While the resolution of
such litigation or other regulatory matters could have a material effect on
earnings and cash flows in the year of resolution, neither this litigation nor
these other regulatory matters are expected to materially change the Company's
present liquidity position nor have a material adverse effect on the financial
condition of the Company at this time.1
Rate Matters
Utility Operation
New York Jurisdiction
In November 1995, Distribution Corporation filed in its New York jurisdiction a
request for an annual rate increase of $28.9 million with a requested return on
equity of 11.5%. A two-year settlement with the parties in this rate proceeding
has been approved by the PSC. The settlement calls for annual base rate
increases of $7.2 million in each of fiscal years beginning October 1, 1996 and
1997 with no specified rate of return on equity. Generally, earnings above a 12%
return on equity (excluding certain items and determined on a cumulative basis
over the three years ending September 30, 1998) will be shared equally between
shareholders and ratepayers. However, the settlement includes a number of
incentives which would impact return on equity. Distribution Corporation may
earn a maximum of 25 basis points or incur a maximum penalty of 50 basis points
on common equity based on its customer service. The incentives relate to
customer satisfaction, customer complaints, appointments, new service
installations, telephone response, adjusted bills and estimated meter readings.
In addition, there is a gas cost incentive mechanism designed to compare
Distribution's spot gas purchases to monthly gas cost targets. Certain costs
above the targets and savings below the targets will be shared equally between
Distribution Corporation and its customers.
In October 1994, Distribution Corporation filed in its New York
jurisdiction a request for an annual rate increase of $56.5 million with a
requested return on equity of 12.85%. In September 1995, the PSC issued an order
authorizing a base rate increase of $14.2 million with a return on equity of
10.4%. The new rates became effective as of September 20, 1995. The order
included certain incentive mechanisms that allowed the PSC to administer
penalties determined by Distribution Corporation's ability to maintain required
performance levels. The incentives related to: response time to customer
inquiries and complaints; billing accuracy; keeping appointments for service;
and efficiency in the installation of new service lines. Distribution
Corporation did not incur any penalties as a result of these incentive
mechanisms.
Pennsylvania Jurisdiction
Distribution Corporation currently does not have a rate case on file with the
Pennsylvania Public Utility Commission (PaPUC). Management will continue to
monitor its financial position in the Pennsylvania jurisdiction to determine the
necessity of filing a rate case in the future.
On March 15, 1995, Distribution Corporation filed in its Pennsylvania
jurisdiction a request for an annual rate increase of $22.0 million with a
return on equity of 13.25%. In September 1995, the PaPUC approved a settlement
authorizing a base rate increase of $6.0 million with no specified rate of
return on equity. The new rates became effective as of September 27, 1995.
<PAGE>
General rate increases in both the New York and Pennsylvania
jurisdictions do not reflect the recovery of purchased gas costs. Such costs are
recovered through operation of the purchased gas adjustment clauses.
State Regulatory Environment
The New York and Pennsylvania regulatory commissions have instituted several
generic proceedings related to, among other things, restructuring in response to
the FERC's Order 636. Distribution Corporation is working closely with the state
regulatory commissions to resolve the complexities of industry restructuring.
The more significant proceedings, all of which are still pending, are discussed
below:
New York
Finance Proceeding. The purpose of this proceeding is to develop a uniform
method for calculating a utility's rate of return on equity.
Ratesetting Proceeding. This proceeding is intended to develop guidelines for
settlements, incentive ratemaking and multi-year rate filings, in addition to
the traditional single-year procedure. Thus, a menu of options would be
available for each utility to select the appropriate ratemaking proposal.
Generic Restructuring Proceeding. This proceeding is examining the appropriate
retail or end-use impacts resulting from the FERC's Order 636 pipeline
restructuring. On March 28, 1996, the PSC issued an order directing the state's
LDC's, including Distribution Corporation, to file additional tariff amendments
regarding this proceeding. On April 30, 1996, Distribution Corporation submitted
a filing, effective May 1, 1996 on a temporary basis, proposing to amend its
services to provide a framework for small customer aggregation in compliance
with the PSC's March 28, 1996 Order (Distribution Corporation already offers
unbundled, flexible service to its commercial and industrial customers). The
changes provide the option for all customers to choose from whom they want to
buy gas, which could be Distribution Corporation, another utility, or a
non-utility supplier or marketer. If a customer purchases gas from a supplier
other than Distribution Corporation, the supplier would obtain and transport the
gas to Distribution Corporation's pipeline system and Distribution Corporation
would then deliver the gas to the customer. Distribution Corporation would
continue to be responsible for maintaining its pipelines and responding to
safety calls, but billing and other traditional services would be assumed by the
alternate supplier. On September 12, 1996, the PSC issued an order approving the
April 30, 1996 filing, subject to additional changes. Further revisions were
filed as directed for an effective date of October 1, 1996. Additional changes
in retail services are anticipated as this proceeding continues.1
Generic Affordability/Gas Cost Incentive Proceeding. This proceeding was
established to investigate the development of guidelines for "affordable"
natural gas utility service and, on a separate track, an appropriate gas cost
incentive mechanism. However, guidelines on affordability and gas cost incentive
mechanisms are currently being addressed by the PSC on a case-by-case basis.
Pennsylvania
FERC Order 636 Proceedings. The PaPUC has thus far responded to the FERC's Order
636 with three generic proceedings addressing different operational areas. They
are proceedings on transportation services, gas procurement practices (including
a gas purchase incentive mechanism) and capacity release. Distribution
Corporation has already implemented many of the proposed changes in previous
rate cases and expects that additional changes will not significantly alter
current operations.1
Pipeline and Storage
For a discussion of Supply Corporation's gathering rates, refer to Note B -
Regulatory Matters in Item 8 of this report.
On October 31, 1994, Supply Corporation filed for an annual rate
increase of $21.0 million, with a requested return on equity of 12.6%. In
<PAGE>
February 1996, the FERC approved a settlement authorizing an annual rate
increase of approximately $6.0 million with a return on equity of 11.3%. The new
rates were put into effect on April 1, 1996, retroactive to June 1, 1995. With
this settlement, Supply Corporation agreed not to seek recovery for increased
cost of service until April 1, 1998.
As part of the settlement discussed above, Supply Corporation also
agreed not to seek recovery of revenues related to certain terminated service
from other storage customers until April 1, 2000, as long as the terminations
were not greater than approximately 30% of the terminable service. Supply
Corporation did receive notification of the termination of 3.3 Bcf of such
service, effective March 31, 1996. However, Supply Corporation has successfully
obtained executed contracts for all 3.3 Bcf at discounted prices. Such discounts
will not have a material impact on the results of operations for Supply
Corporation.1 An open season was recently completed concerning an additional 2.1
Bcf of such storage service, which will become available on April 1, 1997.
Supply Corporation obtained executed contracts for 1.0 Bcf of this storage
service at discounted prices and will continue to market the remaining 1.1 Bcf.
Management does not anticipate a problem in marketing the remaining 1.1 Bcf.1
Other Matters
Environmental Matters
The Company is subject to various federal, state and local laws and regulations
relating to the protection of the environment. The Company has established
procedures for on-going evaluation of its operations to identify potential
environmental exposures and assure compliance with regulatory policies and
procedures.
It is the Company's policy to accrue estimated environmental clean-up
costs when such amounts can reasonably be estimated and it is probable that the
Company will be required to incur such costs. Distribution Corporation has
estimated that clean-up costs related to several former manufactured gas plant
sites and several other waste disposal sites are in the range of $8.7 million to
$10.1 million.1 At September 30, 1996, Distribution Corporation has recorded the
minimum liability of $8.7 million. The ultimate cost to Distribution Corporation
with respect to the remediation of these sites will depend on such factors as
the remediation plan selected, the extent of the site contamination, the number
of additional potentially responsible parties at each site and the portion, if
any, attributed to Distribution Corporation.1 The Company is currently not aware
of any material additional exposure to environmental liabilities. However,
adverse changes in environmental regulations or other factors could impact the
Company.
In New York and Pennsylvania, Distribution Corporation is recovering
site investigation and remediation costs in rates. For further discussion, see
disclosure in Note H - Commitments and Contingencies under the heading
"Environmental Matters" in Item 8 of this report.
Effects of Inflation
Although the rate of inflation has been relatively low over the past few years,
and thus has benefited both the Company and its customers, the Company's
operations remain sensitive to increases in the rate of inflation because of its
capital spending and the regulated nature of two of its major operating
segments.
Delays inherent in the ratemaking process prevent the Company from
obtaining immediate recovery of increased operating costs. Also, while the
ratemaking process gives no recognition to the current cost of replacing
property, plant and equipment, based on past practices the Company believes that
it will be allowed to earn on the increased cost of its net investment when
replacement of facilities occurs.1
Safe Harbor for Forward-Looking Statements
The Company is including the following cautionary statement in this combined
Annual Report to Shareholders/Form 10-K to make applicable and take advantage
<PAGE>
of the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 for any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance, and underlying assumptions and
other statements which are other than statements of historical facts. From time
to time, the Company may publish or otherwise make available forward-looking
statements of this nature. All such subsequent forward-looking statements,
whether written or oral and whether made by or on behalf of the Company, are
also expressly qualified by these cautionary statements. Certain statements
contained herein, including those which are designated with a "1", are
forward-looking statements and accordingly involve risks and uncertainties which
could cause actual results or outcomes to differ materially from those expressed
in the forward-looking statements. The forward-looking statements contained
herein are based on various assumptions, many of which are based, in turn, upon
further assumptions. The Company's expectations, beliefs and projections are
expressed in good faith and are believed by the Company to have a reasonable
basis, including without limitation, management's examination of historical
operating trends, data contained in the Company's records and other data
available from third parties, but there can be no assurance that management's
expectations, beliefs or projections will result or be achieved or accomplished.
In addition to other factors and matters discussed elsewhere herein, the
following are important factors that, in the view of the Company, could cause
actual results to differ materially from those discussed in the forward-looking
statement:
1. Changes in economic conditions, demographic patterns and weather
conditions
2. Changes in the availability and/or price of natural gas and oil
3. Inability to obtain new customers or retain existing ones
4. Significant changes in competitive factors affecting the Company
5. Governmental/regulatory actions and initiatives, including those
affecting financings, allowed rates of return, industry and rate
structure, franchise renewal, and environmental/safety requirements
6. Unanticipated impacts of restructuring initiatives in the natural gas and
electric industries
7. Significant changes from expectations in actual capital expenditures and
operating expenses and unanticipated project delays
8. Occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital expenditures and
other investments
9. Ability to successfully identify and finance oil and gas property
acquisitions and ability to operate existing and any subsequently
acquired properties
10. Ability to successfully identify, drill for and produce economically
viable natural gas and oil reserves
11. Inability of the various counterparties to meet their obligations with
respect to the Company's financial instruments
12. Regarding foreign operations - changes in foreign trade and monetary
policies, laws and regulations related to foreign operations, political
and governmental changes, inflation and exchange rates, taxes and
operating conditions
13. Significant changes in tax rates or policies or in rates of inflation or
interest
14. Significant changes in the Company's relationship with its employees and
the potential adverse effects if labor disputes or grievances were to
occur
<PAGE>
15. Changes in accounting principles and/or the application of such
principles to the Company
The Company disclaims any obligation to update any forward-looking
statements to reflect events or circumstances after the date hereof.
ITEM 8 Financial Statements and Supplementary Data
Index to Financial Statements
- -----------------------------
Page
----
Financial Statements:
Report of Independent Accountants 46
Consolidated Statements of Income and Earnings Reinvested
in the Business, three years ended September 30, 1996 47
Consolidated Balance Sheets at September 30, 1996 and 1995 48 - 49
Consolidated Statement of Cash Flows, three years ended
September 30, 1996 50
Notes to Consolidated Financial Statements 51 - 72
Financial Statement Schedules:
For the three years ended September 30, 1996
II-Valuation and Qualifying Accounts 73
All other schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.
Supplementary Data
- ------------------
Supplementary data that is included in Note J - Quarterly Financial Data
(unaudited) and Note L - Supplementary Information for Oil and Gas Producing
Activities, appears under this Item, and reference is made thereto.
Report of Management
- --------------------
Management is responsible for the preparation and integrity of the Company's
financial statements. The financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied, and
necessarily include some amounts that are based on management's best estimates
and judgment.
The Company maintains a system of internal accounting and
administrative controls and an ongoing program of internal audits that
management believes provide reasonable assurance that assets are safeguarded and
that transactions are properly recorded and executed in accordance with
management's authorization. The Company's financial statements have been
examined by our independent accountants, Price Waterhouse LLP, which also
conducts a review of internal controls to the extent required by generally
accepted auditing standards.
The Audit Committee of the Board of Directors, composed solely of
outside directors, meets with management, internal auditors and Price Waterhouse
LLP to review planned audit scope and results and to discuss other matters
affecting internal accounting controls and financial reporting. The independent
accountants have direct access to the Audit Committee and periodically meet with
it without management representatives present.
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors
and Shareholders of
National Fuel Gas Company
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
National Fuel Gas Company and its subsidiaries at September 30, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements 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 opinion expressed above.
As discussed in Notes A and G to the consolidated financial statements,
the Company adopted the new accounting standards for postretirement benefits
other than pensions, income taxes and other postemployment benefits in fiscal
1994.
PRICE WATERHOUSE LLP
Buffalo, New York
October 30, 1996, except as to Note H, which is as of November 8, 1996
<PAGE>
National Fuel Gas Company
-------------------------
Consolidated Statements of Income and Earnings
----------------------------------------------
Reinvested in the Business
--------------------------
Year Ended September 30 (Thousands of
Dollars, Except Per Common Share
Amounts) 1996 1995 1994
---- ---- ----
Income
Operating Revenues $1,208,017 $ 975,496 $1,141,324
---------- ---------- ----------
Operating Expenses
Purchased Gas 477,357 351,094 497,687
Operation 283,844 266,786 260,411
Maintenance 25,362 25,719 30,979
Property, Franchise and Other Taxes 99,456 91,837 103,788
Depreciation, Depletion and Amortization 98,231 71,782 74,764
Income Taxes - Net 66,321 43,879 47,792
---------- ---------- ----------
1,050,571 851,097 1,015,421
---------- ---------- ----------
Operating Income 157,446 124,399 125,903
Other Income 3,869 5,378 3,656
---------- ---------- ----------
Income Before Interest Charges 161,315 129,777 129,559
---------- ---------- ----------
Interest Charges
Interest on Long-Term Debt 40,872 40,896 36,699
Other Interest 15,772 12,987 10,425
---------- ---------- ----------
56,644 53,883 47,124
---------- ---------- ----------
Income Before Cumulative Effect 104,671 75,894 82,435
Cumulative Effect of Changes in
Accounting - - 3,237
---------- ---------- ----------
Net Income Available for Common Stock 104,671 75,894 85,672
Earnings Reinvested in the Business
Balance at Beginning of Year 380,123 363,854 335,907
---------- ---------- ----------
484,794 439,748 421,579
Dividends on Common Stock 61,920 59,625 57,725
---------- ---------- ----------
Balance at End of Year $ 422,874 $ 380,123 $ 363,854
========== ========== ==========
Earnings Per Common Share
Income Before Cumulative Effect $2.78 $2.03 $2.23
Cumulative Effect of Changes in
Accounting - - .09
---------- ---------- ----------
Net Income Available for Common Stock $2.78 $2.03 $2.32
========== ========== ==========
Weighted Average Common Shares Outstanding 37,613,305 37,396,875 37,046,249
========== ========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
---------------------------
At September 30 (Thousands of Dollars) 1996 1995
---- ----
Assets
Property, Plant and Equipment $2,471,063 $2,322,335
Less - Accumulated Depreciation,
Depletion and Amortization 761,457 673,153
---------- ----------
1,709,606 1,649,182
---------- ----------
Current Assets
Cash and Temporary Cash Investments 19,320 12,757
Receivables - Net 96,740 75,933
Unbilled Utility Revenue 20,778 20,838
Gas Stored Underground 34,727 25,589
Materials and Supplies - at average cost 21,544 24,374
Prepayments 27,872 29,753
---------- ----------
220,981 189,244
---------- ----------
Other Assets
Recoverable Future Taxes 88,832 92,574
Unamortized Debt Expense 25,193 26,976
Other Regulatory Assets 57,086 37,040
Deferred Charges 7,377 8,653
Other 40,697 33,154
---------- ----------
219,185 198,397
---------- ----------
$2,149,772 $2,036,823
========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
---------------------------
At September 30 (Thousands of Dollars) 1996 1995
---- ----
Capitalization and Liabilities
Capitalization:
Common Stock Equity
Common Stock, $1 Par Value
Authorized - 100,000,000 Shares; Issued and
Outstanding - 37,851,655 Shares and 37,434,363
Shares, Respectively $ 37,852 $ 37,434
Paid In Capital 395,272 383,031
Earnings Reinvested in the Business 422,874 380,123
---------- ----------
Total Common Stock Equity 855,998 800,588
Long-Term Debt, Net of Current Portion 574,000 474,000
---------- ----------
Total Capitalization 1,429,998 1,274,588
---------- ----------
Current and Accrued Liabilities
Notes Payable to Banks and
Commercial Paper 199,700 147,600
Current Portion of Long-Term Debt - 88,500
Accounts Payable 64,610 53,842
Amounts Payable to Customers 4,618 51,001
Other Accruals and Current Liabilities 82,520 60,440
---------- ----------
351,448 401,383
---------- ----------
Deferred Credits
Accumulated Deferred Income Taxes 281,207 280,441
Taxes Refundable to Customers 21,005 21,601
Unamortized Investment Tax Credit 12,711 13,380
Other Deferred Credits 53,403 45,430
---------- ----------
368,326 360,852
---------- ----------
Commitments and Contingencies - -
---------- ----------
$2,149,772 $2,036,823
========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
National Fuel Gas Company
-------------------------
Consolidated Statement of Cash Flows
------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30 (Thousands of Dollars) 1996 1995 1994
<S> <C> <C> <C>
---- ---- ----
Operating Activities
Net Income Available for Common Stock $104,671 $ 75,894 $ 85,672
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Cumulative Effect of Changes in Accounting - - (3,237)
Depreciation, Depletion and Amortization 98,231 71,782 74,764
Deferred Income Taxes 3,907 8,452 4,853
Other 4,540 275 5,780
Change in:
Receivables and Unbilled Utility Revenue (20,747) 16,034 863
Gas Stored Underground and Materials and Supplies (6,308) 5,733 (15,539)
Unrecovered Purchased Gas Costs - - 20,772
Prepayments 1,881 (9,144) (3,017)
Accounts Payable 10,768 (14,451) 23,774
Amounts Payable to Customers (46,383) 12,287 (2,062)
Other Accruals and Current Liabilities 18,200 (1,305) 3,072
Other Assets and Liabilities - Net (291) 8,804 4,119
-------- -------- --------
Net Cash Provided by Operating Activities 168,469 174,361 199,814
-------- -------- --------
Investing Activities
Capital Expenditures (171,567) (182,826) (135,084)
Other (1,366) 10,646 3,586
-------- -------- --------
Net Cash Used in Investing Activities (172,933) (172,180) (131,498)
-------- -------- --------
Financing Activities
Change in Notes Payable to Banks and Commercial
Paper 52,100 35,100 (84,300)
Net Proceeds from Issuance of Long-Term Debt 99,650 99,099 99,415
Reduction of Long-Term Debt (88,500) (96,000) (19,917)
Proceeds from Issuance of Common Stock 8,956 2,555 9,064
Dividends Paid on Common Stock (61,179) (59,194) (57,157)
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities 11,027 (18,440) (52,895)
-------- -------- --------
Net Increase (Decrease) in Cash and
Temporary Cash Investments 6,563 (16,259) 15,421
Cash and Temporary Cash Investments at Beginning of Year 12,757 29,016 13,595
-------- -------- --------
Cash and Temporary Cash Investments at End of Year $ 19,320 $ 12,757 $ 29,016
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
National Fuel Gas Company
Notes to Consolidated Financial Statements
Note A - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
balances and transactions have been eliminated where appropriate. The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification
Certain prior year amounts have been reclassified to conform with current year
presentation.
Regulation
Two of the Company's principal subsidiaries, Distribution Corporation and Supply
Corporation, are subject to regulation by state and federal authorities having
jurisdiction. Distribution Corporation and Supply Corporation have accounting
policies which conform to generally accepted accounting principles, as applied
to regulated enterprises, and are in accordance with the accounting requirements
and ratemaking practices of the regulatory authorities. Reference is made to
Note B for further discussion of regulatory matters.
Revenues
Revenues are recorded as bills are rendered, except that service supplied but
not billed is reported as "Unbilled Utility Revenue" and is included in
operating revenues for the year in which service is furnished.
Unrecovered Purchased Gas Costs and Refunds
Distribution Corporation's rate schedules contain clauses that permit adjustment
of revenues to reflect price changes from the cost of purchased gas included in
base rates. Differences between amounts currently recoverable and actual
adjustment clause revenues, as well as other price changes and pipeline and
storage company refunds not yet includable in adjustment clause rates, are
deferred and accounted for as either unrecovered purchased gas costs or amounts
payable to customers.
Property, Plant and Equipment
The principal assets, consisting primarily of gas plant in service, are recorded
at the historical cost when originally devoted to service in the regulated
businesses, as required by regulatory authorities. Such cost includes an
Allowance for Funds Used During Construction (AFUDC), which is defined in
applicable regulatory systems of accounts as the net cost of borrowed funds used
for construction purposes and a reasonable rate on other funds when so used. The
rates used in the calculation of AFUDC are determined in accordance with
guidelines established by regulatory authorities.
Included in property, plant and equipment is the cost of gas stored
underground - noncurrent, representing the volume of gas required to maintain
pressure levels for normal operating purposes as well as gas volumes maintained
for system balancing and other purposes, including those needed for no-notice
transportation service.
Maintenance and repairs of property and replacements of minor items of
property are charged directly to maintenance expense. The original cost of the
regulated subsidiaries' property, plant and equipment retired, and the cost of
removal less salvage, are charged to accumulated depreciation.
<PAGE>
Oil and gas exploration and development costs are capitalized under the
full-cost method of accounting as prescribed by the Securities and Exchange
Commission (SEC). All costs directly associated with property acquisition,
exploration and development activities are capitalized, with the principal
limitation that such capitalized amounts not exceed the present value of
estimated future net revenues from the production of proved gas and oil reserves
plus the lower of cost or market of unevaluated properties, net of related
income tax effect (the full-cost ceiling). The present value of estimated future
net revenues is computed based on end-of-year prices adjusted for contracted
price changes. At September 30, 1996, Seneca's capitalized costs under the
full-cost method of accounting were well below the full-cost ceiling. There are
certain factors, including price declines, which could lower the full-cost
ceiling and cause an impairment of Seneca's oil and gas assets.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization are computed by application of either
the straight-line method or the gross revenue method, in amounts sufficient to
recover costs over the estimated service lives of property in service, and for
oil and gas properties, over the period of estimated gross revenues from proved
reserves. The costs of unevaluated oil and gas properties are excluded from this
calculation. For timber properties, depletion, determined on a property by
property basis, is charged to operations based on the annual amount of timber
cut in relation to the total amount of recoverable timber. The provisions for
depreciation, depletion and amortization, including amounts capitalized or
charged to other operating accounts, were $98.4 million in 1996, $73.1 million
in 1995 and $75.7 million in 1994, and were equivalent to 4.4% in 1996, 3.5% in
1995 and 3.9% in 1994 of average depreciable property, plant and equipment for
those years.
Gas Stored Underground - Current
Gas stored underground - current is carried at lower of cost or market, on a
last-in, first-out (LIFO) method. Under present regulatory practice, the
liquidation of a LIFO layer is reflected in future gas cost adjustment clauses.
Based upon the average price of spot market gas purchased in September 1996,
including transportation costs, the current cost of replacing the inventory of
gas stored underground-current exceeded the amount stated on a LIFO basis by
approximately $19.0 million at September 30, 1996.
Unamortized Debt Expense
Costs associated with the issuance of debt by the Company are deferred and
amortized over the lives of the related issues. Costs associated with the
reacquisition of debt related to rate-regulated subsidiaries are deferred and
amortized over the remaining life of the issue or the life of the replacement
debt in order to match regulatory treatment.
Foreign Currency Translation
The functional currency for the Company's foreign operations is the applicable
local currency. The translation from the applicable foreign currency to U. S.
dollars is performed for balance sheet accounts using current exchange ratios in
effect at the balance sheet date and for revenue and expense accounts using an
average exchange rate during the period. The gain which resulted from foreign
currency translation during 1996 was immaterial.
Income Taxes
The Company and its domestic subsidiaries file a consolidated federal income tax
return. Investment Tax Credit, prior to its repeal in 1986, was deferred and is
being amortized over the estimated useful lives of the related property, as
required by regulatory authorities having jurisdiction.
On October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which
changed the method of accounting for income taxes. The cumulative effect of this
change increased net income for 1994 by $3.8 million as a result of the
reduction in deferred income taxes associated with the Company's nonregulated
operations.
<PAGE>
Financial Instruments
The Company, in its Exploration and Production segment, utilizes price swap
agreements to manage a portion of the market risk associated with fluctuations
in the price of natural gas and crude oil. Gains or losses from these price swap
agreements are reflected in operating revenues on the Consolidated Statement of
Income at the time of settlement with the other parties. Reference is made to
Note F - Financial Instruments, for further discussion of financial instruments.
Consolidated Statement of Cash Flows
For purposes of the Consolidated Statement of Cash Flows, the Company considers
all highly liquid debt instruments purchased with a maturity of generally three
months or less to be cash equivalents. Interest paid in 1996, 1995 and 1994 was
$54.8 million, $53.5 million and $46.2 million, respectively. Net income taxes
paid in 1996, 1995 and 1994 were $60.8 million, $34.6 million and $37.6 million,
respectively.
In December 1993, the Company entered into a non-cash investing
activity whereby it issued shares of Company common stock for $3.2 million of
natural gas production assets.
Earnings Per Common Share
Earnings per common share are calculated using the weighted average number of
shares outstanding during each fiscal year. Common stock equivalents in the form
of stock options do not have a material dilutive effect on earnings per common
share.
Note B - Regulatory Matters
Regulatory Assets and Liabilities
Distribution Corporation and Supply Corporation have incurred various costs and
received various credits which have been reflected as regulatory assets and
liabilities on the Company's consolidated balance sheets. Accounting for such
costs and credits as regulatory assets and liabilities is in accordance with
SFAS 71, "Accounting for the Effect of Certain Types of Regulation" (SFAS 71).
This statement sets forth the application of generally accepted accounting
principles for those companies whose rates are established by or are subject to
approval by an independent third-party regulator. Under SFAS 71, regulated
companies defer costs and credits on the balance sheet as regulatory assets and
liabilities when it is probable that those costs and credits will be allowed in
the ratesetting process in a period different from the period in which they
would have been reflected in income by an unregulated company. These deferred
regulatory assets and liabilities are then flowed through the income statement
in the period in which the same amounts are reflected in rates. Distribution
Corporation and Supply Corporation have recorded the following regulatory assets
and liabilities:
At September 30 (Thousands) 1996 1995
---- ----
Regulatory Assets:
Recoverable Future Taxes (Note C) $ 88,832 $ 92,574
Unamortized Debt Expense (Note A) 20,319 22,035
Pension and Post-Retirement Benefit Costs (Note G) 22,259 18,412
Order 636 Transition Costs* 14,256 12,358
Gathering Plant 9,868 -
Environmental Clean-up (Note H) 8,144 7,475
Other 2,559 (1,205)
-------- --------
Total Regulatory Assets 166,237 151,649
-------- --------
Regulatory Liabilities:
Amounts Payable to Customers (Note A) 4,618 51,001
Taxes Refundable to Customers (Note C) 21,005 21,601
Other 6,881 8,628
-------- --------
Total Regulatory Liabilities 32,504 81,230
-------- --------
Net Regulatory Position $133,733 $ 70,419
======== ========
* Exclusive of amounts being collected through gas costs. Such amounts are
included in unrecovered purchased gas costs or amounts payable to customers.
<PAGE>
If for any reason, including deregulation, a change in the method of
regulation, or a change in competitive environment, Distribution Corporation
and/or Supply Corporation ceases to meet the criteria for application of SFAS 71
for all or part of their operations, the regulatory assets and liabilities
related to those portions ceasing to meet such criteria would be eliminated from
the balance sheet and included in income of the period in which the
discontinuance of SFAS 71 occurs. Such amounts would be classified as an
extraordinary item. Distribution Corporation and Supply Corporation are not
currently facing a requirement to discontinue SFAS 71.
Order 636 Transition Costs
As a result of the industrywide restructuring under the Federal Energy
Regulatory Commission's (FERC) Order 636, Distribution Corporation is incurring
transition costs billed by Supply Corporation and other upstream pipeline
companies.
As of September 30, 1996, Distribution Corporation's estimate of its
exposure to outstanding transition cost claims to nonaffiliated companies is in
the range of $9.6 million to $26.6 million. The estimated maximum exposure has
been significantly reduced as a result of a preliminary settlement by one of
Distribution Corporation's upstream pipeline companies. In addition, estimated
maximum exposure continues to decline as transition costs are incurred and paid.
At September 30, 1996, Distribution Corporation has recorded the minimum
liability and corresponding regulatory asset of $9.6 million. In addition,
Distribution Corporation's estimated share of Supply Corporation's $9.9 million
of gathering plant at September 30, 1996 is approximately $9.2 million. See
further discussion under "Gathering Rates" below. Distribution Corporation is
currently recovering transition costs from its sales and transportation
customers in New York and Pennsylvania.
Gathering Rates
The FERC has directed Supply Corporation to fully unbundle the production and
gathering cost of service from the transmission cost of service, and to
establish a separate gathering rate. A Stipulation and Agreement complying with
the FERC's directives under its restructuring orders was filed by Supply
Corporation and was approved by the FERC in February 1996. As approved, the
Stipulation and Agreement permits Supply Corporation to fully recover its net
investment in production and gathering plant, as well as its production and
gathering cost of service. A portion of Supply Corporation's net investment in
production and gathering plant is being recovered over a five-year period. The
unamortized portion amounts to approximately $9.9 million at September 30, 1996
and is included in Other Regulatory Assets on the Consolidated Balance Sheets.
Note C - Income Taxes
The components of federal and state income taxes included in the Consolidated
Statement of Income are as follows:
Year Ended September 30 (Thousands) 1996 1995 1994
---- ---- ----
Operating Expenses:
Current Income Taxes -
Federal $55,148 $30,522 $36,630
State 7,266 4,905 6,309
Deferred Income Taxes 3,907 8,452 4,853
------- ------- ------
66,321 43,879 47,792
Other Income:
Deferred Investment Tax Credit (665) (672) (682)
Cumulative Effect of Changes in Accounting:
Adoption of SFAS 109 - - (3,826)
Tax Effect of Adoption of SFAS 112 - - (425)
------- ------- ------
Total Income Taxes $65,656 $43,207 $42,859
======= ======= =======
<PAGE>
Total income taxes as reported differ from the amounts that were
computed by applying the federal income tax rate to income before income taxes.
The following is a reconciliation of this difference:
Year Ended September 30 (Thousands) 1996 1995 1994
---- ---- ----
Net Income Available for Common Stock $104,671 $ 75,894 $ 85,672
Total Income Taxes 65,656 43,207 42,859
-------- -------- --------
Income Before Income Taxes $170,327 $119,101 $128,531
======== ======== ========
Income Tax Expense, Computed at Federal
Statutory Rate of 35% $59,614 $41,685 $44,986
Increase (Reduction) in Taxes Resulting from:
Current State Income Taxes,
Net of Federal Income Tax Benefit 4,723 3,188 4,101
Depreciation 2,499 2,397 2,174
Adoption of SFAS 109 - - (3,826)
Miscellaneous (1,180) (4,063) (4,576)
------- ------- -------
Total Income Taxes $65,656 $43,207 $42,859
======= ======= =======
Significant components of the Company's deferred tax liabilities and
assets were as follows:
At September 30 (Thousands) 1996 1995
---- ----
Deferred Tax Liabilities:
Excess of Tax Over Book Depreciation $182,271 $185,595
Exploration and Intangible Well
Drilling Costs 98,293 84,380
Other 67,030 67,831
-------- --------
Total Deferred Tax Liabilities 347,594 337,806
======== ========
Deferred Tax Assets:
Overheads Capitalized for Tax Purposes (16,289) (11,766)
Other (50,098) (45,599)
-------- --------
Total Deferred Tax Assets (66,387) (57,365)
======== ========
Total Net Deferred Income Taxes $281,207 $280,441
======== ========
SFAS 109 requires the recognition of regulatory liabilities
representing the reduction of previously recorded deferred income taxes
associated with rate-regulated activities that are expected to be refundable to
customers. These amounted to $21.0 million and $21.6 million at September 30,
1996 and 1995, respectively. Also, SFAS 109 requires the recognition of
additional deferred income taxes not previously recorded because of prior
ratemaking practices. Substantially all of these deferred taxes relate to
property, plant and equipment and related investment tax credits and will be
amortized consistent with the depreciation and amortization of these accounts.
The additional deferred taxes and corresponding regulatory assets, representing
future amounts collectible from customers in the ratemaking process, amounted to
$88.8 million and $92.6 million at September 30, 1996 and 1995, respectively.
<PAGE>
Note D - Capitalization
Summary of Changes in Common Stock Equity
Earnings
Paid Reinvested
Common Stock In in the
(Thousands, Except Per Share Amounts) Shares Amount Capital Business
------ ------ ------- ----------
Balance at September 30, 1993 36,661 $36,661 $363,677 $335,907
Net Income Available for Common Stock 85,672
Dividends Declared on Common Stock
($1.56 Per Share) (57,725)
Common Stock Issued:
Acquisition of Natural Gas
Production Assets 108 108 3,523
Stock Option and Stock Award Plans 164 164 1,163
401(k) Plans 136 136 4,234
Customer Stock Purchase Plan 209 209 6,559
------ ------- -------- ---------
Balance at September 30, 1994 37,278 37,278 379,156 363,854
Net Income Available for Common Stock 75,894
Dividends Declared on Common Stock
($1.60 Per Share) (59,625)
Common Stock Issued:
Stock Option and Stock Award Plans 22 22 377
401(k) Plans 88 88 2,310
Customer Stock Purchase Plan 46 46 1,188
------ ------- -------- ---------
Balance at September 30, 1995 37,434 37,434 383,031 380,123
Net Income Available for Common Stock 104,671
Dividends Declared on Common Stock
($1.65 Per Share) (61,920)
Common Stock Issued:
Stock Option and Stock Award Plans 126 126 2,490
Dividend Reinvestment and Stock
Purchase Plan 134 134 4,460
401(k) Plans 124 124 4,128
Customer Stock Purchase Plan 34 34 1,163
------ ------- -------- ---------
Balance at September 30, 1996 37,852 $37,852 $395,272 $422,874*
====== ======= ======== ========
* The availability of consolidated earnings reinvested in the business for
dividends payable in cash is limited under terms of the indentures covering
long-term debt. At September 30, 1996, $348.5 million of accumulated
earnings was free of such limitations.
Common Stock
The Company has various plans which allow shareholders, customers and employees
to purchase shares of Company common stock. The Dividend Reinvestment and Stock
Purchase Plan allows shareholders to reinvest cash dividends and/or make cash
investments in the Company's common stock. The Customer Stock Purchase Plan
provides residential customers the opportunity to acquire shares of Company
common stock without the payment of any brokerage commission or service charges
in connection with such acquisitions. The 401(k) Plans allow employees the
opportunity to invest in Company common stock, in addition to a variety of other
investment alternatives. At the discretion of the Company, shares purchased
under these plans are either original issue shares purchased directly from the
Company or shares purchased on the open market by an agent.
Shareholder Rights Plan
On March 19, 1996, the Company's Board of Directors adopted a shareholder rights
plan, the adoption of which was subsequently approved by the SEC, pursuant to
the Public Utility Holding Company Act of 1935, as amended (the Holding Company
Act). On June 13, 1996, the Company's Board of Directors declared a dividend of
one right (Right) for each share of common stock held by the shareholders of
record on July 31, 1996.
<PAGE>
The Rights become exercisable ten days after an acquirer (a) announces
it has acquired or has the right to acquire 10% or more of the Company's voting
stock, or (b) announces a tender offer which would result in it owning 10% or
more of the Company's voting stock. If the Rights become exercisable, each
Company stockholder, except an acquirer, will be able to exercise a Right and
receive common stock (or, in certain cases, cash, property or other securities)
of the Company, or common stock of the acquirer, having a market value equal to
twice the Right's then current purchase price. If a Right were currently
exercisable, it would entitle a Company stockholder, other than an acquirer, to
purchase $130 worth of Company common stock (or the common stock of the
acquirer) for $65. All Rights expire on July 31, 2006.
The Board of Directors is able to exchange the Rights at an exchange
ratio of one share of common stock per Right. It also is able to redeem, in
whole but not in part, the Rights at a price of $0.01 per Right anytime until
ten days after an acquirer announces that it has acquired or has the right to
acquire 10% or more of the Company's voting stock.
Stock Option and Stock Award Plans
The Company's 1993 Award and Option Plan (1993 Plan) provides for the issuance
of incentive stock options, nonqualified stock options, stock appreciation
rights, restricted stock, performance units and performance shares to key
employees. The 1983 Incentive Stock Option Plan (1983 Plan) provided for the
issuance of incentive stock options to key employees. The 1984 Stock Plan (1984
Plan) provided for awards of restricted stock, nonqualified stock options and
stock appreciation rights to key employees. Stock options under all three plans
have exercise prices equal to the average market price of Company common stock
on the date of grant, and generally no option is exercisable less than one year
or more than ten years after the date of each grant.
In October 1995, the Financial Accounting Standards Board issued SFAS
123, "Accounting for Stock-Based Compensation," (SFAS 123). In 1996, the Company
adopted the disclosure provision of SFAS 123 but opted to remain under the
expense recognition provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees," in accounting for its stock option and stock award plans.
For the fiscal years ended September 30, 1996, 1995 and 1994, no compensation
expense was recognized for options granted under these plans. Compensation
expense related to stock appreciation rights and restricted stock under these
stock plans was $6.7 million, $1.4 million and $(0.3) million for the fiscal
years ended September 30, 1996, 1995 and 1994, respectively. Had compensation
expense for stock options granted under the Company's stock plans been
determined based on fair value at the grant dates consistent with the method of
SFAS 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts below:
1996
- -------------------------------------------------------------------------------
Net Income:
As reported $104,671,000
Pro Forma $104,322,000
Earnings per Common Share:
As reported $2.78
Pro Forma $2.77
The above pro forma amounts relate only to options granted since the
beginning of 1996. Had SFAS 123 been effective prior to 1996, the fair value of
options granted in 1995 but vesting in 1996 would have further reduced 1996 pro
forma net income and earnings per share by $1,039,000 and $0.03, respectively.
<PAGE>
Transactions involving option shares for all three plans are summarized
as follows:
Number of
Shares Subject Weighted Average
to Option Exercise Price
- ----------------------------------------------------------------------------
Outstanding at September 30, 1993 955,846 $25.10
Granted in 1994 272,000 $31.63
Exercised in 1994* (60,509) $21.61
- ----------------------------------------------------------------------------
Outstanding at September 30, 1994 1,167,337 $26.80
Granted in 1995 362,100 $27.94
Exercised in 1995* (17,615) $19.46
Forfeited in 1995 (11,532) $31.00
- ----------------------------------------------------------------------------
Outstanding at September 30, 1995 1,500,290 $27.13
Granted in 1996 487,750 $34.44
Exercised in 1996* (195,321) $22.72
Forfeited in 1996 (19,468) $27.90
- ----------------------------------------------------------------------------
Outstanding at September 30, 1996 1,773,251 $29.62
- ----------------------------------------------------------------------------
Shares exercisable at September 30, 1996 1,285,501 $27.79
Shares available for future
grant at September 30, 1996** 314,377
Weighted average fair value of
options granted during 1996 $5.58
- ----------------------------------------------------------------------------
* In connection with exercising these options, 77,679; 3,192; and 18,088
shares were surrendered and canceled during 1996, 1995 and 1994,
respectively.
** Including shares available for restricted stock grants.
The weighted average fair value of options granted in 1996 was
estimated on the date of grant using a binomial option pricing model which is a
modification of the Black-Scholes option pricing model, with the following
weighted average assumptions: quarterly dividend yield of 1.22%, annual expected
return of 12.83%, annual standard deviation (volatility) of 15.62%, risk free
rate of 6.28%, and expected term of 5.5 years.
The following table summarizes information about options outstanding at
September 30, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------- -----------------------------
Number Weighted Average Weighted Number
Range of Outstanding Remaining Average Exercisable Weighted Average
Exercise Prices at 9/30/96 Contractual Life Exercise Price at 9/30/96 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- ----------------
<C> <C> <C> <C> <C> <C>
$18.00 - $25.19 460,516 4.7 years $23.82 460,516 $23.82
$27.94 - $36.81 1,312,735 8.6 years $31.66 824,985 $30.01
- ---------------------------------------------------------------------------------------------
</TABLE>
On October 11, 1996, an additional 280,000 stock options were granted
at an exercise price per share of $36.75.
The Company's Board of Directors is expected to adopt the 1997 Award
and Option Plan (1997 Plan) at its December 13, 1996 meeting. The 1997 Plan will
have the same basic provisions as the 1993 Plan. The total number of shares
available for grant under the 1997 Plan will be 1.8 million.
Restricted stock is subject to restrictions on vesting and
transferability. Restricted stock awards entitle the participants to full
dividend and voting rights. The market value of restricted stock on the date of
the award is being recorded as compensation expense over the periods during
which the vesting restrictions exist. Certificates for shares of restricted
stock awarded under the Company's 1984 and 1993 Plans are held by the Company
during the periods in which the restrictions on vesting are effective.
The following table summarizes the awards of restricted stock over the
past three years:
1996 1995 1994
- -------------------------------------------------------------------------------
Shares of Restricted Stock Awarded 8,000 8,000 121,494
Weighted Average Market Price of
Stock on Award Date $36.81 $26.00 $34.15
- -------------------------------------------------------------------------------
<PAGE>
As of September 30, 1996, 134,578 shares of non-vested restricted stock
were outstanding. Vesting restrictions will lapse on 126,578 of these shares on
January 2 of each year as follows: 1997 - 18,916 shares; 1998 - 18,916 shares;
1999 - 20,916 shares; 2000 - 22,916 shares; 2001 - 24,914 shares; 2002 - 8,000
shares; 2003 - 6,000 shares; 2004 - 4,000 shares; and 2005 - 2,000 shares. For
restricted stock awarded before 1996, the restrictions on transferability do not
lapse until the earliest of (a) six years from the date the vesting restrictions
lapse; (b) the recipient's attainment of age 65; or (c) the recipient's death.
For restricted stock awarded in 1996, all restrictions will lapse respecting
one-fourth of such shares on each September 26, 2003 through 2006.
Redeemable Preferred Stock
As of September 30, 1996, there were 3,200,000 shares of $25 par value
Cumulative Preferred Stock authorized but unissued.
Long-Term Debt
The outstanding long-term debt is as follows:
At September 30 (Thousands) 1996 1995
---- ----
Debentures:
7-3/4% due February 2004 $125,000 $125,000
Medium-Term Notes:
8.875% due December 1995 - 20,000
8.90% due December 1995 - 38,500
4.53% due September 1996 - 30,000
6.42% due November 1997 50,000 50,000
6.08% due July 1998 50,000 50,000
5.58% due March 1999 100,000 -
7.25% due July 1999 50,000 50,000
6.60% due February 2000 50,000 50,000
7.395% due March 2023 49,000 49,000
8.48% due July 2024* 50,000 50,000
7.375% due June 2025 50,000 50,000
-------- --------
574,000 562,500
Less Current Portion - 88,500
-------- --------
$574,000 $474,000
======== ========
* Callable beginning July 1999.
The aggregate principal amounts of long-term debt maturing for the next
five years are: none in 1997, $100.0 million in 1998, $150.0 million in 1999,
$50.0 million in 2000 and none in 2001.
The Company currently has authorization from the SEC under the Holding
Company Act to issue and sell up to $150.0 million of debentures and/or
medium-term notes. The amounts and timing of the issuance and sale of these
debentures and/or medium-term notes will depend on market conditions and the
requirements of the Company.
Note E - Short-Term Borrowings
The Company maintains uncommitted or discretionary lines of credit with certain
financial institutions for general corporate purposes. These lines are utilized
primarily as a means of financing, on an interim basis, various working capital
requirements and capital expenditures of the Company, including the Company's
oil and gas exploration and development program and the purchase and storage of
gas. Borrowings under these lines of credit are made at competitive money market
rates, and the Company currently is authorized to borrow up to $600.0 million
thereunder. These credit lines, which are callable at the option of the
financial institutions, are reviewed on an annual basis.
The Company also has authorization to issue as much as $300.0 million
of commercial paper from time to time, but is not likely to exceed $105.0
million. In no event may its borrowings under its discretionary lines of credit,
or through the issuance of commercial paper, exceed $600.0 million in the
aggregate.
<PAGE>
Additionally, the Company has entered into an agreement that
establishes a 364-day committed revolving credit arrangement with five
commercial banks, under which it may borrow as much as $105.0 million. This
arrangement may be utilized for general corporate purposes, primarily to support
the issuance of commercial paper. The Company pays a fee to maintain this
arrangement, and may borrow through this arrangement under four interest rate
options. If amounts are borrowed under this arrangement, the $600.0 million
available for borrowing under the discretionary lines of credit is
correspondingly reduced. No borrowings under this arrangement were outstanding
at September 30, 1996.
At September 30, 1996, the Company had outstanding notes payable to
banks and commercial paper of $109.7 million and $90.0 million, respectively. At
September 30, 1995, the Company had outstanding notes payable to banks and
commercial paper of $52.6 million and $95.0 million, respectively.
The weighted average interest rate on notes payable to banks was 5.63%
and 6.15% at September 30, 1996 and 1995, respectively. The weighted average
interest rate on commercial paper was 5.56% and 5.85% at September 30, 1996 and
1995, respectively.
Note F - Financial Instruments
Fair Values
The fair market value of the Company's long-term debt is estimated based on
quoted market prices of similar issues having the same remaining maturities,
redemption terms and credit ratings. Based on these criteria, the fair market
value of long-term debt, including current portion, was as follows:
At September 30 (Thousands) 1996 1995
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Long-Term Debt $574,000 $572,001 $562,500 $570,236
======== ======== ======== ========
The fair value amounts are not intended to reflect principal amounts
that the Company will ultimately be required to pay.
Temporary cash investments, notes payable to banks and commercial paper
are stated at amounts which approximate their fair value due to the short-term
maturities of those financial instruments. Investments in life insurance are
stated at their cash surrender values as discussed below.
Investments
Other assets consist principally of cash surrender values of insurance
contracts. The cash surrender values of these insurance contracts amounted to
$31.6 million and $28.2 million at September 30, 1996 and 1995, respectively.
The insurance contracts were established as a funding mechanism for various
benefit obligations the Company has to certain employees.
Derivative Financial Instruments
The Company, in its Exploration and Production segment, has entered into certain
price swap agreements to manage a portion of the market risk associated with
fluctuations in the price of natural gas and crude oil thereby providing more
stability to the operating results of that business segment. These agreements
are not held for trading purposes. The price swap agreements call for the
Company to receive monthly payments from (or make payment to) other parties
based upon the difference between a fixed and a variable price as specified by
the agreement. The variable price is either a crude oil price quoted on the New
York Mercantile Exchange or a quoted natural gas price in "Inside FERC." These
variable prices are highly correlated with the market prices received by the
Company for its natural gas and crude oil production.
<PAGE>
The following summarizes the Company's activity under price swap
agreements during 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Year Ended September 30 1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Natural Gas Swap Agreements:
Notional Amount - Equivalent
Billion Cubic Feet (Bcf) 23.0 16.3 8.0
Range of Fixed Prices per
Thousand Cubic Feet (Mcf) $1.71 - $3.05 $1.74 - $2.39 $2.17 - $2.39
Weighted Average Fixed Price
per Mcf $1.91 $2.03 $2.30
Range of Variable Prices
per Mcf $1.67 - $3.43 $1.36 - $1.77 $1.44 - $2.44
Weighted Average Variable Price
per Mcf $2.31 $1.59 $2.05
Gain (Loss) $(9,231,000) $7,157,000 $1,986,000
Crude Oil Swap Agreements:
Notional Amount - Equivalent
Barrels (bbl) 1,071,000 686,000 -
Range of Fixed Prices per bbl $17.40 - $19.25 $16.68 - $19.60 -
Weighted Average Fixed Price
per bbl $18.22 $18.01 -
Range of Variable Prices per
bbl $17.40 - $23.93 $17.16 - $19.89 -
Weighted Average Variable Price
per bbl $20.72 $18.35 -
Loss $(2,606,000) $(221,000) -
</TABLE>
The Company had the following swap agreements outstanding at September
30, 1996:
Natural Gas Swap Agreements:
Notional Amount Range of Fixed Weighted Average Fixed
Fiscal Year (Equivalent Bcf) Prices per Mcf Price per Mcf
----------- ---------------- -------------- ----------------------
1997 24.9 $1.71 - $2.10 $1.92
1998 9.7 $1.77 - $2.06 $1.94
1999 1.1 $2.00 $2.00
----
35.7
====
Crude Oil Swap Agreements:
Notional Amount Range of Fixed Weighted Average Fixed
Fiscal Year (Equivalent bbl) Prices per bbl Price per bbl
---------- ---------------- -------------- ----------------------
1997 1,371,000 $17.40 - $18.71 $18.00
1998 447,000 $17.50 - $18.71 $17.81
---------
1,818,000
=========
Gains or losses from these price swap agreements are reflected in
operating revenues on the Consolidated Statement of Income at the time of
settlement with the other parties. At September 30, 1996, the Company had
unrecognized losses of approximately $10.2 million related to price swap
agreements which are offset by corresponding unrecognized gains from the
Company's anticipated natural gas and crude oil production over the terms of the
price swap agreements.
The Company has SEC authority to enter into interest rate swaps and
other derivative instruments associated with long-term borrowings up to a
notional amount of $350.0 million at any one time outstanding. All such interest
rate swaps and other derivative instruments must be directly related to then
outstanding long or short-term debt, at the time they are entered into. The
Company also has SEC authority to enter into interest rate and currency exchange
agreements associated with short-term borrowings covering a total principal
amount of $300.0 million. No such agreements were entered into during the year
ended September 30, 1996 and none are currently outstanding.
Credit Risk
Credit risk relates to the risk of loss that the Company would incur as a result
of nonperformance by counterparties pursuant to the terms of their
<PAGE>
contractual obligations. The Company is at risk in the event of nonperformance
by counterparties on investments, such as temporary cash investments and cash
surrender values of insurance contracts, and on its derivative financial
instruments. The counterparties to the Company's investments and derivative
financial instruments are investment grade financial institutions. Furthermore,
the Company has guarantees from counterparty affiliates covering its natural gas
and crude oil derivative financial instruments in those instances where the
Company is not dealing directly with the majority affiliate of the counterparty
group. Accordingly, the Company does not anticipate any material impact to its
financial position, results of operations or cash flow as a result of
nonperformance by counterparties.
Note G - Retirement Plan and Other Post-Employment Benefits
Retirement Plan
The Company has a tax-qualified, noncontributory, defined-benefit retirement
plan (Plan) that covers substantially all employees of the Company. The Plan
uses years of service, age at retirement and earnings of employees to determine
benefits.
The Company's policy is to fund at least an amount necessary to satisfy
the minimum funding requirements of applicable laws and regulations and not more
than the maximum amount deductible for federal income tax purposes. Plan funding
is subject to annual review by management and its consulting actuary. Plan
assets primarily consist of equity and fixed income investments and units in
commingled funds.
For financial reporting purposes, the regulated subsidiaries record the
difference between the amounts of pension cost recoverable in rates and the
amounts of pension cost determined by the actuary under SFAS 87, "Employers'
Accounting for Pensions," as deferred pension assets. The amounts deferred are
expected to be recovered in rates as contributions are made to the Plan. Pension
cost in 1996 reflects the amount recovered from customers in rates during the
year.
In September 1996, the Company completed its special early retirement
offer (SERO) for certain salaried, non-union hourly and union employees of
Distribution Corporation and Supply Corporation. As a result, the Company
recorded SERO expense in 1996 of $8.2 million ($5.2 million after-tax),
comprised of special termination benefits and severance pay. The special
termination benefits portion of SERO expense is included in pension cost.
The components of pension cost were as follows:
Year Ended September 30 (Thousands) 1996 1995 1994
---- ---- ----
Service Cost $11,049 $ 9,680 $10,441
Interest Cost 31,422 28,338 26,532
Actual Return on Plan Assets (48,022) (47,591) (16,212)
Net Amortization and Deferral 10,414 9,722 (20,623)
Special Termination Benefits 6,986 - -
------- ------- -------
Pension Cost $11,849 $ 149 $ 138
======= ======= =======
The projected benefit obligation was determined using an assumed
discount rate of 8% for 1996 and 1995, and 8.5% for 1994. The assumed rate of
compensation increase was 5% for all three years. The expected long-term rate of
return on Plan assets was 8.5% for all three years.
<PAGE>
A reconciliation of the Plan's funded status as determined by the
Company's consulting actuary is presented in the following table:
At September 30 (Thousands) 1996 1995
---- ----
Actuarial Present Value of:
Vested Benefit Obligation $317,049 $287,470
======== ========
Accumulated Benefit Obligation $367,612 $333,597
======== ========
Projected Benefit Obligation $432,753 $404,157
Plan Assets at Fair Value 431,828 399,608
-------- --------
Funded Status (925) (4,549)
Unrecognized Net Asset (26,278) (33,335)
Unrecognized Prior Service Cost 11,947 12,446
Unrecognized Net Loss (Gain) (15,111) 5,419
-------- --------
Pension Liability $(30,367) $(20,019)
======== ========
Other Post-Retirement Benefits
In addition to providing retirement plan benefits, the Company provides health
care and life insurance benefits for substantially all retired employees under a
post-retirement benefit plan (Post-Retirement Plan).
The Company has established Voluntary Employees' Beneficiary
Association (VEBA) trusts for collectively bargained employees and
non-bargaining employees. The VEBA trusts are similar to the Company's
Retirement Plan trust. Contributions to the VEBA trusts are tax deductible,
subject to limitations contained in the Internal Revenue Code and regulations.
Contributions to the VEBA trusts are made to fund employees' post-retirement
health care and life insurance benefits, as well as benefits as they are paid to
current retirees. Post-Retirement Plan assets primarily consist of equity and
fixed income investments and money market funds.
Distribution Corporation and Supply Corporation represent virtually all
of the Company's total post-retirement benefit costs. Distribution Corporation
and Supply Corporation are fully recovering their net periodic post-retirement
benefit costs in accordance with the Public Service Commission of the State of
New York (PSC) and the Pennsylvania Public Utility Commission (PaPUC) and FERC
authorization, respectively. In accordance with regulatory guidelines, the
difference between the amounts of post-retirement benefit costs recoverable in
rates and the amounts of post-retirement benefit costs determined by the actuary
under SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," are deferred in each jurisdiction as either a regulatory asset or
liability, as appropriate.
The Company has elected to amortize the initial accumulated liability
at October 1, 1993 to post-retirement benefit cost on a straight-line basis over
a 20-year period.
The components of post-retirement benefit cost were as follows:
Year Ended September 30 (Thousands) 1996 1995 1994
---- ---- ----
Service Cost $ 3,926 $ 3,394 $ 3,974
Interest Cost 14,391 13,027 13,714
Actual Return on Post-Retirement Plan Assets (9,072) (4,613) (1,035)
Net Amortization and Deferral 11,830 12,592 6,877
------- ------- -------
Post-Retirement Benefit Cost $21,075 $24,400 $23,530
======= ======= =======
The weighted average assumed discount rate used in determining the
accumulated post-retirement benefit obligation was 8% for 1996 and 1995, and
8.5% for 1994. The average assumed annual rate of salary increase for the
applicable life insurance plans was 5% for all three years. The expected
long-term rate of return on Post-Retirement Plan assets was 8.5% for all three
years.
<PAGE>
The annual rate of increase in the per capita cost of covered medical
care benefits for the active participants and medical plans available to new
retirees was assumed to be 13% for 1994, 12% for 1995 and 11% for 1996; this
rate was assumed to decrease gradually to 5.5% by the year 2003 and remain at
that level thereafter. The annual rate of increase in the per capita cost of
covered medical care benefits for the medical plans not available to new
retirees was assumed to be 8% for 1994, 7% for 1995, and 6% for 1996. The annual
rate of increase in the per capita cost of covered prescription drug benefits
was assumed to be 14% for 1994 and 10% for 1995 and 1996. This rate was assumed
to decrease gradually to 5.5% by the year 2003 and remain level thereafter. The
annual rate increase in the per capita Medicare Part B Reimbursement was assumed
to be 12.3% for 1994, 12.2% for 1995, 12% for 1996, 3.1% for 1997 and 5.5% for
each year thereafter.
A reconciliation of the Post-Retirement Plan's funded status as
determined by the Company's consulting actuary is in the following table:
At September 30 (Thousands) 1996 1995
---- ----
Accumulated Post-Retirement Benefit Obligation:
Inactives $111,970 $ 76,272
Actives Fully Eligible 25,363 36,223
Actives Not Yet Fully Eligible 74,715 70,620
-------- --------
212,048 183,115
Fair Value of Post-Retirement Plan Assets 73,059 48,678
-------- --------
Funded Status (138,989) (134,437)
Unrecognized Transition Obligation 132,055 141,561
Unrecognized Net Loss (Gain) 4,510 (8,930)
-------- --------
Post-Retirement Liability $ (2,424) $ (1,806)
======== ========
The health care cost trend rate assumptions used to calculate the per
capita cost of covered medical care benefits have a significant effect on the
amounts reported. If the health care cost trend rates were increased by 1% in
each year, the accumulated post-retirement benefit obligation as of October 1,
1995, would be increased by $27.6 million. This 1% change would also increase
the aggregate of the service and interest cost components of net periodic
post-retirement benefit cost for 1996 by $3.2 million.
Post-Employment Benefits
In November 1992, the FASB issued SFAS 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112), which establishes standards of financial
accounting and reporting for benefits, such as salary continuation, severance
pay, workers' compensation and other disability-related benefits, provided to
former or inactive employees subsequent to employment but prior to retirement.
The Company adopted SFAS 112 in the fourth quarter of 1994. The Consolidated
Statement of Income for 1994 includes a charge of $0.6 million, net of income
taxes, as a cumulative effect of a change in accounting principle.
Note H - Commitments and Contingencies
Leases
The Company has entered into lease agreements, principally for the use of office
space, business machines, transportation equipment and meters. The Company's
policy is to treat all leases as operating leases for both accounting and
ratemaking purposes. Total lease expense approximated $16.9 million in 1996,
$16.3 million in 1995 and $17.2 million in 1994. At September 30, 1996, the
future minimum payments under the Company's lease agreements for the next five
years are: $13.4 million in 1997, $10.0 million in 1998, $6.8 million in 1999,
$4.9 million in 2000 and $3.4 million in 2001. The aggregate future minimum
lease payments attributable to later years is $10.1 million.
Obligations Under Firm Contracts
Distribution Corporation has agreements with five nonaffiliated upstream
pipeline companies that provide for the availability of needed pipeline
transportation capacity for periods that extend through 2004. These
<PAGE>
agreements provide for payment of a demand or reservation charge, at
FERC-approved rates, for contracted capacity. Distribution Corporation has
various gas purchase agreements with nonaffiliated gas producers that require
payment of fixed monthly charges. These charges are tied to various indices.
These agreements have average terms that range from three to five years.
Additionally, Distribution Corporation has agreements with three nonaffiliated
companies for gas storage services through 2006 that require payment of a demand
charge, for contracted storage. At September 30, 1996, the projected aggregate
amounts of such required future payments, based on current FERC-approved rates
and current indices, where applicable, are approximately $98.1 million, $10.8
million, and $2.4 million annually for the next five years, for pipeline
capacity, gas purchases, and storage service, respectively. Additionally, these
agreements call for the payment of commodity charges based upon actual
quantities shipped, purchased and stored.
These obligations under firm contracts are considered purchased gas
costs, subject to state commission review, and are being recovered in customer
rates through the inclusion in Distribution Corporation's rate schedules.
For the fiscal year ended September 30, 1996, total gross costs
incurred under these contracts, including commodity charges on actual quantities
shipped, purchased and stored, amounted to $365.2 million.
Environmental Matters
The Company is subject to various federal, state and local laws and regulations
relating to the protection of the environment. The Company has established
procedures for the on-going evaluation of its operations to identify potential
environmental exposures and assure compliance with regulatory policies and
procedures.
Distribution Corporation has incurred and is incurring clean-up costs
at several former manufactured gas plant sites in New York and Pennsylvania.
Distribution Corporation has been designated by the New York Department of
Environmental Conservation (DEC) as a potentially responsible party (PRP) with
respect to one of these sites in New York, and is also engaged in litigation
with the DEC and the party who bought the site from Distribution Corporation's
predecessor.
Distribution Corporation is also currently identified by the DEC or the
federal Environmental Protection Agency as one of a number of companies
considered to be PRPs with respect to several waste disposal sites in New York
which were operated by unrelated third parties. The PRPs are alleged to have
contributed to the materials that may have been collected at such waste disposal
sites by the site operators. The ultimate cost to Distribution Corporation with
respect to the remediation of these sites will depend on such factors as the
remediation plan selected, the extent of the site contamination, the number of
additional PRPs at each site and the portion, if any, attributed to Distribution
Corporation.
It is the Company's policy to accrue estimated environmental clean-up
costs when such amounts can reasonably be estimated and it is probable that the
Company will be required to incur such costs. Distribution Corporation has
estimated that clean-up costs related to the above noted sites are in the range
of $8.7 million to $10.1 million. At September 30, 1996, Distribution
Corporation has recorded the minimum liability of $8.7 million. The Company is
currently not aware of any material additional exposure to environmental
liabilities. However, adverse changes in environmental regulations or other
factors could impact the Company.
In New York and Pennsylvania, Distribution Corporation is recovering
site investigation and remediation costs in rates. Accordingly, the Consolidated
Balance Sheet at September 30, 1996, includes related regulatory assets in the
amount of approximately $8.1 million.
Memorandum of Understanding - Green Canyon Project
In November 1996, Supply Corporation entered into a Memorandum of Understanding
(the MOU) with Green Canyon Gathering Company, a subsidiary of
<PAGE>
Tenneco Energy, regarding a project to develop, construct, own and operate
natural gas gathering and processing facilities offshore and onshore Louisiana
(the Project). The total cost of the Project is estimated at approximately $200
million. The MOU provides for the parties to (i) share past and future
development costs for the Project through January 1, 1997, and thereafter as
agreed by the parties, (ii) negotiate toward definitive agreements to be signed
about January 1, 1997, to form one or more 50-50 partnerships, and (iii)
negotiate toward definitive agreements to finance, develop, build, own and
operate the Project. If the definitive agreements are not executed, or if the
Project is not constructed, Supply Corporation's share of the development costs
through January 1, 1997 is estimated not to exceed $2 million, for which it is
unlikely Supply Corporation would be reimbursed. Supply Corporation intends to
use short-term borrowings to finance construction of the Project.
Other
The Company is involved in litigation arising in the normal course of its
business. In addition to the regulatory matters discussed in Note B - Regulatory
Matters, the Company is involved in other regulatory matters arising in the
normal course of business that involve rate base, cost of service and purchased
gas cost issues. While the resolution of such litigation or other regulatory
matters could have a material effect on earnings and cash flows in the year of
resolution, none of this litigation, and none of these other regulatory matters,
are expected to have a material adverse effect on the financial condition of the
Company at this time.
Note I - Business Segment Information
The Company includes operations which are rate-regulated (regulated) and
operations which are not regulated as to their rates (nonregulated). The
regulated operations fall primarily within two business segments: Utility and
Pipeline and Storage. The nonregulated operations consist principally of the
Exploration and Production business segment. The Other Nonregulated segment
consists primarily of the Company's sawmill and dry kiln operations, natural gas
marketing operations, natural gas hub operations, investment in foreign and
domestic energy projects and pipeline construction operations (which were
discontinued during 1995, the effect of which was immaterial to the Company).
The Utility segment is regulated by the PSC and the PaPUC and is
carried out by Distribution Corporation. Distribution Corporation sells and
transports gas to retail customers located in western New York and northwestern
Pennsylvania. It also provides off-system sales to customers located in regions
through which the upstream pipelines serving Distribution Corporation pass
(i.e., from the southwestern to northeastern regions of the United States). The
Pipeline and Storage segment is regulated by the FERC and is carried out by
Supply Corporation. Supply Corporation transports and stores natural gas for
utilities and pipeline companies in the northeastern United States markets. In
1996, 1995 and 1994, 51%, 48% and 52%, respectively, of Supply Corporation's
revenue was from affiliated companies, mainly Distribution Corporation.
Seneca is engaged in exploration for, and development and purchase of,
oil and natural gas reserves in the Gulf Coast, and the southwestern, western
and Appalachian regions of the United States. Seneca's production is, for the
most part, sold to purchasers located in the vicinity of its wells. Highland
operates a sawmill and dry kiln operation in Pennsylvania. NFR is engaged in the
marketing and brokerage of natural gas and performs energy management services
for utilities and end-users in the northeastern United States markets. Leidy's
activities center around its investment in natural gas hub operations, providing
services to customers in the northeastern, mid-Atlantic, Chicago and Los Angeles
areas of the United States and Ontario, Canada. Horizon is engaged in the
investigation and development of foreign and domestic energy projects and
presently operates a district heating plant and a power development group in the
Czech Republic. UCI was engaged in the Company's pipeline construction
operations prior to the discontinuance of its business in the third quarter of
fiscal 1995.
<PAGE>
The data presented in the tables below reflect the Company's regulated
and nonregulated business segments for the three years ended September 30, 1996.
Total operating revenues by segment include both revenues from nonaffiliated
customers and intersegment revenues. Operating income is total operating
revenues less operating expenses, not including income taxes. The elimination of
significant intercompany balances and transactions, if appropriate, is made in
order to reconcile segment information with consolidated amounts. Identifiable
assets of a segment are those assets that are used in the operations of that
segment. Corporate assets are principally cash and temporary cash investments,
receivables, deferred charges and cash surrender values of insurance contracts.
Year Ended September 30 (Thousands) 1996 1995 1994
---- ---- ----
Operating Revenues
Regulated:
Utility $ 954,326 $786,064 $ 931,673
Pipeline and Storage 176,553 164,587 153,121
---------- -------- ----------
1,130,879 950,651 1,084,794
---------- -------- ----------
Nonregulated:
Exploration and Production 114,462 56,232 70,261
Other 68,930 57,075 72,036
---------- -------- ----------
183,392 113,307 142,297
---------- -------- ----------
Intersegment Revenues* (106,254) (88,462) (85,767)
---------- -------- ----------
$1,208,017 $975,496 $1,141,324
========== ======== ==========
* Represents primarily Pipeline and Storage revenue from the Utility segment.
Operating Income (Loss) Before
Income Taxes
Regulated:
Utility $115,257 $ 83,774 $ 90,584
Pipeline and Storage 72,914 67,884 62,302
-------- -------- --------
188,171 151,658 152,886
-------- -------- --------
Nonregulated:
Exploration and Production 46,408 16,404 21,767
Other (8,581) 3,021 2,505
-------- -------- --------
37,827 19,425 24,272
-------- -------- --------
Corporate (2,231) (2,805) (3,463)
-------- -------- --------
$223,767 $168,278 $173,695
======== ======== ========
Identifiable Assets
At September 30 (Thousands)
Regulated:
Utility $1,154,364 $1,098,757 $1,105,202
Pipeline and Storage 515,569 512,546 498,798
---------- ---------- ----------
1,669,933 1,611,303 1,604,000
---------- ---------- ----------
Nonregulated:
Exploration and Production 396,077 351,262 311,037
Other 38,955 33,734 33,357
---------- ---------- ----------
435,032 384,996 344,394
---------- ---------- ----------
Corporate 44,807 40,524 32,412
---------- ---------- ----------
$2,149,772 $2,036,823 $1,980,806
========== ========== ==========
<PAGE>
Year Ended September 30 (Thousands) 1996 1995 1994
---- ---- ----
Depreciation, Depletion and Amortization
Regulated:
Utility $31,491 $30,052 $28,216
Pipeline and Storage 19,942 19,320 17,516
------- ------- -------
51,433 49,372 45,732
------- ------- -------
Nonregulated:
Exploration and Production 46,042 21,201 27,496
Other 752 1,203 1,530
------- ------- -------
46,794 22,404 29,026
------- ------- -------
Corporate 4 6 6
------- ------- -------
$98,231 $71,782 $74,764
======= ======= =======
Capital Expenditures
Regulated:
Utility $ 63,730 $ 64,844 $ 61,715
Pipeline and Storage 22,260 38,678 20,472
-------- -------- --------
85,990 103,522 82,187
-------- -------- --------
Nonregulated:
Exploration and Production 83,554 69,741 52,458
Other 3,189 9,563 3,603
-------- -------- --------
86,743 79,304 56,061
-------- -------- --------
Corporate - - 20
-------- -------- --------
Intersegment Elimination (1,166) - -
-------- -------- --------
$171,567 $182,826 $138,268
======== ======== ========
Note J - Quarterly Financial Data (unaudited)
In the opinion of management, the following quarterly information includes all
adjustments necessary for a fair statement of the results of operations for such
periods. Earnings per common share are calculated using the weighted average
number of shares outstanding during each quarter. The total of all quarters may
differ from the earnings per common share shown on the Consolidated Statement of
Income, which is based on the weighted average number of shares outstanding for
the entire fiscal year. Because of the seasonal nature of the Company's heating
business, there are substantial variations in operations reported on a quarterly
basis.
Financial data for the quarter ended September 30, 1996 reflects the
after-tax net benefit of gas cost reconciliation adjustments of $2.7 million or
$0.07 per share, and the reversal of estimated lost and unaccounted-for gas
accrued in prior quarters of 1996 of $4.6 million, after-tax, or $0.12 per
share. These items were offset by an after-tax charge to earnings of $5.2
million, or $0.14 per share, related to a special early retirement offer to
certain salaried, non-union hourly and union employees of Distribution
Corporation and Supply Corporation. In addition, Horizon recognized a fourth
quarter after-tax charge to earnings of $3.8 million, or $0.10 per share,
related to its decision to withdraw from participation in the development of a
151 megawatt power plant near Kabirwala, Punjab Province, in east-central
Pakistan.
Financial data for the quarter ended September 30, 1995 reflects an
after-tax charge of $2.8 million, or $0.07 per share, related to Distribution
Corporation's recording of estimated gas costs for lost and unaccounted-for gas
in excess of that allowed to be recovered in rates. In addition, the quarter
ended September 30, 1995 includes an after-tax charge of $2.2 million recorded
by Supply Corporation establishing a reserve for previously deferred preliminary
survey and investigation charges related to a storage project.
<PAGE>
Net Income Earnings
Available for Per
Quarter Operating Operating Common Common
Ended Revenues Income Stock Share
- ------- --------- --------- ------------- --------
1996 (Thousands, except earnings per common share)
- ------------------------------------------------------------------------
12/31/95 $316,328 $46,344 $32,392 $ .87
3/31/96 $492,376 $69,631 $55,692 $1.48
6/30/96 $239,330 $29,687 $17,310 $ .46
9/30/96 $159,983 $11,784 $ (723) $(.02)
1995 (Thousands, except earnings per common share)
- ------------------------------------------------------------------------
12/31/94 $279,332 $43,288 $30,571 $ .82
3/31/95 $378,762 $56,457 $43,307 $1.16
6/30/95 $193,461 $18,987 $ 8,981 $ .24
9/30/95 $123,941 $ 5,667 $(6,965) $(.19)
Note K - Market for Common Stock and Related Shareholder Matters (unaudited)
At September 30, 1996, there were 21,640 holders of National Fuel Gas Company
common stock. The market for the common stock is the New York Stock Exchange.
Information related to restrictions on the payment of dividends can be found in
Note D - Capitalization. The quarterly price ranges and quarterly dividends
declared for the fiscal years ended September 30, 1996 and 1995, are shown
below:
Price Range Dividends
Quarter Ended High Low Declared
- ------------- ---- --- ---------
1996
----
12/31/95 $33-7/8 $28-1/2 $.405
3/31/96 $34-7/8 $31-3/8 $.405
6/30/96 $36-3/8 $33-3/4 $.42
9/30/96 $38 $33-3/8 $.42
1995
----
12/31/94 $30 $25-1/4 $.395
3/31/95 $28-1/2 $25 $.395
6/30/95 $30-3/4 $27-1/2 $.405
9/30/95 $29-5/8 $26-1/2 $.405
Note L - Supplementary Information for Oil and Gas Producing Activities
The following supplementary information is presented in accordance with SFAS 69,
"Disclosures about Oil and Gas Producing Activities," and related SEC accounting
rules.
Capitalized Costs Relating to Oil and Gas Producing Activities
At September 30 (Thousands) 1996 1995
---- ----
Capitalized Costs Subject to Amortization $570,815 $495,802
Capitalized Acquisition Costs Excluded
from Amortization 35,627 28,565
-------- --------
606,442 524,367
Less - Accumulated Depreciation, Depletion
and Amortization 233,743 188,241
-------- --------
$372,699 $336,126
======== ========
Certain costs excluded from amortization represent unevaluated
properties that require additional drilling to determine the existence of oil
<PAGE>
and gas reserves. The remaining costs, incurred during and prior to 1996,
consist of individually insignificant oil and gas leases still early in their
primary terms and individually insignificant unproved perpetual oil and gas
rights.
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development
Activities
Year Ended September 30 (Thousands) 1996 1995 1994
---- ---- ----
Property Acquisition Costs:
Proved $ 4,632 $13,186 $ 5,109
Unproved 12,879 12,119 3,106
Exploration Costs 33,191 18,588 17,855
Development Costs 32,747 25,161 25,102
Other 230 559 259
------- ------- -------
$83,679 $69,613 $51,431
======= ======= =======
Results of Operations for Producing Activities
Year Ended September 30 (Thousands) 1996 1995 1994
---- ---- ----
Operating Revenues:
Natural Gas (includes revenues from sales
to affiliates of $11,872, $8,650 and
$5,456, respectively) $ 91,018 $34,849 $50,803
Oil, Condensate and Other Liquids 33,978 11,948 15,307
-------- ------- -------
Total Operating Revenues 124,996 46,797 66,110
Production/Lifting Costs 15,196 11,215 13,177
Depreciation, Depletion and Amortization
($0.36, $0.44 and $0.41, respectively, per
dollar of operating revenues) 45,502 20,528 26,992
Income Tax Expense 22,069 4,301 7,907
-------- ------- -------
Results of Operations for Producing
Activities (excluding corporate overheads
and interest charges) $ 42,229 $10,753 $18,034
======== ======= =======
Reserve Quantity Information (unaudited)
The Company's proved oil and gas reserves are located in the United States. The
estimated quantities of proved reserves disclosed in the table below are based
upon estimates by qualified Company geologists and engineers and are audited by
independent petroleum engineers. Such estimates are inherently imprecise and may
be subject to substantial revisions as a result of numerous factors including,
but not limited to, additional development activity, evolving production
history, and continual reassessment of the viability of production under varying
economic conditions.
<PAGE>
Gas Oil
Year Ended MMcf Mbbl
---------------------- --------------------
September 30 1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
Proved Developed and
Undeveloped Reserves:
Beginning of Year 221,459 247,447 175,051 22,865 17,495 18,519
Extensions and
Discoveries 29,161 9,912 94,733 5,701 3,863 1,666
Revisions of
Previous Estimates (3,442) (21,046) (2,075) (1,173) (60) (1,660)
Production (38,767) (20,942) (23,273) (1,742) (739) (1,030)
Sales of Minerals in
Place (1,532) (4,685) (32) (27) (474) -
Purchases of Minerals
in Place and Other 203 10,773 3,043 125 2,780 -
------- ------- ------- ------ ------ ------
End of Year 207,082 221,459 247,447 25,749 22,865 17,495
======= ======= ======= ====== ====== ======
Proved Developed Reserves:
Beginning of Year 162,504 179,291 134,712 14,937 10,110 10,801
======= ======= ======= ====== ====== ======
End of Year 163,537 162,504 179,291 14,043 14,937 10,110
======= ======= ======= ====== ====== ======
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves (unaudited)
The Company cautions that the following presentation of the standardized measure
of discounted future net cash flows is intended to be neither a measure of the
fair market value of the Company's oil and gas properties, nor an estimate of
the present value of actual future cash flows to be obtained as a result of
their development and production. It is based upon subjective estimates of
proved reserves only and attributes no value to categories of reserves other
than proved reserves, such as probable or possible reserves, or to unproved
acreage. Furthermore, it is based on year-end prices and costs adjusted only for
existing contractual changes, and it assumes an arbitrary discount rate of 10%.
Thus, it gives no effect to future price and cost changes certain to occur under
the widely fluctuating political and economic conditions of today's world.
The standardized measure is intended instead to provide a somewhat
better means for comparing the value of the Company's proved reserves at a given
time with those of other oil- and gas-producing companies than is provided by a
simple comparison of raw proved reserve quantities.
Year Ended September 30 (Thousands) 1996 1995 1994
---- ---- ----
Future Cash Inflows $1,003,280 $738,711 $705,874
Less:
Future Production and Development Costs 294,778 272,268 252,901
Future Income Tax Expense at
Applicable Statutory Rate 221,956 129,055 131,060
---------- -------- --------
Future Net Cash Flows 486,546 337,388 321,913
Less:
10% Annual Discount for Estimated
Timing of Cash Flows 157,302 92,120 106,647
---------- -------- --------
Standardized Measure of Discounted Future
Net Cash Flows $ 329,244 $245,268 $215,266
========== ======== ========
<PAGE>
The principal sources of change in the standardized measure of
discounted future net cash flows were as follows:
Year Ended September 30 (Thousands) 1996 1995 1994
---- ---- ----
Standardized Measure of Discounted Future
Net Cash Flows at Beginning of Year $245,268 $215,266 $209,655
Sales, Net of Production Costs (109,801) (35,582) (52,933)
Net Changes in Prices, Net of
Production Costs 147,330 10,757 (48,149)
Purchases of Minerals in Place 770 18,602 2,793
Sales of Minerals in Place (1,141) (5,688) (29)
Extensions and Discoveries 93,864 47,236 96,134
Changes in Estimated Future
Development Costs (53,630) (50,366) (36,466)
Previously Estimated Development
Costs Incurred 42,780 39,833 22,941
Net Change in Income Taxes at
Applicable Statutory Rate (52,613) (6,838) 3,098
Revisions of Previous Quantity
Estimates (15,491) (20,934) (11,042)
Accretion of Discount and Other 31,908 32,982 29,264
-------- -------- --------
Standardized Measure of Discounted
Future Net Cash Flows at End of Year $329,244 $245,268 $215,266
======== ======== ========
<PAGE>
NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
(Thousands)
---------
Additions
----------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End of
Description of Period Expenses Accounts (Note) Period
- ----------- ---------- ---------- ---------- ---------- ----------
Year Ended September 30, 1996
- -----------------------------
Reserve for Doubtful
Accounts $5,924 $15,191 $ - $13,443 $7,672
====== ======= ====== ======= ======
Year Ended September 30, 1995
- -----------------------------
Reserve for Doubtful
Accounts $5,055 $15,187 $ - $14,318 $5,924
====== ======= ====== ======= ======
Year Ended September 30, 1994
- -----------------------------
Reserve for Doubtful
Accounts $5,739 $11,443 $ - $12,127 $5,055
====== ======= ====== ======= ======
Note - Amounts represent net accounts receivable written-off.
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
The information required by this item concerning the directors of the Company is
omitted pursuant to Instruction G of Form 10-K since the Company's definitive
Proxy Statement for its February 20, 1997 Annual Meeting of Shareholders will be
filed with the SEC not later than 120 days after September 30, 1996. The
information provided in such definitive Proxy Statement is incorporated herein
by reference. Information concerning the Company's executive officers can be
found in Part I, Item 1, of this report.
ITEM 11 Executive Compensation
The information required by this item is omitted pursuant to Instruction G of
Form 10-K since the Company's definitive Proxy Statement for its February 20,
1997 Annual Meeting of Shareholders will be filed with the SEC not later than
120 days after September 30, 1996. The information provided in such definitive
Proxy Statement is incorporated herein by reference.
ITEM 12 Security Ownership of Certain Beneficial Owners and Management
The information required by this item is omitted pursuant to Instruction G of
Form 10-K since the Company's definitive Proxy Statement for its February 20,
1997 Annual Meeting of Shareholders will be filed with the SEC not later than
120 days after September 30, 1996. The information provided in such definitive
Proxy Statement is incorporated herein by reference.
<PAGE>
ITEM 13 Certain Relationships and Related Transactions
At September 30, 1996, the Company knows of no relationships or transactions
required to be disclosed pursuant to Item 404 of Regulation S-K.
PART IV
-------
ITEM 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statement Schedules
All financial statement schedules filed as part of this report
are included in Item 8 of this Form 10-K and reference is made
thereto.
(b) Reports on Form 8-K
None
(c) Exhibits
Exhibit
Number Description of Exhibits
3(i) Articles of Incorporation:
* Restated Certificate of Incorporation of
National Fuel Gas Company, dated March 15,
1985 (Exhibit 10-OO, Form 10-K for fiscal
year ended September 30, 1991 in File No.
1-3880)
* Certificate of Amendment of Restated
Certificate of Incorporation of National
Fuel Gas Company, dated March 9, 1987
(Exhibit 3.1, Form 10-K for fiscal year
ended September 30, 1995 in File No. 1-3880)
* Certificate of Amendment of Restated
Certificate of Incorporation of National
Fuel Gas Company, dated February 22, 1988
(Exhibit 3.2, Form 10-K for fiscal year
ended September 30, 1995 in File No. 1-3880)
* Certificate of Amendment of Restated
Certificate of Incorporation, dated March
17, 1992 (Exhibit EX-3(a), Form 10-K for
fiscal year ended September 30, 1992 in File
No. 1-3880)
3(ii) By-Laws:
* National Fuel Gas Company By-Laws as amended
through June 9, 1994 (Exhibit 3.1, Form 10-K
for fiscal year ended September 30, 1994 in
File No. 1-3880) (See Exhibit 3.1 for
amendment intended to become effective in
January 1997)
3.1 Excerpts from Minutes from the National Fuel
Gas Company Board of Directors Meeting of
September 19, 1996 regarding compensation of
non-employee directors and related
amendments of By-Laws
(4) Instruments Defining the Rights of Security
Holders, Including Indentures:
* Indenture dated as of October 15, 1974,
between the Company and The Bank of New York
(formerly Irving Trust Company) (Exhibit
2(b) in File No. 2-51796)
* Third Supplemental Indenture dated as of
December 1, 1982, to Indenture dated as of
October 15, 1974, between the Company and
The Bank of New York (formerly Irving Trust
Company) (Exhibit 4(a)(4) in File No.
33-49401)
<PAGE>
* Ninth Supplemental Indenture dated as of
January 1, 1990, to Indenture dated as of
October 15, 1974, between the Company and
The Bank of New York (formerly Irving Trust
Company) (Exhibit EX-4.4, Form 10-K for
fiscal year ended September 30, 1992 in File
No. 1-3880)
* Tenth Supplemental Indenture dated as of
February 1, 1992, to Indenture dated as of
October 15, 1974, between the Company and
The Bank of New York (formerly Irving Trust
Company) (Exhibit 4(a), Form 8-K dated
February 14, 1992 in File No. 1-3880)
* Eleventh Supplemental Indenture dated as of
May 1, 1992, to Indenture dated as of
October 15, 1974, between the Company and
The Bank of New York (formerly Irving Trust
Company) (Exhibit 4(b), Form 8-K dated
February 14, 1992 in File No. 1-3880)
* Twelfth Supplemental Indenture dated as of
June 1, 1992, to Indenture dated as of
October 15, 1974, between the Company and
The Bank of New York (formerly Irving Trust
Company) (Exhibit 4(c), Form 8-K dated June
18, 1992 in File No. 1-3880)
* Thirteenth Supplemental Indenture dated as
of March 1, 1993, to Indenture dated as of
October 15, 1974, between the Company and
The Bank of New York (formerly Irving Trust
Company) (Exhibit 4(a)(14) in File No.
33-49401)
* Fourteenth Supplemental Indenture dated as
of July 1, 1993, to Indenture dated as of
October 15, 1974, between the Company and
The Bank of New York (formerly Irving Trust
Company) (Exhibit 4.1, Form 10-K for fiscal
year ended September 30, 1993 in File No.
1-3880)
4.1 Fifteenth Supplemental Indenture dated as of
September 1, 1996 to Indenture dated as of
October 15, 1974, between the Company and
The Bank of New York (formerly Irving Trust
Company)
* Rights Agreement between National Fuel Gas
Company and Marine Midland Bank dated June
12, 1996 (Exhibit 99.1, Form 8-K dated June
13, 1996 in File No. 1-3880)
(10) Material Contracts:
(ii) (B) Contracts upon which Registrant's business
is substantially dependent:
10.1 Service Agreement No. 830016 with Texas
Eastern Transmission Corporation, under Rate
Schedule FT-1, dated November 2, 1995
10.2 Service Agreement No. 830017 with Texas
Eastern Transmission Corporation, under
Rate Schedule FT-1, dated November 2, 1995
10.3 Service Agreement with Texas Eastern
Transmission Corporation, under Rate
Schedule CDS, dated November 2, 1995
10.4 Service Agreement between National Fuel Gas
Distribution Corporation and National Fuel
Gas Supply Corporation, under Rate Schedule
FSS, dated April 3, 1996 [Portions of this
agreement are subject to a request for
confidential treatment under Rule 24b-2]
<PAGE>
10.5 Service Agreement with St. Clair Pipelines
Ltd., dated January 29, 1996 [Portions of
this agreement are subject to a request for
confidential treatment under Rule 24b-2]
* Service Agreement with Empire State Pipeline
under Rate Schedule FT, dated December 15,
1994 [Portions of this agreement are subject
to confidential treatment under Rule 24b-2]
(Exhibit 10.1, Form 10-K for fiscal year
ended September 30, 1995, in File No.
1-3880)
* Service Agreement between National Fuel Gas
Distribution Corporation and National Fuel
Gas Supply Corporation under Rate Schedule
ESS dated August 1, 1993 (Exhibit 10.2, Form
10-K for fiscal year ended September 30,
1995, in File No. 1-3880)
* Service Agreement between National Fuel Gas
Distribution Corporation and National Fuel
Gas Supply Corporation under Rate Schedule
ESS dated September 19, 1995 (Exhibit 10.3,
Form 10-K for fiscal year ended September
30, 1995, in File No. 1-3880)
* Service Agreement between National Fuel Gas
Distribution Corporation and National Fuel
Gas Supply Corporation under Rate Schedule
EFT dated August 1, 1993 (Exhibit 10.4, Form
10-K for fiscal year ended September 30,
1995, in File No. 1-3880)
* Amendment dated as of May 1, 1995 to Service
Agreement between National Fuel Gas
Distribution Corporation and National Fuel
Gas Supply Corporation under Rate Schedule
EFT dated August 1, 1993 (Exhibit 10.5, Form
10-K for fiscal year ended September 30,
1995, in File No. 1-3880)
* Service Agreement with Transcontinental Gas
Pipe Line Corporation under Rate Schedule FT
dated August 1, 1993 (Exhibit 10.6, Form
10-K for fiscal year ended September 30,
1995, in File No. 1-3880)
* Service Agreement with Transcontinental Gas
Pipe Line Corporation under Rate Schedule FT
dated October 1, 1993 (Exhibit 10.7, Form
10-K for fiscal year ended September 30,
1995, in File No. 1-3880)
* Service Agreement with Columbia Gas
Transmission Corporation under Rate Schedule
FTS, dated November 1, 1993 and executed
February 13, 1994 (Exhibit 10.1, Form 10-K
for fiscal year ended September 30, 1994 in
File No. 1-3880)
* Service Agreement with Columbia Gas
Transmission Corporation under Rate Schedule
FSS, dated November 1, 1993 and executed
February 13, 1994 (Exhibit 10.2, Form 10-K
for fiscal year ended September 30, 1994 in
File No. 1-3880)
* Service Agreement with Columbia Gas
Transmission Corporation under Rate Schedule
SST, dated November 1, 1993 and executed
February 13, 1994 (Exhibit 10.3, Form 10-K
for fiscal year ended September 30, 1994 in
File No. 1-3880)
<PAGE>
* Gas Transportation Agreement with Tennessee
Gas Pipeline Company under Rate Schedule
FT-A (Zone 4), dated September 1, 1993
(Exhibit 10.1, Form 10-K for fiscal year
ended September 30, 1993 in File No. 1-3880)
* Gas Transportation Agreement with Tennessee
Gas Pipeline Company under Rate Schedule
FT-A (Zone 5), dated September 1, 1993
(Exhibit 10.2, Form 10-K for fiscal year
ended September 30, 1993 in File No. 1-3880)
* Service Agreement with CNG Transmission
Corporation under Rate Schedule FT, dated
October 1, 1993 (Exhibit 10.5, Form 10-K for
fiscal year ended September 30, 1993 in File
No. 1-3880)
* Service Agreement with CNG Transmission
Corporation under Rate Schedule GSS, dated
October 1, 1993 (Exhibit 10.6, Form 10-K for
fiscal year ended September 30, 1993 in File
No. 1-3880)
(iii) Compensatory plans for officers:
* Employment Agreement, dated September 17,
1981, with Bernard J. Kennedy (Exhibit 10.4,
Form 10-K for fiscal year ended September
30, 1994 in File No. 1-3880)
10.6 Ninth Extension to Employment Agreement with
Bernard J. Kennedy, dated September 19, 1996
* National Fuel Gas Company 1983 Incentive
Stock Option Plan, as amended and restated
through February 18, 1993 (Exhibit 10.2,
Form 10-Q for the quarterly period ended
March 31, 1993 in File No. 1-3880)
* National Fuel Gas Company 1984 Stock Plan,
as amended and restated through February 18,
1993 (Exhibit 10.3, Form 10-Q for the
quarterly period ended March 31, 1993 in
File No. 1-3880)
10.7 Amendment to the National Fuel Gas Company
1984 Stock Plan, dated December 11, 1996
* National Fuel Gas Company 1993 Award and
Option Plan, dated February 18, 1993
(Exhibit 10.1, Form 10-Q for the quarterly
period ended March 31, 1993 in File No.
1-3880)
10.8 Amendment to National Fuel Gas Company 1993
Award and Option Plan, dated December 11,
1996
* Amendment to National Fuel Gas Company 1993
Award and Option Plan, dated October 27,
1995 (Exhibit 10.8, Form 10-K for fiscal
year ended September 30, 1995 in File No.
1-3880)
10.9 National Fuel Gas Company 1997 Award and
Option Plan
* Change in Control Agreement, dated May 1,
1992, with Philip C. Ackerman (Exhibit
EX-10.4, Form 10-K for fiscal year ended
September 30, 1992 in File No. 1-3880)
* Change in Control Agreement, dated May 1,
1992, with Richard Hare (Exhibit EX-10.5,
Form 10-K for fiscal year ended September
30, 1992 in File No. 1-3880)
<PAGE>
* Agreement, dated August 1, 1989, with
Richard Hare (Exhibit 10-Q, Form 10-K for
fiscal year ended September 30, 1989 in File
No. 1-3880)
* National Fuel Gas Company Deferred
Compensation Plan, as amended and restated
through May 1, 1994 (Exhibit 10.7, Form 10-K
for fiscal year ended September 30, 1994 in
File No. 1-3880)
10.10 Amendment to the National Fuel Gas Company
Deferred Compensation Plan, dated September
19, 1996
* Amendment to National Fuel Gas Company
Deferred Compensation Plan, dated September
27, 1995 (Exhibit 10.9, Form 10-K for fiscal
year ended September 30, 1995 in File No.
1-3880)
* Split Dollar Death Benefits Agreement, dated
April 1, 1991, with Philip C. Ackerman
(Exhibit 10.10, Form 10-K for fiscal year
ended September 30, 1994 in File No.
1-3880)
10.11 Amendment to April 1, 1991 Death Benefits
Agreement, dated January 8, 1996, with
Philip C. Ackerman
* Split Dollar Death Benefits Agreement, dated
April 1, 1991, with Richard Hare (Exhibit
10.9, Form 10-K for fiscal year ended
September 30, 1994 in File No. 1-3880)
10.12 Amendment to April 1, 1991 Death Benefits
Agreement, dated January 8, 1996, with
Richard Hare
* Executive Death Benefits Agreement, dated
April 1, 1991, with William J. Hill (Exhibit
EX-10.8, Form 10-K for fiscal year ended
September 30, 1992 in File No. 1-3880)
* Death Benefits Agreement, dated August 28,
1991, with Bernard J. Kennedy (Exhibit
10-TT, Form 10-K for fiscal year ended
September 30, 1991 in File No. 1-3880)
* Amendment to Death Benefit Agreement of
August 28, 1991, with Bernard J. Kennedy,
dated March 15, 1994 (Exhibit 10.11, Form
10-K for fiscal year ended September 30,
1995 in File No. 1-3880)
* National Fuel Gas Company and Participating
Subsidiaries Executive Retirement Plan as
amended and restated through November 1,
1995 (Exhibit 10.10, Form 10-K for fiscal
year ended September 30, 1995 in File No.
1-3880)
10.13 National Fuel Gas Company and Participating
Subsidiaries 1996 Executive Retirement Plan
Trust Agreement (II) dated May 10, 1996
* Summary of Annual at Risk Compensation
Incentive Program (Exhibit 10.10, Form 10-K
for fiscal year ended September 30, 1993 in
File No. 1-3880)
10.14 Administrative Rules with Respect to at Risk
Awards under the 1993 Award and Option Plan
10.15 Administrative Rules of the Compensation
Committee of the Board of Directors of
National Fuel Gas Company as amended through
December 11, 1996
<PAGE>
* Excerpts of Minutes from the National Fuel
Gas Company Board of Directors Meeting of
December 5, 1991 regarding change in control
agreements, non-employee director retirement
plan, and restrictions on restricted stock
(Exhibit 10-UU, Form 10-K for fiscal year
ended September 30, 1991 in File No. 1-3880)
10.16 Form of Change in Control Agreement, dated
May 1, 1992, with Walter E. DeForest, Bruce
H. Hale, Joseph P. Pawlowski, Dennis J.
Seeley, David F. Smith and Gerald T.
Wehrlin, and dated March 16, 1995, with
James A. Beck
(12) Computation of Ratio of Earnings to Fixed
Charges
(13) Letter to Shareholders as contained in the
1996 Annual Report and incorporated by
reference into this Form 10-K
(21) Subsidiaries of the Registrant:
See Item 1 of Part I of this Annual Report
on Form 10-K
(23) Consents of Experts and Counsel:
23.1 Consent of Ralph E. Davis Associates, Inc.
23.2 Consent of Independent Accountants
(27) Financial Data Schedules
(99) Additional Exhibits:
99.1 Report of Ralph E. Davis Associates, Inc.
All other exhibits are omitted because they are not applicable or the
required information is shown elsewhere in this Annual Report on Form 10-K.
* Incorporated herein by reference as indicated.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
National Fuel Gas Company
(Registrant)
----------------------------------
By /s/ B. J. Kennedy
-------------------------------
B. J. Kennedy
Chairman of the Board, President
Date: December 13, 1996 and Chief Executive Officer
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title
--------- -----
/s/ B. J. Kennedy Chairman of the Board,
------------------------
B. J. Kennedy President, Chief Executive
Officer and Director
Date: December 13, 1996
-------------------
/s/ P. C. Ackerman Senior Vice President, Principal
------------------------
P. C. Ackerman Financial Officer and Director
Date: December 13, 1996
-------------------
/s/ R. T. Brady Director
------------------------
R. T. Brady
Date: December 13, 1996
-------------------
/s/ W. J. Hill Director
------------------------
W. J. Hill
Date: December 13, 1996
-------------------
/s/ L. F. Kahl Director
------------------------
L. F. Kahl
Date: December 13, 1996
-------------------
/s/ B. S. Lee Director
------------------------
B. S. Lee
Date: December 13, 1996
-------------------
/s/ E. T. Mann Director
------------------------
E. T. Mann
Date: December 13, 1996
-------------------
<PAGE>
/s/ G. L. Mazanec Director
------------------------
G. L. Mazanec
Date: December 13, 1996
-------------------
/s/ L. Rochwarger Director
------------------------
L. Rochwarger
Date: December 13, 1996
-------------------
/s/ G. H. Schofield Director
------------------------
G. H. Schofield
Date: December 13, 1996
-------------------
/s/ J. P. Pawlowski Treasurer and Principal
------------------------
J. P. Pawlowski Accounting Officer
Date: December 13, 1996
-------------------
/s/ A. M. Cellino Secretary
------------------------
A. M. Cellino
Date: December 13, 1996
-------------------
/s/ G. T. Wehrlin Controller
------------------------
G. T. Wehrlin
Date: December 13, 1996
-------------------
<PAGE>
APPENDIX TO ITEM 2 - PROPERTIES
Four maps outlining the Company's operating areas at September 30, 1996
are included on the inside foldout cover of the paper format version of
the Company's combined Annual Report to Shareholders/Form 10-K, but are
not included in this electronic filing. The first map identifies the
Company's Utility Operating area (i.e., Distribution Corporation's service
area). The second map identifies the Company's Pipeline and Storage
operating area (i.e., Supply Corporation's storage areas and pipelines).
The third map identifies the Company's Exploration and Production
operating area (i.e., Seneca Resources' operating area). The fourth map
identifies the geographic location of the Company's Other Nonregulated
operating areas (i.e., NFR's marketing office, Horizon's Czech Republic
operations and Highland's sawmill operations).
APPENDIX TO ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION - GRAPHS
A. The Revenue Dollar - 1996
Two pie graphs detailing the revenue dollar in 1996: where it came from
and where it went to, broken down as follows:
Where it came from:
$ .560 Residential Sales
.182 Commercial, Industrial and Off-System Sales
.094 Oil and Gas Revenues
.067 Transportation Revenues
.049 Marketing Revenues
.032 Storage Service Revenues
.016 Other Revenues
$1.000 Total
Where it went to:
$ .394 Gas Purchased
.157 Wages, Including Benefits
.136 Taxes
.098 Other Materials and Services
.081 Depreciation
.051 Dividends - Common Stock
.047 Interest
.036 Reinvested in the Business
$1.000 Total
B. Capital Expenditures
A bar graph detailing capital expenditures (millions of dollars) for the
years 1992 through 1996, broken down as follows:
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Other Nonregulated $ 7.2 $ 6.2 $ 3.6 $ 9.6 $ 3.2
Pipeline and Storage 58.7 27.4 20.5 38.7 22.2
Utility 65.7 61.8 61.7 64.8 62.6
Exploration and Production 26.3 36.5 52.5 69.7 83.6
------ ------ ------ ------ ------
$157.9 $131.9 $138.3 $182.8 $171.6
<PAGE>
APPENDIX TO ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION - GRAPHS (Concluded)
C. Capitalization Ratios
A bar graph detailing capitalization (percentage) for the years 1992
through 1996, broken down as follows:
Debt (%) Equity (%)
1992 54.5 45.5
1993 47.8 52.2
1994 46.2 53.8
1995 47.0 53.0
1996 47.5 52.5
D. Book Value Per Common Share
A bar graph detailing book value per common share (dollars) for the years
1992 through 1996, as follows:
1992 - $18.68
1993 - 20.08
1994 - 20.93
1995 - 21.39
1996 - 22.61
<PAGE>
Exhibit Index
3.1 Excerpts from Minutes from the National Fuel Gas Company Board of
Directors Meeting of September 19, 1996 regarding compensation of
non-employee directors and related amendments of By-Laws
4.1 Fifteenth Supplemental Indenture dated as of September 1, 1996 to
Indenture dated as of October 15, 1974, between the Company and The
Bank of New York (formerly Irving Trust Company)
10.1 Service Agreement No. 830016 with Texas Eastern Transmission
Corporation, under Rate Schedule FT-1, dated November 2, 1995
10.2 Service Agreement No. 830017 with Texas Eastern Transmission
Corporation, under Rate Schedule FT-1, dated November 2, 1995
10.3 Service Agreement with Texas Eastern Transmission Corporation, under
Rate Schedule CDS, dated November 2, 1995
10.4 Service Agreement between National Fuel Gas Distribution Corporation
and National Fuel Gas Supply Corporation, under Rate Schedule FSS,
dated April 3, 1996 [Portions of this agreement are subject to a
request for confidential treatment under Rule 24b-2]
10.5 Service Agreement with St. Clair Pipelines Ltd., dated January 29,
1996 [Portions of this agreement are subject to a request for
confidential treatment under Rule 24b-2]
10.6 Ninth Extension to Employment Agreement with Bernard J. Kennedy, dated
September 19, 1996
10.7 Amendment to the National Fuel Gas Company 1984 Stock Plan, dated
December 11, 1996.
10.8 Amendment to National Fuel Gas Company 1993 Award and Option Plan,
dated December 11, 1996
10.9 National Fuel Gas Company 1997 Award and Option Plan
10.10 Amendment to the National Fuel Gas Company Deferred Compensation Plan,
dated September 19, 1996
10.11 Amendment to April 1, 1991 Death Benefits Agreement, dated January 8,
1996, with Philip C. Ackerman
10.12 Amendment to April 1, 1991 Death Benefits Agreement, dated January 8,
1996, with Richard Hare
10.13 National Fuel Gas Company and Participating Subsidiaries 1996
Executive Retirement Plan Trust Agreement (II) dated May 10, 1996
10.14 Administrative Rules with Respect to at Risk Awards under the 1993
Award and Option Plan
10.15 Administrative Rules of the Compensation Committee of the Board of
Directors of National Fuel Gas Company as amended through December 11,
1996
10.16 Form of Change in Control Agreement, dated May 1, 1992, with Walter E.
DeForest, Bruce H. Hale, Joseph P. Pawlowski, Dennis J. Seeley, David
F. Smith and Gerald T. Wehrlin, and dated March 16, 1995, with James
A. Beck
(12) Computation of Ratio of Earnings to Fixed Charges
(13) Letter to Shareholders as contained in the 1996 Annual Report and
incorporated by reference into this Form 10-K
23.1 Consent of Ralph E. Davis Associates, Inc.
23.2 Consent of Independent Accountants
27.1 Financial Data Schedule for 12 months ending September 30, 1996
27.2 Financial Data Schedule for 12 months ending September 30, 1995,
Restated
27.3 Financial Data Schedule for 12 months ending September 30, 1994,
Restated
99.1 Report of Ralph E. Davis Associates, Inc.
EXCERPT FROM MINUTES OF
BOARD OF DIRECTORS MEETING
September 19, 1996
Whereupon, after discussion, upon motion duly made by Mr.
Ackerman and seconded by Mr. Mann, the following resolutions were unanimously
adopted:
RESOLVED: That, with respect to the National Fuel Gas Company
Retirement Plan for Non-Employee Directors
("Directors' Retirement Plan"), which was previously
adopted by this Board on December 5, 1991 (i) all
accruals of benefits thereunder shall cease as of
December 31, 1996, or as of February 20, 1997 in the
case of Mr. Rochwarger; (ii) all current Company
directors who are not vested under the Directors'
Retirement Plan shall become immediately
vested;(iii) all current directors who subsequently
retire shall receive benefits under the Directors'
Retirement Plan, based upon their accrued benefits,
and payable in accordance with the current terms
thereof; and (iv) all persons who become directors
of the Company on or after September 19, 1996 shall
being ineligible for any benefits under the
Directors Retirement Plan; and it is
FURTHER RESOLVED: That non-employee directors shall be paid $500 for
each special consultation as a director that is with
or at the request of the Company's chief executive
officer; and it is
FURTHER RESOLVED: That the Board's current guidelines, whereby
directors should purchase the greater of 100 shares
of Company stock or Company stock costing at least
$3,000 per calendar year, are hereby revoked, and
that any past failures to comply with these
guidelines are hereby excused; and it is
FURTHER RESOLVED: That, effective January 1, 1997, the Board retainer
policy for non-employees directors (except Mr.
Rochwarger, who shall continue to receive a retainer
pursuant to current policy, until he retires from
the Board) shall be as follows: (i) such directors
shall receive a quarterly retainer, payable as of
the first business day of each calendar quarter, of
$3,000, payable by check, plus 100 shares of Company
common stock; (ii) the first payment of stock shall
be delayed in the unlikely event that the regulatory
approvals (as described below) are delayed; (iii)
the payments described above shall, to the extent
practicable, be prorated for a quarter during which
a non-employee director has only partial service;
and (iv) the shares of Company common stock thereby
issued to non-employee directors shall not be
transferable by directors until the later of two
years after the issuance of the shares or six months
after the director's cessation of service as a
director; and it is
FURTHER RESOLVED: That the stock certificates representing such shares
shall bear thereon a legend that shall read
substantially as follows: "Transfer of the shares of
common stock represented by this certificate cannot
occur until the later of two years from the date of
the certificate or six months after the owner ceases
to serve as a director of National Fuel Gas
Company."; and it is
FURTHER RESOLVED: That 100,000 shares of common stock, either
original issue shares or treasury shares, be, and
hereby are, reserved for issuance to non-employee
Company directors pursuant to the amended retainer
policy for such directors as heretofore approved by
these resolutions; and it is
FURTHER RESOLVED: That the Board shall, on an annual basis, monitor
the Company common stock component of the amended
retainer policy for non-employee Company directors
approved by these resolutions, and shall make such
adjustments, if any, therein as the Board, in its
discretion, may deem appropriate in light of then
existing circumstances (including, but not limited
to, the then existing market value of the Company
common stock); and it is
FURTHER RESOLVED: That the officers and counsel of the Company be,
and hereby are, authorized and empowered to prepare
and file all documents and take all other actions as
they may deem necessary or appropriate to accomplish
the intents and purposes of the foregoing
resolutions, including the filing of an application
or declaration on Form U-1 with the Securities and
Exchange Commission, and a listing application with
the New York Stock Exchange, under which filings
100,000 shares shall be allocated for the provision
of Company common stock to non-employee directors,
and all documents necessary concerning stockholder
approval of the issuance of Company common stock to
such directors, and that they shall be authorized to
make such modifications to the share allocations as
they shall deem appropriate, and to the policy as
set forth in the foregoing resolutions as may be
necessitated by such bodies; and it is
FURTHER RESOLVED: That, effective January 1, 1997, Article II,
Paragraph 9 of the By-Laws of the Company be
amended to read as follows:
A. Except with respect to directors whose service
as such ceases on or before February 20, 1997,
who will continue to receive the
previously-effective Director compensation until
such time, each Director who is not a regular
full-time employee of the Corporation or one or
more of its subsidiaries, shall be paid an
annual fee of $12,000 in cash and 400 shares of
the common stock of the Corporation, payable in
equal quarterly increments, in advance (i.e., as
of the first business day of the quarter). There
will be a proration of payments during quarters
in which such Director has only partial service.
Each such Company stock certificate will be
nontransferable until the later of two years
from issuance or six months after such
Directors' cessation of service.
B. Each Director of the Corporation who is not a
regular full-time employee of the Corporation or
one or more of its subsidiaries shall also
receive a fee of $1,000 for attendance at any
meeting of the Board of Directors and a fee of
$800 for attendance at any meeting of any
committee of the Board of Directors, except that
if a Director participates in a committee
meeting by telephone, the fee shall be $500.
Each Director shall be reimbursed for the travel
expenses incurred by him or her in attending any
meeting of the Board of Directors or any
committee of the Board of Directors.
- -------------------------------------------------------------------------------
NATIONAL FUEL GAS COMPANY
TO
THE BANK OF NEW YORK
(formerly Irving Trust Company)
TRUSTEE
FIFTEENTH SUPPLEMENTAL INDENTURE
Dated as of September 1, 1996
TO
INDENTURE
Dated as of October 15, 1974
A Series of Debentures designated
MEDIUM-TERM NOTES, SERIES D
due from nine months to 40 years from date of issue
- -------------------------------------------------------------------------------
<PAGE>
FIFTEENTH SUPPLEMENTAL INDENTURE dated as of September 1, 1996, made and entered
into by and between NATIONAL FUEL GAS COMPANY, a corporation of the State of New
Jersey, with its Post Office address at 10 Lafayette Square, Buffalo, New York
14203 (hereinafter sometimes called the Company), party of the first part, and
THE BANK OF NEW YORK (formerly Irving Trust Company), a corporation of the State
of New York, whose Post Office address is 101 Barclay Street, New York, New York
10286 (hereinafter sometimes called the Trustee), party of the second part, as
Trustee under the Indenture dated as of October 15, 1974 executed and delivered
by the Company:
WHEREAS the aforesaid Indenture dated as of October 15, 1974
(herein with all indentures supplemental thereto called the Indenture) provides
for the issuance of fully registered debentures in one or more series
(hereinafter called the Debentures), unlimited in aggregate principal amount;
and
WHEREAS the Indenture provides that the Company and the Trustee
may enter into indentures supplemental thereto for the purpose of setting forth
the terms and provisions of each series of Debentures from time to time issued;
and
WHEREAS the Company has determined to create the thirteenth series
of Debentures, and all things necessary to make this Fifteenth Supplemental
Indenture a valid, binding and legal instrument supplemental to the Indenture
have been performed and the issuance of said thirteenth series of Debentures,
subject to the terms of the Indenture, has been in all respects duly authorized;
NOW, THEREFORE, THIS INDENTURE WITNESSETH: that in order to set
forth the terms and provisions of said thirteenth series of Debentures and in
consideration of the premises and of the purchase and acceptance of said
Debentures by the Holders thereof, and in consideration of the sum of One Dollar
by the Trustee to the Company paid, receipt whereof is hereby acknowledged, the
Company hereby agrees and provides, for the equal and proportionate benefit of
the respective holders from time to time of the Debentures, as follows:
ARTICLE ONE
THIRTEENTH SERIES OF DEBENTURES
SECTION 1. There shall be a series of Debentures designated
"Medium-Term Notes, Series D" (herein sometimes referred to as the 'Thirteenth
Series"), due from nine months to 40 years from the date of issue, limited to an
aggregate principal amount of Five Hundred Million Dollars ($500,000,000) except
as otherwise provided in the Indenture.
2
<PAGE>
The form of the Debentures of the Thirteenth Series, which shall
be established by Resolution of the Board of Directors, shall contain suitable
provisions with respect to the matters hereinafter specified.
SECTION 2. Each Debenture of the Thirteenth Series shall mature on
such date not less than nine months nor more than 40 years from the date of
issue; shall bear interest at such rate or rates (which may be either fixed or
variable), payable semi-annually on the first day of such months in each year
(each an interest payment date) and at maturity and shall have such other terms
and provisions not inconsistent with the Indenture as the Board of Directors may
determine in accordance with a Resolution filed with the Trustee referring to
this Fifteenth Supplemental Indenture; and the principal of, and the premium, if
any, and the interest on, each said Debenture shall be paid at the office or
agency of the Company in the Borough of Manhattan, The City of New York, in such
coin or currency of the United States of America as at the time of payment is
legal tender for public and private debts; provided, that, at the option of the
Company, interest may be payable by check mailed to the address of the person
entitled thereto as such address shall appear on the Debenture register or by a
federal wire transfer to such person in accordance with written instructions
received by the Company from such person. Debentures of the Thirteenth Series of
a designated interest rate, interest payment dates and maturity authenticated
for original issue shall be dated the date of authentication and shall bear
interest from the Original Interest Accrual Date hereinafter specified.
Notwithstanding the foregoing, so long as there is no existing
default in the payment of interest on the Debentures, all Debentures of the
Thirteenth Series authenticated by the Trustee after the Record Date hereinafter
specified for any interest payment date and prior to such interest payment date
(unless the Issue Date is after such Record Date) shall be dated the date of
authentication but shall bear interest from such interest payment date, subject
to the provisos and exceptions of Section 2.02 of the Indenture, and the person
in whose name any Debenture is registered at the close of business on any Record
Date with respect to any interest payment date shall be entitled to receive the
interest payable on such interest payment date notwithstanding the cancellation
of such Debenture upon any transfer or exchange thereof subsequent to such
Record Date and on or prior to such interest payment date, subject to the
provisos and exceptions of Section 2.02 and all as provided in Section 2.02,
provided that interest payable on the maturity date will be payable to the
person to whom the principal of the Debenture shall be payable. If the Issue
Date of the Debentures of the Thirteenth Series of a designated interest rate,
interest payment dates and maturity is after such Record Date and prior to the
next succeeding interest payment date, such Debentures shall bear interest from
the Original Interest Accrual Date but payment of interest shall commence on the
second interest payment date succeeding the Issue Date. Ile Record Date for the
interest payable on an interest payment date on the Debentures of the Thirteenth
Series is the fifteenth day of the month next preceding such interest payment
date.
3
<PAGE>
"Original Interest Accrual Date" with respect to Debentures of the Thirteenth
Series of a designated interest rate, interest payment dates and maturity shall
mean the date of the first authentication of Debentures of such designated
interest rate, interest payment dates and maturity unless the Board of Directors
shall deter-mine another date from which interest shall accrue in accordance
with a Resolution filed with the Trustee referring to this Fifteenth
Supplemental Indenture, then such other date for Debentures of such designated
interest rate, interest payment dates and maturity. "Issue Date" with respect to
Debentures of the Thirteenth Series of a designated interest rate, interest
payment dates and maturity shall mean the date of the first authentication of
Debentures of such designated interest rate, interest payment dates and
maturity.
SECTION 3. Each Debenture of the Thirteenth Series may be
redeemable at the option of the Company in whole at any time, or in part from
time to time, prior to maturity, as the Board of Directors may determine in
accordance with a Resolution filed with the Trustee referring to this Fifteenth
Supplemental Indenture.
Redemption of any Debentures of the Thirteenth Series shall be
made in accordance with the provisions of Sections 5.02, 5.03 and 5.04 of the
Indenture.
ARTICLE TWO
MISCELLANEOUS PROVISIONS
SECTION 4. The holders of Debentures of the Thirteenth Series
consent that the Company may, but shall not be -obligated to, fix a record date
for the purpose of determining the holders of Debentures of the Thirteenth
Series entitled to consent to any amendment, supplement or waiver to or under
the Indenture. If a record date is fixed, those persons who were holders at such
record date (or their duly designated proxies), and only those persons, shall be
entitled to consent to such amendment, supplement or waiver or to revoke any
consent previously given, whether or not such persons continue to be holders
after such record date. No such consent shall be valid or effective for more
than 90 days after such record date.
SECTION 5. The recitals of fact contained in this Fifteenth
Supplemental Indenture and in the Debentures of the Thirteenth Series (other
than the certificate of authentication) shall be taken as the statements of the
Company and the Trustee assumes no responsibility for the correctness of the
same. The Trustee makes no representations as to the validity of this Fifteenth
Supplemental Indenture or of the Debentures of the Thirteenth Series.
SECTION 6. The titles of the several Articles of this Fifteenth
Supplemental Indenture shall not be deemed to be any part hereof.
SECTION 7. This Fifteenth Supplemental Indenture may be executed
in any number of counterparts, each of which so executed shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same instrument.
4
<PAGE>
IN WITNESS WHEREOF, said NATIONAL FUEL GAS COMPANY has caused this
instrument to be executed in its corporate name by its Chairman of the Board,
President or a Vice President, and its corporate seal to be hereunto affixed and
to be attested by its Secretary or an Assistant Secretary, and said THE BANK OF
NEW YORK (formerly Irving Trust Company) has caused this instrument to be
executed in its corporate name by one of its Vice Presidents or one of its
Assistant Vice Presidents, and its corporate seal to be hereunto affixed and to
be attested by one of its Assistant Treasurers, all as of September 1, 1996.
NATIONAL FUEL GAS COMPANY
BY /s/ P. C. Ackerman
-------------------------------------
Attest:
/a/ A. M. Cellino
- ---------------------------------
THE BANK OF NEW YORK
BY /s/ Remo J. Reale
-------------------------------------
Attest:
/s/ Byron Marino
- ---------------------------------
5
<PAGE>
STATE OF NEW YORK )
COUNTY OF ERIE ) SS:
On the 30th day of September, in the year 1996, before me
personally came P. C. Ackerman, to me known, who, being by me duly sworn, did
depose and say that he resides at 20 South Meadow Drive, Orchard Park, New York,
14127 ; that he is the Senior Vice President of NATIONAL FUEL GAS COMPANY, one
of the corporations described in and which executed the foregoing instrument;
that he knows the seal of said corporation; that the seal affixed to said
instrument bearing the corporate name of said corporation is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation; and that he signed his name thereto by like order.
/s/ Curtis W. Lee
---------------------------------------
Curtis W. Lee
NOTARY PUBLIC, State of New York
Qualified in Erie County
Commission Expires March 30, 1997
6
<PAGE>
STATE OF NEW YORK )
COUNTY OF NEW YORK ) SS:
On the 30th day of September, in the year 1996, before me
personally came Remo J. Reale, to me known, who, being by me duly sworn, did
depose and say that he resides at I 1 1 Jackson Street, Garden City, NY 1 1530;
that he is an Assistant Vice President of THE BANK OF NEW YORK (formerly Irving
Trust Company), one of the corporations described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument bearing the corporate name of said corporation is
such corporate seal; that it was so affixed by order of the Board of Directors
of said corporation; and that he signed his name thereto by like order.
/s/ Susan Fields
--------------------------------------
Susan Fields
NOTARY PUBLIC, State of New York
(No. 31-4980055)
Qualified in New York County
Commission Expires April 8, 1997
7
NATIONAL FUEL GAS COMPANY
and
MARINE MIDLAND BANK, Rights Agent
RIGHTS AGREEMENT
Dated as of June 12, 1996
TABLE OF CONTENTS
Page
RIGHTS AGREEMENT
Section 1. Certain Definitions....................................1
Section 2. Appointment of Rights Agent............................6
Section 3. Issue of Right Certificates............................6
Section 4. Form of Right Certificates.............................8
Section 5. Countersignature and Registration......................9
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen
Right Certificates.....................................9
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights.............................10
Section 8. Cancellation and Destruction of
Right Certificates....................................12
Section 9. Reservation and Availability of
Shares of Common Stock................................12
Section 10. Common Stock Record Date..............................14
Section 11. Adjustment of Purchase Price, Number
of Shares or Number of Rights.........................14
Section 12. Certificate of Adjusted Purchase
Price or Number of Shares.............................21
Section 13. Consolidation, Merger or Sale or
Transfer of Assets or Earning Power...................21
Section 14. Fractional Rights and Fractional
Shares................................................23
Section 15. Rights of Action......................................24
Section 16. Agreement of Right Holders............................24
Section 17. Right Certificate Holder Not Deemed a
Stockholder...........................................25
Section 18. Concerning the Rights Agent...........................25
Section 19. Merger or Consolidation or Change of
Name of Rights Agent..................................26
Section 20. Duties of Rights Agent................................27
Section 21. Change of Rights Agent................................29
Section 22. Issuance of New Right Certificates....................30
Section 23. Redemption and Termination............................30
Section 24. Exchange..............................................31
Section 25. Notice of Certain Events..............................32
Section 26. Notices...............................................33
Section 27. Supplements and Amendments............................33
Section 28. Successors............................................34
Section 29. Determinations and Actions by the
Board of Directors....................................34
Section 30. Benefits of This Agreement............................35
Section 31. Severability..........................................35
Section 32. Governing Law.........................................35
Section 33. Counterparts..........................................35
Section 34. Descriptive Headings..................................35
Exhibit A - Form of Right Certificate.............................A-1
Form of Assignment.....................................A-5
Certificate............................................A-6
Notice.................................................A-7
Form of Election to Purchase...........................A-8
Exhibit B - Summary of Rights to Purchase
Common Stock...........................................B-1
RIGHTS AGREEMENT
Rights Agreement, dated as of June 12, 1996 (the "Agreement"), between
National Fuel Gas Company, a New Jersey corporation (the "Company"), and Marine
Midland Bank, a trust company organized under the laws of the State of New York
(the "Rights Agent").
W I T N E S S E T H
WHEREAS, the Board of Directors of the Company on March 19,
1996 ("Rights Dividend Declaration Date") authorized and declared a dividend
distribution (the "Distribution") of one Right for each share of Common Stock,
$1.00 par value, of the Company (the "Common Stock") outstanding at the close of
business on July 31, 1996 (the "Record Date") and has further authorized and
directed the issuance of one Right (as such number may hereinafter be adjusted
pursuant to the provisions of Section 11(i) hereof) for each share of Common
Stock issued (whether originally issued or delivered from the Company's treasury
stock) between the Record Date and the earlier of the Distribution Date or the
Expiration Date (as such terms are hereinafter defined), each Right initially
representing the right to purchase one-half of one share of Common Stock, upon
the terms and subject to the conditions hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and
the mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of securities of the
Company constituting a Substantial Block (as such term is hereinafter defined),
but shall not include (i) the Company, any Subsidiary (as such term is
hereinafter defined) of the Company, any employee benefit plan of the Company or
of any Subsidiary of the Company or any Person organized, appointed or
established by the Company or any Subsidiary of the Company for or pursuant to
the terms of any such plan, (ii) any Person who or which, together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of a
Substantial Block solely as a result of a change in the aggregate number of
shares of Voting Stock (as such term is hereinafter defined) outstanding since
the last date on which such Person acquired Beneficial Ownership of any shares
of the Voting Stock constituting all or a portion of such Substantial Block; and
(iii) any Person who or which, together with all Affiliates and Associates of
such Person, becomes the Beneficial Owner of a Substantial Block in the good
faith belief that such acquisition would not (x) cause such Person and its
Affiliates and Associates to become the Beneficial Owner of a Substantial Block
and such Person relied in good faith in computing the percentage of its voting
power on publicly filed reports or documents of the Company which are inaccurate
or out-of-date or (y) otherwise cause a Distribution Date or the adjustment
provided for in Section 11(a) to occur. Notwithstanding clause (ii) or (iii) of
the prior sentence, if any Person that is not an Acquiring Person due to such
clause (ii) or (iii) does not cease to be the Beneficial Owner of a Substantial
Block by the close of business on the fifth Business Day (as such term is
hereinafter defined) after notice from the Company (the date of notice being the
first Business Day) that such Person is the Beneficial Owner of a Substantial
Block, such Person shall, at the end of such five Business Day period, become an
Acquiring Person (and such clause (ii) or (iii) shall no longer apply to such
Person). For purposes of this definition, the determination whether any Person
acted in "good faith" shall be conclusively determined by the Board of Directors
of the Company, acting by a vote of those directors of the Company whose
approval would be required to redeem the Rights under Section 23.
(b) "Act" shall have the meaning set forth in Section
9(c) hereof.
(c) "Adjustment Shares" shall have the meaning set
forth in Section 11(a)(ii) hereof.
(d) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date hereof.
(e) "Agreement" shall have the meaning set forth in
the introduction hereto.
(f) A Person shall be deemed the "Beneficial Owner"
of, and shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such
Person's Affiliates or Associates has, directly or indirectly, the right to
acquire (whether such right is exercisable immediately or only after the passage
of time or upon the occurrence of an event) pursuant to any agreement,
arrangement or understanding (whether or not in writing), or upon the exercise
of conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," (1) securities tendered pursuant to a
tender or exchange offer made by such Person or any of such Person's Affiliates
or Associates until such tendered securities are accepted for purchase or
exchange, (2) securities issuable upon exercise of Rights at any time prior to
the occurrence of a Triggering Event (as such term is hereinafter defined), or
(3) securities issuable upon exercise of Rights from and after the occurrence of
a Triggering Event, which Rights were acquired by such Person or any of such
Person's Affiliates or Associates prior to the Distribution Date or pursuant to
Section 3(a) hereof ("Original Rights") or pursuant to Section 11(i) or Section
22 hereof in connection with an adjustment made with respect to Original Rights;
or
(ii) which such Person or any of such
Person's Affiliates or Associates has, directly or indirectly, the right to vote
or dispose of or has "beneficial ownership" of (as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange Act), including
pursuant to any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," any security under this subparagraph (ii)
if the agreement, arrangement or understanding to vote such security (1) arises
solely from a revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules and
regulations of the Exchange Act and (2) is not then reportable on Schedule 13D
under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned,
directly or indirectly, by any other Person with which such Person or any of
such Person's Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in the proviso to
subparagraph (ii) of this paragraph (f)) or disposing of any securities of the
Company.
Notwithstanding the foregoing, nothing contained in this definition shall cause
a Person ordinarily engaged in business as an underwriter of securities to be
the "Beneficial Owner" of, or to "beneficially own," any securities acquired in
a bona fide firm commitment underwriting pursuant to an underwriting agreement
with the Company.
(g) "Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
(h) "Certification" shall have the meaning set forth
in Section 18 hereof.
(i) "Close of business" on any given day shall mean
5:00 P.M., Buffalo, New York time, on such day; provided, however, that if such
day is not a Business Day, it shall mean 5:00 P.M., Buffalo, New York time, on
the next succeeding Business Day.
(j) "Common Stock," when used with reference to the
Company, shall mean the shares of common stock, $1.00 par value, of the Company.
"Common Stock," when used with reference to any Person other than the Company,
shall mean either the capital stock with the greatest voting power of such other
Person or, if such Person is a Subsidiary of another Person, the equity
securities or other equity interest having power to control or direct the
management of such Person.
(k) "Common Stock Equivalent" shall have the meaning
set forth in Section 11(a)(iii).
(l) "Company" shall have the meaning set forth in the
introduction hereto.
(m) "Current Market Price" shall have the meaning set
forth in Section 11(d) hereof.
(n) "Current Value" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(o) "Distribution" shall have the meaning set forth
in the recitals hereto.
(p) "Distribution Date" shall have the meaning set
forth in Section 3(a) hereof.
(q) "Equivalent Common Stock" shall have the meaning
set forth in Section 11(b) hereof.
(r) "Exchange Act" shall have the meaning set forth
in the definitions of "Affiliate" and "Associate" above.
(s) "Exchange Ratio" shall have the meaning set forth
in Section 24(a) hereof.
(t) "Expiration Date" shall have the meaning set
forth in Section 7(a) hereof.
(u) "Final Expiration Date" shall have the meaning
set forth in Section 7(a) hereof.
(v) "Independent Director" shall mean any member of
the Board of Directors of the Company, while such person is a member of the
Board, who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative or nominee of an Acquiring Person or of
any such Affiliate or Associate, and was a member of the Board prior to the date
hereof, and any successor of an Independent Director while such successor is a
member of the Board, who is not an Acquiring Person or an Affiliate or Associate
of an Acquiring Person, or a representative or nominee of an Acquiring Person or
of any such Affiliate or Associate, and is recommended or elected to succeed the
Independent Director by a majority of the Independent Directors.
(w) "Original Rights" shall have the meaning set
forth in the definition of "Beneficial Owner" above.
(x) "Person" shall mean any individual, firm,
corporation, limited liability company, partnership (general, limited or limited
liability), trust or other entity, and shall include any successor (by merger or
otherwise) of such entity.
(y) "Principal Party" shall have the meaning set
forth in Section 13(b) hereof.
(z) "Purchase Price" shall have the meaning set forth
in Section 4(a) hereof.
(aa) "Record Date" shall have the meaning set forth
in the recitals hereto.
(bb) "Redemption Price" shall have the meaning set
forth in Section 23(a) hereof.
(cc) "Right Certificate" shall have the meaning set
forth in Section 3(a) hereof.
(dd) "Rights" shall have the meaning set forth in the
recitals hereto.
(ee) "Rights Agent" shall have the meaning set forth
in the introduction hereto.
(ff) "Rights Dividend Declaration Date" shall have
the meaning set forth in the recitals hereto.
(gg) "Section 11(a)(ii) Event" shall mean any event
described in Section 11(a)(ii).
(hh) "Section 11(a)(ii) Trigger Date" shall have the
meaning set forth in Section 11(a)(iii).
(ii) "Section 13 Event" shall mean any event
described in Section 13(a).
(jj) "Shares Acquisition Date" shall mean the first
date of public announcement (which, for purposes of this definition, includes a
report filed pursuant to Section 13(d) of the Exchange Act) by the Company or an
Acquiring Person that an Acquiring Person has become such.
(kk) "Spread" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(ll) "Subsidiary" shall mean, with reference to any
Person, any corporation (or other entity) of which an amount of voting
securities (or comparable ownership interests) sufficient to elect at least a
majority of the directors (or comparable individuals) of such corporation (or
other entity) is beneficially owned or otherwise controlled, directly or
indirectly, by such Person.
(mm) "Substantial Block" shall mean a number of
shares of Voting Stock which have 10% or more of the aggregate voting power of
all outstanding shares of Voting Stock.
(nn) "Substitution Period" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(oo) "Summary of Rights" shall have the meaning set
forth in Section 3(b) hereof.
(pp) "Trading Day" shall have the meaning set forth
in Section 11(d) hereof.
(qq) "Triggering Event" shall mean any Section
11(a)(ii) Event or Section 13 Event.
(rr) "Voting Stock," as of the date of any
determination, shall mean the shares of Common Stock, $1.00 par value, then
outstanding and any other shares of capital stock of the Company which are
entitled to vote generally in the election of directors.
Section 2. Appointment of Rights Agent. The Company
hereby appoints the Rights Agent to act as agent for the Company in accordance
with the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company shall act as Co-Rights Agent and may from time to time
appoint such other Co-Rights Agents as it may deem necessary or desirable upon
ten calendar days' written notice to the Rights Agent. In no event shall the
Rights Agent have any duty to supervise or in any way be liable for such
Co-Rights Agents.
Section 3. Issue of Right Certificates. (a) Until the
earlier of (i) the close of business on the tenth calendar day after the Shares
Acquisition Date (or, if the tenth day after the Shares Acquisition Date occurs
before the Record Date, the close of business on the Record Date) or (ii) the
close of business on the tenth calendar day after the date of the commencement
of, or of the first public announcement of the intention of any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company or any Person organized,
appointed or established by the Company or any Subsidiary of the Company for or
pursuant to the terms of any such plan) to commence, a tender or exchange offer
if, upon consummation thereof, such Person would become an Acquiring Person (the
earlier of the dates in subsection (i) and (ii) hereof being herein referred to
as the "Distribution Date") (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for the
Common Stock registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be Right Certificates) and
not by separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer of Common
Stock. As soon as practicable after receipt by the Rights Agent of written
notice from the Company of the Distribution Date, the Rights Agent, at the
Company's expense, will send by first-class, postage prepaid mail, to each
record holder of Common Stock as of the close of business on the Distribution
Date, at the address of such holder shown on the records of the Company, a Right
Certificate, in substantially the form of Exhibit A hereto (a "Right
Certificate"), evidencing one Right for each share of Common Stock so held,
subject to adjustment as provided herein. As of the Distribution Date, the
Rights will be evidenced solely by such Right Certificates.
(b) As soon as practicable following the Record Date,
the Company will send a copy of a Summary of Rights to Purchase Common Stock, in
substantially the form attached hereto as Exhibit B (the "Summary of Rights"),
by first-class, postage prepaid mail, to each record holder of Common Stock as
of the close of business on the Record Date, at the address of such holder shown
on the records of the Company. With respect to certificates for Common Stock
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates for Common Stock, and the registered holders
of Common Stock shall also be the registered holders of the associated Rights.
Until the Distribution Date (or earlier redemption or expiration of the Rights),
the surrender for transfer of any of the certificates for Common Stock
outstanding on the Record Date shall also constitute the transfer of the Rights
associated with Common Stock represented by such certificate.
(c) Rights shall be issued in respect of all shares
of Common Stock issued after the Record Date but prior to the earlier of the
Distribution Date or the Expiration Date (as such term is defined in Section 7),
or, in certain circumstances provided in Section 22 hereof, after the
Distribution Date. Certificates representing such shares of Common Stock shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the
holder hereof to certain Rights as set forth in a Rights
Agreement between National Fuel Gas Company and Marine Midland
Bank dated as of June 12, 1996 (the "Rights Agreement"), the
terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal executive offices
of National Fuel Gas Company. Under certain circumstances, as
set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be
evidenced by this certificate. National Fuel Gas Company will
mail to the holder of this certificate a copy of the Rights
Agreement as in effect on the date of mailing without charge
within five Business Days after receipt of a written request
therefor. Under certain circumstances set forth in the Rights
Agreement, Rights beneficially owned by an Acquiring Person
may become null and void.
After the due execution of any supplement or
amendment to this Agreement in accordance with the terms hereof, the reference
to this Agreement in the foregoing legend shall mean the Agreement as so
supplemented or amended. Until the Distribution Date, the Rights associated with
Common Stock represented by certificates containing the foregoing legend shall
be evidenced by such certificates alone, and the surrender for transfer of any
of such certificates shall also constitute the transfer of the Rights associated
with Common Stock represented by such certificates. In the event that the
Company purchases or acquires any shares of Common Stock after the Record Date
but prior to the Distribution Date, any Rights associated with such Common Stock
shall be deemed canceled and retired so that the Company shall not be entitled
to exercise any Rights associated with the shares of Common Stock which are no
longer outstanding. The failure to print the foregoing legend on any such Common
Stock certificate or any other defect therein shall not affect in any manner
whatsoever the application or interpretation of the provisions of Section 7(e)
hereof.
Section 4. Form of Right Certificates. (a) The Right
Certificates (and the forms of election to purchase shares and of assignment to
be printed on the reverse thereof) shall be substantially the same as Exhibit A
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. The Right Certificates shall be in machine-printable format and in a form
reasonably satisfactory to the Rights Agent. Subject to the provisions of
Section 11 and Section 22 hereof, the Right Certificates, whenever distributed,
shall be dated as of the Record Date, shall show the date of countersignature,
and on their face shall entitle the holders thereof to purchase such number of
shares of Common Stock (or following a Triggering Event, other securities, cash
or other assets, as the case may be) as shall be set forth therein at the price
set forth therein (such exercise price per share of Common Stock, the "Purchase
Price"), but the number of such shares and the Purchase Price shall be subject
to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section
3(a) or Section 22 hereof that represents Rights beneficially owned by: (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding (whether or not in writing)
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
(whether or not in writing) which has as a primary purpose or effect the
avoidance of Section 7(e) hereof; and any Right Certificate issued pursuant to
Section 6 or Section 11 hereof, upon transfer, exchange, replacement or
adjustment of any other Right Certificate referred to in this sentence, shall
contain (to the extent feasible) the following legend, modified as applicable to
apply to such Person:
The Rights represented by this Right Certificate are
or were beneficially owned by a Person who was or
became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this
Right Certificate and the Rights represented hereby
may become null and void in the circumstances
specified in Section 7(e) of such Agreement.
Section 5. Countersignature and Registration. The
Right Certificates shall be executed on behalf of the Company by one of its
authorized officers either manually or by facsimile signature. The Right
Certificates shall be countersigned by an authorized signatory of the Rights
Agent either manually or by facsimile signature and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Right Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Right Certificates, nevertheless, may be countersigned by the
Rights Agent, issued and delivered with the same force and effect as though the
person who signed such Right Certificates had not ceased to be such officer of
the Company; and any Right Certificate may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Right Certificate,
shall be a proper officer of the Company to sign such Right Certificate,
although at the date of the execution of this Rights Agreement any such person
was not such an officer.
In case any authorized signatory of the Rights Agent
who shall have countersigned any of the Right Certificates shall cease to be
such signatory before delivery by the Company, such Right Certificates,
nevertheless, may be issued and delivered by the Company with the same force and
effect as though the person who countersigned such Right Certificates had not
ceased to be such signatory; and any Right Certificates may be countersigned on
behalf of the Rights Agent by any person who, at the actual date of the
countersignature of such Right Certificate, shall be a proper signatory of the
Rights Agent to countersign such Right Certificate, although at the date of the
execution of this Rights Agreement any such person was not such a signatory.
Following the Distribution Date, the Rights Agent
will keep or cause to be kept, at its office designated for such purpose, books
for registration and transfer of the Right Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Right
Certificates issued hereunder, the number of Rights evidenced on its face by
each of the Right Certificates, the date of each of the Right Certificates and
the date of countersignature of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates. Subject to the provisions of Section 14 hereof, at any time after
the close of business on the Distribution Date, and at or prior to the close of
business on the Expiration Date, any Right Certificate or Right Certificates may
be transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to purchase a like number of
shares of Common Stock (or following a Triggering Event, other securities, cash
or other assets, as the case may be) as the Right Certificate or Right
Certificates surrendered then entitled such holder (or, in the case of a
transfer, such former holder) to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose, along with a signature guarantee and such other and
further documentation as the Rights Agent may reasonably request. Neither the
Rights Agent nor the Company shall be obligated to take any action whatsoever
with respect to the transfer of any such surrendered Right Certificate until the
registered holder shall have completed and signed the certificate contained in
the form of assignment on the reverse side of such Right Certificate and shall
have provided such additional evidence, as the Company shall reasonably request,
of the identity of the Beneficial Owner, Affiliates or Associates of such
Beneficial Owner or holder, or of any other Person with which such holder or any
of such holder's Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of acquiring, holding,
voting or disposing of securities of the Company. Thereupon the Rights Agent
shall, subject to Section 14 and Section 20(k) hereof, countersign and deliver
to the Person entitled thereto a Right Certificate or Right Certificates, as the
case may be, as so requested. The Company may require payment from a Right
Certificates holder of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer, split up, combination or
exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Right Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, along with a signature
guarantee and such other and further documentation as the Rights Agent may
reasonably request, and if requested by the Company, reimbursement to the
Company and the Rights Agent of all reasonable expenses incidental thereto, and
upon surrender to the Rights Agent and cancellation of the Right Certificate if
mutilated, the Company will make and deliver a new Right Certificate of like
tenor to the Rights Agent for delivery to the registered owner in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights. (a) Subject to Section 7(e) hereof, the registered
holder of any Right Certificate may exercise the Rights evidenced thereby
(except as otherwise provided herein, including, without limitation, the
restrictions on exercisability set forth in Sections 9 (c) , 11 (a) (iii) , 23
(a) and 24 (b) hereof) in whole or in part at any time after the Distribution
Date upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
designated office of the Rights Agent, together with payment of the aggregate
Purchase Price for the total number of shares of Common Stock (or other
securities, cash or other assets, as the case may be) as to which the Rights are
then exercisable, at or prior to the earliest of (i) the close of business on
July 31, 2006 (the "Final Expiration Date"), (ii) the time at which the Rights
are redeemed as provided in Section 23 hereof or (iii) the time at which all
exercisable Rights are exchanged as provided in Section 24 hereof, (such
earliest date being herein referred to as the "Expiration Date").
(b) The Purchase Price for each full share of Common
Stock pursuant to the exercise of a Right shall initially be$130.00 (being
$65.00 per half share of Common Stock), shall be subject to adjustment from time
to time as provided in Sections 11 and 13 hereof and shall be payable in
accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed and completed, accompanied by payment of the Purchase Price for
the number of shares of Common Stock (or other securities, cash or other assets,
as the case may be) to be purchased and an amount equal to any applicable
transfer tax, the Rights Agent shall thereupon, subject to Section 20(k),
promptly (i) requisition from the Company certificates for the total number of
shares of Common Stock to be purchased, (ii) when appropriate, requisition from
the Company the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14, (iii) promptly after receipt of such
certificates, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names as
may be designated by such holder and (iv) when appropriate, after receipt
promptly deliver such payment to or upon the order of the registered holder of
such Right Certificate. The payment of the Purchase Price must be made by
certified bank check or bank draft or money order payable to the order of the
Company or the Rights Agent. In the event that the Company is obligated to issue
securities, distribute property or make payment pursuant to section 11(a)(iii)
hereof, the Company will make all arrangements necessary so that check, property
or securities are available for issuance, distribution or payment by the Rights
Agent, if and when appropriate.
(d) In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced thereby, a new
Right Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of such
Right Certificate or to his duly authorized assigns, subject to the provisions
of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any
Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such, or (iii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person
which whom the Acquiring Person has any continuing agreement, arrangement or
understanding (whether or not in writing) regarding the transferred Rights or
(B) a transfer which the Board of Directors of the Company has determined is
part of a plan, arrangement or understanding (whether or not in writing) which
has as a primary purpose or effect the avoidance of this section 7(e), shall
become null and void without any further action and no holder of such Rights
shall have any rights whatsoever with respect to such Rights, whether under any
provision of this Agreement or otherwise. The Company shall use all reasonable
efforts to insure that the provisions of this Section 7(e) and Section 4(b)
hereof are complied with, but shall have no liability to any holder of Right
Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person, or any of its Affiliates,
Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner, Affiliates or Associates of such Beneficial
Owner or holder, or of any other Person with which such holder or any of such
holder's Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of acquiring, holding,
voting or disposing of any securities of the Company as the Company shall
reasonably request.
Section 8. Cancellation and Destruction of Right
Certificates. All Right Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the Company
or to any of its agents, be delivered to the Rights Agent for cancellation or in
canceled form, or, if surrendered to the Rights Agent, shall be canceled by it,
and no Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Rights Agreement. The Company shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Right Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all canceled Right Certificates to the Company, or shall, at
the written request of the Company, destroy such canceled Right Certificates,
and in such case shall deliver a certificate of destruction thereof to the
Company.
Section 9. Reservation and Availability of Shares of
Common Stock. (a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of Common
Stock (and following the occurrence of a Triggering Event, out of its authorized
and unissued other securities), or out of its authorized and issued shares of
Common Stock (and, following the occurrence of a Triggering Event, out of its
authorized and issued other securities) held in its treasury, the number of
shares of Common Stock (and, following the occurrence of a Triggering Event,
other securities) that will be sufficient to permit the exercise in full of all
outstanding Rights (it being understood that any of the foregoing shares or
securities may also be reserved for other purposes) or will take such other
steps as are appropriate to assure that the number of such shares or securities
(or their equivalents) sufficient to permit the exercise in full of all
outstanding Rights will be available upon such exercise.
(b) So long as the shares of Common Stock (and,
following the occurrence of a Triggering Event, other securities) issuable upon
the exercise of Rights may be listed on any national securities exchange, the
Company shall use its best efforts to cause, from and after such time as the
Rights become exercisable (but only to the extent that it is reasonably likely
that the Rights will be exercised), all shares reserved for such issuance to be
listed on such exchange upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i)
file, as soon as practicable following the first occurrence of a Section
11(a)(ii) Event, or as soon as required by law, as the case may be, a
registration statement under the Securities Act of 1933, as amended (the "Act"),
with respect to the securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective as
soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities, and (B) the Expiration
Date. The Company will also take such action as may be appropriate under the
blue sky laws of the various states. The Company may temporarily suspend, for a
period of time not to exceed ninety (90) days after the date set forth in clause
(i) of the first sentence of this Section 9(c), the exercisability of the Rights
in order to prepare and file such registration statement and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement and shall give simultaneous written notice to the Rights Agent
stating that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement and notice to the Rights Agent at such time as the
suspension is no longer in effect. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualifications in such jurisdiction shall have
been obtained.
(d) The Company covenants and agrees that it will
take all such action as may be necessary to ensure that all shares of Common
Stock (and following the occurrence of a Triggering Event, other securities)
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase Price), be duly
and validly authorized and issued and fully paid and nonassessable.
(e) he Company further covenants and agrees that it
will pay when due and payable any and all federal and state transfer taxes and
charges which may be payable in respect of the issuance or delivery of the Right
Certificates or of any shares of the Common Stock (or other securities, as the
case may be) upon the exercise of Rights. The Company shall not, however, be
required (a) to pay any transfer tax which may be payable in respect of any
transfer involved in the transfer or delivery of Right Certificates or the
issuance or delivery of certificates for Common Stock (or other securities, as
the case may be) in a name other than that of the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or (b) to issue or
deliver any certificates for a number of shares of Common Stock (or other
securities, as the case may be) upon the exercise of any Rights until any such
tax shall have been paid (any such tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.
Section 10. Common Stock Record Date. Each Person in
whose name any certificate for any number of shares of Common Stock (or other
securities, as the case may be) is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the shares of
Common Stock (or other securities, as the case may be) represented thereby on,
and such certificate shall be dated the date upon which the Right Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and any applicable transfer taxes) was made and shall show the date of
countersignature; provided, however, that if the date of such surrender and
payment is a date upon which Common Stock (or other securities, as the case may
be) transfer books of the Company are closed, such Person shall be deemed to
have become the record holder of such shares on, and such certificate shall be
dated, the next succeeding Business Day on which the Common Stock (or other
securities, as the case may be) transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a stockholder of the Company with respect
to shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of
Shares or Number of Rights. The Purchase Price, the number of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time
after the date of this Agreement (A) declare a dividend on the Common Stock
payable in shares of the Common Stock, (B) subdivide the outstanding Common
Stock, (C) combine the outstanding Common Stock into a smaller number of shares
or (D) issue any shares of its capital stock in a reclassification of Common
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of Common Stock or capital stock, as the case may be,
issuable on such date, shall be proportionately adjusted so that the holder of
any Right exercised after such time shall be entitled to receive, upon payment
of the Purchase Price then in effect, the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when Common Stock (or other securities) transfer books of the
Company were open, he or she would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment under
both this Section 11(a)(i) and Section 11(a)(ii), the adjustment provided for in
this Section 11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in
the event any Person, alone or together with its Affiliates and Associates,
becomes at any time after the Rights Dividend Declaration Date, an Acquiring
Person except as the result of a transaction set forth in Section 13(a) hereof,
then, prior to the later of (x) the date on which the Company's rights of
redemption pursuant to Section 23(a) expire, or (y) five (5) days after the date
of the first occurrence of a Section 11(a)(ii) Event, proper provision shall be
made so that each holder of a Right, except as provided in Section 7(e) hereof,
shall thereafter have a right to receive, upon exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement, such
number of shares of Common Stock of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price for a full share of
Common Stock by the number of shares of Common Stock for which a Right is then
exercisable and dividing that product by (y) 50% of the Current Market Price per
share of Common Stock of the Company (determined pursuant to Section 11(d)) on
the date of the occurrence of the event described above in this subparagraph
(ii) (such number of shares is hereinafter referred to as the "Adjustment
Shares"), provided that the Purchase Price and the number of Adjustment Shares
shall be further adjusted as provided in this Agreement to reflect any events
occurring after the date of such first occurrence.
(iii) In the event that the number of shares of
Common Stock which are authorized by the Company's certificate of incorporation
but not outstanding or reserved for issuance for purposes other than upon
exercise of the Rights is not sufficient to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph (ii), the Company shall (A)
determine the excess of (1) the value of the Adjustment Shares issuable upon the
exercise of a Right (the "Current Value") over (2) the Purchase Price (such
excess, the "Spread"), and (B) with respect to each Right, make adequate
provision to substitute for the Adjustment Shares, upon exercise of the Rights
and payment of the applicable Purchase Price, (1) payment by check, (2) a
reduction in the Purchase Price, (3) other equity securities of the Company
(including, without limitation, shares of preferred stock which a majority of
the Independent Directors and the Board of Directors of the Company have deemed
to have the same value as shares of Common Stock (such shares of preferred
stock, "Common Stock Equivalents")), (4) debt securities of the Company, (5)
other assets, or (6) any combination of the foregoing, having an aggregate value
equal to the Current Value, where such aggregate value has been determined by a
majority of the Independent Directors and the Board of Directors of the Company
based upon the advice of a nationally recognized investment banking firm
selected by the Board of Directors of the Company; provided, however, that if
the Company shall not have made adequate provision to deliver value pursuant to
clause (B) above within thirty (30) days following the later of (x) the first
occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company's
rights of redemption pursuant to Section 23(a) expire (the later of (x) and (y)
being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the
Company shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, shares of Common
Stock (to the extent available) and then, if necessary, cash, which shares
and/or cash have an aggregate value equal to the Spread. If the Board of
Directors of the Company shall determine in good faith that it is likely that
sufficient additional shares of Common Stock could be authorized for issuance
upon exercise in full of the Rights, the thirty (30) day period set forth above
may be extended to the extent necessary, but not more than ninety (90) days
after the Section 11(a)(ii) Trigger Date, in order that the Company may seek
stockholder approval for the authorization of such additional shares (such
period, as it may be extended, the "Substitution Period"). To the extent that
the Company determines that some action need be taken pursuant to the first
and/or second sentences of this subparagraph (iii), the Company (x) shall
provide, subject to Section 7(e) hereof, that such action shall apply uniformly
to all outstanding Rights, and (y) may suspend the exercisability of the Rights
until the expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement and shall give concurrent written notice to the Rights Agent
stating that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement and notice to the Rights Agent at such time as the
suspension is no longer in effect. For purposes of this subparagraph (iii), the
value of the Common Stock shall be the Current Market Price (as determined
pursuant to Section 11(d) hereof) per share of Common Stock on the Section 11
(a) (ii) Trigger Date and the value of any Common Stock Equivalent shall be
deemed to be the same as the value of Common Stock on such date. The Company
shall give the Rights Agent notice of the selection of any Common Stock
Equivalent under this subparagraph (iii).
(b) In case the Company shall fix a record date for
the issuance of rights, options or warrants to all holders of Common Stock
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Common Stock (or securities having
substantially the same rights, privileges and preferences as the shares of
Common Stock ("Equivalent Common Stock") or convertible into Common Stock or
Equivalent Common Stock) at a price per share of Common Stock or Equivalent
Common Stock (or having a conversion price per share, if a security convertible
into Common Stock or Equivalent Common Stock) less than the Current Market Price
(as defined in Section 11(d) per share of Common Stock or Equivalent Common
Stock, as the case may be) on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding on such
record date plus the number of shares of Common Stock or Equivalent Common Stock
which the aggregate offering price of the total number of shares of Common Stock
or Equivalent Common Stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such Current Market Price and of which the denominator shall be the number of
shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock and/or Equivalent Common Stock to be offered
for subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription price may be paid
by delivery of consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent. Shares of Common Stock owned by or held
for the account of the Company shall not be deemed outstanding for the purpose
of any such computation. Such adjustment shall be made successively whenever
such a record date is fixed; and in the event that such rights, options or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for
the making of a distribution to all holders of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular periodic cash dividend or a dividend payable in
Common Stock) or subscription rights or warrants (excluding those referred to in
Section 11(b)), the Purchase Price to be in effect after such record date shall
be determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, of which the numerator shall be the Current
Market Price per share of Common Stock (as defined in Section 11(d)) on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one share of Common Stock and of which the denominator shall be
such Current Market Price per share of Common Stock. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Purchase Price shall again be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) For the purpose of any computation hereunder,
other than computations made pursuant to Section 11(a)(iii), the "Current Market
Price" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of such Common Stock for the thirty (30)
consecutive Trading Days (as such term is hereinafter defined in this paragraph
(d)) immediately prior to such date and, for purposes of computations made
pursuant to Section 11(a)(iii) hereof, the Current Market Price per share of
Common Stock on any date shall be deemed to be the average of the daily closing
prices per share of such Common Stock for the ten (10) consecutive Trading Days
immediately following such date; provided, however, that in the event that the
Current Market Price per share of Common Stock is determined during the period
following the announcement by the issuer of such Common Stock of (A) a dividend
or distribution on such Common Stock payable in shares of such Common Stock or
securities convertible into shares of such Common Stock (other than the Rights)
or (B) any subdivision, combination or reclassification of such Common Stock,
and prior to the expiration of the requisite 30 Trading Day or 10 Trading Day
period, as set forth above, after the ex-dividend date for such dividend or
distribution or the record date for such subdivision, combination or
reclassification, then, and in each such case, the Current Market Price shall be
appropriately adjusted to take into account ex-dividend trading. The closing
price for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the shares of the Common Stock are
not listed or admitted to trading on the New York Stock Exchange, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
shares of the Common Stock are listed or admitted to trading or, if the shares
of the Common Stock are not listed or admitted to trading on any national
securities exchange, the last quoted price, or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use, or, if on any such date the shares
of Common Stock are not quoted by such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in Common Stock selected by the Board of Directors of the Company. If on any
such date no market maker is making a market in the Common Stock, the fair value
of such shares on such date shall be as determined in good faith by the
Independent Directors if the Independent Directors constitute a majority of the
Board of Directors or, in the event the Independent Directors do not constitute
a majority of the Board of Directors, by an independent investment banking firm
selected by the Board of Directors, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all purposes.
The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading is open for the transaction of business or, if the shares of Common
Stock are not listed or admitted to trading on any national securities exchange,
a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions
in the State of New York are not authorized or obligated by law or executive
order to close. If the Common Stock is not publicly held or not so listed or
traded, "Current Market Price" per share shall mean the fair value per share as
determined in good faith by the Independent Directors if the Independent
Directors constitute a majority of the Board of Directors or, in the event the
Independent Directors do not constitute a majority of the Board of Directors, by
an independent investment banking firm selected by the Board of Directors, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding,
no adjustment in the Purchase Price shall be required unless such adjustment
would require an increase or decrease of at least 1% in such price; provided,
however, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest ten-thousandth of a share of Common Stock.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which mandates such adjustment or (ii)
the Expiration Date.
(f) If, as a result of an adjustment made pursuant to
Section 11(a) or Section 13(a), the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than shares
of Common Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Section 11(a) through (p), inclusive, and the provisions of Sections 7, 9, 10,
13 and 14 with respect to Common Stock shall apply on like terms to any such
other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall evidence
the right to purchase, at the adjusted Purchase Price, the number of shares of
Common Stock purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its
election as provided in Section 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in Section 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
shares (calculated to the nearest tenth-thousandth) obtained by (i) multiplying
(x) the number of shares covered by a Right immediately prior to this adjustment
by (y) the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price and (ii) dividing the product so obtained by the Purchase Price
in effect immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of shares of Common Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of shares of Common Stock
for which a Right was exercisable immediately prior to such adjustment. Each
Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights (calculated to the nearest ten-thousandth) obtained
by dividing the Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after the adjustment
of the Purchase Price. The Company shall make a public announcement and shall
give simultaneous written notice to the Rights Agent of its election to adjust
the number of Rights, indicating the record date for the adjustment to be made.
This record date may be the date on which the Purchase Price is adjusted or any
day thereafter, but, if the Right Certificates have been issued, shall be at
least 10 days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this subparagraph (i), the Company shall, as promptly as
practicable, cause to be distributed to holders of Right Certificates on such
record date Right Certificates evidencing, subject to Section 14, the additional
Rights to which such holders shall be entitled as a result of such adjustment,
or, at the option of the Company, shall cause to be distributed to such holders
of record in substitution and replacement for the Right Certificates held by
such holders prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Right Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment. Right Certificates
so to be distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the adjusted
Purchase Price) and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of shares of Common Stock issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price per share and the number of shares
which were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then par value, if any, of a
share of Common Stock issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue such number of fully
paid and nonassessable shares of such Common Stock at such adjusted Purchase
Price.
(l) In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Right exercised after
such record date of the number of shares of Common Stock and other capital stock
or securities of the Company, if any, issuable upon such exercise over and above
the number of shares of Common Stock and other capital stock or securities of
the Company, if any, issuable upon such exercise on the basis of the Purchase
Price in effect prior to such adjustment; provided, however, that the Company
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that the Board of Directors of the Company
shall determine to be advisable in order that any consolidation or subdivision
of shares of Common Stock, issuance wholly for cash of any shares of Common
Stock at less than the Current Market Price, issuance wholly for cash of the
Common Stock or securities which by their terms are convertible into or
exchangeable for Common Stock, stock dividends or issuance of rights, options or
warrants referred to hereinabove in this Section 11 hereafter made by the
Company to holders of its Common Stock shall not be taxable to such
stockholders.
(n) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Sections 23, 24 and 27
hereof, take (nor will it permit any of its Subsidiaries to take) any action if
at the time such action is taken it is reasonably foreseeable that such action
will diminish substantially or otherwise eliminate the benefits intended to be
afforded by the Rights.
(o) The Company covenants and agrees that it shall
not, at any time after the Distribution Date, (i) consolidate with any other
Person (other than a Subsidiary of the Company in a transaction which complies
with Section 11(n)), (ii) merge with or into any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(n)),
or (iii) sell or transfer (or permit any of its Subsidiaries to sell or
transfer), in one or more transactions, assets or earning power aggregating more
than 50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Company and/or
any of its Subsidiaries in one or more transactions each of which complies with
Section 11(n)) if (x) at the time of or immediately after such consolidation,
merger or sale there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights or (y)
prior to, simultaneously with or immediately after such consolidation, merger or
sale, the stockholders of the Person who constitutes, or would constitute, the
"Principal Party" for purposes of Section 13(a) hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates.
(p) Notwithstanding anything in this Agreement to the
contrary, prior to the Distribution Date, the Company may, in lieu of making any
adjustment to the Purchase Price, the number of shares of Common Stock eligible
for purchase on exercise of each Right or the number of Rights outstanding,
which adjustment would otherwise be required by Section 11(a)(i), 11(b), 11(c),
11(h) or 11(i), make such other equitable adjustment or adjustments thereto as
the Board of Directors (whose determination shall be conclusive) deems
appropriate in the circumstances and not inconsistent with the objectives of the
Board of Directors in adopting this Agreement and such Sections.
Section 12. Certificate of Adjusted Purchase Price or
Number of Shares. Whenever an adjustment is made as provided in Sections 11 and
13, the Company shall (a) promptly prepare a certificate setting forth such
adjustment, a brief statement of the facts accounting for such adjustment and
the adjusted Purchase Price, (b) promptly file with the Rights Agent and with
each transfer agent for the Common Stock a copy of such certificate and (c) mail
a brief summary thereof to each holder of a Right Certificate in accordance with
Section 26. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power. (a) In the event that, following the Shares
Acquisition Date, directly or indirectly, (x) the Company shall consolidate
with, or merge with or into, any other Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(n)) and the Company
shall not be the continuing or surviving corporation of such consolidation or
merger, (y) any Person (other than a Subsidiary of the Company in a transaction
which complies with Section 11(n)) shall consolidate, merge with or into the
Company and the Company shall be the continuing or surviving corporation of such
consolidation or merger and in connection with such consolidation or merger, all
or part of the Common Stock shall be changed into or exchanged for stock or
other securities of any other Person or cash or any other property, or (z) the
Company shall sell or otherwise transfer (or one or more of its Subsidiaries
shall sell or otherwise transfer), in one or more transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company or any of its Subsidiaries in one or more transactions
each of which complies with Section 11(n) hereof), then, and in each such case,
proper provision shall be made so that (i) each holder of a Right (except as
provided in Section 7(e)) shall thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price in accordance with the terms
of this Agreement, such number of validly issued, fully paid, nonassessable and
freely tradable shares of Common Stock of the Principal Party (as hereinafter
defined) , not subject to any liens, encumbrances, rights of call or first
refusal, or other adverse claims as shall be equal to the result obtained by (1)
multiplying the then current Purchase Price for a full share of Common Stock by
the number of shares of Common Stock for which a Right is exercisable
immediately prior to the first occurrence of a Section 13 Event (or, if a
Section 11(a) (ii) Event has occurred prior to the first occurrence of a Section
13 Event, multiplying the number of such shares for which a Right was
exercisable immediately prior to the first occurrence of a Section 11(a) (ii)
Event by the Purchase Price for a full share of Common Stock in effect
immediately prior to such first occurrence), and dividing that product (which,
following the first occurrence of a Section 13 Event, shall be referred to as
the "Purchase Price" for each Right and for all purposes of this Agreement) by
(2) 50% of the Current Market Price per share of the Common Stock of such
Principal Party (determined in the manner described in Section 11 (d) ) on the
date of consummation of such consolidation, merger, sale or transfer; (ii) the
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such Section 13 Event, all the obligations and duties of the Company pursuant to
this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to
such Principal Party, it being specifically intended that the provisions of
Section 11 shall thereafter apply to such Principal Party, (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of shares of its Common Stock in accordance with Section 9) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the shares of its Common Stock thereafter deliverable upon
the exercise of the Rights, and (v) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(1) in the case of any transaction described in
(x) or (y) of the first sentence of Section 13(a), the Person that is the issuer
of any securities into which shares of Common Stock of the Company are converted
in such merger or consolidation and, if no securities are so issued, the Person
that is the other party to the merger or consolidation; and
(2) in the case of any transaction described in
(z) of the first sentence in Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions; provided, however, that in any
such case, (x) if the Common Stock of such Person is not at such time and has
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another corporation the Common Stock of which is and has been so
registered, "Principal Party" shall refer to such other corporation and (y) if
such Person is a Subsidiary, directly or indirectly, of more than one
corporation, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such corporations is
the issuer of the Common Stock having the greatest market value.
(3) The Company shall not consummate any Section
13 Event unless the Principal Party shall have a sufficient number of authorized
shares of its Common Stock which are neither outstanding nor reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger or sale of assets mentioned in paragraph (a) of this
Section 13, the Principal Party
(i) will prepare and file a registration
statement under the Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, will use its
best efforts to cause such registration statement to become effective as soon as
practicable after such filing and will use its best efforts to cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights
historical financial statements for the Principal Party and each of its
Affiliates which comply in all respects with the requirements for registration
on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive Section 13
Events. In the event that a Section 13 Event shall occur at any time after the
occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore
been exercised shall thereafter become exercisable in the manner described in
Section 13(a).
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use, or, if on any such date the Rights are not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Rights selected by the
Board of Directors of the Company. If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights on such date, as
determined in good faith by the Board of Directors of the Company, shall be
used.
(b) The Company shall not be required to issue
fractions of shares of Common Stock or Common Stock Equivalents upon exercise or
exchange of the Rights or to distribute certificates which evidence fractional
shares. In lieu of fractional shares of Common Stock or Common Stock
Equivalents, the Company may pay to the registered holders of Right Certificates
at the time the Rights evidenced thereby are exercised or exchanged as herein
provided an amount in cash equal to the same fraction of the current market
value of Common Stock or Common Stock Equivalents. For purposes of this Section
14(b), the current market value of one share of Common Stock shall be the
closing price of a share of Common Stock (as determined pursuant to Section
11(d)) for the Trading Day immediately prior to the date of such exercise or
exchange, as the case may be, and the current market value of any Common Stock
Equivalent shall be the same as the current market value of the Common Stock on
such date.
(c) The holder of a Right by the acceptance of the
Right expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise or exchange of a Right, except as otherwise
permitted by this Section 14.
Section 15. Rights of Action. All rights of action
in respect of this Agreement are vested in the respective registered holders of
the Right Certificates (and, prior to the Distribution Date, the registered
holders of the Common Stock); and any registered holder of any Right Certificate
(or, prior to the Distribution Date, of the Common Stock), without the consent
of the Rights Agent or of the holder of any other Right Certificate (or, prior
to the Distribution Date, of the Common Stock), may, in his own behalf and for
his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder
of a Right by accepting the same consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights
will be transferable only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right
Certificates will be transferable only on the registry books of the Rights Agent
if surrendered at the office of the Rights Agent designated for such purpose,
duly endorsed or accompanied by a proper instrument of transfer and with the
appropriate forms and certificates fully executed, along with a signature
guarantee and such other and further documentation as the Rights Agent may
reasonably request;
(c) subject to Section 6 and Section 7(f)
hereof, the Company and the Rights Agent may deem and treat the Person in whose
name the Right Certificate (or, prior to the Distribution Date, the associated
Common Stock certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or writing
on the Right Certificates or the associated Common Stock certificate made by
anyone other than the Company or the Rights Agent) for all purposes whatever,
and neither the Company nor the Rights Agent shall be affected by any notice to
the contrary;
(d) notwithstanding anything in this Agreement
to the contrary, neither the Company nor the Rights Agent shall have any
liability to any holder of a Right or other Person as a result of its inability
to perform any of its obligations under this Agreement by reason of any
preliminary or permanent injunction or other order, decree or ruling issued by a
court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority,
prohibiting or otherwise restraining performance of such obligation; provided,
however, that the Company must use its best efforts to have any such order,
decree or ruling lifted or otherwise overturned as soon as possible.
Section 17. Right Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Right Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of the number of
shares of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Right Certificate be construed to confer
upon the holder of any Right Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in Section 25), or to
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Right Certificate shall have been exercised or
exchanged for Common Stock in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. The
agreements set forth in this Section 18 shall survive termination of the
Agreement and the payments of all amounts hereunder. The Company agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent
(including the reasonable fees and expenses of counsel), for anything done or
omitted by the Rights Agent in connection with the acceptance and administration
of this Agreement, including the costs and expenses of defending against any
claim of liability in the premises.
The Rights Agent shall be protected and shall incur
no liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Right
Certificate or certificate for Common Stock or other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, instruction, adjustment notice, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons.
In addition to the foregoing, the Rights Agent shall
be protected and shall incur no liability for, or in respect of, any action
taken or omitted by it in connection with its administration of this Agreement
in reliance upon (i) the proper execution of the certification appended to the
Form of Assignment and the Form of Election to Purchase included as part of
Exhibit B hereto (the "Certification"), unless the Rights Agent shall have
actual knowledge that, as executed, the Certification is untrue or (ii) the
non-execution or failure to complete the Certification including, without
limitation, any refusal to honor any otherwise permissible assignment or
election by reason of such nonexecution or failure.
Section 19. Merger or Consolidation or Change of Name
of Rights Agent. Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor Rights Agent under the provisions of Section 21. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
In case at any time the name of the Rights Agent
shall be changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal
counsel (who may be legal counsel for the Company), and the opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties
under this Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the President, any Senior Vice President, any Vice
President, the Treasurer or the Secretary of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder
only for its own negligence, bad faith or willful misconduct. The issuance or
non-issuance of a Right Certificate or Common Stock or other security issued in
lieu of Common Stock in accordance with instructions given to the Rights Agent
by the Company pursuant to Section 20(k) hereof or in accordance with the terms
hereof shall not constitute negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or
by reason of any of the statements of fact or recitals contained in this
Agreement or in the Right Certificates (except its countersignature thereof) or
be required to verify the same, but all such statements and recitals are and
shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any adjustment required under the
provisions of Section 11 or 13 or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after actual notice of any such adjustment); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any shares of Common Stock to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
shares of Common Stock will, when issued, be validly authorized and issued,
fully paid and nonassessable.
(f) The Company agrees that it will perform,
execute, acknowledge and deliver, or cause to be performed, executed,
acknowledged and delivered, all such further and other acts, instruments and
assurances as may reasonably be required by the Rights Agent for the carrying
out or performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and
directed to accept instructions with respect to the performance of its duties
hereunder and certificates delivered pursuant to any provision hereof from any
one of the Chairman of the Board, the President, any Senior Vice President, any
Vice President, the Secretary or the Treasurer of the Company, and is authorized
to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer. An
application by the Rights Agent for instructions may set forth in writing any
action proposed to be taken or omitted by the Rights Agent with respect to its
duties and obligations under this Agreement and the date on and/or after which
such action shall be taken, and the Rights Agent shall not be liable for any
action taken or omitted in accordance with a proposal included in any such
application on or after the date specified therein (which date shall not be less
than one Business Day after the Company receives such application) without the
consent of the Company unless, prior to taking or omitting such action, the
Rights Agent has received written instructions in response to an application
specifying the actions to be taken or omitted.
(h) The Rights Agent and any stockholder,
director, officer or employee of the Rights Agent may buy, sell or deal in any
of the Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to the Company, or otherwise act as fully and freely
as though it were not Rights Agent under this Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other capacity for the Company or
for any other legal entity.
(i) The Rights Agent may execute and exercise
any of the rights or powers hereby vested in it or perform any duty hereunder
either by itself or by or through its attorneys or agents, and the Rights Agent
shall not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
resulting from any such act, default, neglect or misconduct; provided, however,
that reasonable care was exercised in the selection thereof.
(j) No provision of this Agreement shall require
the Rights Agent 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
exercise of its rights if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate
surrendered to the Rights Agent for exercise or transfer, the certificate
attached to the form of assignment or form of election to purchase, as the case
may be, either has not been completed or does not indicate an affirmative
response, the Rights Agent shall not take any further action with respect to
such requested exercise or transfer without first consulting the Company. The
Company shall give the Rights Agent prompt written instructions as to the action
to be taken regarding the Right Certificates involved. The Rights Agent shall
not be liable for acting in accordance with such instructions.
Section 21. Change of Rights Agent. The Rights Agent
or any successor Rights Agent may resign and be discharged from its duties under
this Agreement upon thirty (30) days' notice in writing mailed to the Company by
registered or certified mail, and, at the Company's expense, to the holders of
the Right Certificates by first class mail. The Company may remove the Rights
Agent or any successor Rights Agent upon thirty (30) days' notice in writing,
mailed to the Rights Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common Stock by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall fail
to make such appointment within a period of thirty (30) days after giving notice
of such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the Company shall become the temporary Rights
Agent and the registered holder of any Right Certificate may apply to any court
of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of the State of New York (or of any other state of the United States
so long as such corporation is authorized to do business as a banking
institution in the State of New York), in good standing, having a principal
office in the State of New York, which is authorized under such laws to exercise
corporate trust powers, is subject to supervision or examination by federal or
state authority, and has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $25 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock, and mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give any
notice provided for in this Section 21, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Precedessor Rights Agent shall be released and discharged from any and all
further responsibility incurred after its termination as Rights Agent.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock so issued
or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Right Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Right Certificate
would be issued, and (ii) no such Right Certificate shall be issued if, and to
the extent that, appropriate adjustment shall otherwise have been made in lieu
of the issuance thereof.
Section 23. Redemption and Termination. (a) The Board
of Directors of the Company may, at its option, at any time prior to the earlier
of (x) the close of business on the tenth day following the Shares Acquisition
Date (or if the Shares Acquisition Date shall have occurred prior to the Record
Date, the close of business on the tenth day following the Record Date), or (y)
the Final Expiration Date, redeem all but not less than all of the then
outstanding Rights at a redemption price of $.01 per Right as appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"), and the Company may, at its option, pay
the Redemption Price either in shares of its Common Stock (valued at their
Current Market Price as defined in Section 11(d) on the date of the redemption),
other securities, cash or other assets; provided, however, that if the Board of
Directors of the Company authorizes redemption of the Rights in either of the
circumstances set forth in clauses (x) or (y) below then there must be
Independent Directors in office and such authorization shall require the
concurrence of a majority of the Independent Directors: (x) such authorization
occurs on or after the Shares Acquisition Date or (y) such authorization occurs
on or after the date of a change (resulting from a proxy or consent
solicitation) in the composition of a majority of the Board of Directors of the
Company from the Board that was in office at the commencement of such
solicitation if any Person who is a participant in such solicitation has stated
(or if upon the commencement of such solicitation a majority of the Board of
Directors of the Company has determined in good faith) that such Person (or any
of its Affiliates or Associates) intends to take, or may consider taking, any
action which would result in such Person becoming an Acquiring Person or which
would cause the occurrence of a Triggering Event. Notwithstanding anything
contained in this Agreement to the contrary, the Rights shall not be exercisable
after the first occurrence of a Section 11(a)(ii) Event until such time as the
Company's right of redemption hereunder has expired.
(b) In deciding whether or not to exercise the
Company's right of redemption hereunder, the Board of Directors of the Company
shall act in good faith, in a manner they reasonably believe to be in the best
interests of the Company and with such care, including reasonable inquiry, skill
and diligence, as a person of ordinary prudence would use under similar
circumstances, and they may consider the long-term and short-term effects of any
action upon employees, customers and creditors of the Company and upon
communities in which offices or other establishments of the Company are located,
and all other pertinent factors.
(c) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights, and without any
further action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price for each Right held. Within 10 days after the
action of the Board of Directors ordering the redemption of the Rights, the
Company shall give notice of such redemption to the holders of the then
outstanding Rights by mailing such notice to the Rights Agent and to all such
holders at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
Transfer Agent for the Common Stock. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any Rights at
any time in any manner other than that specifically set forth in this Section
23, and other than in connection with the repurchase of Common Stock prior to
the Distribution Date.
Section 24. Exchange. (a) The Board of Directors of
the Company may, at its option (provided that there are then Independent
Directors in office and a majority of the Independent Directors concur), at any
time and from time to time on or after a Section 11(a)(ii) Event, exchange all
or part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 7(e) hereof)
for shares of Common Stock at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date of this Agreement (such exchange
ratio being hereinafter referred to as the "Exchange Ratio").
(b) Immediately upon the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to
subsection (a) of this Section 24 and without any further action and without any
notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of shares
of Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any such exchange; provided, however, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange will be effected and, in
the event of any partial exchange, the number of Rights which will be exchanged.
Any partial exchange shall be effected pro rata based on the number of Rights
(other than Rights which have become void pursuant to the provisions of Section
7(e) hereof) held by each holder of Rights.
(c) In the event that there shall not be
sufficient shares of Common Stock issued but not outstanding, or authorized but
unissued to permit any exchange of Rights as contemplated in accordance with
this Section 24, the Company shall take all such action as may be necessary to
authorize additional shares of Common Stock or for issuance upon exchange of the
Rights, subject, however, to Section 24(d) hereof.
(d) In any exchange pursuant to this Section 24,
the Company, at its option, may substitute for any share of Common Stock
exchangeable for a Right (i) Common Stock Equivalents (ii) cash, (iii) debt
securities of the Company, (iv) other assets, or (v) any combination of the
foregoing, having an aggregate value which a majority of the Independent
Directors and the Board of Directors of the Company shall have determined in
good faith to be equal to the Current Market Price of one share of Common Stock
(determined pursuant to Section 11(d) hereof) on the Trading Day immediately
preceding the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. In case the
Company shall propose at any time following the Distribution Date (a) to pay any
dividend payable in stock of any class to the holders of Common Stock or to make
any other distribution to the holders of Common Stock (other than a regular
periodic cash dividend), or (b) to offer to the holders of Common Stock rights
or warrants to subscribe for or to purchase any additional shares of Common
Stock or shares of stock of any class or any other securities, rights or
options, or (c) to effect any reclassification of Common Stock (other than a
reclassification involving only the subdivision of outstanding Common Stock), or
(d) to effect any consolidation or merger into or with any other Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(n) hereof), or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of more than 50% of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more transactions each of
which complies with Section 11(n) hereof), or (e) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to the Rights Agent and to each holder of a Right, in accordance with
Section 26, a notice of such proposed action, which shall specify the record
date for the purposes of such stock dividend, distribution of rights or Rights,
or the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and the date
of participation therein by the holders of the Common Stock, if any such date is
to be fixed, and such notice shall be so given in the case of any action covered
by clause (a) or (b) above at least twenty (20) days prior to the record date
for determining holders of the Common Stock for purposes of such action, and in
the case of any such other action, at least twenty (20)) days prior to the date
of the taking of such proposed action or the date of participation therein by
the holders of the Common Stock, whichever shall be the earlier.
In case a Section 11(a)(ii) Event shall occur, then,
in any such case, the Company shall as soon as practicable thereafter give to
the Rights Agent and to each holder of a Right, to the extent feasible and in
accordance with Section 26 a notice of the occurrence of such event, which shall
specify the event and the consequences of the event to holders of Rights under
Section 11(a)(ii).
Section 26. Notices. Notices or demands authorized
by this Agreement to be given or made by the Rights Agent or by the holder of
any Right Certificate to or on the Company shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (unless and until
another address is filed in writing with the Rights Agent) as follows:
National Fuel Gas Company
10 Lafayette Square
Buffalo, New York 14203
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
Marine Midland Bank
140 Broadway
12th Floor
Corporate Trust Services
New York, New York 10005-1180
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Prior to the
earlier of the Distribution Date or the Shares Acquisition Date and subject to
the penultimate sentence of this Section 27, the Company may from time to time
supplement or amend this Agreement in writing without the approval of any
holders of Right Certificates. From and after the earlier of the Distribution
Date or the Shares Acquisition Date, and subject to the penultimate sentence of
this Section 27, the Company may from time to time supplement or amend this
Agreement in writing without the approval of any holders of Right Certificates
in order (i) to cure any ambiguity, (ii) to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) to lengthen the time period during which the Rights may
be redeemed following the Shares Acquisition Date for up to an additional twenty
days beyond the time period set forth in Section 23 (a) (provided, however, that
any such lengthening shall be effective only if there are Independent Directors
and shall require the concurrence of a majority of such Independent Directors)
or (iv) to change or supplement the provisions hereunder in any manner which the
Company may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Right Certificates (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person). Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment unless the
Rights Agent shall have determined in good faith that such supplement or
amendment would adversely affect its interests under this Agreement.
Notwithstanding anything in this Agreement to the contrary, no supplement or
amendment shall be made on or after the Distribution Date which changes the
Redemption Price, the Final Expiration Date, the Purchase Price or the number of
shares of Common Stock for which a Right is then exercisable. Prior to the
earlier of the Shares Acquisition Date or the Distribution Date, the interests
of the holders of Rights shall be deemed coincident with the interests of the
holders of Common Stock.
Section 28. Successors. All the covenants and
provisions of this Agreement by or for the benefit of the Company or the Rights
Agent shall bind and inure to the benefit of their respective successors and
assigns hereunder.
Section 29. Determinations and Actions by the Board
of Directors. For all purposes of this Agreement, any calculation of the number
of shares of Common Stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock of which any Person is the Beneficial owner, shall be made in
accordance with the provisions of Rule 13d-3(d)(1)(i) of the General Rules and
Regulations under the Exchange Act. The Board of Directors of the Company (and,
where specifically provided for herein, the Independent Directors) shall have
the exclusive power and authority to administer this Agreement and to exercise
all rights and powers specifically granted to the Board or the Company (or, as
expressly provided, the Independent Directors), or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for the purpose of clause (ii)
below, all omissions with respect to the foregoing) which are done or made by
the Board (or, as provided for, by the Independent Directors) in good faith,
shall (i) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Right Certificates and all other parties, and (ii) not subject
the Board or the Independent Directors to any liability to the holders of the
Right Certificates.
Section 30. Benefits of This Agreement. Nothing in
this Agreement shall be construed to give to any Person other than the Company,
the Rights Agent and the registered holders of the Right Certificates (and,
prior to the Distribution Date, the Common Stock) any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date,
registered holders of the Common Stock).
Section 31. Severability. If any term, provision,
covenant, or restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated; provided, however, that notwithstanding anything in this
Agreement to the contrary, if any such term, provision, covenant or restriction
is held by such court or authority to be invalid, void or unenforceable and the
Board of Directors of the Company determines in its good faith judgment that
severing the invalid language from this Agreement would adversely affect the
purpose or effect of this Agreement, the right of redemption set forth in
Section 23, hereof, if then expired, shall be reinstated and shall not expire
until the close of business on the tenth day following the date of such
determination by the Board of Directors.
Section 32. Governing Law. This Agreement and each
Right Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State. Notwithstanding anything to
the contrary contained herein, any dispute regarding the carrying out of its
obligations hereunder by the Rights Agent shall be governed by the laws of New
York.
Section 33. Counterparts. This Agreement may be
executed in any number of counterparts and each of such counterparts shall for
all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
Section 34. Descriptive Headings. Descriptive
headings of the several Sections of this Agreement are inserted for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
[SEAL]
NATIONAL FUEL GAS COMPANY
By: /s/ Philip C. Ackerman
----------------------------------
Name: Philip C. Ackerman
Title: Senior Vice President
Attest:
By: /s/ Anna Marie Cellino
---------------------------------
Name: Anna Marie Cellino
Title: Secretary
[SEAL]
MARINE MIDLAND BANK
By: /s/ Carmela Ehret
----------------------------------
Name: Carmela Ehret
Title: Vice President
Attest:
By: /s/ Metin Caner
---------------------------------
Name: Metin Caner
Title: Vice President
<PAGE>
EXHIBIT A
[Form of Right Certificate]
Certificate No. R- Rights
NOT EXERCISABLE AFTER JULY 31, 2006 OR EARLIER IF NOTICE OF REDEMPTION OR
EXCHANGE IS GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS MAY NOT BE EXERCISABLE AND THE
RIGHTS AGREEMENT MAY BE AMENDED WITHOUT THE APPROVAL OF THE RIGHTS OWNERS.
NATIONAL FUEL GAS COMPANY
Right Certificate
This certifies that , or registered assigns, is the registered owner of
the number of Rights set forth above, each of which entitles the owner thereof,
subject to the terms, provisions and conditions of the Rights Agreement dated as
of June 12, 1996 (the "Rights Agreement") between National Fuel Gas Company, a
New Jersey corporation (the "Company") and _______________________ (the "Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 P.M.
(Buffalo, New York time) on July 31, 2006 at the designated office of the Rights
Agent, or its successors as Rights Agent, in _____________, New York, one-half
of one fully paid, nonassessable share of the Common Stock, $1.00 par value (the
"Common Stock"), of the Company, at a purchase price of $130.00 per share (the
"Purchase Price"), being $65.00 per half share, upon presentation and surrender
of this Right Certificate with the Form of Election to Purchase and related
certificate duly executed, along with a signature guarantee and such other and
further documentation as the Rights Agent may reasonably request. The number of
Rights evidenced by this Right Certificate (and the number of shares which may
be purchased upon exercise thereof) set forth above, and the Purchase Price per
share set forth above, are the number and Purchase Price as of 1996, based on
the Common Stock of the Company as constituted at such date.
A-1
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Right
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement) , (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who after such transfer, became an Acquiring
Person, such Rights shall become null and void and no holder hereof shall have
any right with respect to such Rights from and after the occurrence of such
Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Common Stock (or, in certain circumstances, other
securities) which may be purchased upon the exercise of the Rights evidenced by
this Right Certificate are subject to modification and adjustment upon the
happening of certain events, including Triggering Events (as such term is
defined in the Rights Agreement).
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the above-mentioned office of the Rights
Agent, and at the executive offices of the Company.
This Right Certificate, with or without other Right Certificates, upon
surrender at the designated office of the Rights Agent, along with a signature
guarantee and such other and further documentation as the Rights Agent may
reasonably request, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of shares of Common Stock as the Rights
evidenced by the Right Certificate or Right Certificates surrendered shall have
entitled such holder to purchase. If this Right Certificate shall be exercised
in part, the holder shall be entitled to receive upon surrender hereof, along
with a signature guarantee and such other and further documentation as the
Rights Agent may
A-2
reasonably request, another Right Certificate or Right Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (a) may be redeemed by the Company at its option at a
redemption price of $.01 per Right prior to the earlier of the close of business
on (i) the tenth day following the Shares Acquisition Date and (ii) the Final
Expiration Date or (b) may be exchanged in whole or in part for shares of Common
Stock and/or other securities, cash or other assets of the Company deemed to
have the same value as shares of Common Stock, at any time after a Section
11(a)(ii) Event. The Rights Agreement may be amended without the approval of the
holders of the Rights as and to the extent set forth therein.
No fractional shares of Common Stock will be issued upon the exercise
or exchange of any Right or Rights evidenced hereby, but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Common Stock or
of any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised or exchanged for Common Stock as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
A-3
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of 1996.
[SEAL] NATIONAL FUEL GAS COMPANY
By:
-----------------------------------
Name
Title
ATTEST:
By:
-------------------------------
Name:
Title:
Countersigned:
-------------------------------------,
as Rights Agent
By:
-----------------------------------
Authorized Signature
Date:
A-4
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
- ------------------
(To be executed by the registered holder if such holder desires to transfer the
Right Certificates.)
FOR VALUE RECEIVED hereby sells,
--------------------
assigns and transfers unto
-----------------------------------------------------
(please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint Attorney,
---------------------
to transfer the within Right Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
-----------------------------
Signature
- -----------------------------------
Signature Guaranteed:
(Signatures must be guaranteed.)
A-5
CERTIFICATE
- -----------
The undersigned hereby certifies by checking the
appropriate space that:
Exercising this Right Certificate will will not enable
---- -----
the undersigned, its Affiliates, its Associates and/or any other Person with
which the undersigned or any of the undersigned's Affiliates or Associates has
any agreement, arrangement or understanding (whether or not in writing) for the
purpose of acquiring, holding, voting or disposing of securities of the Company
to obtain, individually or in the aggregate, beneficial ownership of Common
Stock or other securities that have 10% or more of the aggregate voting power of
the outstanding shares of the Common Stock and other securities having voting
power.
Dated: -----------------------------------------
-------------------------- Signature
Signature Guaranteed:
(Signatures must be guaranteed.)
A-6
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
A-7
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights evidenced by the Right
Certificate.)
To National Fuel Gas Company:
The undersigned hereby irrevocably elects to exercise Rights
represented by this Right Certificate to purchase the shares of Common Stock
issuable upon the exercise of such Rights (or such other securities of the
Company or of any other Person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of:
Please insert social security or other taxpayer identifying number
- ------------------------------------------------------------------------------
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:
Please insert social security or other taxpayer identifying number
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
Dated:
----------------, --------
- ---------------------------------
Signature
Signature Guaranteed:
(Signatures must be guaranteed.)
A-8
<PAGE>
SUMMARY OF RIGHTS TO PURCHASE COMMON STOCK EXHIBIT B
On June 13, 1996, the Board of Directors of National Fuel Gas Company
(the "Company") declared a dividend distribution of one Right for each
outstanding share of Common Stock, $1.00 par value, of the Company (the "Common
Stock") to stockholders of record at the close of business on July 31, 1996 (the
"Record Date"). The Rights are to be issued pursuant to a shareholder rights
plan which was approved by the Board of Directors on March 19, 1996. Each Right
entitles the registered holder to purchase from the Company one-half of one
share of common Stock at a price of $130 per share (the "Purchase Price"), being
$65.00 per half share, subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement") between the
Company and Marine Midland Bank, as Rights Agent (the "Rights Agent").
Distribution Date; Transfer of Rights
- -------------------------------------
Until the earlier to occur of (i) ten days following the date (the
"Shares Acquisition Date") of the public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of Common Stock or other
voting securities ("Voting Stock") that have 10% or more of the voting power of
the outstanding shares of Voting Stock or (ii) ten days following the
commencement or announcement of an intention to make a tender offer or exchange
offer the consummation of which would result in such person acquiring, or
obtaining the right to acquire, beneficial ownership of Voting Stock having 10%
or more of the voting power of the outstanding shares of Voting Stock (the
earlier of such dates being called the "Distribution Date"), the Rights will be
evidenced, with respect to any of the Company's Common Stock certificates
outstanding as of the Record Date, by such Common Stock certificate. The Rights
Agreement provides that, until the Distribution Date, the Rights will be
transferred with and only with the Company's Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date upon transfer or new
issuance of the Company's Common Stock will contain a notation incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any of
the Company's Common Stock certificates outstanding as of the Record Date will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Company's Common Stock
as of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
B-1
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of Business on July 31, 2006, unless earlier redeemed
or exchanged by the Company as described below.
Exercise of Rights for Common Stock of the Company
- --------------------------------------------------
Subject to redemption or exchange of the Rights, at any time following
the Distribution Date, each holder of a Right will thereafter have the right to
receive, upon exercise, Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to two times
the Purchase Price of the Right then in effect. Notwithstanding any of the
foregoing, following the occurrence of such event set forth in this paragraph,
all Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will be null and
void.
Exercise of Rights for Shares of the Acquiring Company
- ------------------------------------------------------
In the event that, at any time following the Shares Acquisition Date,
(i) the Company is acquired in a merger or other business combination
transaction, or (ii) 50% or more of the Company's assets or earning power is
sold or transferred, each holder of a Right (except Rights which previously have
been voided as set forth above) shall thereafter have the right to receive, upon
exercise, Common Stock of the acquiring company having a value equal to two
times the Purchase Price of the Right then in effect.
Adjustments to Purchase Price
- -----------------------------
The Purchase Price payable, and the number of shares of Common Stock
(or other securities, as the case may be) issuable upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend on, or a subdivision, combination or reclassification of,
the Common Stock, (ii) upon the grant to holders of the Common Stock of certain
rights or warrants to subscribe for or purchase shares of the Common Stock or
convertible securities at less than the then Current Market Price of the Common
Stock or (iii) upon the distribution to holders of the Common Stock of evidences
of indebtedness or assets (excluding regular periodic cash dividends or
dividends payable in the Common Stock) or of subscription rights or warrants
(other than those referred to above). Prior to the Distribution Date, the Board
of Directors of the Company may make such equitable adjustments as it deems
appropriate in the circumstances in lieu of any adjustment otherwise required by
the foregoing.
With certain exceptions, no adjustment in the Purchase Price will be
required until the earlier of (i) three years from the date of the event giving
rise to such adjustment or (ii) the time
B-2
at which cumulative adjustments require an adjustment of at least 1% in such
Purchase Price. No fractional shares of Common Stock will be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Common Stock on the last trading date prior to the date of exercise.
Redemption and Exchange of Rights
- ---------------------------------
At any time prior to 5:00 P.M. Buffalo, New York time on the tenth day
following the Shares Acquisition Date, the Company may redeem the Rights in
whole, but not in part, at a price of $.01 per Right (the "Redemption Price").
Under certain circumstances set forth in the Rights Agreement, the decision to
redeem shall require the concurrence of a majority of the Independent Directors.
Immediately upon the action of the Board of Directors of the Company electing to
redeem the Rights with, if required, the concurrence of the Independent
Directors, the Company shall make announcement thereof, and upon such action,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
At any time after the occurrence of the event set forth under the
heading "Exercise of Rights for Common Stock of the Company" above, the Board of
Directors may exchange the Rights (other than Rights owned by an Acquiring
Person, which have become void), in whole or in part, at an exchange ratio of
one share of Common Stock, and/or other securities, cash or other assets deemed
to have the same value as one share of Common Stock, per Right, subject to
adjustment.
Until a Right is exercised or exchanged for Common Stock, the holder
thereof, as such, will have no rights as a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends. While
the distribution of the Rights will not be taxable to stockholders or to the
Company, stockholders may, depending upon the circumstances, recognize taxable
income in the event that the Rights become exercisable for Common Stock or other
consideration of the Company or for the stock of the Acquiring Person as set
forth above, or are exchanged as provided in the preceding paragraph.
Amendments to Terms of the Rights
- ---------------------------------
Any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company without the consent of the holders of the
Rights prior to the Distribution Date. Thereafter, the provisions of the Rights
Agreement may be amended by the Board of Directors in order to cure any
ambiguity, defect or inconsistency, or to make changes which do not adversely
affect the interests of holders of Rights (excluding the interest of any
Acquiring Person); provided, however, that no supplement or amendment may be
made on or
B-3
after the Distribution Date which changes those provisions relating to the
principal economic terms of the Rights. The Board of Directors may also, with
the concurrence of a majority of the Independent Directors, extend the
redemption period for up to an additional 20 days.
The term "Independent Directors" means any member of the Board of
Directors of the Company who was a member of the Board prior to the date of the
Rights Agreement, and any person who is subsequently elected to the Board if
such person is recommended or approved by a majority of the Independent
Directors but shall not include an Acquiring Person or any representative
thereof.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
June 12, 1996. A copy of the Rights Agreement is available free of charge form
the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
B-4
Contract #: 830016
------
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
This Service Agreement, made and entered into this 2nd day of November,
1995, by and between TEXAS EASTERN TRANSMISSION CORPORATION, a Delaware
Corporation (herein called "Pipeline") and NATIONAL FUEL GAS DISTRIBUTION
CORPORATION (herein called "Customer", whether one or more),
W I T N E S S E T H:
WHEREAS, Customer and Pipeline currently are parties to executed
service agreements under Pipeline's Rate Schedules FT-1, and CDS (Pipeline
Contract Nos. 800339, 800363 and 800340); and
WHEREAS, Customer and Pipeline have agreed to reform Customer's service
agreements by, inter alia, extending the term of certain of Customer's service
agreements; and
WHEREAS, Customer and Pipeline desire to enter into this Service
Agreement to supersede Customer's existing Rate Schedule FT-1 service agreement
(Pipeline Contract No. 800339);
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties do covenant and agree as
follows:
ARTICLE I
SCOPE OF AGREEMENT
Subject to the terms, conditions and limitations hereof, of Pipeline's
Rate Schedule FT-1, and of the General Terms and Conditions, transportation
service hereunder will be firm. Subject to the terms, conditions and limitations
hereof and of Pipeline's Rate Schedule FT-1, Pipeline agrees to deliver for
Customer's account quantities of natural gas up to the following quantity:
Maximum Daily Quantity (MDQ) 52,652 dth
Pipeline shall receive for Customer's account, at those points on
Pipeline's system as specified in Article IV herein or available to Customer
pursuant to Section 14 of the General Terms and Conditions (hereinafter referred
to as Point(s) of Receipt) for transportation hereunder daily quantities of gas
up to customer's MDQ, plus Applicable Shrinkage. Pipeline shall transport and
deliver for Customer's account, at those points on Pipeline's system as
specified in Article IV herein or available to Customer pursuant to Section 14
of the General Terms and Conditions (hereinafter referred to as Point(s) of
Delivery), such daily quantities tendered up to such Customer's MDQ.
Pipeline shall not be obligated to, but may at its discretion, receive
at any Point of Receipt on any day a quantity of gas in excess of the applicable
Maximum Daily Receipt obligation (MDRO), plus Applicable Shrinkage, but shall
not receive in the aggregate at all Points of Receipt on any day a
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
(Continued)
quantity of gas in excess of the applicable MDQ, plus Applicable Shrinkage.
Pipeline shall not be obligated to, but may at its discretion, deliver at any
Point of Delivery on any day a quantity of gas in excess of the applicable
Maximum Daily Delivery Obligation (MDDO), but shall not deliver in the aggregate
at all Points of Delivery on any day a quantity of gas in excess of the
applicable MDQ.
In addition to the MDQ and subject to the terms, conditions and
limitations hereof, Rate Schedule FT-1 and the General Terms and Conditions,
Pipeline shall deliver within the Access Area under this and all other service
agreements under Rate Schedules CDS, FT-1, and/or SCT, quantities up to
Customer's Operational Segment Capacity Entitlements, excluding those
Operational Segment Capacity Entitlements scheduled to meet Customer's MDQ, for
Customer's account, as requested on any day.
ARTICLE II
TERM OF AGREEMENT
The term of this Service Agreement shall commence on the later of: (1)
November 1, 1995 or (ii) the date on which Customer has executed all of
Pipeline's Contract Nos. 830016, 830017 and 820004, and shall continue in force
and effect until October 31, 2000 and year to year thereafter unless this
Service Agreement is terminated as hereinafter provided. This Service Agreement
may be terminated by either Pipeline or Customer upon two (2) years prior
written notice to the other specifying a termination date of any year occurring
on or after the expiration of the primary term. Subject to Section 22 of
Pipeline's General Terms and Conditions and without prejudice to such rights,
this Service Agreement may be terminated at any time by Pipeline in the event
Customer fails to pay part or all of the amount of any bill for service
hereunder and such failure continues for thirty (30) days after payment is due;
provided, Pipeline gives thirty (30) days prior written notice to Customer of
such termination and provided further such termination shall not be effective
if, prior to the date of termination, Customer either pays such outstanding bill
or furnishes a good and sufficient surety bond guaranteeing payment to Pipeline
of such outstanding bill.
THE TERMINATION OF THIS SERVICE AGREEMENT WITH A FIXED CONTRACT TERM OR
THE PROVISION OF A TERMINATION NOTICE BY CUSTOMER TRIGGERS PREGRANTED
ABANDONMENT UNDER SECTION 7 OF THE NATURAL GAS ACT AS OF THE EFFECTIVE DATE OF
THE TERMINATION. PROVISION OF A TERMINATION NOTICE BY PIPELINE ALSO TRIGGERS
CUSTOMER'S RIGHT OF FIRST REFUSAL UNDER SECTION 3.13 OF THE GENERAL TERMS AND
CONDITIONS ON THE EFFECTIVE DATE OF THE TERMINATION.
Any portions of this Service Agreement necessary to correct or cash-out
imbalances under this Service Agreement as required by the General Terms and
Conditions of pipeline's FERC Gas Tariff, the General Terms and Conditions of
2
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
(Continued)
Pipeline's FERC Gas Tariff, Volume No. 1, shall survive the other parts of this
Service Agreement until such time as such balancing has been accomplished.
ARTICLE III
RATE SCHEDULE
This Service Agreement in all respects shall be and remain subject to
the applicable provisions of Rate Schedule FT-1 and of the General Terms and
Conditions of Pipeline's FERC Gas Tariff on file with the Federal Energy
Regulatory Commission, all of which are by this reference made a part hereof.
Customer shall pay Pipeline, for all services rendered hereunder and
for the availability of such service in the period stated, the applicable prices
established under Pipeline's Rate Schedule FT-1 as filed with the Federal Energy
Regulatory Commission, and as same may hereafter be legally amended or
superseded.
Customer agrees that Pipeline shall have the unilateral right to file
with the appropriate regulatory authority and make changes effective in (a) the
rates and charges applicable to service pursuant to Pipeline's Rate Schedule
FT-1, (b) Pipeline's Rate Schedule FT-1 pursuant to which service hereunder is
rendered or (c) any provision of the General Terms and Conditions applicable to
Rate Schedule FT-1. Notwithstanding the foregoing, Customer does not agree that
Pipeline shall have the unilateral right without the consent of Customer
subsequent to the execution of this Service Agreement and Pipeline shall not
have the right during the effectiveness of this Service Agreement to make any
filings pursuant to Section 4 of the Natural Gas Act to change the MDQ specified
in Article I, to change the term of the agreement as specified in Article II, to
change Point(s) of Receipt specified in Article IV, to change the Point(s) of
Delivery specified in Article IV, or to change the firm character of the service
hereunder. Pipeline agrees that Customer may protest or contest the
aforementioned filings, and Customer does not waive any rights it may have with
respect to such filings.
ARTICLE IV
POINT(S) OF RECEIPT AND POINT(S) OF DELIVERY
The Point(s) of Receipt and Point(s) of Delivery at which Pipeline shall receive
and deliver gas, respectively, shall be specified in Exhibit(s) A and B of the
executed service agreement. Customer's Zone Boundary Entry Quantity and Zone
Boundary Exit Quantity for each of Pipeline's zones shall be specified in
Exhibit C of the executed service agreement.
3
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
(Continued)
Exhibit (s) A, B and C are hereby incorporated as part of this Service
Agreement for all intents and purposes as if fully copied and set forth herein
at length.
ARTICLE V
QUALITY
All natural gas tendered to Pipeline for Customer's account shall
conform to the quality specifications set forth in Section 5 of Pipeline's
General Terms and Conditions. Customer agrees that in the event Customer tenders
for service hereunder and Pipeline agrees to accept natural gas which does not
comply with Pipeline's quality specifications, as expressly provided for in
Section 5 of Pipeline's General Terms and Conditions, Customer shall pay all
costs associated with processing of such gas as necessary to comply with such
quality specifications. Customer shall execute or cause its supplier to execute,
if such supplier has retained processing rights to the gas delivered to
Customer, the appropriate agreements prior to the commencement of service for
the transportation and processing of any liquefiable hydrocarbons and any PVR
quantities associated with the processing of gas received by Pipeline at the
Point(s) of Receipt under such Customer's service agreement. In addition,
subject to the execution of appropriate agreements, Pipeline is willing to
transport liquids associated with the gas produced and tendered for
transportation hereunder.
ARTICLE VI
ADDRESSES
Except as herein otherwise provided or as provided in the General Terms
and Conditions of Pipeline's FERC Gas Tariff, any notice, request, demand,
statement, bill or payment provided for in this Service Agreement, or any notice
which any party may desire to give to the other, shall be in writing and shall
be considered as duly delivered when mailed by registered, certified, or regular
mail to the post office address of the parties hereto, as the case may be, as
follows:
(a) Pipeline: TEXAS EASTERN TRANSMISSION CORPORATION
5400 Westheimer Court
Houston, TX 77056-5310
(b) Customer: NATIONAL FUEL GAS DISTRIBUTION CORPORATION
10 Lafayette Square
Room 1200
Buffalo, NY 14203
or such other address as either party shall designate by formal written notice.
4
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
(Continued)
ARTICLE VII
ASSIGNMENTS
Any Company which shall succeed by purchase, merger, or consolidation
to the properties, substantially as an entirety, of Customer, or of Pipeline, as
the case may be, shall be entitled to the rights and shall be subject to the
obligations of its predecessor in title under this Service Agreement; and either
Customer or Pipeline may assign or pledge this Service Agreement under the
provisions of any mortgage, deed of trust, indenture, bank credit agreement,
assignment, receivable sale, or similar instrument which it has executed or may
execute hereafter; otherwise, neither Customer nor Pipeline shall assign this
Service Agreement or any of its rights hereunder unless it first shall have
obtained the consent thereto in writing of the other; provided further, however,
that neither Customer nor Pipeline shall be released from its obligations
hereunder without the consent of the other. In addition, Customer may assign its
rights to capacity pursuant to Section 3.14 of the General Terms and Conditions.
To the extent Customer so desires, when it releases capacity pursuant to Section
3.14 of the General Terms and Conditions, Customer may require privity between
Customer and the Replacement Customer, as further provided in the applicable
Capacity Release Umbrella Agreement.
ARTICLE VIII
INTERPRETATION
The interpretation and performance of this Service Agreement shall be
in Accordance with the laws of the State of Texas without recourse to the law
governing conflict of laws.
This Service Agreement and the obligations of the parties are subject
to all present and future valid laws with respect to the subject matter, State
and Federal, and to all valid present and future orders, rules, and regulations
of duly constituted authorities having jurisdiction.
ARTICLE IX
CANCELLATION OF PRIOR CONTRACT(S)
This service Agreement supersedes and cancels, as of the effective date
of this Service Agreement, the contracts) between the parties hereto as
described below:
Service Agreement(s) dated July 26, 1993 between Pipeline and Customer
under Pipeline's Rate Schedule FT-1 (Pipeline's contract No;. 800339).
5
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
(Continued)
IN WITNESS WHEREOF, the parties hereto have caused this Service
Agreement to be signed by their respective Presidents, Vice Presidents or other
duly authorized agents and their respective corporate seals to be hereto affixed
and attested by their respective Secretaries or Assistant Secretaries, the day
and year first above written.
TEXAS EASTERN TRANSMISSION CORPORATION
By /s/ Robert B. Evans
-------------------------------------
Vice President
ATTEST:
/s/ Robert W. Reed
- ----------------------------------------
ROBERT W. REED
CORPORATE SECRETARY
NATIONAL FUEL GAS DISTRIBUTION
CORPORATION
By /s/ Philip C. Ackerman
-------------------------------------
Philip C. Ackerman
President
ATTEST:
/s/ David F. Smith
- ----------------------------------------
David F. Smith
Secretary
6
<PAGE>
Contract #: 830016
------
<TABLE>
<CAPTION>
EXHIBIT A, TRANSPORTATION PATHS
FOR BILLING PURPOSES, DATED NOVEMBER 2, 1995
TO THE SERVICE AGREEMENT UNDER RATE SCHEDULE FT-1
BETWEEN TEXAS EASTERN TRANSMISSION CORPORATION ("Pipeline"), AND
NATIONAL FUEL GAS DISTRIBUTION CORPORATION ("Customer"),
DATED July 26, 1993:
(1) Customer's firm Point(s) of Receipt:
Maximum Daily
Receipt
obligation (plus
Point of Applicable Measurement
Receipt Description Shrinkage) (dth) Responsibilities Owner Operator
<S> <C> <C> <C> <C> <C>
72655 TOMCAT - CALHOUN CO., TX CALHOUN 10,024 TRANSCO TRANSCO TRANSCO
Co. , TX
(2) Customer shall have Pipeline's Master Receipt Point List ("MRPL").
Customer hereby agrees that Pipeline's KRPL as revised and published by
Pipeline from time to time is incorporated herein by", reference.
</TABLE>
Customer hereby agrees to comply with the Receipt Pressure obligation as set
forth in Section 6 of.Pipeline's General Terms and Conditions at such Point(s)
of Receipt.
Transportation
Transportation Path Path Quantity (Dth/D)
------------------- ---------------------
MI to M2 52652
SIGNED FOR IDENTIFICATION
-------------------------------------
PIPELINE: /s/ Robert B. Evans
-----------------------------------------------------
CUSTOMER: /s/ Philip C. Ackerman
-----------------------------------------------------
SUPERSEDES EXHIBIT A DATED: 7/26/93
-----------------------------------
A-1
<PAGE>
Contract #: 830016
------
<TABLE>
<CAPTION>
EXHIBIT B, POINT(S) OF DELIVERY, DATED NOVEMBER 2, 1995
TO THE SERVICE AGREEMENT UNDER RATE SCHEDULE FT-1
BETWEEN TEXAS EASTERN TRANSMISSION CORPORATION ("Pipeline") AND
NATIONAL FUEL GAS DISTRIBUTION CORPORATION ("Customer"),
DATED July 26, 1993:
Maximum
Daily
Point of Delivery Delivery Pressure Measurement
Delivery Description Obligation Obligation Responsibilities Owner Operator
-------- ----------- ---------- ---------- ---------------- ----- --------
(dth)
<S> <C> <C> <C> <C> <C> <C> <C>
1. 70015 NATIONAL FUEL - 52,652 As provided in Section 6 TX EAST TX EAST NATL FUL
BRISTORIA, PA GREENE of the General Terms and TRAN TRAN SUP
CO., PA Conditions of Pipeline's
FERC Gas Tariff
</TABLE>
SIGNED FOR IDENTIFICATION
-------------------------------------
PIPELINE: /s/ Robert B. Evans
-----------------------------------------------------
CUSTOMER: /s/ Philip C. Ackerman
-----------------------------------------------------
SUPERSEDES EXHIBIT B DATED: 7/26/93
-----------------------------------
B-1
<PAGE>
Contract #: 830016
------
<TABLE>
<CAPTION>
EXHIBIT C, ZONE BOUNDARY ENTRY QUANTITY AND ZONE BOUNDARY EXIT QUANTITY,
DATED NOVEMBER 2, 1995, TO THE SERVICE AGREEMENT UNDER RATE SCHEDULE FT-1
BETWEEN TEXAS EASTERN TRANSMISSION CORPORATION ("PIPELINE") AND
NATIONAL FUEL GAS DISTRIBUTION CORPORATION ("CUSTOMER"), DATED July 26, 1993:
ZONE BOUNDARY ENTRY QUANTITY
Dth/D
To
--
============================================================================================================
FROM STX ETX WLA ELA Ml-24 Ml-30 M1-TXG M1-TGC M2-24 M2-30 M2-TXG M2-TGC M2 M3
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
============================================================================================================
STX 1596
============================================================================================================
ETX 5160 2415
============================================================================================================
WLA 735 1596
============================================================================================================
ELA 41841
============================================================================================================
Ml-24 5160
============================================================================================================
Ml-30 41841
============================================================================================================
M1-TXG 3150
============================================================================================================
M1-TGC 3192
============================================================================================================
M2-24
============================================================================================================
M2-30
============================================================================================================
M2-TXG
============================================================================================================
M2-TGC
============================================================================================================
M2
============================================================================================================
M3
============================================================================================================
</TABLE>
C-1
<PAGE>
Contract #: 830016
------
<TABLE>
<CAPTION>
EXHIBIT C (Continued)
NATIONAL FUEL GAS DISTRIBUTION CORPORATION
ZONE BOUNDARY EXIT QUANTITY
Dth/D
To
--
============================================================================================================
FROM STX ETX WLA ELA Ml-24 Ml-30 M1-TXG M1-TGC M2-24 M2-30 M2-TXG M2-TGC M2 M3
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
============================================================================================================
STX
============================================================================================================
ETX
============================================================================================================
WLA
============================================================================================================
ELA
============================================================================================================
Ml-24 5160
============================================================================================================
Ml-30 41841
============================================================================================================
M1-TXG 3150
============================================================================================================
M1-TGC 3192
============================================================================================================
M2-24
============================================================================================================
M2-30
============================================================================================================
M2-TXG
============================================================================================================
M2-TGC
============================================================================================================
M2
============================================================================================================
M3
============================================================================================================
</TABLE>
SIGNED FOR IDENTIFICATION
--------------------------------------
PIPELINE: /s/ Robert B. Evans
------------------------------------------------------
CUSTOMER: /s/ Philip C. Ackerman
------------------------------------------------------
SUPERSEDES EXHIBIT C DATED 7/26/93
-------------------------------------
C-2
Contract #: 830017
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
This Service Agreement, made and entered into this 2nd day of
November, 1995, by and between TEXAS EASTERN TRANSMISSION CORPORATION, a
Delaware Corporation (herein called "Pipeline") and NATIONAL FUEL GAS
DISTRIBUTION CORPORATION (herein called "Customer", whether one or more),
W I T N E S S E T H:
WHEREAS, Customer and Pipeline currently are parties to executed
service agreements under Pipeline's Rate Schedules FT-1, and CDS (Pipeline
Contract Nos. 800339, 800363 and 800340); and
WHEREAS, Customer and Pipeline have agreed to reform Customer's service
agreements by, inter alia, extending the term of certain of Customer's service
agreements; and
WHEREAS, Customer and Pipeline desire to enter into this Service
Agreement to supersede Customer's existing Rate Schedule FT-1 service agreement
(Pipeline Contract No. 800363);
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties do covenant and agree as
follows:
ARTICLE I
SCOPE OF AGREEMENT
Subject to the terms, conditions and limitations hereof, of Pipeline's
Rate Schedule FT-1, and of the General Terms and Conditions, transportation
service hereunder will be firm. Subject to the terms, conditions and limitations
hereof and of Pipeline's Rate Schedule FT-1, Pipeline agrees to deliver for
Customer's account quantities of natural gas up to the following quantity:
Maximum Daily Quantity (MDQ) 44,313 dth
Pipeline shall receive for Customer's account, at those points on
Pipeline's system as specified in Article IV herein or available to Customer
pursuant to Section 14 of the General Terms and Conditions (hereinafter referred
to as Point(s) of Receipt) for transportation hereunder daily quantities of gas
up to Customer's MDQ, plus Applicable Shrinkage. Pipeline shall transport and
deliver for Customer's account, at those points on Pipeline's system as
specified in Article IV herein or available to Customer pursuant to Section 14
of the General Terms and Conditions (hereinafter
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
(Continued)
referred to as Point(s) of Delivery) such daily quantities tendered up to such
Customer's MDQ.
Pipeline shall not be obligated to, but may at its discretion, receive
at any Point of Receipt on any day a quantity of gas in excess of the applicable
Maximum Daily Receipt Obligation (MDRO), plus Applicable Shrinkage, but shall
not receive in the aggregate at all Points of Receipt on any day a quantity of
gas in excess of the applicable MDQ, plus Applicable Shrinkage. Pipeline shall
not be obligated to, but may at its discretion, deliver at any Point of Delivery
on any day a quantity of gas in excess of the applicable Maximum Daily Delivery
Obligation (MDDO), but shall not deliver in the aggregate at all Points of
Delivery on any day a quantity of gas in excess of the applicable MDQ.
In addition to the MDQ and subject to the terms, conditions and
limitations hereof, Rate Schedule FT-1 and the General Terms and Conditions,
Pipeline shall deliver within the Access Area under this and all other service
agreements under Rate Schedules CDS, FT-1, and/or SCT, quantities up to
Customer's Operational Segment Capacity Entitlements, excluding those
Operational Segment Capacity Entitlements scheduled to meet Customer's MDQ, for
Customer's account, as requested on any day.
ARTICLE II
TERM OF AGREEMENT
The term of this Service Agreement shall commence on the later of: (1)
November 1, 1995 or (ii) the date on which Customer has executed all of
Pipeline's Contract Nos. 830016, 830017 and 820004, and shall continue in force
and effect until October 31, 2001 and year to year thereafter unless this
Service Agreement is terminated as hereinafter provided. This Service Agreement
may be terminated by either Pipeline or Customer upon two (2) years prior
written notice to the other specifying a termination date of any year occurring
on or after the expiration of the primary term. Subject to Section 22 of
Pipeline's General Terms and Conditions and without prejudice to such rights,
this Service Agreement may be terminated at any time by Pipeline in the event
Customer fails to pay part or all of the amount of any bill for service
hereunder and such failure continues for thirty (30) days after payment is due;
provided, Pipeline gives thirty (30) days prior written notice to Customer of
such termination and provided further such termination shall not be effective
if, prior to the date of termination, Customer either pays such outstanding bill
or furnishes a good and sufficient surety bond guaranteeing payment to Pipeline
of such outstanding bill.
2
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
(Continued)
THE TERMINATION OF THIS SERVICE AGREEMENT WITH A FIXED CONTRACT TERM OR
THE PROVISION OF A TERMINATION NOTICE BY CUSTOMER TRIGGERS PREGRANTED
ABANDONMENT UNDER SECTION 7 OF THE NATURAL GAS ACT AS OF THE EFFECTIVE DATE OF
THE TERMINATION. PROVISION OF A TERMINATION NOTICE BY PIPELINE ALSO TRIGGERS
CUSTOMER'S RIGHT OF FIRST REFUSAL UNDER SECTION 3.13 OF THE GENERAL TERMS AND
CONDITIONS ON THE EFFECTIVE DATE OF THE TERMINATION.
Any portions of this Service Agreement necessary to correct or cash-out
imbalances under this Service Agreement as required by the General Terms and
Conditions of Pipeline's FERC Gas Tariff, Volume No. 1, shall survive the other
parts of this Service Agreement until such time as such balancing has been
accomplished.
ARTICLE III
RATE SCHEDULE
This Service Agreement in all respects shall be and remain subject to
the applicable provisions of Rate Schedule FT-1 and of the General Terms and
Conditions of Pipeline's FERC Gas Tariff on file with the Federal Energy
Regulatory Commission, all of which are by this reference made a part hereof.
Customer shall pay Pipeline, for all services rendered hereunder and
for the availability of such service in the period stated the applicable prices
established under Pipeline's Rate Schedule FT-1 as filed with the Federal Energy
Regulatory commission, and as same may hereafter be legally amended or
superseded.
Customer agrees that Pipeline shall have the unilateral right to file
with the appropriate regulatory authority and make changes effective in (a) the
rates and charges applicable to service pursuant to Pipeline's Rate Schedule
FT-1, (b) Pipeline's Rate Schedule FT-1 pursuant to which service hereunder is
rendered or (c) any provision of the General Terms and Conditions applicable to
Rate Schedule FT-1. Notwithstanding the foregoing, Customer does not agree that
Pipeline shall have the unilateral right without the consent of Customer
subsequent to the execution of this Service Agreement and Pipeline shall not
have the right during the effectiveness of this Service Agreement to make any
filings pursuant to Section 4 of the Natural Gas Act to
3
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
(Continued)
change the MDQ specified in Article I, to change the term of the service
agreement as specified in Article II, to change Point(s) of Receipt specified in
Article IV, to change the Point (s) of Delivery specified in Article IV, or to
change the firm character of the service hereunder. Pipeline agrees that
Customer may protest or contest the aforementioned filings, and Customer does
not waive any rights it may have with respect to such filings.
ARTICLE IV
POINT(S) OF RECEIPT AND POINT(S) OF DELIVERY
The Point(s) of Receipt and Point(s) of Delivery at which Pipeline
shall receive and deliver gas, respectively, shall be specified in Exhibit(s) A
and B of the executed service agreement.
Customer's Zone Boundary Entry Quantity and Zone Boundary Exit Quantity
for each of Pipeline's zones shall be specified in Exhibit C of the executed
service agreement.
Exhibit(s) A, B and C are hereby incorporated as part of this Service
Agreement for all intents and purposes as if fully copied and set forth herein
at length.
ARTICLE V
QUALITY
All natural gas tendered to Pipeline for Customer's account shall
conform to the quality specifications set forth in Section 5 of Pipeline's
General Terms and Conditions. Customer agrees that it the event Customer tenders
for service hereunder and Pipeline agrees to accept natural gas which does not
comply with Pipeline's quality specifications, as expressly provided for in
Section 5 of Pipeline's General Terms and Conditions, Customer shall pay all
costs associated with processing of such gas as necessary to comply with such
quality specifications. Customer shall execute or cause its supplier to execute,
if such supplier has retained processing rights to the gas delivered to
Customer, the appropriate agreements prior to the commencement of service for
the transportation and processing of any liquefiable hydrocarbons and any PVR
quantities associated with the processing of gas received by Pipeline at the
Point(s) of Receipt under such Customer's service agreement. In addition,
subject to the execution of appropriate agreements, Pipeline is willing to
transport liquids associated with the gas produced and tendered for
transportation hereunder.
4
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
(Continued)
ARTICLE VI
ADDRESSES
Except as herein otherwise provided or as provided in the General Terms
and Conditions of Pipeline's FERC Gas Tariff, any notice, request, demand,
statement, bill or payment provided for in this Service Agreement, or any notice
which any party may desire to give to the other, shall be in writing and shall
be considered as duly delivered when mailed by registered, certified, or regular
mail to the post office address of the parties hereto, as the case may be, as
follows:
(a) Pipeline: Texas Eastern Transmission Corporation
5400 Westheimer Court
Houston, Texas 77056-5310
(b) Customer: NATIONAL FUEL GAS DISTRIBUTION
10 LAYFAYETTE SQUARE
BUFFALO, NY 14203
or such other address as either party shall designate by formal written notice.
ARTICLE VII
ASSIGNMENTS
Any Company which shall succeed by purchase, merger, or consolidation
to the properties, substantially as an entirety, of Customer, or of Pipeline, as
the case may be, shall be entitled to the rights and shall be subject to the
obligations of its predecessor in title under this Service Agreement; and either
Customer or Pipeline may assign or pledge this Service Agreement under the
provisions of any mortgage, deed of trust, indenture, bank credit agreement,
assignment, receivable sale, or similar instrument which it has executed or may
execute hereafter; otherwise, neither Customer nor Pipeline shall assign this
Service Agreement or any of its rights hereunder unless it first shall have
obtained the consent thereto in writing of the other; provided further, however,
that neither Customer nor Pipeline shall be released from its obligations
hereunder without the consent of the other. In addition, Customer may assign its
rights to capacity pursuant to Section 3.14
5
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
(Continued)
of the General Terms and Conditions. To the extent Customer so desires, when it
releases capacity pursuant to Section 3.14 of the General Terms and Conditions,
Customer may require privity between Customer and the Replacement Customer, as
further provided in the applicable Capacity Release Umbrella Agreement.
ARTICLE VIII
INTERPRETATION
The interpretation and performance of this Service Agreement shall be
in accordance with the laws of the State of Texas without recourse to the law
governing conflict of laws.
This Service Agreement and the obligations of the parties are subject
to all present and future valid laws with respect to the subject matter, State
and Federal, and to all valid present and future orders, rules, and regulations
of duly constituted authorities having jurisdiction.
ARTICLE IX
CANCELLATION OF PRIOR CONTRACT(S)
This Service Agreement supersedes and cancels, as of the effective date
of this Service Agreement, the contracts) between the parties hereto as
described below:
Service Agreement(s) dated, September 24, 1993 between Pipeline and
Customer under Pipeline's Rate Schedule FT-1 (Pipeline's contract No.
800363).
6
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE FT-1
(Continued)
IN WITNESS WHEREOF, the parties hereto have caused this Service
Agreement to be signed by their respective Presidents, Vice Presidents or other
duly authorized agents and their respective corporate seals to be hereto affixed
and attested by their respective Secretaries or Assistant Secretaries, the day
and year first above written.
TEXAS EASTERN TRANSMISSION CORPORATION
By /s/ Robert B. Evans
--------------------------------------
Vice President
ATTEST:
/s/ Robert W. Reed
- ------------------------------------
ROBERT W. REED
CORPORATE SECRETARY
NATIONAL FUEL GAS DISTRIBUTION
By /s/ Philip C. Ackerman
--------------------------------------
Philip C. Ackerman
President
ATTEST:
/s/ David F. Smith
- -----------------------------------
David F. Smith
Secretary
7
<PAGE>
Contract # 830017
<TABLE>
<CAPTION>
EXHIBIT A, TRANSPORTATION PATH FOR BILLING PURPOSES DATED NOVEMBER 2, 1995
TO THE SERVICE AGREEMENT UNDER RATE SCHEDULE FT-1
BETWEEN TEXAS EASTERN TRANSMISSION CORPORATION ("Pipeline"), AND
NATIONAL FUEL GAS DISTRIBUTION CORPORATION ("Customer") ,
DATED September 24, 1993:
(1) Customer's firm Point(s) of Receipt:
Maximum Daily
Receipt
Obligation (plus
Point of Applicable Measurement
Receipt Description Shrinkage) (dth) Responsibilities Owner Operator
- -------- ----------- ----------------- ---------------- ----- --------
<S> <C> <C> <C> <C> <C>
70028 SOUTHERN NATURAL (FROM T.E.) - 110 * TX EAST TRAN TX EAST SOTHN NAT GS
KOSCIUSKO, MS TRAN
70217 UNITED GAS KOSCIUSKO, MS ATTALA 2,432 * UNIT GAS PL UNIT GAS UNIT GAS PL
Co., MS PL
72601 SEAGULL SHORELINE SYSTEM - 1,663 SEAGULL SHOR SEAGULL SEAGULL SHOR
MATAGORDA CO., TX. MATAGORDA SHOR
CO., TX
72655 TOMCAT - CALHOUN CO., TX CALHOUN 2,516 TRANSCO TRANSCO TRANSCO
CO., TX
</TABLE>
* Included in Firm Receipt Point Entitlements as set forth in Section 14 of
Pipeline's General Terms and Conditions at the Kosciusko, Mississippi Point
of Receipt.
(2) Customer shall have Pipeline' s Master Receipt Point List ("MRPL").
Customer hereby agree that Pipeline's MRPL as revised and published by
Pipeline from time to time is incorporated herein by reference.
Customer hereby agrees to comply with the Receipt Pressure obligation as set
forth in Section 6 of Pipeline's General Terms and Conditions at such Point(s)
of Receipt.
A-1
<PAGE>
Contract # 830017
EXHIBIT A, continued
NATIONAL FUEL GAS DISTRIBUTION CORPORATION
Transportation
Transportation Path Path Quantity (Dth/p)
------------------- ---------------------
Ml to M2 44,313
SIGNED FOR IDENTIFICATION
PIPELINE: /s/ Robert B. Evans
-----------------------------------
CUSTOMER: /s/ Philip C. Ackearman
-----------------------------------
SUPERSEDES EXHIBIT A DATED: 9/24/93
-----------------
A-2
<PAGE>
Contract #:830017
<TABLE>
<CAPTION>
EXHIBIT B, POINT (S) OF DELIVERY, DATED NOVEMBER 2, 1995
TO THE SERVICE AGREEMENT UNDER RATE SCHEDULE FT-1
BETWEEN TEXAS EASTERN TRANSMISSION CORPORATION ("Pipeline"), AND
NATIONAL FUEL GAS DISTRIBUTION CORPORATION ("Customer")
DATED September 24, 1993:
Maximum
Daily
Point of Delivery Deliver Pressure Measurement
Delivery Description Obligation Obligation Responsibilities Owner Operator
-------- ----------- ---------- ---------- ---------------- ----- --------
(dth)
<S> <C> <C> <C> <C> <C> <C>
1. 70004 CNG TRANSMISSION - As provided in Section 6 TX EAST TRAN TX EAST TX EAST
CLARINGTON, OH MONROE of the General Terms and TRAN TRAN
CO., OH Conditions of Pipeline's
FERC Gas Tariff
2. 70051 CNG TRANSMISSION - As provided in Section 6 TX EAST TRAN TX EAST CNG TRANS
SOMERSET, PA SOMERSET of the General Terms and TRAN
CO., PA Conditions of Pipeline's
FERC Gas Tariff
3. 70372 CNG RANSMISSION - At the operating pressure TX EAST TRAN TX EAST CNG TRANS
MOUNDSVILLE, WV MARSHALL existing at the point of TRAN
Co., WV delivery
4. 70450 CNG TRANSMISSION - At the operation pressure TX EAST TRAN TX EAST CNG TRANS
SUMMERFIELD,OH NOBLE existing at the point of TRAN
CO., OH Delivery
5. 70471 CNG TRANSMISSON - 200 pounds per square TX EAST TRAN TX FAST CNG TRANS
WOODSFIELD, OH MONROE inch gauge TRAN
CO., OH
6. 70983 CNG TRANSMISSION - 300 pounds per square CNG TRANS CNG CNG TRANS
POWHATAN POINT, OH inch gauge TRANS
MONROE CO., OH
7. 72533 DAMSON (PEOPLES) MM - At the operating pressure PEOPLES PEOPLES DAMSON
SOMERSET, PA SOMERSET existing at the point of NG(PA) NG(PA) OIL
CO., PA Delivery
8. 75037 CNG As provided in Section 6 TX EAST TRAN TX EAST CNG TRANS
TRANSMISSION-WAYNESBURG Of the General Terms and TRAN
PA(D70037) GREENE CO., PA Conditions of Pipeline's
FERC Gas Tariff
9. 75082 TETCO - OAKFORD STORAGE, 575 pounds per square CNG TRANS TX EAST CNG TRANS
PA-(D70082/R76082) inch gauge TRAN
WESTMORELAND CO., PA
</TABLE>
B-1
<PAGE>
Contract #: 830017
<TABLE>
<CAPTION>
EXHIBIT B, POINT(S) OF DELIVERY (Continued)
NATIONAL FUEL GAS DISTRIBUTION CORPORATION
Maximum
Daily
Point of Delivery Deliver Pressure Measurement
Delivery Description Obligation Obligation Responsi bilities Owner Operator
-------- ----------- ---------- ---------- ----------------- ----- --------
(dth)
<S> <C> <C> <C> <C> <C> <C> <C>
10. 79921 COMPRESSOR STATION 21A At any pressure provided TX EAST TRAN TX EAST CNG TRANS
(UNIONTOWN) FAYETTE CO by Texas Eastern not to TRAN
PA exceed 1 000 pounds per
square inch gauge
11. 79855 CNG - NATIONAL FUEL 44,313 N/A N/A N/A N/A
DISTRIBUTION FOR
NOMINATION PURPOSES
</TABLE>
provided, however, that all service under this Service Agreement shall be within
the limitations set forth in the Dispatching Agreement dated September 24, 1993
between Pipeline, Customer and CNG Transmission Corporation.
SIGNED FOR IDENTIFICATION:
PIPELINE: /s/ Robert B. Evans
---------------------------------
CUSTOMER: /s/ Philip C. Ackerman
---------------------------------
SUPERSEDES EXHIBIT B DATED 9/24/93
----------------
B-2
<PAGE>
Contract #:830017
<TABLE>
<CAPTION>
EXHIBIT C, ZONE BOUNDARY ENTRY QUANTITY AND ZONE BOUNDARY EXIT QUANTITY,
DATED NOVEMBER 2, 1995, TO THE SERVICE AGREEMENT UNDER RATE SCHEDULE FT-1
BETWEEN TEXAS EASTERN TRANSMISSION CORPORATION ("PIPELINE") AND
NATIONAL FUEL GAS DISTRIBUTION CORPORATION ("CUSTOMER"),
DATED September 24, 1993:
ZONE BOUNDARY ENTRY QUANTITY
Dth/D
To
==============================================================================================================
FROM STX ETX WLA ELA Ml-24 Ml-30 M1-TXG M1-TGC M2-24 M2-30 M2-TXG M2-TGC M2 M3
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
==============================================================================================================
STX 1718
==============================================================================================================
ETX 4610 2600
==============================================================================================================
WLA 531 1152
==============================================================================================================
ELA 34313
==============================================================================================================
Ml-24 4610
==============================================================================================================
Ml-30 34313
==============================================================================================================
M1-TXG 3131
==============================================================================================================
M1-TGC 2870
==============================================================================================================
M2-24
==============================================================================================================
M2-30
==============================================================================================================
M2-TXG
==============================================================================================================
M2-TGC
==============================================================================================================
M2
==============================================================================================================
M3
==============================================================================================================
</TABLE>
C-1
<PAGE>
Contract #:830017
<TABLE>
<CAPTION>
EXHIBIT C (Continued)
NATIONAL FUEL GAS DISTRIBUTION CORPORATION
ZONE BOUNDARY EXIT QUANTITY
Dth/D
To
========================================================================================================
FROM STX ETX WLA ELA Ml-24 Ml-30 M1-TXG M1-TGC M2-24 M2-30 M2-TXG M2-TGC M2 M3
========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
========================================================================================================
STX
========================================================================================================
ETX
========================================================================================================
WLA
========================================================================================================
ELA
========================================================================================================
Ml-24 4610
========================================================================================================
Ml-30 34313
========================================================================================================
M1-TXG 3131
========================================================================================================
M1-TGC 2870
========================================================================================================
M2-24
========================================================================================================
M2-30
========================================================================================================
M2-TXG
========================================================================================================
M2-TGC
========================================================================================================
M2
========================================================================================================
M3
========================================================================================================
</TABLE>
SIGNED FOR IDENTIFICATION
--------------------------------------
PIPELINE: /s/ Robert B. Evans
------------------------------------------------------
CUSTOMER: /s/ Philip C. Ackerman
------------------------------------------------------
SUPERSEDES EXHIBIT C DATED 9/24/93
-------------------------------------
C-2
Contract #: 820004
SERVICE AGREEMENT
FOR RATE SCHEDULE CDS
This Service Agreement, made and entered into this 2nd day of
November, 1995 by and between TEXAS EASTERN TRANSMISSION CORPORATION, a
Delaware Corporation (herein called "Pipeline") and NATIONAL FUEL GAS
DISTRIBUTION CORPORATION (herein called "Customer", whether one or more),
W I T N E S S E T H:
WHEREAS, Customer and Pipeline currently are parties to executed
service agreements under Pipeline's Rate Schedules FT-1, and CDS (Pipeline
Contract Nos. 800339, 800363 and 800340); and
WHEREAS, Customer and Pipeline have agreed to reform Customer's service
agreements by, inter alia, extending the term of certain of Customer's service
agreements; and
WHEREAS, Customer and Pipeline desire to enter into this Service
Agreement to supersede Customer's existing Rate Schedule CDS service agreement
(Pipeline Contract No. 800340);
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties do covenant and agree as
follows:
ARTICLE I
SCOPE OF AGREEMENT
Subject to the terms, conditions and limitations hereof, of Pipeline's
Rate Schedule CDS, and of the General Terms and Conditions, transportation
service hereunder will be firm. Subject to the terms, conditions and limitations
hereof and of Sections 2.3 and 2.4 of Pipeline's Rate Schedule CDS, Pipeline
shall deliver to there points on pipeline's system as specified in Article IV
herein or available to Customer pursuant to Section 14 of the General Terms and
Conditions (hereinafter referred to as Point(s) of Delivery), for Customer's
account, as requested for any day, natural gas quantities up to Customer's MDQ.
Customer's MDQ is as follows:
Maximum Daily Quantity (MDQ) 20,000 dth
Subject to variances as may be permitted by' Sections 2.4 of Rate
Schedule CDS or the General Terms and Conditions, Customer shall deliver to
Pipeline and Pipeline shall receive, for Customer's account, at those points on
Pipeline's system as specified in Article IV herein or available to Customer
pursuant to Section 14 of the General Terms and Conditions (hereinafter referred
to as Point(s) of Receipt) daily quantities of gas equal to the daily quantities
delivered to Customer pursuant to this Service Agreement up to Customer's MDQ,
plus Applicable Shrinkage as specified in the General Terms and Conditions.
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE CDS
(Continued)
Pipeline shall not be obligated to, but may at its discretion, receive
at any Point of Receipt on any day a quantity of gas in excess of the applicable
Maximum Daily Receipt Obligation (MDRO), plus Applicable Shrinkage, but shall
not receive in the aggregate at all Points of Receipt on any day a quantity of
gas in excess of the applicable MDQ, plus Applicable Shrinkage. Pipeline shall
not be obligated to, but may at its discretion, deliver at any Point of Delivery
on any day a quantity of gas in excess of the applicable Maximum Daily Delivery
Obligation (MDDO), but shall not deliver in the aggregate at all Points of
Delivery on any day a quantity of gas in excess of the MDQ.
In addition to the MDQ and subject to the terms, conditions and
limitations hereof, Rate Schedule CDS and the General Terms and Conditions,
Pipeline shall deliver within the Access Area under this and all other service
agreements under Rate Schedules CDS, FT-1, and/or SCT, quantities up to
Customer's Operational Segment Capacity Entitlements, excluding those
Operational Segment Capacity Entitlements scheduled to meet Customer's MDQ, for
Customer's account, as requested on any day.
ARTICLE II
TERM OF AGREEMENT
The term of this Service Agreement shall commence on the later of: (1)
November 1, 1995 or (ii) the date on which Customer has executed all of
Pipeline's Contract Nos. 830016, 830017 and 820004, and shall continue in force
and effect until October 31, 2005 and year to year thereafter unless this
Service Agreement is terminated as hereinafter provided. This Service Agreement
may be terminated by either Pipeline or Customer upon two (2) years prior
written notice to the other specifying a termination date of any year occurring
on or after the expiration of the primary term. subject to Section 22 of
Pipeline's General Terms and Conditions and without prejudice to such rights,
this Service Agreement may be terminated at any time by Pipeline in the event
Customer fails to pay part or all of the amount of any bill for service
hereunder and such failure continues for thirty (30) days after payment is due;
provided, Pipeline gives thirty (30) days prior written notice to Customer of
such termination and provided further such termination shall not be effective
if, prior to the date of termination, Customer either pays such outstanding bill
or furnishes a good and sufficient surety bond guaranteeing payment to Pipeline
of such outstanding bill.
THE TERMINATION OF THIS SERVICE AGREEMENT WITH A FIXED CONTRACT TERM OR
THE PROVISION OF A TERMINATION NOTICE BY CUSTOMER TRIGGERS PREGRANTED
ABANDONMENT UNDER SECTION 7 OF THE NATURAL GAS ACT AS OF THE EFFECTIVE DATE OF
THE TERMINATION. PROVISION OF A TERMINATION NOTICE BY PIPELINE ALSO TRIGGERS
2
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE CDS
(Continued)
CUSTOMER'S RIGHT OF FIRST REFUSAL UNDER SECTION 3.13 OF THE GENERAL TERMS AND
CONDITIONS ON THE EFFECTIVE DATE OF THE TERMINATION.
Any portions of this Service Agreement necessary to correct or cash-out
imbalances under this Service Agreement as required by the General Terms and
Conditions of Pipeline's FERC Gas Tariff, Volume No. 1, shall survive the other
parts of this Service Agreement until such time as such balancing has been
accomplished.
ARTICLE III
RATE SCHEDULE
This Service Agreement in all respects shall be and remain subject to
the applicable provisions of Rate Schedule CDS and of the General Terms and
Conditions of Pipeline's FERC Gas Tariff on file with the Federal Energy
Regulatory Commission, all of which are by this reference made a part hereof.
Customer shall pay Pipeline, for all services rendered hereunder and
for the availability of such service in the period stated, the applicable prices
established under Pipeline's Rate Schedule CDS as filed with the Federal Energy
Regulatory Commission, and as same may hereafter be legally amended or
superseded.
Customer agrees that Pipeline shall have the unilateral right to file
with the appropriate regulatory authority and make changes effective in (a) the
rates and charges applicable to service pursuant to Pipeline's Rate Schedule
CDS, (b) Pipeline's Rate Schedule CDS pursuant to which service hereunder is
rendered or (c) any provision of the General Terms and Conditions applicable to
Rate Schedule CDS. Notwithstanding the foregoing, customer does not agree that
Pipeline shall have the unilateral right without the consent of Customer
subsequent to the execution of this Service Agreement and Pipeline shall not
have the right during the effectiveness of this Service Agreement to make any
filings pursuant to Section 4 of the Natural Gas Act to change the MDQ specified
in Article I, to change the term of the agreement as specified in Article II, to
change Point(s) of Receipt specified in Article IV, to change the Point(s) of
Delivery specified in Article IV, or to change the firm character of the service
hereunder. Pipeline agrees that Customer may protest or contest the
aforementioned filings, and Customer does not waive any rights it may have with
respect to such filings.
3
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE CDS
(Continued)
ARTICLE IV
POINT(S) OF RECEIPT AND POINT(S) OF DELIVERY
The Point (s) of Receipt and Point (s) of Delivery at which Pipeline
shall receive and deliver gas, respectively, shall be specified in Exhibit(s) A
and B of the executed service agreement. Customer's Zone Boundary Entry Quantity
and Zone Boundary Exit Quantity for each of Pipeline's zones shall be specified
in Exhibit C of the executed service agreement.
Exhibit(s) A, B and C. are hereby incorporated as part of this Service
Agreement for all intents and purposes as if fully copied and set forth herein
at length.
ARTICLE V
QUALITY
All natural gas tendered to Pipeline for Customer's account shall
conform to the quality specifications set forth in Section 5 of Pipeline's
General Terms and Conditions. Customer agrees that in the event Customer tenders
for service hereunder and Pipeline agrees to accept natural gas which does not
comply with Pipeline's quality specifications, as expressly provided for in
Section 5 of Pipeline's General Terms and Conditions, Customer shall pay all
costs associated with processing of such gas as necessary to comply with such
quality specifications. Customer shall execute or cause its supplier to execute,
if such supplier has retained processing rights to the gas delivered to
Customer, the appropriate-agreements prior to the commencement of service for
the transportation and processing of any liquefiable hydrocarbons and any PVR
quantities associated with the processing of gas received by Pipeline at the
Point(s) of Receipt under such Customer's service agreement. In addition,
subject to the execution of appropriate agreements, Pipeline is willing to
transport liquids associated with the gas produced and tendered for
transportation hereunder.
ARTICLE VI
ADDRESSES
Except as herein otherwise provided or as provided in the General Terms
and Conditions of Pipeline's FERC Gas Tariff, any notice, request, demand,
statement, bill or payment provided for in this Service Agreement, or any notice
which any party may desire to give to the other, shall be in writing and shall
be considered as duly delivered when mailed by registered, certified, or regular
mail to the post office address of the parties hereto, as the case may be, as
follows:
4
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE CDS
(Continued)
(a) Pipeline: TEXAS EASTERN TRANSMISSION CORPORATION
5400 Westheimer Court
Houston, TX 77056-5310
(b) Customer: NATIONAL FUEL GAS DISTRIBUTION CORPORATION
10 LAFAYETTE SQUARE
ROOM 1200
BUFFALO, NY 14203
or such other address as either party shall designate by formal written notice.
ARTICLE VII
ASSIGNMENTS
Any Company which shall succeed by purchase, merger, or consolidation
to the properties, substantially as an entirety, of Customer, or of Pipeline, as
the case may be, shall be entitled to the rights and shall be subject to the
obligations of its predecessor in title under this Service Agreement; and either
Customer or Pipeline may assign or pledge this Service Agreement under the
provisions of any mortgage, deed of trust, indenture, bank credit agreement,
assignment, receivable sale, or similar instrument which it has executed or may
execute hereafter; otherwise, neither Customer nor Pipeline shall assign this
Service Agreement or any of its rights hereunder unless it first shall have
obtained the consent thereto in writing of the other; provided further, however,
that neither Customer nor Pipeline shall be released from its obligations
hereunder without the consent of the other. In addition, Customer may assign its
rights to capacity pursuant to Section 3.14 of the General Terms and Conditions.
To the extent Customer so desires, when it releases capacity pursuant to Section
3.14 of the General Terms and Conditions, Customer may require privity between
Customer and the Replacement Customer, as further provided in the applicable
Capacity Release Umbrella Agreement.
ARTICLE VIII
INTERPRETATION
The interpretation and performance of this Service Agreement shall be
in accordance with the laws of the State of Texas without recourse to the law
governing conflict of laws.
This Service Agreement and the obligations of the parties are subject
to all present and future valid laws with respect to the subject matter, State
and Federal, and to all valid present and future orders, rules, and regulations
of duly constituted authorities having jurisdiction.
5
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE CDS
(Continued)
ARTICLE IX
CANCELLATION OF PRIOR CONTRACT(S)
This Service Agreement supersedes and cancels, as of the effective date
of this Service Agreement, the contracts) between the parties hereto as
described below:
Service Agreement(s) dated, August 1, 1993 between Pipeline and
Customer under Pipeline's Rate Schedule CDS (Pipeline's Contract No.
800340).
6
<PAGE>
SERVICE AGREEMENT
FOR RATE SCHEDULE CDS
(Continued)
IN WITNESS WHEREOF, the parties hereto have caused this Service
Agreement to be signed by their respective Presidents, Vice Presidents or other
duly authorized agents and their respective corporate seals to be hereto affixed
and attested by their respective Secretaries or Assistant Secretaries, the day
and year first above written.
TEXAS EASTERN TRANSMISSION CORPORATION
By /s/ Robert B. Evans
--------------------------------------
Vice President
ATTEST:
/s/ Robert W. Reed
- ---------------------------------------
ROBERT W. REED
CORPORATE SECRETARY
NATIONAL FUEL GAS DISTRIBUTION
CORPORATION
By /s/ Philip C. Ackerman
--------------------------------------
Philip C. Ackerman
President
ATTEST:
/s/ David F. Smith
- ---------------------------------------
David F. Smith
Secretary
7
<PAGE>
Contract #:820004
<TABLE>
<CAPTION>
EXHIBIT A, TRANSPORTATION PATHS
FOR BILLING PURPOSES, DATED NOVEMBER 2, 1995
TO THE SERVICE AGREEMENT UNDER RATE, SCHEDULE CDS
BETWEEN TEXAS EASTERN TRANSMISSION CORPORATION ("Pipeline"), AND
NATIONAL FUEL GAS DISTRIBUTION CORPORATION ("Customer"),
DATED August 1, 1993:
(1) Customer's firm Point(s) of Receipt:
Maximum Daily
Receipt
Oligation (plus
Point of Applicable Measurement
Receipt Description Shrinkage) (dth) Responsibilities Owner Operator
- ------- ----------- ----------------- ---------------- ----- --------
<S> <C> <C> <C> <C> <C>
72655 TOMCAT - CALHOUN CO., TX CALHOUN 4,107 TRANSCO TRANSCO TRANSCO
CO., TX
</TABLE>
(2) Customer shall have Pipeline's Master Receipt Point List ("MRPL").
Customer hereby agrees that Pipeline's MRPL as revised and published by
Pipeline from time to time is incorporated herein by reference.
Customer hereby agrees to comply with the Receipt Pressure Obligation as set
forth in Section 6 of Pipeline's General Terms and Conditions at such Point (s)
of Receipt.
Transportation
Transportation Path Path Quantity (Dth/D)
------------------- ---------------------
Ml to M2 20,000
SIGNED FOR IDENTIFICATION
PIPELINE: /s/ Robert B. Evans
------------------------------------------------
CUSTOMER: /s/ Philip C. Ackerman
------------------------------------------------
SUPERSEDES EXHIBIT A DATED: 8/1/93
------------------------------
A-1
<PAGE>
Contract #:820004
<TABLE>
<CAPTION>
EXHIBIT B, POINT (S) OF DELIVERY, DATED NOVEMBER 2, 1995
TO THE SERVICE AGREEMENT UNDER RATE SCHEDULE CDS
BETWEEN TEXAS EASTERN TRANSMISSION CORPORATION ("Pipeline"), AND
NATIONAL FUEL GAS DISTRIBUTION CORPORATION ("Customer"),
DATED August 1, 1993:
Maximum
Daily Delivery
Point of Delivery Pressure Measurement
Delivery Description Oligation Obligation Responsibilities Owner Operator
-------- ----------- ---------- ---------- ---------------- ----- --------
(dth)
<S> <C> <C> <C> <C> <C> <C>
1. 70015 NATIONAL FUEL - BRISTORIA, 20,000 AS PROVIDED TX EAST TRAN TX EAST NATL FUL SUP
PA GREENE CO. , PA IN SECTION 6 TRAN
OF THE
GENERAL
TERMS AND
CONDITIONS
OF
PIPELINE'S
FERC GAS
TARIFF
</TABLE>
SIGNED FOR IDENTIFICATION
PIPELINE: /s/ Robert B. Evans
--------------------------------------------------
CUSTOMER: /s/ Philip C. Ackerman
--------------------------------------------------
SUPERSEDES EXHIBIT B DATED 8/1/93
---------------------------------
B-1
<PAGE>
Contract#:820004
<TABLE>
<CAPTION>
EXHIBIT C, ZONE BOUNDARY ENTRY QUANTITY AND ZONE BOUNDARY EXIT QUANTITY,
DATED NOVEMBER 2, 1995 TO THE SERVICE AGREEMENT UNDER RATE SCHEDULE CDS
BETWEEN TEXAS EASTERN TRANSMISSION CORPORATION (-'PIPELINE") AND
NATIONAL FUEL GAS DISTRIBUTION CORPORATION ("CUSTOMER"), DATED August 1, 1993:
ZONE BOUNDARY ENTRY QUANTITY
Dth/D
To
============================================================================================================
FROM STX ETX WLA ELA Ml-24 Ml-30 M1-TXG M1-TGC M2-24 M2-30 M2-TXG M2-TGC M2 M3
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
============================================================================================================
STX 606
============================================================================================================
ETX 1960 917
============================================================================================================
WLA 279 606
============================================================================================================
ELA 15893
============================================================================================================
Ml-24 1960
============================================================================================================
Ml-30 15893
============================================================================================================
M1-TXG 1196
============================================================================================================
M1-TGC 1212
============================================================================================================
M2-24
============================================================================================================
M2-30
============================================================================================================
M2-TXC
============================================================================================================
M2-TGC
============================================================================================================
M2
============================================================================================================
M3
============================================================================================================
</TABLE>
C-1
<PAGE>
Contract #:820004
<TABLE>
<CAPTION>
EXHIBIT C (Continued)
NATIONAL FUEL GAS DISTRIBUTION CORPORATION
ZONE BOUNDARY EXIT QUANTITY
Dth/D
To
============================================================================================================
FROM STK ETX WLA ELA M1-24 Ml-30 M1-TXG M1-TGC M2-24 M2-30 M2-TXG M2-TGC M2 M3
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
============================================================================================================
STX
============================================================================================================
ETX
============================================================================================================
WLA
============================================================================================================
ELA
============================================================================================================
Ml-24 1960
============================================================================================================
Ml-30 15893
============================================================================================================
M1-TXG 1196
============================================================================================================
M1-TGC 1212
============================================================================================================
M2-24
============================================================================================================
M2-30
============================================================================================================
M2-TXG
============================================================================================================
M2-TGC
============================================================================================================
M2
============================================================================================================
M3
============================================================================================================
</TABLE>
SIGNED FOR IDENTIFICATION:
PIPELINE: /s/ Robert B. Evans
------------------------------------------------------
CUSTOMER: /s/ Philip C. Ackerman
-----------------------------------------------------
SUPERCEDES EXHIBIT C DATED 8/1/93
-------------------------------------
C-2
CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT TO RULE 24b-2
SERVICE AGREEMENT #001715
(FSS Service)
AGREEMENT made this 3rd day of April, 1996, by and between
National Fuel Gas Supply Corporation, a Pennsylvania corporation, hereinafter
called "Transporter," and National Fuel Gas Distribution Corporation,
hereinafter called "Shipper."
WITNESSETH: That in consideration of the mutual covenants herein
contained, the parties hereto agree that Transporter will store natural gas for
Shipper during the term, at the rates and on the terms and conditions
hereinafter provided.
ARTICLE I
Quantities
----------
Beginning on the date on which storage service is commenced
hereunder and thereafter for the remaining term of this Agreement, and subject
to the provisions of Transporter's FSS Rate Schedule, Transporter agrees to
receive, cause to be injected into storage for Shipper's account, store,
withdraw from storage, and deliver to Shipper quantities of natural gas as
follows:
Maximum Storage Quantity (MSQ) of 698,720 Dekatherms (Dth)
Maximum Daily Injection Quantity (Contract MDIQ) of 3,882 Dth
Maximum Daily Withdrawal Quantity (Contract MDWQ) of 6,352 Dth
ARTICLE II
Rate
----
Unless otherwise mutually agreed in a written amendment to this
Agreement, for the service provided by Transporter hereunder, Shipper shall pay
Transporter the maximum rate provided under Rate Schedule FSS set forth in
Transporter's effective FERC Gas Tariff. In the event that the Transporter
places on file with the Federal Energy Regulatory Commission ("Commission")
another rate schedule which may be applicable to transportation service rendered
hereunder, then Transporter, at its option, may from and after the effective
date of such rate schedule, utilize such rate schedule in performance of this
Agreement. Such a rate schedule(s) or superseding rate schedule(s) and any
revisions thereof which shall be filed and become effective shall apply to and
be a part of this Agreement. Transporter shall have the right to propose, file
and make effective with the Commission, or other body having jurisdiction,
changes and revisions of any effective rate schedule(s), or to propose, file,
and make effective superseding rate schedules, for the purpose of changing the
rate, charges, and other provisions thereof effective as to Shipper.
<PAGE>
ARTICLE III
Term of Agreement
-----------------
This Agreement shall be effective as of April 1, 1997 and shall
continue in effect for a primary term ending March 31, 2004, and shall continue
in effect from year to year thereafter until terminated by either Transporter or
Shipper upon not less than 18 months prior written notice to the other
specifying as a termination date the end of such primary term or any subsequent
anniversary thereof.
The Injection Period shall be from April I to October 31 and the
Withdrawal Period shall be from November I to March 3 1. The Injection and
Withdrawal Periods shall constitute the Storage Period.
ARTICLE IV
Receipt and Delivery Points
---------------------------
The Point(s) of Receipt for all gas that may be received for
Shipper's account for storage by Transporter shall be the Transporter's System
Storage.
The Point(s) of Delivery for all gas to be delivered by
Transporter for Shipper's account shall be the Transporter's System Storage.
ARTICLE V
Incorporation By Reference of Tariff Provisions
-----------------------------------------------
To the extent not inconsistent with the terms and conditions of
this agreement, the provisions of Rate Schedule FSS, or any effective
superseding rate schedule or other-wise applicable rate schedule, including any
provisions of the General Terms and Conditions incorporated therein, and any
revisions thereof that may be made effective hereafter are hereby made
applicable to and a part hereof by reference.
ARTICLE VI
Miscellaneous
-------------
1. No change, modification or alteration of this Agreement shall
be or become effective until executed in writing by the parties hereto, and no
course of dealing between the parties shall be construed to alter the terms
hereof, except as expressly stated herein.
<PAGE>
2. No waiver by any party of any one or more defaults by the other
in the performance of any provisions of this Agreement shall operate or be
construed as a waiver of any other default or defaults, whether of a like or of
a different character.
3. Any company which shall succeed by purchase, merger or
consolidation of the gas related properties, substantially as an entirety, of
Transporter or of Shipper, as the case may be, shall be entitled to the rights
and shall be subject to the obligations of its predecessor in title under this
Agreement. Either party may, without relieving itself of its obligations under
this Agreement, assign any of its rights hereunder to a company with which it is
affiliated, but otherwise, no assignment of this Agreement or of any of the
rights or obligations hereunder shall be made unless there first shall have been
obtained the consent thereto in writing of the other party. Consent shall not be
unreasonably withheld.
4. Except as herein otherwise provided, any notice, request,
demand, statement or bill provided for in this Agreement, or any notice which
either party may desire to give the other, shall be in writing and shall be
considered as duly delivered when mailed by registered or certified mail to the
Post Office address of the parties hereto, as the case may be, as follows:
Transporter: National Fuel Gas Supply Corporation
Gas Supply - Transportation
Room 1200
10 Lafayette Square
Buffalo, New York 14203
Shipper: National Fuel Gas Distribution Corporation
Gas Accounting Department, Room 1300
10 Lafayette Square
Buffalo, New York 14203
or at such other address as either party shall designate by formal written
notice. Routine communications, including monthly statements, shall be
considered as duly delivered when mailed by either registered, certified, or
ordinary mail, electronic communication, or telecommunication.
5. This Agreement and the respective obligations of the parties
hereunder are subject to all present and future valid laws, orders, rules and
regulations of constituted authorities having jurisdiction over the parties,
their functions or gas supply, this Agreement or any provision hereof. Neither
party shall be held in default for failure to perform hereunder if such failure
is due to compliance with laws, orders, rules or regulations of any such duly
constituted authorities.
6. The subject headings of the articles of this Agreement are
inserted for the purpose of convenient reference and are not intended to be a
part of the Agreement nor considered in any interpretation of the same.
<PAGE>
7. No presumption shall operate in favor of or against either
party hereto as a result of any responsibility either party may have had for
drafting this Agreement.
8. The interpretation and performance of this Agreement shall be
in accordance with the laws of the State of New York, without recourse to the
law regarding the conflict of laws.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their respective Presidents or Vice Presidents thereunto duly
authorized and their respective corporate seals to be hereto affixed and
attested by their respective Secretaries and Assistant Secretaries, the day and
year first above written.
NATIONAL FUEL GAS SUPPLY CORPOPATION
(Transporter)
Attest:
/s/ J. P. Pawlowski By: /s/ John R. Pustulka
- ----------------------------- ---------------------------------------
Secretary
(Corporate Seal) Title Vice President
-------------------------------------
NATIONAL FUEL GAS DISTRIBUTION CORP.
(Shipper)
Attest:
/s/ David F. Smith By: /s/ Philip C. Ackerman
- ------------------------------ ---------------------------------------
Secretary P. C. Ackerman
(Corporate Seal) Title: President
------------------------------------
<PAGE>
CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT TO RULE 24b-2
Amendment I
Amendment to FSS Service Agreement #001715
between
National Fuel Gas Supply Corporation ("Transporter") and
National Fuel Gas Distribution Corporation ("Shipper")
Effective: April 1, [XXXX] to March 31, [XXXX]
1. The following rates will be applied to all Storage Service
provided within the Quantity Limits set forth in Article I of this Service
Agreement:
Capacity Demand [XXXXXXX]
Deliverability Demand [XXXXXXX]
Injection/Withdrawal Commodity [XXXXXXX]
Applicable surcharges will be added to the rates shown above,
except that Transporter shall discount the GRI surcharge to the extent that it
can do so without decreasing its retained revenues. Transporter shall apply
maximum Surface Operating Allowance.
2. The parties shall keep the terms of this rate amendment
confidential and shall not disclose such terms to any other party, except as
required by applicable law, regulation or legal process.
National Fuel Gas Supply Corporation
By: /s/ John R. Pustulka
---------------------------------------
Title: Vice President
------------------------------------
National Gas Distribution Corporation
By: /s/ W. E. DeForest
---------------------------------------
W. E. DeForest
Title: Sr. Vice President
------------------------------------
CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT TO RULE 24b-2
CONFIDENTIAL
Contract No. SC-DR-014
DELIVERY AND REDELIVERY SERVICES CONTRACT
BETWEEN
ST. CLAIR PIPELINES LTD.
(SCPL)
- and -
NATIONAL FUEL GAS DISTRIBUTION CORPORATION
(Customer)
DATED: January 29, 1996
Schedule "A"
delredel.nfg
<PAGE>
DELIVERY AND REDELIVERY SERVICES CONTRACT
CONTENTS
ARTICLE I INTERPRETATION
ARTICLE II GENERAL TERMS & CONDITIONS
ARTICLE III CONDITIONS PRECEDENT
ARTICLE IV TERM OF CONTRACT
ARTICLE V DELIVERY AND REDELIVERY
ARTICLE VI FORCE MAJEURE
ARTICLE VII CHARGES AND RATES
ARTICLE VIII DELIVERY AND REDELIVERY PRESSURES
ARTICLE IX MEASUREMENT AND QUALITY
ARTICLE X NOMINATIONS
ARTICLE XI REPRESENTATIONS
ARTICLE XII HARDSHIP PROVISION
ARTICLE XIII MISCELLANEOUS PROVISIONS
<PAGE>
THIS DELIVERY AND REDELIVERY SERVICES CONTRACT (the "Contract") dated as of the
29th day of January, 1996,
BETWEEN:
ST. CLAIR PIPELINES LTD., a company incorporated under the
laws of the Dominion of Canada; (hereinafter referred
to as "SCPL")
PARTY OF THE FIRST PART
- and -
NATIONAL FUEL GAS DISTRIBUTION CORPORATION, a company
incorporated under the laws of the State of New York;
(hereinafter referred to as "Customer")
PARTY OF THE SECOND PART
(herein referred to collectively as the "Parties")
WHEREAS, SCPL provides certain gas delivery and redelivery services in
southwestern Ontario and in the United States of America;
AND WHEREAS, Customer operates a gas utility, which is subject to the
jurisdiction of the New York State Public Service Commission ("PSC"), the
Pennsylvania Public Utilities Commission ("PUC") and directly or indirectly to
decisions and/or mandates of the Federal Energy Regulatory Commission ("FERC"),
and desires SCPL to provide natural gas delivery and redelivery services (the
"Service") as defined herein;
NOW THEREFORE, this Contract witnesses that, in consideration of the mutual
covenants and agreements herein contained, and the exchange of One ($ 1.00)
Dollar between the Parties hereto, the payment and sufficiency of which is
hereby acknowledged, the Parties hereby agree as follows:
<PAGE>
2
ARTICLE I - INTERPRETATION
1.01 Definitions: Capitalized terms and certain other terms used in this
Contract and not specifically defined shall have the meaning set forth in
Schedule 'A' hereto unless the context hereof otherwise clearly requires.
1.02 Divisions, Headings and Index: The division of this Contract into articles
sections and subsections, and the insertion of headings and any table of
contents or index provided are for convenience of reference only, and shall not
affect the construction or interpretation hereof.
1.03 Industry Usage: Words, phrases or expressions which are not defined herein
and which, in the usage or custom of the business of the transportation,
storage, and distribution or sale of natural gas have an accepted meaning shall
have that meaning.
1.04 Extended Meaning: Unless the context otherwise requires, words importing
the singular include the plural and vice versa, and words importing gender
include all genders. The words "herein", "hereunder" and words of similar
import, unless specifically stated otherwise, refer to the entirety of this
Contract, including the Schedules incorporated into this Contract, and not only
to the section in which such use occurs.
1.05 Conflict: In the event of any conflict between the provisions of this
Contract and those of Schedule "A" attached to it, the provisions of this
Contract shall prevail.
1.06 Measurements: Units set out herein are in thermal measurement (ie.
dekatherms - Dth).
1.07 Currency: All reference to dollars in this Contract shall mean United
States dollars.
ARTICLE II - GENERAL TERMS & CONDITIONS
2.01 The General Terms & Conditions contained in Schedule "A" hereto are hereby
<PAGE>
3
incorporated into and form an integral part of this Contract.
ARTICLE III - CONDITIONS PRECEDENT
3.01 The following conditions precedent shall be satisfied or, waived by mutual
agreement, before the commencement of service obligations hereunder: (a) Each
Party shall have obtained any and all governmental, regulatory, and other prior
approvals or authorizations that are required to enable it to perform its
obligations as contemplated herein; and
(b) Customer may be required to provide SCPL with the requisite security or
financial assurances reasonably necessary to ensure its ability to honor the
provisions of this Contract. Such security or financial assurances will be
reasonable and in a form and amount acceptable to SCPL; and (c) SCPL shall be
required to provide Customer with a parental guarantee which is reasonable and
in a form and amount acceptable to Customer, by February 29, 1996.
3.02 SCPL and Customer shall each use due diligence and reasonable efforts to
satisfy and fulfill their respective conditions precedent specified in Section
3.01 and each Party shall notify the other forthwith in writing of their
respective fulfillment or waiver of such conditions.
3.03 In the event that the conditions precedent as specified in Section 3.01 are
not satisfied, or waived by the Party deriving the benefit from that condition
precedent or extended by mutual agreement by February 29, 1996, then the Parties
hereto shall, upon thirty (30) days written notice by either Party, be released
from all their obligations hereunder, and this Contract shall thereupon be
terminated.
<PAGE>
4
ARTICLE IV - TERM OF CONTRACT
4.01 This Contract shall be effective as of the date of execution hereof,
however, the service obligations, terms and conditions hereunder shall, subject
to Article HI, commence on the later of April 1, 1996, or the day following the
date that the conditions precedent in Section 3.01 are satisfied or waived (the
"Commencement Date') and shall continue in full force and effect until March 31,
2006 or such earlier date as may be permitted under the terms of this Contract
(the "Termination Date"). The Parties agree to further divide the term, as may
be referenced in this Contract, into an "Interim Period" which shall refer to
the period beginning on the Commencement Date and ending on March 31 of any
contract year (the 'Transition Date'), subject to customer having provided 18
months prior notice of its election to terminate the Interim Period, and a
"Remaining Period" which shall refer to the period commencing on the day
following the Transition Date and ending on the Termination Date.
4.02 Without limiting the generality of the foregoing, this Contract may be
terminated in accordance with Section XII of the General Terms & Conditions.
ARTICLE V - DELIVERY AND REDELIVERY
5.01 Customer shall deliver to SCPL and SCPL shall redeliver to Customer up to
274,120 Dth of gas (the 'Interim Service Quantity") during the Interim Period of
this Contract as defined in Section 4.01. Customer agrees to deliver and SCPL
agrees to accept the Interim Service Quantity at the Point of
Delivery/Redelivery set out in Clause 5.05 hereof, during any one of the seven
months during the period April through and including October (the 'Delivery
Month"), each year of the Interim Period. Customer is to provide notice to SCPL,
of its intention to deliver, on or before the 24th day of the month, or such
other date as mutually agreed to by the Parties, preceding the desired Delivery
Month. Subject to Clause 10.01, Customer may deliver, in the Delivery Month, a
daily quantity not to exceed 274,120 Dth divided by the number of days in the
Delivery Month (the "Interim Delivery Quantity').
<PAGE>
5
CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT TO RULE 24b-2
At any time during the Interim Period, the quantity delivered to SCPL that has
not been redelivered to Customer, up to the Interim Service Quantity, shall be
referred to as "Customer's Interim Account Balance".
For an additional charge of [XXXXXXXXX] as set out in Section 7.03, Customer may
deliver to SCPL during the period December 1 through March 31 (the "Redelivery
Period"), a quantity up to 274,120 Dth, each year of the Interim Period, at a
daily quantity equal to the lesser of-
a) up to 27, 412 Dth- and,
b) the Interim Service Quantity less Customer's Interim Account
Balance, provided further, that Customer provides notice to SCPL on or before
October 1 during the Interim Period to increase the quantity which Customer may
deliver to SCPL during the Redelivery Period by an additional amount equal to
274,120 Dth, (the "Election Notice"), then Customer shall pay to SCPL an amount
equal to [XXXXXXXXX] for such additional quantity pursuant to Section 7.04, plus
the charge pursuant to Section 7.03.
5.02 SCPL agrees to redeliver to Customer, during the Interim Period, at the
Point of Delivery/Redelivery, during the Redelivery Period, as nominated by
Customer in accordance with Article X, a firm daily quantity of up to 27,412 Dth
(the "Redelivery Quantity") for up to a total of 20 days ("Obligated Redelivery
Days"). However, if Customer has delivered an Election Notice, in accordance
with Section 5.01, the Obligated Redelivery Days shall increase to 30 days
during the following Redelivery Period only. Provided further that SCPL shall
not be obligated to redeliver on any day a quantity greater than the Customer's
Interim Account Balance. SCPL also agrees to redeliver on a reasonable efforts
basis any quantities not redelivered on the Obligated Redelivery Days.
5.03 Customer shall deliver and SCPL shall redeliver to Customer up to 2,540,000
Dth of gas (the "Service Quantity") during the Remaining Period of this Contract
as defined in Section 4.01. Customer agrees to deliver and SCPL agrees to accept
the Service Quantity at the Point of Delivery/Redelivery set out in Clause 5.05
hereof, during the period April through and including October (the "Delivery
Period"), each year of the Remaining Period. Subject to
<PAGE>
6
Clause 10.01, Customer may deliver, in the Delivery Period, a daily quantity not
to exceed 12,700 Dth (the "Delivery Quantity").
At any time during the Remaining Period, the quantity delivered to SCPL that has
not been redelivered to Customer, up to the Service Quantity, shall be referred
to as "Customer's Account Balance".
5.04 SCPL agrees to redeliver to Customer, during the Remaining Period, at the
Point of Delivery/Redelivery, during the Redelivery Period, as nominated by
Customer in accordance with Article X, the Redelivery Quantity for up to a total
of 93 days ("the Redelivery Days"). Provided further that SCPL shall not be
obligated to redeliver on any day a quantity greater than the Customer's Account
Balance. SCPL also agrees to redeliver on a reasonable efforts basis any
quantities not redelivered on the Redelivery Days.
5.05 All gas delivered by Customer and redelivered by SCPL pursuant to this
Contract shall be delivered and redelivered on Empire (the "Transporter") at the
interconnection between TCPL and Empire, or at any other point(s) agreed to by
Customer and SCPL, (the "Point of Delivery/Redelivery").
5.06 SCPL shall have the right to commingle gas delivered or redelivered
hereunder with gas owned by SCPL or gas being delivered and/or redelivered by
SCPL for other customers.
5.07 It is Customer's responsibility to schedule its redeliveries to ensure that
Customer's Interim Account Balance or Customer's Account Balance, as applicable,
equals zero at the end of the Redelivery Period. Any balance remaining will
serve to reduce the Interim Service Quantity, or Service Quantity, as
applicable, to be delivered in the following Delivery Period by that same
quantity.
5.08 In the event that Customer's Interim Account Balance or Customer's Account
Balance, as applicable, is greater than zero on the Termination Date, Customer
is responsible for and
<PAGE>
7
agrees to pay all reasonable charges incurred by SCPL. Notwithstanding, SCPL
and Customer agree to co-operate to remedy the situation.
5.09 Subject only to (i) the occurrence of a force majeure event; and/or (ii)
the operating tolerances as set out in Transporter's tariff, SCPL warrants that
it will redeliver to Customer one hundred percent (100%) of the quantity of gas
on each day as nominated by Customer during the term hereof (the "Redelivery
Warranty"). In addition to all other rights and remedies that may accrue to
Customer hereunder, in the event that on any day during the term hereof SCPL
should breach the Redelivery Warranty, SCPL shall pay to Customer an amount
equal to the product of- a) the quantity of such gas not redelivered, times b)
the sum of the average price reported in Gas Daily under Canadian Gas (or such
mutually agreed upon index, should the aforementioned no longer be available),
for deliveries at Niagara on that same day plus $2.00 (U.S.) per Dth.
5.10 Notwithstanding any other provisions of this Contract, neither Party shall
be liable or otherwise be responsible to the other for consequential, incidental
or punitive damages which arise out of or relate to this Contract or the
performance or breach thereof.
5.11 If, as a result of some act or omission by SCPL, Customer incurs a penalty
charge under the provisions of Transporter's tariff, then SCPL shall reimburse
Customer upon being invoiced for any such charges. However, anything else herein
to the contrary notwithstanding, SCPL shall not incur any charges, penalties or
assessments under this Contract (including but not limited to any charges,
penalties or assessments that would otherwise accrue by virtue of the provisions
of this Article V) by reason of any imbalance in deliveries and redeliveries
hereunder, if such imbalances are (i) within the daily or monthly imbalance
tolerance levels (as applicable) in effect from time to time under Transporter's
tariff; or (ii) the result of any act or omission by Customer, provided however,
that upon knowledge of any potential imbalance situation by Customer or SCPL,
both Customer and SCPL shall endeavor to correct any such imbalances as soon as
is reasonably and commercially practicable.
<PAGE>
8
CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED PURSUANT TO RULE 24b-2
ARTICLE VI - FORCE MAJEURE
6.01 An event of force majeure, as defined in Schedule "A' attached hereto, will
excuse a delay in the redelivery of the gas hereunder on a day for day basis,
but it will not eliminate SCPL's obligation to redeliver the quantity nominated.
SCPL confirms that Customer shall be treated equally, with respect to any
interruption due to force majeure, with all other firm obligations of SCPL at
the Point of Delivery/Redelivery and that all interruptible deliveries of SCPL
shall be interrupted in advance of Customer's interruption,
6.02 The settlement of strikes or lockouts shall be entirely within the
discretion of the Party having the difficulty, and the above requirement that
any force majeure event shall be remedied with all reasonable dispatch shall not
require the settlement of strikes or lockouts by acceding to the demands of any
opposing party when such course is inadvisable in the discretion of the Party
having the difficulty.
ARTICLE VII - CHARGES AND RATES
7.01 The charges to be billed and paid for by Customer for the Service during
the Interim Period shall be [XXXXXXXXXXX], per year for the Interim Service
Quantity.
7.02 The charges to be billed and paid for by Customer for the Service during
the Remaining Period shall be [XXXXXXXXXX], per year for the Service Quantity.
7.03 For all quantities delivered by Customer during the Redelivery Period, an
additional charge of [XXXXXXXXXXXXX] shall be billed for such quantities.
7.04 In addition to the charge set out in Section 7.03, Customer shall be billed
and pay an incremental charge of [XXXXXXXXX] for the Interim Service Quantity in
the month following SCPL's receipt of Customer's Election Notice.
<PAGE>
9
7.05 Notwithstanding Articles VIII and IX of the General Terms & Conditions,
billing for the charges set out in Sections 7.01 and 7.02 shall be made in equal
monthly invoices by SCPL to Customer by the 10th day of each month, and Customer
shall pay the invoice by the 25th day of each month.
7.06 Prices exclude any applicable taxes, royalties or levies imposed currently
or subsequently to the commencement of this Contract. SCPL agrees to pay or
cause to be paid all taxes and assessments levied only on the gas downstream of
the Point of Delivery/Redelivery upon delivery by Customer and upstream of the
Point of Delivery/Redelivery upon redelivery by SCPL, and to pay or cause to be
paid to the parties entitled thereto all royalties, overriding royalties or like
charges against said gas or the value thereof.
ARTICLE VII - DELIVERY AND REDELIVERY PRESSURES
8.01 Delivery of gas to SCPL for the account of Customer, at the Point of
Delivery/Redelivery, shall be made at a pressure sufficient to affect deliveries
to Transporter.
8.02 Redelivery of gas by SCPL for the account of Customer, at the Point of
Delivery/Redelivery shall be made at a pressure sufficient to affect deliveries
to the Transporter.
ARTICLE IX - MEASUREMENT AND QUALITY
9.01 The gas delivered and redelivered hereunder shall meet any and all gas
quality requirements as provided by Transporter's gas tariff. In the event that
the gas tendered for delivery or redelivery hereunder fails to meet any of the
requirements necessary under Transporter's tariff, the receiving Party shall
have the right to refuse to accept any gas so tendered for the duration of time
the gas fails to meet those gas quality requirements. Any gas refused pursuant
to this Section shall be considered gas not delivered or redelivered and shall
be treated as such pursuant to Article V herein.
<PAGE>
10
9.02 For purposes of billing Customer for gas delivered hereunder, the
quantities of gas delivered hereunder shall be determined by the metering
equipment owned, operated and installed by Transporter at the Point of
Delivery/Redelivery hereunder in accordance with the applicable provisions of
Transporter's gas tariff in effect from time to time, if applicable.
9.03 In the event of an error in metering or a meter failure, then SCPL shall
ask Customer or Customer's agent to invoke its rights as customer under its
contracts with Transporter. Customer shall exercise due diligence in the
enforcement of any inspection and/or verification rights and procedures which
Customer or Customer's agent may have in relation to the meters owned and
operated by Transporter at the Point of Delivery/Redelivery.
ARTICLE X - NOMINATIONS
10.01 Nominations for delivery or redelivery of gas made by Customer must be
made in writing before 9:00 a.m. (Eastern Time) on the day before delivery or
redelivery is to occur, except that each such nomination must be made earlier if
necessary under the nomination procedures of Transporter of such gas. The
Parties recognize that on any day, deliveries of gas hereunder may vary within
the operating tolerances as set out in Transporter's tariff, but each Party will
cooperate with the other to assure equal daily deliveries and that such
deliveries will be in balance for the Delivery Period and the Redelivery Period.
Customer and SCPL shall use reasonable efforts to accept/provide quantities
greater than the Interim Delivery Quantity, the Delivery Quantity and the
Redelivery Quantity, if requested.
10.02 If, in SCPL's sole opinion, operating conditions permit, a change in
Customer's Nomination may be accepted after 9:00 a.m. (Eastern Standard Time).
The daily quantity of gas nominated by Customer will be, delivered to SCPL or
redelivered to Customer at rates of flow that are as nearly constant as
possible.
10.03 A nomination for a daily quantity of gas on any day shall remain in effect
and apply to subsequent days unless and until SCPL receives a new nomination
from Customer or unless SCPL gives Customer written notice that it is not
acceptable in accordance with Section 10.01.
<PAGE>
11
ARTICLE XI - REPRESENTATIONS
11.01 Parties' Representations: The Parties represent that each will, if
required, maintain, or have maintained on its behalf, such certificates,
permits, licenses and authorizations from regulatory bodies or other
governmental agencies in the U.S.A. and Canada, as the case may be, as are
necessary to enable the Parties, or others designated by the Parties, to
deliver/redeliver at the Point of Delivery/Redelivery, the quantities of gas to
be delivered/redelivered under this Contract.
11.02 Financial Representations: A "Credit Event" shall be deemed to have
occurred with respect to Customer if National Fuel Gas Company's credit rating
fails to meet both of the ratings in both of the indices set out in this Section
11.03. A "Credit Event" shall be deemed to have occurred with respect to SCPL if
Westcoast Energy Inc.'s credit rating fails to meet both of the ratings in both
of the indices set out in 11.03:
11.03 Credit Indices:
Index Rating
Standard and Poor's BBB -
"Corporate and Municipal Ratings"
Moody's , Baa3
"Long Term Debt Ratings"
11.04 The Party experiencing a Credit Event shall, upon the other Party's
election, furnish security in a form and amount satisfactory to the other Party,
within ten (10) days of such election. If the Party experiencing a Credit Event
fails to provide the above, then the other Party shall have the right to
terminate or cancel the Contract upon thirty (30) days prior written notice.
<PAGE>
12
ARTICLE XII - HARDSHIP PROVISION
12.01 "Event of Change" means a material event which comes about as a result of
changes in legislation, regulation or administrative policy, including opinions,
decisions and enactments, which have become final and non-appealable, of any
applicable government, governmental agency, or instrumentality ("Government")
which shall include, but not be limited to, the PSC, the PUC and the FERC, which
changes were not in effect at the time of execution hereof and are not
specifically and exclusively directed at a Party, save and except for costs that
have specifically been disallowed by Government for inclusion in Customer's
rates, whether relating to export and import requirements, taxes or other
levies, environmental regulation, or regulation of the trade, transportation, or
supply of gas or hydrocarbons, and results in economic loss to a Party to the
extent that it is impracticable for it to make any profit on the transactions
contemplated by this Contract, as a result of the Event of Change ("Financial
Hardship'), provided that the term Event of Change does not include (i) events
caused by a default or financial difficulty, lack of funds, wilful misconduct or
negligence of a Party to this Contract, (ii) changes not imposed by Government
in the market for, or the price of, gas or the services to be provided
hereunder, (iii) any disputes with a third Party, or (iv) any change in rates or
rate structure of any service provider being utilized by SCPL in providing
service hereunder to Customer.
12.02 If an Event of Change occurs, then the Party affected by a Financial
Hardship hereunder may, on three (3) month's prior written notice (subject to
the terms of Section 12.05 hereof), terminate this Contract, so that each Party
has no further obligations to the other except for such obligations which were
outstanding at the expiration of the notice period, including without being
limited to (i) obligations with respect to gas which, at the time of expiration
of the notice, has not been redelivered, and (ii) indebtedness or potential
liabilities outstanding at the expiration of the notice period.
12.03 Together with the notice required above, the Party declaring the
Financial Hardship must provide substantial evidence and support for its claim
of Financial Hardship. The Party
<PAGE>
13
receiving the said notice is entitled to request and receive such additional
information as may reasonably be required to confirm the Financial Hardship, or
may upon request conduct an audit of all applicable books of the other Party.
12.04 The Parties hereto agree and acknowledge that they shall reduce the notice
period where reasonably possible, however, the Party receiving the notice shall
not be required to do so at its expense.
12.05 Unless directed to do so by any regulatory authority having jurisdiction,
Customer shall not make, cause to be made, or assist any other party in making
any filing with or in any way seek any action by any regulatory authority, or
court or other body having jurisdiction, which would directly cause the
disallowance of costs relating to this Contract by Government for inclusion in
Customer's rates.
ARTICLE XIII - MISCELLANEOUS PROVISIONS
13.01 Assignment: Customer may during the term of this Contract, and upon notice
to SCPL, temporarily release all or part of Customer's entitlement hereunder, as
set out in Article V (the "Assigned Capacity")' and the corresponding rights and
obligations, to a third party ("the Assignee"). Notwithstanding such assignment,
Customer shall remain obligated to SCPL to perform and observe the covenants and
obligations contained herein, in regard to the Assigned Capacity, to the extent
that the Assignee fails to do so. Customer shall not fully assign this Contract,
without prior written consent by SCPL, which shall not be unreasonably withheld
provided Assignee meets all of SCPL's criteria for a counterparty under this
Contract, thereby replacing Customer and permitting Customer to terminate its
further covenants and obligations under this Contract. Nothing herein contained
shall prevent or restrict either Party from fully assigning this Contract to an
affiliate for the purposes of a corporate restructuring, without consent, or
from pledging, granting a security interest in, or assigning as collateral all
or any portion of such Party's interest to secure any debt or obligation of such
Party under any mortgage, deed of trust, security agreement or similar
instrument.
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14
13.02 Notices: Subject to the express provisions of this Contract, all
communications provided for or permitted hereunder shall be in writing,
personally delivered to an officer or other responsible employee of the
addressee or sent by registered mail, charges prepaid, or by telecopy or other
means of recorded telecommunication, charges prepaid, to the applicable address
set forth below or to such other address as either Party hereto may from time to
time designate to the other in such manner, provided that no communication shall
be sent by mail pending any threatened, or during any actual, postal strike or
other disruption of the postal service. Any personal communication delivered
shall be deemed to have been validly and effectively received on the date of
such delivery. Any communication so sent by telecopy or other means of
telecommunication shall be deemed to have been validly and effectively received
on the business day following the day on which it is sent. Any communication so
sent by mail shall be deemed to have been validly and effectively received on
the seventh business day following the day on which it is post marked.
Communications to the Parties hereto shall be directed as follows:
IF TO CUSTOMER: National Fuel Gas Distribution Corporation
10 Lafayette Square
Buffalo, New York 14203
Nominations: Attention: Contract Administration
Telephone: (716) 857-7233
Telecopier: (716) 857-7823
IF TO SCPL: St. Clair Pipelines Ltd.
50 Keil Drive North
Chatham, Ontario N7M 5Ml
Nominations: Attention: Manager, Gas Control
Telephone: (519) 436-4524
Telecopier: (519) 436-4566
Other: Attention: Manager, Product Development
Telephone: (519) 436-4601
Telecopier: (519) 436-4694
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15
Each Party may from time to time change its address for the purpose of this
Section by giving notice of such change to the other Party in accordance with
this Section.
13.03 Possession of Gas: SCPL accepts no responsibility for any gas prior to
such gas being delivered to SCPL at the Point of Delivery/Redelivery or after
its redelivery by SCPL at the Point of Delivery/Redelivery. As between the
Parties hereto, SCPL shall be deemed to be in control and possession of and
responsible for all such gas from the time that such gas is delivered to SCPL by
Customer at the Point of Delivery/Redelivery until such gas is redelivered to
Customer by SCPL at the Point of Delivery/Redelivery.
13.04 Title to Gas: Each Party represents and warrants to the other that it
shall have good and marketable title to all gas delivered to the other, pursuant
to the terms of Article V of this Contract, free and clear of any lien,
mortgage, security interest or other encumbrance whatsoever against such gas and
each Party hereby agrees to transfer complete title and interest to the gas at
the Point of Delivery/Redelivery, as applicable. Each Party further agrees to
indemnify and save the other harmless from all suits, actions, debts, accounts,
damages, costs, losses and expenses arising from or out of claims of any or all
third parties to such gas or on account of royalties, taxes, license fees, or
other charges thereon.
13-05 Counterparts: This Contract may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an originally executed
copy, and it shall not be necessary in making proof of this Contract to produce
all of such counterparts.
13.06 Amendments and Waivers: No amendment or waiver of any provision of this
Contract nor consent to any departure by either Party hereto shall in any event
be effective unless the same shall be in writing and signed by each of Customer
and SCPL and then such waiver or consent shall be effective only in the specific
instance and for the specified purpose for which it was given. No failure on the
part of Customer or SCPL to exercise, and no course of dealing with respect to,
and no delay in exercising, any right, power or remedy under this Contract shall
operate as a waiver thereof.
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16
13.07 Severability: If any provision hereof is invalid or unenforceable in any
jurisdiction, to the fullest extent permitted by law, (a) the other provisions
hereof shall remain in full force and effect in such jurisdiction and shall be
construed in order to carry out the intention of the Parties as nearly as
possible and (b) the invalidity or unenforceability of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of any
provision in any other jurisdiction.
13.08 Law of Contract: The Parties agree that this Contract is made pursuant to
all applicable laws of the Province of Ontario, Canada and the State of New
York, United States of America. The Parties further agree that the terms and
conditions hereof, and subsequent performance hereunder, shall be construed
under and governed by the laws of the Province of Ontario, Canada and/or the
State of New York, United States of America, and/or any federal laws that may
apply to an agreement between organizations of different countries.
13.09 Time of Essence: Time shall be of the essence hereof.
13.10 Entire Contract: This Contract constitutes the entire agreement between
the Parties hereto pertaining to the subject matter hereof. This Contract
supersedes any prior or contemporaneous agreements, understandings, negotiations
or discussions, whether oral or written, of the Parties in respect of the
subject matter hereof.
THIS CONTRACT SHALL BE BINDING UPON and shall enure to the benefit of the
Parties hereto and their respective successors and permitted and lawful assigns.
<PAGE>
17
IN WITNESS WHEREOF this Contract has been properly executed by the Parties
hereto by their duly authorized officers as of the date first above written.
ST. CLAIR PIPELINES LTD.
By: /s/ James Anderson
-----------------------------
Title: President
-------------------------
By: /s/ Brian P. Gabel
-----------------------------
Title: Vice President
-------------------------
NATIONAL FUEL GAS DISTRIBUTION CORPORATION
By: /s/ Philip C. Ackerman
-----------------------------
Title: President
--------------------------
Schedule "A" General Terms & Conditions Contract No. SC-DR-014
<PAGE>
SCHEDULE "A"
to Contract No. SC-DR-014
GENERAL TERMS & CONDITIONS
IA. DEFINITIONS
Except where the context expressly requires or states another meaning, the
following terms, if and when used in these General Terms & Conditions and in any
contract into which these General Terms & Conditions are incorporated, shall be
construed to have the following meanings:
1. "British Thermal Unit" and "BTU" shall mean the amount of heat required
to raise the temperature of one pound of water one degree Fahrenheit at
60 degrees Fahrenheit;
2. "contract year"' shall mean a period of three hundred and sixty-five
(365) consecutive days, beginning on the day agreed upon by SCPL and
Customer as set forth in the Contract, or on any anniversary of such
date; provided, however, that any such period which contains a date of
February 29 shall consist of three hundred and sixty-six (366)
consecutive days;
3. "Customer", wherever it appears herein, shall also include Customer's
Agent(s);
4. "day" shall mean a period of twenty-four (24) consecutive hours
beginning at 8:00 A.M. Eastern Standard time. The reference date for
any day shall be the calendar date upon which the twenty-four (24) hour
period shall commence;
5. "dekatherm" or "Dth" shall mean a heating value of 1,000,000 BTU's
(approximately equal to 1 Mcf);
6. "delivery" shall mean any gas that is delivered by Customer to SCPL;
7. "Empire' shall mean Empire State Pipeline;
8. "firm" shall mean service not subject to curtailment or interruption
except under Articles XI and XII of this Schedule "A';
9. "gas" shall mean gas as defined in the Ontario Energy Board Act,
R.S.O. 1980, c. 332, as amended, supplemented or reenacted from time to
time;
10. "interruptible service" shall mean service subject to curtailment or
interruption, after notice, at any time;
11. "limited interruptible service" shall mean gas service subject to
interruption or curtailment on a limited number of days as specified in
the Contract;
12. "month" shall mean the period beginning at 8:00 A.M. Eastern Standard
time on the first day of a calendar month and ending at 8:00 A.M.
Eastern Standard time on the first day of the following calendar
month;
13. "NEB" means the National Energy Board (Canada);
14. "OEB" means the Ontario Energy Board;
15. "redelivery" shall mean any gas that is delivered by SCPL into
Customer's facilities or for Customer's account;
16. "TCPL" means TransCanada PipeLines Limited;
17. "Union" means Union Gas Limited.
<PAGE>
IB. ADDITIONAL DEFINITIONS
The following terms, if and when used in these General Terms & Conditions and in
the Delivery and Redelivery Service Contract between St. Clair Pipelines Ltd.
and National Fuel Gas Distribution Corporation, dated January 15, 1996, Contract
No. SC-DR-014 ("the "Contract"), shall be construed to have the following
meanings:
1. "PSC" shall mean the New York State Public Service Commission;
2. "PUC" shall mean the Pennsylvania Public Utilities Commission;
3. "FERC" shall mean the Federal Energy Regulatory Commission;
4. "Commencement Date" shall have the meaning ascribed to it in
Article IV of the Contract;
5. "Termination Date" shall have the meaning ascribed to it in
Article IV of the Contract;
6. "Interim Period" shall have the meaning ascribed to it in
Article IV of the Contract;
7. "Transition Date" shall have the meaning ascribed to it in
Article IV of the Contract;
8. "Remaining Period" shall have the meaning ascribed to it in
Article IV of the Contract;
9. "Interim Service Quantity" shall have the meaning ascribed to
it in Article V of the Contract;
10. "Delivery Month" shall have the meaning ascribed to it in
Article V of the Contract;
11. "Interim Delivery Quantity" shall have the meaning ascribed to
it in Article V of the Contract;
12. "Customer's Interim Account Balance" shall have the meaning
ascribed to it in Article V of the Contract;
13. "Redelivery Period" shall have the meaning ascribed to it in
Article V of the Contract;
14. "Election Notice" shall have the meaning ascribed to it in
Article V of the Contract;
15. "Redelivery Quantity" shall have the meaning ascribed to it in
Article V of the Contract;
16. "Obligated Redelivery Days" shall have the meaning ascribed to
it in Article V of the Contract;
17. "Service Quantity" shall have the meaning ascribed to it in
Article V of the Contract;
18. "Delivery Period" shall have the meaning ascribed to it in
Article V of the Contract;
19. "Delivery Quantity" shall have the meaning ascribed to it in
Article V of the Contract;
20. "Customer's Account Balance" shall have the meaning ascribed
to it in Article V of the Contract;
21. "Redelivery Days" shall have the meaning ascribed to it in
Article V of the Contract;
22. "Transporter" shall have the meaning ascribed to it in Article
V of the Contract;
<PAGE>
23. "Point of Delivery/Redelivery" shall have the meaning ascribed
to it in Article V of the Contract;
24. "Redelivery Warranty" shall have the meaning ascribed to it in
Article V of the Contract;
25. "Event of Change" shall have the meaning ascribed to it in
Article XII of the Contract;
26. "Government" shall have the meaning ascribed to it in Article
XII of the Contract;
27. "Financial Hardship" shall have the meaning ascribed to it in
Article XII of the Contract;
28. "Assigned Capacity" shall have the meaning ascribed to it in
Article XIII of the Contract;
29. "Assignee" shall have the meaning ascribed to it in Article
XIII of the Contract;
II. QUALITY
Not Applicable.
III. MEASUREMENT
Not Applicable.
IV. POINT OF DELIVERY AND POINT OF REDELIVERY
1. Unless otherwise specified in the Contract, the point or
points of delivery for all gas to be covered hereunder shall
be on the outlet side of the measuring stations located at or
near the point or points of connection specified in the
Contract, where SCPL takes possession of the gas. Whenever the
phrase "delivery point" appears herein, it shall mean Point of
Delivery as defined in this Article IV.
2. Unless otherwise specified in the Contract, the point or
points of redelivery for all gas to be covered hereunder shall
be on the outlet side of the measuring stations located at or
near the point or points of connection as specified in the
Contract where Customer takes possession of the gas. Whenever
the phrase "redelivery point" shall appear herein, it shall
mean Point of Redelivery as defined in this Article IV.
V. POSSESSION OF AND RESPONSIBILITY FOR GAS
Not Applicable.
VI. FACILITIES ON CUSTOMER'S PROPERTY
Not Applicable.
VII. MEASURING EQUIPMENT
Not Applicable.
<PAGE>
VIII. BILLING
1. Monthly Billing Date: SCPL shall render bills on or before the
10th day of each month for all gas delivered and/or
redelivered and gas services furnished during the preceding
month. Such charges may be based on estimated quantities, if
actual quantities are unavailable in time to prepare the
billing. SCPL shall provide, in a succeeding month's billing,
an adjustment based on any difference between actual
quantities and estimated quantities. If presentation of a bill
to Customer is delayed after the 10th day of the month, then
the time of payment shall be extended accordingly, unless
Customer is responsible for such delay.
2. Right of Examination: Both SCPL and Customer shall have the
right to examine at any reasonable time the books, records and
charts of the other to the extent necessary to verify the
accuracy of any statement, chart or computation made under or
pursuant to the provisions of the Contract.
IX. PAYMENTS
1. Monthly Payments: Customer shall pay directly into SCPL's
account at the Canadian Imperial Bank of Commerce, MaiN
Branch, Commerce Court, Toronto, Ontario by electronic funds
transfer to transit 00002, account 04-9511 5.
2. Remedies for Nonpayment: Should Customer fail to pay all of
the amount of any bill as herein provided when such amount is
due, Customer shall pay to SCPL interest on the unpaid portion
of the bill accruing at a rate per annum equal to the minimum
commercial lending rate of SCPL's principal banker in effect
from time to time from the due date until the date of payment.
If such failure to pay continues for thirty (30) days after
payment is due, SCPL, in addition to any other remedy it may
have under the Contract may, upon ten (1 0) days notice,
suspend further delivery of gas until such amount is paid,
provided however, that if Customer, in good faith shall
dispute the amount of any such bill or part thereof and shall
pay to SCPL such amounts as it concedes to be correct, then
SCPL shall not be entitled to suspend further delivery of gas
because of such nonpayment unless and until default be made in
the payment for any further gas redelivered to Customer
hereunder. Notwithstanding the foregoing paragraph, this does
not relieve Customer from the obligation to continue its
deliveries of gas to SCPL under the terms of any agreement,
where Customer has contracted to deliver specified quantities
of gas to SCPL.
3. Billing Adjustments: If it shall be found that at any time or
times Customer has been overcharged or undercharged in any
form whatsoever under the provisions of the Contract and
Customer shall have actually paid the bills containing such
overcharge or undercharge, SCPL shall refund the amount of any
such overcharge and interest shall accrue from and including
the first day of such overcharge as paid to the date of refund
and shall be calculated but not compounded at a rate per annum
determined each day during the calculation period to be equal
to the minimum commercial lending rate of SCPL's principal
banker, and the Customer shall pay the amount of any such
undercharge, but without interest. In the event SCPL renders a
bill to Customer based upon measurement estimates, the
required adjustment to reflect actual measurement shall be
made on the bill next following the determination of such
actual measurement, without any charge of interest. In the
event an error is discovered in the amount billed in any
statement rendered by SCPL, such error shall be adjusted by
SCPL. Such overcharge, undercharge or error shall be adjusted
by SCPL on the bill next following its determination (where
the term "bill' next following shall mean a bill rendered at
least fourteen (1 4) days
<PAGE>
after the day of its determination), provided that claim
therefore shall have been made within six (6) years from the
date of the incorrect billing. In the event any refund is
issued with Customer's gas bill, the aforesaid date of refund
shall be deemed to be the date of the issue of invoice.
X. ARBITRATION
Not Applicable.
XI. FORCE MAJEURE
The term "force majeure" as used herein shall mean acts of God,
strikes, lockouts or any other industrial disturbance, acts of the
public enemy, sabotage, wars, blockades, insurrections, riots,
epidemics, landslides, lightening, earthquakes, fires, storms, floods,
washouts, arrests and restraints of governments and people, civil
disturbances, explosions, breakage or accident to machinery or lines of
pipe, freezing of wells or lines of pipe, inability to obtain
materials, supplies, permits or labour, any laws, orders, rules,
regulations, acts or restraints of any governmental body or authority
(civil or military), any act or omission that is excused by any event
or occurrence of the character herein defined as constituting force
majeure, any act or omission by parties not controlled by the party
having the difficulty and any other similar cases not within the
control of the party claiming suspension and which by the exercise of
due diligence such party is unable to prevent or overcome. In the event
that either the Customer or SCPL is rendered unable, in whole or in
part, by force majeure, to perform or comply with any obligation or
condition of the Contract, such party shall give notice and full
particulars of such force majeure in writing delivered by hand,
telegraph, telex or other direct written electronic means to the other
party as soon as possible after the occurrence of the cause relied on
and subject to the provision of this Article.
Neither party shall be entitled to the benefit of the provisions of
force majeure hereunder if any or all of the following circumstances
prevail: the failure resulting in a condition of force majeure was
caused by the negligence of the party claiming suspension; the failure
was caused by the party claiming suspension where such party failed to
remedy the condition by making all reasonable efforts (short of
litigation, if such remedy would require litigation); the party
claiming suspension failed to resume the performance of such condition
obligations with reasonable dispatch; the failure was caused by lack of
funds; the party claiming suspension did not as soon as possible after
determining or within a period within which it should acting reasonably
have determined that the occurrence was in the nature of force majeure
and would affect its ability to observe or perform any of its
conditions or obligations under the Contract give to the other party
the notice required hereunder.
The party claiming suspension shall likewise give notice as soon as
possible after the force majeure condition is remedied, to the extent
that the same has been remedied, and that such party has resumed or is
then in a position to resume the performance of the obligations and
conditions of the Contract.
XII. DEFAULT AND TERMINATION
In case of the breach or nonobservance or nonperformance on the part of
either party hereto of any covenant, proviso, condition, restriction or
stipulation contained in the Contract (but not including herein failure
to take or make delivery or redelivery in whole or in part of the gas
delivered or redelivered hereunder occasioned by any of the reasons
provided for in Article XI hereof) which ought to be observed or
performed by such party and which has not been waived by the other
party, then and in every such case and as often as the same may happen,
such last mentioned party may give written notice to the party first
<PAGE>
mentioned requiring it to remedy such default and in the event of such
first mentioned party failing to remedy the same within a period of
thirty (30) days from receipt of such notice, the other party may at
its sole option declare the Contract to be terminated and thereupon the
Contract shall become and be terminated and be null and void for all
purposes other than and except as to any liability of the first
mentioned party under the same incurred before and subsisting at the
day when the Contract is declared by the other party to be terminated
as aforesaid. The right hereby conferred upon each party shall be in
addition to, and not in derogation of or in substitution for, any other
right or remedy which the parties respectively at law or in equity
shall or may possess.
In the event this Contract is terminated, such termination shall be
without prejudice to any rights or obligations of the parties accruing
prior to such termination, including but not limited to: (i) Customer's
right to receive gas for which it has delivered to SCPL but has not
redelivered, prior to the time of termination; and (ii) SCPL's right to
collect any amounts then due SCPL for service rendered to Customer
prior to the time of such termination or release.
XIII. MODIFICATION
Any modification of the terms and provisions of the Contract shall be
in writing and shall be signed by all parties to the Contract.
XIV. NONWAIVER AND FUTURE DEFAULT
No waiver by either SCPL or Customer of any one or more defaults by the
other in the performance of any provisions of the Contract shall
operate or be construed as a waiver of any future default or defaults,
whether of a like or a different character.
XV. LAWS, REGULATIONS AND ORDERS
The Contract and the respective rights and obligations of the parties
hereto are subject to all present and future valid laws, orders, rules
and regulations of any competent legislative body, or duly constituted
authority now or hereafter having jurisdiction and the Contract shall
be varied and amended to comply with or conform to any valid order or
direction of any board, tribunal or administrative agency which affects
any of the provisions of the Contract.
A D D E N D U M
NINTH EXTENSION TO EMPLOYMENT AGREEMENT
---------------------------------------
Paragraph 5 of the five-year Employment Agreement between NATIONAL FUEL
GAS COMPANY ("Employer") and BERNARD J. KENNEDY ("Employee"), which was executed
on September 17, 1981, and originally terminated on December 31, 1986
("Agreement"), anticipated its extension at the end of three years, and each
year thereafter. Pursuant thereto, extensions to such agreement were executed by
the parties on September 20, 1984, September 18, 1985, September 16, 1986,
September 11, 1987, September 12, 1988, September 19, 1989, September 20, 1990
and September 20, 1991. The last extension extended the Agreement to September
1, 1996. Accordingly, Employer and Employee hereby agree to the further
extension of this Agreement from September 1, 1996 until September 1, 1999.
DATED: September 19, 1996
------------------
NATIONAL FUEL GAS COMPANY
By /s/ P. C. Ackerman
------------------------------
P. C. Ackerman
Vice President of Employer
/s/ Bernard J. Kennedy
------------------------------
Bernard J. Kennedy
Employee
AMENDMENT TO
NATIONAL FUEL GAS COMPANY
1984 STOCK PLAN
I, Bernard J. Kennedy, pursuant to the authorization granted
by the National Fuel Gas Company Board of Directors on September 19, 1996, do
hereby execute the following amendment to the National Fuel Gas Company 1984
Stock Plan (the "1984 Plan"), effective September 19, 1996.
1. Section 5(c)(v) of the 1984 Plan is hereby amended (which amendment
also applies to all outstanding nonqualified stock options or SARs under the
Plan as approved by the Compensation Committee of the Board of Directors on
September 19, 1996) to read as follows:
"No Option under the Plan shall be subject in any
manner to alienation, anticipation, sale, transfer (except by
will or the laws of descent and distribution or pursuant to a
qualified domestic relations order), assignment, pledge or
encumbrance, except that all awards of nonqualified stock
options or SARs shall be transferable without consideration,
subject to all the terms and conditions to which such
nonqualified stock options or SARs are otherwise subject, to
(i) members of a Key Employee's immediate family as defined in
Rule 16a-1 promulgated under the Exchange Act, or any
successor rule or regulation, (ii) trusts for the exclusive
benefit of the Key Employee or such immediate family members
or (iii) entities which are wholly-owned by the Key Employee
or such immediate family members, provided that (x) there may
be no consideration for any such transfer, and (y) subsequent
transfers of transferred Options shall be prohibited except
those by will or the laws of descent and distribution.
Following transfer, any such Options shall continue to be
subject to the same terms and conditions as were applicable
immediately prior to transfer, and except as provided in the
next sentence, the term "Key Employee" shall be deemed to
refer to the transferee. The events of termination of
employment under Section 6 hereof shall continue to be applied
with reference to the original Key Employee and following the
termination of employment of the original Key Employee, the
<PAGE>
Options shall be exercisable by the transferee only to the
extent, and for the periods specified in Section 6, that the
original Key Employee could have exercised such Option. Except
as expressly permitted by this paragraph, an Option shall be
exercisable during the Key Employee's lifetime only by him."
2. Section 15 is hereby amended (which amendment also applies to all
outstanding Awards under the Plan as approved by of the Compensation Committee
of the Board of Directors on September 19, 1996) to read as follows:
"At the time a Key Employee is taxable with respect
to Options, SARs or Restricted Stock granted hereunder, or the
exercise or surrender of the same, the Company shall have the
right to withhold from amounts payable to the Key Employee
under the Plan or from other compensation payable to the Key
Employee in its sole discretion, or require the Key Employee
to pay to it, an amount sufficient to satisfy all federal,
state and/or local withholding tax requirements. A Key
Employee may pay, in whole or in part, such tax withholding
amounts by requesting that the Company withhold such amounts
of taxes from the amounts owed to the Key Employee or by
delivering as payment to the Company, shares of Common Stock
having a Fair Market Value less than or equal to the amount of
such required withholding taxes.
NATIONAL FUEL GAS COMPANY
December 11, 1996 /s/ Bernard J. Kennedy
- ------------------ ----------------------------------------------------
Dated Bernard J. Kennedy
President, Chief Executive Officer
and Chairman of the Board of
Directors
AMENDMENT TO
NATIONAL FUEL GAS COMPANY
1993 AWARD AND OPTION PLAN
I, Bernard J. Kennedy, pursuant to the authorization granted
by the National Fuel Gas Company Board of Directors on September 19, 1996, do
hereby execute the following amendment to the National Fuel Gas Company 1993
Award and Option Plan (the "1993 Plan"), effective September 19, 1996.
1. Section 2.10 is amended to read as follows:
"Committee means the Compensation Committee of the
Board, or such other committee designated by the Board as
authorized to administer the Plan. The Committee shall consist
of not less than two (2) members of the Board, each of whom
shall be a Disinterested Board Member. A Disinterested Board
Member means a member who (a) is not a current employee of the
Company or a Subsidiary, (b) is not a former employee of the
Company or a Subsidiary who receives compensation for prior
services (other than benefits under a tax-qualified retirement
plan) during the taxable year, (c) has not been an officer of
the Company, (d) does not receive remuneration from the
Company or a Subsidiary, either directly or indirectly, in any
capacity other than as a director and (e) does not possess an
interest in any other transaction, and is not engaged in a
business relationship, for which disclosure would be required
pursuant to Item 404(a) or (b) of Regulation S-K under the
Securities Act of 1933, as amended. The term Disinterested
Board Member shall be interpreted in such manner as shall be
necessary to conform to the requirements of Section 162(m) of
the Code and Rule 16b-3 promulgated under the Exchange Act."
2. Section 5 is amended to add the following sentence immediately
after the first sentence of Section 5:
Awards covering no more than 300,000 shares of Common
Stock (subject to adjustment as provided in paragraph 18) may
be granted to any Participant in any fiscal year of the
Company.
3. Section 17, is hereby amended (which amendment also applies
to all outstanding nonqualified stock options and SARs
under the Plan as approved by the Compensation Committee
of the Board of Directors on September 19, 1996) to read as
follows:
"No Award under the Plan shall be subject in any manner to
alienation, anticipation, sale, transfer (except by will or
the laws of descent and distribution or pursuant to a
qualified domestic relations order), assignment, pledge or
encumbrance, except that all awards of nonqualified stock
options or SAR's shall be transferable without consideration,
subject to all the terms and conditions to which such
nonqualified stock options or SARs are otherwise subject, to
(i) members of a Participant's immediate family as defined in
Rule 16a-1 promulgated under the Exchange Act, or any
successor rule or regulation, (ii) trusts for the exclusive
benefit of the Participant or such immediate family members or
(iii) entities which are wholly-owned by the Participant or
such immediate family members, provided that (x) there may be
no consideration for any such transfer, and (y) subsequent
transfers of transferred options shall be prohibited except
those by will or the laws of descent and distribution.
Following transfer, any such options shall continue to be
subject to the same terms and conditions as were applicable
immediately prior to transfer, and except as provided in the
next sentence, the term "Participant" shall be deemed to refer
to the transferee. The events of termination of employment
under Section 16(c) hereof shall continue to be applied with
reference to the original Participant and following the
termination of employment of the original Participant, the
options shall be exercisable by the transferee only to the
extent, and for the periods specified in Section 16(c), that
the original Participant could have exercised such option.
Except as expressly permitted by this paragraph, an Award
shall be exercisable during the Participant's lifetime only by
him."
4. Section 19 is hereby amended (which amendment also applies
to all outstanding Awards as approved by the Compensation
Committee of the Board of Directors on September 19, 1996) to
read as follows:
"The Company shall be entitled to deduct from any
payment under the Plan, regardless of the form of such
payment, the amount of all applicable income and employment
taxes required by law to be withheld with respect to such
payment or may require the participant to pay to it such tax
prior to and as a condition of the making of such payment. A
Participant may pay the amount of taxes required by law to be
withheld from an Award by requesting that the Company withhold
from any payment of Common Stock due as a result of such
Award, or by delivering to the Company, shares of Common Stock
having a Fair Market Value less than or equal to the amount of
such required withholding taxes."
5. Section 24 is hereby amended to read as follows:
"The Board may suspend or terminate the Plan at any
time. In addition, the Board may, from time to time, amend the
Plan in any manner, provided, however, that any such amendment
may be subject to stockholder approval (i) at the discretion
of the Board and (ii) to the extent that shareholder approval
may be required by law, including, but not limited to, the
requirements of Rule 16b-3 under the Exchange Act, or any
successor rule or regulation.
6. Section 25(h) is deleted, Section 25(i) is renumbered as
Section 25(h) and 25(j) is renumbered as 25(i).
NATIONAL FUEL GAS COMPANY
/s/ December 11, 1996 /s/ Bernard J. Kennedy
- --------------------- ----------------------------------
Dated Bernard J. Kennedy
President, Chief Executive Officer
and Chairman of the Board of
Directors
NATIONAL FUEL GAS COMPANY
1997 AWARD AND OPTION PLAN
1. Purpose
The purpose of the Plan is to advance the interests of the
Company and its stockholders, by providing a long-term incentive compensation
program that will be an incentive to the Key Employees of the Company and its
Subsidiaries whose contributions are important to the continued success of the
Company and its Subsidiaries, and by enhancing their ability to attract and
retain in their employ highly qualified persons for the successful conduct of
their businesses.
2. Definitions
2.1 "Acceleration Date" means (i) in the event of a
Change in Ownership, the date on which such change occurs, or (ii) with respect
to a Participant who is eligible for treatment under paragraph 25 hereof on
account of the termination of his employment following a Change in Control, the
date on which such termination occurs.
2.2 "Award" means any form of stock option, stock
appreciation right, Restricted Stock, performance unit, performance share or
other incentive award granted by the Committee to a Participant under the Plan
pursuant to such terms and conditions as the Committee may establish. An Award
may be granted singly, in combination or in the alternative.
2.3 "Award Notice" means a written notice from the
Company to a Participant that sets forth the terms and conditions of an Award in
addition to those established by this Plan and by the Committee's exercise of
its administrative powers.
2.4 "Board" means the Board of Directors of the
Company.
2.5 "Cause" means (i) the willful and continued
failure by a Key Employee to substantially perform his duties with his employer
after written warnings specifically identifying the lack of substantial
performance are delivered to him by his employer, or (ii) the willful engaging
by a Key Employee in illegal conduct which is materially and demonstrably
injurious to the Company or a Subsidiary.
2.7 "Change in Control Price" means, in respect of a
Change in Control, the highest closing price per share paid for the purchase of
Common Stock on the New York Stock Exchange, another national stock exchange or
the National Association of Securities Dealers Automated Quotation System during
the ninety (90) day period ending on the date the Change in Control occurs, and
in respect of a Change in Ownership, the highest closing price per share paid
for the purchase of Common Stock on the New York Stock Exchange, another
national stock exchange or the National Association of Securities Dealers
Automated Quotation System during the ninety (90) day period ending on the date
the Change in Ownership occurs.
2.8 "Change in Ownership" means a change which
results directly or indirectly in the Company's Common Stock ceasing to be
actively traded on a national securities exchange or the National Association of
Securities Dealers Automated Quotation System.
2.9 "Code" means the Internal Revenue Code of 1986,
as amended from time to time.
2.10 "Committee" means the Compensation Committee of
the Board, or such other committee designated by the Board, authorized to
administer the Plan. The Committee shall consist of not less than two (2)
members of the Board, each of whom shall be a Disinterested Board Member. A
"Disinterested Board Member" means a member who (a) is not a current employee of
the Company or a Subsidiary, (b) is not a former employee of the Company or a
Subsidiary who receives compensation for prior services (other than benefits
under a tax-qualified retirement plan) during the taxable year, (c) has not been
an officer of the Company (d) does not receive remuneration from the Company or
a Subsidiary, either directly or indirectly, in any capacity other than as a
director and (e) does not possess an interest in any other transaction, and is
not engaged in a business relationship, for which disclosure would be required
pursuant to Item 404(a) or (b) of Regulation S-K under the Securities Act of
1933, as amended. The term Disinterested Board Member shall be interpreted in
such manner as shall be necessary to conform to the requirements of Section
162(m) of the Code and Rule 16b-3 promulgated under the Exchange Act.
2.11 "Common Stock" means the common stock of the
Company.
2.12 "Company" means National Fuel Gas Company.
2.13 "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time.
2.14 "Fair Market Value" of a share of Common Stock
on any date means the average of the high and low sales prices of a share of
Common Stock as reflected in the report of consolidated trading of New York
Stock Exchange-listed securities for that date (or, if no such shares were
publicly traded on that date, the next preceding date that such shares were so
traded) published in The Wall Street Journal or in any other publication
selected by the Committee; provided, however, that if shares of Common Stock
shall not have been publicly traded for more than ten (10) days immediately
preceding such date, then the Fair Market Value of a share of Common Stock shall
be determined by the Committee in such manner as it may deem appropriate.
2.15 "Good Reason" means a good faith determination
made by a Participant that there has been any (i) material change by the Company
of the Participant's functions, duties or responsibilities which change could
cause the Participant's position with the Company to become of less dignity,
responsibility, importance, prestige or scope, including, without limitation,
the assignment to the Participant of duties and responsibilities inconsistent
with his positions, (ii) assignment or reassignment by the Company of the
Participant without the Participant's consent, to another place of employment
more than 30 miles from the Participant's current place of employment, or (iii)
reduction in the Participant's total compensation or benefits or any component
thereof, provided in each case that the Participant shall specify the event
relied upon for such determination by written notice to the Board at any time
within six months after the occurrence of such event.
2.16 "Key Employee" means an officer or other key
employee of the Company or a Subsidiary as determined by the Committee.
2.17 "Participant" means any individual to whom an
Award has been granted by the Committee under this Plan.
2.18 "Plan" means the National Fuel Gas Company 1997
Award and Option Plan.
2.19 "Restricted Stock" means an Award granted
pursuant to paragraph 10 hereof.
2.20 "Subsidiary" means a corporation or other
business entity in which the Company directly or indirectly has an ownership
interest of eighty percent (80%) or more.
2.21 "Unit" means a bookkeeping entry used by the
Company to record and account for the grant of the following Awards until such
time as the Award is paid, cancelled, forfeited or terminated, as the case may
be: Units of Common Stock, performance units, and performance shares which are
expressed in terms of Units of Common Stock.
3. Administration
The Plan shall be administered by the Committee. The Committee
shall have the authority to: (a) interpret the Plan; (b) establish such rules
and regulations as it deems necessary for the proper administration of the Plan;
(c) select Key Employees to receive Awards under the Plan; (d) determine the
form of an Award, whether a stock option, stock appreciation right, Restricted
Stock, performance unit, performance share, or other incentive award established
by the Committee in accordance with (h) below, the number of shares or Units
subject to the Award, all the terms and conditions of an Award, including the
time and conditions of exercise or vesting; (e) determine whether Awards would
be granted singly, in combination or in the alternative; (f) grant waivers of
Plan terms and conditions, provided that any such waiver granted to an executive
officer of the Company shall not be inconsistent with Section 16 of the Exchange
Act and the rules promulgated thereunder; (g) accelerate the vesting, exercise
or payment of any Award or the performance period of an Award when any such
action would be in the best interest of the Company; (h) establish such other
types of Awards, besides those specifically enumerated in paragraph 2.2 hereof,
which the Committee determines are consistent with the Plan's purposes; and (i)
take any and all other action it deems advisable for the proper administration
of the Plan. The Committee shall also have the authority to grant Awards in
replacement of Awards previously granted under this Plan or any other executive
compensation or stock option plan of the Company or a Subsidiary. All
determinations of the Committee shall be made by a majority of its members, and
its determinations shall be final, binding and conclusive. The Committee, in its
discretion, may delegate its authority and duties under the Plan to the Chief
Executive Officer or to other senior officers of the Company to the extent
permitted by Section 16 of the Exchange Act and notwithstanding any other
provision of this Plan or an Award Notice, under such conditions as the
Committee may establish; provided, however, that only the Committee may select
and grant Awards and render other decisions as to the timing, pricing and amount
of Awards to Participants who are subject to Section 16 of the Exchange Act.
4. Eligibility
Any Key Employee is eligible to become a Participant of the
Plan.
5. Shares Available
(a) The maximum number of shares of Common Stock, $1.00 par
value, of the Company which shall be available for grant of Awards under the
Plan (including incentive stock options) during its term shall not exceed
1,800,000; subject to adjustment as provided in paragraph 18. Awards covering no
more than 300,000 shares of Common Stock of the Company may be granted to any
Participant in any fiscal year subject to adjustment as provided in paragraph
18.
(b) Any shares of Common Stock related to Awards which
terminate by expiration, forfeiture, cancellation or otherwise without the
issuance of such shares, are settled in cash in lieu of Common Stock, or are
exchanged with the Committee's permission for Awards not involving Common Stock,
shall be available again for grant under the Plan, provided, however, that if
dividends or dividend equivalents pursuant to paragraph 14, or other benefits of
share ownership (not including the right to vote the shares) have been received
by the Participant in respect of an Award prior to such termination, settlement
or exchange, the shares which were the subject of the Award shall not again be
available for grant under the Plan. Further, any shares of Common Stock which
are used by a Participant for the full or partial payment to the Company of the
purchase price of shares of Common Stock upon exercise of a stock option, or for
any withholding taxes due as a result of such exercise, shall again be available
for Awards under the Plan. Similarly, shares of Common Stock with respect to
which an Alternative SAR has been exercised and paid in cash shall again be
available for grant under the Plan. Shares to which independent or combination
SARs relate shall not count against the 1,800,000 share limit set forth in this
paragraph 5.
(c) The shares of Common Stock available for issuance under
the Plan may be authorized and unissued shares or treasury shares.
6. Term
The Plan shall become effective as of December 13, 1996
subject to its approval by the Company's stockholders at the 1997 Annual Meeting
of Stockholders and subject to the approval of the Securities and Exchange
Commission under the Public Utility Holding Company Act of 1935, as amended. No
Awards shall be exercisable or payable before these approvals of the Plan have
been obtained and all Awards made prior to approval of the Plan by the Company's
stockholders and approval of the Plan by the Securities and Exchange Commission
under the Public Utility Holding Company Act of 1935, as amended, are contingent
upon such approval. Awards shall not be granted pursuant to the Plan after
December 12, 2006.
7. Participation
The Committee shall select Participants, determine the type of
Awards to be made, and establish in the related Award Notices the applicable
terms and conditions of the Awards in addition to those set forth in this Plan
and the administrative rules issued by the Committee.
8. Stock Options
(a) Grants. Awards may be granted in the form of
stock options. These stock options may be incentive stock options within the
meaning of Section 422 of the Code or non-qualified stock options (i.e., stock
options which are not incentive stock options), or a combination of both.
(b) Terms and Conditions of Options. Unless the
Award Notice provides otherwise, an option shall be exercisable in whole or in
part. The price at which Common Stock may be purchased upon exercise of a stock
option shall be established by the Committee, but such price shall not be less
than the Fair Market Value of the Common Stock on the date of the stock option's
grant. An Award Notice evidencing a stock option may, in the discretion of the
Committee, provide that a Participant who pays the option price of a stock
option by an exchange of shares of Common Stock previously owned by the
Participant shall automatically be issued a new stock option to purchase
additional shares of Common Stock equal to the number of shares of Common Stock
so exchanged. Such new stock option shall have an option price equal to the Fair
Market Value of the Common Stock on the date such new stock option is issued and
shall be subject to such other terms and conditions as the Committee deems
appropriate. Unless the Award Notice provides otherwise, each incentive stock
option shall first become exercisable on the first anniversary of its date of
grant, and each non-qualified stock option shall first become exercisable on the
first anniversary of its date of grant, or, if earlier (i) on the date of the
Participant's death occurring after the date of grant, (ii) six months after the
date of grant, if the Participant has voluntarily resigned on or after his 60th
birthday, after the date of grant, and before such six months, or (iii) on the
date of the Participant's voluntary resignation on or after his 60th birthday
and at least six months after the date of grant. Unless the Award Notice
provides otherwise, each non-qualified stock option shall expire on the day
after the tenth anniversary of its date of grant, and incentive stock options
and non-qualified stock options granted in combination may be exercised
separately.
(c) Restrictions Relating to Incentive Stock
Options. Stock options issued in the form of incentive stock options shall, in
addition to being subject to all applicable terms and conditions established by
the Committee, comply with Section 422 of the Code. Accordingly, the aggregate
Fair Market Value (determined at the time the option was granted) of the Common
Stock with respect to which incentive stock options are exercisable for the
first time by a Participant during any calendar year (under this Plan or any
other plan of the Company or any of its Subsidiaries) shall not exceed $100,000
(or such other limit as may be required by the Code). Unless the Award Notice
provides a shorter period, each incentive stock option shall expire on the tenth
anniversary of its date of grant. The number of shares of Common Stock that
shall be available for incentive stock options granted under the Plan is
1,800,000.
(d) Exercise of Option. Upon exercise, the option
price of a stock option may be paid in cash, shares of Common Stock, shares of
Restricted Stock, a combination of the foregoing, or such other consideration as
the Committee may deem appropriate. The Committee shall establish appropriate
methods for accepting Common Stock, whether restricted or unrestricted, and may
impose such conditions as it deems appropriate on the use of such Common Stock
to exercise a stock option. The Committee, in its sole discretion, may establish
procedures whereby a Participant to the extent permitted by and subject to the
requirements of Rule 16b-3 under the Exchange Act, Regulation T issued by the
Board of Governors of the Federal Reserve System pursuant to the Exchange Act,
federal income tax laws, and other federal, state and local tax and securities
laws, can exercise an option or a portion thereof without making a direct
payment of the option price to the Company. If the Committee so elects to
establish a cashless exercise program, the Committee shall determine, in its
sole discretion and from time to time, such administrative procedures and
policies as it deems appropriate. Such procedures and policies shall be binding
on any Participant wishing to utilize the cashless exercise program.
9. Stock Appreciation Rights
(a) Grants and Valuation. Awards may be granted in
the form of stock appreciation rights ("SARs"). SARs may be granted singly
("Independent SARs"), in combination with all or a portion of a related stock
option under the Plan ("Combination SARs"), or in the alternative ("Alternative
SARs"). Combination or Alternative SARs may be granted either at the time of the
grant of related stock options or at any time thereafter during the term of the
stock options. Combination SARs shall be subject to paragraph 9(b) hereof.
Alternative SARs shall be subject to paragraph 9(c) hereof. Independent SARs
shall be subject to paragraph 9(d) hereof. Unless this Plan or the Award Notice
provides otherwise, SARs shall entitle the recipient to receive a payment equal
to the appreciation in the Fair Market Value of a stated number of shares of
Common Stock from the award date to the date of exercise. In the case of SARs
granted in combination with, or in the alternative to, stock options, the
appreciation in value is from the option price of such related stock option to
the Fair Market Value on the date of exercise of such SARs. Unless this Plan or
the Award Notice provides otherwise, SARs granted in conjunction with stock
options shall be Combination SARs, and all SARs shall be exercisable between one
year and ten years and one day after the date of their award.
(b) Terms and Conditions of Combination SARs. Both
the stock options granted in conjunction with Combination SARs and the
Combination SARs may be exercised. Combination SARs shall be exercisable only to
the extent the related stock option is exercisable, and the base from which the
value of the Combination SARs is measured at its exercise shall be the option
price of the related stock option. Combination SARs may be exercised either
together with the related stock option or separately. If a Participant exercises
a Combination SAR or related stock option, but not both, the other shall remain
outstanding and shall remain exercisable during the entire exercise period.
(c) Terms and Conditions of Alternative SARs. Either
the stock options granted in the alternative to Alternative SARs or the
Alternative SARs may be exercised, but not both. Alternative SARs shall be
exercisable only to the extent that the related stock option is exercisable, and
the base from which the value of the Alternative SARs is measured at its
exercise shall be the option price of the related stock option. If related stock
options are exercised as to some or all of the shares covered by the Award, the
related Alternative SARs shall be cancelled automatically to the extent of the
number of shares covered by the stock option exercise. Upon exercise of
Alternative SARs as to some or all of the shares covered by the Award, the
related stock option shall be cancelled automatically to the extent of the
number of shares covered by such exercise, and such shares shall again be
eligible for grant in accordance with paragraph 5 hereof.
(d) Terms and Conditions of Independent SARs.
Independent SARs shall be exercisable in whole or in such installments and at
such time as may be determined by the Committee. The base price from which the
value of an Independent SAR is measured shall also be determined by the
Committee; provided, however, that such price shall not be less than the Fair
Market Value of the Common Stock on the date of the grant of the Independent
SAR.
(e) Deemed Exercise. The Committee may provide that
a SAR shall be deemed to be exercised at the close of business on the scheduled
expiration date of such SAR, if at such time the SAR by its terms remains
exercisable and, if so exercised, would result in a payment to the holder of
such SAR.
10. Restricted Stock
(a) Grants. Awards may be granted in the form of
Restricted Stock. Shares of Restricted Stock shall be awarded in such amounts
and at such times during the term of the Plan as the Committee shall determine.
(b) Award Restrictions. Restricted Stock shall be
subject to such terms and conditions as the Committee deems appropriate,
including restrictions on transferability and continued employment. The
Committee may modify or accelerate the delivery of shares of Restricted Stock
under such circumstances as it deems appropriate.
(c) Rights as Stockholders. During the period in
which any shares of Restricted Stock are subject to the restrictions imposed
under paragraph 10(b), the Committee may, in its discretion, grant to the
Participant to whom shares of Restricted Stock have been awarded all or any of
the rights of a stockholder with respect to such shares, including, but not by
way of limitation, the right to vote such shares and to receive dividends.
(d) Evidence of Award. Any shares of Restricted
Stock granted under the Plan may be evidenced in such manner as the Committee
deems appropriate, including, without limitation, book-entry registration or
issuance of a stock certificate or certificates.
11. Performance Units
(a) Grants. Awards may be granted in the form of
performance units. Performance units shall refer to the Units valued by
reference to designated criteria established by the Committee, other than Units
which are expressed in terms of Common Stock.
(b) Performance or Service Criteria. Performance
units shall be contingent on the attainment during a performance period of
certain performance and/or service objectives. The length of the performance
period, the performance or service objectives to be achieved, and the extent to
which such objectives have been attained shall be conclusively determined by the
Committee in the exercise of its absolute discretion. Performance and service
objectives may be revised by the Committee during the performance period, in
order to take into consideration any unforeseen events or changes in
circumstances.
12. Performance Shares
(a) Grants. Awards may be granted in the form of
performance shares. Performance shares shall refer to shares of Common Stock or
Units which are expressed in terms of Common Stock, including shares of phantom
stock.
(b) Performance or Service Criteria. Performance
shares shall be contingent upon the attainment during a performance period of
certain performance or service objectives. The length of the performance period,
the performance or service objectives to be achieved, and the extent to which
such objectives have been attained shall be conclusively determined by the
Committee in the exercise of its absolute discretion. Performance and service
objectives may be revised by the Committee during the performance period, in
order to take into consideration any unforeseen events or changes in
circumstances.
13. Payment of Awards
At the discretion of the Committee, payment of Awards may be
made in cash, Common Stock, a combination of cash and Common Stock, or any other
form of property as the Committee shall determine.
14. Dividends and Dividend Equivalents
If an Award is granted in the form of Restricted Stock, stock
options, or performance shares, or in the form of any other stock-based grant,
the Committee may, at any time up to the time of payment, include as part of an
Award an entitlement to receive dividends or dividend equivalents, subject to
such terms and conditions as the Committee may establish. Dividends and dividend
equivalents shall be paid in such form and manner (i.e., lump sum or
installments), and at such time as the Committee shall determine. All dividends
or dividend equivalents which are not paid currently may, at the Committee's
discretion, accrue interest, be reinvested into additional shares of Common
Stock or, in the case of dividends or dividend equivalents credited in
connection with performance shares, be credited as additional performance shares
and paid to the Participant if and when, and to the extent that, payment is made
pursuant to such Award.
15. Deferral of Awards
At the discretion of the Committee, the receipt of the payment
of shares of Restricted Stock, performance shares, performance units, dividends,
dividend equivalents, or any portion thereof, may be deferred by a Participant
until such time as the Committee may establish. All such deferrals shall be
accomplished by the delivery of a written, irrevocable election by the
Participant prior to such time payment would otherwise be made, on a form
provided by the Company. Further, all deferrals shall be made in accordance with
administrative guidelines established by the Committee to ensure that such
deferrals comply with all applicable requirements of the Code and its
regulations. Deferred payments shall be paid in a lump sum or installments, as
determined by the Committee. The Committee may also credit interest, at such
rates to be determined by the Committee, on cash payments that are deferred and
credit dividends or dividend equivalents on deferred payments denominated in the
form of Common Stock.
16. Termination of Employment
(a) General Rule. Subject to paragraph 20, if a
Participant's employment with the Company or a Subsidiary terminates for a
reason other than death, disability, retirement, or any approved reason, all
unexercised, unearned or unpaid Awards shall be cancelled or forfeited as the
case may be, unless otherwise provided in this paragraph or in the Participant's
Award Notice. The Committee shall have the authority to promulgate rules and
regulations to (i) determine what events constitute disability, retirement, or
termination for an approved reason for purposes of the Plan, and (ii) determine
the treatment of a Participant under the Plan in the event of his death,
disability, retirement, or termination for an approved reason.
(b) Incentive Stock Options. Unless the Award Notice
provides otherwise, any incentive stock option which has not theretofore
expired, shall terminate upon termination of the Participant's employment with
the Company whether by death or otherwise, and no shares of Common Stock may
thereafter be purchased pursuant to such incentive stock option, except that:
(i) Upon termination of employment (other than
by death), a Participant may, within three months after the date of termination
of employment, purchase all or part of any shares of Common Stock which the
Participant was entitled to purchase under such incentive stock option on the
date of termination of employment.
(ii) Upon the death of any Participant while
employed with the Company or within the three-month period referred to in
paragraph 16(b)(i) above, the Participant's estate or the person to whom the
Participant's rights under the incentive stock option are transferred by will or
the laws of descent and distribution may, within one year after the date of the
Participant's death, purchase all or part of any shares of Common Stock which
the Participant was entitled to purchase under such incentive stock option on
the date of death.
Notwithstanding anything in this paragraph 16(b) to the
contrary, the Committee may at any time within the three-month period after the
date of termination of a Participant's employment, with the consent of the
Participant, the Participant's estate or the person to whom the Participant's
rights under the incentive stock options are transferred by will or the laws of
descent and distribution, extend the period for exercise of the Participant's
incentive stock options to any date not later than the date on which such
incentive stock options would have otherwise expired absent such termination of
employment. Nothing in this paragraph 16(b) shall authorize the exercise of an
incentive stock option after the expiration of the exercise period therein
provided, nor later than ten years after the date of grant.
(c) Non-Qualified Stock Options. Unless the Award
Notice provides otherwise, any non-qualified stock option which has not
theretofore expired shall terminate upon termination of the Participant's
employment with the Company, and no shares of Common Stock may thereafter be
purchased pursuant to such non-qualified stock option, except that:
(i) Upon termination of employment for any
reason other than death, discharge by the Company for cause, or voluntary
resignation of the Participant prior to age 60, a Participant may, within five
years after the date of termination of employment, or any such greater period of
time as the Committee, in its sole discretion, deems appropriate, exercise all
or part of the non-qualified stock option which the Participant was entitled to
exercise on the date of termination of employment or subsequently becomes
eligible to exercise pursuant to paragraph 8(b) above.
(ii) Upon the death of a Participant while
employed with the Company or within the period referred to in paragraph 16(c)(i)
above, the Participant's estate or the person to whom the Participant's rights
under the non-qualified stock option are transferred by will or the laws of
descent and distribution may, within five years after the date of the
Participant's death while employed, or within the period referred to in
paragraph 16(c)(i) above, exercise all or part of the non-qualified stock option
which the Participant was entitled to exercise on the date of death.
Nothing in this paragraph 16(c) shall authorize the
exercise of a non-qualified stock option later than the exercise period set
forth in the Award Notice.
17. Nonassignability
No Award under the Plan shall be subject in any manner to
alienation, anticipation, sale, transfer (except by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order),
assignment, pledge, or encumbrance, except that, unless the Committee specifies
otherwise, all awards of non-qualified stock options or SARs shall be
transferable without consideration, subject to all the terms and conditions to
which such non-qualified stock options or SARs are otherwise subject, to (i)
members of a Participant's immediate family as defined in Rule 16a-1 promulgated
under the Exchange Act, or any successor rule or regulation, (ii) trusts for the
exclusive benefit of the Participant or such immediate family members or (iii)
entities which are wholly-owned by the Participant or such immediate family
members, provided that (x) there may be no consideration for any such transfer,
and (y) subsequent transfers of transferred options shall be prohibited except
those by will or the laws of descent and distribution. Following transfer, any
such options shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, and except as provided in the
next sentence, the term "Participant" shall be deemed to refer to the
transferee. The events of termination of employment of Section 16(c) hereof
shall continue to be applied with reference to the original Participant and
following the termination of employment of the original
Participant, the options shall be exercisable by the transferee only to the
extent, and for the periods specified in Section 16(c), that the original
Participant could have exercised such option. Except as expressly permitted by
this paragraph, an Award shall be exercisable during the Participant's lifetime
only by him.
18. Adjustment of Shares Available
(a) Changes in Stock. In the event of changes in the
Common Stock by reason of a Common Stock dividend, stock split, reverse
stock-split or other combination, appropriate adjustment shall be made by the
Committee in the aggregate number of shares available under the Plan, the number
of shares with respect to which Awards may be granted to any Participant in any
fiscal year, and the number of shares, SARs, performance shares, Common Stock
units and other stock-based interests subject to outstanding Awards, without, in
the case of stock options, causing a change in the aggregate purchase price to
be paid therefor. Such proper adjustment as may be deemed equitable may be made
by the Committee in its discretion to give effect to any other change affecting
the Common Stock.
(b) Changes in Capitalization. In case of a merger
or consolidation of the Company with another corporation, a reorganization of
the Company, a reclassification of the Common Stock of the Company, a spin-off
of a significant asset, or other changes in the capitalization of the Company,
appropriate provision shall be made for the protection and continuation of any
outstanding Awards by either (i) the substitution, on an equitable basis, of
appropriate stock or other securities or other consideration to which holders of
Common Stock of the Company will be entitled pursuant to such transaction or
succession of transactions, or (ii) by appropriate adjustment in the number of
shares issuable pursuant to the Plan, the number of shares covered by
outstanding Awards, the option price of outstanding stock options, the exercise
price of outstanding SARs, the performance or service criteria or performance
period of outstanding performance units, and the performance or service criteria
or performance period of outstanding performance shares, as deemed appropriate
by the Committee.
19. Withholding Taxes
The Company shall be entitled to deduct from any payment under
the Plan, regardless of the form of such payment, the amount of all applicable
income and employment taxes required by law to be withheld with respect to such
payment or may require the participant to pay to it such tax prior to and as a
condition of the making of such payment. Subject to the administrative
guidelines established by the Committee, a Participant may pay the amount of
taxes required by law to be withheld from an Award, in whole or in part, by
requesting that the Company withhold from any payment of Common Stock due as a
result of such Award, or by delivering to the Company, shares of Common Stock
having a Fair Market Value less than or equal to the amount of such required
withholding taxes.
20. Noncompetition Provision
Notwithstanding anything contained in this Plan to the
contrary, unless the Award Notice specifies otherwise, a Participant shall
forfeit all unexercised, unearned, and/or unpaid Awards, including Awards earned
but not yet paid, all unpaid dividends and dividend equivalents, and all
interest, if any, accrued on the foregoing if, (i) in the opinion of the
Committee, the Participant, without the written consent of the Company, engages
directly or indirectly in any manner or capacity as principal, agent, partner,
officer, director, employee, or otherwise, in any business or activity
competitive with the business conducted by the Company or any Subsidiary; or
(ii) the Participant performs any act or engages in any activity which in the
opinion of the Committee is inimical to the best interests of the Company. In
addition, the Committee may, in its discretion, condition the deferral of any
Award, dividend, or dividend equivalent under paragraph 15 hereof on a
Participant's compliance with the terms of this paragraph 20, and cause such a
Participant to forfeit any payment which is so deferred if the Participant fails
to comply with the terms hereof.
21. Amendments to Awards
The Committee may at any time unilaterally amend any
unexercised, unearned, or unpaid Award, including Awards earned but not yet
paid, to the extent it deems appropriate; provided, however, that any such
amendment which is adverse to the Participant shall require the Participant's
consent.
22. Regulatory Approvals and Listings
Notwithstanding anything contained in this Plan to the
contrary, the Company shall have no obligation to issue or deliver certificates
of Common Stock evidencing Awards resulting in the payment of Common Stock prior
to (a) the obtaining of any approval from any governmental agency which the
Company shall, in its sole discretion, determine to be necessary or advisable,
(b) the admission of such shares to listing on the stock exchange on which the
Common Stock may be listed, and (c) the completion of any registration or other
qualification of said shares under any state or federal law or ruling of any
governmental body which the Company shall, in its sole discretion, determine to
be necessary or advisable.
23. No Right to Continued Employment or Grants
Participation in the Plan shall not give any Key Employee any
right to remain in the employ of the Company or any Subsidiary. The Company or,
in the case of employment with a Subsidiary, the Subsidiary, reserves the right
to terminate any Key Employee at any time. Further, the adoption of this Plan
shall not be deemed to give any person any right to be selected as a Participant
or to be granted an Award.
24. Amendment
The Board may suspend or terminate the Plan at any time. In
addition, the Board may, from time to time, amend the Plan in any manner,
provided however, that any such amendment may be subject to stockholder approval
(i) at the discretion of the Board and (ii) to the extent that shareholder
approval may be required by law, including, but not limited to, the requirements
of Rule 16b-3 under the Exchange Act, or any successor rule or regulation.
25. Change in Control and Change in Ownership
(a) Background. All Participants shall be eligible
for the treatment afforded by this paragraph 25 if there is a Change in
Ownership or if their employment terminates within two years following a Change
in Control, unless the termination is due to (i) death; (ii) disability
entitling the Participant to benefits under his employer's long-term disability
plan; (iii) Cause; (iv) resignation by the Participant other than for Good
Reason; or (v) retirement entitling the Participant to benefits under his
employer's retirement plan.
(b) Vesting and Lapse of Restrictions. If a
Participant is eligible for treatment under this paragraph 25, (i) all of the
terms and conditions in effect on any unexercised, unearned, unpaid or deferred
Awards shall immediately lapse as of the Acceleration Date; (ii) no other terms
or conditions shall be imposed upon any Awards on or after such date, and in no
event shall any Award be forfeited on or after such date; and (iii) all of his
unexercised, unvested, unearned and/or unpaid Awards or any other outstanding
Awards shall automatically become one hundred percent (100%) vested immediately
upon such date.
(c) Dividends and Dividend Equivalents. If a
Participant is eligible for treatment under this paragraph 25, all unpaid
dividends and dividend equivalents and all interest accrued thereon, if any,
shall be treated and paid under this paragraph 25 in the identical manner and
time as the Award under which such dividends or dividend equivalents have been
credited. For example, if upon a Change in Ownership, an Award under this
paragraph 25 is to be paid in a prorated fashion, all unpaid dividends and
dividend equivalents with respect to such Award shall be paid according to the
same formula used to determine the amount of such prorated Award.
(d) Treatment of Performance Units and Performance
Shares. If a Participant holding either performance units or performance shares
is eligible for treatment under this paragraph 25, the provisions of this
paragraph (d) shall determine the manner in which such performance units and/or
performance shares shall be paid to him. For purposes of making such payment,
each "current performance period" (defined to mean a performance period or term
of a performance unit or performance share which period or term has commenced
but not yet ended), shall be treated as terminating upon the Acceleration Date,
and for each such "current performance period" and each "completed performance
period" (defined to mean a performance period or term of a performance unit or
performance share which has ended but for which the Committee has not, on the
Acceleration Date, made a determination as to whether and to what degree the
performance or service objectives for such period have been attained), it shall
be assumed that the performance or service objectives have been attained at a
level of one hundred percent (100%) or the equivalent thereof. If the
Participant is participating in one or more "current performance periods," he
shall be considered to have earned and, therefore, to be entitled to receive, a
prorated portion of the Awards previously granted to him for each such
performance period. Such prorated portion shall be determined by multiplying the
number of performance shares or performance units, as the case may be, granted
to the Participant by a fraction, the numerator of which is the total number of
whole and partial years (with each partial year being treated as a whole year)
that have elapsed since the beginning of the performance period, and the
denominator of which is the total number of years in such performance period. A
Participant in one or more "completed performance periods" shall be considered
to have earned and, therefore, be entitled to receive all the performance shares
and performance units previously granted to him during each performance period.
(e) Valuation of Awards. If a Participant is
eligible for treatment under this paragraph 25, his Awards (including those
earned as a result of the application of paragraph 25(d) above) shall be valued
and cashed out on the basis of the Change in Control Price.
(f) Payment of Awards. If a Participant is eligible
for treatment under this paragraph 25, whether or not he is still employed by
the Company or a Subsidiary, he shall be paid, in a single lump sum cash
payment, as soon as practicable but in no event later than 90 days after the
Acceleration Date, for all outstanding Units of Common Stock, Independent and
Combination SARs, stock options (including incentive stock options), performance
units (including those earned as a result of the application of paragraph 25(d)
above), and performance shares (including those earned as a result of paragraph
25(d) above), and all other outstanding Awards, including those granted by the
Committee pursuant to its authority under paragraph 3(h) hereof.
(g) Deferred Awards. If a Participant is eligible
for treatment under this paragraph 25, all deferred Awards for which payment has
not been received as of the Acceleration Date shall be paid in a single lump sum
cash payment as soon as practicable, but in no event later than 90 days after
such date. For purposes of making such payment, the value of all Awards which
are stock-based shall be determined by the Change in Control Price.
(h) Miscellaneous. Upon a Change in Control or a
Change in Ownership, (i) the provisions of paragraphs 16, 20 and 21 hereof shall
become null and void and of no force and effect insofar as they apply to a
Participant who has been terminated under the conditions described in (a) above;
and (ii) no action shall be taken which would affect the rights of any
Participant or the operation of the Plan with respect to any Award to which the
Participant may have become entitled hereunder on or prior to the date of the
Change in Control or Change in Ownership or to which he may become entitled as a
result of such Change in Control or Change in Ownership.
(i) Legal Fees. The Company shall pay all legal fees
and related expenses incurred by a Participant in seeking to obtain or enforce
any payment, benefit or right he may be entitled to under the Plan after a
Change in Control or Change in Ownership; provided, however, the Participant
shall be required to repay any such amounts to the Company to the extent a court
of competent jurisdiction issues a final and non-appealable order setting forth
the determination that the position taken by the Participant was frivolous or
advanced in bad faith.
26. No Right, Title or Interest in Company Assets
No Participant shall have any rights as a stockholder as a
result of participation in the Plan until the date of issuance of a stock
certificate in his name, and, in the case of Restricted Stock, stock options,
performance shares or any other stock-based grant, such rights are granted to
the Participant under paragraph 10(c) hereof. To the extent any person acquires
a right to receive payments from the Company under this Plan, such rights shall
be no greater than the rights of an unsecured creditor of the Company.
AMENDMENT TO THE
NATIONAL FUEL GAS COMPANY
DEFERRED COMPENSATION PLAN
I, Bernard J. Kennedy, pursuant to the authorization granted by the
National Fuel Gas Company Board of Directors on September 19, 1996, do hereby
execute the following amendment to the National Fuel Gas Company Deferred
Compensation Plan for Non-Union Employees (the "DCP"), effective September 19,
1996.
Section 9.2 of the DCP is hereby amended as follows:
Paragraph (b) is deleted and Paragraphs (c) - (e) are hereby relabeled
as paragraphs (b) - (d).
NATIONAL FUEL GAS COMPANY
September 19, 1996 /s/ Bernard J. Kennedy
- ------------------ --------------------------------------
Dated Bernard J. Kennedy
President, Chief Executive Officer and
Chairman of the Board of Directors
AMENDMENT TO
DEATH BENEFITS AGREEMENT
National Fuel Gas Company ("Company"), by action of its Board of
Directors at its September 15, 1993 meeting, authorized the president of the
Company to amend certain existing executive benefit agreements to reflect
compensation that has been or will be provided under the Company's Annual At
Risk Compensation Incentive Program ("AARCIP"). Accordingly, the Company, and
Philip C. Ackerman ("Executive"), do hereby revoke the Amendment to Death
Benefits Agreement dated March 15, 1994, previously executed by the parties
hereto, and substitute therefor this Amendment to Death Benefits Agreement. By
this action, the parties hereby amend the death benefits agreement, dated April
1, 1991, respecting the Executive ("Agreement"), as follows:
1. The following language shall be added at the end of the third
sentence of Article I, paragraph (a) of the Agreement:
"(as is further described in Article II)."
2. Article II, paragraph (a) of the Agreement is hereby amended
and restated to read as follows:
"(a) After the death of the Executive, if the Policy (as
defined in Article III) has not split (see Article IV) before
Executive's death, and death occurs while the Executive is
employed by the Company, the Policy shall pay to the
Beneficiary (i) 24 times the base monthly salary provided by
the Company to the Executive ("Base Monthly Salary") at the
time of Executive's death, plus two times the most recent
annual award under the Company's Annual At Risk Compensation
Incentive Program (AARCIP), or (ii) 24 times the Base Monthly
Salary for the month prior to the Executive's commencement of
retirement, plus two times the most recent annual award to
the Executive under the AARCIP. If the Executive has retired
on disability retirement and becomes reemployed by the
Company, or if the Executive otherwise becomes reemployed by
the Company, the second date of commencement of retirement
shall be used for purposes of computing benefits. The Company
shall then be entitled to recover, out of the Policy's
proceeds and directly from the Policy's insurer, the total of
the premiums paid by the Company on the Policy, less any
distributions to the Company (including loans) on the
Policy."
3. Article II, paragraph (c) of the Agreement is amended and
restated to read as follows:
"An example of the Company's recovery from the Policy's
proceeds hereunder is as follows. Assume that the Company had
paid a total of $350,000 in premiums on the Policy, at the
time Executive died, and the Policy paid death benefits of
<PAGE>
Page 2
$2,000,000, and the Executive's salary were $50,000 per
month. Beneficiary would receive 24 times that amount, or
$1,200,000. And, if the most recent award to the Executive
under the AARCIP were $100,000, Beneficiary would receive two
times that amount, or $200,000. The Company would receive the
$350,000 in premiums and the $250,000 excess, or $600,000 in
total."
In all other respects, the Agreement, and subsequent amendments or
addenda thereto, shall remain unchanged.
In WITNESS WHEREOF, the parties hereto have executed this
amendment at Buffalo, New York, on the 8th day of January, 1996.
NATIONAL FUEL GAS COMPANY
/s/ Robert J. Dauer By: /s/ Bernard J. Kennedy
- ------------------------------ ----------------------------------------
Witness Bernard J. Kennedy
Chairman of the Board of Directors,
President, and Chief Executive Officer
EXECUTIVE
/s/ Robert J. Dauer By: /s/ Philip C. Ackerman
- ------------------------------ ----------------------------------------
Witness Philip C. Ackerman
AMENDMENT TO
DEATH BENEFITS AGREEMENT
National Fuel Gas Company ("Company"), by action of its Board of
Directors at its September 15, 1993 meeting, authorized the president of the
Company to amend certain existing executive benefit agreements to reflect
compensation that has been or will be provided under the Company's Annual At
Risk Compensation Incentive Program ("AARCIP"). Accordingly, the Company, and
Richard Hare ("Executive"), do hereby revoke the Amendment to Death Benefits
Agreement dated March 15, 1994, previously executed by the parties hereto, and
substitute therefor this Amendment to Death Benefits Agreement. By this action,
the parties hereby amend the death benefits agreement, dated April 1, 1991,
respecting the Executive ("Agreement"), as follows:
1. The following language shall be added at the end of the third
sentence of Article I, paragraph (a) of the Agreement:
"(as is further described in Article II)."
2. Article II, paragraph (a) of the Agreement is hereby amended
and restated to read as follows:
"(a) After the death of the Executive, if the Policy (as
defined in Article III) has not split (see Article IV) before
Executive's death, and death occurs while the Executive is
employed by the Company, the Policy shall pay to the
Beneficiary (i) 24 times the base monthly salary provided by
the Company to the Executive ("Base Monthly Salary") at the
time of Executive's death, plus two times the most recent
annual award under the Company's Annual At Risk Compensation
Incentive Program (AARCIP), or (ii) 24 times the Base Monthly
Salary for the month prior to the Executive's commencement of
retirement, plus two times the most recent annual award to
the Executive under the AARCIP. If the Executive has retired
on disability retirement and becomes reemployed by the
Company, or if the Executive otherwise becomes reemployed by
the Company, the second date of commencement of retirement
shall be used for purposes of computing benefits. The Company
shall then be entitled to recover, out of the Policy's
proceeds and directly from the Policy's insurer, the total of
the premiums paid by the Company on the Policy, less any
distributions to the Company (including loans) on the
Policy."
3. Article II, paragraph (c) of the Agreement is amended and
restated to read as follows:
"An example of the Company's recovery from the Policy's
proceeds hereunder is as follows. Assume that the Company had
paid a total of $350,000 in premiums on the Policy, at the
time Executive died, and the Policy paid death benefits of
<PAGE>
Page 2
$2,000,000, and the Executive's salary were $50,000 per
month. Beneficiary would receive 24 times that amount, or
$1,200,000. And, if the most recent award to the Executive
under the AARCIP were $100,000, Beneficiary would receive two
times that amount, or $200,000. The Company would receive the
$350,000 in premiums and the $250,000 excess, or $600,000 in
total."
In all other respects, the Agreement, and subsequent amendments or
addenda thereto, shall remain unchanged.
In WITNESS WHEREOF, the parties hereto have executed this
amendment at Buffalo, New York, on the 8th day of January, 1996.
NATIONAL FUEL GAS COMPANY
/s/ Robert J. Dauer By: /s/ Bernard J. Kennedy
- ------------------------------ ----------------------------------------
Witness Bernard J. Kennedy
Chairman of the Board of Directors,
President, and Chief Executive Officer
EXECUTIVE
/s/ Robert J. Dauer By: /s/ Richard Hare
- ------------------------------ ----------------------------------------
Witness Richard Hare
NATIONAL FUEL GAS COMPANY AND PARTICIPATING SUBSIDIARIES
1996 EXECUTIVE RETIREMENT PLAN TRUST AGREEMENT (II)
<PAGE>
TABLE OF CONTENTS
SECTION 1. Establishment and Title of the Trust..............................2
SECTION 2. Acceptance by the Trustee.........................................3
SECTION 3. Limitation on Use of Funds........................................3
SECTION 4. Duties and Powers of the Trustee with Respect to Investments......6
SECTION 5. Additional Powers and Duties of the Trustee.......................9
SECTION 6. Payments by the Trustee..........................................12
SECTION 7. Third Parties....................................................16
SECTION 8. Taxes, Expenses and Compensation.................................16
SECTION 9. Administration and Records.......................................17
SECTION 10. Removal or Resignation of the Trustee and
Designation of Successor Trustee.................................19
SECTION 11. Enforcement of Trust Agreement and Legal.........................21
SECTION 12. Change in Control Defined........................................21
SECTION 13. Termination......................................................23
SECTION 14. Amendments.......................................................23
SECTION 15. Non-alienation...................................................24
SECTION 16. Communications...................................................24
SECTION 17. Miscellaneous Provisions.........................................25
EXHIBIT A....................................................................28
<PAGE>
NATIONAL FUEL GAS COMPANY AND PARTICIPATING SUBSIDIARIES
1996 EXECUTIVE RETIREMENT PLAN TRUST AGREEMENT (II)
This TRUST AGREEMENT, made and entered into as of
May 10, 1996, by NATIONAL FUEL GAS COMPANY, a corporation organized under the
laws of the State of New Jersey, hereinafter referred to as the "Company", and
MARINE MIDLAND BANK, N. A., a New York banking corporation, hereinafter referred
to as the "Trustee"
W I T N E S S E T H:
WHEREAS, the Company had established an excess benefit plan,
within the meaning of Section 3(36) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), called the National Fuel Gas Company and
Subsidiaries Supplemental Executive Retirement Plan (the "SERP"), for the
benefit of certain employees;
WHEREAS, the Company subsequently established an unfunded plan
of deferred compensation under Section 201(2) of ERISA, which it has called the
National Fuel Gas Company and Participating Subsidiaries 1996 Executive
Retirement Plan (II) (the "Plan"), and has amended the Plan, so that the Plan
provides benefits in addition to and inclusive of those provided under the SERP;
and consequently, the SERP has been terminated effective April 25, 1988;
WHEREAS, the Plan provides for the Company to pay all benefits
from its general assets and does not require it to pay benefits from the assets
of any trust or special or separate fund established by the Company to assure
such payments;
WHEREAS, the Company had established a revocable trust fund to
aid it in meeting its obligations under the SERP, and desires to amend such
trust to aid it in meeting its obligations under the Plan;
<PAGE>
WHEREAS, the Company is concerned that benefits may not be
paid under the Plan in the event of a Change in Control, as defined below, and
wishes to assure payment in such event;
WHEREAS, the Company intends to make contributions to said
trust fund to aid it in meeting its obligations under the Plan, unless and until
said trust fund is revoked by the Company, in which event it shall be returned
to the Company, and to provide for the payment of benefits in the event of a
Change in Control, in which event said trust fund shall immediately become
irrevocable, and such contributions shall be held by the Trustee, and invested,
reinvested and distributed, all in accordance with the provisions of this Trust
Agreement;
WHEREAS, the Trustee shall be under no duty to determine
whether the amount of any contributions is in accordance with the Plan or to
collect or enforce payment of any contribution;
WHEREAS, the trust established by this Trust Agreement is
intended to be a "grantor trust" with the result that the corpus and income of
said trust are treated as assets and income of the Company pursuant to Sections
671 through 679 of the Internal Revenue Code of 1986 (the "Code"); and
WHEREAS, upon the occurrence of a Change in Control, but not
at any time prior thereto, said trust is intended to become a funded "employee
benefit plan", as defined in Section 3(3) of ERISA.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the Company and the Trustee declare and agree as follows:
<PAGE>
SECTION 1. Establishment and Title of the Trust.
1.1 The Company hereby establishes with the Trustee a Trust to
be known as the "National Fuel Gas Company and Participating Subsidiaries 1996
Executive Retirement Plan Trust (II)" (hereinafter referred to as the "Trust"),
consisting of such sums of money and other property acceptable to the Trustee as
from time to time shall be paid or delivered to the Trustee. All such money and
other property, all investments and reinvestments made therewith or proceeds
thereof and all earnings and profits thereon, less all payments and charges as
authorized herein, are hereinafter referred to as the "Trust Fund". The Trust
Fund shall be held by the Trustee IN TRUST and shall be dealt with in accordance
with the provisions of this Trust Agreement; provided, however, that the Company
shall at all times have the power to reacquire the Trust Fund by substituting
readily marketable securities of an equivalent value, net of any costs of
disposition, and such other property shall, following such substitution,
constitute the Trust Fund. Upon the occurrence of a Change in Control, as
defined below, but not at any time prior thereto, the Trust Fund shall, subject
to Section 3.2, be held for the exclusive purpose of providing payments to
Members and defraying reasonable expenses of administration in accordance with
the provisions of this Trust Agreement until all such payments required by this
Trust Agreement have been made.
SECTION 2. Acceptance by the Trustee.
2.1 The Trustee accepts the Trust established under this Trust
Agreement on the terms and subject to the provisions set forth herein, and it
agrees to discharge and perform fully and faithfully all of the duties and
obligations imposed upon it under this Trust Agreement.
<PAGE>
SECTION 3. Limitation on Use of Funds.
3.1 Prior to the occurrence, if any, of a Change in Control,
as defined below, all or any part of the Trust Fund shall be recoverable by the
Company and may be used for any lawful purpose of the Company without regard to
the interests of the Members of the Plan (as the term Members is therein
defined), and the Members shall have no right to any part of the Trust Fund.
However, immediately upon the occurrence, if any, of a Change in Control, no
part of the corpus or income of the Trust Fund shall be recoverable by the
Company, used to provide for borrowing from any lender, or used for any purpose
other than for the exclusive purpose of providing payments to Members in
accordance with the provisions of this Trust Agreement until all such payments
required by this Trust Agreement have been made; provided, however, that (i)
nothing in this Section 3.1 shall be deemed to limit or otherwise prevent the
payment from the Trust Fund of expenses and other charges to the extent provided
for in Sections 8 and 17 of this Trust Agreement and (ii) the Trust Fund shall
at all times be subject to the claims of creditors of the Company and its
subsidiaries to the extent provided for in Section 3.2 of this Trust Agreement.
Notwithstanding any occurrence of a Change in Control, the Company shall at all
times have the power to reacquire the Trust Fund by substituting readily
marketable securities of an equivalent value, net of any costs of disposition,
and such other property shall, following such substitution, constitute the Trust
Fund.
3.2(a) In the event that the Company is either Bankrupt or
Insolvent on or after the occurrence of a Change in Control, as those terms are
defined below, the Trustee shall suspend all payments to Members and apply the
Trust Fund for the benefit of the creditors of the Company only as
<PAGE>
directed by the United States Bankruptcy Court or other court of competent
jurisdiction ("Bankruptcy Court"), and shall, to the maximum extent permitted by
applicable law, be fully protected in doing so.
(b) For purposes of this Trust Agreement, the Company shall be
deemed to be "Bankrupt" if the Trustee has received a copy of a petition, duly
filed by the Company with the Bankruptcy Court, for commencement of a voluntary
case pursuant to Section 301 of the Bankruptcy Reform Act of 1978, as amended
("BRA") or a petition, duly filed against the Company with the Bankruptcy Court
for commencement of an involuntary case pursuant to Section 303 of the BRA,
together with a copy of the Certificate of Filing, acknowledging such filing.
Notwithstanding the foregoing provision of this Section 3.2(b), the Company
shall be deemed to be no longer Bankrupt if the Trustee has received a copy of
an order, duly issued by the Bankruptcy Court and filed with the clerk thereof,
dismissing such voluntary or involuntary case. The Company shall deliver to the
Trustee a copy of any such bankruptcy petition, Certificate of Filing or order
of dismissal within one business day after the date such petition was duly filed
with the Bankruptcy Court or clerk thereof.
(c) For purposes of this Trust Agreement, the Company shall be
deemed to be "Insolvent" if the Trustee has received a copy of: (i) a written
certification, approved by at least two-thirds of the members of the Board of
Directors of the Company and agreed and attested to, under penalties of perjury,
by the Chief Executive Officer of the Company, to the effect that the Company is
not paying its debts (other than debts that are the subject of a bona fide
dispute) as they become due or (ii) a written certification by another party,
under penalties of perjury, that the Company is not paying its debts (other than
such disputed debts) as they become due. Notwithstanding
<PAGE>
the foregoing provisions of this Section 3.2(c), the Company shall be deemed to
be no longer Insolvent if the Trustee has received a copy of the Company's most
recent quarterly (unaudited) condensed consolidated balance sheet ("Interim
Report"), or of its most recent annual (audited) consolidated balance sheet
("Annual Report"), reporting that the Company's total assets exceed its total
liabilities and its current assets exceed its current liabilities as of a date
on or after the date of such written certification. The Company shall deliver to
the Trustee a copy of each Quarterly Report and Annual Report and of any
certification approved by the Board of Directors under the procedures set forth
above in this Section 3.2(c) within one business day after the date such report
is released to anyone not employed by, or affiliated with, the Company or the
date such certification is approved.
SECTION 4. Duties and Powers of the Trustee with Respect to
Investments.
4.1 The Trustee shall invest and reinvest the principal and
income of the Trust Fund and keep the Trust Fund invested, without distinction
between principal and income, in any property, whether real, personal or mixed,
and wherever situate and whether or not productive of income, including, without
limitations municipal bonds, capital, common and preferred stocks and personal,
corporate and governmental or other obligations, whether secured or unsecured,
and including any collective or part interest therein or trust and participating
certificates or other evidences of ownership, part ownership, or part interest
thereof, all without being limited or restricted to investment of a character
authorized for trustees or other fiduciaries
<PAGE>
under any present or future laws and without regard to the proportion any such
property may bear to the entire amount of the Trust Fund.
4.2 The Trustee, in its discretion, may keep such portion of
the Trust Fund in cash equivalents or savings account certificates of deposit
and other types of time or demand deposits with any domestic financial
institution operated, maintained by, or affiliated with the Trustee which bear a
reasonable rate of interest, or in securities of the United States or any agency
or instrumentality thereof, or in other short-term fixed income investments,
including, without limitation, commercial paper, as the Trustee may from time to
time determine to be in the best interests of the Trust Fund; provided, however,
that each such investment shall have a stated maturity of twelve (12) months or
less from the date of purchase by the Trustee.
4.3 Except as otherwise required by applicable law, all assets
of the Plan may be commingled for investment purposes.
4.4(a) The Company may, at any time prior to a Change in
Control, direct the Trustee in writing to segregate all or a specified portion
of the Trust Fund into a separate fund (the "Directed Fund") and invest it in
accordance with the directions of one or more Investment Managers (as defined
below) appointed by the Company. Any Investment Manager so appointed shall be
(i) an investment adviser registered as such under the Investment Advisers Act
of 1940, (ii) a bank, (iii) an insurance company qualified to perform investment
management service, under the laws of more than one state of the United States,
(iv) the Company or (v) any other person acceptable to the Trustee. Unless the
Company is the Investment Manager, the Company shall deliver to the Trustee a
copy of the instruments appointing the Investment
<PAGE>
Manager and evidencing the Investment Manager's acceptance of such appointment.
To the maximum extent permitted by applicable law, the Trustee shall be
protected in assuming that the appointment of an Investment Manager remains in
effect until it is otherwise notified in writing by the Company.
(b) The Trustee shall invest and reinvest the Directed Fund
only to the extent and in the manner directed by the Investment Manager in
writing, including an investment in any open-end or closed-end investment
company or companies, as defined in the Investment Company Act of 1940. In
performing its investment duties, the Investment Manager shall have, with
respect to the Directed Fund, all of the powers of the Trustee listed in
Sections 4 and 5 (other than paragraphs (i) and (1) of Section 5, unless the
Company is the Investment Manager). If the Trustee does not receive written
instructions from an Investment Manager with respect to the Directed Fund, the
Trustee shall, after providing notice to the Investment Manager, invest such
amounts in short-term securities of the United States or any agency or
instrumentality thereof or in one or more investment companies commonly known as
"money market" funds, whether or not managed by Trustee and/or its affiliates,
and with the consent of the Company, in a common fund maintained by the Trustee
for short-term investments. If the Investment Manager resigns, is removed, is no
longer qualified to serve as an Investment Manager under applicable law or upon
a Change in Control, the Trustee shall reassume complete investment
responsibility for the Directed Fund unless and until prior to a Change in
Control, a new qualified Investment Manager is appointed by the Company. Upon a
Change in Control, the Trustee shall notify the Investment Manager in writing
that it is reassuming complete investment responsibility for the Directed Fund.
<PAGE>
(c) Any Investment Manager may, from time to time and at any
time prior to a Change in Control, issue orders for the purchase or sale of
securities directly to a broker or dealer and the Trustee, upon written request
from the Investment Manager, shall execute and deliver appropriate trading
authorization. Written notification of the issuance of each such order shall be
given promptly to the Trustee by the Investment Manager, and the execution of
each such order shall be confirmed by the broker to the Investment Manager and
to the Trustee. Such notification shall be authority to the Trustee to receive
securities purchased against payment therefor and to deliver securities sold
against receipt of the proceeds therefrom as the case may be. Unless the Trustee
participates knowingly in, or knowingly undertakes to conceal, an act or
omission of the Investment Manager, knowing such act or omission to be a breach
of the Investment Manager's responsibilities with respect to the Trust, the
Trustee shall not be liable for any act or omission of the Investment Manager
and shall not be under any obligation to invest or otherwise manage the assets
of the Plan that are subject to the management of the Investment Manager and, to
the maximum extent permitted by applicable law, the Trustee shall have no
liability or responsibility for acting or not acting in accordance with any
written direction of the Investment Manager or, subject to Section 4.4(b),
failing to act in the absence of any such direction. The Company agrees, to the
extent permitted by applicable law, to indemnify the Trustee and hold it
harmless from and against any claim or liability that may be asserted against
it, otherwise than on account of the Trustee's own negligence or willful
misconduct, by reason of the Trustee's taking or refraining from taking any
action in accordance with this Section 4.4, including, without limiting the
generality of the foregoing, any claim or
<PAGE>
liability that may be asserted against the Trustee on account of failure to
receive securities purchased, or failure to deliver securities sold, pursuant to
orders issued by the Investment Manager directly to a broker or dealer.
SECTION 5. Additional Powers and Duties of the Trustee.
5.1 The Trustee shall have the following additional powers and
authority with respect to all property constituting a part of the Trust Fund:
(a) To sell, exchange or transfer any such property at
public or private sale for cash or on credit and
grant options for the purchase or exchange thereof.
(b) To participate in any plan or reorganization,
consolidation, merger, combination, liquidation or
other similar plan relating to any such property, and
to consent to or oppose any such plan or any action
thereunder or any contract, lease, mortgage,
purchase, sale or other action by any corporation or
other entity.
(c) To deposit any such property with any protective,
reorganization or similar committee; to delegate
discretionary power to any such committee; and to pay
part of the expenses and compensation of any such
committee and any assessments levied with respect to
any property so deposited.
(d) To exercise any conversion privilege or subscription
right available in connection with any such property;
to oppose or to consent to the reorganization,
consolidation, merger or
<PAGE>
readjustment of the finances of any corporation
company or association, or to the sale, mortgage,
pledge or lease of the property or any of the
securities which may at any time be held in the Trust
Fund and to do any act with reference thereto,
including the exercise of options, the making of
agreements or subscriptions and the payment of
expenses, assessments or subscriptions, which may be
deemed necessary or advisable in connection
therewith, and to hold and retain any securities or
other property which it may so acquire.
(e) To commence or defend suits or legal proceedings and
to represent the Trust in all suits or legal
proceedings; to settle, compromise or submit to
arbitration, any claims, debts or damages, due or
owing to from the Trust.
(f) To exercise, personally or by general or limited
power of attorney, any right, including the right to
vote, appurtenant to any securities or other such
property.
(g) Subject to Section 5.1(k), to borrow money from any
lender in such amounts and upon such terms and
conditions as shall be deemed advisable or proper to
carry out the purposes of the Trust and to pledge any
securities or other property for the repayment of any
such loan.
(h) To hold any mortgage in its own name or in the name
of a nominee, with or without the addition of words
indicating that such mortgage is held in a fiduciary
capacity, and to
<PAGE>
cause to be formed a corporation, partnership, trust
or other entity to hold title to any mortgage with
the aforesaid powers, all upon such terms and
conditions as may be deemed advisable; to renew or
extend or participate in the renewal or extension of
any mortgage, and to agree to a reduction in the rate
of interest on any mortgage or to any other
modification or change in the terms of any mortgage
or of any guarantee pertaining thereto, in any manner
and of any guarantee pertaining thereto, in any
manner and to any extent that may be deemed advisable
for the protection of the Trust or the preservation
of any covenant or condition of any mortgage or in
the performance of any guarantee, or to enforce any
default in such manner and to such extent as may be
deemed advisable; and to exercise and enforce any and
all rights of foreclosure, to bid on any property on
foreclosure, to take a deed in lieu of foreclosure
with or without paying a consideration therefor and
in connection therewith to release the obligation on
the bond secured by such mortgage, and to exercise
and enforce in any action, suit or proceeding at law
or in equity any rights or remedies in respect of any
such mortgage or guarantee.
(i) To engage any legal counsel, including counsel to the
Company, or any other suitable agents, to consult
with such counsel or agents with respect to the
construction of this Trust Agreement, the duties of
the Trustee hereunder, the
<PAGE>
transactions contemplated by this Trust Agreement or
any act which the Trustee proposes to take or omit,
to rely upon the advice of such counsel or agents,
and to pay its reasonable fees, expenses and
compensation from the Trust unless paid by the
Company.
(j) To register any securities held by it in its own name
or in the name of any custodian of such property or
of its nominee, including the nominee of any system
for the central handling of securities, with or
without the addition of words indicating that such
securities are held in a fiduciary capacity, to
deposit or arrange for the deposit of any such
securities with such a system and to hold any
securities in bearer form.
(k) Upon the written direction of the Company, to enter
into or assume any contract or policy with an
insurance company or companies for the purpose of
investment, insurance coverage or otherwise, to pay
from the Trust Fund premiums, assessments, dues,
charges and interest, if any, with respect to such
contracts or policies, to exercise any and all of the
rights, options or privileges (including, but not
limited to, the right to borrow) under such contracts
or policies, to otherwise take such actions that may
be available under such contracts or policies;
provided, however, that the Trustee shall be the sole
owner of all such contracts held as assets of the
Trust Fund and provided, further, that upon the
occurrence of a Change in
<PAGE>
Control, the Trustee shall, regardless of whether it
has received the written direction of the Company,
(i) cease borrowing additional amounts on all such
contracts or policies and (ii) take all necessary or
appropriate action with respect to such contracts or
policies to liquidate the Trust Fund in accordance
with Section 6.4.
(l) To make, execute and deliver, as Trustee, any and all
deeds, leases, notes, bonds, guarantees, mortgages,
conveyances, contracts, waivers, releases or other
instruments in writing necessary or proper for the
accomplishment of any of the foregoing powers.
SECTION 6. Payments by the Trustee.
6.1 The establishment of the Trust and the payment or delivery
to the Trustee of money or other property acceptable to the Trustee shall not
vest in any Member any right, title or interest in and to any assets of the
Trust Fund or any payments except upon the occurrence, if any, of a Change in
Control, as defined in Section 12.1 below, in which event the right, title and
interest of a Member in any assets of the Trust Fund shall be determined solely
pursuant to Section 6.4 of this Trust Agreement.
6.2 The Company shall from time to time provide the Trustee
with a list of Members, indicating an amount payable to each Member upon such
Member's termination of employment for any reason following the occurrence, if
any, of a Change in Control, as of the dates therein indicated and subject to
adjustments as therein indicated. This document shall be called the "Payment
<PAGE>
Schedule". Prior to the occurrence, if any, of a Change in Control, the Company
may from time to time add or delete Members or change the amounts payable to
Members by substituting a new Payment Schedule. In the event of the occurrence
of a Change in Control, the Company may not modify, revoke or alter the Payment
Schedule, or substitute a new Payment Schedule, if the effect of such
modification, revocation, alteration or substitution would be to delete, or
reduce the amount payable to, any Member, or by adding, or increasing the amount
payable to, any Member, reduce the ratio which the aggregate fair market value
of the Trust Fund bears to the aggregate amount payable to Members below one.
6.3 Prior to the occurrence, if any, of a Change in Control,
and with respect to any amounts remaining in the Trust Fund after the payments
required by Section 6.4 of this Trust Agreement following the occurrence of a
Change in Control have been made, the Trustee shall make such payments from the
Trust Fund at such time or times to such person or persons, including the
Company, at such addresses and in such amounts-and for such purposes as the
Company shall specify; the Trustee shall not make any such payments from the
Trust Fund without the written direction of the Company (except as may otherwise
be required by a court having competent jurisdiction) even though it may be
informed from another source (including a Member) that payments are due under
the Plan. The Trustee shall, to the maximum extent permitted by applicable law,
be fully protected in acting upon any such written direction of the Company (or
the failure to give such written direction) pursuant to this Section 6.3, and
shall have no duty to determine the rights of any person in the Trust Fund or
under the Plan or to inquire into the right or power of the Company to grant any
payment to a Member or to direct any such payment.
<PAGE>
6.4(a) In the event of the occurrence of a Change in Control,
the amount specified, and/or determined from the formulae and adjustments
contained, in the Payment Schedule then in effect, shall, subject to Section
6.4(d), be paid by the Trustee to each Member listed thereon as a former
employee of the Company (or to the Beneficiary designated on the Payment
Schedule or, absent such a designation, to the legal representative of his or
her estate if the Member shall not then be living) in a cash lump sum, all as
further indicated in the Plan. The Trustee shall file with the Company a written
report of such payment within 15 days after making the payment.
(b) In the event of the termination, for any reason and at any
time following the occurrence of a Change in Control, of the Company's
employment of any Member listed on the Payment Schedule as an employee of the
Company, the amount specified, and/or determined from the formulae and
adjustments contained, in the Payment Schedule then in effect, shall, subject to
Section 6.4(d), be paid by the Trustee to the Member (or to the Beneficiary
designated on the Payment Schedule or, absent such a designation, to the legal
representative of his or her estate, if the Member shall not then be living) in
a cash lump sum, all as further indicated in the Plan, against delivery by the
Member to the Trustee of two duly executed and notarized Affidavits and Receipts
in substantially the form attached hereto as Exhibit A (or delivery by the
Beneficiary designated on the Payment Schedule or, absent such a designation, to
the legal representative of the Member's estate, if the Member shall not then be
living, of two copies of the Member's death certificate). The Trustee shall send
one Affidavit and Receipt (or one copy of the death certificate) to the Company
within 15 days after payment is made to each such Member.
<PAGE>
(c) Notwithstanding anything contained in Section 6.4(a) or
6.4(b) to the contrary, if, at any time after the occurrence, if any, of a
Change in Control, the Trust finally is determined by the Internal Revenue
Service (the "IRS") not to be a "grantor trust" with the result that the income
of the Trust Fund is not treated as income of the Company pursuant to Sections
671 through 679 of the Code, or if a tax is finally determined by the IRS or by
counsel to the Trustee, to be payable by one or more Members in respect of any
right, title or interest in any assets of the Trust Fund prior to termination of
employment with the Company, then the amount specified, and/or determined from
the formulae and adjustment contained, in the Payment Schedule then in effect,
shall, subject to Section 6.4(d), be paid by the Trustee in a cash lump sum as
soon as practicable to each Member thereon, regardless of whether such Member's
employment with the Company has terminated and without the necessity of
presentation of an Affidavit and Receipt (or death certificate).
(d) If the Trustee holds life insurance contracts or policies
on the life of any Member, the Member may elect (with the consent of the
Company)- in writing under procedures adopted by the Trustee to have such
contracts or policies assigned to him or her and distributed to such Member in
satisfaction of that portion of the cash lump sum payment the Member would
otherwise be entitled under Section 6.4(a), 6.4(b) or 6.4(c) that such contracts
or policies represent. Subject to and to the extent consistent with the
foregoing sentence of this Section 6.4(d), if the Trustee determines that the
Trust Fund is insufficient to provide for payment to one or more Members of the
full amount in accordance with the foregoing provisions of this Section 6.4, the
amount to be paid to each such Member at that time shall be reduced in
proportion to the ratio which the aggregate fair market value of the Trust
<PAGE>
Fund bears to the aggregate amount otherwise payable at that time to such
Members, and any Member who thereafter presents an Affidavit and Receipt (or on
behalf of whom a death certificate is thereafter presented) to the Trustee shall
not be entitled to any payment from the Trust Fund.
(e) The Trustee shall, to the maximum extent permitted by
applicable law, be fully protected in making payments pursuant to this Section
6.4.
6.5 The Trustee shall deduct from each payment under Section
6.3 or 6.4 any federal, state or local withholding or other taxes or charges
which the Trustee is from time to time required to deduct under applicable laws
with respect to payments to a Member or Beneficiary.
SECTION 7. Third Parties.
7.1 A third party dealing with the Trustee shall not be
required to make inquiry as to the authority of the Trustee to take any action
nor be under any obligation to follow the proper application by the Trustee of
the proceeds of sale of any property sold by the Trustee or to inquire into the
validity or propriety of any act of the Trustee.
SECTION 8. Taxes, Expenses and Compensation.
8.1 The Company shall from time to time pay taxes of any and
all kinds whatsoever which at any time are lawfully levied or assessed upon or
become payable in respect of the Trust Fund, the income or any property forming
a part thereof, or any security transaction pertaining thereto. To the extent
that any taxes lawfully levied or assessed upon the Trust Fund are not paid by
the Company, the Trustee shall pay such taxes out of the Trust Fund, provided,
however, that in the event of the occurrence of a Change in
<PAGE>
Control, no taxes (other than applicable withholding taxes and charges pursuant
to Section 6.5 and such other taxes relating to the Trust Fund for which the
Trustee has been assessed by the appropriate federal, state or local taxing
authority) shall be paid from the Trust Fund. The Trustee shall contest the
validity of such taxes in any manner deemed appropriate by the Company or its
counsel, but at Company expense, or the Company may itself contest the validity
of any such taxes.
8.2 Any other reasonable expenses incurred by the Trustee in
the performance of its duties under this Trust Agreement, including brokerage
commissions, shall be charged against and paid from the Trust Fund to the extent
that the Company does not elect to pay such expenses.
8.3 The Company will pay the Trustee such reasonable
compensation for its services-as may be agreed upon in writing from time to time
by the Company and the Trustee. Such compensation shall be charged against and
paid from the Trust Fund to the extent the Company does not pay such
compensation.
SECTION 9. Administration and Records.
9.1 The Trustee shall keep or cause to be kept accurate and
detailed accounts of any investments, receipts, disbursements and other
transactions hereunder, and all accounts, books and records relating thereto
shall be open to inspection and audit at all reasonable times by any person
designated by the Company. All such accounts, books and records shall be
preserved (in original form, or on microfilm, magnetic tape or any other similar
process) for such period as the Trustee may determine, but the Trustee may only
destroy such accounts, books and records after first notifying the
<PAGE>
Company in writing of its intention to do so and transferring to the Company any
of such accounts, books and records requested.
9.2 Within 60 days after the close of each calendar year, and
within 60 days after the removal or resignation of the Trustee or the
termination of the Trust, the Trustee shall file with the Company a written
account setting forth all investments, receipts, disbursements and other
transactions effected by it during the preceding calendar year or during the
period from the close of the preceding calendar year to the date of such
removal, resignation or termination, including a description of all investments
and securities purchased and sold with the cost or net proceeds of such
purchases or sales and showing all cash, securities and other property held at
the end of such calendar year or other period. Upon the expiration of 90 days
from the date of filing such annual or other account, the Trustee shall, to the
maximum extent permitted by applicable law, be forever released and discharged
from all liability and accountability with respect to the propriety of its acts
and transactions shown in such account except with respect to any such acts or
transactions as to which the Company shall within such 90-day period file with
the Trustee written objections.
9.3 The Trustee shall from time to time permit an independent
public accountant selected by the Company (except one to whom the Trustee has
reasonable objection) to have access during ordinary business hours to such
records as may be necessary to audit the Trustee's accounts.
9.4 As of the last day of each calendar year, the fair market
value of the assets held in the Trust Fund shall be determined. The Trustee
shall file with the Company the written report of the determination of such fair
market value of the assets held in the Trust Fund.
<PAGE>
9.5 Nothing contained in this Trust Agreement shall be
construed as depriving the Trustee or the Company of the right to have a
judicial settlement of the Trustee's accounts, and upon any proceeding for a
judicial settlement of the Trustee's accounts or for instructions the only
necessary party thereto in addition to the Trustee shall be the Company.
9.6 In the event of the removal or resignation of the Trustee,
the Trustee shall deliver to the successor trustee all records which shall be
required by the successor trustee to enable it to carry out the provisions of
this Trust Agreement.
9.7 In addition to any returns required of the Trustee by law,
the Trustee shall prepare and file such tax reports and other returns as the
Company and the Trustee may from time to time agree.
SECTION 10. Removal or Resignation of the Trustee and
Designation of Successor Trustee.
10.1 At any time prior to the occurrence, if any, of a Change
in Control, as defined below, the Company may remove the Trustee with or without
cause, upon at least 60 days' notice in writing to the Trustee. At any time
after the occurrence of a Change in Control, the Trustee may not be removed
except by order of a court having competent jurisdiction.
10.2 The Trustee may resign at any time upon at least 60 days'
notice in writing to the Company.
10.3 In the event of such removal or resignation, the Trustee
shall duly file with the Company a written account as provided in Section 9.2
above for the period since the last previous annual accounting, listing the
investments of the Trust and any uninvested cash balance thereof, and setting
forth all receipts, disbursements, distributions and other transactions
<PAGE>
respecting the Trust not included in any previous account, and if written
objections to such account are not filed as provided in Section 9.2, the Trustee
shall, to the maximum extent permitted by applicable law, be forever released
and discharged from all liability and accountability with respect to the
propriety of its acts and transactions shown in such account.
10.4 Within 60 days after any such notice of removal or
resignation of the Trustee, the Company shall designate a successor Trustee
qualified to act hereunder; provided, however, if the Trustee resigns at any
time on or after the occurrence of a Change in Control, then the successor
Trustee qualified to act hereunder shall be any bank, trust company or other
financial institution that may serve as Trustee under applicable law that is
acceptable to at least fifty percent (50%) of the members of the Company's board
of directors immediately before the Change in Control then living and readily
available and willing to make such decision. Each such successor Trustee, during
such period as it shall act as such, shall have the powers and duties herein
conferred upon an individual Trustee, and the word "Trustee" wherever used
herein, except where the context otherwise requires, shall be deemed to include
any successor Trustee. Upon designation of a successor Trustee and delivery to
the resigned or removed Trustee of written acceptance by the successor Trustee
of such designation, such resigned or removed Trustee shall promptly assign,
transfer, delivery and pay over to such Trustee, in conformity with the
requirements of applicable law, the funds and properties in its control or
possession then constituting the Trust Fund.
<PAGE>
SECTION 11. Enforcement of Trust Agreement and Legal
Proceedings.
11.1 The Company shall have the right to enforce any provision
of this Trust Agreement, and, on or after the occurrence, if any, of a Change in
Control, as defined below, any Member shall have the right as a beneficiary of
the Trust to enforce any provision of this Trust Agreement that affects the
right, title and interest of such Member in the Trust. Except to the extent
provided in Section 3.2 or as otherwise required by applicable law, in any
actions or proceedings affecting the Trust, the only necessary parties shall be
the Company, the Trustee and, on or after the occurrence of a Change in Control,
the Members and, except as otherwise required by applicable law, no other person
shall be entitled to any notice or service of process. Any judgment entered in
such an action or proceeding shall, to the maximum extent permitted by
applicable law, be binding and conclusive on all persons having or claiming to
have any interest in the Trust.
11.2 In the event the Trustee receives notification pursuant
to Section 3.2 that the Company is Bankrupt or Insolvent, the Trustee shall
promptly give notice thereof in writing to all Members listed on the Payment
Schedule then in effect as soon as it is reasonably practicable.
SECTION 12. Change in Control Defined.
12.1 The term, "Change in Control", shall mean the
happening of any of the following:
(a) The acquisition by any party or parties of the
beneficial ownership of 30% or more of the voting
shares of the Company; or
<PAGE>
(b) The occurrence of a transaction requiring
shareholders' approval for the acquisition of the
Company through purchase of stock or assets, or by
merger, or otherwise; or
(c) The election during any period of 24 months, or less,
of 40% or more, of the members of the Board of
Directors of the Company (the "Board"), without the
approval of three-fourths of the Board members as
constituted at the beginning of the period.
Notwithstanding the foregoing definition, no Change
in Control shall be deemed to have occurred for
purposes of this Trust Agreement unless and until the
Trustee has actual knowledge from a reliable source,
not including a Member acting in his or her
individual capacity, of such Change in Control. For
this purpose, a written notarized statement that a
Change in Control has occurred that is delivered to
the Trustee and is signed by at least fifty percent
(50%) of the individuals then living who were members
of the Company's board of directors as of any date
during the one-year period ending on the date such
notice is received by the Trustee shall be deemed to
be actual knowledge from a reliable source, and a
report filed with the Securities and Exchange
Commission, a public statement issued by the Company,
or a periodical of general circulation, including but
not limited to The New York Times or The Wall Street
Journal, shall be deemed to be a
<PAGE>
reliable source, regardless of the manner in which
such report of a Change in Control is made known to
the Trustee.
SECTION 13. Termination.
13.1 Prior to the occurrence, if any, of a Change in Control,
and with respect to any amounts remaining in the Trust Fund after the payments
required by Section 6.4 of this Trust Agreement following the occurrence of a
Change in Control have been made, the Company may terminate this Trust without
the approval of any Member at any time upon 30 days' notice in writing to the
Trustee. Upon receipt by the Trustee of such notice of termination of the Trust,
the Trustee shall, with reasonable promptness after receipt of any such notice,
arrange for the orderly distribution of the Trust property, or such remaining
amounts thereof, in accordance with the written instructions of the Company
which shall be given in conformity with the provisions of applicable law.
SECTION 14. Amendments.
14.1 At any time prior to the occurrence of a Change in
Control, the Company may from time to time amend or modify, in whole or in part,
any or all of the provisions of this Trust Agreement with the written consent of
the Trustee but without the consent of any Member.
14.2 At any time on or after the occurrence of a Change in
Control, the Trust may not be amended by the Company or its successor except as
may be required by applicable law.
14.3 The Company and the Trustee shall execute such
supplements to, or amendments of, this Trust Agreement as shall
<PAGE>
be necessary to give effect to any such amendment or modification.
SECTION 15. Non-alienation.
15.1 Except as provided in Section 3.2 or insofar as
applicable law may otherwise require, (i) no amount payable to or in respect of
any Member at any time under the Trust shall be subject in any manner to
alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge,
attachment, charge or encumbrance of any kind, and any attempt to so alienate,
sell, transfer, assign, pledge, attach, charge or otherwise encumber any such
amount, whether presently or thereafter payable, shall be void; and (ii) the
Trust Fund shall in no manner be liable for or subject to the debts or
liabilities of any Member.
SECTION 16. Communications.
16.1 Communications to the Company shall be addressed to the
Company at 10 Lafayette Square, Buffalo, New York, 14203, Attention: General
Counsel; provided, however, that upon the Company's written request, such
communications shall be sent to such other address as the Company may specify.
16.2 Communications to the Trustee shall be addressed to it at
One Marine Midland Center, Buffalo, New York, 14203, provided, however, that
upon the Trustee's written request, such communications shall be sent to such
other address as the Trustee may specify.
16.3 No communication shall be binding on the Trustee until it
is received by the Trustee, and no communication shall be binding on the Company
until it is received by the Company.
16.4 Any action of the Company pursuant to this Trust
Agreement, including all orders, requests, directions, instructions, approvals
and
<PAGE>
objections of the Company to the Trustee, shall be in writing signed on behalf
of the Company by any duly authorized officer of the Company. The Trustee may
rely on, and will be fully protected with respect to any such action taken or
omitted in reliance on, any information, order, request, direction, instruction,
approval, objection list and Payment Schedule delivered to the Trustee by the
Company or, to the extent applicable under this Trust Agreement, by a Member or
the legal representatives of his or her estate.
SECTION 17. Miscellaneous Provisions.
17.1 This Trust Agreement shall be binding upon and inure to
the benefit of the Company and the Trustee and their respective successors and
assigns.
17.2 The Company shall pay and shall protect, indemnify and
save harmless the Trustee and its officers, employees and agents from and
against any and all losses, liabilities (including liabilities for penalties),
actions, suits, judgments, demands, damages, costs and expenses (including,
without limitation, attorneys' fees and expenses) of any nature arising from or
relating to any action by or any failure to act by the Trustee, its officers,
employees and agents or the transactions contemplated by this Agreement,
including, but not limited to, any claim made by a Member or his or her
Beneficiary with respect to payments made or to be made by the Trustee, any
claim made, whether before or after a Change in Control, by the Company or its
successor, whether pursuant to a sale of assets, merger, consolidation,
liquidation or otherwise, that this Trust Agreement is invalid or ultra vires,
except to the extent that any such loss, liability, action, suit, judgment,
demand, damage, cost or expense has been determined by final judgment of a
<PAGE>
court of competent jurisdiction to be the result of the gross negligence or
willful misconduct of the Trustee, its officers, employees or agents. To the
extent that the Company has not fulfilled its obligations under the foregoing
provisions of this Section, the Trustee shall be reimbursed out of the assets of
the Trust Fund or may set up reasonable reserves for the payment of such
obligations. To the maximum extent permitted by applicable law, no personal
liability whatsoever shall attach to or be incurred by any employee, officer or
director of the Company, as such, under or by reason of the terms or conditions
contained in or implied from this Trust Agreement.
17.3 The Trustee assumes no obligation or responsibility with
respect to any action required by this Trust Agreement on the part of the
Company.
17.4 Any corporation into which the Trustee may be merged or
with which it may be consolidated, or any corporation resulting from any merger,
reorganization or consolidation to which the Trustee may be a party, or any
corporation to which all or substantially all the trust business of the Trustee
may be transferred shall be the successor of the Trustee hereunder without the
execution or filing of any instrument or the performance of any act.
17.5 Titles to the Sections of this Trust Agreement are
included for convenience only and shall not control the meaning or
interpretation of any provision of this Trust Agreement.
17.6 To the maximum extent consistent with ERISA, this Trust
Agreement and the Trust established hereunder shall be governed by and
construed, enforced and administered in accordance with the laws of the State of
New York and the Trustee shall be liable to account only in the courts of that
state.
<PAGE>
17.7 This Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed to be the original although the
others shall not be produced.
IN WITNESS WHEREOF, this Trust Agreement has been duly
executed by the parties hereto as of the day and year first above written.
NATIONAL FUEL GAS COMPANY
By: /s/ Philip C. Ackerman
-----------------------------------------
Name: Philip C. Ackerman
---------------------------------------
Title: Vice President
--------------------------------------
Attest:
/s/ A. M. Cellino
- -------------------------
Secretary
MARINE MIDLAND BANK, N. A.
as TRUSTEE
By: /s/ Susan Wesolowski
-----------------------------------------
Name: Susan Wesolowski
---------------------------------------
Title: Vice President - Trust Administration
--------------------------------------
Attest:
/s/ Joseph M. Rizzuto
- -------------------------
Trust Officer
<PAGE>
EXHIBIT A
AFFIDAVIT AND RECEIPT
I, __________________________, under penalties of perjury, do
hereby solemnly state:
That I make this Affidavit in order to induce the Trustee of
the National Fuel Gas Company and Participating Subsidiaries Executive
Retirement Plan Trust to pay me $______________ pursuant to its terms: and
That my employment with the National Fuel Gas Company or any
of its subsidiaries was terminated on ___________________.
-----------------------------------------
Participant
STATE OF )
) SS:
COUNTY OF )
On the _______ day of ___________________, 19____ before me
personally came _________________________ to me known, who, being by me duly
sworn, did depose and say that __he resides at
- ----------------------------------------------------,
and that the statements herein are all materially correct.
------------------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
) SS:
COUNTY OF ERIE )
On the 3rd day of May, 1996, before me personally came
P. C. Ackerman, to me known, who, being by me duly sworn, did depose and say
that he resides in the town of Orchard Park, New York; that he is the Senior
Vice President of NATIONAL FUEL GAS COMPANY, one of the corporations described
in and which executed the foregoing instrument; and that he signed his name
thereto by order of the Board of Directors of said corporation.
/s/ Sarah J. Mugel
------------------------------------------
Notary Public
STATE OF NEW YORK )
) SS:
COUNTY OF ERIE )
On the 13th day of May, 1996, before me personally came
me personally came Susan Wesolowski to me known, who, being by me duly sworn,
did depose and say that she resides in Getzville, NY; that she is a Vice
President of MARINE MIDLAND BANK, one of the corporations described in
and which executed the foregoing instrument; and that she signed his/her name
thereto by order of the Board of Directors of said corporation.
/s/ Barbara J. Caldwell
-------------------------------------------
Notary Public
ADMINISTRATIVE RULES WITH RESPECT TO
AT RISK AWARDS UNDER THE 1993 AWARD AND OPTION PLAN
1. DEFINITIONS
As used with respect to At Risk Awards, the following terms shall have the
following meanings:
(a) "At Risk Award" means an award granted by the Committee to a
Participant under the 1993 Plan, and entitling the Participant to a cash payment
based upon the extent to which specified Performance Goals are attained for a
specified Performance Period, pursuant to such terms and conditions as the
Committee may establish in an Award Notice. No Eligible Employee may receive
more than one At Risk Award under the 1993 Plan in any fiscal year. In no event
will the maximum value of any At Risk Award to any Eligible Employee in any
fiscal year exceed 50% of that employee's base salary for that fiscal year. An
At Risk Award may be granted singly, in combination or in the alternative with
other Awards granted under the 1993 Plan or other Company benefit plans.
(b) "Committee" means the Compensation Committee of the Board, or such
other committee designated by the Board as authorized to administer the 1993
Plan with respect to At Risk Awards. The Committee shall consist of not less
than two members, each of whom shall be "outside directors" as defined by
Section 162(m) of the Code and the rules, regulations and interpretations
promulgated thereunder, as amended from time to time.
(c) "Eligible Employee" means those employees of the Company or its
Subsidiaries who are expected to constitute "covered employees" within the
meaning of Section 162(m) of the Code for the applicable fiscal year(s), and any
other Key Employee to whom an At Risk Award has been granted by the Committee.
(d) "Performance Period" means the period established by the Committee in
the Award Notice, for measurement of the extent to which a Performance Goal has
been satisfied.
(e) "Performance Goal" means the performance objectives of earnings per
share, Subsidiary net income and customer service/other goals, established by
the Committee for each Eligible Employee who receives an At Risk Award.
(f) "1993 Plan" means the National Fuel Gas Company 1993 Award and Option
Plan as approved by the stockholders at the 1993 Annual Meeting of Stockholders,
as amended from time to time.
2. ADMINISTRATION
Within the limits of the 1993 Plan, with respect to At Risk Awards the
Committee is given full authority to (a) make reasonable, good faith
interpretations of the Plan and of Section 162(m) of the Code, to the extent not
addressed by regulation, proposed regulation or publicly available
interpretation of the Internal Revenue Service; (b) determine who shall be
Eligible Employees and select Eligible Employees to receive At Risk Awards; (c)
determine all the other terms and conditions of an At Risk Award, including the
time or times of making At Risk Awards to Eligible Employees, the Performance
Period, Performance Goals, and levels of At Risk Awards to be earned in relation
to levels of achievement of the Performance Goals, and such other measures as
may be necessary or desirable to achieve the purposes of the 1993 Plan; (d)
determine whether At Risk Awards are to be granted singly, in combination or in
the alternative with other Awards under the 1993 Plan or awards under other
Company benefit plans; (e) grant waivers of 1993 Plan terms and conditions,
provided that any such waiver shall not be inconsistent with Section 162(m) of
the Code and the rules, regulations and interpretations promulgated thereunder,
as amended from time to time; and (f) accelerate the vesting, exercise or
payment of any At Risk Award or the Performance Period of an At Risk Award when
any such action would not cause compensation paid or payable under such At Risk
Award to cease to be deductible by the Company for federal income tax purposes.
The Committee shall also have the authority to grant At Risk Awards in
replacement of Awards previously granted under the 1993 Plan or awards under any
other executive compensation or stock option plan of the Company or a
Subsidiary.
All determinations of the Committee shall be made by a majority of its
members, and its determinations shall be final, binding and conclusive. The
Committee, in its discretion, may delegate its authority and duties under the
1993 Plan with respect to At Risk Awards to the Company's Chief Executive
Officer or to other senior officers of the Company, but only to the extent, if
any, permitted by Section 162(m) of the Code and notwithstanding any other
provision of the 1993 Plan or an Award Notice, under such conditions as the
Committee may establish.
3. GRANT OF AT RISK AWARDS
At Risk Awards may be made for each of the fiscal years of the Company
commencing with the 1995 fiscal year; provided, however, that At Risk Awards for
a fiscal year may only be made within the time allowed under Section 162(m) of
the Code and the rules, regulations and interpretations promulgated thereunder,
as amended from time to time, applicable to such fiscal year.
4. PAYMENT OF AT RISK AWARDS
Each At Risk Award granted to an Eligible Employee shall entitle such
Eligible Employee to receive a cash payment based upon the extent to which such
Eligible Employee's Performance Goals for a particular Performance Period are
attained, as specified by the Committee in the Award Notice and certified in
writing by the Committee that such Eligible Employee's Performance Goals have
been attained. Payment of earned At Risk Awards shall be made in cash promptly
after such certification.
5. TERMINATION OF EMPLOYMENT, RETIREMENT, OR DEATH OF PARTICIPANT
(a) General Rule. Subject to Section 16 of the 1993 Plan, if an Eligible
Employee's employment with the Company or a Subsidiary terminates for a reason
other than death, disability, retirement, or any approved reason, all unearned
or unpaid At Risk Awards shall be canceled or forfeited as the case may be,
unless otherwise provided in this Section or in the Eligible Employee's Award
Notice.
(b) In the event of the disability, retirement or termination for an
approved reason of an Eligible Employee during a Performance Period, his
participation shall be deemed to continue to the end of the Performance Period,
and he shall be paid a percentage of the amount earned, if any, according to the
terms of the At Risk Award, proportionate to his period of active service during
that Performance Period.
(c) In the event of the death of an Eligible Employee during a Performance
Period, the Eligible Employee's designated beneficiary (or if none, then the
Eligible Employee's estate) shall be paid an amount proportionate to the period
of active service during the Performance Period, based upon the maximum amount
which could have been earned under the At Risk Award.
6. AMENDMENTS TO AT RISK AWARDS
The Committee may, at any time, unilaterally amend any unearned or unpaid
At Risk Award, including At Risk Awards earned but not yet paid, to the extent
it deems appropriate; provided, however, that any such amendment which is
adverse to the Eligible Employee shall require the Eligible Employee's consent;
and provided further, however, that the Committee shall have no authority to
make any amendment which would cause compensation paid or payable under the At
Risk Award to cease to be deductible by the Company for federal income tax
purposes.
7. AMENDMENT TO RULES
Subject to the stockholder approval requirements of Section 162(m) of the
Code, the Committee may, from time to time, amend these Administrative Rules
with respect to At Risk Awards in any manner.
8. CHANGE IN CONTROL AND CHANGE IN OWNERSHIP
If an Eligible Employee holding an At Risk Award is eligible for treatment
under Section 25 of the 1993 Plan, the provisions of this paragraph shall
determine the manner in which such At Risk Award shall be paid to him. For
purposes of making such payment, each "current performance period" (defined to
mean a Performance Period which period has commenced but not yet ended), shall
be treated as terminating upon the Acceleration Date, and for each such "current
performance period" and each "completed performance period" (defined to mean a
Performance Period which has ended but for which the Committee has not, on the
Acceleration Date, made a determination as to whether and to what degree the
Performance Goals for such period have been attained), it shall be assumed that
the Performance Goals have been attained at a level of 100% or the equivalent
thereof. If the Eligible Employee is participating in one or more "current
performance periods," he shall be considered to have earned and, therefore, to
be entitled to receive, a prorated portion of the At Risk Awards previously
granted to him for each such Performance Period. Such prorated portion shall be
determined by multiplying 100% of the At Risk Award granted to the Eligible
Employee by a fraction, the numerator of which is the total number of whole and
partial years (with each partial year being treated as a whole year) that have
elapsed since the beginning of the Performance Period, and the denominator of
which is the total number of years in such Performance Period. An Eligible
Employee in one or more "completed performance periods" shall be considered to
have earned and, therefore, be entitled to receive 100% of the At Risk Awards
previously granted to him during each Performance Period.
9. SAVINGS PROVISION
These Administrative Rules with respect to At Risk Awards are intended to
comply with all the applicable conditions of Section 162(m) of the Code, so that
compensation paid or payable hereunder shall constitute qualified
"performance-based compensation" thereunder. To the extent any provision of
these Administrative Rules with respect to At Risk Awards or any action by the
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law.
10. EFFECTIVE DATE
Upon approval by the stockholders of the Company as required by Section
162(m) of the Code, these Administrative Rules with respect to At Risk Awards
shall become effective as of December 7, 1994.
ADMINISTRATIVE
RULES OF THE
COMPENSATION COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
NATIONAL FUEL GAS COMPANY
Adopted 12/4/93 1993,
Retroactively to February 18, 1993
As Amended through December 11, 1996
I. MEETINGS
Each meeting ("Meeting") of the Compensation Committee
("Committee") of the Board of Directors of National Fuel Gas Company ("Company")
shall be held as indicated in notice made in accordance with these rules. Notice
of each Meeting, stating the place, date and hour thereof, shall be given to
each member of the Committee ("Member") by mailing written notice not less than
five days before the Meeting to each Member, or by telegraphing, telephoning or
delivering oral or written notice to each Member personally not less than one
day before the Meeting.
Any one or more Members of the Committee may participate in a
Meeting by means of a conference telephone or similar equipment. Participation
by such means shall constitute presence in person at a Meeting.
The Committee may also take action by unanimous written
consent.
II. QUORUM AND VOTING; DELEGATION
At all Meetings a quorum shall be required for the transaction
of business and shall consist of a majority of the entire Committee. The
majority vote of the Members at a Meeting at which a quorum is present shall
decide any question that may come before the meeting.
Consistently with limitations imposed by the Plans, the
Committee may delegate in these rules or by resolution any or all of its
authority to the Chief Executive Officer, to the Secretary and to any other
officer of the Company (individually, "Delegate"), so long as the Delegate has
no potential conflict of interest which would cause him not to exercise his good
faith independent business judgment in respect of a delegated matter, and so
long as such delegation would not result in the requirement under applicable law
that the Delegate's name appear beneath the Committee's report required to be
included in Company filings with the Securities and Exchange Commission. Subject
to such limitations, the Committee hereby delegates the power to implement its
decisions to appropriate officers of the Company.
III. GRANTS AND AWARDS UNDER THE PLANS
The following rules and regulations shall apply with respect
to grants and awards of stock options, stock appreciation rights ("SARs") and
shares of restricted stock ("Restricted Stock") under the Company's 1993 Award
and Option Plan ("1993 Plan"), 1984 Stock Plan ("1984 Plan") and 1983 Incentive
Stock Option Plan ("1983 Plan") (collectively, the "Plans") These rules also
address other Awards under the 1993 Plan.
Any capitalized term not defined in these rules shall have the
same meaning as in the applicable Plan. The following rules are intended to
supplement the Plans and, to the extent that any rule is determined to be
inconsistent with any Plan, the Plan shall control.
These rules may be amended by the Committee at any time and
from time to time. Except to the extent otherwise specified in the particular
Award Notice or at the time these rules are amended, any grant or award under
the Plans shall be subject to these rules as in effect on the date of the grant
or award.
A. GENERAL RULES REGARDING AWARDS UNDER THE 1993, 1984 and 1983 PLANS
------------------------------------------------------------------
1. Making of An Award
An Award within the meaning of these rules occurs
upon the grant by the Committee of any stock option, SAR, Restricted Stock,
performance unit, performance share or other incentive award. An Award Notice
within the meaning of these rules means a written notice from the Company to a
Participant that sets forth the terms and conditions of an Award in addition to
those established in the applicable Plan and by the Committee's exercise of its
administrative powers.
2. Contemporaneous Awards
An Award of one type granted contemporaneously
with an Award of any other type shall be treated as having been granted in
combination, and not in the alternative, with the Award of the other type.
3. Stock-based Awards
a. Source. Stock-based Awards, to the extent
actually paid in Common Stock, shall reduce treasury shares first and thereafter
authorized but unissued shares.
b. Cash Dividends and Cash Dividend Equivalents.
(i) Stock-Based Awards Other Than Restricted
Stock. Each stock-based Award does not carry with it the entitlement to receive
cash dividends or cash dividend equivalents until a stock option is exercised or
other stockbased Award is earned, prior to or on the record date for
determination of stockholders entitled to receive such cash dividend.
(ii) Restricted Stock Awards. Notwithstanding
clause (i) of this paragraph (b) or Section 26 of the 1993 Plan, dividends
shall be payable with respect to each outstanding Award of Restricted Stock
whether or not the restrictions in such Award have been satisfied.
c. Payment. Payment of stock-based Awards (other
than SARs and performance shares, which shall be paid in cash) shall be made
with Common Stock.
4. Withholding Taxes
At the time a Key Employee is taxable with respect to Options,
SARs or Restricted Stock granted under the Plans, or the exercise or surrender
of the same, the Company shall have the right to withhold from amounts payable
to the Key Employee under the Plan or from other compensation payable to the Key
Employee in its sole discretion, or require the Key Employee to pay to it, an
amount sufficient to satisfy all federal, state and/or local withholding tax
requirements. A Key Employee may pay, in whole or in part, such tax withholding
amounts by requesting that the Company withhold such amounts of taxes from the
amounts owed to the Key Employee or by delivering as payment to the Company,
shares of Common Stock having a Fair Market Value less than or equal to the
amount of such required withholding taxes.
5. Deferral of Payment
The Committee intends to permit Participants to
elect, at any time prior to one year before the date of exercise, to defer the
receipt of payment of Awards that are payable in cash; provided, however, that
(1) under the then applicable income tax rules the Participant is not in
constructive receipt of, and subject to income tax on, the payment prior to its
actual receipt, (2) such deferral does not result in any of the Plans being
subject to the Employee Retirement Income Security Act of 1974, as amended, and
(3) if the Participant is an Executive Officer, such election shall comply with
Rule 16b-3 promulgated pursuant to the Securities Exchange Act of 1934, as then
in effect.
B. STOCK OPTIONS UNDER THE 1993, 1984 AND 1983 PLANS
-------------------------------------------------
1. Designation
The Award Notice setting forth the terms and
conditions of a grant of a stock option shall indicate the applicable Plan under
which the stock option is granted and whether the stock option is an incentive
stock option (within the meaning of Section 422 of the Code) or a non-qualified
stock option.
2. Price
The price at which Common Stock may be purchased upon
exercise of a stock option shall be the Fair Market Value of the Common Stock on
the date of the Award.
3. Exercise Period/Duration
a. Non-Qualified Stock Options Under the 1993 Plan. A
non-qualified stock option granted under the 1993 Plan first may be exercised
twelve months after the date of grant, or, if earlier, on the date of the
optionee's death.
b. Incentive Stock Options Under the 1993 Plan. An
incentive stock option granted under the 1993 Plan first may be exercised twelve
months after the date of grant, or, if earlier, on the date of the optionee's
death.
4. Death or Other Termination of Employment
a. Definitions. For purposes of these rules, the
following terms shall have the following meanings:
(i) "Disability" shall mean that the
Participant is eligible to receive disability benefits under Article VIII of The
National Fuel Gas Company Retirement Plan ("Retirement Plan"), as from time to
time amended.
(ii) "Retirement" shall mean that the
Participant has commenced receiving retirement benefits under the Retirement
Plan at or after attaining age 65.
b. Non-Qualified Stock Options Under the 1993 Plan.
With respect to the President and Chief Executive Officer of the Company and the
Presidents of each Principal Subsidiary, if termination of employment occurs by
reason of death, Disability or Retirement, each non-qualified option awarded
under the 1993 Plan shall remain exercisable for the balance of its unexpired
term. If termination of any such officer occurs for any other reason, each such
non-qualified option shall lapse unless extended by the Committee in its
discretion. For purposes of these rules, "Subsidiary" means a corporation or
other business entity in which the Company directly or indirectly has an
ownership interest of eighty percent (80%) or more, and "Principal Subsidiary"
means a Subsidiary that has a net income of at least $5,000,000 as of the end of
the most recent fiscal year.
For all other Participants, if termination of
employment occurs by reason of death, Disability or Retirement, each
non-qualified option awarded under the 1993 Plan shall remain exercisable for
five years from such termination or the balance of its unexpired term, whichever
is less. If termination occurs for any other reason, each such non-qualified
option shall lapse unless extended by the Committee in its discretion.
c. Incentive Stock Options Under the 1993 Plan.
Pursuant to Section 16(a) of the 1993 Plan, the Committee hereby establishes
that with respect to an incentive stock option granted under the 1993 Plan which
has not theretofore expired, upon termination of employment by reason of the
optionee's Disability, the optionee may within one year after the date of
termination of employment, exercise all or part of the incentive stock option
which the optionee was entitled to exercise on the date of termination of
employment.
d. Extension of Incentive Stock Options Under the
1993 and 1983 Plans. Pursuant to the last paragraph of 16(b) of the 1993 Plan
and the last paragraph of 7 of the 1983 Plan, the Committee hereby determines
that:
(i) with respect to the President and Chief
Executive Officer of the Company and the Presidents of each Principal
Subsidiary, if termination of employment occurs by reason of death, Disability
or Retirement, another officer of the Company shall, within thirty days of such
termination, offer in writing to extend the period during which any incentive
stock option granted to such optionee under the 1993 Plan or the 1983 Plan may
be exercised to the date on which the incentive stock option would have
otherwise expired absent such termination of employment;
(ii) if termination of any such officer's
employment occurs for any other reason, another officer of the Company, if the
Committee so authorizes, shall, within thirty days of such termination, offer in
writing to extend the period during which any incentive stock option granted to
such optionee may be exercised to the date specified in the offer, which shall
not be later than the date on which the incentive stock option would have
otherwise expired absent such termination of employment;
(iii) with respect to all Participants other
than the President and Chief Executive Officer of the Company and the Presidents
of each Principal Subsidiary, if termination of employment occurs by reason of
death, Disability or Retirement, an officer of the Company other than such
Participant shall, within thirty days of such termination, offer in writing to
extend the period during which any incentive stock option granted to such
optionee under the 1993 Plan or the 1983 Plan may be exercised, to the date
which is the earlier of five years from such termination or the balance of the
unexpired term of such incentive stock option; and
(iv) if termination of such Participant's
employment occurs for any other reason, an officer of the Company other than
such Participant, if the Committee so authorizes, shall, within thirty days of
such termination, offer to extend the period during which any incentive stock
option granted to such optionee may be exercised to the date specified in the
offer, which shall not be later than the earlier of five years from such
termination of employment or the date on which the incentive stock option would
have otherwise expired absent such termination of employment.
The written offer shall notify the optionee, or the
optionee's estate or the person to whom the optionee's rights under the
incentive stock option are transferred by will or the laws of descent and
distribution, of the right to accept the offer by consenting to the extension,
in writing, within thirty days of the offer. If such consent is timely received
the incentive stock option may be exercised during the period specified in the
offer, but not later than the expiration of the exercise period specified in the
Award Notice.
5. Mechanics of Exercise
To exercise a stock option, the Participant shall
notify an appropriate officer of the Company in writing, indicating how the
exercise price is to be paid and any other appropriate information. The
Committee hereby delegates to appropriate officers of the Company the authority
to establish and revise appropriate procedures with respect to the exercise of
stock options and the equitable adjustment of outstanding stock options.
6. Reload
No optionee shall automatically upon exercise be
issued a new stock option. However, if the Award Notice provides for the
issuance of such new stock option, the new stock option shall have an option
price equal to the Fair Market Value of the Common Stock on the date the new
stock option is issued and shall otherwise be subject, as nearly as possible, to
the same terms and conditions as the exercised stock option.
C. SARs UNDER THE 1984 AND 1993 PLANS
1. 1984 Plan
SARs granted under the 1984 Plan may be granted
only along with granting a non-qualified stock option. The recipient may
exercise the SAR independently of and in addition to the non-qualified stock
option, and may exercise the SAR before (but not before the option with which
the SAR was granted has become exercisable under Section 5 (c) (ii) of the 1984
Plan), at the same time as, or after the recipient exercises the stock option
with which the SAR was granted, but not later than the expiration of the term of
the stock option. Each SAR shall be deemed to be exercised at the close of
business on the scheduled expiration date of such SAR if at such time the SAR by
its terms remains exercisable and if so exercised would result in a payment to
the holder of such SAR.
2. 1993 Plan
The base price of an Independent SAR shall be the
Fair Market Value of the Common Stock on the date of the grant of the
Independent SAR, and shall otherwise be subject to the terms and conditions
imposed by the 1993 Plan and these rules upon nonqualified stock options. Each
SAR shall be deemed to be exercised at the close of business on the scheduled
expiration date of such SAR if at such time the SAR by its terms remains
exercisable and if so exercised would result in a payment to the holder of such
SAR.
D. RESTRICTED STOCK UNDER THE 1984 AND 1993 PLANS
1. Restrictions on Transferability; Vesting
The restrictions on transferability and vesting
and all other terms and conditions of Restricted Stock granted under the 1993
and 1984 Plans, shall be specified in the Award Notice. All shares of Restricted
Stock shall be subject to the Participant's continued employment with the
Company or a Subsidiary until vesting. The Committee may accelerate the vesting
of Restricted Stock on its own motion as it deems appropriate and in the best
interests of the Company.
3. Mechanics of Grant
The Committee hereby delegates to appropriate
officers of the Company the authority to establish and revise appropriate
procedures with respect to the issuance of certificates presenting Restricted
Stock, the payment of dividends thereon, and the equitable adjustment of
outstanding Restricted Stock.
E. PERFORMANCE UNITS AND PERFORMANCE SHARES UNDER THE 1993 PLAN
The performance period and performance objectives of a performance unit
or performance share granted under the 1993 Plan shall be specified in the Award
Notice. The Committee shall consider any written submission from a Participant,
regarding revision of the performance period and/or performance objectives of an
Award on the basis of events which may have been unforeseen by the Committee, or
circumstances which have changed since the Award, and may consider such matters
on its own motion. Upon such consideration, the Committee shall revise such
performance period and/or performance objectives when such revision is
determined to be in the best interests of the Company and consistent with the
purposes of the 1993 Plan.
CHANGE IN CONTROL AGREEMENT
BETWEEN
[NAME OF SUBSIDIARY]
AND
NATIONAL FUEL GAS COMPANY
AND
[NAME OF EXECUTIVE]
<PAGE>
THIS AGREEMENT, effective this [1st day of May, 1992,] [16 day
of March, 1995], by and between [NAME OF SUBSIDIARY], a [NAME OF STATE]
corporation (the "Company") and National Fuel Gas Company, a New Jersey
corporation ("National") and [NAME OF EXECUTIVE] (the "Executive").
W I T N E S S E T H T H A T:
WHEREAS, the Company wishes to attract and retain well-qualified
executive and key personnel and to assure the continuity of management in the
event of any actual or threatened Change of Control (as defined below) of
National, which owns 100% of the Capital Stock of the Company;
WHEREAS, the Executive is a valuable employee of the Company, an
integral part of its management team and a key participant in the decision
making process relative to short-term and long-term planning and policy for the
Company;
WHEREAS, the Company wishes to encourage the Executive to
continue his career and services with the Company for the period during and
after an actual or threatened Change in Control; and
WHEREAS, the Board, at its meeting on December 5, 1991,
determined upon recommendation of the Compensation Committee of the Board that
it would be in the best interests of the Company, National and its shareholders
to assure continuity in the management of the Company in the event of a Change
in Control by entering into this Change in Control Agreement with the Executive;
and
WHEREAS, this Change of Control Agreement is intended to
supersede a similar agreement dated June 1, 1988 which was entered into by the
Executive; and
WHEREAS, this Change of Control Agreement is intended to reduce
the Executive's severance payments from those provided for in the 1988
Agreement, if such reduction provides a greater after-tax benefit to the
Executive, in which case the pre-tax and after-tax outlays of the Company will
also be substantially reduced.
NOW, THEREFORE, it is hereby agreed by and between the parties
hereto as follows:
1. Effective Date.
The Effective Date of this Agreement shall be the date on which
a Change of Control (as defined in Section 2) of National occurs.
2. Definitions.
"Board" shall mean the Board of Directors of National.
"Cause" shall mean the Executive's gross misconduct, fraud or
dishonesty, which has resulted or is likely to result in material economic
damage to the Company or National, as determined in good faith by a vote of at
least two-thirds of the non-employee directors of National at a meeting of the
Board at which the Executive is provided an opportunity to be heard.
"Change in Control" shall mean:
(i) either (a) receipt by the Company or National of a
report on Schedule 13D, or an amendment to such a report, filed with the
Securities and Exchange Commission pursuant to Section 13(d) of the Securities
Exchange Act of 1934 (the "1934 Act") disclosing that any person (as such term
is used in Section 13(d) of the 1934 Act) ("Person"), is the beneficial owner,
directly or indirectly, of twenty (20) percent or more of the outstanding stock
of National or (b) actual knowledge by the Company or National of facts, on the
basis of which any Person is required to file such a report on Schedule 13D, or
to make an amendment to such a report, with the SEC (or would be required to
file such a report or amendment upon the lapse of the applicable period of time
specified in Section 13(d) of the 1934 Act) disclosing that such Person is the
beneficial owner, directly or indirectly, of twenty (20) percent or more of the
outstanding stock of National;
(ii) purchase by any Person, other than National or a
wholly-owned subsidiary of National, of shares pursuant to a tender or
exchange offer to acquire any stock of National (or securities convertible into
stock) for cash, securities or any other consideration provided that, after
consummation of the offer, such Person is the beneficial owner (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of twenty (20) percent
or more of the outstanding stock of National (calculated as provided in
paragraph (d) of Rule l3d-3 under the 1934 Act in the case of rights to acquire
stock);
(iii) approval by the shareholders of National of (a) any
consolidation or merger of National in which National is not the continuing or
surviving corporation or pursuant to which shares of stock of National would be
converted into cash, securities or other property, other than a consolidation or
merger of National in which holders of its stock immediately prior to the
consolidation or merger have substantially the same proportionate ownership of
common stock of the surviving corporation immediately after the consolidation or
merger as immediately before, or (b) any consolidation or merger in which
National is the continuing or surviving corporation but in which the common
shareholders of National immediately prior to the consolidation or merger do not
hold at least a majority of the outstanding common stock of the continuing or
surviving corporation (except where such holders of common stock hold at least a
majority of the common stock of the corporation which owns all of the common
stock of National), or (c) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all the
assets of National; or
(iv) a change in the majority of the members of the Board
within a 24-month period unless the election or nomination for election by
National's shareholders of each new director was approved by the vote of at
least two-thirds of the directors then still in office who were in office at the
beginning of the 24-month period.
"Disability" shall have the same meaning as under the Company's
long-term disability insurance program as in effect at the time of the
Executive's disability.
"Employment Period" shall mean the period beginning on the
Effective Date and ending on the earlier of (i) 36 full calendar months
following the Effective Date, or (ii) the date on which the Executive attains
age 65.
"Good Reason" shall mean a good faith determination made by the
Executive that there has been any (i) material change by the Company of the
Executive's functions, duties or responsibilities which change would cause the
Executives' position with the Company to become of less dignity, responsibility,
importance, prestige or scope, including, without limitation, the assignment to
the Executive of duties and responsibilities inconsistent with his positions,
(ii) assignment or reassignment by the Company of the Executive without the
Executive's consent, to another place of employment more than 30 miles from the
Executive's current place of employment, or (iii) reduction in the Executive's
total compensation or benefits or any component thereof, provided in each case
that the Executive shall specify the event relied upon for such determination by
written notice to the Board at any time within six months after the occurrence
of such event.
"Severance" shall mean the termination of employment of the
Executive prior to the end of the Employment Period (i) by the Company for any
reason other than death, Disability, or Cause, or (ii) by the Executive for Good
Reason.
3. Term of Agreement.
This Agreement shall be effective as of the date above written
and shall continue thereafter until the first to occur of (i) 36 full calendar
months following the Effective Date, or (ii) the date on which the Executive
attains age 65. The Executive agrees that during the Term of Agreement he shall
devote all his business activities exclusively to his duties with the Company
and perform such duties professionally, faithfully, effectively, intelligently
and efficiently.
4. Compensation, Employee Benefits, Perquisites.
The Executive shall receive the following as compensation during
the Employment Period:
(a) An annual salary which is not less than his annual salary
immediately prior to the first day of the Employment Period, plus annual
increases at least equal to the greater of the average percentage increase in
the compensation of salaried employees of National and its subsidiaries who are
not executives and the percentage increase in the Consumer Price Index.
(b) Eligibility to participate in the incentive compensation
plans or programs of National and the Company, including but not limited to
bonus and stock option plans, which will provide the Executive with the
opportunity to receive additional compensation equal to the greater of (i) the
opportunities provided by the Company and National to comparable level
executives, or (ii) the opportunities provided under those plans or programs in
which the Executive participated immediately prior to the first day of the
Employment Period.
(c) Employee benefits and perquisites which are the greater of
(i) such employee benefits and perquisites provided to comparable level
executives of the Company and National, or (ii) those employee benefits and
perquisites that the Executive was entitled to receive immediately prior to the
first day of the Employment Period.
5. Severance Payments.
In the event of the Executive's Severance, the Company shall,
within 180 days (except as provided in paragraph 5(a)) from the date of the
Executive's Severance, pay and provide to the Executive or, if the Executive has
died before receiving all payments to which he has become entitled hereunder,
the estate of the Executive, the following:
(a) A lump sum cash payment equal to the Executive's accrued but
unpaid salary and accrued but unused vacation pay shall be made within 30 days
from the date of the Executive's Severance.
(b) A lump sum payment equal to all deferred or incentive
compensation owed to the Executive through the date of the Executive's
Severance, including, but not limited to, the cash value of any restricted
stock, stock options or stock appreciation rights which were forfeited by the
Executive upon the Executive's Severance.
(c) A lump sum cash payment equal to 2.99 times the Executive's
base annual salary immediately prior to the Executive's Severance, provided,
however, that if the Executive is age 62 or older, such payment shall be
multiplied by a fraction the numerator of which is the number of months
(including fractions of a month) from the date of the Executive's Severance to
the date of the first day of the calendar month coincident with or next
following the date the Executive will have attained age 65, and the denominator
of which is 36.
(d) For a period commencing with the date of the Executive's
Severance, and ending on the first to occur of (i) 36 months thereafter, or (ii)
the Executive's attainment of age 65, the Executive shall be eligible to
participate in the welfare benefit plans (within the meaning of Sections 3(1) of
the Employee Retirement Income Security Act of 1974, as amended), of the Company
or National, as if the Executive were still employed during such period, at the
same level of benefits and at the same dollar cost to the Executive as is
available to comparable level executives generally, and if and to the extent
that equivalent benefits shall not or may not be payable or provided under any
such plan, the Company shall pay or provide equivalent benefits on an individual
basis. The benefits provided in accordance with this paragraph shall be
secondary to any comparable benefits provided by another employer.
(e) Notwithstanding anything contained herein, should the
Executive receive any compensation that is subject to Federal income taxation
with respect to employment by another entity or employer, or as a result of a
consulting agreement or arrangement, for the Employment Period, payments made
pursuant to this Agreement shall be correspondingly reduced on a dollar for
dollar basis, and, if necessary, the Executive agrees to make restitution to the
Company of such amounts.
(f) In the event it shall be determined by Independent Tax
Counsel that any payment or benefit hereunder that constitutes a "parachute
payment," as defined in section 280G of the Code, would be subject to the excise
tax imposed by section 4999 of the Code ("Excise Tax"), then the payment made
pursuant to paragraphs 5(b)-5(e) shall be reduced if such reduction would
produce a greater after-tax benefit to the Executive than would have been
produced had the Excise Tax been imposed. "Independent Tax Counsel" shall mean a
lawyer or accountant with expertise in the area of executive compensation tax
law, who shall be selected by the Executive and shall be reasonably acceptable
to the Company, and whose reasonable fees and disbursements shall be paid by the
Company.
6. Source of Payments.
All payments provided for in paragraph 3 above shall be paid in
cash from the general funds of the Company or National; provided, however, that
such payments shall be reduced by the amount of any payments made to the
Executive or his dependents, beneficiaries or estate from any trust or special
or separate fund established by the Company or National to assure such payments.
The Company or National shall not be required to establish a special or separate
fund or other segregation of assets to assure such payments, and, if the Company
or National shall make any investments to aid it in meeting its obligations
hereunder, the Executive shall have no right, title or interest whatever in or
to any such investments except as may otherwise be expressly provided in a
separate written instrument relating to such investments. Nothing contained in
this Agreement, and no action taken pursuant to its provisions, shall create or
be construed to create a trust of any kind or a fiduciary relationship, between
the Company or National and the Executive or any other person. To the extent
that any person acquires a right to receive payments from the Company or
National such right shall be no greater than the right of an unsecured creditor
of the Company or National.
7. Arbitration of Disputes.
(a) In the event that any dispute, controversy or claim arises
between the Company or National and the Executive with respect to the subject
matter of this Agreement and the enforcement of rights hereunder, such dispute,
controversy or claim shall be submitted to a panel of three arbitrators for
binding resolution. The panel shall be selected in accordance with the rules of
the American Arbitration Association (the "AAA"). The determination reached in
such arbitration shall be final and binding on both parties without any right of
appeal or further dispute. Execution of the determination by such arbitration
panel may be sought in any court of competent jurisdiction. The arbitrators
shall not be bound by judicial formalities and may abstain from following the
strict rules of evidence and shall interpret this Agreement as an honorable
engagement and not merely as a legal obligation. Unless otherwise agreed by the
parties, any such arbitration shall take place in Buffalo, New York, and shall
be conducted in accordance with the Rules of the AAA.
(b) In the event of the occurrence of any proceeding (including
the appeal of an arbitration decision) between the Company or National and the
Executive with respect to the subject matter of this Agreement and the
enforcement of rights hereunder, the Company or National shall reimburse the
Executive for all reasonable costs and expenses relating to such proceeding,
including reasonable attorneys' fees and expenses, regardless of the final
outcome, unless the arbitration panel determines that recovery by the Executive
of all or a part of such fees, costs and expenses would be unjust. In no event
shall the Executive reimburse the Company for any of the costs and expenses
relating to such litigation or other proceeding. The obligation of the Company
or National under this paragraph 7 shall survive the termination for any reason
of this Agreement (whether such termination is by the Company or the Executive,
upon the expiration of this Agreement or otherwise.)
8. Income Tax Withholding.
The Company or National may withhold from any payments made
under this Agreement all Federal, state or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
9. Entire Understanding.
This Agreement contains the entire understanding between the
Company, National and the Executive with respect to the subject matter hereof
and supersedes any prior Change in Control agreement between the Company,
National and the Executive, including the Change of Control Agreement with the
Executive dated June 1, 1988.
10. Severability.
If, for any reason, any one or more of the provisions or part of
a provision contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
not held so invalid, illegal or unenforceable, and each other provision or part
of a provision shall to the full extent consistent with law continue in full
force and effect.
11. Consolidation, Merger, or Sale of Assets.
If the Company or National consolidates or merges into or with,
or transfers all or substantially all of its assets to, another corporation, the
terms "the Company" and "National", as used herein, shall mean such other
corporations and this Agreement shall continue in full force and effect.
12. Notices.
All notices, requests, demands and other communications required
or permitted hereunder shall be given in writing and shall be deemed to have
been duly given if delivered or mailed, postage prepaid, first class as follows:
(a) to the Company:
National Fuel Gas Distribution Corporation
10 Lafayette Square
Buffalo, NY 14203
Attention: Corporate Secretary
(b) to National:
National Fuel Gas Company
10 Lafayette Square
Buffalo, NY 14203
Attention: Corporate Secretary
(c) to the Executive:
[NAME OF EXECUTIVE]
[ADDRESS OF EXECUTIVE]
or to such other address as either party shall have previously specified in
writing to the other.
13. No Attachment.
Except as required by law, neither this Agreement, in whole or
in part, nor any right to receive payments under this Agreement, shall be
subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge or hypothecation or to execution, attachment, levy or similar
process or assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of no effect.
14. Binding Agreement.
This Agreement shall be binding upon, and shall inure to the
benefit of, the Executive, the Company and National and their respective
permitted successors and assigns.
15. Modification and Waiver.
This Agreement may be canceled prior to the Effective Date by
the Company, National or the Executive upon the delivery of at least thirty (30)
days' written advance notice to the other parties. Otherwise, this Agreement may
not be canceled, rescinded, modified or amended except by an instrument in
writing signed by the parities hereto. No term or condition of this Agreement
shall be deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such written waiver
shall be deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future or as to
any act other than that specifically waived.
16. Headings of No Effect.
The paragraph headings contained in this Agreement are included
solely for convenience of reference and shall not in any way affect the meaning
or interpretation of any of the provisions of this Agreement.
17. Governing Law.
This Agreement and its validity, interpretation, performance,
and enforcement shall be governed by the laws of the State of [NAME OF STATE]
without giving effect to the choice of law provisions in effect in such State.
IN WITNESS WHEREOF, the Company and National have caused this
Agreement to be executed by their officers thereunto duly authorized, and the
Executive has signed this Agreement, all as of the date first above written.
[NAME OF SUBSIDIARY]
By: /s/___________________________________
NATIONAL FUEL GAS COMPANY
By: /s/___________________________________
[NAME OF EXECUTIVE]
By: /s/___________________________________
EXHIBIT 12
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
UNAUDITED
Fiscal Year Ended September 30
---------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income Before Interest Charges (2) $159,599 $128,061 $127,885 $125,742 $118,222
Allowance for Borrowed Funds Used in Construction 205 195 209 174 1,088
Federal Income Tax 55,148 30,522 36,630 21,148 17,680
State Income Tax 7,266 4,905 6,309 2,979 3,426
Deferred Inc. Taxes - Net (3) 3,907 8,452 4,853 16,919 14,125
Investment Tax Credit - Net (665) (672) (682) (693) (706)
Rentals (1) 5,640 5,422 5,730 5,621 5,857
---------------------------------------------
$231,100 $176,885 $180,934 $171,890 $159,692
=============================================
FIXED CHARGES:
Interest & Amortization of Premium and
Discount of Funded Debt $40,872 $40,896 $36,699 $38,507 $39,949
Interest on Commercial Paper and
Short-Term Notes Payable 7,872 6,745 5,599 7,465 12,093
Other Interest (2) 6,389 4,721 3,361 4,727 6,958
Rentals (1) 5,640 5,422 5,730 5,621 5,857
---------------------------------------------
$60,773 $57,784 $51,389 $56,320 $64,857
=============================================
RATIO OF EARNINGS TO FIXED CHARGES 3.80 3.06 3.52 3.05 2.46
</TABLE>
Notes:
(1) Rentals shown above represent the portion of all rentals (other than
delay rentals) deemed representative of the interest factor.
(2) Fiscal 1996, 1995, 1994, 1993 and 1992 reflect the reclassification of
$1,716, $1,716, $1,674, $1,374 and $1,129, respectively, representing
the loss on reacquired debt amortized during each period, from Other
Interest Charges to Operation Expense.
(3) Deferred Income Taxes - Net for fiscal 1994 excludes the cumulative
effect of changes in accounting.
Letter to Shareholders
We are proud to bring you this 1996 Annual Report. Truly, it has been an
outstanding year highlighted by:
o An earnings increase to $104.7 million, or $2.78 per share - up 38% from
last year's $75.9 million, or $2.03 per share.
o A dividend increase in June of 3.7%, to $1.68 on an annual basis. Our
record now stands at 26 years of consecutive increases and 94 years of
uninterrupted payments.
o Total system gas volumes of 423.8 Bcf equivalent, a company record.
o Total production of 49.2 Bcf equivalent, a 94% increase.
o A 28% increase in our stock price to $36.75 at year end. At the time of
this writing, the price has reached the low $40's.
o A total return on shareholder investment (with dividends reinvested) for
the fiscal year of 33.7%, comparing very favorably with the S&P 500 and Dow
Jones Industrial indices.
The 38% jump in this year's earnings results from a superb performance by
each of our established segments, partly offset by the costs associated with our
efforts to develop a new international business.
In addition, there were two special items in earnings this year. First, as
part of our continued restructuring efforts in our regulated businesses, last
August we offered a Special Early Retirement Offer (SERO) to certain employees
of our Utility and Pipeline and Storage subsidiaries. Of the approximately 400
people eligible, 236 accepted and retired, effective October 1, 1996. Our 1996
earnings reflect an after-tax charge of $5.2 million, or $.14 per share, related
to costs associated with the SERO.
The second is a credit related to gas costs. In 1995 the New York Utility
division recognized an after-tax charge of $2.8 million of purchased gas expense
in excess of that recoverable in rates. In fiscal 1996, we determined that this
amount was overstated by $4.2 million after-tax, or $.11 per share. However, the
1996 annual reconciliation of gas costs resulted in an after-tax charge of $1.5
million, or $.04 per share. Thus, the net impact on 1996 earnings of all gas
cost reconciliations was a positive $.07 per share.
Growing Value
We have made "growing value" the theme of this year's Annual Report. Our
pledge to you is to continue to focus our energies not only on increasing the
size of your Company, but also on enhancing its value per share.1
Utility
In our Utility segment pre-tax operating income rose 38% to $115.3 million.
The principal factors helping this segment's results were new rates effective
September 1995 in both our Pennsylvania and New York jurisdictions, our ongoing
efforts to control expenses, the gas cost credit noted above, and weather in our
Pennsylvania jurisdiction where it was 17.1% colder than the prior year and 8.1%
colder than normal. In New York there was little impact on results due to the
cold. Rather, our weather normalization clause mitigated the impact of weather
by decreasing our customers' bills by $10.6 million. A $4.1 million, or $.11 per
share, after-tax charge was also recorded for the SERO.
A significant achievement in 1996 was a two-year settlement of our New York
rate case. Elements of the settlement include our agreement to limit rate
increases to 1.1% for each of the fiscal years commencing October 1, 1996 and
October 1, 1997. The settlement also includes a number of incentives. The
Company may earn a maximum of 25 basis points, or incur a maximum penalty of 50
basis points, of return on common equity based on various measurements of
customer service. In addition, there is a gas cost incentive mechanism designed
to compare the Company's spot gas purchases to monthly gas cost targets.
Earnings, excluding the customer service incentive, will be based on a target of
a 12% return on common equity for each of the fiscal years ending 1996, 1997 and
1998. The measurement will be on a cumulative basis over the three years.
Earnings above the target will be shared 50-50 with customers.
The adage holds that no news is good news. This year we did not file a rate
case in Pennsylvania. As in New York, we have emphasized cost control in this
jurisdiction and our efforts are bearing fruit. In each state our rates in 1996
remained below the state average for comparable utilities.
Given the increasingly competitive nature of our industry, it is important
for us to focus on providing reasonably priced, customer-friendly service,
rather than on litigating major regulatory proceedings. We believe that the
public utility commissions in both New York and Pennsylvania have given us the
opportunity to move forward in the current competitive environment and,
consequently, we intend to avoid large protracted rate cases.1
Our goals in the Utility Operation are:1
o To continue to aggressively control costs while maintaining excellent
customer service.
o To make our system even more user-friendly to those desiring to sell gas
on it.
o To seek profit-generating opportunities.
To meet the first objective, we continue to cast a critical eye on all of
our internal processes. Ongoing restructuring enabled us to reduce employment
significantly through the already discussed SERO, thereby increasing our
efficiency by 17% to 378 customers served per employee. At the same time we are
maintaining excellent performance in customer service, including timely
appointments and telephone response. In addition, we were able to decrease our
capital expenditures in 1996 by $1.1 million from fiscal 1995 and plan a further
$1.8 million reduction in fiscal 1997.1 Another ongoing initiative is a proposed
low-income gas purchase and transportation pilot program with the Erie County,
New York Department of Social Services. This innovative program seeks to reduce
costs for the county, payment-troubled customers and our utility alike.1 Review
of our proposal is occurring at the state level in the context of welfare
reform.
Restructuring the Utility
In a March 28, 1996 order, the New York Public Service Commission (PSC)
adopted a generic framework for all local gas distribution companies within the
state to allow their customers to purchase gas from sources other than a
utility. Following that order, we placed tariff provisions in effect as of May
1, 1996, toward that end. At present, however, a non-utility choice is not
advantageous to residential customers because of its cost. In large part, the
high cost is due to the significant customer protections required of utilities
by the PSC which are then passed along in rates. We will continue to work with
the PSC on removing impediments to more efficient natural gas service in order
to achieve cost savings for our customers.1
In Pennsylvania, restructuring is now being evaluated via individual gas
company pilot programs. Given the recent passage of legislation to restructure
the electric industry, it is possible that future legislation could pass with
respect to the natural gas industry.1
To test our customers' interest in purchasing gas from gas marketers, the
Company is proposing a residential pilot program within both jurisdictions and
hopes to have it in place in fiscal 1997.1 Unlike most pilots underway around
the country, our program, if approved, would provide a unique opportunity to
test competition in an environment where the utility no longer acts as a
merchant of gas.1
Revenue Enhancement
This year, our industrial and commercial volumes increased by approximately
7% and 6%, respectively, after removing the impact of weather. We attribute this
result to an increasingly healthy business climate in the Western New York
region. The Buffalo-Niagara Falls, New York unemployment rate for October 1996
was 4.6%, comparing favorably with the 4.9% national rate. Recent positive
economic news includes the selection of Buffalo, New York over Tennessee as the
site for manufacturing and distribution operations of a Canadian furniture
company. To pursue growth, we have augmented our sales efforts with a technical
services group which advises customers on energy options. Areas covered range
from educating transportation customers on effective purchasing methods to the
rendering of advice on re-engineering of industrial processes to utilize natural
gas.
Pipeline and Storage
In this regulated business, pre-tax operating income increased by 7% to
$72.9 million in 1996. The rise was mostly due to new rates which went into
effect on April 1, 1996, retroactive to June 1, 1995. The portion attributable
to fiscal 1995 amounted to $1.2 million after-tax, or $.03 per share. In 1996
this segment saw lower revenues from unbundled pipeline sales and open-access
transportation than in 1995. Moreover, the SERO resulted in an after-tax charge
of approximately $1.1 million, or $.03 per share. In addition, 1995 earnings
were reduced by approximately $2.2 million after-tax, or $.06 per share, for
certain preliminary costs related to a storage project.
The Federal Energy Regulatory Commission's (FERC) approval of two Pipeline
and Storage settlements in February sets the stage for our future. The
settlement of our rate case provided an increase in revenues of approximately
$6.0 million and established rates until at least April 1, 1998. Like our
Utility segment, it is the goal of this segment to avoid filing a rate case for
as long as possible.1 The settlement provides us with essential flexibility. For
instance, we now benefit from 100% of interruptible transportation and storage
revenues. Previously the portion we retained was just 10%. We also agreed to be
at risk for marketing a portion of unsubscribed storage service. Such risk is
ultimately part of the competitive world and we do not anticipate any problem
marketing storage turned back to us.1 Offers were accepted on 3.3 Bcf of storage
service effective April 1, 1996, albeit at discounted rates. Currently, we are
marketing 1.1 Bcf of storage subject to contracts that expire in March 1997. Of
note, over 80% of our combined 1996 transportation and storage revenues related
to contracts of five or more years. In February the FERC also approved a
settlement that will allow a five-year transition to fully unbundled gathering
rates and recovery of our investment with respect to our Appalachian gathering
system.
By laying these regulatory matters to rest, we can now focus all of our
energies on the growth of our business. Our approach is twofold:1
o To exploit our existing location between Canada and the energy-hungry
East Coast markets.
o To expand into new geographic areas through acquisitions and joint
ventures.
An exciting business opportunity in our existing territory is our proposed
1998/1999 Niagara Expansion Project. An open season was held this fall to
ascertain customer interest in expanding transportation capacity from the
Canadian border at Niagara Falls, New York to Leidy, Pennsylvania by 250 - 500
MMcf per day. (This translates to 91.3 Bcf to 182.5 Bcf per year of incremental
Canadian gas transportation. In 1996, transportation of Canadian volumes totaled
114.8 Bcf.) The project, if completed, will allow customers to coordinate
transportation with TransCanada PipeLines Limited to create a continuous
transportation path from the producing regions in western Canada to the
Ellisburg-Leidy Hub and the Eastern Seaboard markets it serves.1 Preliminary
interest is highly promising. Should we expand our Canadian transportation by
500 MMcf per day, our total additional investment is expected to be about $240
million over a two-year period.1
Moreover, one of our nonregulated subsidiaries, Leidy Hub, Inc., continues
to promote the Ellisburg-Leidy Hub which connects our system with all major
pipelines serving the Northeast markets. We believe that by increasing trading
activity at the hub, we can increase investment opportunities for our pipeline
and storage business.1
With respect to new locales, we are pursuing a 50-50 partnership with
Tenneco Energy to develop the Green Canyon Gathering System project. Our
partnership would construct, own and operate a 24-inch, 153-mile offshore
pipeline to gather natural gas from the Gulf of Mexico.1 It also intends to
build a natural gas processing plant at the terminal end of the pipeline in
Louisiana that can process 300 MMcf of gas per day.1 With capacity of
approximately 515 MMcf per day, the pipeline would be able to access 3.4
trillion cubic feet of estimated reserves and would connect to five onshore
pipelines in southern Louisiana.1 The project is expected to cost approximately
$200 million and be in service in late 1997.1
We are, of course, open to other opportunities wherever located and will
pursue these as they are identified.1
Exploration and Production
Significant growth in production volumes of both natural gas and oil, as
well as improved prices for both commodities, created a near tripling of
operating income before income taxes to $46.4 million in fiscal 1996. Seneca
Resources Corporation's (Seneca) Gulf Coast program continues to drive this
segment's achievements. Offshore finds at West Cameron 552 and Vermilion 252,
discussed in our last two annual reports, are the major contributors to
production increases for the year.
Total production volumes nearly doubled to 49.2 Bcf equivalent from 25.4
Bcf equivalent last year. Natural gas production rose by 85% to 38.8 Bcf from
20.9 Bcf in 1995. Oil production of 1,742,000 barrels was more than twice the
prior year production of 739,000 barrels. Weighted average prices for natural
gas rose $.68 to $2.35 per Mcf. Oil prices climbed $3.34 to $19.50 per barrel.
You may remember that last year we delayed production when prices were low to
preserve the value of our reserves for our shareholders. We are pleased to have
reaped the benefits of the higher prices in 1996.
We continue to see this segment as an area of significant growth.1 Our team
in Houston is, in our opinion, one of the best. On this score, we believe that
the 1996 results speak for themselves. In addition to the dramatic 94% increase
in production, we particularly take pride in our productivity. Our ability to
hold the line on costs is an important contributor to the bottom line. This
control is clearly reflected in this year's drop to $.31 per Mcf equivalent for
lifting cost and to $.12 per Mcf equivalent for general and administrative
costs.
Overall, extensions and discoveries added 63.4 Bcf equivalent to reserves
in 1996. Including purchases and revisions, our reserve replacement rate was
109%. While below our goal of 150%, our reserve base is still growing. Looking
forward to fiscal 1997, based on reserve additions and existing production, our
goal is a 10-20% increase over 1996 production volumes of 49.2 Bcf equivalent.1
In this regard, a very pleasing result has been the ongoing performance of West
Cameron 552. Current daily production from that field is running at 59 MMcf of
natural gas and 650 barrels of oil, with no recompletions to access new
reservoirs.
Gulf Coast Emphasis
Our most significant recent discovery is on West Cameron 182. A first
exploratory well encountered three productive sands and indicated 94 feet of net
pay. We have booked 20.7 Bcf equivalent of reserves, mostly natural gas, related
to this discovery. We also added 33.0 Bcf equivalent to reserves (29.2 Bcf
equivalent of which is oil) related to Main Pass 256/257, a block we purchased
in 1995. Three-dimensional (3-D) seismic data enabled us to identify these
additional reserves. We anticipate developmental drilling on two wells here in
fiscal 1997.1 On the West Delta 31 and 32 Blocks purchased in 1995, we are
moving forward with exploratory drilling. We continue to believe that the West
Delta blocks shows significant promise of additional reserves.1 Total offshore
drilling for 1997 is currently estimated at 16 wells - 12 gas and 4 oil.1
Onshore in Texas we maintained our 100% success rate in the North East Clay
trend with six wells drilled in 1996. In fiscal 1997, we intend to expand our
drilling into new horizons in the North East Clay field, as well as in West
Texas, Mississippi and Alabama.1 Many of these 19 planned wells have been
evaluated using 3-D seismic data.
California
Planned 1996 drilling in California was pushed into fiscal 1997 largely due
to permitting delays. Two wildcats already drilled this autumn were dry holes.
In addition, we intend to drill two developmental wells in 1997, one in Temescal
and one on our HAMP Lease acreage.1
East
In 1996 our East Division drilled five exploratory wells in Ohio. None were
successful. We continue to evaluate the over 900,000 acres of mineral leases and
fee properties in our possession.1 Our natural resource holdings include oil,
gas, some coal and a significant amount of timber (primarily furniture-quality
cherry and oak.) Revenues from the sale of timber are reported separately in the
Other Nonregulated segment.
Hedging Activity
Seneca engages in hedging activity to manage a portion of the market risk
associated with fluctuations in the price of natural gas and crude oil. In
fiscal 1996 payments on hedges totaled $11.8 million. This "loss" was offset by
the higher prices received for actual production. On September 30, 1996, Seneca
had hedged for fiscal 1997, 24.9 Bcf of gas at a weighted average price of $1.92
per Mcf, and 1,371,000 barrels of oil at a weighted average price of $18.00 per
barrel.
Moving Forward
Our goal is to increase reserves and production through exploration.1 Our
internal technological expertise is substantial. We have nine geologists and
geophysicists at eight workstations identifying our next prospects. We possess
3-D seismic data on approximately 3,500 square miles, and have two-dimensional
seismic data on about 274,000 linear miles. Over the next three years, we plan
to spend about $25 million for additional 3-D seismic data.1 To date we have
successfully built an inventory of 27 undrilled prospects in the Gulf of Mexico,
representing two to three years of drilling activity.1
Other Nonregulated activities
Our pursuit of international opportunities is the main cause of a decline
in the results of our Other Nonregulated segment in 1996. Overall, pre-tax
operating income was down by $11.6 million compared to fiscal 1995. In August
our international subsidiary, Horizon Energy Development, Inc. (Horizon),
withdrew from participation in the development of a 151-megawatt power plant
near Kabirwala in east-central Pakistan. Total costs associated with the project
totaled $.16 per share in 1996. There were no material costs or expenses
deferred on the books at year end for this or any other project being considered
by Horizon.
The decline in this segment also reflects the one-time gain in the prior
fiscal year from the sale of the equipment of Utility Constructors, Inc., our
pipeline construction subsidiary. Revenues were also lower in our timber
operations because of softness in the market. Partially offsetting these
declines, our energy marketing subsidiary, National Fuel Resources (NFR),
reported stronger results on increased volumes.
None of our Other Nonregulated subsidiaries is, at this point, a large
contributor toward earnings. However, with the one exception of Horizon, all of
these businesses are profitable - and, without exception, all are part of our
future growth strategy.1
Energy Marketing
NFR continues the geographic expansion of its business. It recently opened
new offices in Chicago, Illinois and Greenville, Pennsylvania. Our New Jersey
office now has been in operation for one year. In September we increased that
office's customer base by acquiring the rights to all of Chevron USA Inc.'s New
Jersey retail natural gas sales contracts.
Fiscal 1996 also marked our entry into residential marketing. NFR has been
selected as the gas supplier by approximately 500 residential customers in Bay
State Gas Company's customer choice pilot program in Massachusetts. Through
participation in this pilot program, NFR is preparing itself for the
opportunities which will come with fully competitive residential markets.
Moreover, it is developing an electric marketing operation, subject to
regulatory approval. Upon approval NFR intends to become a full service energy
provider for retail customers.1
International Opportunities
The mission of Horizon is to evaluate possible roles for the Company in the
international arena.1 Throughout the last year, we have examined many
possibilities in that quest and reached some conclusions. For instance, as
already discussed, we withdrew from a project in Pakistan and have no further
plans with respect to that country.1
An area in which we have a significant interest is Eastern Europe.1 The
general costs of running a business in this region are less than in the West
and, following the end of the Cold War, there is a real need for expertise and
funding to build infrastructure. In June, Horizon purchased
Beheer-en-Beleggingmaatschappij Bruwabel B. V. (Bruwabel). Bruwabel is a Dutch
company whose principal assets are a power development group and a small
district-heating plant located in the Czech Republic. Horizon plans to convert
the heating plant to a combined-cycle cogeneration facility, with electrical
output of up to 50 megawatts.1
Dividend Increase
Fiscal 1996 marked our 26th consecutive year of dividend increases and the
94th year of uninterrupted dividend payments. This year we raised the annual
dividend rate by 3.7% to $1.68 from $1.62. It was a greater increase than in
recent years and a rate of increase higher than inflation. The current success
of our Company and its future prospects enabled us to do this.1
Financing Plans
Reflecting our belief in its growth prospects, over half of our $214.0
million 1997 capital budget, or $116.2 million, is targeted for our Exploration
and Production segment, particularly in the Gulf Coast region.1 Utility capital
expenditures are budgeted at $61.9 million, and will be used mostly to replace
main and service lines.1 The $31.6 million allocated for our Pipeline and
Storage segment largely covers the reconditioning of storage wells and
replacement of storage and transmission lines.1
Cash flow from operations combined with short-term debt is expected to
cover these expenditures.1 We also expect to issue new debentures or medium-term
notes late in calendar 1997, to retire $50 million of 6.42% medium-term notes
maturing in November 1997.1 The current budget does not include monies for the
1998/1999 Niagara Expansion Project or the Green Canyon Gathering System
project. Other debt and equity issuances will be considered, as necessary, to
finance these and any additional projects.1
Personnel Changes
George L. Mazanec joined our Board of Directors in October. Mr. Mazanec has
more than 30 years of experience in the energy industry, most recently as a
member of PanEnergy Corporation's Board of Directors and its Policy Committee.
David N. Campbell resigned as a Director this summer. We wish him well. John M.
Brown retired as a Director in February. Jack had more than 40 years of service
with our Company when he retired as Vice Chairman in 1989. We will miss his
contribution. James A. Beck was named President of Seneca Resources Corporation.
Jim has more than 20 years of experience in the oil and gas business, the most
recent seven years with us. In addition, Philip A. Turek, Vice President of
National Fuel Gas Supply Corporation, and Robert P. Borneman, Vice President of
National Fuel Gas Distribution Corporation, retired effective October 1, 1996.
Finally, as our greatest strength has always been our employees, we would like
to thank all of this year's retirees for their years of commitment and
contribution to our Company.
Recognition
We are proud to place these 1996 results before you and are pleased at the
market's recognition of the value we have created. While the price of many
natural gas company stocks (and probably our own) appears to be partly fueled by
the wave of recent electric-gas mergers, we believe the recent run-up in our
stock is supported by the strong performance of our business. Our return on
equity is up, system volumes are up, production is up and there are ongoing
earnings opportunities in all of our segments.1 We should note that we are
closely watching restructuring events in the electric industry. As always, we
will carefully evaluate all opportunities that present themselves, and will only
pursue those that are additive to the long-term value of the Company and its
shareholders.1
/s/ Bernard J. Kennedy
Bernard J. Kennedy
Chairman of the Board, President and Chief Executive Officer
/s/ Philip C. Ackerman
Philip C. Ackerman
Senior Vice President
December 13, 1996
1 This document contains "forward looking statements" as defined by the
Private Securities Litigation Reform Act of 1995. Forward looking statements,
including those designated by a "1," should be read with the cautionary
statements included in the Annual Report on Form 10-K at Item 7, under the
heading "Safe Harbor for Forward-Looking Statements."
<PAGE>
APPENDIX TO EXHIBIT 13 - This appendix contains a narrative description of image
and graphic information as contained in the Letter to Shareholders included in
the paper copy of the Company's combined Annual Report to Shareholders/Form
10-K.
1.) Image - Picture of Bernard J. Kennedy, Chairman of the Board, President
and Chief Executive Officer, and
Philip C. Ackerman, Senior Vice President.
2.) Graph - Total Return
Bar graph showing National Fuel Gas Company's total return (percent)
for fiscal year 1996 as compared with the S&P 500 and Dow Jones
Industrial Average as follows:
Dow Jones Industrial Average 25.6%
National Fuel Gas Company 33.7%
S&P 500 20.2%
3.) Graph - Percent Colder
Bar graph showing fiscal 1996 percent colder than last year and colder
than normal (based on degree days) for Buffalo, New York and Erie,
Pennsylvania, as follows:
Percent Colder Than
Last Year Normal
--------- ------
Buffalo, NY 16.5% 7.1%
Erie, PA 17.1% 8.1%
4.) Image - Illustration of residential houses, with the following caption:
Unlike most pilots underway around the country, our program, if
approved, would provide a unique opportunity to test competition in an
environment where the utility no longer acts as a merchant of gas.1
5.) Graph - Utility Rates
Bar graph showing the Company's utility rates lower than the state
average for the year ended September 1996, as follows:
National Fuel State Average
------------- -------------
Average cost per Mcf
for year ended
September 1996:
New York $7.96 $8.58
Pennsylvania $6.35 $6.85
<PAGE>
6.) Graph - Utility Customers Served
Bar graph showing utility customers served per employee for
Distribution Corporation's combined New York and Pennsylvania
jurisdictions for 1992 through 1996, as follows:
9/92 9/93 9/94 9/95 10/96
---- ---- ---- ---- -----
Utility
Customers
Served Per
Employee 296 303 319 324 378
7.) Image - Map of northeastern United States and Canada with arrow
pointing to the Pipeline and Storage segment's operating location.
8.) Image - Illustration of natural gas pipeline, with the folowing
caption: Like our Utility segment, it is the goal of this segment to
avoid filing a rate case for as long as possible.1
9.) Graph - Transportation and Storage Service Revenues
Pie graph of the Pipeline and Storage segment's transportation and
storage service revenues of $160.4 million, by contract length (in
percents) for 1996, broken down as follows:
Less than One Year 4%
One to Five Years 15
Greater than Five Years 81
----
100%
10.) Image - Illustration of offshore drilling, with the following caption:
Our goal is to increase reserves and production through exploration ...
we have successfully built an inventory of 27 undrilled prospects in
the Gulf of Mexico, representing two to three years of drilling
activity.1
11.) Graph - Oil and Gas Production
Bar graph showing oil and gas production (in billion cubic feet (Bcf)
equivalent), for the years 1992 through 1996, as follows:
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Gas 12.1 19.9 23.3 21.0 38.8
Oil 3.8 5.0 6.2 4.4 10.4
---- ---- ---- ---- ----
15.9 24.9 29.5 25.4 49.2
<PAGE>
12.) Graph - Seneca Resources General and Administrative Costs
Bar graph showing Seneca Resources general and administrative costs in
dollars per Mcf equivalent for 1992 through 1996, as follows:
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
$.28 $.25 $.22 $.24 $.12
13.) Graph - Lifting Cost
Bar graph showing lifting costs (in dollars per thousand cubic feet
(Mcf) equivalent) for the years 1992 through 1996, as follows:
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
$.62 $.54 $.45 $.44 $.31
14.) Graphs - Oil and Gas Prices
Two bar graphs showing weighted average oil and gas prices (in dollars)
for the years 1992 through 1996, as follows:
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Gas (per Mcf) $1.97 $2.20 $2.18 $1.67 $2.35
Oil (per bbl) $17.11 $16.78 $14.86 $16.16 $19.50
15.) Image - Illustration of a globe showing parts of North America, Europe
and Africa with United States flag and Czech Republic flag overlaying
portions of the globe.
16.) Graph - Annual Dividend Rate
Bar Graph showing the annual dividend rate per share at year end (in
dollars per share) for 1986 through 1996 as follows:
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
$1.14 $1.20 $1.26 $1.34 $1.42 $1.46 $1.50 $1.54 $1.58 $1.62 $1.68
<PAGE>
17.) Graph - Stock Price Performance
A line graph showing the Company's weekly closing stock price per share
from September 30, 1996 through December 13, 1996, as follows:
9/30/96 $36.75
10/4/96 $37.375
10/11/96 $36.875
10/18/96 $37.75
10/25/96 $37.25
11/1/96 $37.375
11/8/96 $39.50
11/15/96 $42.75
11/22/96 $42.375
11/29/96 $42.625
12/6/96 $42.00
12/13/96 $41.375
RALPH E. DAVIS ASSOCIATES, INC.
Consultants-Petroleum and Natural Gas
3555 Timmons Lane - Suite 1105
Houston, Texas 77027
(713) 622-8955
CONSENT OF ENGINEER
We hereby consent to the reproduction of our audit report dated
October 14, 1996, and to the reference to our estimate dated October 1, 1996,
appearing in this National Fuel Gas Company Annual Report on Form 10-K.
We also consent to the incorporation by reference in (i) the
Registration Statement (Form S-8, No. 2-95439), as amended, relating to the
National Fuel Gas Company 1983 Incentive Stock Option Plan and the National Fuel
Gas Company 1984 Stock Plan, and in the related Prospectuses, (ii) the
Registration Statements (Form S-8, No. 33-28037, No. 333-3055, and Nos. 2-97641,
33-17341 and 333-3057), as amended, relating to the National Fuel Gas Company
Tax-Deferred Savings Plan and the National Fuel Gas Company Tax-Deferred Savings
Plan for Non-Union Employees, respectively, and in the related Prospectuses,
(iii) the Registration Statement (Form S-3, No. 33-49401), as amended, relating
to $350,000,000 of National Fuel Gas Company debentures and/or medium term notes
and in the related Prospectus, (iv) the Registration Statement (Form S-3, No.
333-03803), as amended, relating to $500,000,000 of National Fuel Gas Company
debentures and/or medium term notes and, in the related Prospectus, (v) the
Registration Statement (Form S-3, No. 33-51881), as amended, relating to the
National Fuel Gas Company Dividend Reinvestment and Stock Purchase Plan, and in
the related Prospectuses, (vi) the Registration Statement (Form S-3, No.
33-36868), as amended, relating to the National Fuel Gas Company Customer Stock
Purchase Plan, and in the related Prospectus, and (vii) the Registration
Statement (Form S-8, No. 33-49693), as amended, relating to the National Fuel
Gas Company 1993 Award and Option Plan, and in the related Prospectus; of the
reproduction of our report dated October 14, 1996, appearing in this National
Fuel Gas Company Annual Report on Form 10-K.
RALPH E. DAVIS ASSOCIATES, INC.
/s/ Allen C. Barron
-------------------------------
Allen C. Barron, P.E.
Vice President
Houston, Texas
October 31, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 33-51881),
Form S-3 (No. 33-49401), Form S-3 (No. 33-36868), Form S-3 (No. 333-03803), Form
S-8 (No. 2-94539), Form S-8 (No. 33-49693), Form S-8 (No. 333-03057), and Form
S-8 (No. 333-03055) of National Fuel Gas Company of our report dated October 30,
1996, except as to Note H, which is as of November 8, 1996, appearing on page 46
of this Form 10-K.
PRICE WATERHOUSE LLP
Buffalo, New York
December 18, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL FUEL
GAS COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,709,606
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 220,981
<TOTAL-DEFERRED-CHARGES> 7,377
<OTHER-ASSETS> 211,808
<TOTAL-ASSETS> 2,149,772
<COMMON> 37,852
<CAPITAL-SURPLUS-PAID-IN> 395,272
<RETAINED-EARNINGS> 422,874
<TOTAL-COMMON-STOCKHOLDERS-EQ> 855,998
0
0
<LONG-TERM-DEBT-NET> 574,000
<SHORT-TERM-NOTES> 109,700
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 90,000
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 520,074
<TOT-CAPITALIZATION-AND-LIAB> 2,149,772
<GROSS-OPERATING-REVENUE> 1,208,017
<INCOME-TAX-EXPENSE> 66,321
<OTHER-OPERATING-EXPENSES> 984,250
<TOTAL-OPERATING-EXPENSES> 1,050,571
<OPERATING-INCOME-LOSS> 157,446
<OTHER-INCOME-NET> 3,869
<INCOME-BEFORE-INTEREST-EXPEN> 161,315
<TOTAL-INTEREST-EXPENSE> 56,644
<NET-INCOME> 104,671
0
<EARNINGS-AVAILABLE-FOR-COMM> 104,671
<COMMON-STOCK-DIVIDENDS> 61,920
<TOTAL-INTEREST-ON-BONDS> 40,872
<CASH-FLOW-OPERATIONS> 168,469
<EPS-PRIMARY> 2.78
<EPS-DILUTED> 2.78
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL FUEL GAS COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
SCHEDULES
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,649,182
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 189,244
<TOTAL-DEFERRED-CHARGES> 8,653
<OTHER-ASSETS> 189,744
<TOTAL-ASSETS> 2,036,823
<COMMON> 37,434
<CAPITAL-SURPLUS-PAID-IN> 383,031
<RETAINED-EARNINGS> 380,123
<TOTAL-COMMON-STOCKHOLDERS-EQ> 800,588
0
0
<LONG-TERM-DEBT-NET> 474,000
<SHORT-TERM-NOTES> 52,600
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 95,000
<LONG-TERM-DEBT-CURRENT-PORT> 88,500
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 526,135
<TOT-CAPITALIZATION-AND-LIAB> 2,036,823
<GROSS-OPERATING-REVENUE> 975,496
<INCOME-TAX-EXPENSE> 43,879
<OTHER-OPERATING-EXPENSES> 807,218
<TOTAL-OPERATING-EXPENSES> 851,097
<OPERATING-INCOME-LOSS> 124,399
<OTHER-INCOME-NET> 5,378
<INCOME-BEFORE-INTEREST-EXPEN> 129,777
<TOTAL-INTEREST-EXPENSE> 53,883
<NET-INCOME> 75,894
0
<EARNINGS-AVAILABLE-FOR-COMM> 75,894
<COMMON-STOCK-DIVIDENDS> 59,625
<TOTAL-INTEREST-ON-BONDS> 40,896
<CASH-FLOW-OPERATIONS> 174,361
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL FUEL
GAS COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> OCT-01-1993
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,545,550
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 218,126
<TOTAL-DEFERRED-CHARGES> 15,797
<OTHER-ASSETS> 201,333
<TOTAL-ASSETS> 1,980,806
<COMMON> 37,278
<CAPITAL-SURPLUS-PAID-IN> 379,156
<RETAINED-EARNINGS> 363,854
<TOTAL-COMMON-STOCKHOLDERS-EQ> 780,288
0
0
<LONG-TERM-DEBT-NET> 462,500
<SHORT-TERM-NOTES> 102,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 10,000
<LONG-TERM-DEBT-CURRENT-PORT> 96,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 529,518
<TOT-CAPITALIZATION-AND-LIAB> 1,980,806
<GROSS-OPERATING-REVENUE> 1,141,324
<INCOME-TAX-EXPENSE> 47,792
<OTHER-OPERATING-EXPENSES> 967,629
<TOTAL-OPERATING-EXPENSES> 1,015,421
<OPERATING-INCOME-LOSS> 125,903
<OTHER-INCOME-NET> 3,656
<INCOME-BEFORE-INTEREST-EXPEN> 129,559
<TOTAL-INTEREST-EXPENSE> 47,124
<NET-INCOME> 85,672
0
<EARNINGS-AVAILABLE-FOR-COMM> 85,672
<COMMON-STOCK-DIVIDENDS> 57,725
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 199,814
<EPS-PRIMARY> 2.32
<EPS-DILUTED> 2.32
</TABLE>
RALPH E. DAVIS ASSOCIATES, INC.
CONSULTANTS-PETROLEUM AND NATURAL GAS
3555 TIMMONS LANE-SUITE 1105
HOUSTON, TEXAS 77027
(713) 622-8955
October 14, 1996
Seneca Resources Corporation
333 Clay Street, Suite 4150
Houston, Texas 77002
Attention: Mr. Don A. Brown
Vice President
Re: Oil, Condensate and Natural Gas
Reserves, Seneca Resources
Corporation
As of October 1, 1996
Gentlemen:
At your request, the firm of Ralph E. Davis Associates, Inc. has audited an
evaluation of the proved oil, condensate and natural gas reserves on leaseholds
in which Seneca Resources Corporation has certain interests. This report
presents a summary of the Proved Developed (producing and non-producing) and
Proved Undeveloped reserves anticipated to be produced from Seneca Resources'
interest.
Liquid volumes are expressed in thousands of barrels (MBbls) of stock tank oil.
Gas volumes are expressed in millions of standard cubic feet (MMSCF) at the
official temperature and pressure bases of the areas wherein the gas reserves
are located.
The summarized results of the reserve audit are as follows:
<PAGE>
Seneca Resources Corp. RALPH E. DAVIS ASSOCIATES, INC.
Mr. Don A. Brown
October 14, 1996
Page 2
Estimated Proved Reserves
Net to Seneca Resources Corporation
As of October 1, 1996
Proved Reserves
------------------------------------------------
Developed
-------------------------
Remaining Reserves Producing Non-Producing Undeveloped Total
- ------------------- --------- ------------- ----------- -----
GulfCoastdvision:
- ----------------
Oil/Condensate, MBbls 3,699 1,442 5,943 11,084
Gas, MMSCF 23,353 54,348 30,090 107,791
WestCoastDivision:
- -----------------
Oil/Condensate, MBbls 5,875 2,875 5,762 14,512
Gas, MMSCF 10,715 6,628 13,455 30,798
EastCoastDivision:
- -----------------
Oil/Condensate, MBbls 152 0 0 152
Gas, MMSCF 68,049 443 0 68,492
TOTAL:
- -----
Oil/Condensate, MBbls 9,726 4,317 11,705 25,748
Gas,MMSCF 102,117 61,419 43,545 207,081
DISCUSSION:
The scope of this study was to audit the proved reserves attributable to the
interests of Seneca Resources Corporation. Reserve estimates were prepared by
Seneca using acceptable evaluation principals for each source. The quantities
presented herein are estimated reserves of oil, condensate and natural gas that
geologic and engineering data demonstrate can be recovered from known reservoirs
under existing economic conditions with reasonable certainty.
Ralph E. Davis Associates, Inc. has audited the reserve estimates, the data
incorporated into preparing the estimates and the methodology used to evaluate
the reserves. Certain changes to either individual reserve estimates or the
categorization of reserves were suggested by Ralph E. Davis Associates, Inc. and
accepted by Seneca Resources. It is our opinion that the reserves presented
herein meet all the criteria of Proved Reserves.
<PAGE>
Seneca Resources Corp. RALPH E. DAVIS ASSOCIATES, INC.
Mr. Don A. Brown
October 14, 1996
Page 3
Neither Ralph E. Davis Associates, Inc. nor any of its employees have any
interest in Seneca Resources Corporation or the properties reported herein. The
employment and compensation to make this study are not contingent on our
estimate of reserves.
We appreciate the opportunity to be of service to you in this matter, and will
be glad to address any questions or inquiries you may have.
Very truly yours,
RALPH E. DAVIS ASSOCIATES, INC.
/s/ Allen C. Barron
Allen C. Barron, P. E.
Vice President
