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, 1999
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
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange 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 $1,907,786,000 as of November 30, 1999.
Common Stock, $1 Par Value, outstanding as of November 30, 1999:
38,966,378 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for 1999 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 17, 2000 are incorporated by reference into Part III of this
report.
For the Fiscal Year Ended September 30, 1999
Contents
Part I Page
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ITEM 1 Business
THE COMPANY AND ITS SUBSIDIARIES.......................................19
RATES AND REGULATION...................................................21
THE UTILITY SEGMENT....................................................22
THE PIPELINE AND STORAGE SEGMENT.......................................22
THE EXPLORATION AND PRODUCTION SEGMENT.................................22
THE INTERNATIONAL SEGMENT..............................................22
THE ENERGY MARKETING SEGMENT...........................................23
THE TIMBER SEGMENT.....................................................23
SOURCES AND AVAILABILITY OF RAW MATERIALS..............................23
COMPETITION............................................................24
SEASONALITY............................................................25
CAPITAL EXPENDITURES...................................................26
ENVIRONMENTAL MATTERS..................................................26
MISCELLANEOUS..........................................................26
EXECUTIVE OFFICERS OF THE COMPANY......................................26
ITEM 2 PROPERTIES
GENERAL INFORMATION ON FACILITIES......................................27
EXPLORATION AND PRODUCTION ACTIVITIES..................................28
ITEM 3 Legal Proceedings..................................................29
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................29
Part II
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ITEM 5 Market for the Registrant's Common Stock and Related
Shareholder Matters................................................29
ITEM 6 Selected Financial Data............................................30
ITEM 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................................31
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk........57
ITEM 8 Financial Statements and Supplementary Data........................57
ITEM 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................89
Part III
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ITEM 10 Directors and Executive Officers of the Registrant................89
ITEM 11 Executive Compensation............................................89
ITEM 12 Security Ownership of Certain Beneficial Owners and Management....89
ITEM 13 Certain Relationships and Related Transactions....................89
Part IV
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ITEM 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K..90
Signatures................................................................93
<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 "*" 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
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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 on
December 8, 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 a diversified energy company consisting of the six
reportable business segments. This report includes two newly-reported segments -
Energy Marketing and Timber - and no longer includes the previously reported
"Other Nonregulated" segment. As a result of these refinements in the Company's
reportable segments, where appropriate in this report the information for 1998
and 1997 has been restated from the prior year's presentation to conform to the
1999 presentation.
1. The Utility segment operations are 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 operations are carried out by National Fuel
Gas Supply Corporation (Supply Corporation), a Pennsylvania corporation, and by
Seneca Independence Pipeline Company (SIP), a Delaware 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) 29 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. SIP holds a one-third general partnership
interest in Independence Pipeline Company (Independence), a Delaware general
partnership. Independence, after receipt of regulatory approvals and upon
securing sufficient customer interest, plans to construct and operate the
Independence Pipeline, a 370-mile interstate pipeline system which would
transport about 900,000 dekatherms per day (Dth/day) of natural gas from
Defiance, Ohio to Leidy, Pennsylvania.*
3. The Exploration and Production segment operations are 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 Region of Texas and Louisiana, and in California,
Wyoming and in the Appalachian region of the United States.
4. The International segment operations are carried out by Horizon Energy
Development, Inc. (Horizon), a New York corporation. Horizon engages in foreign
energy projects through the investments of its indirect subsidiaries as the sole
or substantial owner of various business entities. Horizon is the sole
shareholder of Horizon Energy Holdings, Inc., a New York corporation which in
turn, owns 100% of Horizon Energy Development B.V. (Horizon B.V.). Horizon B.V.
is a Dutch company whose principal assets consist of a majority ownership in (i)
Severoeeske teplarny, a.s. (SCT), a company with district heating and power
generation operations located in the northern part of the Czech Republic; (ii)
Prvni severozapadni teplarenska, a.s. (PSZT), a wholesale power and district
heating company that is located in the Czech Republic in close proximity to SCT;
and (iii) Teplarna Kromeriz, a.s. (TK), a district heating company located
in the southeast region of the Czech Republic.
5. The Energy Marketing segment operations are carried out by National Fuel
Resources, Inc. (NFR), a New York corporation engaged in the marketing and
brokerage of natural gas and electricity and the performance of energy
management services for industrial, commercial, public authority and residential
end-users throughout the northeast United States.
6. The Timber segment operations are carried out by Highland Land & Minerals,
Inc. (Highland), a Pennsylvania corporation, and by a division of Seneca known
as its Northeast Division. Highland owns four sawmill operations in northwestern
Pennsylvania and processes timber consisting primarily of high quality
hardwoods. The Northeast Division of Seneca markets timber from its New York and
Pennsylvania land holdings.
Financial information about each of the Company's business segments can
be found in Item 7, MD&A and also in Item 8 at Note I - Business Segment
Information. The discussion of the Company's business segments as contained in
the business segment discussion on pages 7 to 16 of 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 is incorporated herein by reference.
The Company's other wholly-owned subsidiaries are not included in any
of the six reportable business segments and consist of the following:
o Upstate Energy Inc. (Upstate) (formerly known as Niagara Energy
Trading Inc.), a New York corporation engaged in wholesale natural
gas marketing and other energy-related activities;
o Niagara Independence Marketing Company (NIM), a Delaware
corporation which owns a one-third general partnership interest in
DirectLink Gas Marketing Company (DirectLink), a Delaware general
partnership. DirectLink was formed to engage in natural gas
marketing and related businesses, in part by subscribing for firm
transportation capacity on the Independence Pipeline;
o Leidy Hub, Inc. (Leidy), a New York corporation formed to provide
various natural gas hub services to customers in the eastern
United States through a 50% ownership of Ellisburg-Leidy Northeast
Hub Company (a Pennsylvania general partnership);
o Data-Track Account Services, Inc. (Data-Track), a New York
corporation which provides collection services principally for the
Company's subsidiaries; and
o NFR Power, Inc. (NFR Power), a New York corporation capitalized by
the Company in 1999 which, while not actively generating
electricity at this time, is designated as an "exempt wholesale
generator" under the Holding Company Act.
No single customer, or group of customers under common control,
accounted for more than 10% of the Company's consolidated revenues in 1999.
Any reference to a year in this report is to the Company's fiscal year
ended September 30 of that year unless otherwise noted.
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 and some members of Congress have advocated, on either
a stand-alone basis or in conjunction with legislation which would deregulate
the electric industry, the repeal of the Holding Company Act. The proposed
legislation currently under consideration would transfer certain oversight
responsibilities to the various state public utility regulatory commissions and
the Federal Energy Regulatory Commission (FERC) and would expand the access of
these bodies to the books and records of companies in a holding company system.
Such legislation could actually increase regulation of the Company, especially
at the state level. Previous SEC rule changes, however, have reduced the number
of applications required to be filed under the Holding Company Act, exempted
some routine financings and expanded diversification opportunities. The Company
is unable to predict at this time what the ultimate outcome of current or future
legislative and/or regulatory initiatives will be and, therefore, what impact
such efforts might have on the Company.*
The Utility segment's rates, services and other matters are regulated
by the State of New York Public Service Commission (NYPSC) 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,
MD&A under the heading "Rate Matters" and Item 8 at Note B-Regulatory Matters.
The Pipeline and Storage segment's rates, services and other matters
are regulated by the FERC. SIP is not itself regulated by the FERC, but its sole
business is the ownership of an interest in Independence, whose rates, services
and other matters will be regulated by the FERC. For additional discussion of
the Pipeline and Storage segment's rates and regulation, see Item 7, MD&A 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.
In the International segment, rates charged for the sale of thermal
energy and electric energy at the retail level are subject to regulation and
audit in the Czech Republic by the Czech Ministry of Finance. The regulation of
electric energy rates at the retail level indirectly impacts the rates charged
by the International segment for its electric energy sales at the wholesale
level.
In addition, the Company and its subsidiaries are subject to the same
federal, state and local regulations on various subjects as other companies
doing similar business in the same locations.
The Utility Segment
The Utility segment contributed approximately 49.4% of the Company's net income
available for common stock in 1999.
Additional discussion of the Utility segment appears in the business
segment discussion contained in this combined Annual Report to Shareholders/Form
10-K, below in this Item 1 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 34.6% of the
Company's net income available for common stock in 1999.
Supply Corporation currently has service agreements for substantially
all of its firm transportation capacity, which totals approximately 1,943
million cubic feet (MMcf) per day. The Utility segment has contracted for
approximately 1,126 MMcf per day or 58% of that capacity until 2003 and
continuing year-to-year thereafter. An additional 25% of Supply Corporation's
firm transportation capacity is subject to firm contracts with nonaffiliated
customers until 2003 or later.
Supply Corporation has available for sale to customers approximately
62.8 billion cubic feet (Bcf) of firm storage capacity. The Utility segment has
contracted for 26.0 Bcf or 41% of that capacity, in service agreements with
remaining initial terms of approximately 4 to 7 years and continuing
year-to-year thereafter: 23.3 Bcf - 4 years; 2.0 Bcf - 7 years and 0.7 Bcf - 5
years. Nonaffiliated customers have contracted for the remaining 36.8 Bcf or 59%
of firm storage capacity; 12.1 Bcf or 19% of total storage capacity is
contracted by nonaffiliated customers until 2003 or later. Supply Corporation
has been successful in marketing and obtaining executed contracts for storage
service (at discounted rates) as it becomes available and expects to continue to
do so.*
Independence has filed with the FERC signed precedent agreements
providing for firm transportation service totaling about 629,000 Dth/day for ten
years, out of total proposed transportation capacity of about 900,000 Dth/day.
The customer for 500,000 Dth/day of that total is DirectLink, which is owned by
the sponsors of the Independence Pipeline, including NIM.
Additional discussion of the Pipeline and Storage segment appears in
the business segment discussion 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 B-Regulatory
Matters, H-Commitments and Contingencies and I-Business Segment Information.
The Exploration and Production Segment
The Exploration and Production segment contributed approximately 6.2% of the
Company's net income available for common stock in 1999.
Additional discussion of the Exploration and Production segment appears
in the business segment discussion 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 A-Summary of
Significant Accounting Policies, F-Financial Instruments, I-Business Segment
Information, J-Stock Acquisitions and M-Supplementary Information for Oil and
Gas Producing Activities.
The International Segment
The International segment contributed approximately 2.0% of the Company's net
income available for common stock in 1999.
Additional discussion of the International segment appears in the
business segment discussion 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, I-Business Segment Information and J-Stock Acquisitions.
The Energy Marketing Segment
The Energy Marketing segment contributed approximately 1.8% of the Company's net
income available for common stock in 1999.
Additional discussion of the Energy Marketing segment appears in the
business segment discussion 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.
The Timber Segment
The Timber segment contributed approximately 4.1% of the Company's net income
available for common stock in 1999.
Additional discussion of the Timber segment appears in the business
segment discussion 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 Note I-Business Segment Information.
Sources and Availability of Raw Materials
Natural gas is the principal raw material for the Utility segment. In 1999, the
Utility segment purchased 112.4 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 66% of these purchases. Purchases of gas in
Canada and the United States on the spot market (contracts of less than a year)
accounted for 29% of the Utility segment's 1999 gas purchases. Gas purchases
from Southern Company Energy Marketing L.P. and Dynegy Marketing and Trade
represented 17% and 13%, respectively, of total 1999 gas purchases by the
Utility segment. No other producer or marketer provided the Utility segment with
10% or more of its gas requirements in 1999.
Supply Corporation transports and stores gas owned by its customers,
whose gas originates in the southwestern and Appalachian regions of the United
States as well as in Canada. SIP, through Independence, proposes to transport
natural gas produced in Canada and in the midwestern United States.
The Exploration and Production segment seeks to discover and produce
raw materials (natural gas, oil and hydrocarbon liquids) as described in the
business segment discussion 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 M - Supplementary Information for Oil and Gas Producing
Activities.
Coal is the principal raw material for the International segment,
constituting 45% of the cost of raw materials needed to operate the boilers
which produce steam or hot water. Natural gas, fuel oil, limestone and water
combined account for the remaining 55% of such materials. Coal is purchased and
delivered directly from the Mostecka Uhelna Spoleenost, a.s. mine for Horizon's
largest coal-fired plant under a contract where price and quantity are the
subject of negotiation each year. Natural gas is imported by the Czech Republic
government from Russia and the North Sea and is transported through the Transgas
pipeline system which is majority owned by the Czech Republic government and
purchased by the International segment from two of the eight regional gas
distribution companies. Fuel oil used to fire certain of the boilers is
purchased from both domestic Czech Republic and foreign refineries.
The Energy Marketing segment depends on an adequate supply of natural
gas and electricity. In 1999, this segment purchased approximately 34.5 Bcf of
natural gas and approximately 73,000 megawatt hours of electricity.
With respect to the Timber segment, Highland requires an adequate
supply of timber to process. Highland, however, mainly processes timber which is
located on land owned by Seneca, and therefore, the source and availability of
this segment's primary raw material are generally known in advance.
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.* In
addition, the environmental advantages of natural gas compared with other fuels
should increase the role of natural gas as an energy source.* 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.*
The Company competes on the basis of price, service and reliability,
product performance and other factors.
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. State restructuring initiatives are under way, with
regulators in both New York and Pennsylvania adopting retail competition for
natural gas supply purchases. However, the Utility segment's traditional
distribution function remains largely unchanged. For further discussion of state
restructuring initiatives refer to Item 7, MD&A under the heading "Rate
Matters."
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.*
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
Supply Corporation 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. Supply Corporation 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 eastern 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.*
SIP, through Independence, is competing for customers with other
proposed pipeline projects which would bring natural gas from the Chicago area
to the growing Northeast and Mid-Atlantic United States markets. In combination
with expansion projects of Transcontinental Gas Pipe Line Corporation and ANR
Pipeline Company, Independence intends to provide the least-cost path for this
service and will access the storage and market hub at Leidy, Pennsylvania.* It
is likely that not all of the proposed pipelines will go forward and that the
first project built will have an advantage over other proposed projects.*
Independence is attempting to be the first of the proposed projects approved by
the FERC and the first built.* If completed, the Independence pipeline would
likely create opportunities for increased transportation and storage services by
Supply Corporation.*
Competition: The Exploration and Production Segment
The Exploration and Production segment competes with other gas and oil producers
and marketers 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 natural gas exploration and production companies of various sizes
for leases and drilling rights for exploration and development prospects.
To compete in this environment, Seneca 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 International Segment
Horizon competes with other entities seeking to develop foreign and domestic
energy projects. Horizon, through SCT and PSZT, faces competition in the sales
of thermal energy to large industrial customers. Currently, electric energy
sales are made to the regional electric distribution companies. The Czech
Ministry of Finance has announced plans to privatize these distribution
companies. While it is expected that these plans will increase competition at
the retail level of the electric energy market, it is unclear at this point what
impact this privatization will have on the wholesale electric energy market.*
Both SCT and PSZT sell electricity at the wholesale level.
Competition: The Energy Marketing Segment
The Energy Marketing segment competes with other marketers of electricity and
natural gas and with other providers of energy management services. Although the
deregulation of electric and natural gas utilities is a relatively new
occurrence, the competition in this area is well developed with regard to price
and services and derives primarily from both local and regional marketers.
Competition: The Timber Segment
Highland competes with other sawmill operations and Seneca competes with other
suppliers of timber. This competition may be local, regional, national or
international in scope. These competitors, however, are primarily limited to
those entities which either process or supply high quality hardwoods species,
such as cherry, oak and maple as veneer, or saw logs or export logs ultimately
used in the production of high-end furniture, cabinetry and flooring. The Timber
segment markets its products both nationally and internationally.
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. In the International segment, district
heating operations in the Czech Republic are also subject to the seasonality of
weather.
Volumes transported and stored by Supply Corporation may vary
materially depending on weather, without materially affecting its earnings.
Supply Corporation'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.
Variations in weather conditions can materially affect the volume of
gas and electricity consumed by customers of the Energy Marketing segment.
The activities of the Timber segment vary on a seasonal basis and are
subject to weather constraints. The timber harvesting and processing season
occurs when timber growth is dormant and runs from approximately September to
March. The operations conducted in the summer months focus on pulpwood and on
thinning out lower-grade species from the timber stands to encourage the growth
of higher-grade species.
Capital Expenditures
A discussion of capital expenditures by business segment is included in Item 7,
MD&A under the heading "Investing Cash Flow" and subheading "Expenditures for
Long-Lived Assets."
Environmental Matters
A discussion of material environmental matters involving the Company is included
in Item 7, MD&A under the heading "Other Matters" and in Item 8, Note
H-Commitments and Contingencies.
Miscellaneous
The Company had a total of 3,807 full-time employees at September 30, 1999,
2,401 employees in all of its U.S. operations and 1,406 employees in its
International segment. This represents a decrease of 3.47% from the 3,944 total
employed at September 30, 1998.
Agreements covering employees in collective bargaining units in New
York were renegotiated in November 1997, effective December 1997, and are
scheduled to expire in February 2001. Agreements covering most employees in
collective bargaining units in Pennsylvania have been renegotiated, effective
November 1998, and are scheduled to expire in April and May 2003.
The Company has numerous municipal franchises under which it uses
public roads and certain other rights-of-way and public property for the
location of facilities. When necessary, the Company renews such franchises.
Executive Officers of the Company(1)
- ---------------------------- ---------------------------------------------------
Name and Age Current Company Positions and Other Material
Business Experience During Past 5 Years(2)
- ---------------------------- ---------------------------------------------------
Bernard J. Kennedy Chairman of the Board of Directors since March
(68) 1989, Chief Executive Officer since August 1988
and Director since March 1978. Mr. Kennedy
previously served as President from January 1987
to July 1999.
- ---------------------------- ---------------------------------------------------
Philip C. Ackerman President since July 1999 and Director since March
(55) 1994. Mr. Ackerman has served as Executive Vice
President of Supply Corporation since October 1994
and President of Horizon since September 1995.
He previously served as Senior Vice President from
June 1989 to July 1999 and as President of
Distribution Corporation from October 1995 to
July 1999.
- ---------------------------- ---------------------------------------------------
Richard Hare President of Supply Corporation since June 1989.
(61) Mr. Hare previously served as Senior Vice President
of Penn-York Energy Corporation from June 1989
until its merger into Supply Corporation in July
1994.
- ---------------------------- ---------------------------------------------------
David F. Smith President of Distribution Corporation since July
(46) 1999. Mr. Smith previously served as Senior Vice
President of Distribution Corporation from January
1993 to July 1999.
- ---------------------------- ---------------------------------------------------
James A. Beck President of Seneca since October 1996 and
(52) President of Highland since March 1998. Mr. Beck
previously served as Vice President of Seneca from
January 1994 to April 1995 and as Executive Vice
President of Seneca from May 1995 to September
1996.
- ---------------------------- ---------------------------------------------------
Joseph P. Pawlowski Treasurer since December 1980. Mr. Pawlowski has
(58) served as Senior Vice President of Distribution
Corporation since February 1992, Treasurer of
Distribution Corporation since January 1981,
Treasurer of Supply Corporation since June 1985 and
Secretary of Supply Corporation since October 1995.
- ---------------------------- ---------------------------------------------------
Gerald T. Wehrlin Controller since December 1980. Mr. Wehrlin has
(61) served as Senior Vic President of Distribution
Corporation since April 1991, Controller of Seneca
since September 1981 and Vice President of Horizon
since February 1997. He previously served as
Secretary and Treasurer of Horizon from September
1995 to February 1997.
- ---------------------------- ---------------------------------------------------
- -------------------------- -----------------------------------------------------
Name and Age Current Company Positions and Other Material
Business Experience During Past 5 Years(2)
- ---------------------------- ---------------------------------------------------
Walter E. DeForest Senior Vice President of Distribution Corporation
(58) since August 1993.
- ---------------------------- ---------------------------------------------------
Bruce H. Hale Senior Vice President of Supply Corporation since
(50) February 1997 a nd Vice President of Horizon since
September 1995. Mr. Hale previously served as
Senior Vice President of Distribution Corporation
from January 1993 to February 1997.
- ---------------------------- ---------------------------------------------------
Dennis J. Seeley Senior Vice President of Distribution Corporation
(56) since February 1997. Mr. Seeley previously served
as Senior Vice President of Supply Corporation from
January 1993 to February 1997.
- ---------------------------- ---------------------------------------------------
Robert J. Kreppel President of NFR since March 1995. Mr. Kreppel
(42) previously served as Vice President of NFR from
February 1992 to March 1995.
- ---------------------------- ---------------------------------------------------
(1) 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. The executive officers serve at the
pleasure of the Board of Directors.
(2) The information provided relates to positions within the Company and,
where identified, the principal subsidiaries of the Company. Many of the
executive officers have in the past served or currently serve as
officers for other subsidiaries of the Company.
ITEM 2 Properties
General Information on Facilities
The investment of the Company in net property, plant and equipment was $2.4
billion at September 30, 1999. Approximately 59% 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 (29%),
which is primarily located in the Gulf Coast, southwestern, western and
Appalachian regions of the United States, the International segment (9%) which
is located in the Czech Republic, and the Timber segment (3%) which is located
primarily in northwestern Pennsylvania. During the past five years, the Company
has made significant additions to property, plant and equipment in order to
expand and improve transmission and distribution facilities for both retail and
transportation customers, to augment the reserve base of oil and gas, and to
purchase district heating and power generation facilities in the Czech Republic.
Net property, plant and equipment has increased $808.3 million, or 52%, since
1994.
The Utility segment has the largest net investment in property, plant
and equipment, compared with the Company's other business segments. The net
investment in its gas distribution network (including 14,773 miles of
distribution pipeline) and its services represent approximately 58% and 29%,
respectively, of the Utility segment's net investment of $919.6 million at
September 30, 1999.
The Pipeline and Storage segment represents a net investment of $466.5
million in property, plant and equipment at September 30, 1999. Transmission
pipeline, with a net cost of $145.3 million, represents 31% of this segment's
total net investment and includes 2,583 miles of pipeline required to move large
volumes of gas throughout its service area. Storage facilities consist of 33
storage fields, 4 of which are jointly operated with certain pipeline suppliers,
and 482 miles of pipeline. Net investment in storage facilities includes $85.1
million of gas stored underground-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 29
compressor stations with 74,646 installed compressor horsepower.
The Exploration and Production segment had a net investment in
property, plant and equipment amounting to $674.8 million at September 30, 1999.
The International segment had a net investment in property, plant and
equipment amounting to $203.5 million at September 30, 1999. PSZT's net
investment in district heating and electric generation facilities was $147.5
million; SCT's net investment in district heating and electric generation
facilities was $55.0 million; and TK's net investment in district heating
facilities was approximately $1.0 million.
The Timber segment had a net investment in property, plant and
equipment of $88.9 million at September 30, 1999. Located primarily in
northwestern Pennsylvania, the net investment includes 4 sawmills and
approximately 140,000 acres of timber.
The Utility and Pipeline and Storage segments' facilities provided the
capacity to meet its 1999 peak day sendout, including transportation service, of
1,909 MMcf, which occurred on January 5, 1999. Withdrawals from storage of 687
MMcf provided approximately 36% of the requirements on that day.
Company maps are included on pages 2 and 3 of the paper copy of the
Company's combined Annual Report to Shareholders/Form 10-K, and 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
M-Supplementary Information for Oil and Gas Producing Activities. Note M sets
forth proved developed and undeveloped reserve information for Seneca. Seneca's
oil and gas reserves reported in Note M as of September 30, 1999 were estimated
by Seneca's qualified geologists and engineers and were audited by independent
petroleum engineers from Ralph E. Davis Associates, Inc. Seneca reports its oil
and gas reserve information on an annual basis to the Energy Information
Administration (EIA). The basis of reporting Seneca's reserves to the EIA is
identical to that reported in Note M.
The following is a summary of certain oil and gas information taken
from Seneca's records:
<TABLE>
<CAPTION>
Production
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
For the Year Ended September 30 1999 1998 1997
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Average Sales Price per Mcf of Gas(1) $2.20 $2.45 $2.60
Average Sales Price per Barrel of Oil(1) $12.85 $12.15 $20.63
Average Production (Lifting) Cost per Mcf
Equivalent of Gas and Oil Produced $0.46 $0.45 $0.35
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
(1) Prices do not reflect gains or losses from hedging activities.
<TABLE>
<CAPTION>
Productive Wells
- --------------------------------------------------------------------------------------------
At September 30, 1999 Gas Oil
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Productive Wells - gross 1,934 895
- net 1,801 845
- --------------------------------------------------------------------------------------------
</TABLE>
Developed and Undeveloped Acreage
- --------------------------------------------------------------------------------
At September 30, 1999
- --------------------------------------------------------------------------------
Developed Acreage - gross 636,221
- net 558,651
Undeveloped Acreage - gross 1,043,757
- net 753,106
- -------------------------------------- ---------------- ------------------------
<TABLE>
<CAPTION>
Drilling Activity
- ---------------------------------------------------------------------------------------------------------------------
Productive Dry
--------------------------------------------------------------
For the Year Ended September 30 1999 1998 1997 1999 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Wells Completed - Exploratory 12.95 10.72 4.21 5.64 4.97 3.49
- Development 95.26 14.11 1.84 4.75 2.00 1.60
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Present Activities
- --------------------------------------------------------------------------------
At September 30, 1999
- --------------------------------------------------------------------------------
Wells in Process of Drilling - gross 13.00
- net 10.01
- --------------------------------------------------------------------------------
South Lost Hills Waterflood Program
In Seneca's South Lost Hills Field (acquired in 1998 as part of the HarCor
Energy, Inc. and Bakersfield Energy Resources, Inc. acquisitions) a waterflood
project was initiated in 1996 on the Ellis lease in the Diatomite reservior for
pressure maintenance and recovery enhancement purposes. Currently there are 27
injection wells and 88 production wells in the program. The total injection and
production from this waterflood project are 7,000 barrels of water per day and
400 barrels of oil per day, respectively.
ITEM 3 Legal Proceedings
For a discussion of various environmental matters, refer to Item 7, MD&A of this
report under the heading "Other Matters" and to Item 8 at Note H-Commitments and
Contingencies.
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 1999.
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 L-Market for
Common Stock and Related Shareholder Matters (unaudited) under Item 8 of this
combined Annual Report to Shareholders/Form 10-K, and reference is made thereto.
On July 1, 1999, the Company issued 700 unregistered shares of Company
common stock to the seven non-employee directors of the Company, 100 shares to
each such director. These shares were issued as partial consideration for the
directors' service as directors during the quarter ended September 30, 1999,
pursuant to the Company's Retainer Policy for Non-Employee Directors. These
transactions were exempt from registration by Section 4(2) of the Securities Act
of 1933, as amended, as transactions not involving any public offering.
<TABLE>
<CAPTION>
ITEM 6 Selected Financial Data
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended September 30 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations (Thousands)
Operating Revenues $1,263,274 $1,248,000 $1,265,812 $1,208,017 $975,496
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Purchased Gas 405,925 441,746 528,610 477,357 351,094
Fuel Used in Heat and
Electric Generation 55,788 37,837 1,489 - -
Operation and Maintenance 323,888 319,769 286,537 309,206 292,505
Property, Franchise and Other Taxes 91,146 92,817 100,549 99,456 91,837
Depreciation, Depletion and
Amortization 129,690 118,880 111,650 98,231 71,782
Impairment of Oil and Gas
Producing Properties - 128,996 - - -
Income Taxes 64,829 24,024 68,674 66,321 43,879
- ----------------------------------------------------------------------------------------------------------------------------------
1,071,266 1,164,069 1,097,509 1,050,571 851,097
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Income 192,008 83,931 168,303 157,446 124,399
Other Income 12,343 35,870 3,196 3,869 5,378
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges and
Minority Interest in Foreign Subsidiaries 204,351 119,801 171,499 161,315 129,777
Interest Charges 87,698 85,284 56,811 56,644 53,883
- ----------------------------------------------------------------------------------------------------------------------------------
Minority Interest in Foreign Subsidiaries (1,616) (2,213)
- - -
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Cumulative Effect 115,037 32,304 114,688 104,671 75,894
Cumulative Effect of Change in
Accounting - (9,116) - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income Available for Common
Stock $115,037 $ 23,188 $114,688 $104,671 $ 75,894
- ----------------------------------------------------------------------------------------------------------------------------------
Per Common Share Data
Basic Earnings per Common Share $2.98 $0.61(1) $3.01 $2.78 $2.03
Diluted Earnings per Common Share $2.95 $0.60(1) $2.98 $2.77 $2.03
Dividends Declared $1.83 $1.77 $1.71 $1.65 $1.60
Dividends Paid $1.82 $1.76 $1.70 $1.64 $1.59
Dividend Rate at Year-End $1.86 $1.80 $1.74 $1.68 $1.62
At September 30:
Number of Common Shareholders 22,336 23,743 20,267 21,640 21,429
- ----------------------------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment (Thousands)
Utility $919,642 $906,754 $889,216 $855,161 $822,764
Pipeline and Storage 466,524 460,952 450,865 452,305 463,647
Exploration and Production 674,813 638,886 443,164 375,958 339,950
International 203,452 202,590 942 1,274 70
Energy Marketing 489 353 123 41 54
Timber 88,904 38,593 34,872 24,680 22,146
All Other 63 - 173 172 420
Corporate 7 9 11 15 131
- ----------------------------------------------------------------------------------------------------------------------------------
Total Net Plant $2,353,894 $2,248,137 $1,819,366 $1,709,606 $1,649,182
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets (Thousands) $2,842,586 $2,684,459 $2,267,331 $2,149,772 $2,036,823
- ----------------------------------------------------------------------------------------------------------------------------------
Capitalization (Thousands)
Common Stock Equity $ 939,293 $ 890,085 $ 913,704 $ 855,998 $ 800,588
Long-Term Debt, Net of Current Portion 822,743 693,021 581,640 574,000 474,000
Total Capitalization $1,762,036 $1,583,106 $1,495,344 $1,429,998 $1,274,588
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1998 includes oil and gas asset impairment of ($2.06) basic, ($2.04)
diluted and cumulative effect of a change in depletion methods of ($0.24)
basic and diluted. Refer to further discussion of these items in Notes to
Financial Statements, Note A - Summary of Significant Accounting Policies.
ITEM 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
1999 Compared with 1998
The Company's earnings were $115.0 million, or $2.98 per common share ($2.95 per
common share on a diluted basis), in 1999. This compares with 1998 earnings of
$23.2 million, or $0.61 per common share ($0.60 per common share on a diluted
basis). Earnings for 1998 included a $79.1 million (after tax) non-cash
impairment of the Exploration and Production segment's oil and gas assets and
the non-cash cumulative effect of a change in accounting. The 1998 accounting
change, which was a change in depletion methods for the Exploration and
Production segment's oil and gas assets, had a negative $9.1 million (after
tax), or $0.24 per common share, non-cash cumulative effect through fiscal 1997,
which was recorded in the first quarter of fiscal 1998. Excluding these two
non-cash special items, earnings for 1998 would have been $111.4 million, or
$2.91 per common share ($2.88 per common share on a diluted basis).
The increase in 1999 earnings of $3.6 million (exclusive of the two
non-cash special items in 1998) is the result of higher earnings in the Utility,
Timber, Energy Marketing and International segments and in Corporate operations.
These higher earnings were offset in part by reduced earnings in the Exploration
and Production segment. The Pipeline and Storage segment's earnings remained
level with the prior year. Additional discussion of earnings in each of the
business segments can be found in the business segment information that follows.
1998 Compared with 1997
The Company's earnings were $23.2 million, or $0.61 per common share ($0.60 per
common share on a diluted basis), in 1998. These earnings include the two
non-cash special items discussed above. Without these two non-cash items,
earnings for 1998 would have been $111.4 million, or $2.91 per common share
($2.88 per common share on a diluted basis). This compares with earnings of
$114.7 million, or $3.01 per common share ($2.98 per common share on a diluted
basis), in 1997.
The earnings decrease in 1998 was attributable to lower earnings of the
Company's Utility, Exploration and Production and Energy Marketing segments,
offset in part by higher earnings in the Pipeline and Storage segment and in the
International and Timber segments (both of which incurred a loss in 1997).
Additional discussion of earnings in each of the business segments can be found
in the business segment information that follows.
Discussion of Asset Impairment and Cumulative Effect of a Change in Depletion
Method
Seneca follows the full-cost method of accounting for its oil and gas
operations. Under this method, all costs directly associated with property
acquisitions, exploration and development are capitalized, up to certain
specified limits. Due to significant declines in oil prices in 1998, Seneca's
capitalized costs under the full-cost method of accounting exceeded these limits
at March 31, 1998. Seneca was required to recognize an impairment of its oil and
gas producing properties in the quarter ended March 31, 1998. This charge
amounted to $129.0 million (pretax) and reduced net income for 1998 by $79.1
million.
Effective October 1, 1997, Seneca changed its method of depletion for
oil and gas properties from the gross revenue method to the units of production
method. The units of production method was applied retroactively to prior years
to determine the cumulative effect through October 1, 1997. This cumulative
effect reduced earnings for 1998 by $9.1 million, net of income tax. Depletion
of oil and gas properties for 1999 and 1998 has been computed under the units of
production method.
<TABLE>
<CAPTION>
Earnings (Loss) by Segment
- ---------------------------------------------------------------------------------------------------------------------
Year Ended September 30 (Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Utility $56,875 $51,788 $57,220
Pipeline and Storage 39,765 39,852 36,760
Exploration and Production (1) (2) 7,127 (64,110) 20,359
International 2,276 1,279 (3,348)
Energy Marketing 2,054 787 1,567
Timber 4,769 1,904 (609)
- ---------------------------------------------------------------------------------------------------------------------
Total Reportable Segments 112,866 31,500 111,949
All Other (162) 143 171
Corporate 2,333 661 2,568
- ---------------------------------------------------------------------------------------------------------------------
Total Consolidated (1) (2) $115,037 $32,304 $114,688
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before Cumulative Effect of a Change in Accounting in 1998
(2) Exclusive of the non-cash asset impairment, 1998 earnings for the
Exploration and Production segment and Total Consolidated would have been
$15,004 and $111,418, respectively.
Utility
Revenues
<TABLE>
<CAPTION>
Utility Operating Revenues
- ---------------------------------------------------------------------------------------------------------------------
Year Ended September 30 (Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail Revenues:
Residential $581,022 $612,647 $709,968
Commercial 101,482 123,807 167,338
Industrial 15,903 18,068 22,412
- ---------------------------------------------------------------------------------------------------------------------
698,407 754,522 899,718
- ---------------------------------------------------------------------------------------------------------------------
Off-System Sales 29,214 44,479 43,857
Transportation 77,600 62,844 49,285
Other 2,134 9,335 (1,494)
- ---------------------------------------------------------------------------------------------------------------------
$807,355 $871,180 $991,366
- ---------------------------------------------------------------------------------------------------------------------
Utility Throughput - (MMcf)
- ---------------------------------------------------------------------------------------------------------------------
Year Ended September 30 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
Retail Sales:
Residential 71,177 71,704 85,676
Commercial 13,885 16,405 22,640
Industrial 4,144 4,298 5,134
- ---------------------------------------------------------------------------------------------------------------------
89,206 92,407 113,450
- ---------------------------------------------------------------------------------------------------------------------
Off-System Sales 12,469 16,192 14,051
Transportation 64,284 60,386 57,875
- ---------------------------------------------------------------------------------------------------------------------
165,959 168,985 185,376
Intrasegment Throughput (198) (306) (565)
- ---------------------------------------------------------------------------------------------------------------------
165,761 168,679 184,811
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
1999 Compared with 1998
Operating revenues for the Utility segment decreased $63.8 million in 1999
compared with 1998. This resulted from a reduction in retail and off-system gas
sales revenue of $56.1 million and $15.3 million, respectively, and a reduction
in other operating revenue of $7.2 million. These decreases were partly offset
by an increase in transportation revenue of $14.8 million.
The recovery of lower gas costs (gas costs are recovered dollar for
dollar in revenues) and the general base rate decrease in the New York
jurisdiction effective October 1, 1998 caused the decrease in retail gas
revenue. The recovery of lower gas costs resulted from both lower retail volumes
sold of 3.2 billion cubic feet (Bcf) and a lower average cost of purchased gas
(see discussion of purchased gas below under the heading "Purchased Gas").
Despite weather that was colder than the prior year, retail volumes sold
decreased, mainly due to the migration of residential and small commercial
retail customers to transportation service. This is the result of customers
turning to marketers for their gas supplies while using Distribution Corporation
for gas transportation service. (Restructuring in the Utility segment's service
territory is further discussed in the "Rate Matters" section that follows).
Transportation revenue increased and volumes are up 3.9 Bcf as a result of the
migration noted above and because of colder weather. Off-system revenue is down
due to lower volumes sold of 3.7 Bcf. Off-system sales are a function of demand
in the northeast markets. Record storage levels at the beginning of the 1998-99
heating season and a warmer than normal winter in 1998-99 reduced demand for
off-system sales. The margins resulting from off-system sales are minimal.
The decrease in other operating revenue of $7.2 million is due
primarily to a $7.2 million gas restructuring reserve reducing revenue in the
current year, $6.0 million of revenue recorded in 1998 as a result of Internal
Revenue Service (IRS) audits and $0.5 million of a revenue reduction in the
current year due to a final IRS audit settlement. These items are offset in part
by a $7.1 million lower refund provision recorded in 1999 as compared with the
1998 refund provision. The gas restructuring reserve is to be applied against
incremental costs resulting from the New York Public Service Commission's
(NYPSC) gas restructuring efforts (the NYPSC's gas restructuring efforts are
further discussed in the "Rate Matters" section that follows). The revenue
related to the IRS audits represents the rate recovery of interest expense as
allowed by the New York rate settlement of 1996. The refund provision represents
the 50% sharing with customers of earnings over a predetermined amount in
accordance with the New York rate settlements of 1996 and 1998. All of these
items are included in the "Other" category of the Utility Operating Revenue
table above.
1998 Compared with 1997
Operating revenues for the Utility segment decreased $120.2 million in 1998
compared with 1997. This resulted from a reduction in retail sales revenue of
$145.2 million offset in part by higher off-system sales revenue, transportation
revenue and other revenue of $0.6 million, $13.6 million and $10.8 million,
respectively.
The decrease in retail gas revenue was caused by the recovery of
lower gas costs offset in part by a general base rate increase in the New York
jurisdiction effective October 1, 1997. The recovery of lower gas costs resulted
from a decrease in retail gas sales of 21.0 Bcf and a decrease in the average
cost of purchased gas (see discussion of purchased gas below under the heading
"Purchased Gas"). While the decrease in gas sales also reflects, in part, the
migration of residential and small commercial retail customers to transportation
service, the major reason for the decrease stems from warmer weather which was
on average 13.8% warmer in 1998 than in 1997 (see Degree Days table below).
The increase in other operating revenue of $10.8 million is due
primarily to $6.0 million of revenue recorded in 1998 as a result of IRS audits,
as discussed above, and $7.9 million of refund pool revenue, as discussed below,
offset in part by a $4.7 million higher refund provision recorded in 1998 as
compared with 1997. The refund provision represents the 50% sharing with
customers of earnings over a predetermined amount in accordance with the New
York rate settlement of 1996.
As part of the 1996 rate settlement with the NYPSC, Distribution
Corporation was allowed to utilize certain refunds from upstream pipeline
companies and certain credits (referred to as the "refund pool") to offset
certain specific expense items. In September 1998, Distribution Corporation
recognized $7.9 million of the refund pool as other operating revenue and
recorded an equal amount of Operation and Maintenance (O&M) expense in
accordance with the settlement agreement.
Earnings
1999 Compared with 1998
In the Utility segment, 1999 earnings were $56.9 million, up $5.1 million from
the prior year. This was largely because the settlement of the primary issues of
IRS audits of years 1977-1994 had a negative impact on earnings in 1998. In
addition, adjustments made relating to the final settlement of these audits had
a positive impact to earnings in the current year. Absent the IRS audit items,
earnings of the Utility segment were up $0.6 million from the prior year.
Lower O&M and interest expenses, a lower refund provision in the
current year (as noted in the revenue discussion above), positive adjustments
for lost and unaccounted-for gas related to 1998 and 1999 and slightly colder
weather (which mainly benefits the Pennsylvania jurisdiction), were the positive
contributors to earnings this year. These items offset the costs associated with
the current year's early retirement offers (which totaled $5.6 million, pretax,
for this segment), as well as the effects of a rate settlement that included a
$7.2 million rate reduction in New York that became effective October 1, 1998
and a special $7.2 million (pretax) reserve to be applied against incremental
costs resulting from the NYPSC gas restructuring efforts, as discussed above.
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 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 1999, the WNC in New York preserved
earnings of approximately $0.6 million (after tax) as weather, overall, was
warmer than normal for the period of October 1998 through May 1999. Since the
Pennsylvania rate jurisdiction does not have a WNC, uncontrollable weather
variations directly impact earnings. In the Pennsylvania service territory,
weather was 4.0% colder than 1998 and 9.9% warmer than normal. The Pennsylvania
jurisdiction's colder weather in 1999 compared with 1998 increased earnings by
approximately $0.5 million (after tax).
1998 Compared with 1997
Utility segment 1998 earnings were $51.8 million, down $5.4 million from 1997.
This decrease was largely the result of the Utility segment incurring interest
expense in 1998, net of related rate recovery, in connection with the settlement
of the primary issues relating to the previously referred to settlement of the
IRS audits. Absent this interest expense, the Utility segment's earnings were
down $1.6 million as compared to 1997. Warmer weather in 1998 compared with 1997
was the primary cause of the decrease.
Partly offsetting the earnings decrease caused by warmer weather, the
Utility segment experienced a decrease in O&M expense as a result of
management's continued emphasis on controlling costs. Also contributing to this
decrease, 1997 O&M expense included $0.9 million of pretax expenses associated
with an early retirement offer to certain Pennsylvania operating union employees
in 1997.
In 1998, the WNC in New York preserved earnings of approximately $7.9
million (after tax) as weather, overall, was warmer than normal for the period
of October 1997 through May 1998. In the Pennsylvania service territory, weather
was 15.7% warmer than 1997 and 13.4% warmer than normal. The Pennsylvania
jurisdiction's warmer weather in 1998 compared with 1997 lowered earnings by
approximately $4.0 million (after tax).
<TABLE>
<CAPTION>
Degree Days
- ----------------------------------------------------------------------------------------------------------------------
Percent (Warmer)
Colder Than
--------------------------------
Year Ended September 30 Normal Actual Normal Prior Year
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999: Buffalo 6,848 6,179 (9.8%) 4.5%
Erie 6,223 5,607 (9.9%) 4.0%
- ----------------------------------------------------------------------------------------------------------------------
1998: Buffalo 6,689 5,914 (11.6%) (12.9%)
Erie 6,223 5,389 (13.4%) (15.7%)
- ----------------------------------------------------------------------------------------------------------------------
1997: Buffalo 6,690 6,793 1.5% (5.7%)
Erie 6,223 6,395 2.8% (5.5%)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Purchased Gas
The cost of purchased gas is currently 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 six 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 $3.82 per thousand cubic feet (Mcf) in 1999, a
decrease of 7.5% from the average cost of $4.13 per Mcf in 1998. The average
cost of purchased gas in 1998 was 3% lower than the $4.26 per Mcf in 1997.
Pipeline and Storage
Revenues
<TABLE>
<CAPTION>
Pipeline and Storage Operating Revenues
- ---------------------------------------------------------------------------------------------------------------------
Year Ended September 30 (Thousands) 1999 1998 1997
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Firm Transportation $91,659 $93,362 $92,027
Interruptible Transportation 476 985 831
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
92,135 94,347 92,858
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Firm Storage Service 63,655 62,850 64,147
Interruptible Storage Service 173 655 74
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
63,828 63,505 64,221
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Other 12,820 13,131 15,615
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
$168,783 $170,983 $172,694
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
Pipeline and Storage Throughput - (MMcf)
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 1999 1998 1997
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Firm Transportation 300,242 298,738 291,164
Interruptible Transportation 8,061 14,310 9,138
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
308,303 313,048 300,302
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
1999 Compared with 1998
Operating revenues decreased $2.2 million in 1999 compared with 1998. The
decrease resulted primarily from lower firm transportation revenue of $1.7
million, lower interruptible transportation and storage service revenue of $1.0
million, lower net revenues from unbundled pipeline sales and open access
transportation of $0.8 million and an accrual for a gas imbalance payable of
$1.0 million. These items were offset in part by higher firm storage service
revenue of $0.8 million and higher cashout revenue of $1.3 million.
Approximately $1.0 million of the decrease in the firm transportation
revenue related to "pass through" type items (i.e., surcharges and refunds) that
correspondingly reduced O&M expense, thus having no bottom line earnings impact.
Interruptible transportation and storage service revenue decreased (and
interruptible volumes transported decreased 6.2 Bcf) as a result of full
storages at the beginning of the 1998-99 heating season and a warmer than normal
winter in 1998-99; thus Supply Corporation lacked available storage space to
service interruptible customers. Lower interruptible storage service generally
results in lower interruptible transportation. The higher cashout revenue (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) is offset by an equal amount of purchased gas
expense, thus there is no bottom line earnings impact.
Transportation volumes in this segment decreased 4.7 Bcf. Generally,
volume fluctuations do not have a significant impact on revenues as a result of
Supply Corporation's straight fixed-variable (SFV) rate design. However, as
mentioned above, lower interruptible transportation volumes did negatively
impact revenue for 1999.
1998 Compared with 1997
Operating revenues decreased $1.7 million in 1998 compared with 1997. The
decrease resulted primarily from lower net revenues from unbundled pipeline
sales and open access transportation of $1.8 million, lower firm storage service
revenues of $1.3 million and lower cashout revenue of $1.1 million. These
decreases were partially offset by an increase in firm transportation revenue of
$1.3 million (resulting from demand charges related to the incremental expansion
of this segment's Niagara import facilities) and higher interruptible
transportation and storage service revenues of $0.7 million.
Transportation volumes in this segment increased 12.8 Bcf. As noted
above, generally, volume fluctuations do not have a significant impact on
revenues as a result of Supply Corporation's SFV rate design. However, the
increase in capacity stemming from the above noted incremental expansion
contributed to higher demand charge revenue. Higher interruptible transportation
volumes also increased revenues.
Earnings
1999 Compared with 1998
Earnings in the Pipeline and Storage segment remained at $39.8 million for 1999
and 1998. Lower revenues, as discussed above, and nonrecurring income in 1998
from a buyout of a firm transportation agreement by a customer in the amount of
$2.5 million (pretax), were offset by lower O&M and interest expenses. Items
causing lower O&M expense in 1999 when compared to 1998 include the
establishment of reserves, in 1998, for preliminary survey and investigation
costs associated with a proposed incremental expansion project and a natural gas
gathering project (mainly due to lack of interest in furthering these projects).
In addition, Supply Corporation recognized a base gas loss at its Zoar Storage
Field in 1998. In total, these three items amounted to $3.7 million of pretax
expense in 1998. In 1999, Supply Corporation reversed $0.8 million (pretax) of
the gathering project reserve as it recovered that amount from its former
project partner. Also in 1999, Supply recovered, through insurance, $0.7 million
(pretax) related to the Zoar base gas loss. Several significant items also
increased O&M expense in 1999 when compared to 1998, including early retirement
offers in 1999 (which totaled $1.4 million, pretax, for this segment) and the
1998 reversal of a portion of a reserve set up in a prior period for a storage
project. Supply Corporation was able to recover approximately $1.0 million
(pretax) by selling preliminary engineering, survey, environmental and
archeological information from this storage project to the Independence Pipeline
Company (the Independence Pipeline project is discussed further under "Investing
Cash Flow," subheading "Pipeline and Storage").
1998 Compared with 1997
In the Pipeline and Storage segment, earnings for 1998 of $39.8 million
increased $3.1 million when compared with 1997. This was mainly due to Supply
Corporation's portion of interest income from the previously mentioned
settlement of IRS audits. Additional income tax expense related to certain
unsettled issues was also recorded. Absent these IRS audit items, earnings would
have been down $0.3 million when compared with 1997. This decrease reflects the
lower revenues, as discussed above, and an increase in O&M expense. These items
were offset in part by lower interest expense and a buyout of a firm
transportation agreement by a customer in the amount of $2.5 million (pretax).
The higher O&M expenses resulted primarily from the above noted establishment of
reserves associated with a proposed incremental expansion project and a natural
gas gathering project and the base gas loss at Zoar Storage Field. Partially
offsetting these increases in O&M expense was the reversal of a portion of a
reserve set up in a prior period for a storage project and the fact that 1997
O&M expense included $1.0 million of pretax expenses associated with an early
retirement offer.
Exploration and Production
Revenues
<TABLE>
<CAPTION>
Exploration and Production Operating Revenues
- --------------------------------------------------------------- ----------------- ---------------- ------------------
Year Ended September 30 (Thousands) 1999 1998 1997
- --------------------------------------------------------------- ----------------- ---------------- ------------------
<S> <C> <C> <C>
Gas (after Hedging) $83,229 $82,910 $84,024
Oil (after Hedging) 52,050 34,069 34,147
Gas Processing Plant 11,751 4,937 -
Other (36) 2,356 1,089
- --------------------------------------------------------------- ----------------- ---------------- ------------------
$146,994 $124,272 $119,260
- --------------------------------------------------------------- ----------------- ---------------- ------------------
</TABLE>
1999 Compared with 1998
Operating revenues increased $22.7 million in 1999 compared with 1998. Oil
production revenues, net of hedging activities, increased $18.0 million as
production increased 54% (mainly the result of West Coast production from the
properties acquired in 1998). Gas production revenue, net of hedging activities,
increased $0.3 million due to higher production (also mainly the result of West
Coast production from the properties acquired in 1998). Refer to the tables
below for production and price information. Revenue from Seneca's gas processing
plant, acquired as part of the HarCor Energy, Inc. (HarCor) and Bakersfield
Energy Resources (BER) acquisitions in May and June 1998, was up $6.8 million.
These items were partly offset by a negative mark-to-market revenue adjustment
related to written options of $1.3 million. Refer to further discussion of
written options in the "Market Risk Sensitive Instruments" section that follows
and in Note F - Financial Instruments in Item 8 of this report.
1998 Compared with 1997
Operating revenues increased $5.0 million in 1998 compared with 1997. The main
reason for the increase was the $4.9 million in revenues related to the gas
processing plant acquired in 1998, as noted above. While this gas processing
plant contributed a large amount of revenue, this revenue was basically offset
by an equal amount of expense.
Gas production revenues, net of hedging activities, decreased $1.1
million as a result of decreased production, offset in part by higher gas prices
(after hedging). Refer to the tables below for production and price information.
The gas production declines were mainly due to the shut-in of production during
the Gulf hurricane season and tropical storms, as well as the expected decline
in production of West Cameron 552 and delays in drilling due to lack of rig
availability in the first half of the year. Oil production revenues, net of
hedging activities, were basically even with 1997 as increased production was
offset by lower oil prices (after hedging). The increase in oil production was
mainly the result of West Coast production from the properties acquired in the
Whittier Trust Company, HarCor and BER acquisitions.
<TABLE>
<CAPTION>
Production Volumes
- --------------------------------------------------------------- ----------------- ---------------- ------------------
Year Ended September 30 1999 1998 1997
- --------------------------------------------------------------- ----------------- ---------------- ------------------
<S> <C> <C> <C>
Gas Production (million cubic feet)
Gulf Coast 28,758 29,461 32,377
West Coast 3,977 2,146 1,135
Appalachia 4,431 4,867 5,074
- --------------------------------------------------------------- ----------------- ---------------- ------------------
37,166 36,474 38,586
- --------------------------------------------------------------- ----------------- ---------------- ------------------
Oil Production (thousands of barrels)
Gulf Coast 1,373 1,228 1,404
West Coast 2,633 1,376 490
Appalachia 10 10 8
- --------------------------------------------------------------- ----------------- ---------------- ------------------
4,016 2,614 1,902
- --------------------------------------------------------------- ----------------- ---------------- ------------------
</TABLE>
<TABLE>
<CAPTION>
Average Prices
- --------------------------------------------------------------- ----------------- ---------------- ------------------
Year Ended September 30 1999 1998 1997
- --------------------------------------------------------------- ----------------- ---------------- ------------------
<S> <C> <C> <C>
Average Gas Price/Mcf
Gulf Coast $2.15 $2.40 $2.60
West Coast $2.28 $2.14 $1.79
Appalachia $2.44 $2.88 $2.79
Weighted Average $2.20 $2.45 $2.60
Weighted Average After Hedging $2.24 $2.27 $2.18
Average Oil Price/bbl
Gulf Coast $15.18 $14.69 $21.37
West Coast(1) $11.62 $9.85 $18.49
Appalachia $14.73 $16.80 $21.28
Weighted Average $12.85 $12.15 $20.63
Weighted Average After Hedging $12.96 $13.03 $17.95
- --------------------------------------------------------------- ----------------- ---------------- ------------------
</TABLE>
(1) 1999 and 1998 includes low gravity oil which generally sells for a lower
price.
Seneca utilizes price swap agreements and options to manage a portion
of the market risk associated with fluctuations in the price of natural gas and
crude oil. Refer to further discussion of these hedging activities below under
"Market Risk Sensitive Instruments" and in Note F - Financial Instruments in
Item 8 of this report.
Earnings
1999 Compared with 1998
In the Exploration and Production segment, 1999 earnings of $7.1 million are
down $7.9 million (exclusive of the two non-cash special items in 1998) when
compared with 1998. This is largely because the settlement of the primary issues
of IRS audits of years 1977-1994 had a positive impact on earnings in the prior
year. Absent the IRS audit items, earnings of the Exploration and Production
segment were down $1.4 million from the prior year. Depressed oil and gas prices
for much of 1999 were the main reason for these lower earnings. Higher oil and
gas production revenue, as noted in the revenue section above, was offset by
increases in lease operating, depletion and interest expense related mainly to
Seneca's acquisition activity in 1998. The increase in the gas processing plant
revenue of $6.8 million was largely offset by an increase in related expenses of
$6.2 million.
1998 Compared with 1997
Earnings in the Exploration and Production segment were $15.0 million in 1998
(exclusive of the two non-cash special items), down $5.4 million from 1997. This
segment's 1998 earnings include interest income related to the previously
mentioned settlement of IRS audits. Without the positive contribution from this
interest income, earnings would be down $12.1 million when compared with 1997.
This decrease was mainly because of low oil prices, decreased gas production
(for reasons discussed in the revenue section above) and higher lease operating
and interest costs related to Seneca's acquisition activities in 1998. These
circumstances more than offset the positive contribution to earnings that
resulted from higher oil production and higher gas prices (after hedging).
International
Revenues
<TABLE>
<CAPTION>
International Operating Revenues
- --------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 (Thousands) 1999 1998 1997
- --------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Heating $71,974 $49,560 $1,887
Electricity 34,158 22,774 -
Other 913 3,925 23
- --------------------------------------------------------------- ----------------- ---------------- -----------------
$107,045 $76,259 $1,910
- --------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
International Heating and Electric Volumes
- --------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 1999 1998 1997
- --------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Heating Sales (Gigajoules) (1) 10,047,042 7,116,776 262,615
Electricity Sales (megawatt hours) 1,138,980 763,848 -
- --------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
(1) Gigajoules = one billion joules. A joule is a unit of energy.
1999 Compared with 1998
Operating revenues increased $30.8 million in 1999 compared with 1998. The
increase in revenues as well as the increase in heat and electric volumes, as
shown in the tables above, reflects the fact that 1999 was the first year in
which a full twelve months of sales and revenues are included for PSZT. Sales
and revenues for 1998 include only eight months of activity as PSZT was acquired
in February 1998.
1998 Compared with 1997
Operating revenues increased $74.3 million in 1998 compared with 1997. The
increase primarily reflects 100% of the revenues of SCT and PSZT for 1998.
Horizon acquired a 34% equity interest in SCT in April 1997, subsequently
increasing that interest to 36.8% by September 30, 1997 (and thus accounted for
its investment in SCT under the equity method in 1997). During 1998, Horizon
increased its ownership in SCT to 82.7% as of September 30, 1998. In February
1998, Horizon acquired a 75.3% equity interest in PSZT and subsequently
increased its ownership interest to 86.2% as of September 30, 1998. The
consolidation method was used to account for the investments in SCT and PSZT
during 1998.
Earnings
1999 Compared with 1998
The International segment's 1999 earnings were $2.3 million, or $1.0 million
higher than 1998 earnings. The current year's earnings reflect a full twelve
months of results from PSZT, while the prior year only included eight months of
earnings. The contribution from these additional months in 1999 was offset in
part by higher interest expense during 1999. In addition, 1998 earnings included
a $5.1 million pretax net gain associated with U.S. dollar denominated debt,
which did not recur in the current year. This debt was converted to a Czech
koruna denominated loan in December 1998.
1998 Compared with 1997
The International segment's earnings of $1.3 million in 1998 were up $4.6
million when compared to the loss recognized in 1997. This segment realized
increases from Horizon's share of earnings from its two main investments in
district heating and power generation operations located in the Czech Republic.
Because of the change in the nature of operations of the International
segment over the past three years, earnings comparisons between 1999, 1998 and
1997 may not be meaningful. Future revenues from district heating operations are
expected to fluctuate with changes in weather.*
Energy Marketing
Revenues
<TABLE>
<CAPTION>
Energy Marketing Operating Revenues
- --------------------------------------------------------------- ------------------- ---------------- -----------------
Year Ended September 30 (Thousands) 1999 1998 1997
- --------------------------------------------------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C>
Natural Gas (after Hedging) $97,514 $86,877 $70,054
Electricity 1,551 253 -
Other 23 57 44
- --------------------------------------------------------------- ------------------- ---------------- -----------------
$99,088 $87,187 $70,098
- --------------------------------------------------------------- ------------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
Energy Marketing Volumes
- --------------------------------------------------------------- ------------------- ---------------- -----------------
Year Ended September 30 1999 1998 1997
- --------------------------------------------------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C>
Natural Gas - (MMcf) 34,454 26,453 21,024
- --------------------------------------------------------------- ------------------- ---------------- -----------------
</TABLE>
1999 Compared with 1998
Operating revenues increased $11.9 million in 1999 compared with 1998. This
increase reflects higher marketing volumes as NFR customers increased from 5,476
at September 30, 1998 to 17,480 at September 30, 1999. Over 75% of the increase
in customers was residential.
1998 Compared with 1997
Operating revenues increased $17.1 million in 1998 compared with 1997. This
increase reflects higher marketing volumes as NFR customers increased from 1,307
at September 30, 1997 to 5,476 at September 30, 1998.
NFR utilizes exchange-traded futures and exchange-traded options to
manage a portion of the market risk associated with fluctuations in the price of
natural gas. Refer to further discussion of these hedging activities below under
"Market Risk Sensitive Instruments" and in Note F-Financial Instruments in Item
8 of this report.
Earnings
1999 Compared with 1998
The Energy Marketing segment's 1999 earnings were $2.1 million, an increase of
$1.3 million over 1998 earnings. Volumes of natural gas marketed have increased
30% to 34.5 Bcf in 1999 from 26.5 Bcf in 1998 and margins were up from the prior
year. These positive contributions to earnings were partly offset by higher
expenses for labor, office expense and advertising.
1998 Compared with 1997
The Energy Marketing segment's earnings for 1998 of $0.8 million were $0.8
million below 1997 earnings. Although volumes of natural gas marketed were up
5.4 Bcf, lower earnings reflect lower margins and higher O&M expense in 1998.
The increase in O&M expense mainly resulted from expansion of NFR's customer
base into new market areas.
Timber
Revenues
<TABLE>
<CAPTION>
Timber Operating Revenues
- --------------------------------------------------------------- ------------------- ---------------- -----------------
Year Ended September 30 (Thousands) 1999 1998 1997
- --------------------------------------------------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C>
Operating Revenues $31,117 $17,805 $11,536
- --------------------------------------------------------------- ------------------- ---------------- -----------------
</TABLE>
1999 Compared with 1998
Operating revenues for the Timber segment increased $13.3 million. This increase
was primarily the result of higher timber sales by Seneca of $3.6 million and
increased log sales and kiln dry lumber sales of $4.9 million and $4.2 million,
respectively, by Highland. Revenue growth reflects the increased investment by
this segment in timber and sawmills.
1998 Compared with 1997
Operating revenues for the Timber segment increased $6.3 million as a result of
higher timber sales by Seneca and increased lumber sales resulting from
Highland's purchase in 1998 of two new lumber mills. Highland also had a full
year of production from the mill it purchased in January 1997.
Earnings
1999 Compared with 1998
Timber segment earnings of $4.8 million in 1999 were up $2.9 million when
compared with 1998. As noted above, timber revenues increased by 75%. These
higher revenues were partly offset by higher O&M, depletion and interest
expenses. Earnings growth reflects the increased investment by this segment in
timber and sawmills.
1998 Compared with 1997
Timber segment earnings of $1.9 million in 1998 were up $2.5 million when
compared to the loss recognized in 1997. Higher revenues from the operations of
two new sawmills purchased in 1998 helped drive the earnings increase.
Other Income and Interest Charges
Although variances in Other Income items and Interest Charges are discussed in
the earnings discussion by segment above, following is a recap on a consolidated
basis:
Other Income
Other income decreased $23.5 million in 1999 and increased $32.7 million in
1998. The 1999 decrease is primarily due to a decrease in interest income
related to the settlement of IRS audits. In 1999 and 1998, $3.1 million and
$18.5 million, respectively, of interest income was recognized related to these
audits. Lower other income in 1999 also reflects two items recorded in 1998: a
net gain of $5.1 million associated with U.S. dollar denominated debt carried on
the balance sheet of PSZT and a buyout of a firm transportation agreement by a
Pipeline and Storage segment customer in the amount of $2.5 million. Partly
offsetting these items is a $2.4 million gain recorded in 1999 resulting from
the demutualization of an insurance company. As a policyholder, the Company
received stock of the insurance company as part of its initial public offering.
The 1998 increase in other income is primarily due to the above noted
$18.5 million of interest income related to the settlement of IRS audits, the
$5.1 million net gain associated with U.S. dollar denominated debt, the $2.5
million buyout of a firm transportation agreement by a Pipeline and Storage
segment customer, as well as $1.3 million of interest income on temporary cash
investments of SCT and PSZT.
Interest Charges
Interest on long-term debt increased $12.2 million in 1999 and $11.0 million in
1998. The increase in both years can be attributed mainly to a higher average
amount of long-term debt outstanding. Long-term debt balances have grown
significantly over the past several years primarily as a result of acquisition
activity in the Exploration and Production and International segments.
Other interest charges decreased $9.8 million in 1999 and increased
$17.5 million in 1998. The decrease in 1999 compared to 1998, as well as the
increase in 1998 compared with 1997, resulted primarily from the $11.7 million
of interest expense recorded in 1998 related to the settlement of IRS audits. In
addition, in 1999 and 1998, interest on short-term debt increased mainly as a
result of higher average amounts of debt outstanding.
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:
<TABLE>
<CAPTION>
Sources (Uses) of Cash
- -------------------------------------------------------------- -------------------- ---------------- -----------------
Year Ended September 30 (Millions) 1999 1998 1997
- -------------------------------------------------------------- -------------------- ---------------- -----------------
<S> <C> <C> <C>
Provided by Operating Activities $271.9 $253.0 $294.7
Capital Expenditures (260.5) (393.2) (214.0)
Investment in Subsidiaries,
Net of Cash Acquired (5.8) (112.0) (21.1)
Investment in Partnerships (3.6) (5.5) -
Other Investing Activities 6.7 7.6 1.4
Short-Term Debt, Net Change 67.2 229.4 (107.3)
Long-Term Debt, Net Change (15.6) 94.9 98.2
Issuance of Common Stock 10.7 7.9 7.1
Dividends Paid on Common Stock (69.9) (67.0) (64.3)
Dividends Paid to Minority
Interest (0.2) (0.3) -
Effect of Exchange Rates on Cash (2.1) 1.6 -
- -------------------------------------------------------------- -------------------- ---------------- -----------------
Net Increase (Decrease) in Cash
and Temporary Cash Investments $(1.2) $16.4 $(5.3)
- -------------------------------------------------------------- -------------------- ---------------- -----------------
</TABLE>
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, minority interest in foreign
subsidiaries, the cumulative effect of a change in accounting for depletion
(1998) and the impairment of oil and gas producing properties (1998).
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 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 SFV rate design.
Net cash provided by operating activities totaled $271.9 million in
1999, an increase of $18.9 million compared with the $253.0 million provided by
operating activities in 1998. The increase is attributed primarily to the
Utility segment's contribution offset partly by a decrease in cash provided by
operations in the Exploration and Production segment. The increase in the
Utility segment is mainly the result of lower O&M expenditures combined with
lower cash disbursements for taxes and interest. While cash receipts from gas
sales and transportation service were down, this decrease was substantially
offset by lower gas purchase expenditures. The decrease to cash provided by
operations in the Exploration and Production segment is primarily because of an
increase in interest payments stemming from higher debt related to the
acquisitions made in 1998.
Investing Cash Flow
Expenditures for Long-Lived Assets
Expenditures for long-lived assets include additions to property, plant and
equipment (capital expenditures) and investments in corporations (stock
acquisitions) or partnerships, net of any cash acquired.
The Company's expenditures for long-lived assets totaled $269.9 million
in 1999. The table below presents these expenditures by business segment:
<TABLE>
<CAPTION>
- ----------------------------------------------------------- ------------------- ------------------- -----------------
Total
Investments Expenditures
Capital in Corporations For Long-
Year Ended September 30, 1999 (Millions) Expenditures or Partnerships Lived Assets
- ----------------------------------------------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C>
Utility $47.0 $ - $47.0
Pipeline and Storage 31.2 3.6 34.8
Exploration and Production 97.6 - 97.6
International 27.6 5.8 33.4
Energy Marketing 0.3 - 0.3
Timber 56.7 - 56.7
All Other 0.1 - 0.1
- ----------------------------------------------------------- ------------------- ------------------- -----------------
$260.5 $9.4 $269.9
- ----------------------------------------------------------- ------------------- ------------------- -----------------
</TABLE>
Utility
The majority of the Utility capital expenditures were made for replacement of
mains and main extensions, as well as for the replacement of service lines.
Pipeline and Storage
The majority of the Pipeline and Storage capital expenditures were made for
additions, improvements and replacements to this segment's transmission and
storage systems.
SIP made a $3.6 million investment in 1999 in Independence and had an
aggregate investment balance of $10.4 million at September 30, 1999.
Independence is a Delaware general partnership in which SIP owns a one-third
general partnership interest. SIP's cash investments were financed with
short-term borrowings. Independence intends to build a 370 mile natural gas
pipeline (Independence Pipeline) from Defiance, Ohio to Leidy, Pennsylvania at
an estimated cost of $680 million.* If the Independence Pipeline is not
constructed, SIP's share of the development costs (including SIP's investment in
Independence Pipeline Company) is estimated not to exceed $13.0 million.*
Exploration and Production
Exploration and Production segment capital expenditures included approximately
$57.4 million on the offshore program in the Gulf of Mexico, including offshore
drilling expenditures, offshore construction and lease acquisition costs. The
remaining $40.2 million of capital expenditures included onshore drilling and
construction costs for wells located in Louisiana, Texas and California as well
as onshore geological and geophysical costs, including the purchase of certain
3-D seismic data. Of this amount, approximately $20.4 million was spent on
development drilling, workover, recompletion and facility construction costs on
the leases acquired last year in the Midway Sunset, Lost Hills area of
California.
International
The majority of the International segment capital expenditures were made by PSZT
for the construction of new fluidized-bed boilers at its district heating and
power generation plant to comply with stricter clean air standards. Short-term
borrowings and cash from operations were used to finance these capital
expenditures.
In fiscal 1999, Horizon, through a wholly-owned subsidiary, increased
its ownership interest in SCT to 82.87% for a minimal cost. SCT in turn
increased its ownership interest in Jablonecka teplarenska a realitni, a.s.
(JTR), a district heating plant in the northern Bohemia region of the Czech
Republic, from 34% to 65.78%. The cost of acquiring these additional shares was
approximately $5.8 million ($5.7 million, net of cash acquired) and was financed
with short-term borrowings and cash from operations.
Energy Marketing
The capital expenditures consisted primarily of the purchase of furniture,
equipment and computer hardware and software for NFR's gas marketing operations.
Timber
The majority of the Timber segment's capital expenditures consisted of the
purchase of 36,300 acres of land and timber from PennzEnergy Company for
approximately $47 million. The acquisition was financed with short-term
borrowings. The remaining $9.7 million of capital expenditures in this segment
were for other land, timber and equipment purchases.
Other Investing Activities
Other cash provided by or used in investing activities primarily reflects cash
received on the sale of various subsidiaries investments in property, plant and
equipment, and cash used for investments in a mutual fund.
Estimated Capital Expenditures
The Company's estimated capital expenditures for the next three years are:*
<TABLE>
<CAPTION>
- -------------------------------------------------------------- ------------------- ---------------- -----------------
Year Ended September 30 (Millions) 2000 2001 2002
- -------------------------------------------------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C>
Utility $ 50.5 $ 49.5 $ 48.5
Pipeline and Storage 38.9 20.5 20.5
Exploration and Production 112.2 139.7 139.9
International 8.6 8.6 8.6
Timber 0.8 0.8 0.8
- -------------------------------------------------------------- ------------------- ---------------- -----------------
$211.0 $219.1 $218.3
- -------------------------------------------------------------- ------------------- ---------------- -----------------
</TABLE>
Estimated capital expenditures for the Utility segment in 2000 will be
concentrated in the areas of main and service line improvements and replacements
and, to a minor extent, the installation of new services.*
Estimated capital expenditures for the Pipeline and Storage segment in
2000 will be concentrated in the reconditioning of storage wells and the
replacement of storage and transmission lines. The estimated capital
expenditures also include approximately $9.4 million for the purchase of an
additional interest in both the Niagara Spur Loop Line (a 49.2 mile, 30-inch
pipeline extending from Lewiston, New York to East Aurora, New York) and the
Ellisburg Leidy Line (pipelines and facilities extending from Ellisburg,
Pennsylvania to Leidy, Pennsylvania).*
Estimated capital expenditures in 2000 for the Exploration and
Production segment includes approximately $78.3 million for the offshore program
in the Gulf of Mexico. Of this amount, approximately $53.3 million is intended
to be spent on exploratory and development drilling. The estimated expenditures
also includes approximately $33.9 million for the onshore program. Of this
amount, approximately $29.7 million is intended to be spent on exploratory and
development drilling.*
Estimated capital expenditures for the International segment will be
concentrated in the areas of improvements and replacements within the district
heating and power generation plants in the Czech Republic.*
The Company continuously evaluates capital expenditures and investments
in corporations and partnerships. The amounts are subject to modification for
opportunities such as the acquisition of attractive oil and gas properties,
timber 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 or other investments
in the Company's other business segments depends, to a large degree, upon market
conditions.*
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 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.*
In February 1999, the Company issued $100.0 million of 6.0% medium-term
notes due in March 2009. After deducting underwriting discounts and commissions,
the net proceeds to the Company amounted to $98.7 million. The proceeds of this
debt issuance, together with other funds, were used to redeem $100.0 million of
5.58% medium-term notes which matured in March 1999.
In July 1999, the Company issued $100.0 million of 6.82% medium-term
notes due to mature in August 2004. After deducting underwriting discounts and
commissions, the net proceeds to the Company amounted to $99.5 million. The
proceeds of this debt issuance, together with other funds, were used to redeem
$50.0 million of 7.25% medium-term notes which matured in July 1999 and to
complete the redemption of HarCor's 14.875% senior secured notes, discussed
below.
In March and July of 1999, the Company redeemed HarCor's 14.875% senior
secured notes. The Company redeemed the notes at a redemption price of 110% of
face value, which amounted to $59.1 million. The senior secured notes were
recorded at fair market value on the opening balance sheet in 1998 to reflect an
effective interest rate of 5.875% and the projected redemption of this debt in
1999.
The Company's embedded cost of long-term debt was 7.0% and 6.9% at
September 30, 1999 and 1998, respectively.
Consolidated short-term debt increased $67.2 million during 1999. The
Company continues to consider short-term bank loans and commercial paper
important sources of cash for temporarily financing capital expenditures and
investments in corporations and/or partnerships, gas-in-storage inventory,
unrecovered purchased gas costs, exploration and development expenditures and
other working capital needs. Fluctuations in these items can have a significant
impact on the amount and timing of short-term debt.
In March 1998, the Company obtained authorization from the SEC, under
the Holding Company Act, to issue long-term debt securities and equity
securities in amounts not exceeding $2.0 billion during the order's
authorization period, which extends to December 31, 2002. In August 1999, the
Company obtained authorization from the SEC under the Securities Act of 1933 to
issue up to $625 million of debt and equity securities.
The Company's present liquidity position is believed to be adequate to
satisfy known demands.* Under the Company's existing indenture covenants, at
September 30, 1999, the Company would have been permitted to issue up to a
maximum of $485.0 million in additional long-term unsecured indebtedness at
projected market interest rates. In addition, at September 30, 1999, the Company
had regulatory authorizations and unused short-term credit lines that would have
permitted it to borrow an additional $356.5 million of short-term debt.
The amounts and timing of the issuance and sale of debt and/or equity
securities will depend on market conditions, regulatory authorizations, and the
requirements of the Company.
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 such 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.*
Market Risk Sensitive Instruments
Energy Commodity Price Risk
Certain of the Company's subsidiaries (primarily Seneca and NFR) utilize various
derivative financial instruments (derivatives), including price swap agreements,
options, exchange-traded futures and exchange-traded options, as part of the
Company's overall energy commodity price risk management strategy. Under this
strategy, the Company manages a portion of the market risk associated with
fluctuations in the price of natural gas and crude oil, thereby providing more
stability to operating results. The derivatives entered into by these
subsidiaries are not held for trading purposes. These subsidiaries have
operating procedures in place that are administered by experienced management to
monitor compliance with their risk management policies.
The following tables disclose natural gas and crude oil price swap
information by expected maturity dates for agreements in which Seneca receives a
fixed price in exchange for paying a variable price as quoted in "Inside FERC"
or on the New York Mercantile Exchange. Notional amounts (quantities) are used
to calculate the contractual payments to be exchanged under the contract. The
tables do not reflect the earnings impact of the physical transactions that are
expected to offset the financial gains and losses arising from the use of the
price swap agreements. The weighted average variable prices represent the prices
as of September 30, 1999. At September 30, 1999, Seneca had not entered into any
natural gas or crude oil price swap agreements extending beyond 2002.
<TABLE>
<CAPTION>
Natural Gas Price Swap Agreements
- ---------------------------------
- ------------------------------------------------------ -------------------------------------------------------------
Expected Maturity Dates
-------------------------------------------------------------
2000 2001 2002 Total
- ------------------------------------------------------ --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Notional Quantities (Equivalent Bcf) 28.0 11.1 1.1 40.2
Weighted Average Fixed Rate (per Mcf) $2.70 $2.66 $2.61 $2.69
Weighted Average Variable Rate (per Mcf) $3.01 $3.00 $2.35 $2.99
- ------------------------------------------------------ --------------- -------------- -------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Crude Oil Price Swap Agreements
- -------------------------------
- ------------------------------------------------------ --------------- ---------------------------------------------
Expected Maturity Dates
---------------------------------------------
2000 2001 Total
- ------------------------------------------------------ --------------- -------------- -------------- ---------------
<S> <C> <C> <C>
Notional Quantities (Equivalent bbls) 2,112,000 184,000 2,296,000
Weighted Average Fixed Rate (per bbl) $19.09 $18.00 $19.00
Weighted Average Variable Rate (per bbl) $23.79 $23.79 $23.79
- ------------------------------------------------------ --------------- -------------- -------------- ---------------
</TABLE>
At September 30, 1999, Seneca would have had to pay the respective
counterparties to its natural gas price swap agreements an aggregate of
approximately $2.4 million to terminate the natural gas price swap agreements
outstanding at that date. Seneca would have had to pay an aggregate of
approximately $7.4 million to the counterparties to its crude oil price swap
agreements to terminate the crude oil price swap agreements outstanding at
September 30, 1999.
The following tables disclose the notional quantities and weighted
average strike prices for options utilized by Seneca to manage natural gas and
crude oil price risk. The tables do not reflect the earnings impact of the
physical transactions that are expected to offset any financial gains or losses
that might arise if an option were to be exercised.
<TABLE>
<CAPTION>
Written Call Options
- --------------------
- ------------------------------------------------------------ --------------------------------------
Expected Maturity Date - 2000
- ------------------------------------------------------------ --------------------------------------
<S> <C>
Crude Oil
Notional Quantities (Equivalent bbls) 184,000
Weighted Average Strike Price (per bbl) $18.00
Natural Gas
Notional Quantities (Equivalent Bcf) 2.6
Weighted Average Strike Price (per Mcf) $2.86
- ------------------------------------------------------------ --------- --------------
</TABLE>
<TABLE>
<CAPTION>
Written Call Options(1)
- -----------------------
- ---------------------------------------------------------------------- ---------------------------------------------
Expected Maturity Dates
---------------------------------------------
2000 2001 Total
- ---------------------------------------------------------------------- -------------- -------------- ---------------
<S> <C> <C> <C>
Crude Oil
Notional Quantities (Equivalent bbls) 548,000 184,000 732,000
Weighted Average Strike Price (per bbl) $18.00 $18.00 $18.00
Natural Gas
Notional Quantities (Equivalent Bcf) 10.4 3.5 13.9
Weighted Average Strike Price (per Mcf) $2.58 $2.74 $2.62
- ---------------------------------------------------------------------- -------------- -------------- ---------------
</TABLE>
(1) The counterparty has a choice between a natural gas call option and a
crude oil call option, depending on whichever option has greater value
to the counterparty.
Written Put Options
- -------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------- ---------------------------------------------
Expected Maturity Dates
---------------------------------------------
2000 2001 Total
- ---------------------------------------------------------------------- -------------- -------------- ---------------
<S> <C> <C> <C>
Crude Oil
Notional Quantities (Equivalent bbls) 732,000 184,000 916,000
Weighted Average Strike Price (per bbl) $12.50 $12.50 $12.50
- ---------------------------------------------------------------------- -------------- -------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Purchased Call Option
- ---------------------
- ---------------------------------------------------------- -----------------------------------------
Expected Maturity Date - 2000
- ---------------------------------------------------------- -----------------------------------------
<S> <C>
Crude Oil
Notional Quantities (Equivalent bbls) 1,464,000
Weighted Average Strike Price (per bbl) $20.00
- ---------------------------------------------------------- -------------- --------------------------
</TABLE>
At September 30, 1999, Seneca would have had to pay the counterparty to
its call options $3.6 million on a net basis to terminate its call options.
Seneca would have paid the counterparty $8.2 million related to the exercise of
the written call and put options but would have received $4.6 million related to
Seneca's exercise of its purchased call option.
The Company is exposed to credit risk on the price swap agreements that
Seneca has entered into as well as on the call options that Seneca has
purchased. 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
contractual obligations. To mitigate such credit risk, management performs a
credit check and then on an ongoing basis monitors counterparty credit exposure.
The Company does not anticipate any material impact to its financial position,
results of operations, or cash flows as a result of nonperformance by
counterparties.*
The following table discloses the net notional quantities, weighted
average contract prices and weighted average settlement prices by expected
maturity date for exchange-traded futures contracts utilized by NFR to manage
natural gas price risk. The table does not reflect the earnings impact of the
physical transactions that are expected to offset the financial gains and losses
arising from the use of the futures contracts. At September 30, 1999, NFR held
no futures contracts with maturity dates extending beyond 2001.
<TABLE>
<CAPTION>
Exchange-Traded Futures Contracts
- --------------------------------------------------------------- ----------------- ------------------ -----------------
Expected Maturity Dates
------------------------------------------------------
2000 2001 Total
- --------------------------------------------------------------- ----------------- ------------------ -----------------
<S> <C> <C> <C>
Contract Volumes Purchased (Equivalent Bcf) 2.0 0.1 2.1
Weighted Average Contract Price (per Mcf) $2.75 $2.82 $2.75
Weighted Average Settlement Price (per Mcf) $2.89 $2.98 $2.89
- --------------------------------------------------------------- ----------------- ------------------ -----------------
</TABLE>
The following table discloses the notional quantities and weighted
average strike prices by expected maturity dates for exchange-traded options
utilized by NFR to manage natural gas price risk. The table does not reflect the
earnings impact of the physical transactions that would offset any financial
gains or losses that might arise if an option were to be exercised. At September
30, 1999, NFR held no options with maturity dates extending beyond 2000.
<TABLE>
<CAPTION>
Exchange-Traded Options Purchased
- ---------------------------------
- ------------------------------------------------------------- -------------------------------------
Expected Maturity Date - 2000
- ------------------------------------------------------------- -------------------------------------
<S> <C>
Notional Quantities (Equivalent Bcf) 9.0
Weighted Average Strike Price (per Mcf) $2.72
- ------------------------------------------------------------- -------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Exchange-Traded Options Sold
- ----------------------------
- ------------------------------------------------------------- -------------------------------------
Expected Maturity Date - 2000
- ------------------------------------------------------------- -------------------------------------
<S> <C>
Notional Quantities (Equivalent Bcf) 17.1
Weighted Average Strike Price (per Mcf) $3.01
- ------------------------------------------------------------- -------------------------------------
</TABLE>
At September 30, 1999, NFR would have received approximately $2.3
million to settle the exchange-traded futures outstanding at that date. NFR
would have paid approximately $1.2 million to settle its exchange-traded options
outstanding at September 30, 1999.
Exchange Rate Risk
Horizon's investment in the Czech Republic is valued in Czech korunas, and, as
such, this investment is subject to currency exchange risk when the Czech
korunas are translated into U.S. dollars. During 1999, the Czech koruna
decreased in value in relation to the U.S. dollar resulting in a $11.7 million
negative adjustment to the Cumulative Foreign Currency Translation Adjustment (a
component of Accumulated Other Comprehensive Income). Further valuation changes
to the Czech koruna would result in corresponding positive or negative
adjustments to the Cumulative Foreign Currency Translation Adjustment.
Management cannot predict whether the Czech koruna will increase or decrease in
value against the U.S. dollar.*
Interest Rate Risk
The Company's exposure to interest rate risk primarily consists of short-term
debt instruments. At September 30, 1999, these instruments included short-term
bank loans and commercial paper totaling $392.3 million (domestically). The
interest rate on these short-term bank loans and commercial paper approximated
5.5%. These instruments also included $1.2 million of short-term bank loans held
by SCT in the Czech Republic at September 30, 1999. The interest rate on the
Czech Republic loans approximated 6.4%.
The following table presents the principal cash repayments and related
weighted average interest rates by expected maturity date for the Company's
long-term fixed rate debt as well as the other debt of certain of the Company's
subsidiaries. The interest rates for the variable rate debt are based on those
in effect at September 30, 1999:
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------------------------------ ----------
Principal Amounts by Expected Maturity Dates
------------------------------------------------------------------------
(Millions of Dollars) 2000 2001 2002 2003 2004 Thereafter Total
- ------------------------------------ ---------- ----------- ----------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
National Fuel Gas Company
Long-Term Fixed Rate Debt $50 $- $- $- $225 $549 $824
Weighted Average Interest
Rate Paid 6.6% -% -% -% 7.3% 6.6% 6.8%
Fair Value = $798.7 million
- ------------------------------------ ---------- ----------- ----------- ----------- ----------- ------------- ----------
PSZT
Long-Term Variable Rate
Debt $7.2 $9.5 $9.5 $9.5 $9.5 $2.5 $47.7
Weighted Average Interest
Rate Paid 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%
Fair Value = $47.7 million
- ------------------------------------ ---------- ----------- ----------- ----------- ----------- ------------- ----------
Other Notes
Long-Term Debt(1) $12.4 $3.1 $1.2 $0.9 $0.9 $2.2 $20.7
Weighted Average Interest
Rate Paid 11.3% 6.7% 6.7% 7.3% 7.3% 6.8% 9.5%
Fair Value = $20.7 million
- ------------------------------------ ---------- ----------- ----------- ----------- ----------- ------------- ----------
</TABLE>
(1) $5.8 million is variable rate debt; $14.9 million is fixed rate debt.
PSZT utilizes an interest rate swap to eliminate interest rate
fluctuations on its CZK 1,595,924,000 term loan ($47.7 million at September 30,
1999), which carries a variable interest rate of six month Prague Interbank
Offered Rate (PRIBOR) plus 0.475%. Under the terms of the interest rate swap,
which extends until 2001, PSZT pays a fixed rate of 8.31% and receives a
floating rate of six month PRIBOR. PSZT would have paid approximately $1.0
million to settle the interest rate swap at September 30, 1999.
Rate Matters
Utility Operation
New York Jurisdiction
On October 21, 1998, the NYPSC approved a rate plan for Distribution Corporation
for the period beginning October 1, 1998 and ending September 30, 2000. The plan
was the result of a settlement agreement entered into by Distribution
Corporation, Staff for the NYPSC (Staff), Multiple Intervenors (an advocate for
large industrial customers) and the State Consumer Protection Board. Under the
plan, Distribution Corporation's rates were reduced by $7.2 million, or 1.1%. In
addition, customers are receiving up to $6.0 million in bill credits, disbursed
volumetrically over the two year term, reflecting a predetermined share of
excess earnings under a 1996 settlement. An allowed return on equity of 12%,
above which additional earnings will be shared equally with the customers, was
maintained from a 1996 settlement. Finally, as provided by the rate plan, $7.2
million of 1999 revenues were set aside in a special reserve to be applied
against Distribution Corporation's incremental costs resulting from the NYPSC's
gas restructuring effort further described below.
On November 3, 1998, the NYPSC issued its Policy Statement Concerning
----------------------------
the Future of the Natural Gas Industry in New York State and Order Terminating
- -------------------------------------------------------------------------------
Capacity Assignment (Policy Statement). The Policy Statement sets forth the
- --------------------
NYPSC's "vision" on "how best to ensure a competitive market for natural gas in
New York." That vision includes the following goals:
(1) Effective competition in the gas supply market for retail
customers;
(2) Downward pressure on customer gas prices;
(3) Increased customer choice of gas suppliers and service options;
(4) A provider of last resort (not necessarily the utility);
(5) Continuation of reliable service and maintenance of operations
procedures that treat all participants fairly;
(6) Sufficient and accurate information for customers to use in
making informed decisions;
(7) The availability of information that permits adequate oversight
of the market to ensure fair competition; and
(8) Coordination of Federal and State policies affecting gas supply
and distribution in New York State.
The Policy Statement provides that the most effective way to establish
a competitive market in gas supply is "for local distribution companies to cease
selling gas." The NYPSC hopes to accomplish that objective over a three-to-seven
year transition period, taking into account "statutory requirements" and the
individual needs of each local distribution company (LDC).* The Policy Statement
directs Staff to schedule "discussions" with each LDC on an "individualized plan
that would effectuate our vision." In preparation for negotiations, LDCs will be
required to address issues such as a strategy to hold new capacity contracts to
a minimum, a long-term rate plan with a goal of reducing or freezing rates, and
a plan for further unbundling. In addition, Staff was instructed to hold
collaborative sessions with multiple parties to discuss generic issues including
reliability and market power regulation. Distribution Corporation has
participated in the collaborative sessions. These collaborative sessions have
not yet produced a consensus document on all issues before the NYPSC.
Distribution Corporation will continue to participate in all future
collaborative sessions.
Distribution Corporation was recently advised, on an informal basis,
that its "individualized plan" for restructuring to "effectuate [the NYPSC's]
vision" may be included in discussions anticipated in connection with the
current rate settlement, which expires on its own terms on September 30, 2000.
On June 7, 1999, the NYPSC issued a notice requesting comments on
Staff's proposal for a "single retailer" billing environment. The proposal
recommends that electric and gas utilities exit the billing function at an
undetermined future date. The retail billing function would then be performed
solely by unregulated marketers. Included in the billing proposal is a
recommendation that utilities design a "back-out" credit equal to the long run
costs avoided by each utility when billing is provided by another party.
Distribution Corporation filed comments opposing much of the proposal but
supporting a suggested interim regime where multiple billing arrangements,
including utility billing, would be permitted. This proceeding remains pending.
In anticipation of a NYPSC order partially adopting Staff's recommendation,
Distribution Corporation is exploring the development of a retail billing
service for sale to marketers serving aggregated customers. There is a market
for retail billing services in Distribution Corporation's service territory, and
Distribution Corporation believes that a service can be designed that will meet
the approval of the regulators.*
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.
Effective October 1, 1997, Distribution Corporation commenced a PaPUC
approved customer choice pilot program called Energy Select. Energy Select,
which lasted until April 1, 1999, allowed approximately 19,000 small commercial
and residential customers of Distribution Corporation in the greater Sharon,
Pennsylvania area to purchase gas supplies from qualified, participating
non-utility suppliers (or marketers) of gas. Distribution Corporation was not a
supplier of gas in this pilot. Under Energy Select, Distribution Corporation
delivered the gas to the customer's home or business and remained responsible
for reading customer meters, the safety and maintenance of its pipeline system
and responding to gas emergencies. NFR was a participating supplier in Energy
Select.
Effective February 11, 1999, Distribution Corporation's System Wide
Energy Select tariff was approved by the PaPUC. This program is intended to
expand the Energy Select pilot program described above to apply across
Distribution Corporation's entire Pennsylvania service territory. The plan
borrows many features of the Energy Select pilot, but several important changes
were adopted. Most significantly, the new program includes Distribution
Corporation as a choice for retail consumers, in furtherance of Distribution
Corporation's objective to remain a merchant. Also departing from the pilot
scheme, Distribution Corporation resumes its role as provider of last resort and
maintains customer contact by providing a billing service on its own behalf and,
as an option, for participating marketers.
A natural gas restructuring bill was signed into law on June 22, 1999.
Entitled the Natural Gas Choice and Competition Act (Act), the new law requires
all Pennsylvania LDCs to file tariffs designed to provide retail customers with
direct access to competitive gas markets. Distribution Corporation submitted its
compliance filing on October 1, 1999 for an effective date on or about July 1,
2000. The filing largely mirrors the Energy Select program currently in effect,
which substantially complies with the Act's requirements. Currently the parties
to the proceeding are engaged in routine discovery and settlement discussions
have begun. Distribution Corporation is unable to predict the outcome of the
proceeding at this time.
Base rate adjustments 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 of the
appropriate regulatory authorities.
Pipeline and Storage
Supply Corporation currently does not have a rate case on file with the Federal
Energy Regulatory Commission (FERC). Its last case was settled with the FERC in
February 1996. As part of that settlement, Supply Corporation agreed not to seek
recovery of revenues related to certain terminated service from storage
customers until April 1, 2000, as long as the terminations were not greater than
approximately 30% of the terminable service. Supply Corporation has been
successful in marketing and obtaining executed contracts for such terminated
storage service (at discounted rates) and expects to continue obtaining executed
contracts for additional terminated storage service as it arises.*
Other Matters
Environmental Matters
It is the Company's policy to accrue estimated environmental clean-up costs
(investigation and remediation) when such amounts can reasonably be estimated
and it is probable that the Company will be required to incur such costs.
Distribution Corporation and Supply Corporation have estimated their clean-up
costs related to former manufactured gas plant and former gasoline plant sites
and third party waste disposal sites will be in the range of $9.4 million to
$10.4 million.* The minimum liability of $9.4 million has been recorded on the
Consolidated Balance Sheet at September 30, 1999. Other than discussed in Note H
(referred to below), 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.*
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 ongoing evaluation of its operations to identify
potential environmental exposures and comply with regulatory policies and
procedures.
For further discussion refer to Note H - Commitments and Contingencies
under the heading "Environmental Matters" in Item 8 of this report.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). In June 1999, the FASB issued
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS 133." For a discussion of SFAS 133 and
SFAS 137 and their impact on the Company, see disclosure in Note A - Summary of
Significant Accounting Policies in Item 8 of this report.
Year 2000
Numerous media reports have heightened concern that information technology
computer systems, software programs and semiconductors may not be capable of
recognizing dates after the Year 2000 because such systems use only two digits
to refer to a particular year. Such systems may read dates in the Year 2000 and
thereafter as if those dates represent the year 1900 or thereafter and, in
certain instances, such systems may fail to function properly.
State of Readiness
The Company believes that all necessary work has been completed in order to make
its internal computer system Year 2000 ready.* Following the completion of an
early-impact analysis study, a formal project manager at the Company was
designated to spearhead the Year 2000 remediation effort. The methodology
adopted by the Company to address the Year 2000 issue is a combination of
methods recommended by respected industry consultants and efforts tailored to
meet the Company's specific needs. The Company's Year 2000 plan addresses five
primary areas.
A. Mainframe Corporate Business Applications Developed and Maintained by the
Company: A detailed plan and impact analysis was conducted in 1996-1997 to
determine the extent of Year 2000 implications on the Company's mainframe-based
computer systems. The remediation and testing in this area have been completed.*
B. Personal Computer Business Applications Software Developed and Supported by
the Company: Distribution Corporation and Supply Corporation have retained a
consulting firm to perform a detailed impact analysis of the personal computer
business application systems supported by the Company's Information Services
Department. Seneca has similarly retained a consulting firm to review its Year
2000 issues. These firms have either corrected Year 2000 problems identified by
their analysis or advised the respective subsidiaries of the potentially
problematic computer applications. Certain applications identified by the
consulting firms as potentially problematic have been retired and replaced with
Year 2000 compliant applications. The required changes and testing for these
applications are complete.*
C. Vendor-Supplied Software, Hardware, and Services for Corporate Business
Applications Supported by the Company: This category includes all mainframe
infrastructure products as well as all PC client/server software and hardware.
The Company has sent letters to its vendors asking if their products and
services will continue to perform as expected after January 1, 2000. These
vendors are responsible for approximately 200 products and services associated
with corporate computer applications. The Company has received responses from
all vendors which the Company believes supply critical hardware, software,
date-sensitive embedded chips and related computer services. The Company has
completed testing and implementation of the vendor-supplied Year 2000 ready
products and services.*
D. Vendor-Supplied Products and Services Used on a Corporate Wide Basis: This
category includes the critical products and services that are used by multiple
departments within the Company including all products containing embedded chips
which might be date sensitive. The Company has sent letters to the primary
vendors who provide these products and services to the Company, requesting Year
2000 compliance plans. The Company is monitoring their responses and has
incorporated them into the Company's overall Year 2000 project and contingency
plans. The Company has completed testing and implementation of the products and
services of these vendors (reference is made to the "Risks" section below).*
E. User-Department Maintained Business Applications: The Company uses certain
business software applications that were either built in-house or
vendor-supplied and subsequently maintained by individual departments of the
Company. The scope of such applications includes, but is not limited to,
spreadsheets, databases, vendor provided products and services and embedded
process controls. A corporate wide Year 2000 task force is in place and has
established a process to identify and resolve Year 2000 problems in this area.
This task force meets on a monthly basis to coordinate ongoing activities and
report on the project status. Providers of critical products and services have
been identified and the Company has sent letters requesting their Year 2000
compliance plans. Responses are being monitored and incorporated into the Year
2000 planning of the various departments. Based on responses received to date
along with internal testing, the Company believes that all applications and
services under this category are Year 2000 ready.*
Cost
The cost of upgrading both vendor supplied and internally developed systems and
services is expensed as incurred and has amounted to approximately $2.3 million
in total. Minimal additional expenses related to Year 2000 administration are
expected to be incurred.*
Risks
The Company's main concern is to ensure the safe, reliable and uninterrupted
production and delivery of natural gas and Company-provided services to its
customers. Based on the efforts discussed above, the Company expects to be able
to operate its own facilities without interruption and continue normal operation
in Year 2000 and beyond.* However, the Company has no control over the systems
and services used by third parties with whom it interfaces. While the Company
has placed its major third parties on notice that the Company expects their
products and services to perform as expected after January 1, 2000, the Company
cannot predict with accuracy the actual adverse consequences to the Company that
could result if such third parties are not Year 2000 compliant.* The widespread
failure of electric, telecommunication, and upstream gas supply could
potentially affect gas service to utility customers, and the Company is pursuing
contingency plans to avoid such disruptions.*
The majority of the devices which control the Company's physical
delivery system are not believed to be susceptible to Year 2000 problems because
they do not contain micro-processors. The Company has conducted an extensive
review of its existing micro-processors (embedded technology) and has replaced
non-Year 2000 compliant hardware.
Distribution Corporation is subject to regulatory review by both the
NYPSC and the PaPUC. Both of these regulatory bodies have issued orders
concerning the Year 2000 issue, and both have established dates in 1999 by which
jurisdictional utilities must have taken the necessary steps to ensure that its
critical systems are Year 2000 ready. Distribution Corporation has, to date, met
the requirements of those orders and will continue to comply with such orders
for the pertinent time periods specified in such orders.*
Contingency Planning
The Company formed its Corporate Year 2000 task force in mid-1997. The primary
function of this group was, and continues to be, to: (1) raise awareness of the
Year 2000 issue within the Company, (2) facilitate identification and
remediation of Year 2000 potential problems within the Company, and (3)
facilitate and develop corporate contingency plans. The group is comprised of
middle to senior level managers and Company executives. The Company has
developed Year 2000 strategic contingency plans which have been prioritized in
relation to the overall corporation in the order of human safety,
reliability/delivery of Company services and administrative services. The
Company has added the operational specifics to these plans and is continuing to
hone them through operational drills. During September through November 1999,
Distribution Corporation and Supply Corporation conducted Year 2000 Readiness
Drills at critical Company owned operating facilities (e.g. compressor stations,
pipeline interconnect locations, and gas dispatching control centers) to
simulate operation under the low probability occurrence of loss of local
electricity or communications (primarily telephone). These drills tested backup
generation equipment, alternative communication functionality (radios), and our
employees' preparedness to manually operate the physical gas delivery system
should these low probability events occur. These drills also tested and
sharpened the Company's readiness to dispatch and make safe any customer
emergencies, which might occur during a loss of electrical supply or
communications functionality. The Company will have a very significant
incremental workforce in the field during the critical Year 2000 rollover period
New Year's Eve. The pertinent portions of these plans have been filed with the
NYPSC whose review is ongoing. Distribution Corporation and Supply Corporation
are currently working with other utilities in their service areas and regional
Emergency Management Services to establish communication channels and procedures
in the low probability event of a serious Year 2000 disruption. The Company has
always had disaster/contingency plans to deal with operational gas supply or
delivery problems, loss of the corporate data center, and loss of the corporate
customer telephone centers. These plans, in conjunction with the Year 2000
drills, enable the Company to verify its readiness and ability to operate in the
event of failures resulting from Year 2000 problems arising outside of the
Company (i.e., loss of electricity, telephone service, etc.). All critical Year
2000 contingency plans have been completed.*
All of the above Year 2000 information is a YEAR 2000 READINESS
DISCLOSURE made pursuant to the Year 2000 Information and Readiness Disclosure
Act of 1998.
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 a significant portion of its
business.
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 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 "*", 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. The nature and projected profitability of pending and potential
projects and other investments;
9. Occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital expenditures and
other investments;
10. Uncertainty of oil and gas reserve estimates;
11. Ability to successfully identify and finance oil and gas property
acquisitions and ability to operate existing and any subsequently
acquired properties;
12. Ability to successfully identify, drill for and produce economically
viable natural gas and oil reserves;
13. Changes in the availability and/or price of derivative financial
instruments;
14. Inability of the various counterparties to meet their obligations with
respect to the Company's financial instruments;
15. 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;
16. Significant changes in tax rates or policies or in rates of inflation
or interest;
17. Significant changes in the Company's relationship with its employees
and the potential adverse effects if labor disputes or grievances were
to occur;
18. Changes in accounting principles and/or the application of such
principles to the Company; and/or
19. Unanticipated problems related to the Company's internal Year 2000
initiative as well as potential adverse consequences related to third
party Year 2000 compliance.
The Company disclaims any obligation to update any forward-looking
statements to reflect events or circumstances after the date hereof.
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
Refer to the "Market Risk Sensitive Instruments" section in Item 7, MD&A.
ITEM 8 Financial Statements and Supplementary Data
Index to Financial Statements
- -----------------------------
Page
----
Financial Statements:
Report of Independent Accountants 58
Consolidated Statements of Income and Earnings Reinvested
in the Business, three years ended September 30, 1999 59
Consolidated Balance Sheets at September 30, 1999 and 1998 60
Consolidated Statement of Cash Flows, three years ended
September 30, 1999 62
Consolidated Statement of Comprehensive Income,
three years ended September 30, 1999 63
Notes to Consolidated Financial Statements 64
Financial Statement Schedules:
For the three years ended September 30, 1999
II-Valuation and Qualifying Accounts 88
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 K - Quarterly Financial Data
(unaudited) and Note M - 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 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, PricewaterhouseCoopers 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
PricewaterhouseCoopers 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, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1999, in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedules listed in the accompanying index present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, 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 Note A to the consolidated financial statements, the
Company changed its method of depletion for oil and gas properties in 1998.
PricewaterhouseCoopers LLP
Buffalo, New York
October 25, 1999
<PAGE>
<TABLE>
<CAPTION>
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) 1999 1998 1997
- -------------------------------------------------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
Income
Operating Revenues $1,263,274 $1,248,000 $1,265,812
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Operating Expenses
Purchased Gas 405,925 441,746 528,610
Fuel Used in Heat and Electric Generation 55,788 37,837 1,489
Operation 300,007 293,976 260,839
Maintenance 23,881 25,793 25,698
Property, Franchise and Other Taxes 91,146 92,817 100,549
Depreciation, Depletion and Amortization 129,690 118,880 111,650
Impairment of Oil and Gas Producing
Properties - 128,996 -
Income Taxes 64,829 24,024 68,674
- -------------------------------------------------------------- ----------------- ----------------- ------------------
1,071,266 1,164,069 1,097,509
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Operating Income 192,008 83,931 168,303
Other Income 12,343 35,870 3,196
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Income Before Interest Charges and
Minority Interest in Foreign Subsidiaries 204,351 119,801 171,499
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Interest Charges
Interest on Long-Term Debt 65,402 53,154 42,131
Other Interest 22,296 32,130 14,680
- -------------------------------------------------------------- ----------------- ----------------- ------------------
87,698 85,284 56,811
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Minority Interest in Foreign Subsidiaries (1,616) (2,213) -
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Income Before Cumulative Effect 115,037 32,304 114,688
Cumulative Effect of Change in
Accounting for Depletion - (9,116) -
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Net Income Available for Common Stock 115,037 23,188 114,688
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Earnings Reinvested in the Business
Balance at Beginning of Year 428,112 472,595 422,874
- -------------------------------------------------------------- ----------------- ----------------- ------------------
543,149 495,783 537,562
Dividends on Common Stock 70,632 67,671 64,967
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Balance at End of Year $472,517 $428,112 $472,595
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Basic Earnings Per Common Share:
Income Before Cumulative Effect $2.98 $0.85 $3.01
Cumulative Effect of Change in Accounting
For Depletion - (0.24) -
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Net Income Available for Common Stock $2.98 $0.61 $3.01
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Diluted Earnings Per Common Share:
Income Before Cumulative Effect $2.95 $0.84 $2.98
Cumulative Effect of Change in Accounting
For Depletion - (0.24) -
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Net Income Available for Common Stock $2.95 $0.60 $2.98
- -------------------------------------------------------------- ----------------- ----------------- ------------------
Weighted Average Common Shares Outstanding:
Used in Basic Calculation 38,663,981 38,316,397 38,083,514
Used in Diluted Calculation 39,041,728 38,703,526 38,440,018
- -------------------------------------------------------------- ----------------- ----------------- ------------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
---------------------------
- ---------------------------------------------------------------------------- ------------------- -------------------
At September 30 (Thousands of Dollars) 1999 1998
- ---------------------------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Assets
Property, Plant and Equipment $3,383,537 $3,186,853
Less - Accumulated Depreciation,
Depletion and Amortization 1,029,643 938,716
- ---------------------------------------------------------------------------- ------------------- -------------------
2,353,894 2,248,137
- ---------------------------------------------------------------------------- ------------------- -------------------
Current Assets
Cash and Temporary Cash Investments 29,222 30,437
Receivables - Net 105,296 82,336
Unbilled Utility Revenue 18,674 15,403
Gas Stored Underground 41,099 31,661
Materials and Supplies - at average cost 23,350 24,609
Unrecovered Purchased Gas Costs 4,576 6,316
Prepayments 35,072 19,755
- ---------------------------------------------------------------------------- ------------------- -------------------
257,289 210,517
- ---------------------------------------------------------------------------- ------------------- -------------------
Other Assets
Recoverable Future Taxes 87,724 88,303
Unamortized Debt Expense 21,717 22,295
Other Regulatory Assets 25,214 41,735
Deferred Charges 14,266 8,619
Other 82,482 64,853
- ---------------------------------------------------------------------------- ------------------- -------------------
231,403 225,805
- ---------------------------------------------------------------------------- ------------------- -------------------
$2,842,586 $2,684,459
- ---------------------------------------------------------------------------- ------------------- -------------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
---------------------------
- ---------------------------------------------------------------------------- ----------------- ----------------
At September 30 (Thousands of Dollars) 1999 1998
- ---------------------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Capitalization and Liabilities
Capitalization:
Common Stock Equity
Common Stock, $1 Par Value
Authorized - 200,000,000 Shares; Issued and
Outstanding - 38,837,499 Shares and 38,468,795
Shares, Respectively $ 38,837 $ 38,469
Paid In Capital 431,952 416,239
Earnings Reinvested in the Business 472,517 428,112
Accumulated Other Comprehensive Income (4,013) 7,265
- ---------------------------------------------------------------------------- ----------------- ----------------
Total Common Stock Equity 939,293 890,085
Long-Term Debt, Net of Current Portion 822,743 693,021
- ---------------------------------------------------------------------------- ----------------- ----------------
Total Capitalization 1,762,036 1,583,106
- ---------------------------------------------------------------------------- ----------------- ----------------
Minority Interest in Foreign Subsidiaries 27,589 25,479
- ---------------------------------------------------------------------------- ----------------- ----------------
Current and Accrued Liabilities
Notes Payable to Banks and
Commercial Paper 393,495 326,300
Current Portion of Long-Term Debt 69,608 216,929
Accounts Payable 82,747 59,933
Amounts Payable to Customers 5,934 5,781
Other Accruals and Current Liabilities 87,310 80,480
- ---------------------------------------------------------------------------- ----------------- ----------------
639,094 689,423
- ---------------------------------------------------------------------------- ----------------- ----------------
Deferred Credits
Accumulated Deferred Income Taxes 275,008 258,222
Taxes Refundable to Customers 14,814 18,404
Unamortized Investment Tax Credit 11,007 11,372
Other Deferred Credits 113,038 98,453
- ---------------------------------------------------------------------------- ----------------- ----------------
413,867 386,451
- ---------------------------------------------------------------------------- ----------------- ----------------
Commitments and Contingencies - -
- ---------------------------------------------------------------------------- ----------------- ----------------
$2,842,586 $2,684,459
- ---------------------------------------------------------------------------- ----------------- ----------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Statement of Cash Flows
------------------------------------
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Year Ended September 30 (Thousands of Dollars) 1999 1998 1997
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
<S> <C> <C> <C>
Operating Activities
Net Income Available for Common Stock $115,037 $ 23,188 $114,688
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Cumulative Effect of a Change in Accounting
for Depletion - 9,116 -
Impairment of Oil and Gas Producing Properties - 128,996 -
Depreciation, Depletion and Amortization 129,690 118,880 111,650
Deferred Income Taxes 14,030 (26,237) 3,800
Minority Interest in Foreign Subsidiaries 1,616 2,213 -
Other 7,018 (6,378) 8,030
Change in:
Receivables and Unbilled Utility Revenue (18,161) 45,200 (10,332)
Gas Stored Underground and Materials and
Supplies (7,806) (1,271) 7,300
Unrecovered Purchased Gas Costs 1,740 (6,316) -
Prepayments (15,322) 829 10,065
Accounts Payable 22,871 (24,975) 9,495
Amounts Payable to Customers 153 (4,735) 5,898
Other Accruals and Current Liabilities 10,931 (15,481) 4,113
Other Assets (906) 36 (2,856)
Other Liabilities 10,999 9,913 32,811
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Net Cash Provided by Operating Activities 271,890 252,978 294,662
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Investing Activities
Capital Expenditures (260,506) (393,233) (214,001)
Investment in Subsidiaries, Net of Cash Acquired (5,774) (111,966) (21,075)
Investment in Partnerships (3,633) (5,453) -
Other 6,687 7,583 1,429
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Net Cash Used in Investing Activities (263,226) (503,069) (233,647)
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Financing Activities
Change in Notes Payable to Banks and Commercial
Paper 67,195 229,387 (107,300)
Net Proceeds from Issuance of Long-Term Debt 198,217 198,750 99,500
Reduction of Long-Term Debt (213,849) (103,867) (1,310)
Proceeds from Issuance of Common Stock 10,735 7,853 7,074
Dividends Paid on Common Stock (69,878) (66,959) (64,260)
Dividends Paid to Minority Interest (246) (253) -
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Net Cash Provided by (Used in) Financing Activities (7,826) 264,911 (66,296)
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Effect of Exchange Rates on Cash (2,053) 1,578 -
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Net Increase (Decrease) in Cash and
Temporary Cash Investments (1,215) 16,398 (5,281)
Cash and Temporary Cash Investments
at Beginning of Year 30,437 14,039 19,320
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Cash and Temporary Cash Investments
at End of Year $ 29,222 $ 30,437 $ 14,039
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Statement of Comprehensive Income
----------------------------------------------
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Year Ended September 30 (Thousands of Dollars) 1999 1998 1997
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
<S> <C> <C> <C>
Net Income Available for Common Stock $115,037 $ 23,188 $114,688
----------------- ---------------- -----------------
Other Comprehensive Income (Loss), Before Tax:
Foreign Currency Translation Adjustment (11,737) 9,350 (2,085)
Unrealized Gain on Securities Available for
Sale 706 - -
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Other Comprehensive Income (Loss), Before Tax (11,031) 9,350 (2,085)
Income Tax Expense Related to Unrealized Gain
on Securities Available for Sale 247 - -
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Other Comprehensive Income (Loss), Net of Tax (11,278) 9,350 (2,085)
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
Comprehensive Income $103,759 $32,538 $112,603
- ------------------------------------------------------------------ ----------------- ---------------- -----------------
</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 majority owned subsidiaries. The equity method is used to account for the
Company's investment in any minority owned entities. 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 certain state and federal authorities.
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
- - Regulatory Matters for further discussion.
In the International segment, rates charged for the sale of thermal
energy and electric energy at the retail level are subject to regulation and
audit in the Czech Republic by the Czech Ministry of Finance. The regulation of
electric energy rates at the retail level indirectly impacts the rates charged
by the International segment for its electric energy sales at the wholesale
level.
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.
Distribution Corporation's rate settlements with the State of New York
Public Service Commission (NYPSC) include provisions for a sharing of earnings
over a specified rate of return on equity. Estimated refund liabilities are
recorded over the term of the settlements which reflect management's current
estimate of such refunds. Reference is made to Note B - Regulatory Matters for
further discussion.
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.
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.
Oil and gas property acquisition, exploration and development costs are
capitalized under the full-cost method of accounting. All costs directly
associated with property acquisition, exploration and development activities are
capitalized, up to certain specified limits. If capitalized costs exceed these
limits at the end of any quarter, a permanent impairment is required to be
charged to earnings in that quarter. Due to significant declines in oil prices
in 1998, Seneca's capitalized costs under the full-cost method of accounting
exceeded these limits at March 31, 1998. Seneca was required to recognize an
impairment of its oil and gas producing properties in the quarter ended March
31, 1998. This charge amounted to $129.0 million (pretax) and reduced net income
for 1998 by $79.1 million.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization are computed by application of either
the straight-line method or the units of production method, in amounts
sufficient to recover costs over the estimated service lives of property in
service, and for oil and gas properties, based on quantities produced in
relation to proved reserves (see discussion of change in method of depletion for
oil and gas properties below). The costs of unevaluated oil and gas properties
are excluded from this computation. 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, as a percentage of
average depreciable property, were 4.3% in 1999, 4.4% in 1998 and 4.6% in 1997.
Cumulative Effect of Change in Accounting
Effective October 1, 1997, Seneca changed its method of depletion for oil and
gas properties from the gross revenue method to the units of production method.
The units of production method was applied retroactively to prior years to
determine the cumulative effect through October 1, 1997. This cumulative effect
reduced earnings for 1998 by $9.1 million, net of income tax. Depletion of oil
and gas properties for 1999 and 1998 was computed under the units of production
method.
Pro forma amounts for 1998 and 1997 shown below, assume the retroactive
application of the new depletion method.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year Ended September 30 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income (Thousands):
As reported $ 23,188 $114,688
Pro forma $ 32,304 $113,022
Earnings Per Common Share:
Basic - As reported $0.61 $3.01
Basic - Pro forma $0.85 $2.97
Diluted - As reported $0.60 $2.98
Diluted - Pro forma $0.84 $2.94
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Gas Stored Underground - Current
Gas stored underground - current is carried at lower of cost or market, on a
last-in, first-out (LIFO) method. Based upon the average price of spot market
gas purchased in September 1999, 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 $51.4 million at September 30,
1999.
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 local
currency. The translation from the local currency to U. S. dollars is performed
for balance sheet accounts by using current exchange ratios in effect at the
balance sheet date and, for revenue and expense accounts, by using an average
exchange rate during the period. The resultant cumulative foreign currency
translation adjustment is recorded as a component of Accumulated Other
Comprehensive Income in the Common Stock Equity section of the Consolidated
Balance Sheet.
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. No provision has been
made for domestic income taxes applicable to undistributed earnings of foreign
subsidiaries as the amounts are considered to be permanently reinvested outside
the U.S.
Financial Instruments
Unrealized gains or losses from "available-for-sale securities" (i.e., the
Company's investments in marketable equity securities) are recorded as a
component of Accumulated Other Comprehensive Income in the Common Stock Equity
section of the Consolidated Balance Sheet. Reference is made to Note F -
Financial Instruments for further discussion.
Seneca utilizes price swap agreements and options (primarily written
options) to manage a portion of the market risk associated with fluctuations in
the price of natural gas and crude oil. NFR utilizes exchange-traded futures and
exchange-traded options to manage a portion of the market risk that it faces due
to fluctuations in the price of natural gas. Gains or losses from Seneca's price
swap agreements are accrued in operating revenues on the Consolidated Statement
of Income at the contract settlement dates. Seneca's options are
marked-to-market on a quarterly basis with gains or losses recorded in Operating
Revenues on the Consolidated Statement of Income. Gains or losses from NFR's
exchange-traded futures and exchange-traded options are recorded in Other
Deferred Credits on the Consolidated Balance Sheet until the hedged commodity
transaction occurs, at which point they are reflected in operating revenues on
the Consolidated Statement of Income. Reference is made to Note F - Financial
Instruments for further discussion.
In the International segment, PSZT utilizes an interest rate swap to
eliminate interest rate fluctuations on its variable rate debt. Gains or losses
are accrued in interest charges on the Consolidated Statement of Income at the
contract settlement dates.
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 1999, 1998 and 1997 was
$75.8 million, $46.2 million and $52.4 million, respectively. Income taxes paid
in 1999, 1998 and 1997 were $35.0 million, $64.5 million and $69.2 million,
respectively.
Details of the stock acquisitions made by the Company during 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------- --------------- ------------------------------------------------------------
Year Ended September 30 (Millions)
1999 1998
- ----------------------------------------- --------------- -------------- -------------- --------------- --------------
JTR(1) SCT PSZT HarCor(2) Total
- ----------------------------------------- --------------- |-------------- -------------- --------------- --------------
|
<S> <C> | <C> <C> <C> <C>
Assets acquired $13.5 | $66.1 $141.8 $105.6 $313.5
Liabilities assumed (7.3) | (22.3) (77.3) (73.0) (172.6)
Existing investment at acquisition (0.4) | (18.9) - - (18.9)
Cash acquired at acquisition (0.1) | (6.3) (0.9) (2.8) (10.0)
- ----------------------------------------- --------------- |-------------- -------------- --------------- --------------
Cash paid, net of cash acquired $5.7 | $18.6 $63.6 $29.8 $112.0
- ----------------------------------------- --------------- |-------------- -------------- --------------- --------------
</TABLE>
(1) Jablonecka teplarenska a realitni, a.s. (JTR) is a majority owned subsidiary
of SCT.
(2) HarCor Energy, Inc. (HarCor).
Further discussion of these acquisitions can be found at Note J - Stock
Acquisitions.
Earnings Per Common Share
Basic earnings per common share is computed by dividing income available for
common stock by the weighted average number of common shares outstanding for the
period. Diluted earnings per common share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The only potentially dilutive
securities the Company has outstanding are stock options. The diluted weighted
average shares outstanding shown on the Consolidated Statement of Income
reflects the potential dilution as a result of these stock options as determined
using the Treasury Stock Method.
New Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The intended use of the derivatives and their designation as
either a fair value hedge, a cash flow hedge, or a foreign currency hedge will
determine when the gains or losses on the derivatives are to be reported in
earnings and when they are to be reported as a component of other comprehensive
income.
Management has evaluated the derivatives used by Seneca, NFR and
Horizon and believes that the adoption of SFAS 133 will not have a material
impact on the financial condition or results of operations of the Company.
Management is continuing to evaluate other financial instruments and contracts
which may have embedded derivatives that could be impacted by the adoption of
SFAS 133. SFAS 133 required the Company to adopt the standard in the first
quarter of fiscal 2000. However, in June 1999, the FASB issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS 137 delays, by one year, the
effective date of SFAS 133. Accordingly, the Company will adopt SFAS 133 by the
first quarter of fiscal 2001.
Note B - Regulatory Matters
Regulatory Assets and Liabilities
Distribution Corporation and Supply Corporation have recorded the following
regulatory assets and liabilities:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------- ------------------- -------------------
At September 30 (Thousands) 1999 1998
- --------------------------------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Regulatory Assets:
Recoverable Future Taxes (Note C) $87,724 $ 88,303
Unamortized Debt Expense (Note A) 15,223 16,886
Pension and Post-Retirement Benefit Costs (Note G) 21,217 22,483
Environmental Clean-up (Note H) - 12,394
Other 3,997 6,858
- --------------------------------------------------------------------------------- ------------------- -------------------
Total Regulatory Assets 128,161 146,924
- --------------------------------------------------------------------------------- ------------------- -------------------
Regulatory Liabilities:
Amounts Payable to Customers (Note A) 5,934 5,781
New York Rate Settlements 18,913 19,341
Taxes Refundable to Customers (Note C) 14,814 18,404
Pension and Post-Retirement Benefit Costs(1) (Note G) 26,087 20,222
Other(1) 3,226 1,741
- --------------------------------------------------------------------------------- ------------------- -------------------
Total Regulatory Liabilities 68,974 65,489
- --------------------------------------------------------------------------------- ------------------- -------------------
Net Regulatory Position $59,187 $ 81,435
- --------------------------------------------------------------------------------- ------------------- -------------------
</TABLE>
(1) Included in Other Deferred Credits on the Consolidated Balance Sheets.
If for any reason Distribution Corporation and/or Supply Corporation
ceases to meet the criteria for application of regulatory accounting treatment
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 regulatory accounting treatment occurs. Such amounts would be
classified as an extraordinary item.
New York Rate Settlements
With respect to services provided in New York, Distribution Corporation has
entered into rate settlements with the NYPSC. The rate settlements provide for a
sharing mechanism, whereby earnings above a 12% return on equity are to be
shared equally between shareholders and ratepayers. As a result of this sharing
mechanism, Distribution Corporation had liabilities of $8.6 million and $10.7
million at September 30, 1999 and 1998, respectively. Of these amounts, $3.0
million was reclassified to Amounts Payable to Customers at September 30, 1999
and 1998 to reflect the amounts estimated to be passed back to customers in the
following year. Other aspects of the settlements include a special reserve of
$7.4 million (including interest of $0.2 million) recorded during 1999 to be
applied against Distribution Corporation's incremental costs resulting from the
NYPSC's gas restructuring effort and a "refund pool" of $3.5 million and $5.0
million at September 30, 1999 and 1998, respectively. The refund pool is an
accumulation of certain refunds from upstream pipeline companies and certain
credits which can be used to offset certain specific expense items. Various
other regulatory liabilities have also been created through the New York rate
settlements and amounted to $2.5 million and $6.6 million at September 30, 1999
and 1998, respectively.
Note C - Income Taxes
The components of federal, state and foreign income taxes included in the
Consolidated Statement of Income are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 (Thousands) 1999 1998 1997
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Operating Expenses:
Current Income Taxes -
Federal $ 43,467 $ 40,740 $ 57,807
State 6,215 6,635 7,067
Deferred Income Taxes -
Federal 11,149 (21,687) 2,895
State 1,244 (5,997) 905
Foreign Income Taxes 2,754 4,333 -
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
64,829 24,024 68,674
Other Income:
Deferred Investment Tax Credit (729) (665) (665)
Minority Interest in Foreign Subsidiaries (642) (1,218) -
Cumulative Effect of Change in Accounting
for Depletion - (5,737) -
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Total Income Taxes $ 63,458 $ 16,404 $ 68,009
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
The U.S. and foreign components of income (loss) before income taxes are as follows:
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 (Thousands) 1999 1998 1997
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
U.S. $169,037 $ 31,127 $184,257
Foreign 9,457 8,465 (1,560)
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
$178,494 $ 39,592 $182,697
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------- ------------------- --------------- ----------------
Year Ended September 30 (Thousands) 1999 1998 1997
- --------------------------------------------------------------- ------------------- --------------- ----------------
<S> <C> <C> <C>
Net Income Available for Common Stock $115,037 $ 23,188 $114,688
Income Tax Expense 63,458 16,404 68,009
- --------------------------------------------------------------- ------------------- --------------- ----------------
Income Before Income Taxes 178,495 39,592 182,697
- --------------------------------------------------------------- ------------------- --------------- ----------------
Income Tax Expense, Computed at Federal
Statutory Rate of 35% 62,473 13,857 63,944
Increase (Reduction) in Taxes Resulting from:
State Income Taxes 4,848 986 5,182
Depreciation 1,872 2,186 2,560
Property Retirements (833) (1,609) (1,320)
Keyman Life Insurance (502) (774) (695)
Prior Years Tax Adjustment (1,362) 2,846 -
Miscellaneous (3,038) (1,088) (1,662)
- --------------------------------------------------------------- ------------------- --------------- ----------------
Total Income Taxes $ 63,458 $ 16,404 $ 68,009
- --------------------------------------------------------------- ------------------- --------------- ----------------
</TABLE>
Significant components of the Company's deferred tax liabilities and
assets were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------- --------------- ----------------
At September 30 (Thousands) 1999 1998
- ----------------------------------------------------------------------------------- --------------- ----------------
<S> <C> <C>
Deferred Tax Liabilities:
Abandonments $21,192 $15,545
Accelerated Tax Depreciation 132,732 132,138
Exploration and Intangible Well
Drilling Costs 165,798 147,795
Other 62,565 42,109
- ----------------------------------------------------------------------------------- --------------- ----------------
Total Deferred Tax Liabilities 382,287 337,587
- ----------------------------------------------------------------------------------- --------------- ----------------
Deferred Tax Assets:
Capitalized Overheads (25,587) (22,484)
Other (81,692) (56,881)
- ----------------------------------------------------------------------------------- --------------- ----------------
Total Deferred Tax Assets (107,279) (79,365)
- ----------------------------------------------------------------------------------- --------------- ----------------
Total Net Deferred Income Taxes $275,008 $258,222
- ----------------------------------------------------------------------------------- --------------- ----------------
</TABLE>
Regulatory liabilities representing the reduction of previously
recorded deferred income taxes associated with rate-regulated activities that
are expected to be refundable to customers amounted to $14.8 million and $18.4
million at September 30, 1999 and 1998, respectively. Also, regulatory assets,
representing future amounts collectible from customers, corresponding to
additional deferred income taxes not previously recorded because of prior
ratemaking practices amounted to $87.7 million and $88.3 million at September
30, 1999 and 1998, respectively.
The primary issues related to Internal Revenue Service audits of the
Company for the years 1977-1994 were settled during March 1998 and the remaining
issues were settled in December 1998. Net income for the years ended September
30, 1999 and 1998 was increased by approximately $3.9 million and $5.0 million,
respectively, as a result of interest, net of tax and other adjustments, related
to these settlements.
Note D - Capitalization
<TABLE>
<CAPTION>
Summary of Changes in Common Stock Equity
- ----------------------------------- -------------- ----------------- ---------------- ----------------- --------------------
Earnings Accumulated
Paid Reinvested Other
(Thousands, Except Per Share Common Stock In in the Comprehensive
Amounts) Shares Amount Capital Business Income
- ----------------------------------- -------------- ----------------- ---------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Balance at
September 30, 1996 37,852 $37,852 $395,272 $422,874 $ -
Net Income Available
for Common Stock 114,688
Dividends Declared
on Common Stock
($1.71 Per Share) (64,967)
Other Comprehensive
Income, Net of Tax (2,085)
Common Stock Issued
Under Stock and
Benefit Plans 314 314 9,756
- ----------------------------------- -------------- ----------------- ---------------- ----------------- --------------------
Balance at
September 30, 1997 38,166 38,166 405,028 472,595 (2,085)
Net Income Available
for Common Stock 23,188
Dividends Declared on
Common Stock
($1.77 Per Share) (67,671)
Other Comprehensive
Income, Net of Tax 9,350
Common Stock Issued
Under Stock and
Benefit Plans 303 303 11,211
- ----------------------------------- -------------- ----------------- ---------------- ----------------- --------------------
Balance at
September 30, 1998 38,469 38,469 416,239 428,112 7,265
Net Income Available
for Common Stock 115,037
Dividends Declared on
Common Stock
($1.83 Per Share) (70,632)
Other Comprehensive
Income, Net of Tax (11,278)
Common Stock Issued
Under Stock and
Benefit Plans 368 368 15,713
- ----------------------------------- -------------- ----------------- ---------------- ----------------- --------------------
Balance at
September 30, 1999 38,837 $38,837 $431,952 $472,517(1) $(4,013)
- ----------------------------------- -------------- ----------------- ---------------- ----------------- --------------------
</TABLE>
(1) 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, 1999, $398.1 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 commissions or service charges
in connection with such acquisitions. Effective November 1, 1999, these two
plans were combined into a new plan, known as the National Fuel Direct Stock
Purchase and Dividend Reinvestment Plan. 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.
The Company also has a Director Stock Program under which it issues
shares of Company common stock to its non-employee directors as partial
consideration for their services as directors.
Shareholder Rights Plan
In 1996, the Company's Board of Directors adopted a shareholder rights plan
(Plan). Effective April 30, 1999, the Plan was amended and is now embodied in an
Amended and Restated Rights Agreement.
The holders of the Company's common stock have one right (Right) for
each of their shares. Each Right, which will initially be evidenced by the
Company's common stock certificates representing the outstanding shares of
common stock, entitles the holder to purchase one-half of one share of common
stock at a purchase price of $130 per share, being $65 per half share, subject
to adjustment (Purchase Price).
The Rights become exercisable upon the occurrence of a distribution
date. At any time following a distribution date, each holder of a Right may
exercise its right to receive common stock (or, under certain circumstances,
other property of the Company) having a value equal to two times the Purchase
Price of the Right then in effect. However, the Rights are subject to redemption
or exchange by the Company prior to their exercise as described below.
A distribution date would occur upon the earlier of (i) ten days after
the public announcement that a person or group has acquired, or obtained the
right to acquire, beneficial ownership of the Company's common stock or other
voting stock having 10% or more of the total voting power of the Company's
common stock and other voting stock and (ii) ten days after the commencement or
announcement by a person or group of an intention to make a tender or exchange
offer that would result in that person acquiring, or obtaining the right to
acquire, beneficial ownership of the Company's common stock or other voting
stock having 10% or more of the total voting power of the Company's common stock
and other voting stock.
In certain situations after a person or group has acquired beneficial
ownership of 10% or more of the total voting power of the Company's stock as
described above, each holder of a Right will have the right to exercise its
Rights to receive common stock of the acquiring company having a value equal to
two times the Purchase Price of the Right then in effect. These situations would
arise if the Company is acquired in a merger or other business combination or if
50% or more of the Company's assets or earning power are sold or transferred.
At any time prior to the end of the business day on the tenth day
following the announcement that a person or group has acquired, or obtained the
right to acquire, beneficial ownership of 10% or more of the total voting power
of the Company, the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right, payable in cash or stock. A decision to redeem the
Rights requires the vote of 75% of the Company's full Board of Directors. Also,
at any time following the announcement that a person or group has acquired, or
obtained the right to acquire, beneficial ownership of 10% or more of the total
voting power of the Company, 75% of the Company's full Board of Directors may
vote to exchange the Rights, in whole or in part, at an exchange rate of one
share of common stock, or other property deemed to have the same value, per
Right, subject to certain adjustments.
After a distribution date, Rights that are owned by an acquiring person
will be null and void. Upon exercise of the Rights, the Company may need
additional regulatory approvals to satisfy the requirements of the Rights
Agreement. The Rights will expire on July 31, 2008, unless they are exchanged or
redeemed earlier than that date.
The Rights have anti-takeover effects because they will cause
substantial dilution of the common stock if a person attempts to acquire the
Company on terms not approved by the Board of Directors.
Stock Option and Stock Award Plans
The Company has various stock option and stock award plans which provide or
provided for the issuance of one or more of the following to key employees:
incentive stock options, nonqualified stock options, stock appreciation rights,
restricted stock, performance units or performance shares. Stock options under
all 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.
For the years ended September 30, 1999, 1998 and 1997, 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 $1.0 million, $4.1 million and $8.1 million for the years ended
September 30, 1999, 1998 and 1997, respectively. Had compensation expense for
stock options granted under the Company's stock option and stock award plans
been determined based on fair value at the grant dates, the Company's net income
and earnings per share would have been reduced to the pro forma amounts below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------- ------------------- ------------------- -------------------
Year Ended September 30 1999 1998 1997
- ---------------------------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Net Income (Thousands):
As reported $115,037 $23,188 $114,688
Pro forma $111,385 $18,859 $110,506
Earnings Per Common Share:
Basic - As reported $2.98 $0.61 $3.01
Basic - Pro forma $2.88 $0.49 $2.90
Diluted - As reported $2.95 $0.60 $2.98
Diluted - Pro forma $2.85 $0.49 $2.87
- ---------------------------------------------------------- ------------------- ------------------- -------------------
</TABLE>
Transactions involving option shares for all plans are summarized as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------- ---------------------------- ---------------------------
Number of
Shares Subject Weighted Average
to Option Exercise Price
- ------------------------------------------------------------- ---------------------------- ---------------------------
<S> <C> <C>
Outstanding at September 30, 1996 1,773,251 $29.62
Granted in 1997 678,750 $39.61
Exercised in 1997(1) (274,655) $25.80
Forfeited in 1997 (3,000) $36.81
- ------------------------------------------------------------- ---------------------------- ---------------------------
Outstanding at September 30, 1997 2,174,346 $33.21
Granted in 1998 770,000 $44.44
Exercised in 1998(1) (205,200) $27.41
Forfeited in 1998 (7,250) $41.68
- ------------------------------------------------------------- ---------------------------- ---------------------------
Outstanding at September 30, 1998 2,731,896 $36.79
Granted in 1999 753,400 $46.70
Exercised in 1999(1) (111,504) $28.41
Forfeited in 1999 (9,700) $37.41
- ------------------------------------------------------------- ---------------------------- ---------------------------
Outstanding at September 30, 1999 3,364,092 $39.29
- ------------------------------------------------------------- ---------------------------- ---------------------------
Option shares exercisable at September 30, 1999 2,537,360 $37.01
Option shares available for future
grant at September 30, 1999(2) 76,338
- ------------------------------------------------------------- ---------------------------- ---------------------------
</TABLE>
(1) In connection with exercising these options, 16,531, 44,580 and 117,326
shares were surrendered and canceled during 1999, 1998 and 1997,
respectively.
(2) Including shares available for restricted stock grants.
The weighted average fair value per share of options granted in 1999,
1998 and 1997 was $7.43, $7.91 and $7.66, respectively. These weighted average
fair values were estimated on the date of grant using a binomial option pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
- ---------------------------------------------------------- ------------------- ------------------- -------------------
Year Ended September 30 1999 1998 1997
- ---------------------------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Quarterly Dividend Yield 0.97% 0.98% 1.06%
Annual Standard Deviation (Volatility) 18.86% 16.48% 16.76%
Risk Free Rate 4.74% 5.77% 6.58%
Expected Term - in Years 5.0 5.5 5.0
- ---------------------------------------------------------- ------------------- ------------------- -------------------
</TABLE>
The following table summarizes information about options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------- -------------------------------------
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------- -------------------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Price at 9/30/99 Contractual Life Exercise Price at 9/30/99 Exercise Price
- ------------------------- ---------------- -------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
$23.81 - $35.72 846,817 4.5 years $28.77 846,817 $28.77
$35.73 - $49.57 2,517,275 8.2 years $42.83 1,690,543 $41.14
- ------------------------- ---------------- -------------------- ----------------- ----------------- -------------------
</TABLE>
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 stock options and stock award 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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 1999 1998 1997
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Shares of Restricted Stock Awarded 6,580 7,609 6,300
Weighted Average Market Price of
Stock on Award Date $46.06 $44.88 $40.88
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
As of September 30, 1999, 96,319 shares of non-vested restricted stock
were outstanding. Vesting restrictions will lapse as follows: 2000 - 28,216
shares; 2001 - 35,103 shares; 2002 - 8,000 shares; 2003 - 8,000 shares; 2004 -
7,000 shares; 2005 - 6,000 shares; and 2006 - 4,000 shares.
Redeemable Preferred Stock
As of September 30, 1999, there were 10,000,000 shares of $1 par value Preferred
Stock authorized but unissued.
Long-Term Debt
The outstanding long-term debt is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------- ---------------- -----------------
At September 30 (Thousands) 1999 1998
- ----------------------------------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
National Fuel Gas Company:
Debentures:
7-3/4% due February 2004 $125,000 $125,000
Medium-Term Notes:
5.58% to 8.48% due March 1999 to August 2027(1) 699,000 649,000
- ----------------------------------------------------------------------------------- ---------------- -----------------
824,000 774,000
- ----------------------------------------------------------------------------------- ---------------- -----------------
HarCor:
14.875% Senior Secured Notes - 62,571
- ----------------------------------------------------------------------------------- ---------------- -----------------
PSZT:
8.04% U.S. Dollar Denominated
Debt due March 2000 - December 2004(2) - 50,596
7.505% Term Loan due March 2000 - December 2004(2) 47,671 -
- ----------------------------------------------------------------------------------- ---------------- -----------------
47,671 50,596
- ----------------------------------------------------------------------------------- ---------------- -----------------
Other Notes 20,680 22,783
- ----------------------------------------------------------------------------------- ---------------- -----------------
Total Long-Term Debt 892,351 909,950
Less Current Portion 69,608 216,929
- ----------------------------------------------------------------------------------- ---------------- -----------------
$822,743 $693,021
- ----------------------------------------------------------------------------------- ---------------- -----------------
</TABLE>
(1) Includes $50 million of 8.48% medium-term notes due July 2024 which are
callable at a redemption price of 106.36% through July 2000. The redemption
price will decline in subsequent years. It also includes $100 million of
6.214% medium-term notes due August 2027 which are putable by debt holders
only on August 12, 2002, at par.
(2) In December 1998, PSZT converted its U.S. Dollar denominated debt to a
Czech koruna denominated term loan. The interest rate on the new term loan
is six month Prague Interbank Offered Rate (PRIBOR) plus 0.475%. Refer to
Note F - Financial Instruments for discussion of PSZT's interest rate swap.
The aggregate principal amounts of long-term debt maturing for the next
five years and thereafter are as follows: $69.6 million in 2000, $12.6 million
in 2001, $10.7 million in 2002, $10.4 million in 2003, $235.4 million in 2004
and $553.7 million thereafter.
Note E - Short-Term Borrowings
The Company has SEC authorization under the Public Utility Holding Company Act
of 1935, as amended, to borrow and have outstanding as much as $750.0 million of
short-term debt at any time through December 31, 2002.
The Company historically has borrowed short-term funds either through
bank loans or the issuance of commercial paper. As for the former, the Company
maintains uncommitted or discretionary lines of credit with certain financial
institutions for general corporate purposes. Borrowings under these lines of
credit are made at competitive market rates. These credit lines are revocable at
the option of the financial institutions and are reviewed on an annual basis.
At September 30, 1999, the Company had outstanding short-term notes
payable to banks and commercial paper of $246.0 million (domestic = $244.8
million; foreign = $1.2 million) and $147.5 million, respectively. At September
30, 1998, the Company had outstanding notes payable to banks and commercial
paper of $196.3 million and $130.0 million, respectively.
The weighted average interest rate on domestic notes payable to banks
was 5.55% and 5.67% at September 30, 1999 and 1998, respectively. The interest
rate on the foreign notes payable to banks was 6.35% at September 30, 1999.
There were not any foreign notes payable to banks at September 30, 1998. The
weighted average interest rate on commercial paper was 5.49% and 5.60% at
September 30, 1999 and 1998, 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:
<TABLE>
<CAPTION>
- ------------------------------------------------ ---------------- ----------------- ---------------- -----------------
1999 1999 1998 1998
Carrying Fair Carrying Fair
At September 30 (Thousands) Amount Value Amount Value
- ------------------------------------------------ ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Long-Term Debt $892,351 $867,056 $909,950 $966,437
- ------------------------------------------------ ---------------- ----------------- ---------------- -----------------
</TABLE>
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 in a
mutual fund and the stock of an insurance company, as discussed below, are
stated at fair value based on quoted market prices.
Investments
Other assets includes cash surrender values of insurance contracts and a mutual
fund (accounted for as an "available-for-sale security"). The insurance
contracts and mutual fund were established as an informal funding mechanism for
various benefit obligations the Company has to certain employees. The cash
surrender values of the insurance contracts amounted to $44.2 million and $40.1
million at September 30, 1999 and 1998, respectively. The mutual fund amounted
to $5.0 million and $2.2 million at September 30, 1999 and 1998, respectively.
Other assets also includes shares of stock in an insurance company
which the Company received as part of the insurance company's initial public
offering in 1999. This "demutualization" of the insurance company resulted in a
gain to the Company of $2.4 million. At September 30, 1999, the value of the
stock was $2.3 million. The stock is accounted for as an "available-for-sale
security."
Derivative Financial Instruments
Seneca has entered into certain price swap agreements and options to manage a
portion of the market risk associated with fluctuations in the price of natural
gas and crude oil in an effort to provide more stability to its operating
results. These agreements and options are not held for trading purposes. The
price swap agreements call for Seneca 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 Seneca for its natural gas and crude oil production.
The fair value of outstanding natural gas and crude oil price swap agreements
and options discussed below reflect the estimated amounts Seneca would pay or
receive to terminate its derivative financial instruments at September 30, 1999.
At September 30, 1999, Seneca had natural gas price swap agreements
covering a notional amount of 40.2 Bcf extending through 2002 at a weighted
average fixed rate of $2.69 per Mcf. Seneca also had crude oil price swap
agreements covering a notional amount of 2,296,000 bbls extending through 2001
at a weighted average fixed rate of $19.00 per bbl. The fair value of Seneca's
outstanding natural gas and crude oil price swap agreements at September 30,
1999 was a net loss of approximately $9.8 million. This loss was offset by
corresponding unrecognized gains from Seneca's anticipated natural gas and crude
oil production over the terms of the price swap agreements.
Seneca recognized net gains (losses) of $2.6 million, $(4.1) million
and $(21.5) million related to settlements of its price swap agreements during
1999, 1998 and 1997, respectively. As the price swap agreements have been
designated as hedges, these gains (losses) were offset by corresponding gains
(losses) from Seneca's natural gas and crude oil production.
At September 30, 1999, Seneca had the following options outstanding:
<TABLE>
<CAPTION>
Type of Option Notional Amount Weighted Average Strike Price
- -------------- --------------- -----------------------------
<S> <C> <C>
Written Call Option 184,000 bbls $18.00/bbl
Written Call Option 2.6Bcf $2.86/Mcf
Written Call Options(1) 13.9 Bcf or 732,000 bbls $2.62/Mcf or $18.00/bbl
Written Put Option 916,000 bbls $12.50/bbl
Purchased Call Option 1,464,000 bbls $20.00/bbl
</TABLE>
(1)The counterparty has a choice between a natural gas call option and a crude
oil call option, depending on whichever option has greater value to the
counterparty.
As disclosed in Note A-Summary of Significant Accounting Policies,
Seneca's call and put options are being marked-to-market. The mark-to-market
adjustment for 1999 was a loss of $1.3 million, the recording of which leaves
the fair value of the call and put options at September 30, 1999 at a net loss
of $3.6 million. During 1999, Seneca paid the counterparty $28,000 and $1.2
million related to the exercise of a portion of the written put options and the
written call options, respectively. Seneca received $0.6 million from the
counterparty related to Seneca's exercise of a portion of the $20.00 per bbl
call options that it had purchased.
The Company is exposed to credit risk on the price swap agreements that
Seneca has entered into as well as on the call options that Seneca has
purchased. 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
contractual obligations. To mitigate such credit risk, management performs a
credit check, and then on an ongoing basis monitors counterparty credit
exposure.
NFR utilizes exchange-traded futures and exchange-traded options to
manage a portion of the market risk associated with fluctuations in the price of
natural gas. Such futures and options are not held for trading purposes. At
September 30, 1999, NFR had natural gas futures contracts covering 2.1 Bcf of
gas on a net basis extending through 2001 at a weighted average contract price
of $2.75 per Mcf. NFR had sold natural gas options covering 17.1 Bcf of gas at a
weighted average strike price of $3.01 per Mcf. NFR also had purchased natural
gas options covering 9.0 Bcf of gas at a weighted average strike price of $2.72
per Mcf. The exchange-traded futures and exchange-traded options are used to
hedge NFR's purchase and sale commitments and storage gas inventory. The fair
value of NFR's outstanding exchange-traded futures and exchange-traded options
at September 30, 1999 was a net gain of approximately $1.1 million. This fair
value reflects the estimated net amount that NFR would receive to terminate its
exchange-traded futures and exchange-traded options at September 30, 1999. Since
these exchange-traded futures contracts and exchange-traded options qualify and
have been designated as hedges, any gains or losses resulting from market price
changes would be substantially offset by the related commodity transaction.
NFR recognized net gains (losses) of $(5.4) million, $1.3 million and
$1.7 million related to futures contracts and options during 1999, 1998 and
1997, respectively. Since these futures contracts and options qualify and have
been designated as hedges, these net gains (losses) were substantially offset by
the related commodity transactions.
PSZT utilizes an interest rate swap to eliminate interest rate
fluctuations on its CZK 1,595,924,000 term loan ($47.7 million at September 30,
1999), which carries a variable interest rate of six month PRIBOR plus 0.475%.
Under the terms of the interest rate swap, which extends until 2001, PSZT pays a
fixed rate of 8.31% and receives a floating rate of six month PRIBOR. PSZT
recognized a loss of $0.1 million related to this interest rate swap during
1999. The fair value of PSZT's interest rate swap at September 30, 1999 was a
loss of approximately $1.0 million.
Note G - Retirement Plan and Other Post-Retirement Benefits
The Company has a tax-qualified, noncontributory, defined-benefit retirement
plan (Retirement Plan) that covers substantially all domestic employees of the
Company. The Company provides health care and life insurance benefits for
substantially all domestic retired employees under a post-retirement benefit
plan (Post-Retirement Plan).
The Company's policy is to fund the Retirement Plan with 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. The Company has established Voluntary Employees'
Beneficiary Association (VEBA) trusts for its Post-Retirement Plan.
Contributions to the VEBA trusts are tax deductible, subject to limitations
contained in the Internal Revenue Code and regulations and are made to fund
employees' post-retirement health care and life insurance benefits, as well as
benefits as they are paid to current retirees. Retirement Plan and
Post-Retirement Plan assets primarily consist of equity and fixed income
investments and/or units in commingled funds or money market funds.
Distribution Corporation and Supply Corporation are fully recovering
their net periodic pension and post-retirement benefit costs in accordance with
the applicable regulatory commission authorization. For financial reporting
purposes, Distribution Corporation and Supply Corporation record the difference
between the amounts of pension cost and post-retirement benefit cost recoverable
in rates and the amounts of such costs as determined by their actuary under
applicable accounting principles as either a regulatory asset or liability, as
appropriate. Pension and post-retirement benefit costs reflect the amount
recovered from customers in rates during the year. Under the NYPSC's policies,
Distribution Corporation segregates the amount of such costs collected in rates,
but not yet contributed to the Retirement and Post-Retirement Plans, into a
regulatory liability account. This liability accrues interest at the NYPSC
mandated interest rate and this interest cost is included in pension and
post-retirement benefit costs. For purposes of disclosure, the liability also
remains in the disclosed pension and post-retirement benefit liability amount
because it has not yet been contributed.
Retirement Plan
Reconciliations of the Benefit Obligation, Retirement Plan Assets and Funded
Status, as well as the components of Net Periodic Benefit Cost and the Weighted
Average Assumptions are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 (Thousands) 1999 1998 1997
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Change in Benefit Obligation
Benefit Obligation at Beginning of Period $532,250 $462,377 $432,753
Service Cost 12,676 10,655 9,988
Interest Cost 36,299 35,485 33,532
Amendments 1,691 - 1,479
Actuarial (Gain) Loss (13,598) 52,446 10,336
Benefits Paid (30,522) (28,713) (25,711)
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Benefit Obligation at End of Period $538,796 $532,250 $462,377
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Change in Plan Assets
Fair Value of Assets at Beginning of Period $509,393 $473,205 $431,828
Actual Return on Plan Assets 47,888 59,415 65,790
Employer Contribution 11,199 5,486 1,298
Benefits Paid (30,522) (28,713) (25,711)
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Fair Value of Assets at End of Period $537,958 $509,393 $473,205
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Reconciliation of Funded Status
Funded Status $(838) $(22,857) $10,828
Unrecognized Net Actuarial Gain (45,853) (12,659) (38,687)
Unrecognized Transition Asset (14,864) (18,580) (22,296)
Unrecognized Prior Service Cost 12,048 11,369 12,435
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Accrued Benefit Cost $(49,507) $(42,727) $(37,720)
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
1999 1998 1997
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Weighted Average Assumptions as of September 30
Discount Rate 7.25% 7.00% 7.75%
Expected Return on Plan Assets 8.50% 8.50% 8.50%
Rate of Compensation Increase 5.00% 5.00% 5.00%
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 (Thousands)
Components of Net Periodic Benefit Cost
Service Cost $ 12,676 $ 10,655 $9,988
Interest Cost 36,299 35,485 33,532
Expected Return on Plan Assets (38,158) (35,724) (34,011)
Amortization of Prior Service Cost 1,012 1,065 991
Amortization of Transition Asset (3,716) (3,716) (3,754)
Recognition of Actuarial Loss 2,833 981 -
Early Retirement Window 7,032 - 1,904
Net Amortization and Deferral for
Regulatory Purposes 2,721 4,829 (374)
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Net Periodic Benefit Cost $ 20,699 $ 13,575 $8,276
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
The effect of the discount rate change in 1999 was to decrease the
Benefit Obligation by $15.9 million as of the end of the period. The effect of
the discount rate change in 1998 was to increase the Benefit Obligation as of
the end of the period by $45.0 million.
Other Post-Retirement Benefits
Reconciliations of the Benefit Obligation, Post-Retirement Plan Assets and
Funded Status, as well as the components of Net Periodic Benefit Cost and the
Weighted Average Assumptions are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 (Thousands) 1999 1998 1997
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Change in Benefit Obligation
Benefit Obligation at Beginning of Period $ 256,983 $218,370 $ 212,047
Service Cost 4,493 4,022 4,056
Interest Cost 17,635 17,122 16,594
Plan Participants' Contributions 673 867 417
Actuarial (Gain) Loss (13,542) 27,014 (6,653)
Benefits Paid (10,627) (10,412) (8,091)
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Benefit Obligation at End of Period $ 255,615 $256,983 $ 218,370
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Change in Plan Assets
Fair Value of Assets at Beginning of Period $ 122,870 $ 98,639 $73,059
Actual Return on Plan Assets 17,345 14,602 13,618
Employer Contribution 19,623 19,174 19,636
Plan Participants' Contributions 673 867 417
Benefits Paid (10,627) (10,412) (8,091)
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Fair Value of Assets at End of Period $ 149,884 $122,870 $98,639
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Reconciliation of Funded Status
Funded Status $(105,731) $(134,113) $(119,731)
Unrecognized Net Actuarial Loss (2,396) 19,660 505
Unrecognized Transition Obligation 99,780 106,907 114,034
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Accrued Benefit Cost $ (8,347) $ (7,546) $ (5,192)
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
- ----------------------------------------------------------------- ----------------- ----------------- -----------------
1999 1998 1997
- ----------------------------------------------------------------- ----------------- ----------------- -----------------
Weighted Average Assumptions as of September 30
Discount Rate 7.25% 7.00% 7.75%
Expected Return on Plan Assets 8.50% 8.50% 8.50%
Rate of Compensation Increase 5.00% 5.00% 5.00%
- ----------------------------------------------------------------- ----------------- ----------------- -----------------
Year Ended September 30 (Thousands)
Components of Net Periodic Benefit Cost
Service Cost $4,493 $4,022 $4,056
Interest Cost 17,635 17,122 16,594
Expected Return on Plan Assets (10,134) (8,099) (6,014)
Amortization of Transition Obligation 7,127 7,127 7,768
Amortization of Loss 1,304 683 -
Net Amortization and Deferral for
Regulatory Purposes 1,774 915 (1,257)
- ----------------------------------------------------------------- ----------------- ----------------- -----------------
Net Periodic Benefit Cost $ 22,199 $ 21,770 $ 21,147
- ----------------------------------------------------------------- ----------------- ----------------- -----------------
</TABLE>
The effect of the discount rate change in 1999 was to decrease the
Benefit Obligation by $9.1 million. The effect of the discount rate change in
1998 was to increase the Benefit Obligation by $25.3 million.
The annual rate of increase in the per capita cost of covered medical
care benefits was assumed to be 10% for 1997, 9% for 1998 and 8% for 1999 and
gradually decline to 5.5% by the year 2003 and remain level thereafter. The
annual rate of increase for medical care benefits provided by healthcare
maintenance organizations was assumed to be 7.5% in 1998, 7.0% in 1999 and
gradually decline to 5.5% by the year 2002 and remain level thereafter. The
annual rate of increase in the per capita cost of covered prescription drug
benefits was assumed to be 8.5% for 1997, 9.0% for 1998 and 8.0% for 1999 and
gradually decline to 5.5% by the year 2003 and remain level thereafter. The
annual rate of increase in the per capita Medicare Part B Reimbursement was
assumed to be 3.1% for 1997, 9.0% for 1998 and 8.0% for 1999 and gradually
decline to 5.5% by the year 2003 and remain level thereafter.
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 Benefit Obligation as of October 1, 1999 would be increased by
$38.9 million. This 1% change would also have increased the aggregate of the
service and interest cost components of net periodic post-retirement benefit
cost for 1999 by $4.0 million. If the health care cost trend rates were
decreased by 1% in each year, the Benefit Obligation as of October 1, 1999 would
be decreased by $34.0 million. This 1% change would also have decreased the
aggregate of the service and interest cost components of net periodic
post-retirement benefit cost for 1999 by $3.4 million.
Note H - Commitments and Contingencies
Environmental Matters
It is the Company's policy to accrue estimated environmental clean-up costs
(investigation and remediation) when such amounts can reasonably be estimated
and it is probable that the Company will be required to incur such costs.
Distribution Corporation and Supply Corporation have estimated their clean-up
costs related to the sites described below in (i) and (ii) will be in the range
of $9.4 million to $10.4 million. The minimum liability of $9.4 million has been
recorded on the Consolidated Balance Sheet at September 30, 1999. Other than
discussed below, 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.
The Company has been recovering site investigation and remediation
costs in rates. Accordingly, the Consolidated Balance Sheet at September 30,
1998 included related regulatory assets of $12.4 million. Over the past several
years, the Company has been negotiating settlements with its insurance carriers
related to environmental investigation and remediation costs. The Company
received net proceeds of approximately $9.8 million in 1999 and approximately
$3.5 million in 1998 related to these settlements. In addition, the Company
reached a settlement with one of its insurance carriers for reimbursement of
covered costs to remediate certain sites. A portion of the net proceeds received
and future proceeds accrued have been applied to reduce the Company's
environmental related regulatory assets to zero at September 30, 1999.
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 ongoing evaluation of its operations to identify
potential environmental exposures and comply with regulatory policies and
procedures.
(i) Former Manufactured Gas Plant and Former Gasoline Plant Sites
Distribution Corporation has incurred or is incurring clean-up costs at
five former manufactured gas plant sites in New York and Pennsylvania.
Remediation is complete at one site and substantially complete at a second site.
With respect to the second site, Distribution Corporation has been designated by
the New York Department of Environmental Conservation (DEC) as a potentially
responsible party (PRP) and is also engaged in litigation with the DEC and the
party who bought that site from Distribution Corporation's predecessor. At a
third site, the remedial plan has been approved by the DEC and remediation is
expected to begin in 2000. A fourth site is in an ongoing investigation stage
with remediation being designed. The fifth is a site allegedly containing, among
other things, manufactured gas plant waste and is in the investigation stage.
Supply Corporation is in the final stages of remediation of a former gasoline
plant site.
(ii) Third Party Waste Disposal Sites
Distribution Corporation and Supply Corporation are each 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 certain 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 or Supply Corporation with respect to the remediation
of these sites will depend on such factors as the remediation plan selected, the
extent of site contamination, the number of additional PRPs at each site and the
portion of responsibility, if any, attributed to Distribution Corporation or
Supply Corporation. Distribution Corporation is a PRP at two waste disposal
sites. The remediation has been completed at one site and the remedial design
selected at the second site. Supply Corporation is a PRP at one waste disposal
site, which is at the investigation stage.
Without being named a PRP, Distribution Corporation has also signed a
consent decree (court approval pending) by which it would share the costs of
remediating another waste disposal site in New York. Also without being named a
PRP, Supply Corporation expects that it will participate in the cost of a site
that is currently being remediated by a third party.
(iii) Other Sites
Distribution Corporation received, in 1998 and again in October 1999,
notice that the DEC believes Distribution Corporation is responsible for
contamination discovered at an additional former manufactured gas plant site in
New York (without naming Distribution Corporation as a PRP). Distribution
Corporation responded that other companies operated that site before
Distribution Corporation's predecessor did, that liability could be imposed upon
Distribution Corporation only if hazardous substances were disposed of at the
site during a period when the site was operated by Distribution Corporation's
predecessor, and that Distribution Corporation was unaware of any such disposal.
Distribution Corporation has not incurred any clean-up costs at this site nor
has it been able to reasonably estimate the probability or extent of potential
liability.
Distribution Corporation understands that PRPs at another third party
waste disposal site have obtained records from the operator (a waste oil
collector) indicating that the site received used oil from Distribution
Corporation (among others). A contribution claim could, therefore, be asserted
against Distribution Corporation, which has not incurred any clean-up costs at
this site nor been able to reasonably estimate the probability or extent of
potential liability.
Supply Corporation believes that there is the possibility that it may
incur costs related to certain of its measuring and regulator stations in New
York. No costs have been incurred or accrued to date. Supply Corporation has
estimated its exposure at approximately $0.2 million.
(iv) Clean Air Standards
The Company, in its international operations in the Czech Republic has
substantially completed the construction of new fluidized-bed boilers at the
district heating and power generation plant of PSZT in order to comply with
certain clean air standards mandated by the Czech Republic government. Capital
expenditures related to this reconstruction incurred by PSZT in 1999 were
approximately $23.0 million.
Other
The Company has entered into contractual commitments in the ordinary course of
business including commitments by Distribution Corporation to purchase capacity
on nonaffiliated pipelines to meet customer gas supply needs. The majority of
these contracts (representing 88% of current contracted demand capacity) expire
within the next five years. Costs incurred under these contracts are purchased
gas costs, subject to state commission review, and are being recovered in
customer rates through inclusion in Distribution Corporation's rate schedules.
Management believes, to the extent any stranded pipeline costs are generated by
the unbundling of services in Distribution Corporation's service territory, such
costs will be recoverable from customers.
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 has adopted SFAS 131, "Disclosures About Segments of an Enterprise
and Related Information" (SFAS 131), which changes the way the Company reports
information about its business segments. SFAS 131 requires disclosure of certain
financial information based upon how management evaluates the performance of its
business segments. The information for 1998 and 1997 has been restated from the
prior year's presentation to conform to the 1999 presentation.
The Company has six reportable segments: Utility, Pipeline and Storage,
Exploration and Production, International, Energy Marketing and Timber. The
breakdown of the Company's reportable segments is based upon a combination of
factors including differences in products and services, regulatory environment
and geographic factors.
The Utility segment operations are regulated by the NYPSC and the PaPUC
and are carried out by Distribution Corporation. Distribution Corporation sells
natural gas to retail customers and provides natural gas transportation services
in western New York and northwestern Pennsylvania.
The Pipeline and Storage segment operations are regulated by the FERC
and are carried out by Supply Corporation and SIP. Supply Corporation transports
and stores natural gas for utilities (including Distribution Corporation),
natural gas marketers (including NFR) and pipeline companies in the northeastern
United States markets. SIP, although not regulated itself by the FERC, holds a
one-third partnership interest in the Independence Pipeline Company, whose
rates, services and other matters will be regulated by the FERC.
The Exploration and Production segment, through Seneca, is engaged in
exploration for, and development and purchase of, natural gas and oil reserves
in the Gulf Coast of Texas and Louisiana, in California, in Wyoming and in the
Appalachian region of the United States. Seneca's production is, for the most
part, sold to purchasers located in the vicinity of its wells.
The International segment's operations are carried out by Horizon.
Horizon engages in foreign energy projects through the investment of its
indirect subsidiaries as the sole or partial owner of various business entities.
Horizon's current emphasis is the Czech Republic where, through its
subsidiaries, it owns majority interests in companies having district heating
and power generation plants in the northern Bohemia region of the Czech
Republic.
The Energy Marketing segment is comprised of NFR's operations. NFR is
engaged in the retail marketing of natural gas, the marketing of electricity,
and the performance of energy management services for industrial, commercial,
public authority and residential end-users located in the northeastern United
States.
The Timber segment's operations are carried out by the Northeast
division of Seneca and by Highland. This segment has timber holdings in the
northeastern United States and several sawmills and kilns in Pennsylvania.
The data presented in the tables below reflect the reportable segments
and reconciliations to consolidated amounts. The accounting policies of the
segments are the same as those described in Note A - Summary of Significant
Accounting Policies. Sales of products or services between segments are billed
at regulated rates or at market rates, as applicable. Expenditures for
long-lived assets include additions to property, plant and equipment and equity
investments in corporations (stock acquisitions) and/or partnerships, net of any
cash acquired. The Company evaluates segment performance based on income before
discontinued operations, extraordinary items and cumulative effects of changes
in accounting (when applicable). When these items are not applicable, the
Company evaluates performance based on net income.
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30, 1999 (Thousands)
- ------------------------------------------------------------------------------------------------------------
Pipeline Exploration Total
and and Energy Reportable
Utility Storage Production International Marketing Timber Segments All Other
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from
External
Customers $801,053 $82,994 $140,212 $107,045 $99,088 $31,117 $1,261,509 $1,765
Intersegment
Revenues 6,302 85,789 6,782 - - - 98,873 -
Interest Expense 29,659 13,147 34,409 11,451 234 2,208 91,108 100
Depreciation,
Depletion and
Amortization 34,215 22,690 55,750 10,473 165 6,388 129,681 7
Income Tax
Expense 34,741 22,439 2,992 15 1,138 2,788 64,113 55
Segment Profit
(Loss): Net
Income 56,875 39,765 7,127 2,276 2,054 4,769 112,866 (162)
Expenditures for
Additions to
Long-Lived Assets 46,974 34,873 97,586 33,412 302 56,700 269,847 66
At September 30, 1999 (Thousands)
- ------------------------------------------------------------------------------------------------------------
Segment Assets $1,178,185 $542,962 $727,557 $255,042 $18,676 $98,830 $2,821,252 $7,351
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Year Ended September 30, 1999 (Thousands)
- ------------------------------
Corporate and
Intersegment Total
Eliminations Consolidated
- ------------------------------
$ - $1,263,274
(98,873) -
(3,510) 87,698
2 129,690
661 64,829
2,333 115,037
- 269,913
- ------------------------------
$13,983 $2,842,586
- ------------------------------
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30, 1998 (Thousands)
- -------------------------------------------------------------------------------------------------------------
Pipeline Exploration Total
and and Energy Reportable
Utility Storage Production International Marketing Timber Segments All Other
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from
External
Customers $ 867,802 $84,218 $113,194 $76,259 $87,187 $17,805 $1,246,465 $1,535
Intersegment
Revenues 3,378 86,765 11,078 - - - 101,221 -
Interest Expense 44,639 15,232 21,454 7,188 31 1,580 90,124 33
Depreciation,
Depletion and
Amortization 33,459 21,816 50,937 7,309 91 5,169 118,781 97
Income Tax
Expense (Benefit) 30,076 29,644 (39,478) 2,158 471 1,445 24,316 119
Significant
Noncash Item:
Impairment of Oil
and Gas Producing
Properties - - 128,996 - - - 128,996 -
Segment Profit
(Loss): Income
Before Cumulative
Effect of Change
in Accounting 51,788 39,852 (64,110) 1,279 787 1,904 31,500 143
Expenditures for
Additions to
Long-Lived Assets 50,680 29,145 323,627 96,987 320 9,893 510,652 -
At September 30, 1998 (Thousands)
- -------------------------------------------------------------------------------------------------------------
Segment Assets $1,171,645 $526,738 $673,706 $242,339 $16,944 $45,507 $2,676,879 $5,216
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Year Ended September 30, 1998 (Thousands)
- ------------------------------
Corporate and
Intersegment Total
Eliminations Consolidated
- ------------------------------
$ - $1,248,000
(101,221) -
(4,873) 85,284
2 118,880
(411) 24,024
- 128,996
661 32,304
- 510,652
- ------------------------------
$2,364 $2,684,459
- ------------------------------
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30, 1997 (Thousands)
- -----------------------------------------------------------------------------------------------------------------
Pipeline Exploration Total
and and Energy Reportable
Utility Storage Production International Marketing Timber Segments All Other
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from
External
Customers $991,281 $82,883 $107,733 $1,910 $70,098 $11,536 $1,265,441 $ 371
Intersegment
Revenues 85 89,811 11,527 - - - 101,423 -
Interest Expense 32,608 16,068 11,103 1,230 33 1,410 62,452 18
Depreciation,
Depletion and
Amortization 32,972 21,459 51,117 107 14 5,960 111,629 18
Income Tax
Expense (Benefit) 35,510 21,026 11,592 (954) 931 (193) 67,912 55
Segment Profit
(Loss): Net
Income 57,220 36,760 20,359 (3,348) 1,567 (609) 111,949 171
Expenditures for
Additions to
Long-Lived Assets 66,908 22,562 120,282 22,293 96 16,151(1) 248,292 19
At September 30, 1997 (Thousands)
- -----------------------------------------------------------------------------------------------------------------
Segment Assets $1,175,885 $522,191 $469,795 $24,031 $17,083 $42,260 $2,251,245 $5,207
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Amount includes non-cash acquisition of $12.3 million in exchange for
long-term debt obligations.
Year Ended September 30, 1997 (Thousands)
- -------------------------------
Corporate and
Intersegment Total
Eliminations Consolidated
- -------------------------------
$ - $1,265,812
(101,423) -
(5,659) 56,811
3 111,650
707 68,674
2,568 114,688
- 248,311
- -------------------------------
$10,879 $2,267,331
- -------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Geographic Information: 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Year Ended September 30 (Thousands)
Revenues from External Customers:
<S> <C> <C> <C>
United States $1,156,229 $1,171,741 $1,263,902
Czech Republic 107,045 76,259 1,910
---------- ---------- ----------
$1,263,274 $1,248,000 $1,265,812
- ---------------------------------------------------------------------------------------------------------------
At September 30 (Thousands)
Long-Lived Assets:
United States $2,369,840 $2,258,817 $2,036,525
Czech Republic 215,457 215,125 22,139
---------- ---------- ----------
$2,585,297 $2,473,942 $2,058,664
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Note J - Stock Acquisitions
Exploration and Production
In May 1998, Seneca acquired the outstanding shares of HarCor for approximately
$32.6 million. The acquisition of HarCor was accounted for in accordance with
the purchase method. HarCor's results of operations were incorporated into the
Company's consolidated financial statements for the period subsequent to the
completion of the tender offer in May 1998. Effective August 31, 1999, HarCor
was merged into Seneca.
International
During 1998, Horizon, through a wholly-owned subsidiary, increased its ownership
interest in SCT from 36.8% at September 30, 1997 to 82.7% at September 30, 1998.
The cost of acquiring these additional shares was approximately $24.9 million.
Also in 1998, Horizon invested in PSZT, and owned an 86.2% interest at September
30, 1998. The cost of acquiring the shares of PSZT was approximately $64.5
million.
During 1999, Horizon, through a wholly-owned subsidiary, increased its
ownership interest in SCT to 82.87% for a minimal cost. SCT in turn increased
its ownership in JTR, a district heating plant in the northern Bohemia region of
the Czech Republic, from 34% to 65.78%. The cost of acquiring these additional
shares was approximately $5.8 million.
The acquisitions made in the International segment have been accounted
for in accordance with the purchase method. The goodwill resulting from these
acquisitions is being amortized over a twenty-year period. The goodwill is
recorded in Other Assets in the Company's Consolidated Balance Sheet. This
goodwill amounted to $9.5 million and $10.1 million at September 30, 1999 and
1998, respectively.
Note K - 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. Per common share amounts are calculated using the weighted average
number of shares outstanding during each quarter. The total of all quarters may
differ from the per common share amounts shown on the Consolidated Statement of
Income. Those per common share amounts are 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.
<PAGE>
<TABLE>
<CAPTION>
- ----------------- -------------- -------------- ------------- ----------- ----------- --------------- ------------- ------------
Net
Income
Income Income (Loss) (Loss)
(Loss) Per Common Available Earnings
Operating Before Share Before for (Loss) Per
Quarter Operating Income Cumulative Cumulative Effect Common Common Share
----------------------- --------------------------
Ended Revenues (Loss) Effect Basic Diluted Stock Basic Diluted
- ----------------- -------------- -------------- ------------- ----------- ----------- --------------- ------------- ------------
1999 (Thousands, except per common share amounts)
- ----------------- ------------------------------------------------------------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/98 $340,422 $56,835 $ 37,619 $ 0.98 $0.97 $ 37,619(1) $ 0.98 $0.97
3/31/99 $483,404 $83,475 $ 61,145 $ 1.58 $1.57 $ 61,145 $ 1.58 $1.57
6/30/99 $248,658 $31,319 $ 11,840 $ 0.31 $0.30 $ 11,840(2) $ 0.31 $0.30
9/30/99 $190,790 $20,379 $ 4,433 $ 0.11 $0.11 $ 4,433(3) $ 0.11 $0.11
- ----------------- ------------------------------------------------------------------- --------------- ------------- ------------
1998 (Thousands, except per common share amounts)
- ----------------- ------------------------------------------------------------------- --------------- ------------- ------------
12/31/97 $371,021 $ 52,280 $ 37,534 $ 0.98 $0.97 $ 28,418(4) $ 0.74 $0.73
3/31/98 $462,648 $(16,228) $(21,262) $(0.56) N/A $(21,262)(5) $ (0.56) N/A
6/30/98 $242,447 $ 33,726 $ 19,107 $ 0.50 $0.49 $ 19,107 $ 0.50 $0.49
9/30/98 $171,884 $ 14,153 $ (3,075) $(0.08) N/A $ (3,075)(6) $ (0.08) N/A
- ----------------- -------------- -------------- ------------- ----------- ----------- --------------- ------------- ------------
</TABLE>
N/A - Not applicable due to antidilution.
(1) Includes income of $3.9 million related to IRS audit settlement and expense
of $3.5 million related to an early retirement offer.
(2) Includes expense of $3.8 million related to stock appreciation rights
(SAR), expense of $1.1 million related to an early retirement offer and
income of $1.0 million for lost and unaccounted for (LAUF) gas adjustment
related to 1998.
(3) Includes income of $1.6 million for LAUF gas adjustment related to 1999 and
income of $1.6 million related to a gain on stock received from the
demutualization of an insurance company.
(4) Includes $9.1 million negative non-cash cumulative effect of a change in
accounting for depletion.
(5) Includes expense of $79.1 million for impairment of oil and gas producing
properties and income of $5.0 million related to IRS audit settlement.
(6) Includes expense of $1.8 million for Distribution Corporation refund
provision and income of $1.0 million for a net gain associated with U.S.
dollar denominated debt.
Note L - Market for Common Stock and Related Shareholder Matters (unaudited)
At September 30, 1999, there were 22,336 holders of National Fuel Gas Company
common stock. The common stock is listed and traded on 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, 1999 and 1998, are
shown below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------- ------------------------------------ -----------------
Price Range Dividends
------------------------------------
Quarter Ended High Low Declared
- --------------------------------------------------------------- ------------------- ---------------- -----------------
1999
- --------------------------------------------------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C>
12/31/98 $49-5/8 $44-7/8 $.450
3/31/99 $46-1/2 $39-1/4 $.450
6/30/99 $50 $37-1/2 $.465
9/30/99 $49-3/4 $44-5/8 $.465
- --------------------------------------------------------------- ------------------- ---------------- -----------------
1998
- --------------------------------------------------------------- ------------------- ---------------- -----------------
12/31/97 $48-15/16 $42-11/16 $.435
3/31/98 $48-13/16 $45-3/8 $.435
6/30/98 $49-1/8 $39-5/8 $.450
9/30/98 $47 $39-13/16 $.450
- --------------------------------------------------------------- ------------------ ---------------- -----------------
</TABLE>
Note M - 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
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------- ---------------- -----------------
At September 30 (Thousands)
1999 1998
- ----------------------------------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Proved Properties $880,470 $739,684
Unproved Properties 92,097 141,873
- ----------------------------------------------------------------------------------- ---------------- -----------------
972,567 881,557
Less - Accumulated Depreciation, Depletion
and Amortization 315,675 261,236
- ----------------------------------------------------------------------------------- ---------------- -----------------
$656,892 $620,321
- ----------------------------------------------------------------------------------- ---------------- -----------------
</TABLE>
Costs related to unproved properties are excluded from amortization as
they represent unevaluated properties that require additional drilling to
determine the existence of oil and gas reserves. Following is a summary of such
costs excluded from amortization at September 30, 1999:
<TABLE>
<CAPTION>
- ---------------------------- -------------------------- --------------------------------------------------------------
Total as of Year Costs Incurred
--------------------------------------------------------------
(Thousands) September 30, 1999 1999 1998 1997 Prior
- ---------------------------- -------------------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Acquisition Costs $82,994 $12,077 $51,226 $8,525 $11,166
Exploration Costs 9,103 9,103 - - -
- ---------------------------- -------------------------- ---------------- --------------- -------------- --------------
$92,097 $21,180 $51,226 $8,525 $11,166
- ---------------------------- -------------------------- ---------------- --------------- -------------- --------------
</TABLE>
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development
Activities
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 (Thousands) 1999 1998 1997
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Property Acquisition Costs: (1)
Proved $ 2,798 $189,201 $ 4,154
Unproved 11,530 88,369 23,120
Exploration Costs 52,141 74,421 76,703
Development Costs 30,985 23,887 15,583
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
$ 97,454 $375,878 $119,560
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
(1) Total proved and unproved property acquisition costs for 1998 of $277.6
million include amounts related to the HarCor, Bakersfield Energy and
Whittier Trust properties acquired in 1998 of $87.0 million, $25.3 million
and $141.1 million, respectively.
Results of Operations for Producing Activities
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 (Thousands) 1999 1998 1997
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Operating Revenues:
Natural Gas (includes revenues from sales to affiliates
of $6,365, $11,065 and $10,682, respectively) $ 81,734 $ 89,284 $100,411
Oil, Condensate and Other Liquids 51,592 31,770 39,237
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Total Operating Revenues(1) 133,326 121,054 139,648
Production/Lifting Costs 28,119 23,622 17,335
Depreciation, Depletion and Amortization
($0.89 and $0.96 per Mcfe of production, and $0.36 per
dollar of operating revenues, respectively) (2) 54,439 50,221 50,687
Impairment of Oil and Gas Producing Properties(3) - 128,996 -
Income Tax Expense (Benefit) 16,255 (28,949) 24,699
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Results of Operations for Producing Activities
(excluding corporate overheads and interest charges) $ 34,513 $(52,836) $ 46,927
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
(1) Exclusive of hedging gains and losses. See further discussion in Note F -
Financial Instruments.
(2) In 1998, Seneca changed its method of depletion for oil and gas producing
properties from the gross revenue method to the units of production method.
See further discussion in Note A - Summary of Significant Accounting
Policies.
(3) See discussion of impairment in Note A - Summary of Significant Accounting
Policies.
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.
<TABLE>
<CAPTION>
- -------------------------------------- ----------------------------------------- -----------------------------------------
Gas MMcf Oil Mbbl
----------------------------------------- -----------------------------------------
Year Ended September 30 1999 1998 1997 1999 1998 1997
- -------------------------------------- ------------ ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proved Developed and
Undeveloped Reserves:
Beginning of Year 325,065 232,449 207,082 66,591 17,981 25,749
Extensions and Discoveries 46,423 40,293 47,951 3,716 640 359
Revisions of
Previous Estimates (13,091) (18,623) 20,820 9,808 (4,191) (6,224)
Production (37,166) (36,474) (38,586) (4,016) (2,614) (1,902)
Sales of Minerals in Place (439) - (5,464) (280) - (1)
Purchases of Minerals
in Place and Other - 107,420 646 - 54,775 -
- -------------------------------------- ------------ ------------- -------------- ------------- ------------- -------------
End of Year 320,792 325,065 232,449 75,819 66,591 17,981
- -------------------------------------- ------------ ------------- -------------- ------------- ------------- -------------
Proved Developed Reserves:
Beginning of Year 230,508 194,454 163,537 48,081 11,354 14,043
- -------------------------------------- ------------ ------------- -------------- ------------- ------------- -------------
End of Year 222,929 230,508 194,454 57,333 48,081 11,354
- -------------------------------------- ------------ ------------- -------------- ------------- ------------- -------------
</TABLE>
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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 (Thousands)
1999 1998 1997
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Future Cash Inflows $2,402,308 $1,547,216 $1,072,375
Less:
Future Production Costs 560,459 413,753 166,989
Future Development Costs 185,617 160,884 85,216
Future Income Tax Expense at
Applicable Statutory Rate 477,205 245,120 257,172
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Future Net Cash Flows 1,179,027 727,459 562,998
Less:
10% Annual Discount for Estimated
Timing of Cash Flows 471,768 260,688 179,798
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Standardized Measure of Discounted Future
Net Cash Flows $ 707,259 $ 466,771 $ 383,200
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
The principal sources of change in the standardized measure of
discounted future net cash flows were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Year Ended September 30 (Thousands) 1999 1998 1997
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Standardized Measure of Discounted Future
Net Cash Flows at Beginning of Year $466,771 $383,200 $329,244
Sales, Net of Production Costs (53,615) (97,432) (122,313)
Net Changes in Prices, Net of Production Costs 317,356 (180,853) 78,499
Purchases of Minerals in Place - 364,102 1,138
Sales of Minerals in Place (2,706) - (9,632)
Extensions and Discoveries 122,894 36,844 88,228
Changes in Estimated Future Development Costs (97,082) (104,181) (20,785)
Previously Estimated Development Costs Incurred 72,349 28,514 43,731
Net Change in Income Taxes at
Applicable Statutory Rate (232,085) 57,190 (24,797)
Revisions of Previous Quantity Estimates 40,964 (75,136) (27,317)
Accretion of Discount and Other 72,413 54,523 47,204
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
Standardized Measure of Discounted
Future Net Cash Flows at End of Year $707,259 $466,771 $383,200
- ----------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule II - Valuation and Qualifying Accounts
- ----------------------------------------- --------------- -------------- -------------- ----------------- --------------
Additions Additions
Balance at Charged to Charged to Balance at
(Thousands) Beginning Costs and Other End of
Description of Period Expenses Accounts(1) Deductions(2) Period
- ----------------------------------------- --------------- -------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1999
Reserve for Doubtful Accounts $6,232 $15,337 $ 1 $13,728 $7,842
- ----------------------------------------- --------------- -------------- -------------- ----------------- --------------
Year Ended September 30, 1998
Reserve for Doubtful Accounts $8,291 $15,861 $746 $18,666 $6,232
- ----------------------------------------- --------------- -------------- -------------- ----------------- --------------
Year Ended September 30, 1997
Reserve for Doubtful Accounts $7,672 $16,586 $ - $15,967 $8,291
- ----------------------------------------- --------------- -------------- -------------- ----------------- --------------
</TABLE>
(1) Represents opening balance sheet reserve plus exchange rate impact of
translating the Czech koruna to the U.S. dollar for Horizon.
(2) Amounts represent net accounts receivable written-off.
ITEM 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
<PAGE>
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 17, 2000 Annual Meeting of Shareholders will be
filed with the SEC not later than 120 days after September 30, 1999. The
information provided in such definitive Proxy Statement, excepting the "Report
of the Compensation Committee," and the "Corporate Performance Graph," 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 17,
2000 Annual Meeting of Shareholders will be filed with the SEC not later than
120 days after September 30, 1999. The information provided in such definitive
Proxy Statement, excepting the "Report of the Compensation Committee," and the
"Corporate Performance Graph," 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 17,
2000 Annual Meeting of Shareholders will be filed with the SEC not later than
120 days after September 30, 1999. The information provided in such definitive
Proxy Statement, excepting the "Report of the Compensation Committee," and the
"Corporate Performance Graph," is incorporated herein by reference.
ITEM 13 Certain Relationships and Related Transactions
At September 30, 1999, 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:
o Restated Certificate of Incorporation of National Fuel Gas
Company dated September 21, 1998 (Exhibit 3.1, Form 10-K for
fiscal year ended September 30, 1998 in File No. 1-3880)
3(ii) By-Laws:
3.1 National Fuel Gas Company By-Laws as amended on September
16, 1999
(4) Instruments Defining the Rights of Security Holders,
Including Indentures:
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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) (Exhibit 4.1, Form 10-K for fiscal year ended
September 30, 1996 in File No. 1-3880)
4.1 Indenture dated as of October 1, 1999, between the Company
and The Bank of New York
4.2 Officer's Certificate Establishing Medium-Term Notes dated
October 14, 1999
o Amended and Restated Rights Agreement, dated as of April 30,
1999, between National Fuel Gas Company and HSBC Bank USA
(Exhibit 10.2, Form 10-Q for the quarterly period ended
March 31, 1999 in File No. 1-3880)
(10) Material Contracts:
(ii)(B) Contracts upon which Registrant's business is
substantially dependent:
o Service Agreement No. 830016 with Texas Eastern Transmission
Corporation, under Rate Schedule FT-1, dated November 2,
1995 (Exhibit 10.1, Form 10-K for fiscal year ended
September 30, 1996 in File No. 1-3880)
o Service Agreement No. 830017 with Texas Eastern Transmission
Corporation, under Rate Schedule FT-1, dated November 2,
1995 (Exhibit 10.2, Form 10-K for fiscal year ended
September 30, 1996 in File No. 1-3880)
o Service Agreement with Texas Eastern Transmission
Corporation, under Rate Schedule CDS, dated November 2, 1995
(Exhibit 10.3, Form 10-K for fiscal year ended September 30,
1996 in File No. 1-3880)
o 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 confidential treatment under Rule
24b-2] (Exhibit 10.4, Form 10-K for fiscal year ended
September 30, 1996 in File No. 1-3880)
o Service Agreement with Engage Energy US, L.P. (formerly St.
Clair Pipelines Ltd.), dated January 29, 1996 [Portions of
this agreement are subject to confidential treatment under
Rule 24b-2] (Exhibit 10.5, Form 10-K for fiscal year ended
September 30, 1996 in File No. 1-3880)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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)
o 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:
o 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)
10.1 Tenth Amendment to Employment Agreement with Bernard J.
Kennedy, effective September 1, 1999
o 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)
o Agreement dated August 1, 1986, with Joseph P. Pawlowski
(Exhibit 10.1, Form 10-K for fiscal year ended September
30,1997 in File No. 1-3880)
o Agreement dated August 1, 1986, with Gerald T. Wehrlin
(Exhibit 10.2, Form 10-K for fiscal year ended September 30,
1997, in File No. 1-3880)
o Form of Employment Continuation and Noncompetition
Agreements, dated as of December 11, 1998, with Philip C.
Ackerman, Walter E. DeForest, Joseph P. Pawlowski, Dennis J.
Seeley, David F. Smith and Gerald T. Wehrlin (Exhibit 10.1,
Form 10-Q for the quarterly period ended June 30, 1999 in
File No. 1-3880)
o Form of Employment Continuation and Noncompetition
Agreement, dated as of December 11, 1998, with Bruce H. Hale
and Richard Hare (Exhibit 10.2, Form 10-Q for the quarterly
period ended June 30, 1999 in File No. 1-3880)
o Form of Employment Continuation and Noncompetition
Agreement, dated as of December 11, 1998, with James A. Beck
(Exhibit 10.3, Form 10-Q for the quarterly period ended June
30, 1999 in File No. 1-3880)
o 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)
o 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)
o Amendment to the National Fuel Gas Company 1984 Stock Plan,
dated December 11, 1996 (Exhibit 10.7, Form 10-K for fiscal
year ended September 30, 1996 in File No. 1-3880)
o 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)
o 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)
o Amendment to National Fuel Gas Company 1993 Award and Option
Plan, dated December 11, 1996 (Exhibit 10.8, Form 10-K for
fiscal year ended September 30, 1996 in File No. 1-3880)
o Amendment to National Fuel Gas Company 1993 Award and Option
Plan, dated December 18, 1996 (Exhibit 10, Form 10-Q for the
quarterly period ended December 31, 1996 in File No. 1-3880)
o National Fuel Gas Company 1997 Award and Option Plan
(Exhibit 10.9, Form 10-K for fiscal year ended September 30,
1996 in File No. 1-3880)
10.2 Amended and Restated National Fuel Gas Company 1997 Award
and Option Plan, dated December 9, 1999 (being submitted to
Shareholder vote at the Annual Meeting in February 2000)
o 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)
o Amendment to the National Fuel Gas Company Deferred
Compensation Plan, dated September 19, 1996 (Exhibit 10.10,
Form 10-K for fiscal year ended September 30, 1996 in File
No. 1-3880)
o Amendment to the 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)
o National Fuel Gas Company Deferred Compensation Plan, as
amended and restated through March 20, 1997 (Exhibit 10.3,
Form 10-K for fiscal year ended September 30, 1997 in File
No. 1-3880)
o Amendment to National Fuel Gas Company Deferred Compensation
Plan dated June 16, 1997 (Exhibit 10.4, Form 10-K for fiscal
year ended September 30, 1997 in File No. 1-3880)
o Amendment No. 2 to the National Fuel Gas Company Deferred
Compensation Plan, dated March 13, 1998 (Exhibit 10.1, Form
10-K for fiscal year ended September 30, 1998 in File No.
1-3880)
o Amendment to the National Fuel Gas Company Deferred
Compensation Plan, dated February 18, 1999 (Exhibit 10.1,
Form 10-Q for the quarterly period ended March 31, 1999 in
File No. 1-3880)
o National Fuel Gas Company Tophat Plan, effective March 20,
1997 (Exhibit 10, Form 10-Q for the quarterly period ended
June 30, 1997 in File No. 1-3880)
o Amendment No. 1 to the National Fuel Gas Company Tophat
Plan, dated April 6, 1998 (Exhibit 10.2, Form 10-K for
fiscal year ended September 30, 1998 in File No. 1-3880)
o Amendment No. 2 to the National Fuel Gas Company Tophat
Plan, dated December 10, 1998 (Exhibit 10.1, Form 10-Q for
the quarterly period ended December 31, 1998 in File No.
1-3880)
o 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)
o 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)
o Amended and Restated Split Dollar Insurance and Death
Benefit Agreement dated September 17, 1997 with Philip C.
Ackerman (Exhibit 10.5, Form 10-K for fiscal year ended
September 30, 1997 in File No. 1-3880)
10.3 Amendment Number 1 to Amended and Restated Split Dollar
Insurance and Death Benefit Agreement by and Between
National Fuel Gas Company and Philip C. Ackerman, dated
March 23, 1999
10.4 Second Amended and Restated Split Dollar Insurance Agreement
dated August 9, 1999 with Richard Hare
o Amended and Restated Split Dollar Insurance and Death
Benefit Agreement dated September 15, 1997 with Joseph P.
Pawlowski (Exhibit 10.7, Form 10-K for fiscal year ended
September 30, 1997 in File No. 1-3880)
10.5 Amendment Number 1 to Amended and Restated Split Dollar
Insurance and Death Benefit Agreement by and Between
National Fuel Gas Company and Joseph P. Pawlowski, dated
March 23, 1999
10.6 Second Amended and Restated Split Dollar Insurance Agreement
dated June 15, 1999 with Gerald T. Wehrlin
10.7 Amended and Restated Split Dollar Insurance and Death
Benefit Agreement dated September 15, 1997 with Walter E.
DeForest
10.8 Amendment Number 1 to Amended and Restated Split Dollar
Insurance and Death Benefit Agreement by and Between
National Fuel Gas Company and Walter E. DeForest, dated
March 29, 1999
10.9 Amended and Restated Split Dollar Insurance and Death
Benefit Agreement dated September 15, 1997 with Dennis J.
Seeley
10.10 Amendment Number 1 to Amended and Restated Split Dollar
Insurance and Death Benefit Agreement by and Between
National Fuel Gas Company and Dennis J. Seeley, dated March
29, 1999
10.11 Split Dollar Insurance and Death Benefit Agreement dated
September 15, 1997 with Bruce H. Hale
10.12 Amendment Number 1 to Split Dollar Insurance and Death
Benefit Agreement by and Between National Fuel Gas Company
and Bruce H. Hale, dated March 29, 1999
10.13 Split Dollar Insurance and Death Benefit Agreement dated
September 15, 1997 with David F. Smith
10.14 Amendment Number 1 to Split Dollar Insurance and Death
Benefit Agreement by and Between National Fuel Gas Company
and David F. Smith, dated March 29, 1999
o 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)
o National Fuel Gas Company and Participating Subsidiaries
1996 Executive Retirement Plan Trust Agreement (II) dated
May 10, 1996 (Exhibit 10.13, Form 10-K for fiscal year ended
September 30, 1996 in File No. 1-3880)
o Amendments to National Fuel Gas Company and Participating
Subsidiaries Executive Retirement Plan dated September 18,
1997 (Exhibit 10.9, Form 10-K for fiscal year ended
September 30, 1997 in File No. 1-3880)
o Amendments to the National Fuel Gas Company and
Participating Subsidiaries Executive Retirement Plan dated
December 10, 1998 (Exhibit 10.2, Form 10-Q for the quarterly
period ended December 31, 1998 in File No. 1-3880)
10.15 Amendments to National Fuel Gas Company and Participating
Subsidiaries Executive Retirement Plan effective September
16, 1999
o Administrative Rules with Respect to at Risk Awards under
the 1993 Award and Option Plan (Exhibit 10.14, Form 10-K for
fiscal year ended September 30, 1996 in File No. 1-3880)
o Administrative Rules of the Compensation Committee of the
Board of Directors of National Fuel Gas Company, as amended
and restated, effective December 10, 1998 (Exhibit 10.3,
Form 10-Q for the quarterly period ended December 31, 1998
in File No. 1-3880)
o Excerpts of Minutes from the National Fuel Gas Company Board
of Directors Meeting of February 20, 1997 regarding the
Retirement Benefits for Bernard J. Kennedy (Exhibit 10.10,
Form 10-K for fiscal year ended September 30, 1997 in File
No. 1-3880)
o Excerpts of Minutes from the National Fuel Gas Company Board
of Directors Meeting of March 20, 1997 regarding the
Retainer Policy for Non-Employee Directors (Exhibit 10.11,
Form 10-K for fiscal year ended September 30, 1997 in File
No. 1-3880)
(12) Computation of Ratio of Earnings to Fixed Charges
(13) Business segment discussion as contained in the 1999 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:
23.1 Consent of Ralph E. Davis Associates, Inc.
23.2 Consent of Independent Accountants
(27) Financial Data Schedules:
27.1 Financial Data Schedule for the Twelve Months Ended
September 30, 1999
27.2 Restated Financial Data Schedule for the Twelve Months Ended
September 30, 1998
(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.
o 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
and Chief Executive Officer
Date: December 9, 1999
-------------------
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,
---------------------- Chief Executive Officer and Director
B. J. Kennedy
Date: December 9, 1999
----------------
/s/ P. C. Ackerman President, Principal Financial
--------------------- Officer and Director
P. C. Ackerman
Date: December 9, 1999
----------------
/s/ R. T. Brady Director
--------------------
R. T. Brady
Date: December 9, 1999
----------------
/s/ J. V. Glynn Director
---------------------
J. V. Glynn
Date: December 9, 1999
----------------
/s/ W. J. Hill Director
---------------------
W. J. Hill
Date: December 9, 1999
----------------
/s/ B. S. Lee Director
---------------------
B. S. Lee
Date: December 9, 1999
----------------
/s/ E. T. Mann Director
---------------------
E. T. Mann
Date: December 9, 1999
----------------
/s/ G. L. Mazanec Director
---------------------
G. L. Mazanec
Date: December 9, 1999
----------------
/s/ G. H. Schofield Director
---------------------
G. H. Schofield
Date: December 9, 1999
----------------
/s/ J. P. Pawlowski Treasurer and Principal
--------------------- Accounting Officer
J. P. Pawlowski
Date: December 9, 1999
----------------
APPENDIX TO ITEM 2 - PROPERTIES
Six maps outlining the Company's operating areas at September 30, 1999 are
included on pages 2 and 3 of the paper format version of the Company's
combined Annual Report to Shareholders/Form 10-K. The first map identifies
the Company's Exploration and Production operating area (i.e., Seneca's
operating 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 Utility operating area
(i.e., Distribution Corporation's service area). The fourth map identifies
the Company's International operating area (i.e., Horizon's Czech Republic
operations). The fifth map identifies the Company's Energy Marketing
operating area (i.e., NFR's marketing service area). The sixth map
identifies the Company's Timber Operating area (i.e., Seneca's and
Highland's timber and sawmill operations).
APPENDIX TO ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION - GRAPHS
A. The Revenue Dollar - 1999
Two pie graphs detailing the revenue dollar in 1999: where it came from
and where it went to, broken down as follows:
Where it came from:
$ .456 Residential Gas Sales
.115 Commercial, Industrial and Off-System Gas Sales
.100 Oil and Gas Production Revenues
.085 Gas Transportation Revenues
.078 Energy Marketing Revenues
.056 District Heating Revenues
.028 Gas Storage Service Revenues
.027 Electric Generation Revenues
.024 Timber and Sawmill Revenues
.031 Other Revenues
$1.000 Total
Where it went to:
$ .319 Gas Purchased
.151 Wages, Including Benefits
.122 Taxes
.103 Other Materials and Services
.102 Depreciation
.068 Interest
.055 Dividends - Common Stock
.044 Fuel Used in Heat and Electric Generation
.035 Reinvested in the Business
.001 Minority Interest in Foreign Subsidiaries
$1.000 Total
Exhibit Index
-------------
3.1 National Fuel Gas Company By-Laws as amended
on September 16, 1999
4.1 Indenture dated as of October 1, 1999,
between the Company and The Bank of New York
4.2 Officer's Certificate Establishing Medium-
Term Notes dated October 14, 1999
10.1 Tenth Amendment to Employment Agreement with
Bernard J. Kennedy, effective September 1,
1999
10.2 Amended and Restated National Fuel Gas
Company 1997 Award and Option Plan, dated
December 9, 1999 (being submitted to
Shareholder vote at the Annual Meeting in
February 2000)
10.3 Amendment Number 1 to Amended and Restated
Split Dollar Insurance and Death Benefit
Agreement by and Between National Fuel Gas
Company and Philip C. Ackerman, dated March
23, 1999
10.4 Second Amended and Restated Split Dollar
Insurance Agreement dated August 9, 1999
with Richard Hare
10.5 Amendment Number 1 to Amended and Restated
Split Dollar Insurance and Death Benefit
Agreement by and Between National Fuel Gas
Company and Joseph P. Pawlowski, dated March
23, 1999
10.6 Second Amended and Restated Split Dollar
Insurance Agreement dated June 15, 1999 with
Gerald T. Wehrlin
10.7 Amended and Restated Split Dollar Insurance
and Death Benefit Agreement dated September
15, 1997 with Walter E. DeForest
10.8 Amendment Number 1 to Amended and Restated
Split Dollar Insurance and Death Benefit
Agreement by and Between National Fuel Gas
Company and Walter E. DeForest, dated March
29, 1999
10.9 Amended and Restated Split Dollar Insurance
and Death Benefit Agreement dated September
15, 1997 with Dennis J. Seeley
10.10 Amendment Number 1 to Amended and Restated
Split Dollar Insurance and Death Benefit
Agreement by and Between National Fuel Gas
Company and Dennis J. Seeley, dated March
29, 1999
10.11 Split Dollar Insurance and Death Benefit
Agreement dated September 15, 1997 with
Bruce H. Hale
10.12 Amendment Number 1 to Split Dollar Insurance
and Death Benefit Agreement by and Between
National Fuel Gas Company and Bruce H. Hale,
dated March 29, 1999
10.13 Split Dollar Insurance and Death Benefit
Agreement dated September 15, 1997 with
David F. Smith
10.14 Amendment Number 1 to Split Dollar Insurance
and Death Benefit Agreement by and Between
National Fuel Gas Company and David F.
Smith, dated March 29, 1999
10.15 Amendments to National Fuel Gas Company and
Participating Subsidiaries Executive Retire-
ment Plan effective September 16, 1999
(12) Computation of Ratio of Earnings to Fixed
Charges
(13) Business segment discussion as contained in
the 1999 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 the Twelve
Months Ended September 30, 1999
27.2 Restated Financial Data Schedule for the
Twelve Months Ended September 30, 1998
99.1 Report of Ralph E. Davis Associates, Inc.
Amended 2/21/85
6/19/86
7/07/88
6/14/90
6/18/92
12/8/93
6/09/94
9/19/96
1/01/97
3/20/97
6/19/97
9/18/97
9/17/98
6/17/99
9/16/99
NATIONAL FUEL GAS COMPANY
-------------------------
BY-LAWS
-------
ARTICLE I
---------
Meeting of Stockholders
-----------------------
1. Meetings of stockholders may be held at such place, within or
without the State of New Jersey, as may be fixed by the Board of Directors and
stated in the notice of the meeting.
2. In 1999 and thereafter, the annual meeting of stockholders shall be
held on the third Thursday in February in each year beginning at ten o'clock in
the forenoon, local time, unless such day shall be on a holiday, in which event
such meeting shall be held at the same hour on the next succeeding business day.
In 1998, the Annual Meeting of Stockholders shall be held on Thursday, February
26, 1998 at ten o'clock in the forenoon, local time.
3. Except as otherwise provided by New Jersey law, written notice of
the time, place and purpose or purposes of every meeting of stockholders shall
be given not less than 10 nor more than 60 days before the date of the meeting,
either personally or by mail, to each stockholder of record entitled to vote at
the meeting.
4. Unless otherwise provided by statute, all Special Meetings shall be
called upon the written request of three or more directors or of stockholders
owning one-fourth of the capital stock issued and outstanding.
5. Unless otherwise provided in the Company's Certificate of
Incorporation or in New Jersey law, (i) the holders of shares entitled to cast a
majority of the votes at any meeting of stockholders shall constitute a quorum
at such meeting except that the votes that holders of any class or series of
shares are entitled to cast shall not be counted in the determination of a
quorum for action to be taken at a meeting with respect to which such class or
series has no vote, and (ii) the holders of shares of any class or series
entitled to cast a majority of the votes of such class or series entitled to
vote separately on a specified item of business shall constitute a quorum of
such class or series for the transaction of such specified item of business.
If a quorum shall not be so represented, the stockholders
present at any meeting of stockholders shall have power to adjourn the meeting
to another time at the same or at another place. If the time and place to which
the meeting is adjourned are announced at the meeting at which the adjournment
is taken and at the adjourned meeting only such business is transacted as might
have been transacted at the original meeting, it shall not be necessary to give
notice of the adjourned meeting unless after the adjournment the Board of
Directors fixes a new record date for the adjourned meeting. In the event the
Board of Directors fixes such a new record date, a notice of the adjourned
meeting shall be given to each stockholder of record at the new record date
entitled to notice under Article I paragraph 3 of these By-Laws.
6. At each election of Directors, the proxies and ballots shall be
received and all questions respecting the qualification of voters shall be
decided by two inspectors, who shall be appointed by the presiding officer of
the meeting; provided however, that no candidate for election as Director shall
act as inspector. Such inspectors shall be sworn faithfully to perform their
duties and shall report in writing the results of the ballot.
7. A. Business transacted at an annual meeting of stockholders may
include all such business as may properly come before the meeting. Nominations
of persons for election to the Board of Directors and the proposal of business
to be considered by the stockholders may be made at an annual meeting of
stockholders:
(i) pursuant to the Corporation's notice of meeting;
(ii) by or at the direction of the Board of Directors; or
(iii) by any stockholder who was a stockholder of
record at the time of giving of notice of the
meeting, who is entitled to vote at the meeting
and who complies with the notice procedures set
forth in this Section 7.
B. For nominations or other business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation and such
other business must otherwise be a proper matter for stockholder action. Such
stockholder's notice shall set forth:
(i) as to each person whom the stockholder proposes to
nominate for election or reelection as a director:
(a) the name, age, business address of such
person,
(b) the principal occupation of employment
of such person,
(c) the class and number of shares of the
Corporation which are owned beneficially
by such person, and
(d) all other information relating to such
person that is required to be disclosed
in solicitations of proxies for election
of directors in an election contest, or
is otherwise required, in each case
under applicable SEC regulations (as of
February 1999, Regulation 14A under the
Securities Exchange Act of 1934, as
amended, and Rule 14a-11 thereunder),
including such person's written consent
to being named in the proxy statement as
a nominee and to serving as a director
if elected;
(ii) as to any other business that the stockholder
proposes to bring before the meeting, a brief
description of the business desired to be brought
before the meeting, the reasons for conducting
such business at the meeting and any material
interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the
proposal is made; and
(iii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the
nomination or proposal is made:
(a) the name and address of such stockholder,
as they appear on the Corporation's
books, and of such beneficial owner, and
(b) the class and number of shares of the
Corporation which are owned beneficially
and of record by such stockholder and
such beneficial owner.
C. To be timely, a stockholder's notice under this Section 7
must be delivered to the Secretary at the principal executive offices of the
Corporation not less than 110 days prior to the date corresponding to the date
on which the Corporation first mailed its proxy materials for the prior year's
annual meeting of stockholders; provided, however, that if both:
-------
(i) the date of the annual meeting is changed more
than 30 days from the date corresponding to the
date of the prior year's annual meeting; and
(ii) notice (or, if earlier, public disclosure of the
date of the annual meeting) is given or made to
the stockholders of the Corporation less than 120
days before the date corresponding to the date on
which the Corporation first mailed its proxy
materials for the prior year's meeting of
stockholders; then
(iii) a stockholder's notice to be timely must be so
received not later than the close of business on
the tenth day following the date on which such
notice (or, if earlier, such public disclosure of
the date of the annual meeting) was mailed or
made by the Corporation.
In no event shall the public announcement of an
adjournment of an annual meeting commence a new
time period for the giving of a stockholder's
notice under this Section 7.
D. Only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 7. Other than persons nominated by the
full Board or any nominating committee thereof, only such persons who are
nominated in accordance with the procedures set forth in this Section 7 shall be
eligible to serve as directors. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Section 7 and, if any proposed
nomination or business is not in compliance with this Section 7, to declare that
such defective proposal or nomination shall be disregarded, unless otherwise
provided by any applicable law.
E. Notwithstanding the foregoing provisions of this Section 7,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 7. Nothing in this Section 7 shall be deemed to affect
any rights of:
(i) the stockholders to request inclusion of
proposals in the Corporation's proxy statement
pursuant to Rule 14a-8 under the Exchange Act; or
(ii) the holders of any series of Preferred Stock
to elect directors under specified circumstances.
F. Business transacted at a special meeting of the
stockholders shall be limited to the purposes set forth in the notice of the
special meeting.
G. For purposes of this Section 7, the term "public
disclosure" shall mean disclosure in a news release reported by the Dow Jones
News Service, the Associated Press or a comparable national news service, or in
a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of
1934, as amended.
8. At each meeting of stockholders, the chairman of the meeting shall
fix and announce the date and time of the opening and the closing of the polls
for each matter upon which the stockholders will vote at the meeting and shall
determine the order of business and all other matters of procedure. The Board of
Directors may adopt by resolution such rules and regulations for the conduct of
meetings of stockholders as it shall deem appropriate. Except to the extent
inconsistent with any such rules and regulations as adopted by the Board of
Directors, the chairman of the meeting may establish rules, which need not be in
writing, to maintain order and safety and for the conduct of the meeting.
Without limiting the foregoing, the chairman of the meeting may:
A. Determine and declare to the meeting that any business is not
properly before the meeting and therefore shall not be considered;
B. Restrict attendance at any time to bona fide shareholders of
record and their proxies and other persons in attendance at the invitation of
the chairman of the meeting;
C. Restrict dissemination of solicitation materials and use of
audio or visual recording devices at the meeting;
D. Adjourn the meeting without a vote of the stockholders, whether
or not there is a quorum present; and
E. Make rules governing speeches and debate, including time limits
and access to microphones.
ARTICLE II
----------
Board of Directors
------------------
1. The Board of Directors shall consist of (i) such number of
directors, not less than seven nor more than eleven, as may be determined from
time to time by resolution adopted by the affirmative vote of a majority of the
entire Board of Directors, and (ii) such directors as may be elected by vote of
the holders of shares of preferred stock, when and as provided in the
Certificate of Incorporation of the Company. In order to qualify for election as
a director, a nominee must be a shareholder of the Company.
2. Subject to the provisions of the Statutes of the State of New
Jersey, the Certificate of Incorporation, and the By-Laws of the Corporation,
the Board of Directors shall have full and complete management and control of
the business and affairs of the Corporation.
3. The Board of Directors may hold its meetings or any adjournment
thereof either in the State of New Jersey or elsewhere and keep the books of the
Corporation at such places within or without the State of New Jersey as the
Board of Directors may from time to time determine.
4. Meetings of the Board of Directors may be called at the direction
of the Chairman of the Board, the President, or any three of the Directors for
the time being in office.
5. Notice of any meetings of the Board of Directors shall be given to
each Director by mailing the same to him at his last known address, as the same
appears upon the records of the Corporation at least five days before the
meeting or by telegraphing, telephoning or delivering the same to him personally
at least one day before the meeting.
6. At any meeting of the Board of Directors, there may be transacted
without special notice, any business within the powers of the Directors to
transact, except that of which the Statutes of the State of New Jersey expressly
require special notice shall be given.
7. A. A majority of the Directors in office shall constitute a quorum
for the transaction of any business which may properly come before them. If a
majority of said Directors shall not be present at any meeting, the Directors
present shall have power to adjourn to a day certain, and notice of the
adjourned meeting shall be given by mailing the same addressed to each Director
at his address as the same appears upon the records of the Corporation, at least
two days prior to the adjourned meeting, or by telegraphing, telephoning or
delivering the same to him personally at least one day before said adjourned
meeting. But, if a majority of the Board of Directors are present, the said
meeting, or any adjourned meeting thereof, may be adjourned to a subsequent day;
such adjournment may be without notice of such adjournment if such notice is not
required by New Jersey Law (as of June 1997, N.J.S.A. 14A:6-10(2)).
B. Unless a greater vote is required by applicable law or by
the Certificate of Incorporation of the Company or these By-laws (including, but
not limited to, subparagraph C of this paragraph 7), any action approved by a
majority of the votes of directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
C. Anything in these By-laws to the contrary notwithstanding,
any action taken by the Board of Directors pursuant to the terms of any Rights
Plan (as hereinafter defined) of the Company shall, unless otherwise provided by
the terms of the Rights Plan, be approved by the affirmative vote of
three-fourths (3/4ths) of the entire Board of Directors. For purposes of these
By-laws, the term "Rights Plan" shall mean any plan pursuant to which
shareholders of the Company are, upon the occurrence of certain specified events
(including, but not limited to, the acquisition by any person of a specified
number of shares of capital stock of the corporation), entitled to purchase
shares of capital stock or other securities of either the Company or the
acquiring person at a discounted price.
8. A. The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any pending, threatened or completed
civil, criminal, administrative or arbitrative action, suit or proceeding, and
any appeal therein and any inquiry or investigation which could lead to such
action, suit or proceeding ("Proceeding") by reason of the fact that such person
is or was a director or officer of the Corporation, or, while a director or
officer of the Corporation, is or was serving at the request of the Corporation
as a director, officer, trustee, employee or agent of another foreign or
domestic corporation, or of any partnership, joint venture, sole proprietorship,
employee benefit plan, trust or other enterprise, whether or not for profit, to
the fullest extent permitted and in the manner provided by the laws of the State
of New Jersey.
B. Nothing in this paragraph 8 shall restrict or limit the
power of the Corporation to indemnify its employees, agents and other persons,
to advance expenses (including attorneys' fees) on their behalf and to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation in connection with any Proceeding.
C. The indemnification provided by this paragraph 8 shall not
exclude any other rights to which a person seeking indemnification may be
entitled under the Certificate of Incorporation, By-Laws, agreement, vote of
shareholders or otherwise. The indemnification provided by this paragraph 8
shall continue as to a person who has ceased to be a director or officer, and
shall extend to the estate or personal representative of any deceased director
or officer.
9. 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
proration of payments during quarters in which such Director has only partial
service. Each such share of stock of the Corporation will be nontransferable
until the later of two years from its issuance or six months after such
Director's 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.
10. Any contract or other transaction between the Corporation or a
subsidiary of the Corporation and any other entity shall not be void or voidable
because a Director of the Corporation is interested therein if the Corporation
has complied with the provisions of any then-applicable New Jersey statute(s)
necessary or sufficient to make the transaction not void or voidable, including,
as of June 1997, N.J.S.A. 14A:6-8(1).
ARTICLE III
-----------
Officers
--------
1. At the first meeting after the annual election, the Board of
Directors shall choose a Chairman of the Board and a President, both of whom
shall be members of the Board of Directors, and one or more Vice Presidents, a
Secretary, a Treasurer and a Controller, who need not be members of the Board of
Directors, and who shall hold their respective offices until others are chosen
and qualify in their stead. The offices of Secretary and Treasurer may be filled
by the same person.
2. In its discretion, the Board of Directors may leave unfilled for
such period as it may determine, any office except the offices of the President,
Treasurer and Secretary.
3. The Chairman of the Board shall be the Chief Executive Officer of
the Corporation. He shall preside at all meetings of the Board of Directors and
shall, during the recess of the Board of Directors, have general control and
management of the affairs and business of the Corporation. In the absence of the
President, he shall preside at stockholders' meetings.
4. In addition to the duties and responsibilities specified in the
laws of the State of New Jersey and these By-Laws, the President shall preside
at all stockholders' meetings and shall perform such other duties as from time
to time may be assigned to him by the Board of Directors. In the absence of the
Chairman of the Board, or in the event that there is a vacancy in the office of
the Chairman of the Board, the President shall be the Chief Executive Officer of
the Corporation and shall perform all the duties of the Chairman of the Board as
well as those of President.
5. Each Vice President shall perform such duties as shall from time to
time be assigned to him by the Board of Directors, the Chairman of the Board, or
the President.
6. The Secretary, in addition to his statutory duties, shall give
proper notice of all meetings of the stockholders and of the Board of Directors.
He shall act as Secretary of all meetings of the stockholders and shall perform
such other duties as shall from time to time be assigned to him by the Board of
Directors or President.
7. The Treasurer, in addition to his statutory duties, shall keep full
and accurate accounts of receipts and disbursements of the funds belonging to
the Corporation, and shall cause to be deposited all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may from time to time be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board, taking proper
vouchers for such disbursements, and shall render to the President and Directors
whenever they may require it, account of all his transactions as Treasurer, and
of the financial condition of the Corporation. He shall perform such other
duties as shall be assigned to him by the Board or President, and shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Board of Directors may from time to time require.
8. The Controller shall see that adequate records of all assets,
liabilities and transactions of the Corporation are maintained; that adequate
audits thereof, are currently and regularly made, and in conjunction with other
officers, initiate and enforce measures and procedures whereby the business of
the Corporation shall be conducted with maximum efficiency, safety and economy.
He shall also perform all such other duties as usually pertain to the office of
Controller. He shall be in all matters subject to the control of and responsible
to the Board of Directors alone.
9. The Board of Directors may from time to time appoint such other
officers and agents as they may deem necessary or advisable for the transaction
of the business of the Corporation, who shall hold their offices during the
pleasure of the Board of Directors and perform such duties as may from time to
time be designated or assigned to them by said Board of Directors.
10. If the office of the Chairman of the Board, the President, Vice
President, Secretary, Treasurer, or Controller or one or more of them becomes
vacant for any reason whatsoever, the Board of Directors at any duly convened
meeting may, by a majority vote of those present, fill such vacancy and the
person elected shall hold office for the unexpired term of such office and until
his successor shall be chosen.
11. All officers and agents chosen or appointed by the Board of
Directors shall be subject to removal by the Board of Directors at any time with
or without cause, and in the case of the absence of any officer or agent of the
Corporation, or for any other reason that may seem sufficient to the Board of
Directors, the said Board of Directors subject to the limitations herein
contained and the statutes in such case made and provided, may, without removal,
delegate his powers and duties to any other officer or suitable person for such
period as it shall deem proper.
12. All duly authorized bonds and debentures of the Corporation shall
be signed on behalf of the Corporation by its Chairman of the Board or its
President, or one of its Vice Presidents or, if so provided by resolution of the
Board of Directors, by one or more of such officers and such other officer or
officers designated by the Board of Directors; any or all such signatures may be
manual or facsimile signatures, the signature on interest coupons attached to
any said bonds or debentures shall be a facsimile signature; and the corporate
seal or a facsimile of such seal may be impressed, affixed, imprinted or
otherwise reproduced on said bonds and debentures and, if attested, shall be
attested by the Corporation's Secretary or Assistant Secretary by manual or
facsimile signature. In case any person whose signature (manual or facsimile)
appears upon any said bond or debenture or coupons attached thereto shall cease
to be an officer of the Corporation, or shall cease to be the officer specified
thereon, before the bonds or debentures so signed shall have been authenticated
by the trustee under the indenture or other instrument pursuant to which the
bonds or debentures are delivered or sold, such bonds or debentures or coupons
may nevertheless be adopted by the Corporation, without further action by the
Board of Directors, and authenticated and delivered and sold as though the
person or persons who so signed or attested such bonds or debentures or coupons
had not ceased to be an officer of the Corporation or the officer specified
thereof; and any bonds or debentures may be signed as aforesaid; and the seal of
the Corporation impressed, affixed, imprinted or otherwise reproduced thereon
may be attested on behalf of the Corporation as aforesaid, and coupons attached
may be signed as aforesaid by such persons as at the actual date of the
execution of the bonds or debentures or coupons shall be the proper officers of
the Corporations, although at the time of the date of the bonds or debentures,
such persons may not have been officers of the Corporation.
ARTICLE IV
----------
Executive Committee
-------------------
1. The Directors may appoint an executive committee and one or more
other committees of not less than three members to be chosen from among the
members of the Board of Directors. Such committees may meet at such times and
places as the committee shall, by resolution, determine and it shall make its
own rules of procedure. A majority of the members of any such committee shall
constitute a quorum.
2. Except as otherwise provided by Board resolution or statute (as of
June 1997, N.J.S.A. 14A:6-9(1)), each such committee shall have and may exercise
the power of the Board of Directors in the management of the business and
affairs of the Corporation at any time when the Board of Directors are not in
session. Each such committee shall, however, be subject to the specific
directions of the Board of Directors.
3. Each such committee shall keep regular minutes of their
transactions and shall cause them to be recorded in books to be kept for that
purpose in the office of the Corporation, and shall report the same to the Board
of Directors at their regular meetings.
ARTICLE V
---------
Transfer of Shares
------------------
1. Except as otherwise provided by statute, shares evidenced by
certificates shall be transferred on the books of the Corporation only by the
holder thereof in person or by his attorney upon the surrender and cancellation
of the certificate or certificates of a like number of shares, except in the
case of lost or destroyed certificates, and in that case only after the receipt
of a satisfactory bond.
2. The Board of Directors may appoint a transfer agent and a registrar
of transfers, and may, in the case of shares represented by certificates,
require all stock certificates to bear the signature of either or both.
ARTICLE VI
----------
Fiscal Year
-----------
1. The fiscal year of the Corporation shall begin on the 1st day of
October in each calendar year and end on the 30th day of September of the next
succeeding year.
ARTICLE VII
-----------
Dividends and Working Capital
-----------------------------
1. Before declaring any dividends or making any distribution of
profits, the Directors may set apart out of the net profits or out of the
surplus of the Corporation as a reserve fund to be used as working capital or
for any other proper purpose, such sum or sums as the Directors shall in their
discretion deem just and proper and most for the benefit of the Corporation.
2. Dividends upon the capital stock of the Corporation when declared
shall be payable on dates to be determined by the Board of Directors.
ARTICLE VIII
------------
Closing of Transfer Books and
Fixing A Record Book
--------------------
The Board of Directors may close the stock transfer books of the
Corporation for a period not exceeding sixty days preceding the date of any
meeting of stockholders or the date for payment of any dividend, or the date for
the allotment of rights, or the date when any change or conversion or exchange
of capital stock shall go into effect.
In lieu of so closing the stock transfer books, the Board of Directors
may fix, in advance, a date, not exceeding sixty days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting, or entitled to receive payment of any such dividend, or any such
allotment of rights, or to exercise the rights in respect to any such change,
conversion or exchange of capital stock, and in such case only stockholders of
record on the date so fixed shall be entitled to such notice of, and to vote at,
such meeting, or to receive payment of such dividend, or allotment of rights or
exercise of such rights, as the case may be, and notwithstanding any transfer of
any stock on the books of the Corporation after any such record date fixed as
aforesaid.
ARTICLE IX
----------
Waiver of Notice
----------------
1. Any notice required to be given by these By-Laws may be waived by
the person entitled thereto.
ARTICLE X
---------
Seal
----
1. The common corporate seal is and until otherwise ordered by the
Board of Directors shall be an impression upon paper or wax bearing the words -
"NATIONAL FUEL GAS COMPANY, NEW JERSEY, INCORPORATED 1902".
ARTICLE XI
----------
Amendment of By-Laws
--------------------
1. Except as otherwise provided by statute, the Board of Directors
shall have power to make, alter or repeal the By-Laws of the Corporation by a
vote of a majority of all the Directors at any duly convened meeting of the
Board, but any By-Laws so made or otherwise promulgated may be altered or
repealed and new By-Laws made by the stockholders at any duly convened meeting
thereof.
------------------------------------------
NATIONAL FUEL GAS COMPANY
TO
THE BANK OF NEW YORK
Trustee
---------
Indenture
(For Unsecured Debt Securities)
Dated as of October 1, 1999
------------------------------------------
<PAGE>
-i-
TABLE OF CONTENTS
PARTIES................................................................1
RECITAL OF THE COMPANY.................................................1
ARTICLE ONE
Definitions and Other Provisions of General Application
SECTION 101. Definitions.........................................1
Act.......................................................2
Affiliate.................................................2
Authenticating Agent......................................2
Authorized Officer........................................2
Board of Directors........................................2
Board Resolution..........................................2
Business Day..............................................2
Commission................................................3
Company...................................................3
Company Request or Company Order..........................3
corporation...............................................3
Defaulted Interest........................................3
Discount Security.........................................3
Dollar or $...............................................3
Eligible Obligations......................................3
Event of Default..........................................3
Governmental Authority....................................3
Government Obligations....................................4
Holder....................................................4
Indenture.................................................4
Interest Payment Date.....................................4
Maturity..................................................4
1974 Indenture............................................4
Officer's Certificate.....................................4
Opinion of Counsel........................................4
Outstanding...............................................5
Paying Agent..............................................6
Periodic Offering.........................................6
Person....................................................6
Placement of Payment......................................6
Note: This table of contents shall not, for any purpose, be deemed to be part of
the Indenture.
<PAGE>
Predecessor Security......................................6
Redemption Date...........................................6
Redemption Price..........................................6
Regular Record Date.......................................6
Required Currency.........................................6
Responsible Officer.......................................6
Security and Securities...................................7
Security Register and Security Registrar..................7
Special Record Date.......................................7
Stated Interest Rate......................................7
Stated Maturity...........................................7
Subsidiary................................................7
Tranche...................................................7
Trust Indenture Act.......................................7
Trustee...................................................7
United States.............................................8
SECTION 102. Compliance Certificates and Opinions....................8
SECTION 103. Form of Documents Delivered to Trustee..................8
SECTION 104. Acts of Holders.........................................9
SECTION 105. Notices, etc. to Trustee and Company...................11
SECTION 106. Notice to Holders of Securities; Waiver................12
SECTION 107. Conflict with Trust Indenture Act......................12
SECTION 108. Effect of Headings and Table of Contents...............12
SECTION 109. Successors and Assigns.................................13
SECTION 110. Separability Clause....................................13
SECTION 111. Benefits of Indenture..................................13
SECTION 112. Governing Law..........................................13
SECTION 113. Legal Holidays.........................................13
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally........................................14
SECTION 202. Form of Trustee's Certificate of Authentication........14
ARTICLE THREE
The Securities
SECTION 301. Amount Unlimited; Issuable in Series...................15
SECTION 302. Denominations..........................................18
SECTION 303. Execution, Authentication, Delivery and Dating.........19
SECTION 304. Temporary Securities...................................21
SECTION 305. Registration, Registration of Transfer and Exchange....22
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.......23
SECTION 307. Payment of Interest; Interest Rights Preserved.........24
SECTION 308. Persons Deemed Owners..................................25
SECTION 309. Cancellation by Security Registrar.....................25
SECTION 310. Computation of Interest................................26
SECTION 311. Payment to Be in Proper Currency.......................26
SECTION 312. Extension of Interest Payment..........................26
ARTICLE FOUR
Redemption of Securities
SECTION 401. Applicability of Article...............................27
SECTION 402. Election to Redeem; Notice to Trustee..................27
SECTION 403. Selection of Securities to Be Redeemed.................27
SECTION 404. Notice of Redemption...................................28
SECTION 405. Securities Payable on Redemption Date..................29
SECTION 406. Securities Redeemed in Part............................30
ARTICLE FIVE
Sinking Funds
SECTION 501. Applicability of Article...............................30
SECTION 502. Satisfaction of Sinking Fund Payments with Securities..30
SECTION 503. Redemption of Securities for Sinking Fund..............31
ARTICLE SIX
Covenants
SECTION 601. Payment of Principal, Premium and Interest.............31
SECTION 602. Maintenance of Office or Agency........................31
SECTION 603. Money for Securities Payments to Be Held in Trust......32
SECTION 604. Corporate Existence....................................34
SECTION 605. Maintenance of Properties..............................34
SECTION 606. Annual Officer's Certificate as to Compliance..........34
SECTION 607. Waiver of Certain Covenants............................34
SECTION 608. Limitation on Liens....................................35
ARTICLE SEVEN
Satisfaction and Discharge
SECTION 701. Satisfaction and Discharge of Securities...............38
SECTION 702. Satisfaction and Discharge of Indenture................40
SECTION 703. Application of Trust Money.............................41
ARTICLE EIGHT
Events of Default; Remedies
SECTION 801. Events of Default......................................42
SECTION 802 Acceleration of Maturity; Rescission and Annulment.....43
SECTION 803. Collection of Indebtedness and Suits for
Enforcement by Trustee................................44
SECTION 804. Trustee May File Proofs of Claim.......................45
SECTION 805. Trustee May Enforce Claims Without Possession
of Securities.........................................46
SECTION 806. Application of Money Collected.........................46
SECTION 807. Limitation on Suits....................................46
SECTION 808. Unconditional Right of Holders to Receive Principal,
Premium and Interest...................................47
SECTION 809. Restoration of Rights and Remedies.....................47
SECTION 810. Rights and Remedies Cumulative.........................47
SECTION 811. Delay or Omission Not Waiver...........................48
SECTION 812. Control by Holders of Securities.......................48
SECTION 813. Waiver of Past Defaults................................48
SECTION 814. Undertaking for Costs..................................49
SECTION 815. Waiver of Stay or Extension Laws.......................49
ARTICLE NINE
The Trustee
SECTION 901. Certain Duties and Responsibilities....................49
SECTION 902. Notice of Defaults.....................................50
SECTION 903. Certain Rights of Trustee..............................50
SECTION 904. Not Responsible for Recitals or Issuance
of Securities.........................................52
SECTION 905. May Hold Securities....................................52
SECTION 906. Money Held in Trust....................................52
SECTION 907. Compensation and Reimbursement.........................52
SECTION 908. Disqualification; Conflicting Interests................53
SECTION 909. Corporate Trustee Required; Eligibility................53
SECTION 910. Resignation and Removal; Appointment of Successor......54
SECTION 911. Acceptance of Appointment by Successor.................56
SECTION 912. Merger, Conversion, Consolidation or Succession
to Business...........................................57
SECTION 913. Preferential Collection of Claims Against Company......57
SECTION 914. Co-trustees and Separate Trustees......................58
SECTION 915. Appointment of Authenticating Agent....................59
ARTICLE TEN
Holders'Lists and Reports by Trustee and Company
SECTION 1001. Lists of Holders.......................................61
SECTION 1002. Reports by Trustee and Company.........................62
ARTICLE ELEVEN
Consolidation, Merger, Conveyance or Other Transfer
SECTION 1101. Company May Consolidate, etc., Only on
Certain Terms.........................................62
SECTION 1102. Successor Person Substituted...........................63
<PAGE>
ARTICLE TWELVE
Supplemental Indentures
SECTION 1201. Supplemental Indentures Without Consent of Holders.....63
SECTION 1202. Supplemental Indentures With Consent of Holders........65
SECTION 1203. Execution of Supplemental Indentures...................66
SECTION 1204. Effect of Supplemental Indentures......................66
SECTION 1205. Conformity With Trust Indenture Act....................67
SECTION 1206. Reference in Securities to Supplemental Indentures.....67
SECTION 1207. Modification Without Supplemental Indenture............67
ARTICLE THIRTEEN
Meetings of Holders; Action Without Meeting
SECTION 1301. Purposes for Which Meetings May Be Called..............67
SECTION 1302. Call, Notice and Place of Meetings.....................68
SECTION 1303. Persons Entitled to Vote at Meetings...................68
SECTION 1304. Quorum; Action.........................................69
SECTION 1305. Attendance at Meetings; Determination of Voting Rights;
Conduct and Adjournment of Meetings....................70
SECTION 1306. Counting Votes and Recording Action of Meetings........71
SECTION 1307. Action Without Meeting.................................71
ARTICLE FOURTEEN
Immunity of Incorporators, Shareholders, Officers and Directors
SECTION 1401. Liability Solely Corporate.............................71
Testimonium...........................................................71
Signatures............................................................72
<PAGE>
NATIONAL FUEL GAS COMPANY
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of October 1, 1999
Trust Indenture Act Section Indenture Section
ss.310 (a)(1).........................................................909
(a)(2).........................................................909
(a)(3).........................................................914
(a)(4)..............................................Not Applicable
(b)............................................................908
910
ss.311 (a)............................................................913
(b)............................................................913
(c)............................................................913
ss.312 (a)...........................................................1001
(b)...........................................................1001
(c)...........................................................1001
ss.313 (a)...........................................................1002
(b)...........................................................1002
(c)...........................................................1002
ss.314 (a)...........................................................1002
(a)(4).........................................................606
(b).................................................Not Applicable
(c)(1).........................................................102
(c)(2).........................................................102
(c)(3)..............................................Not Applicable
(d).................................................Not Applicable
(e)............................................................102
ss.315 (a)............................................................901
903
(b)............................................................902
(c)............................................................901
(d)............................................................901
(e)............................................................814
ss.316 (a)............................................................812
813
(a)(1)(A)......................................................802
812
(a)(1)(B)......................................................813
(a)(2)..............................................Not Applicable
(b)............................................................808
ss.317 (a)(1).........................................................803
(a)(2).........................................................804
(b)............................................................603
ss.318 (a)............................................................107
<PAGE>
INDENTURE, dated as of October 1, 1999, between NATIONAL FUEL
GAS COMPANY, a corporation duly organized and existing under the laws of the
State of New Jersey (herein called the "Company"), having its principal office
at 10 Lafayette Square, Buffalo, New York 14203, and THE BANK OF NEW YORK, a
banking corporation of the State of New York, having its principal corporate
trust office at 101 Barclay Street, New York, New York 10286, as Trustee (herein
called the "Trustee").
RECITAL OF THE COMPANY
The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities", each a "Security"), in an unlimited aggregate principal amount to
be issued in one or more series as contemplated herein; and all acts necessary
to make this Indenture a valid agreement of the Company have been performed.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires, capitalized terms
used herein shall have the meanings assigned to them in Article One, Section
101, of this Indenture.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities or of any
series thereof, as follows:
ARTICLE ONE
Definitions and Other Provisions of General Application
SECTION 101.......Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context clearly requires otherwise:
(a) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as
the singular;
(b) all terms used herein without definition which are defined
in the Trust Indenture Act, either directly or by reference
therein, have the meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles in the United States, and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are
generally accepted in the United States at the date of such
computation or, at the election of the Company from time to time,
at the date of the execution and delivery of this Indenture;
provided, however, that in determining generally accepted
accounting principles applicable to the Company, the Company
shall, to the extent required, conform to any order, rule or
regulation of any administrative agency, regulatory authority or
other governmental body having jurisdiction over the Company; and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not
to any particular Article, Section or other subdivision.
Certain terms, used principally in Article Six and Article
Nine, are defined in those Articles.
"Act", when used with respect to any Holder of a Security, has
the meaning specified in Section 104.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Authenticating Agent" means any Person (other than the
Company or an Affiliate of the Company) authorized by the Trustee pursuant to
Section 915 to act on behalf of the Trustee to authenticate one or more series
of Securities or Tranche thereof.
"Authorized Officer" means the Chairman of the Board, the
President, any Vice President, the Treasurer, any Assistant Treasurer, the
Secretary, any Assistant Secretary or any other officer or agent of the Company
duly authorized by the Board of Directors to act in respect of matters relating
to this Indenture.
"Board of Directors" means either the board of directors of
the Company or any committee thereof duly authorized to act in respect of
matters relating to this Indenture.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day", when used with respect to a Place of Payment
or any other particular location specified in the Securities or this Indenture,
means any day, other than a Saturday or Sunday, which is not a day on which
banking institutions or trust companies in such Place of Payment or other
location are generally authorized or required by law, regulation or executive
order to remain closed, except as may be otherwise specified as contemplated by
Section 301.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, as amended, or, if at any time after the date of execution and delivery of
this Indenture such Commission is not existing and performing the duties now
assigned to it under the Trust Indenture Act, then the body, if any, performing
such duties at such time.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by an Authorized Officer and
delivered to the Trustee.
"Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the date of execution and delivery of this
Indenture is located on the Floor 21W at 101 Barclay Street, New York, New York
10286.
"corporation" means a corporation, association, company,
limited liability company, joint stock company or business trust.
"Defaulted Interest" has the meaning specified in Section 307.
"Discount Security" means any Security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 802.
"Interest" with respect to a Discount Security means interest, if any, borne by
such Security at a Stated Interest Rate.
"Dollar" or "$" means a dollar or other equivalent unit in
such coin or currency of the United States as at the time shall be legal tender
for the payment of public and private debts.
"Eligible Obligations" means:
(a) with respect to Securities denominated in Dollars,
Government Obligations; or
(b) with respect to Securities denominated in a currency other
than Dollars or in a composite currency, such other obligations or
instruments as shall be specified with respect to such Securities,
as contemplated by Section 301.
"Event of Default" has the meaning specified in Section 801.
"Governmental Authority" means the government of the United
States or of any State or Territory thereof or of the District of Columbia or of
any county, municipality or other political subdivision of any of the foregoing,
or any department, agency, authority or other instrumentality of any of the
foregoing.
"Government Obligations" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United
States and entitled to the benefit of the full faith and credit
thereof; and
(b) certificates, depositary receipts or other instruments
which evidence a direct ownership interest in obligations
described in clause (a) above or in any specific interest or
principal payments due in respect thereof; provided, however, that
the custodian of such obligations or specific interest or
principal payments shall be a bank or trust company (which may
include the Trustee or any Paying Agent) subject to Federal or
state supervision or examination with a combined capital and
surplus of at least $50,000,000; and provided, further, that
except as may be otherwise required by law, such custodian shall
be obligated to pay to the holders of such certificates,
depositary receipts or other instruments the full amount received
by such custodian in respect of such obligations or specific
payments and shall not be permitted to make any deduction
therefrom.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"Indenture" means this instrument as originally executed and
delivered and as it may from time to time be supplemented or amended by one or
more indentures supplemental hereto entered into pursuant to the applicable
provisions hereof and shall include the terms of a particular series of
Securities established as contemplated by Section 301.
"Interest Payment Date", when used with respect to any
Security, means the Stated Maturity of an installment of interest on such
Security.
"Maturity", when used with respect to any Security, means the
date on which the principal of such Security or an installment of principal
becomes due and payable as provided in such Security or in this Indenture,
whether at the Stated Maturity, by declaration of acceleration, upon call for
redemption or otherwise.
"1974 Indenture" has the meaning specified in Section 608.
"Officer's Certificate" means a certificate signed by an
Authorized Officer and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, or other counsel acceptable to the Trustee and
who may be an employee of the Company or of an Affiliate of the Company.
"Outstanding", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(a) Securities theretofore canceled or delivered to the
Security Registrar for cancellation;
(b) Securities deemed to have been paid for all purposes of
this Indenture in accordance with Section 701 (whether or not the
Company's indebtedness in respect thereof shall be satisfied and
discharged for any other purpose); and
(c) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than
any such Securities in respect of which there shall have been
presented to the Trustee proof satisfactory to it and the Company
that such Securities are held by a bona fide purchaser or
purchasers in whose hands such Securities are valid obligations of
the Company;
provided, however, that in determining whether or not the Holders of the
requisite principal amount of the Securities Outstanding under this Indenture,
or the Outstanding Securities of any series or Tranche, have given any request,
demand, authorization, direction, notice, consent or waiver hereunder or whether
or not a quorum is present at a meeting of Holders of Securities,
(x) Securities owned by the Company or any other obligor upon
the Securities or any Affiliate of the Company or of such other
obligor (unless the Company, such Affiliate or such obligor owns
all Securities Outstanding under this Indenture, or (except for
the purposes of actions to be taken by Holders of (i) more than
one series voting as a class under Section 812 or (ii) more than
one series or more than one Tranche, as the case may be, voting as
a class under Section 1202) all Outstanding Securities of each
such series and each such Tranche, as the case may be, determined
without regard to this clause (x)) shall be disregarded and deemed
not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver or
upon any such determination as to the presence of a quorum, only
Securities which the Trustee knows to be so owned shall be so
disregarded; provided, however, that Securities so owned which
have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other
obligor; and
(y) the principal amount of a Discount Security that shall be
deemed to be Outstanding for such purposes shall be the amount of
the principal thereof that would be due and payable as of the date
of such determination upon a declaration of acceleration of the
Maturity thereof pursuant to Section 802;
provided, further, that, in the case of any Security the principal of which is
payable from time to time without presentment or surrender, the principal amount
of such Security that shall be deemed to be Outstanding at any time for all
purposes of this Indenture shall be the original principal amount thereof less
the aggregate amount of principal thereof theretofore paid.
"Paying Agent" means any Person, including the Company,
authorized by the Company to pay the principal of and premium, if any, or
interest, if any, on any Securities on behalf of the Company.
"Periodic Offering" means an offering of Securities of a
series from time to time any or all of the specific terms of which Securities,
including without limitation the rate or rates of interest, if any, thereon, the
Stated Maturity or Maturities thereof and the redemption provisions, if any,
with respect thereto, are to be determined by the Company or its agents from
time to time subsequent to the initial request for the authentication and
delivery of such Securities by the Trustee, all as contemplated in Section 301
and clause (b) of Section 303.
"Person" means any individual, corporation, partnership,
limited liability partnership, joint venture, trust or unincorporated
organization or any Governmental Authority.
"Place of Payment", when used with respect to the Securities
of any series, or any Tranche thereof, means the place or places, specified as
contemplated by Section 301, at which, subject to Section 602, principal of and
premium, if any, and interest, if any, on the Securities of such series or
Tranche are payable.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed (to the
extent lawful) to evidence the same debt as the mutilated, destroyed, lost or
stolen Security.
"Redemption Date", when used with respect to any Security to
be redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture, exclusive of accrued and unpaid interest, if any.
"Regular Record Date" for the interest payable on any Interest
Payment Date on the Securities of any series means the date specified for that
purpose as contemplated by Section 301.
"Required Currency" has the meaning specified in Section 311.
"Responsible Officer", when used with respect to the Trustee,
means any Vice President, Assistant Vice President, Trust Officer or other
officer of the Trustee assigned by the Trustee to the Corporate Trust
Administration Division of the Trustee (or any successor division or department
of the Trustee).
"Security" and "Securities" each has the meaning stated in the
recital of this Indenture and more particularly means any securities
authenticated and delivered under this Indenture.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Special Record Date" for the payment of any Defaulted
Interest on the Securities of any series means a date fixed by the Trustee
pursuant to Section 307.
"Stated Interest Rate" means a rate (whether fixed or
variable) at which an obligation by its terms is stated to bear simple interest.
Any calculation or other determination to be made under this Indenture by
reference to the Stated Interest Rate on a Security shall be made without regard
to the effective interest cost to the Company of such Security and without
regard to the Stated Interest Rate on, or the effective cost to the Company of,
any other indebtedness in respect of which the Company's obligations are
evidenced or secured in whole or in part by such Security.
"Stated Maturity", when used with respect to any obligation or
any installment of principal thereof or interest thereon, means the date on
which the principal of such obligation or such installment of principal or
interest is stated to be due and payable (without regard to any provisions for
redemption, prepayment, acceleration, purchase or extension).
"Subsidiary" means a corporation of which more than 50% of the
outstanding voting stock is owned, directly or indirectly, by the Company or by
one or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock or
membership interests or other equivalents of stock that ordinarily have voting
power for the election of directors (or persons fulfilling similar
responsibilities), whether at all times or only so long as no senior class of
stock has such voting power by reason of any contingency.
"Tranche" means a group of Securities which (a) are of the
same series and (b) have identical terms except as to principal amount and/or
date of issuance.
"Trust Indenture Act" means, as of any time, the Trust
Indenture Act of 1939, or any successor statute, as in effect at such time.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
with respect to one or more series of Securities pursuant to the applicable
provisions of this Indenture, and thereafter "Trustee" shall mean or include
each Person who is then a Trustee hereunder, and if at any time there is more
than one such Person, "Trustee" as used with respect to the Securities of any
series shall mean the Trustee with respect to Securities of that series.
"United States" means the United States of America, its
Territories, its possessions and other areas subject to its political
jurisdiction.
SECTION 102. Compliance Certificates and Opinions.
Except as otherwise expressly provided in this Indenture, upon
any application or request by the Company to the Trustee to take any action
under any provision of this Indenture, the Company shall furnish to the Trustee
an Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action (including any covenants
compliance with which constitutes a condition precedent) have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each Person signing such certificate or
opinion has read such covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such Person, such
Person has made such examination or investigation as is necessary
to enable such Person to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
Person, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such officer's certificate or opinion are
based are erroneous. Any such certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous. Any Opinion of Counsel may be based upon an opinion of
other counsel, in which case it shall be accompanied by a copy of such other
opinion.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Whenever, subsequent to the receipt by the Trustee of any
Board Resolution, Officer's Certificate, Opinion of Counsel or other document or
instrument, a clerical, typographical or other inadvertent or unintentional
error or omission shall be discovered therein, a new document or instrument may
be substituted therefor in corrected form with the same force and effect as if
originally filed in the corrected form and, irrespective of the date or dates of
the actual execution and/or delivery thereof, such substitute document or
instrument shall be deemed to have been executed and/or delivered as of the date
or dates required with respect to the document or instrument for which it is
substituted. Anything in this Indenture to the contrary notwithstanding, if any
such corrective document or instrument indicates that action has been taken by
or at the request of the Company which could not have been taken had the
original document or instrument not contained such error or omission, then, to
the extent permitted by applicable law, the action so taken shall not be
invalidated or otherwise rendered ineffective but shall be and remain in full
force and effect, except to the extent that such action was a result of willful
misconduct or bad faith. Without limiting the generality of the foregoing, any
Securities issued under the authority of such defective document or instrument
shall nevertheless be the valid obligations of the Company entitled to the
benefits of this Indenture equally and ratably with all other Outstanding
Securities, except as aforesaid.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, election, waiver or other action provided by this
Indenture to be made, given or taken by Holders may be embodied in
and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly
appointed in writing or, alternatively, may be embodied in and
evidenced by the record of Holders voting in favor thereof, either
in person or by proxies duly appointed in writing, at any meeting
of Holders duly called and held in accordance with the provisions
of Article Thirteen, or a combination of such instruments and any
such record. Except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments
or record or both are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or
instruments and any such record (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders signing such instrument or instruments and so
voting at any such meeting. Proof of execution of any such
instrument or of a writing appointing any such agent, or of the
holding by any Person of a Security, shall be sufficient for any
purpose of this Indenture and (subject to Section 901) conclusive
in favor of the Trustee and the Company, if made in the manner
provided in this Section. The record of any meeting of Holders
shall be proved in the manner provided in Section 1306.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a
witness of such execution or by a certificate of a notary public
or other officer authorized by law to take acknowledgments of
deeds, certifying that the individual signing such instrument or
writing acknowledged to him the execution thereof or may be proved
in any other manner which the Trustee and the Company deem
sufficient. Where such execution is by a signer acting in a
capacity other than his or her individual capacity, such
certificate or affidavit shall also constitute sufficient proof of
his or her authority.
(c) The principal amount (except as otherwise contemplated in
clause (y) of the first proviso to the definition of Outstanding)
and serial numbers of Securities held by any Person, and the date
of holding the same, shall be proved by the Security Register.
(d) Any request, demand, authorization, direction, notice,
consent, election, waiver or other Act of a Holder shall bind
every future Holder of the same Security and the Holder of every
Security issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made
upon such Security.
(e) Until such time as written instruments shall have been
delivered to the Trustee with respect to the requisite percentage
of principal amount of Securities for the action contemplated by
such instruments, any such instrument executed and delivered by or
on behalf of a Holder may be revoked with respect to any or all of
such Securities by written notice by such Holder or any subsequent
Holder delivered to the Trustee, proven in the manner in which
such instrument was proven.
(f) Securities of any series, or any Tranche thereof,
authenticated and delivered after any Act of Holders may, and
shall if required by the Trustee, bear a notation in form approved
by the Trustee as to any action taken by such Act of Holders. If
the Company shall so determine, new Securities of any series, or
any Tranche thereof, so modified as to conform, in the opinion of
the Trustee and the Company, to such action may be prepared and
executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series or
Tranche.
(g) If the Company shall solicit from Holders any request,
demand, authorization, direction, notice, consent, waiver or other
Act, the Company may, at its option, fix in advance a record date
for the determination of Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other
Act, but the Company shall have no obligation to do so. If such a
record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record
at the close of business on the record date shall be deemed to be
Holders for the purposes of determining whether Holders of the
requisite proportion of the Outstanding Securities have authorized
or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for that
purpose the Outstanding Securities shall be computed as of the
record date.
SECTION 105. Notices, etc. to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, election, waiver or Act of Holders or other document provided or
permitted by this Indenture to be made upon, given or furnished to, or filed
with, the Trustee by any Holder or by the Company, or the Company by the Trustee
or by any Holder, shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and delivered personally to
an officer or other responsible employee of the addressee at the applicable
location set forth below or at such other location as such party may from time
to time designate by written notice, or transmitted by facsimile transmission or
other direct written electronic means to such telephone number or other
electronic communications address as the parties hereto shall from time to time
designate by written notice, or transmitted by certified or registered mail,
charges prepaid, to the applicable address set below such party's name below or
to such other address as either party hereto may from time to time designate by
written notice:
If to the Trustee, to:
The Bank of New York
Corporate Trust Administration, Floor 21W
101 Barclay Street
New York, New York 10286
Attention: Assistant Treasurer, Corporate Trust Administration;
Re: National Fuel Gas Company
Telephone: (212) 815-2588
Facsimile: (212) 815-5915
If to the Company, to:
National Fuel Gas Company
10 Lafayette Square
Buffalo, New York 14203
Attention: Controller
Telephone: (716) 857-6981
Facsimile: (716) 857-7206
Any communication contemplated herein shall be deemed to have
been made, given, furnished and filed if personally delivered, on the date of
delivery, if transmitted by facsimile transmission or other direct written
electronic means, on the date of transmission, and if transmitted by certified
or registered mail, on the date of receipt.
SECTION 106. Notice to Holders of Securities; Waiver.
Except as otherwise expressly provided herein, where this
Indenture provides for notice to Holders of any event, such notice shall be
sufficiently given, and shall be deemed given, to Holders if in writing and
mailed, first-class postage prepaid, to each Holder affected by such event, at
the address of such Holder as it appears in the Security Register, not later
than the latest date, if any, and not earlier than the earliest date, if any,
prescribed for the giving of such notice.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice to
Holders by mail, then such notification as shall be made with the approval of
the Trustee shall constitute a sufficient notification for every purpose
hereunder. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders.
Any notice required by this Indenture may be waived in writing
by the Person entitled to receive such notice, either before or after the event
otherwise to be specified therein, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
SECTION 107. Conflict with Trust Indenture Act.
If any provision of this Indenture limits, qualifies or
conflicts with another provision hereof which is required or deemed to be
included in this Indenture by, or is otherwise governed by, any of the
provisions of the Trust Indenture Act, such other provision shall control; and
if any provision hereof otherwise conflicts with the Trust Indenture Act, the
Trust Indenture Act shall control.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings in this Indenture and the
Table of Contents are for convenience only and shall not affect the construction
hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
and Trustee shall bind their respective successors and assigns, whether so
expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or the Securities, express or
implied, shall give to any Person, other than the parties hereto, their
successors hereunder and the Holders, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and
construed in accordance with the laws of the State of New York, except to the
extent that the law of any other jurisdiction shall be mandatorily applicable.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date
or Stated Maturity of any Security shall not be a Business Day at any Place of
Payment, then (notwithstanding any other provision of this Indenture or of the
Securities other than a provision in Securities of any series, or any Tranche
thereof, or in the indenture supplemental hereto, the Board Resolution or
Officer's Certificate which establishes the terms of the Securities of such
series or Tranche, which specifically states that such provision shall apply in
lieu of this Section) payment of interest, if any, or principal and premium, if
any, need not be made at such Place of Payment on such date, but may be made on
the next succeeding Business Day at such Place of Payment, with the same force
and effect, and in the same amount, as if made on the Interest Payment Date or
Redemption Date, or at the Stated Maturity, as the case may be, and, if such
payment is made or duly provided for on such Business Day, no interest shall
accrue on the amount so payable for the period from and after such Interest
Payment Date, Redemption Date or Stated Maturity, as the case may be, to such
Business Day.
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
The definitive Securities of each series shall be in
substantially the form or forms thereof established in the indenture
supplemental hereto establishing such series or in a Board Resolution
establishing such series, or in an Officer's Certificate pursuant to such
supplemental indenture or Board Resolution, in each case with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities. If the form or forms of
Securities of any series are established in a Board Resolution or in an
Officer's Certificate pursuant to a Board Resolution, such Board Resolution and
Officer's Certificate, if any, shall be delivered to the Trustee at or prior to
the delivery of the Company Order contemplated by Section 303 for the
authentication and delivery of such Securities.
Unless otherwise specified as contemplated by Sections 301 or
1201(g), the Securities of each series shall be issuable in registered form
without coupons. The definitive Securities shall be produced in such manner as
shall be determined by the officers executing such Securities, as evidenced by
their execution thereof.
SECTION 202. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in
substantially the form set forth below:
This is one of the Securities of the series
designated therein referred to in the within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK,
as Trustee
By:_______________________________________
Authorized Signatory
ARTICLE THREE
The Securities
SECTION 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. Subject to
the last paragraph of this Section, prior to the authentication and delivery of
Securities of any series there shall be established by specification in a
supplemental indenture or in a Board Resolution, or in an Officer's Certificate
pursuant to a supplemental indenture or a Board Resolution:
(a) the title of the Securities of such series (which shall
distinguish the Securities of such series from Securities of all
other series);
(b) any limit upon the aggregate principal amount of the
Securities of such series which may be authenticated and delivered
under this Indenture (except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or
in lieu of, other Securities of such series pursuant to Section
304, 305, 306, 406 or 1206 and except for any Securities which,
pursuant to Section 303, are deemed never to have been
authenticated and delivered hereunder);
(c) the Person or Persons (without specific identification) to
whom interest on Securities of such series, or any Tranche
thereof, shall be payable on any Interest Payment Date, if other
than the Persons in whose names such Securities (or one or more
Predecessor Securities) are registered at the close of business on
the Regular Record Date for such interest;
(d) the date or dates on which the principal of the Securities
of such series, or any Tranche thereof, is payable or any
formulary or other method or other means by which such date or
dates shall be determined, by reference to an index or other fact
or event ascertainable outside of this Indenture or otherwise
(without regard to any provisions for redemption, prepayment,
acceleration, purchase or extension);
(e) the rate or rates at which the Securities of such series,
or any Tranche thereof, shall bear interest, if any (including the
rate or rates at which overdue principal shall bear interest, if
different from the rate or rates at which such Securities shall
bear interest prior to Maturity, and, if applicable, the rate or
rates at which overdue premium or interest shall bear interest, if
any), or any formulary or other method or other means by which
such rate or rates shall be determined, by reference to an index
or other fact or event ascertainable outside of this Indenture or
otherwise; the date or dates from which such interest shall
accrue; the Interest Payment Dates on which such interest shall be
payable and the Regular Record Date, if any, for the interest
payable on such Securities on any Interest Payment Date; the right
of the Company, if any, to extend the interest payment periods and
the duration of any such extension as contemplated by Section 312;
and the basis of computation of interest, if other than as
provided in Section 310;
(f) the place or places at which or methods by which (1) the
principal of and premium, if any, and interest, if any, on
Securities of such series, or any Tranche thereof, shall be
payable, (2) registration of transfer of Securities of such
series, or any Tranche thereof, may be effected, (3) exchanges of
Securities of such series, or any Tranche thereof, may be effected
and (4) notices and demands to or upon the Company in respect of
the Securities of such series, or any Tranche thereof, and this
Indenture may be served; the Security Registrar and any Paying
Agent or Agents for such series or Tranche; and if such is the
case, that the principal of such Securities shall be payable
without presentment or surrender thereof;
(g) the period or periods within which, or the date or dates
on which, the price or prices at which and the terms and
conditions upon which the Securities of such series, or any
Tranche thereof, may be redeemed, in whole or in part, at the
option of the Company and any restrictions on such redemptions,
including but not limited to a restriction on a partial redemption
by the Company of the Securities of any series, or any Tranche
thereof, resulting in delisting of such Securities from any
national exchange;
(h) the obligation or obligations, if any, of the Company to
redeem or purchase the Securities of such series, or any Tranche
thereof, pursuant to any sinking fund or other mandatory
redemption provisions or at the option of a Holder thereof and the
period or periods within which or the date or dates on which, the
price or prices at which and the terms and conditions upon which
such Securities shall be redeemed or purchased, in whole or in
part, pursuant to such obligation, and applicable exceptions to
the requirements of Section 404 in the case of mandatory
redemption or redemption at the option of the Holder;
(i) the denominations in which Securities of such series, or
any Tranche thereof, shall be issuable if other than denominations
of $1,000 and any integral multiple thereof;
(j) the currency or currencies, including composite
currencies, in which payment of the principal of and premium, if
any, and interest, if any, on the Securities of such series, or
any Tranche thereof, shall be payable (if other than in Dollars)
and the formulary or other method or other means by which the
equivalent of any such amount in Dollars is to be determined for
any purpose, including for the purpose of determining the
principal amount of such Securities deemed to be Outstanding at
any time;
(k) if the principal of or premium, if any, or interest, if
any, on the Securities of such series, or any Tranche thereof, are
to be payable, at the election of the Company or a Holder thereof,
in a coin or currency other than that in which the Securities are
stated to be payable, the period or periods within which and the
terms and conditions upon which, such election may be made;
(l) if the principal of or premium, if any, or interest, if
any, on the Securities of such series, or any Tranche thereof, are
to be payable, or are to be payable at the election of the Company
or a Holder thereof, in securities or other property, the type and
amount of such securities or other property, or the formulary or
other method or other means by which such amount shall be
determined, and the period or periods within which, and the terms
and conditions upon which, any such election may be made;
(m) if the amount payable in respect of principal of or
premium, if any, or interest, if any, on the Securities of such
series, or any Tranche thereof, may be determined with reference
to an index or other fact or event ascertainable outside of this
Indenture, the manner in which such amounts shall be determined to
the extent not established pursuant to clause (e) of this
paragraph;
(n) if other than the principal amount thereof, the portion of
the principal amount of Securities of such series, or any Tranche
thereof, which shall be payable upon declaration of acceleration
of the Maturity thereof pursuant to Section 802;
(o) any Events of Default, in addition to those specified in
Section 801, with respect to the Securities of such series, and
any covenants of the Company for the benefit of the Holders of the
Securities of such series, or any Tranche thereof, in addition to
those set forth in Article Six;
(p) the terms, if any, pursuant to which the Securities of
such series, or any Tranche thereof, may be converted into or
exchanged for shares of capital stock or other securities of the
Company or any other Person;
(q) the obligations or instruments, if any, which shall be
considered to be Eligible Obligations in respect of the Securities
of such series, or any Tranche thereof, denominated in a currency
other than Dollars or in a composite currency, and any additional
or alternative provisions for the reinstatement of the Company's
indebtedness in respect of such Securities after the satisfaction
and discharge thereof as provided in Section 701;
(r) if the Securities of such series, or any Tranche thereof,
are to be issued in global form, (i) any limitations on the rights
of the Holder or Holders of such Securities to transfer or
exchange the same or to obtain the registration of transfer
thereof, (ii) any limitations on the rights of the Holder or
Holders thereof to obtain certificates therefor in definitive form
in lieu of temporary form and (iii) any and all other matters
incidental to such Securities;
(s) if the Securities of such series, or any Tranche thereof,
are to be issuable as bearer securities, any and all matters
incidental thereto which are not specifically addressed in a
supplemental indenture as contemplated by clause (g) of Section
1201;
(t) to the extent not established pursuant to clause (r) of
this paragraph, any limitations on the rights of the Holders of
the Securities of such Series, or any Tranche thereof, to transfer
or exchange such Securities or to obtain the registration of
transfer thereof; and if a service charge will be made for the
registration of transfer or exchange of Securities of such series,
or any Tranche thereof, the amount or terms thereof;
(u) any exceptions to Section 113, or variation in the
definition of Business Day, with respect to the Securities of such
series, or any Tranche thereof;
(v) any collateral security, assurance or guarantee for the
Securities of such series;
(w) the non-applicability of Section 608 to the Securities of
such Series or any exceptions or modifications of Section 608 with
respect to the Securities of such Series;
(x) any rights or duties of another Person to assume the
obligations of the Company with respect to the Securities of such
series (whether as joint obligor, primary obligor, secondary
obligor or substitute obligor) and any rights or duties to
discharge and release any obligor with respect to the Securities
of such series or this Indenture to the extent related to such
series; and
(y) any other terms of the Securities of such series, or any
Tranche thereof, not inconsistent with the provisions of this
Indenture.
With respect to Securities of a series subject to a Periodic
Offering, the indenture supplemental hereto or the Board Resolution which
establishes such series, or the Officer's Certificate pursuant to such
supplemental indenture or Board Resolution, as the case may be, may provide
general terms or parameters for Securities of such series and provide either
that the specific terms of Securities of such series, or any Tranche thereof,
shall be specified in a Company Order or that such terms shall be determined by
the Company or its agents in accordance with procedures specified in a Company
Order as contemplated by clause (b) of Section 303.
Unless otherwise specified with respect to a series of
Securities pursuant to Section 301(b), any limit upon the aggregate principal
amount of a series of Securities may be increased without the consent of any
Holders and additional Securities of such series may be authenticated and
delivered up to the limit upon the aggregate principal amount authorized with
respect to such series as so increased.
SECTION 302. Denominations.
Unless otherwise provided as contemplated by Section 301 with
respect to any series of Securities, or any Tranche thereof, the Securities of
each series shall be issuable in denominations of $1,000 and any integral
multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
Unless otherwise provided as contemplated by Section 301 with
respect to any series of Securities, or any Tranche thereof, the Securities
shall be executed on behalf of the Company by an Authorized Officer and may have
the corporate seal of the Company affixed thereto or reproduced thereon and
attested by any other Authorized Officer. The signature of any or all of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at the time of execution Authorized Officers of the Company
shall bind the Company, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the authentication and delivery of
such Securities or did not hold such offices at the date of such Securities.
The Trustee shall authenticate and deliver Securities of a
series, for original issue, at one time or from time to time in accordance with
the Company Order referred to below, upon receipt by the Trustee of:
(a) the instrument or instruments establishing the form or
forms and terms of such series, as provided in Sections 201 and
301;
(b) a Company Order requesting the authentication and delivery
of such Securities and, to the extent that the terms of such
Securities shall not have been established in an indenture
supplemental hereto or in a Board Resolution, or in an Officer's
Certificate pursuant to a supplemental indenture or Board
Resolution, all as contemplated by Sections 201 and 301, either
(i) establishing such terms or (ii) in the case of Securities of a
series subject to a Periodic Offering, specifying procedures,
acceptable to the Trustee, by which such terms are to be
established (which procedures may provide, to the extent
acceptable to the Trustee, for authentication and delivery
pursuant to oral or electronic instructions from the Company or
any agent or agents thereof, which oral instructions are to be
promptly confirmed electronically or in writing), in either case
in accordance with the instrument or instruments delivered
pursuant to clause (a) above;
(c) the Securities of such series, executed on behalf of the
Company by an Authorized Officer;
(d) an Opinion of Counsel to the effect that:
(i) the form or forms of such Securities have been duly
authorized by the Company and have been established in
conformity with the provisions of this Indenture;
(ii) the terms of such Securities have been duly
authorized by the Company and have been established in
conformity with the provisions of this Indenture; and
(iii) such Securities, when authenticated and delivered
by the Trustee and issued and delivered by the Company in the
manner and subject to any conditions specified in such Opinion
of Counsel, will have been duly issued under this Indenture
and will constitute valid and legally binding obligations of
the Company, entitled to the benefits provided by this
Indenture, and enforceable in accordance with their terms,
except as the same may be limited by laws relating to or
affecting generally the enforcement of creditors' rights,
including, without limitation, bankruptcy and insolvency laws
and to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or
at law);
provided, however, that, with respect to Securities of a
series subject to a Periodic Offering, the Trustee shall be
entitled to receive such Opinion of Counsel only once at or
prior to the time of the first authentication and delivery of
such Securities (provided that such Opinion of Counsel
addresses the authentication and delivery of all Securities of
such series) and that, in lieu of the opinions described in
clauses (ii) and (iii) above, Counsel may opine that:
(x) when the terms of such
Securities shall have been established pursuant to a
Company Order or Orders or pursuant to such
procedures acceptable to the Trustee as may be
specified from time to time by a Company Order or
Orders, all as contemplated by and in accordance with
the instrument or instruments delivered pursuant to
clause (a) above, such terms will have been duly
authorized by the Company and will have been
established in conformity with the provisions of this
Indenture; and
(y) such Securities, when
authenticated and delivered by the Trustee in
accordance with this Indenture and the Company Order
or Orders or specified procedures referred to in
paragraph (x) above and issued and delivered by the
Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will have been
duly issued under this Indenture and will constitute
valid and legally binding obligations of the Company,
entitled to the benefits provided by the Indenture,
and enforceable in accordance with their terms,
except as the same may be limited by laws relating to
or affecting generally the enforcement of creditors'
rights, including, without limitation, bankruptcy and
insolvency laws, and to general principles of equity
(regardless of whether such enforceability is
considered in a proceeding in equity or at law).
With respect to Securities of a series subject to a Periodic
Offering, the Trustee may conclusively rely, as to the authorization by the
Company of any of such Securities, the form and terms thereof and the legality,
validity, binding effect and enforceability thereof, and compliance of the
authentication and delivery thereof with the terms and conditions of this
Indenture, upon the Opinion of Counsel and other documents delivered pursuant to
Sections 201 and 301 and this Section, as applicable, at or prior to the time of
the first authentication of Securities of such series unless and until such
opinion or other documents have been superseded or revoked or expire by their
terms. In connection with the authentication and delivery of Securities of a
series subject to a Periodic Offering, the Trustee shall be entitled to assume
that the Company's instructions to authenticate and deliver such Securities do
not violate any applicable law or any applicable rule, regulation or order of
any Governmental Authority having jurisdiction over the Company.
If the form or terms of the Securities of any series have been
established by or pursuant to a Board Resolution or an Officer's Certificate as
permitted by Sections 201 or 301, the Trustee shall not be required to
authenticate such Securities if the issuance of such Securities pursuant to this
Indenture will materially or adversely affect the Trustee's own rights, duties
or immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Unless otherwise specified as contemplated by Section 301 with
respect to any series of Securities, or any Tranche thereof, each Security shall
be dated the date of its authentication.
Unless otherwise specified as contemplated by Section 301 with
respect to any series of Securities, or any Tranche thereof, no Security shall
be entitled to any benefit under this Indenture or be valid or obligatory for
any purpose unless there appears on such Security a certificate of
authentication substantially in the form provided for herein executed by the
Trustee or an Authenticating Agent by manual signature of an authorized
signatory thereof, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder and is entitled to the benefits of this Indenture.
Notwithstanding the foregoing, if any Security shall have been authenticated and
delivered hereunder to the Company, or any Person acting on its behalf, but
shall never have been issued and sold by the Company, and the Company shall
deliver such Security to the Security Registrar for cancellation as provided in
Section 309 together with a written statement (which need not comply with
Section 102 and need not be accompanied by an Officer's Certificate or an
Opinion of Counsel) stating that such Security has never been issued and sold by
the Company, then for all purposes of this Indenture such Security shall be
deemed never to have been authenticated and delivered hereunder and shall never
be entitled to the benefits hereof.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities of any
series, or any Tranche thereof, the Company may execute, and upon Company Order
the Trustee shall authenticate and deliver, temporary Securities which are
printed, lithographed, typewritten, mimeographed, photocopied or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued, with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of such
Securities; provided, however, that temporary Securities need not recite
specific redemption, sinking fund, conversion or exchange provisions.
Unless otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, or any Tranche thereof, after the
preparation of definitive Securities of such series or Tranche, the temporary
Securities of such series or Tranche shall be exchangeable, without charge to
the Holder thereof, for definitive Securities of such series or Tranche upon
surrender of such temporary Securities at the office or agency of the Company
maintained pursuant to Section 602 in a Place of Payment for such Securities.
Upon such surrender of temporary Securities for such exchange, the Company
shall, except as aforesaid, execute and the Trustee shall authenticate and
deliver in exchange therefor definitive Securities of the same series and
Tranche of authorized denominations and of like tenor and aggregate principal
amount.
Until exchanged in full as hereinabove provided, temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of the same series and Tranche and of like
tenor authenticated and delivered hereunder.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept in one of the offices
designated pursuant to Section 602, with respect to the Securities of each
series, or any Tranche thereof, a register (the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Securities of such series, or any Tranche
thereof, and the registration of transfer thereof. The Company shall designate
one Person to maintain the Security Register for the Securities of each series
on a consolidated basis, and such Person is referred to herein, with respect to
such series, as the "Security Registrar." Anything herein to the contrary
notwithstanding, the Company may designate one or more of its offices as an
office in which a register with respect to the Securities of one or more series,
or any Tranche or Tranches thereof, shall be maintained, and the Company may
designate itself the Security Registrar with respect to one or more of such
series. The Security Register shall be open for inspection by the Trustee and
the Company at all reasonable times.
Except as otherwise specified as contemplated by Section 301
with respect to the Securities of any series, or any Tranche thereof, upon
surrender for registration of transfer of any Security of such series or Tranche
at the office or agency of the Company maintained pursuant to Section 602 in a
Place of Payment for such series or Tranche, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Securities of the same series and Tranche, of
authorized denominations and of like tenor and aggregate principal amount.
Except as otherwise specified as contemplated by Section 301
with respect to the Securities of any series, or any Tranche thereof, any
Security of such series or Tranche may be exchanged at the option of the Holder,
for one or more new Securities of the same series and Tranche, of authorized
denominations and of like tenor and aggregate principal amount, upon surrender
of the Securities to be exchanged at any such office or agency. Whenever any
Securities are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive.
All Securities delivered upon any registration of transfer or
exchange of Securities shall be valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall be duly endorsed or shall be accompanied by a
written instrument of transfer in form satisfactory to the Company, the Trustee
or the Security Registrar, as the case may be, duly executed by the Holder
thereof or his or her attorney duly authorized in writing.
Unless otherwise specified as contemplated by Section 301 with
respect to Securities of any series, or any Tranche thereof, no service charge
shall be made for any registration of transfer or exchange of Securities, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Securities, other than exchanges pursuant to Section
304, 406 or 1206 not involving any transfer.
The Company shall not be required to execute or to provide for
the registration of transfer of or the exchange of (a) Securities of any series,
or any Tranche thereof, during a period of 15 days immediately preceding the
date notice is to be given identifying the serial numbers of the Securities of
such series or Tranche called for redemption or (b) any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of the same series and Tranche, and of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (a)
evidence to their satisfaction of the ownership of and the destruction, loss or
theft of any Security and (b) such security or indemnity as may be reasonably
required by them to save each of them and any agent of either of them harmless,
then, in the absence of notice to the Company or the Trustee that such Security
is held by a Person purporting to be the owner of such Security, the Company
shall execute and the Trustee shall authenticate and deliver, in lieu of any
such destroyed, lost or stolen Security, a new Security of the same series and
Tranche, and of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
Notwithstanding the foregoing, in case any such mutilated,
destroyed, lost or stolen Security has become or is about to become due and
payable, the Company in its discretion may, instead of issuing a new Security,
pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the fees and expenses of the Trustee) connected
therewith.
Every new Security of any series issued pursuant to this
Section in lieu of any destroyed, lost or stolen Security shall constitute an
original additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen Security shall be at any time enforceable by anyone
other than the Holder of such new Security, and any such new Security shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of such series duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Unless otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, or any Tranche thereof, interest on any
Security which is payable, and is punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the Person in whose name that Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest.
Subject to Section 312, any interest on any Security of any
series which is payable, but is not punctually paid or duly provided for, on any
Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease
to be payable to the Holder on the related Regular Record Date by virtue of
having been such Holder, and such Defaulted Interest may be paid by the Company,
at its election in each case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities of such
series (or their respective Predecessor Securities) are registered
at the close of business on a date (herein called a "Special
Record Date") for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify
the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security of such series and the date
of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such
deposit on or prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more
than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company of such Special Record Date and,
in the name and at the expense of the Company, shall promptly
cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class
postage prepaid, to each Holder of Securities of such series at
the address of such Holder as it appears in the Security Register,
not less than 10 days prior to such Special Record Date. Notice of
the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the
Securities of such series (or their respective Predecessor
Securities) are registered at the close of business on such
Special Record Date.
(b) The Company may make payment of any Defaulted Interest on
the Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on
which such Securities may be listed, and upon such notice as may
be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section and
Section 305, each Security delivered under this Indenture upon registration of
transfer of or in exchange for or in lieu of any other Security shall carry the
rights to interest accrued and unpaid, and to interest which may accrue, which
were carried by such other Security.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the absolute
owner of such Security for the purpose of receiving payment of principal of and
premium, if any, and (subject to Sections 305 and 307) interest, if any, on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
SECTION 309. Cancellation by Security Registrar.
All Securities surrendered for payment, redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Security Registrar, be delivered to the Security Registrar and, if not
theretofore canceled, shall be promptly canceled by the Security Registrar. The
Company may at any time deliver to the Security Registrar for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever or which the Company shall not have
issued and sold, and all Securities so delivered shall be promptly canceled by
the Security Registrar. No Securities shall be authenticated in lieu of or in
exchange for any Securities canceled as provided in this Section, except as
expressly permitted by this Indenture. All canceled Securities held by the
Security Registrar shall be disposed of in accordance with the Security
Registrar's customary procedures as at the time of disposition shall be in
effect, and the Security Registrar shall promptly deliver a certificate of
disposition to the Trustee and the Company unless, by a Company Order, delivered
to the Security Registrar and the Trustee, the Company shall direct that
canceled Securities be returned to it. The Security Registrar shall promptly
deliver evidence of any cancellation of a Security in accordance with this
Section 309 to the Trustee and the Company.
SECTION 310. Computation of Interest.
Except as otherwise specified as contemplated by Section 301
for Securities of any series, or any Tranche thereof, interest on the Securities
of each series shall be computed on the basis of a 360-day year consisting of
twelve 30-day months and for any period shorter than a full calendar month, on
the basis of the actual number of days elapsed in such period.
SECTION 311. Payment to Be in Proper Currency.
In the case of the Securities of any series, or any Tranche
thereof, denominated in any currency other than Dollars or in a composite
currency (the "Required Currency"), except as otherwise specified with respect
to such Securities as contemplated by Section 301, the obligation of the Company
to make any payment of the principal thereof, or the premium, if any, or
interest, if any, thereon, shall not be discharged or satisfied by any tender by
the Company, or recovery by the Trustee, in any currency other than the Required
Currency, except to the extent that such tender or recovery shall result in the
Trustee timely holding the full amount of the Required Currency then due and
payable. If any such tender or recovery is in a currency other than the Required
Currency, the Trustee may take such actions as it considers appropriate to
exchange such currency for the Required Currency. The costs and risks of any
such exchange, including without limitation the risks of delay and exchange rate
fluctuation, shall be borne by the Company, the Company shall remain fully
liable for any shortfall or delinquency in the full amount of Required Currency
then due and payable, and in no circumstances shall the Trustee be liable
therefor except in the case of its negligence or willful misconduct.
SECTION 312. Extension of Interest Payment.
The Company shall have the right at any time, so long as the
Company is not in default in the payment of interest on the Securities of any
series hereunder, to extend interest payment periods on all Securities of one or
more series, if so specified as contemplated by Section 301 with respect to such
Securities and upon such terms as may be specified as contemplated by Section
301 with respect to such Securities. Should the Company ever so extend any such
interest payment period, the Company shall promptly notify the Trustee.
ARTICLE FOUR
Redemption of Securities
SECTION 401. Applicability of Article.
Securities of any series, or any Tranche thereof, which are
redeemable before their Stated Maturity (or, if the principal of the Securities
of any series is payable in installments, the Stated Maturity of the final
installment of the principal thereof) shall be redeemable in accordance with
their terms and (except as otherwise specified as contemplated by Section 301
for Securities of such series or Tranche) in accordance with this Article.
SECTION 402. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be
evidenced by a Board Resolution or an Officer's Certificate. The Company shall,
at least 45 days prior to the Redemption Date fixed by the Company (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee in
writing of such Redemption Date and of the principal amount of such Securities
to be redeemed. In the case of any redemption of Securities (a) prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities or elsewhere in this Indenture or (b) pursuant to an election of the
Company which is subject to a condition specified in the terms of such
Securities, the Company shall furnish the Trustee with an Officer's Certificate
evidencing compliance with such restriction or condition.
SECTION 403. Selection of Securities to Be Redeemed.
If less than all the Securities of any series, or any Tranche
thereof, are to be redeemed, the particular Securities to be redeemed shall be
selected by the Trustee from the Outstanding Securities of such series or
Tranche not previously called for redemption, by such method as shall be
provided for any particular series, or, in the absence of any such provision, by
such method as the Trustee shall deem fair and appropriate and which may provide
for the selection for redemption of portions (equal to the minimum authorized
denomination for Securities of such series or Tranche or any integral multiple
thereof) of the principal amount of Securities of such series or Tranche of a
denomination larger than the minimum authorized denomination for Securities of
such series or Tranche; provided, however, that if, as indicated in an Officer's
Certificate, the Company shall have offered to purchase all or any principal
amount of the Securities then Outstanding of any series, or any Tranche thereof,
and less than all of such Securities as to which such offer was made shall have
been tendered to the Company for such purchase, the Trustee, if so directed by
Company Order, shall select for redemption all or any principal amount of such
Securities which have not been so tendered.
The Trustee shall promptly notify the Company and the Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected to be redeemed in part, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has been
or is to be redeemed.
SECTION 404. Notice of Redemption.
Except as otherwise specified as contemplated by Section 301
for Securities of any series, notice of redemption shall be given in the manner
provided in Section 106 to the Holders of the Securities to be redeemed not less
than 30 nor more than 60 days prior to the Redemption Date.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price, or the formula pursuant to which the
Redemption Price is to be determined if the Redemption Price
cannot be determined at the time the notice is given,
(c) if less than all the Securities of any series or Tranche
are to be redeemed, the identification of the particular
Securities to be redeemed and the portion of the principal amount
of any Security to be redeemed in part and, in the case of any
such Security of such series to be redeemed in part, that, on and
after the Redemption Date, upon surrender of such Security, a new
Security or Securities of such series in principal amount equal to
the remaining unpaid principal amount thereof will be issued as
provided in Section 406,
(d) that on the Redemption Date the Redemption Price, together
with accrued interest, if any, to the Redemption Date, will become
due and payable upon each such Security to be redeemed and, if
applicable, that interest thereon will cease to accrue on and
after said date,
(e) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued
interest, if any, unless it shall have been specified as
contemplated by Section 301 with respect to such Securities that
such surrender shall not be required,
(f) that the redemption is for a sinking or other fund, if
such is the case,
(g) the CUSIP numbers, if any, assigned to such Securities;
provided however, that such notice may state that no
representation is made as to the correctness of CUSIP numbers, and
the redemption of such Securities shall not be affected by any
defect in or omission of such number, and
(h) such other matters as the Company shall deem desirable or
appropriate.
Unless otherwise specified with respect to any Securities in
accordance with Section 301, with respect to any notice of redemption of
Securities at the election of the Company, unless, upon the giving of such
notice, such Securities shall be deemed to have been paid in accordance with
Section 701, such notice may state that such redemption shall be conditional
upon the receipt by the Paying Agent or Agents for such Securities, on or prior
to the date fixed for such redemption, of money sufficient to pay the principal
of and premium, if any, and interest, if any, on such Securities and that if
such money shall not have been so received such notice shall be of no force or
effect and the Company shall not be required to redeem such Securities. In the
event that such notice of redemption contains such a condition and such money is
not so received, the redemption shall not be made and within a reasonable time
thereafter notice shall be given, in the manner in which the notice of
redemption was given, that such money was not so received and such redemption
was not required to be made, and the Paying Agent or Agents for the Securities
otherwise to have been redeemed shall promptly return to the Holders thereof any
of such Securities which had been surrendered for payment upon such redemption.
Notice of redemption of Securities to be redeemed at the
election of the Company, and any notice of non-satisfaction of a condition for
redemption as aforesaid, shall be given by the Company or, at the Company's
request, by the Security Registrar in the name and at the expense of the
Company. Notice of mandatory redemption of Securities shall be given by the
Security Registrar in the name and at the expense of the Company.
SECTION 405. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, and the
conditions, if any, set forth in such notice having been satisfied, the
Securities or portions thereof so to be redeemed shall, on the Redemption Date,
become due and payable at the Redemption Price therein specified, and from and
after such date (unless, in the case of an unconditional notice of redemption,
the Company shall default in the payment of the Redemption Price and accrued
interest, if any) such Securities or portions thereof, if interest-bearing,
shall cease to bear interest. Upon surrender of any such Security for redemption
in accordance with such notice, such Security or portion thereof shall be paid
by the Company at the Redemption Price, together with accrued interest, if any,
to the Redemption Date; provided, however, that no such surrender shall be a
condition to such payment if so specified as contemplated by Section 301 with
respect to such Security; and provided, further, that except as otherwise
specified as contemplated by Section 301 with respect to such Security, any
installment of interest on any Security the Stated Maturity of which installment
is on or prior to the Redemption Date shall be payable to the Holder of such
Security, or one or more Predecessor Securities, registered as such at the close
of business on the related Regular Record Date according to the terms of such
Security and subject to the provisions of Section 307.
SECTION 406. Securities Redeemed in Part.
Upon the surrender of any Security which is to be redeemed
only in part at a Place of Payment therefor (with due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his or her attorney duly
authorized in writing), the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security, without service charge,
a new Security or Securities of the same series and Tranche, of any authorized
denomination requested by such Holder and of like tenor and in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Security so surrendered.
ARTICLE FIVE
Sinking Funds
SECTION 501. Applicability of Article.
The provisions of this Article shall be applicable to any
sinking fund for the retirement of the Securities of any series, or any Tranche
thereof, except as otherwise specified as contemplated by Section 301 for
Securities of such series or Tranche.
The minimum amount of any sinking fund payment provided for by
the terms of Securities of any series, or any Tranche thereof, is herein
referred to as a "mandatory sinking fund payment", and any payment in excess of
such minimum amount provided for by the terms of Securities of any series, or
any Tranche thereof, is herein referred to as an "optional sinking fund
payment". If provided for by the terms of Securities of any series, or any
Tranche thereof, the cash amount of any sinking fund payment may be subject to
reduction as provided in Section 502. Each sinking fund payment shall be applied
to the redemption of Securities of the series or Tranche in respect of which it
was made as provided for by the terms of such Securities.
SECTION 502. Satisfaction of Sinking Fund Payments with Securities.
The Company (a) may deliver to the Trustee Outstanding
Securities (other than any previously called for redemption) of a series or
Tranche in respect of which a mandatory sinking fund payment is to be made and
(b) may apply as a credit Securities of such series or Tranche which have been
redeemed either at the election of the Company pursuant to the terms of such
Securities or through the application of permitted optional sinking fund
payments pursuant to the terms of such Securities, in each case in satisfaction
of all or any part of such mandatory sinking fund payment with respect to the
Securities of such series; provided, however, that no Securities shall be
applied in satisfaction of a mandatory sinking fund payment if such Securities
shall have been previously so applied. Securities so applied shall be received
and credited for such purpose by the Trustee at the Redemption Price specified
in such Securities for redemption through operation of the sinking fund and the
amount of such mandatory sinking fund payment shall be reduced accordingly.
SECTION 503. Redemption of Securities for Sinking Fund.
Not less than 45 days prior to each sinking fund payment date
for the Securities of any series, or any Tranche thereof, the Company shall
deliver to the Trustee an Officer's Certificate specifying:
(a) the amount of the next succeeding mandatory sinking fund
payment for such series or Tranche;
(b) the amount, if any, of the optional sinking fund payment
to be made together with such mandatory sinking fund payment;
(c) the aggregate sinking fund payment;
(d) the portion, if any, of such aggregate sinking fund
payment which is to be satisfied by the payment of cash; and
(e) the portion, if any, of such aggregate sinking fund
payment which is to be satisfied by delivering and crediting
Securities of such series or Tranche pursuant to Section 502 and
stating the basis for such credit and that such Securities have
not previously been so credited, and the Company shall also
deliver to the Trustee any Securities to be so delivered.
If the Company shall have not delivered such Officer's
Certificate and, to the extent applicable, all such Securities, the next
succeeding sinking fund payment for such series or Tranche shall be made
entirely in cash in the amount of the mandatory sinking fund payment. Not less
than 30 days before each such sinking fund payment date the Trustee shall select
the Securities to be redeemed upon such sinking fund payment date in the manner
specified in Section 403 and cause notice of the redemption thereof to be given
in the name of and at the expense of the Company in the manner provided in
Section 404. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections 405
and 406.
ARTICLE SIX
Covenants
SECTION 601. Payment of Principal, Premium and Interest.
The Company shall pay the principal of and premium, if any,
and interest, if any, on the Securities of each series in accordance with the
terms of such Securities and this Indenture.
SECTION 602. Maintenance of Office or Agency.
The Company shall maintain in each Place of Payment for the
Securities of each series, or any Tranche thereof, an office or agency where
payment of such Securities shall be made, where the registration of transfer or
exchange of such Securities may be effected and where notices and demands to or
upon the Company in respect of such Securities and this Indenture may be served.
The Company shall give prompt written notice to the Trustee of the location, and
any change in the location, of each such office or agency and prompt notice to
the Holders of any such change in the manner specified in Section 106. If at any
time the Company shall fail to maintain any such required office or agency in
respect of Securities of any series, or any Tranche thereof, or shall fail to
furnish the Trustee with the address thereof, payment of such Securities shall
be made, registration of transfer or exchange thereof may be effected and
notices and demands in respect thereof may be served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
for all such purposes in any such event.
The Company may also from time to time designate one or more
other offices or agencies with respect to the Securities of one or more series,
or any Tranche thereof, for any or all of the foregoing purposes and may from
time to time rescind such designations; provided, however, that, unless
otherwise specified as contemplated by Section 301 with respect to the
Securities of such series or Tranche, no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
for such purposes in each Place of Payment for such Securities in accordance
with the requirements set forth above. The Company shall give prompt written
notice to the Trustee, and prompt notice to the Holders in the manner specified
in Section 106, of any such designation or rescission and of any change in the
location of any such other office or agency.
Anything herein to the contrary notwithstanding, any office or
agency required by this Section may be maintained at an office of the Company,
in which event the Company shall perform all functions to be performed at such
office or agency.
SECTION 603. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent
with respect to the Securities of any series, or any Tranche thereof, it shall,
on or before each due date of the principal of and premium, if any, and
interest, if any, on any of such Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal
and premium or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided. The Company shall promptly
notify the Trustee of any failure by the Company (or any other obligor on such
Securities) to make any payment of principal of or premium, if any, or interest,
if any, on such Securities.
Whenever the Company shall have one or more Paying Agents for
the Securities of any series, or any Tranche thereof, it shall, on or before
each due date of the principal of and premium, if any, and interest, if any, on
such Securities, deposit with such Paying Agents sums sufficient (without
duplication) to pay the principal and premium or interest so becoming due, such
sums to be held in trust for the benefit of the Persons entitled to such
principal, premium or interest, and (unless such Paying Agent is the Trustee)
the Company shall promptly notify the Trustee of any failure by it so to act.
The Company shall cause each Paying Agent for the Securities
of any series, or any Tranche thereof, other than the Company or the Trustee, to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent shall:
(a) hold all sums held by it for the payment of the principal
of and premium, if any, or interest, if any, on such Securities in
trust for the benefit of the Persons entitled thereto until such
sums shall be paid to such Persons or otherwise disposed of as
herein provided;
(b) give the Trustee notice of any failure by the Company (or
any other obligor upon such Securities) to make any payment of
principal of or premium, if any, or interest, if any, on such
Securities; and
(c) at any time during the continuance of any such failure,
upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent and furnish
to the Trustee such information as it possesses regarding the
names and addresses of the Persons entitled to such sums.
The Company may at any time pay, or by Company Order direct
any Paying Agent to pay, to the Trustee all sums held in trust by the Company or
such Paying Agent, such sums to be held by the Trustee upon the same trusts as
those upon which such sums were held by the Company or such Paying Agent and, if
so stated in a Company Order delivered to the Trustee, in accordance with the
provisions of Article Seven; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of and
premium, if any, or interest, if any, on any Security and remaining unclaimed
for two years after such principal and premium, if any, or interest, if any, has
become due and payable shall be paid to the Company on Company Request, or, if
then held by the Company, shall be discharged from such trust; and, upon such
payment or discharge, the Holder of such Security shall, as an unsecured general
creditor and not as a Holder of an Outstanding Security, look only to the
Company for payment of the amount so due and payable and remaining unpaid, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such payment to the Company, may at the expense of the
Company cause to be mailed, on one occasion only, notice to such Holder that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such mailing, any unclaimed
balance of such money then remaining will be paid to the Company.
SECTION 604. Corporate Existence.
Subject to the rights of the Company under Article Eleven, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate or legal existence.
SECTION 605. Maintenance of Properties.
The Company shall cause (or, with respect to property owned in
common with others, make reasonable effort to cause) all its properties used or
useful in the conduct of its business to be maintained and kept in good
condition, repair and working order and shall cause (or, with respect to
property owned in common with others, make reasonable effort to cause) to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as, in the judgment of the Company, may be necessary so that the
business carried on in connection therewith may be properly conducted; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing, or causing the discontinuance of, the operation and maintenance
of any of its properties if such discontinuance is, in the judgment of the
Company, desirable in the conduct of its business.
SECTION 606. Annual Officer's Certificate as to Compliance.
Not later than July 1 in each year, commencing with the year
2000, the Company shall deliver to the Trustee an Officer's Certificate which
need not comply with Section 102, executed by the principal executive officer,
the principal financial officer or the principal accounting officer of the
Company, as to (i) such officer's knowledge of the Company's compliance with all
conditions and covenants under this Indenture, such compliance to be determined
without regard to any period of grace or requirement of notice under this
Indenture and (ii) any other statements as may be required by the provisions of
Section 314(a) of the Trust Indenture Act.
SECTION 607. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with
any term, provision or condition set forth in: (a) Section 602 or any additional
covenant or restriction specified with respect to the Securities of any series,
or any Tranche thereof, as contemplated by Section 301, if before the time for
such compliance the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all series and Tranches with respect to which
compliance with Section 602 or such additional covenant or restriction is to be
omitted, considered as one class, shall, by Act of such Holders, either waive
such compliance in such instance or generally waive compliance with such term,
provision or condition; and (b) Section 604, 605 or Article Eleven if before the
time for such compliance the Holders of a majority in principal amount of
Securities Outstanding under this Indenture shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such term, provision or condition; but, in the case of (a) or (b), no such
waiver shall extend to or affect such term, provision or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.
SECTION 608. Limitation on Liens.
(a) Except as otherwise specified as contemplated by Section
301 for Securities of any series, so long as any Securities of any
series are Outstanding, the Company will not pledge, mortgage,
hypothecate or grant a security interest in, or permit any pledge,
mortgage, security interest or other lien upon, any capital stock
of any Subsidiary which capital stock is now or hereafter directly
owned by the Company, to secure any Indebtedness (hereinafter
defined) without concurrently making effective provision whereby
the Outstanding Securities shall (so long as such other
Indebtedness shall be so secured) be equally and ratably secured
with (or at the Company's option, prior to) any and all such other
Indebtedness and any other Indebtedness similarly entitled to be
so secured; provided, however, that this restriction shall not
apply to nor prevent the creation or existence of:
(1) any pledge, mortgage, security interest, lien or
encumbrance upon any such capital stock created at the time of
the acquisition of such capital stock by the Company, or
within 270 days after such time, to secure all or a portion of
the purchase price for such capital stock;
(2) any pledge, mortgage, security interest, lien or
encumbrance upon any such capital stock existing thereon at
the time of the acquisition thereof by the Company (whether or
not the obligations secured thereby are assumed by the Company
and whether or not such pledge, mortgage, security interest,
lien or encumbrance was created in contemplation of such
acquisition);
(3) any extension, renewal, replacement or refunding of
any pledge, mortgage, security interest, lien or encumbrance
permitted by Subsection (1) or (2) above or of any
Indebtedness secured thereby; provided that the principal
amount of Indebtedness so secured immediately following the
time of such extension, renewal, replacement or refunding
shall not exceed the principal amount of Indebtedness so
secured immediately preceding the time of such extension,
renewal or replacement, and that such extension, renewal,
replacement or refunding of pledge, mortgage, security
interest, lien or encumbrance shall be limited to no more than
the same proportion of all shares of capital stock as were
covered by the pledge, mortgage, security interest, lien or
encumbrance that was extended, renewed, replaced or refunded;
or
(4) any judgment, levy, execution, attachment or other
similar lien arising in connection with court proceedings,
provided that either
(i) the execution or enforcement of each
such lien is effectively stayed within 30 days after
entry of the corresponding judgment (or the
corresponding judgment has been discharged within
such 30 day period) and the claims secured thereby
are being contested in good faith by appropriate
proceedings timely commenced and diligently
prosecuted;
(ii) the payment of each such lien is
covered in full by insurance and the insurance
company has not denied or contested coverage thereof;
or
(iii) so long as each such lien is
adequately bonded, any appropriate legal proceedings
that may have been duly initiated for the review of
the corresponding judgment, decree or order shall not
have been fully terminated or the period within which
such proceedings may be initiated shall not have
expired.
For purposes of this Section 608, "Indebtedness" means all
indebtedness, whether or not represented by bonds, debentures, notes or other
securities, created or assumed by the Company for the repayment of money
borrowed. All indebtedness for money borrowed secured by a lien upon capital
stock owned by the Company and upon which indebtedness for money borrowed the
Company customarily pays interest, although the Company has not assumed or
become liable for the payment of such indebtedness for money borrowed, shall for
purposes of this Section 608 be deemed to be Indebtedness of the Company. All
indebtedness of others for money borrowed which is guaranteed as to payment of
principal by the Company or in effect guaranteed by the Company through a
contingent agreement to purchase such indebtedness for money borrowed shall for
purposes of this Section 608 be deemed to be Indebtedness of the Company, but no
other contingent obligation of the Company in respect of indebtedness for money
borrowed or other obligations incurred by others shall for purposes of this
Section 608 be deemed to be Indebtedness of the Company.
In case the Company shall propose to pledge, mortgage,
hypothecate or grant a security interest in any capital stock of any Subsidiary
owned by the Company to secure any Indebtedness, other than as permitted by
Subsections (a)(1) to (a)(4), inclusive, of this Section, the Company will prior
thereto give written notice thereof to the Trustee, and the Company will prior
to or simultaneously with such pledge, mortgage, hypothecation or grant of
security interest, by supplemental indenture executed to the Trustee (or to the
extent legally necessary to another trustee or an additional or separate
trustee), in form satisfactory to the Trustee, effectively secure (for so long
as such other Indebtedness shall be so secured) all the Securities equally and
ratably with such Indebtedness and with (or at the Company's option, prior to)
any other Indebtedness for money borrowed similarly entitled to be so secured.
(b) Except as otherwise specified as contemplated by Section
301 for Securities of any series, the provisions of Subsection (a) of this
Section 608 shall not apply to the extent that the Company creates any
Restricted Liens to secure Indebtedness that, together with all other
Indebtedness secured by Restricted Liens, does not at the time of such creation
exceed 5% of Consolidated Capitalization.
(c) In addition to the provisions contained in Subsections (a)
and (b) above, if debentures issued by the Company under the 1974 Indenture in
an aggregate principal amount in excess of 5% of the Consolidated Capitalization
of the Company become secured pursuant to the provisions of the 1974 Indenture,
the Company will secure the Outstanding Securities equally and ratably with
those debentures; provided however, that if (and for so long as) the aggregate
principal amount of the debentures secured pursuant to the 1974 Indenture at any
time decreases and constitutes 5% or less of the Consolidated Capitalization of
the Company, the Outstanding Securities will cease to be so secured. The Trustee
shall execute and deliver such instruments as the Company may reasonably request
to effectuate the provisions of this Subsection (c).
For purposes of this Section 608:
(1) The term "Consolidated Capitalization" means the sum
obtained by adding (i) Consolidated Common Shareholders'
Equity, (ii) Consolidated Indebtedness (exclusive of any
thereof which is due and payable within one year of the date
such sum is determined) and, without duplication, (iii) any
preference or preferred stock of the Company or any
Consolidated Subsidiary which is subject to mandatory
redemption or sinking fund provisions.
(2) The term "Consolidated Common Shareholders' Equity"
means the total Assets of the Company and its Consolidated
Subsidiaries less (a) all liabilities of the Company and its
Consolidated Subsidiaries, (b) minority interests owned by
third parties in Consolidated Subsidiaries of the Company, and
(c) preference or preferred stock of the Company and its
Consolidated Subsidiaries only to the extent any such
preference or preferred stock is subject to mandatory
redemption or sinking fund provisions. As used in this
definition, "liabilities" means all obligations which would,
in accordance with generally accepted accounting principles,
be classified on a balance sheet as liabilities, including
without limitation, (i) Consolidated Indebtedness, (ii)
indebtedness secured by property of the Company or any of its
Consolidated Subsidiaries whether or not the Company or such
Consolidated Subsidiary is liable for the payment thereof
unless, if the Company or such Consolidated Subsidiary is not
so liable, such property has not been included among the
Assets of the Company or such Consolidated Subsidiary on such
balance sheet, (iii) deferred liabilities, and (iv)
indebtedness of the Company or any of its Consolidated
Subsidiaries that is expressly subordinated in right and
priority of payment to other liabilities of the Company or
such Consolidated Subsidiary.
(3) The term "Consolidated Subsidiary" means at any date
any Subsidiary the financial statements of which under
generally accepted accounting principles would be consolidated
with those of the Company in its consolidated financial
statements as of such date.
(4) The "Assets" of any Person means the whole or any
part of its business, property, assets, cash and receivables,
which would, in accordance with generally accepted accounting
principles, be classified on a balance sheet as assets.
(5) The term "Consolidated Indebtedness" means total
indebtedness as shown on the consolidated balance sheet of the
Company and its Consolidated Subsidiaries.
(6) The term "1974 Indenture" means the indenture dated
as of October 15, 1974, from the Company to The Bank of New
York (formerly Irving Trust Company), as trustee, as
supplemented and amended.
(7) The term "Restricted Liens" means any pledge,
mortgage, security interest, lien or encumbrance upon any
capital stock of any Subsidiary, which capital stock is now or
hereafter directly owned by the Company, to secure any
Indebtedness, other than any pledge, mortgage, security
interest, lien or encumbrance described in (a)(1) through
(a)(4) above.
ARTICLE SEVEN
Satisfaction and Discharge
SECTION 701. Satisfaction and Discharge of Securities.
Any Security or Securities, or any portion of the principal
amount thereof, shall be deemed to have been paid for all purposes of this
Indenture, and the entire indebtedness of the Company in respect thereof shall
be deemed to have been satisfied and discharged, if there shall have been
irrevocably deposited with the Trustee or any Paying Agent (other than the
Company), in trust:
(a) money in an amount which shall be sufficient, or
(b) in the case of a deposit made prior to the Maturity of
such Securities or portions thereof, Eligible Obligations, which
shall not contain provisions permitting the redemption or other
prepayment thereof at the option of the issuer thereof, the
principal of and the interest on which when due, without any
regard to reinvestment thereof, will provide moneys which,
together with the money, if any, deposited with or held by the
Trustee or such Paying Agent, shall be sufficient, or
(c) a combination of (a) or (b) which shall be sufficient,
to pay when due the principal of and premium, if any, and interest, if any, due
and to become due on such Securities or portions thereof on or prior to
Maturity; provided, however, that in the case of the provision for payment or
redemption of less than all the Securities of any series or Tranche, such
Securities or portions thereof shall have been selected by the Trustee as
provided herein and, in the case of a redemption, the notice requisite to the
validity of such redemption shall have been given or irrevocable authority shall
have been given by the Company to the Trustee to give such notice, under
arrangements satisfactory to the Trustee; and provided, further, that the
Company shall have delivered to the Trustee and such Paying Agent:
(x) if such deposit shall have been made prior to the
Maturity of such Securities, a Company Order stating that the
money and Eligible Obligations deposited in accordance with
this Section shall be held in trust, as provided in Section
703; and
(y) if Eligible Obligations shall have been
deposited, an Opinion of Counsel that the obligations so
deposited constitute Eligible Obligations and do not contain
provisions permitting the redemption or other prepayment at
the option of the issuer thereof, and an opinion of an
independent public accountant of nationally recognized
standing, selected by the Company, to the effect that the
other requirements set forth in clause (b) and, if applicable,
(c) above have been satisfied; and
(z) if such deposit shall have been made prior to the
Maturity of such Securities, an Officer's Certificate stating
the Company's intention that, upon delivery of such Officer's
Certificate, its indebtedness in respect of such Securities or
portions thereof will have been satisfied and discharged as
contemplated in this Section.
Upon the deposit of money or Eligible Obligations, or both, in
accordance with this Section, together with the documents required by clauses
(x), (y) and (z) above, the Trustee shall, upon receipt of a Company Request,
acknowledge in writing that the Security or Securities or portions thereof with
respect to which such deposit was made are deemed to have been paid for all
purposes of this Indenture and that the entire indebtedness of the Company in
respect thereof has been satisfied and discharged as contemplated in this
Section. In the event that all of the conditions set forth in the preceding
paragraph shall have been satisfied in respect of any Securities or portions
thereof except that, for any reason, the Officer's Certificate specified in
clause (z) shall not have been delivered, such Securities or portions thereof
shall nevertheless be deemed to have been paid for all purposes of this
Indenture, and the Holders of such Securities or portions thereof shall
nevertheless be no longer entitled to the benefits of this Indenture or of any
of the covenants of the Company under Article Six (except the covenants
contained in Sections 602 and 603) or any other covenants made in respect of
such Securities or portions thereof as contemplated by Section 301 and Section
1201(b), but the indebtedness of the Company in respect of such Securities or
portions thereof shall not be deemed to have been satisfied and discharged prior
to Maturity for any other purpose, and the Holders of such Securities or
portions thereof shall continue to be entitled to look to the Company for
payment of the indebtedness represented thereby; and, upon Company Request, the
Trustee shall acknowledge in writing that such Securities or portions thereof
are deemed to have been paid for all purposes of this Indenture.
If payment at Stated Maturity of less than all of the
Securities of any series, or any Tranche thereof, is to be provided for in the
manner and with the effect provided in this Section, the Trustee shall select
such Securities, or portions of principal amount thereof, in the manner
specified by Section 403 for selection for redemption of less than all the
Securities of a series or Tranche.
In the event that Securities which shall be deemed to have
been paid for purposes of this Indenture, and, if such is the case, in respect
of which the Company's indebtedness shall have been satisfied and discharged,
all as provided in this Section, do not mature and are not to be redeemed within
the 60 day period commencing with the date of the deposit of moneys or Eligible
Obligations, as aforesaid, the Company shall, as promptly as practicable, give a
notice, in the same manner as a notice of redemption with respect to such
Securities, to the Holders of such Securities to the effect that such deposit
has been made and the effect thereof.
Notwithstanding that any Securities shall be deemed to have
been paid for purposes of this Indenture, as aforesaid, the obligations of the
Company and the Trustee in respect of such Securities under Sections 304, 305,
306, 404, 503 (as to notice of redemption), 602, 603, 907 and 915 and this
Article Seven shall survive.
The Company shall pay, and shall indemnify the Trustee or any
Paying Agent with which Eligible Obligations shall have been deposited as
provided in this Section against, any tax, fee or other charge imposed on or
assessed against such Eligible Obligations or the principal or interest received
in respect of such Eligible Obligations, including, but not limited to, any such
tax payable by any entity deemed, for tax purposes, to have been created as a
result of such deposit.
Anything herein to the contrary notwithstanding, (a) if, at
any time after a Security would be deemed to have been paid for purposes of this
Indenture, and, if such is the case, the Company's indebtedness in respect
thereof would be deemed to have been satisfied or discharged, pursuant to this
Section (without regard to the provisions of this paragraph), the Trustee or any
Paying Agent, as the case may be, shall be required to return the money or
Eligible Obligations, or combination thereof, deposited with it as aforesaid to
the Company or its representative under any applicable Federal or State
bankruptcy, insolvency or other similar law, such Security shall thereupon be
deemed retroactively not to have been paid and any satisfaction and discharge of
the Company's indebtedness in respect thereof shall retroactively be deemed not
to have been effected, and such Security shall be deemed to remain Outstanding,
and (b) any satisfaction and discharge of the Company's indebtedness in respect
of any Security shall be subject to the provisions of the last paragraph of
Section 603.
SECTION 702. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of
further effect (except as hereinafter expressly provided), and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(a) no Securities remain Outstanding hereunder; and
(b) the Company has paid or caused to be paid all other sums
payable hereunder by the Company;
provided, however, that if, in accordance with the last paragraph of Section
701, any Security, previously deemed to have been paid for purposes of this
Indenture, shall be deemed retroactively not to have been so paid, this
Indenture shall thereupon be deemed retroactively not to have been satisfied and
discharged, as aforesaid, and to remain in full force and effect, and the
Company shall execute and deliver such instruments as the Trustee shall
reasonably request to evidence and acknowledge the same.
Notwithstanding the satisfaction and discharge of this
Indenture as aforesaid, the obligations of the Company and the Trustee under
Sections 304, 305, 306, 404, 503 (as to notice of redemption), 602, 603, 907 and
915 and this Article Seven shall survive.
Upon satisfaction and discharge of this Indenture as provided
in this Section, the Trustee shall assign, transfer and turn over to the
Company, subject to the lien provided by Section 907, any and all money,
securities and other property then held by the Trustee for the benefit of the
Holders of the Securities other than money and Eligible Obligations held by the
Trustee pursuant to Section 703 and shall execute and deliver to the Company
such instruments as, in the judgment of the Company, shall be necessary,
desirable or appropriate to effect or evidence the satisfaction and discharge of
this Indenture.
SECTION 703. Application of Trust Money.
The Eligible Obligations and the money deposited pursuant to
Section 701, and the principal and interest payments on any such Eligible
Obligations, shall not be withdrawn or used for any purpose other than, and
shall be held in trust for, the payment of the principal of and premium, if any,
and interest, if any, on the Securities or portions of principal amount thereof
in respect of which such deposit was made, all subject, however, to the
provisions of Section 603; provided, however, that, so long as there shall not
have occurred and be continuing an Event of Default, any cash received from such
principal or interest payments on such Eligible Obligations, if not then needed
for such purpose, shall, to the extent practicable and upon Company Request, be
invested in Eligible Obligations of the type described in clause (b) in the
first paragraph of Section 701 maturing at such times and in such amounts as
shall be sufficient, together with any other moneys and the principal of and
interest on any other Eligible Obligations then held by the Trustee, to pay when
due the principal of and premium, if any, and interest, if any, due and to
become due on such Securities or portions thereof on or prior to the Maturity
thereof, and interest earned from such reinvestment shall be paid over to the
Company as received, free and clear of any trust, lien or pledge under this
Indenture except the lien provided by Section 907; and provided, further, that,
so long as there shall not have occurred and be continuing an Event of Default,
any moneys held in accordance with this Section on the Maturity of all such
Securities in excess of the amount required to pay the principal of and premium,
if any, and interest, if any, then due on such Securities shall be paid over to
the Company free and clear of any trust, lien or pledge under this Indenture
except the lien provided by Section 907; and provided, further, that if an Event
of Default shall have occurred and be continuing, moneys to be paid over to the
Company pursuant to this Section shall be held in trust until such Event of
Default shall have been waived or cured.
ARTICLE EIGHT
Events of Default; Remedies
SECTION 801. Events of Default.
"Event of Default", wherever used herein with respect to
Securities of any series, means any one of the following events:
(a) failure to pay interest, if any, on any Security of such
series within 30 days after the same becomes due and payable;
provided, however, that a valid extension of the interest payment
period by the Company as contemplated in Section 312 of this
Indenture shall not constitute a failure to pay interest for this
purpose; or
(b) failure to pay the principal of or premium, if any, on any
Security of such series at its Maturity; or
(c) failure to perform or breach of any covenant or warranty
of the Company in this Indenture (other than a covenant or
warranty a default in the performance of which or breach of which
is elsewhere in this Section specifically dealt with or which has
expressly been included in this Indenture solely for the benefit
of one or more series of Securities other than such series) for a
period of 90 days after there has been given, by registered or
certified mail, to the Company by the Trustee, or to the Company
and the Trustee by the Holders of at least 33% in principal amount
of the Outstanding Securities of such series, a written notice
specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder,
unless the Trustee, or the Trustee and the Holders of a principal
amount of Securities of such series not less than the principal
amount of Securities the Holders of which gave such notice, as the
case may be, shall agree in writing to an extension of such period
prior to its expiration; provided, however, that the Trustee, or
the Trustee and the Holders of such principal amount of Securities
of such series, as the case may be, shall be deemed to have agreed
to an extension of such period if corrective action is initiated
by the Company within such period and is being diligently pursued;
or
(d) the entry by a court having jurisdiction in the premises
of (1) a decree or order for relief in respect of the Company in
an involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law
or (2) a decree or order adjudging the Company bankrupt or
insolvent, or approving as properly filed a petition by one or
more Persons other than the Company seeking reorganization,
arrangement, adjustment or composition of or in respect of the
Company under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official for the Company or for any substantial
part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order for relief or any such
other decree or order shall have remained unstayed and in effect
for a period of 90 consecutive days; or
(e) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in
respect of the Company in a case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief
under any applicable Federal or State law, or the consent by it to
the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Company or of any
substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become
due, or the authorization of such action by the Board of
Directors; or
(f) any other Event of Default specified with respect to
Securities of such series as contemplated by Section 301 and
Section 1201(c).
SECTION 802. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default due to the default in payment of
principal of, or interest on, any series of Securities or due to the default in
the performance or breach of any other covenant or warranty of the Company
applicable to the Securities of such series but not applicable to all
Outstanding Securities shall have occurred and be continuing, either the Trustee
or the Holders of not less than 33% in principal amount of the Securities of
such series may then declare the principal amount (or, if any of the Securities
of such series are Discount Securities, such portion of the principal amount as
may be specified in the terms thereof as contemplated by Section 301) of all
Securities of such series and interest accrued thereon to be due and payable
immediately. If an Event of Default due to default in the performance of any
other of the covenants or agreements herein applicable to all Outstanding
Securities or an Event of Default specified in Section 801(d) or (e) shall have
occurred and be continuing, either the Trustee or the Holders of not less than
33% in principal amount of all Securities then Outstanding (considered as one
class), and not the Holders of the Securities of any one of such series, may
declare the principal amount (or, if any of the Securities are Discount
Securities, such portion of the principal amount as may be specified in the
terms thereof as contemplated by Section 301) of all Outstanding Securities and
interest accrued thereon to be due and payable immediately. As a consequence of
each such declaration (herein referred to as a declaration of acceleration) with
respect to Securities of any series, the principal amount (or specified portion
thereof in the case of Discount Securities) of such Securities and interest
accrued thereon shall become due and payable immediately.
At any time after such a declaration of acceleration with
respect to Securities of any series shall have been made and before a judgment
or decree for payment of the money due shall have been obtained by the Trustee
as hereinafter in this Article provided, the Event or Events of Default giving
rise to such declaration of acceleration shall, without further act, be deemed
to have been waived, and such declaration and its consequences shall, without
further act, be deemed to have been rescinded and annulled, if
(a) the Company shall have paid or deposited with the Trustee
a sum sufficient to pay
(1) all overdue interest, if any, on all Securities of
such series;
(2) the principal of and premium, if any, on any
Securities of such series which have become due otherwise than
by such declaration of acceleration and interest, if any,
thereon at the rate or rates prescribed therefor in such
Securities;
(3) to the extent that payment of such interest is
lawful, interest upon overdue interest, if any, at the rate or
rates prescribed therefor in such Securities; and
(4) all amounts due to the Trustee under Section 907; and
(b) any other Event or Events of Default with respect to
Securities of such series, other than the nonpayment of the
principal of Securities of such series which shall have become due
solely by such declaration of acceleration, shall have been cured
or waived as provided in Section 813.
No such rescission shall affect any subsequent Event of
Default or impair any right consequent thereon.
SECTION 803. Collection of Indebtedness and Suits for Enforcement by
Trustee.
If an Event of Default described in clause (a) or (b) of
Section 801 shall have occurred and be continuing, the Company shall, upon
demand of the Trustee, pay to it, for the benefit of the Holders of the
Securities of the series with respect to which such Event of Default shall have
occurred, the whole amount then due and payable on such Securities for principal
and premium, if any, and interest, if any, and, to the extent permitted by law,
interest on any overdue principal, premium and interest, at the rate or rates
prescribed therefor in such Securities, and, in addition thereto, such further
amount as shall be sufficient to cover any amounts due to the Trustee under
Section 907. Unless otherwise specified pursuant to Section 301 with respect to
any series of Securities, the rate or rates at which Securities shall bear
interest on overdue principal, premium, if any, and interest, if any, shall be,
to the extent permitted by law, the same rate or rates at which such Securities
shall bear interest prior to Maturity.
If the Company shall fail to pay such amounts forthwith upon
such demand, the Trustee, in its own name and as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon such Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon such
Securities, wherever situated.
If an Event of Default with respect to Securities of any
series shall have occurred and be continuing, the Trustee may in its discretion
proceed to protect and enforce its rights and the rights of the Holders of
Securities of such series by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
SECTION 804. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal, premium, if any, and interest, if any, owing and unpaid
in respect of the Securities and to file such other papers or
documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for amounts due to the
Trustee under Section 907) and of the Holders allowed in such
judicial proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the
same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amounts due it under Section 907.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 805. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders in respect of which such judgment has been
recovered.
SECTION 806. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
or premium, if any, or interest, if any, upon presentation of the Securities in
respect of which or for the benefit of which such money shall have been
collected and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
first: to the payment of all amounts due the Trustee under
Section 907;
second: to the payment of the amounts then due and unpaid upon
the Securities for principal of and premium, if any, and interest,
if any, in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Securities
for principal, premium, if any, and interest, if any,
respectively; and
third: to the payment of the remainder, if any, to the Company
or to whomsoever may be lawfully entitled to receive the same or
as a court of competent jurisdiction may direct.
SECTION 807. Limitation on Suits.
No Holder shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(a) such Holder shall have previously given written notice to
the Trustee of a continuing Event of Default with respect to the
Securities of such series;
(b) the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all series in respect of which an
Event of Default shall have occurred and be continuing, considered
as one class, shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(c) such Holder or Holders shall have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities
to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity shall have failed to institute any
such proceeding; and
(e) no direction inconsistent with such written request shall
have been given to the Trustee during such 60-day period by the
Holders of a majority in aggregate principal amount of the
Outstanding Securities of all series in respect of which an Event
of Default shall have occurred and be continuing, considered as
one class;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 808. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of and premium, if any, and
(subject to Sections 307 and 312) interest, if any, on such Security on the
Stated Maturity or Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
SECTION 809. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding shall have
been discontinued or abandoned for any reason, or shall have been determined
adversely to the Trustee or to such Holder, then and in every such case, subject
to any determination in such proceeding, the Company, and the Trustee and such
Holder shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and such Holder
shall continue as though no such proceeding had been instituted.
SECTION 810. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 811. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 812. Control by Holders of Securities.
If an Event of Default shall have occurred and be continuing
in respect of a series of Securities, the Holders of a majority in principal
amount of the Outstanding Securities of such series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, with respect to the Securities of such series; provided, however, that
if an Event of Default shall have occurred and be continuing with respect to
more than one series of Securities, the Holders of a majority in aggregate
principal amount of the Outstanding Securities of all such series, considered as
one class, shall have the right to make such direction, and not the Holders of
the Securities of any one of such series; and provided, further, that such
direction shall not be in conflict with any rule of law or with this Indenture.
The Trustee may take any other action, deemed proper by the Trustee, which is
not inconsistent with any such direction. Before proceeding to exercise any
right or power hereunder at the direction of such Holders, the Trustee shall be
entitled to receive from such Holders reasonable security or indemnity against
the costs, expenses and liabilities which might be incurred by it in compliance
with any such direction.
SECTION 813. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of
the Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(a) in the payment of the principal of or premium, if any, or
interest, if any, on any Security of such series, or
(b) in respect of a covenant or provision hereof which under
Section 1202 cannot be modified or amended without the consent of
the Holder of each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and
any and all Events of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other default or impair any right consequent thereon.
SECTION 814. Undertaking for Costs.
The Company and the Trustee agree, and each Holder by his or
her acceptance of a Security shall be deemed to have agreed, that any court may
in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant, all in the
manner, to the extent and except as otherwise provided in the Trust Indenture
Act; but the provisions of this Section shall not apply to any suit instituted
by the Company, to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of the Outstanding Securities of all series in
respect of which such suit may be brought, considered as one class, or to any
suit instituted by any Holder for the enforcement of the payment of the
principal of or premium, if any, or interest, if any, on any Security on or
after the Stated Maturity or Maturities expressed in such Security (or, in the
case of redemption, on or after the Redemption Date).
SECTION 815. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE NINE
The Trustee
SECTION 901. Certain Duties and Responsibilities.
(a) The Trustee shall have and be subject to all the duties
and responsibilities specified with respect to an indenture
trustee in the Trust Indenture Act and no implied covenants or
obligations shall be read into this Indenture against the Trustee.
For purposes of Sections 315(a) and 315(c) of the Trust Indenture
Act, the term "default" is hereby defined as an Event of Default
which has occurred and is continuing.
(b) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in
the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not
reasonably assured to it.
(c) Notwithstanding anything contained in this Indenture to
the contrary, the duties and responsibilities of the Trustee under
this Indenture shall be subject to the protections, exculpations
and limitations on liability afforded to an indenture trustee
under the provisions of the Trust Indenture Act. For the purposes
of Sections 315(b)(2) and 315(d)(2) of the Trust Indenture Act,
the term "responsible officer" is hereby defined as a Responsible
Officer and the chairman or vice chairman of the board of
directors, the chairman or vice chairman of the executive
committee of the board of directors, the president, any vice
president, any assistant vice president, the secretary, any
assistant secretary, the treasurer any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller and any assistant controller of the
Trustee, or any other officer of the Trustee customarily
performing functions similar to those performed by a Responsible
Officer or any of the above designated officers and also means,
with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
SECTION 902. Notice of Defaults.
The Trustee shall give notice of any default hereunder known
to the Trustee with respect to the Securities of any series to the Holders of
Securities of such series in the manner and to the extent required to do so by
the Trust Indenture Act, unless such default shall have been cured or waived;
provided, however, that in the case of any default of the character specified in
Section 801(c), no such notice to Holders shall be given until at least 45 days
after the occurrence thereof. For the purpose of this Section and clause (h) of
Section 903, the term "default" means any event which is, or after notice or
lapse of time, or both, would become, an Event of Default.
SECTION 903. Certain Rights of Trustee.
Subject to the provisions of Section 901 and to the applicable
provisions of the Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document reasonably
believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company
Order, or as otherwise expressly provided herein, and any
resolution of the Board of Directors may be sufficiently evidenced
by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel and the advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the
request or direction of any Holder pursuant to this Indenture,
unless such Holder shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence
of indebtedness or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it
shall (subject to applicable legal requirements) be entitled to
examine, during normal business hours, the books, records and
premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys, and the Trustee shall not be
responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder;
(h) the Trustee shall not be charged with knowledge of any
default or Event of Default, as the case may be, with respect to
the Securities of any series for which it is acting as Trustee
unless either (1) a Responsible Officer of the Trustee shall have
actual knowledge that such default or Event of Default, as the
case may be, exists and constitutes a default or Event of Default,
as the case may be, under this Indenture or (2) written notice of
such default or Event of Default, as the case may be, shall have
been given in the manner provided in Section 105 hereof to the
Trustee by the Company, any other obligor on such Securities or by
any Holder of such Securities; and
(i) the rights, privileges, protections, immunities and
benefits given to the Trustee, including, without limitation, its
right to be indemnified, are extended to, and shall be enforceable
by, the Trustee in each of its capacities hereunder.
SECTION 904. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities (except
the Trustee's certificates of authentication) shall be taken as the statements
of the Company, and neither the Trustee nor any Authenticating Agent assumes
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 905. May Hold Securities.
Each of the Trustee, any Authenticating Agent, any Paying
Agent, any Security Registrar or any other agent of the Company, in its
individual or any other capacity, may become the owner or pledgee of Securities
and, subject to Sections 908 and 913, may otherwise deal with the Company with
the same rights it would have if it were not the Trustee, Authenticating Agent,
Paying Agent, Security Registrar or such other agent.
SECTION 906. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds, except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as expressly provided herein or otherwise agreed with, and for the sole
benefit of, the Company.
SECTION 907. Compensation and Reimbursement.
The Company shall
(a) pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, reimburse
the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except to the extent that any such expense,
disbursement or advance may be attributable to the Trustee's
negligence, willful misconduct or bad faith; and
(c) indemnify the Trustee for, and hold it harmless from and
against, any loss, liability or expense incurred by it arising out
of or in connection with the acceptance or administration of the
trust or trusts hereunder or the performance of its duties
hereunder, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable
to its negligence, willful misconduct or bad faith.
As security for the performance of the obligations of the
Company under this Section, the Trustee shall have a lien prior to the
Securities upon all property and funds held or collected by the Trustee as such
other than property and funds held in trust under Section 703 (except as
otherwise provided in Section 703). "Trustee" for purposes of this Section shall
include any predecessor Trustee; provided, however, that the negligence, willful
misconduct or bad faith of any Trustee hereunder shall not affect the rights of
any other Trustee hereunder.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 801(d) or Section
801(e), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable Federal or State bankruptcy,
insolvency or other similar law.
The provisions of this Section 907 shall survive the
termination of this Indenture.
SECTION 908. Disqualification; Conflicting Interests.
If the Trustee shall have or acquire any conflicting interest
within the meaning of the Trust Indenture Act, it shall either eliminate such
conflicting interest or resign to the extent, in the manner and with the effect,
and subject to the conditions, provided in the Trust Indenture Act and this
Indenture. For purposes of Section 310(b)(1) of the Trust Indenture Act and to
the extent permitted thereby, the Trustee, in its capacity as trustee in respect
of the Securities of any series, shall not be deemed to have a conflicting
interest arising from its capacity as trustee in respect of the Securities of
any other series or any securities of any series issued under the 1974
Indenture.
SECTION 909. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws
of the United States, any State or Territory thereof or the
District of Columbia, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of
at least $50,000,000 and subject to supervision or examination by
Federal or State authority, or
(b) if and to the extent permitted by the Commission by rule,
regulation or order upon application, a corporation or other
Person organized and doing business under the laws of a foreign
government, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least
$50,000,000 or the Dollar equivalent of the applicable foreign
currency and subject to supervision or examination by authority of
such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable
to United States institutional trustees,
and, in either case, qualified and eligible under this Article and the Trust
Indenture Act. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of such supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 910. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the
successor Trustee in accordance with the applicable requirements
of Section 911.
(b) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof
to the Company. If the instrument of acceptance by a successor
Trustee required by Section 911 shall not have been delivered to
the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 908 after
written request therefor by the Company or by any Holder who has
been a bona fide Holder for at least six months, or
(2) the Trustee shall cease to be eligible under Section 909
and shall fail to resign after written request therefor by the
Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or
of its property shall be appointed or any public officer shall
take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (x) the Company by a Board Resolution may
remove the Trustee with respect to all Securities or (y) subject
to Section 814, any Holder who has been a bona fide Holder for at
least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee with respect to all Securities and
the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause (other than as contemplated in clause (y) in
Subsection (d) of this Section), with respect to the Securities of
one or more series, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee or Trustees with respect to
the Securities of that or those series (it being understood that
any such successor Trustee may be appointed with respect to the
Securities of one or more or all of such series and that (subject
to Section 914) at any time there shall be only one Trustee with
respect to the Securities of any particular series) and shall
comply with the applicable requirements of Section 911. If, within
one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect to
the Securities of any series shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding
Securities of such series delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 911, become the
successor Trustee with respect to the Securities of such series
and to that extent supersede the successor Trustee appointed by
the Company. If no successor Trustee with respect to the
Securities of any series shall have been so appointed by the
Company or the Holders and accepted appointment in the manner
required by Section 911, any Holder who has been a bona fide
Holder of a Security of such series for at least six months may,
on behalf of itself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a
successor Trustee with respect to the Securities of such series.
(f) So long as no event which is, or after notice or lapse of
time, or both, would become, an Event of Default shall have
occurred and be continuing, and except with respect to a Trustee
appointed by Act of the Holders of a majority in principal amount
of the Outstanding Securities pursuant to Subsection (e) of this
Section, if the Company shall have delivered to the Trustee (i) a
Board Resolution appointing a successor Trustee, effective as of a
date specified therein, and (ii) an instrument of acceptance of
such appointment, effective as of such date, by such successor
Trustee in accordance with Section 911, the Trustee shall be
deemed to have resigned as contemplated in Subsection (b) of this
Section, the successor Trustee shall be deemed to have been
appointed by the Company pursuant to Subsection (e) of this
Section and such appointment shall be deemed to have been accepted
as contemplated in Section 911, all as of such date, and all other
provisions of this Section and Section 911 shall be applicable to
such resignation, appointment and acceptance except to the extent
inconsistent with this Subsection (f).
(g) The Company (or, should the Company fail so to act
promptly, the successor trustee at the expense of the Company)
shall give notice of each resignation and each removal of the
Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities
of any series by mailing written notice of such event by
first-class mail, postage prepaid, to all Holders of Securities of
such series as their names and addresses appear in the Security
Register. Each notice shall include the name of the successor
Trustee with respect to the Securities of such series and the
address of its corporate trust office.
SECTION 911. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor
Trustee with respect to the Securities of all series, every such
successor Trustee so appointed shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such
successor Trustee, without any further act, deed or conveyance,
shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of
all sums owed to it, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor
Trustee with respect to the Securities of one or more (but not
all) series, the Company, the retiring Trustee and each successor
Trustee with respect to the Securities of such series shall
execute and deliver an indenture supplemental hereto wherein each
successor Trustee shall accept such appointment and which (1)
shall contain such provisions as shall be necessary or desirable
to transfer and confirm to, and to vest in, each successor Trustee
all the rights, powers, trusts and duties of the retiring Trustee
with respect to the Securities of that or those series to which
the appointment of such successor Trustee relates, (2) if the
retiring Trustee is not retiring with respect to all Securities,
shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and
duties of the retiring Trustee with respect to the Securities of
that or those series as to which the retiring Trustee is not
retiring shall continue to be vested in the retiring Trustee and
(3) shall add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee,
it being understood that nothing herein or in such supplemental
indenture shall constitute such Trustees co-trustees of the same
trust and that each such Trustee shall be trustee of a trust or
trusts hereunder separate and apart from any trust or trusts
hereunder administered by any other such Trustee; and upon the
execution and delivery of such supplemental indenture the
resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor
Trustee, without any further act, deed and conveyance, shall
become vested with all the rights, powers, trusts and duties of
the retiring Trustee with respect to the Securities of that or
those series to which the appointment of such successor Trustee
relates; but, on request of the Company or any successor Trustee,
such retiring Trustee, upon payment of all sums owed to it, shall
duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the
appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company
shall execute any instruments which fully vest in and confirm to
such successor Trustee all such rights, powers and trusts referred
to in Subsection (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless
at the time of such acceptance such successor Trustee shall be
qualified and eligible under this Article.
SECTION 912. Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Trustee may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any Person
succeeding to all or substantially all the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such Person
shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case any Securities shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Securities so authenticated with the same effect as if such
successor Trustee had itself authenticated such Securities.
SECTION 913. Preferential Collection of Claims Against Company.
If the Trustee shall be or become a creditor of the Company or
any other obligor upon the Securities (other than by reason of a relationship
described in Section 311(b) of the Trust Indenture Act), the Trustee shall be
subject to any and all applicable provisions of the Trust Indenture Act
regarding the collection of claims against the Company or such other obligor.
For purposes of Section 311(b) of the Trust Indenture Act:
(a) the term "cash transaction" means any transaction in which
full payment for goods or securities sold is made within seven
days after delivery of the goods or securities in currency or in
checks or other orders drawn upon banks or bankers and payable
upon demand;
(b) the term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn,
negotiated or incurred by the Company for the purpose of financing
the purchase, processing, manufacturing, shipment, storage or sale
of goods, wares or merchandise and which is secured by documents
evidencing title to, possession of, or a lien upon, the goods,
wares or merchandise or the receivables or proceeds arising from
the sale of the goods, wares or merchandise previously
constituting the security, provided the security is received by
the Trustee simultaneously with the creation of the creditor
relationship with the Company arising from the making, drawing,
negotiating or incurring of the draft, bill of exchange,
acceptance or obligation.
SECTION 914. Co-trustees and Separate Trustees.
At any time or times, for the purpose of meeting the legal
requirements of any applicable jurisdiction, the Company and the Trustee shall
have power to appoint, and, upon the written request of the Trustee or of the
Holders of at least 33% in principal amount of the Securities then Outstanding,
the Company shall for such purpose join with the Trustee in the execution and
delivery of all instruments and agreements necessary or proper to appoint, one
or more Persons approved by the Trustee either to act as co-trustee, jointly
with the Trustee, or to act as separate trustee, in either case with such powers
as may be provided in the instrument of appointment, and to vest in such Person
or Persons, in the capacity aforesaid, any property, title, right or power
deemed necessary or desirable, subject to the other provisions of this Section.
If the Company does not join in such appointment within 15 days after the
receipt by it of a request so to do, or if an Event of Default shall have
occurred and be continuing, the Trustee alone shall have power to make such
appointment.
Should any written instrument or instruments from the Company
be required by any co-trustee or separate trustee so appointed to more fully
confirm to such co-trustee or separate trustee such property, title, right or
power, any and all such instruments shall, on request, be executed, acknowledged
and delivered by the Company.
Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the following
conditions:
(a) the Securities shall be authenticated and delivered, and
all rights, powers, duties and obligations hereunder in respect of
the custody of securities, cash and other personal property held
by, or required to be deposited or pledged with, the Trustee
hereunder, shall be exercised solely, by the Trustee;
(b) the rights, powers, duties and obligations hereby
conferred or imposed upon the Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon and
exercised or performed either by the Trustee or by the Trustee and
such co-trustee or separate trustee jointly, as shall be provided
in the instrument appointing such co-trustee or separate trustee,
except to the extent that under any law of any jurisdiction in
which any particular act is to be performed, the Trustee shall be
incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee;
(c) the Trustee at any time, by an instrument in writing
executed by it, with the concurrence of the Company, may accept
the resignation of or remove any co-trustee or separate trustee
appointed under this Section, and, if an Event of Default shall
have occurred and be continuing, the Trustee shall have power to
accept the resignation of, or remove, any such co-trustee or
separate trustee without the concurrence of the Company. Upon the
written request of the Trustee, the Company shall join with the
Trustee in the execution and delivery of all instruments and
agreements necessary or proper to effectuate such resignation or
removal. A successor to any co-trustee or separate trustee so
resigned or removed may be appointed in the manner provided in
this Section;
(d) no co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Trustee,
or any other such trustee hereunder; and
(e) any Act of Holders delivered to the Trustee shall be
deemed to have been delivered to each such co-trustee and separate
trustee.
SECTION 915. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with
respect to the Securities of one or more series, or Tranche thereof, which shall
be authorized to act on behalf of the Trustee to authenticate Securities of such
series or Tranche issued upon original issuance and upon exchange, registration
of transfer or partial redemption thereof or pursuant to Section 306, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States, any State or territory thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to all or
substantially all of the corporate agency or corporate trust business of an
Authenticating Agent, shall continue to be an Authenticating Agent, provided
such corporation shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The Trustee may at any
time terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become vested with all
the rights, powers and duties of its predecessor hereunder, with like effect as
if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section.
The provisions of Sections 308, 904 and 905 shall be
applicable to each Authenticating Agent.
If an appointment with respect to the Securities of one or
more series, or any Tranche thereof, shall be made pursuant to this Section, the
Securities of such series or Tranche may have endorsed thereon, in addition to
the Trustee's certificate of authentication, an alternate certificate of
authentication substantially in the following form:
<PAGE>
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
Dated:
As Trustee
By______________________
As Authenticating
Agent
By______________________
Authorized Signatory
If all of the Securities of a series may not be originally
issued at one time, and if the Trustee does not have an office capable of
authenticating Securities upon original issuance located in a Place of Payment
where the Company wishes to have Securities of such series authenticated upon
original issuance, the Trustee, if so requested by the Company in writing (which
writing need not comply with Section 102 and need not be accompanied by an
Opinion of Counsel), shall appoint, in accordance with this Section and in
accordance with such procedures as shall be acceptable to the Trustee, an
Authenticating Agent having an office in a Place of Payment designated by the
Company with respect to such series of Securities.
ARTICLE TEN
Holders' Lists and Reports by Trustee and Company
SECTION 1001. Lists of Holders.
Semiannually, not later than July 1 and January 1 in each
year, commencing January 1, 2000, and at such other times as the Trustee may
request in writing, the Company shall furnish or cause to be furnished to the
Trustee information as to the names and addresses of the Holders, and the
Trustee shall preserve such information and similar information received by it
in any other capacity and afford to the Holders access to information so
preserved by it, all to such extent, if any, and in such manner as shall be
required by the Trust Indenture Act; provided, however, that no such list need
be furnished so long as the Trustee shall be the Security Registrar.
SECTION 1002. Reports by Trustee and Company.
Not later than July 15 in each year, commencing July 15, 2000,
the Trustee shall transmit to the Holders, the Commission and each securities
exchange upon which any Securities are listed, a report, dated as of the next
preceding May 15, with respect to any events and other matters described in
Section 313(a) of the Trust Indenture Act, in such manner and to the extent
required by the Trust Indenture Act. The Trustee shall transmit to the Holders,
the Commission and each securities exchange upon which any Securities are
listed, and the Company shall file with the Trustee (within 30 days after filing
with the Commission in the case of reports which pursuant to the Trust Indenture
Act must be filed with the Commission and furnished to the Trustee) and transmit
to the Holders, such other information, reports and other documents, if any, at
such times and in such manner, as shall be required by the Trust Indenture Act.
The Company shall notify the Trustee of the listing of any Securities on any
securities exchange or of the delisting thereof.
ARTICLE ELEVEN
Consolidation, Merger, Conveyance or Other Transfer
SECTION 1101. Company May Consolidate, etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other
Person, or convey or otherwise transfer or lease its properties and assets
substantially as an entirety to any Person, unless
(a) the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the
Company substantially as an entirety shall be a Person organized
and validly existing under the laws of the United States, any
State thereof or the District of Columbia, and shall expressly
assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the
due and punctual payment of the principal of and premium, if any,
and interest, if any, on all Outstanding Securities and the
performance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(b) immediately after giving effect to such transaction no
Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have
occurred and be continuing; and
(c) the Company shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, conveyance, or other transfer or lease
and such supplemental indenture comply with this Article and that
all conditions precedent herein provided for relating to such
transactions have been complied with.
SECTION 1102. Successor Person Substituted.
Upon any consolidation by the Company with or merger by the
Company into any other Person or any conveyance, or other transfer or lease of
the properties and assets of the Company substantially as an entirety in
accordance with Section 1101, the successor Person formed by such consolidation
or into which the Company is merged or the Person to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the
Securities Outstanding hereunder.
ARTICLE TWELVE
Supplemental Indentures
SECTION 1201. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants
of the Company herein and in the Securities, all as provided in
Article Eleven; or
(b) to add one or more covenants of the Company or other
provisions for the benefit of all Holders or for the benefit of
the Holders of, or to remain in effect only so long as there shall
be Outstanding, Securities of one or more specified series, or one
or more specified Tranches thereof, or to surrender any right or
power herein conferred upon the Company; or
(c) to add any additional Events of Default with respect to
all or any series of Securities Outstanding hereunder; or
(d) to change or eliminate any provision of this Indenture or
to add any new provision to this Indenture; provided, however,
that if such change, elimination or addition shall adversely
affect the interests of the Holders of Securities of any series or
Tranche Outstanding on the date of such indenture supplemental
hereto in any material respect, such change, elimination or
addition shall become effective with respect to such series or
Tranche only pursuant to the provisions of Section 1202 hereof or
when no Security of such series or Tranche remains Outstanding; or
(e) to provide collateral security for all but not part of the
Securities; or
(f) to establish the form or terms of Securities of any series
or Tranche as contemplated by Sections 201 and 301; or
(g) to provide for the authentication and delivery of bearer
securities and coupons appertaining thereto representing interest,
if any, thereon and for the procedures for the registration,
exchange and replacement thereof and for the giving of notice to,
and the solicitation of the vote or consent of, the holders
thereof, and for any and all other matters incidental thereto; or
(h) to evidence and provide for the acceptance of appointment
hereunder by a separate or successor Trustee or co-trustee with
respect to the Securities of one or more series and to add to or
change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the
trusts hereunder by more than one Trustee, pursuant to the
requirements of Section 911(b); or
(i) to provide for the procedures required to permit the
Company to utilize, at its option, a noncertificated system of
registration for all, or any series or Tranche of, the Securities;
or
(j) to change any place or places where (1) the principal of
and premium, if any, and interest, if any, on all or any series of
Securities, or any Tranche thereof, shall be payable, (2) all or
any series of Securities, or any Tranche thereof, may be
surrendered for registration of transfer, (3) all or any series of
Securities, or any Tranche thereof, may be surrendered for
exchange and (4) notices and demands to or upon the Company in
respect of all or any series of Securities, or any Tranche
thereof, and this Indenture may be served; or
(k) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any
other provision herein, or to make any other changes to the
provisions hereof or to add other provisions with respect to
matters or questions arising under this Indenture, provided that
such other changes or additions shall not adversely affect the
interests of the Holders of Securities of any series or Tranche in
any material respect.
Without limiting the generality of the foregoing, if the Trust
Indenture Act as in effect at the date of the execution and delivery of this
Indenture or at any time thereafter shall be amended and
(x) if any such amendment shall require one
or more changes to any provisions hereof or the inclusion
herein of any additional provisions, or shall by operation of
law be deemed to effect such changes or incorporate such
provisions by reference or otherwise, this Indenture shall be
deemed to have been amended so as to conform to such amendment
to the Trust Indenture Act, and the Company and the Trustee
may, without the consent of any Holders, enter into an
indenture supplemental hereto to effect or evidence such
changes or additional provisions; or
(y) if any such amendment shall permit one
or more changes to, or the elimination of, any provisions
hereof which, at the date of the execution and delivery hereof
or at any time thereafter, are required by the Trust Indenture
Act to be contained herein, this Indenture shall be deemed to
have been amended to effect such changes or elimination, and
the Company and the Trustee may, without the consent of any
Holders, enter into an indenture supplemental hereto to
evidence such amendment hereof.
SECTION 1202. Supplemental Indentures With Consent of Holders.
With the consent of the Holders of a majority in aggregate
principal amount of the Securities of all series then Outstanding under this
Indenture, considered as one class, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or modifying in any manner
the rights of the Holders of Securities of such series under the Indenture;
provided, however, that if there shall be Securities of more than one series
Outstanding hereunder and if a proposed supplemental indenture shall directly
affect the rights of the Holders of Securities of one or more, but less than
all, of such series, then the consent only of the Holders of a majority in
aggregate principal amount of the Outstanding Securities of all series so
directly affected, considered as one class, shall be required; and provided,
further, that if the Securities of any series shall have been issued in more
than one Tranche and if the proposed supplemental indenture shall directly
affect the rights of the Holders of Securities of one or more, but less than
all, of such Tranches, then the consent only of the Holders of a majority in
aggregate principal amount of the Outstanding Securities of all Tranches so
directly affected, considered as one class, shall be required; and provided,
further, that no such supplemental indenture shall:
(a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Security, or
reduce the principal amount thereof or the rate of interest
thereon (or the amount of any installment of interest thereon) or
change the method of calculating such rate or reduce any premium
payable upon the redemption thereof, or reduce the amount of the
principal of a Discount Security that would be due and payable
upon a declaration of acceleration of the Maturity thereof
pursuant to Section 802, or change the coin or currency (or other
property) in which any Security or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity of
any Security (or, in the case of redemption, on or after the
Redemption Date), without, in any such case, the consent of the
Holder of such Security, or
(b) reduce the percentage in principal amount of the
Outstanding Securities of any series, or any Tranche thereof, the
consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with any provision of this
Indenture or of any default hereunder and its consequences, or
reduce the requirements of Section 1304 for quorum or voting,
without, in any such case, the consent of the Holders of each
Outstanding Security of such series or Tranche, or
(c) modify any of the provisions of this Section, Section 607
or Section 813 with respect to the Securities of any series, or
any Tranche thereof, except to increase the percentages in
principal amount referred to in this Section or such other
Sections or to provide that other provisions of this Indenture
cannot be modified or waived without the consent of the Holder of
each Outstanding Security affected thereby; provided, however,
that this clause shall not be deemed to require the consent of any
Holder with respect to changes in the references to "the Trustee"
and concomitant changes in this Section, or the deletion of this
proviso, in accordance with the requirements of Sections 911(b),
914 and 1201(h).
A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been included
solely for the benefit of one or more particular series of Securities, or one or
more Tranches thereof, or which modifies the rights of the Holders of Securities
of such series with respect to such covenant or other provision, shall be deemed
not to affect the rights under this Indenture of the Holders of Securities of
any other series or Tranche.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof. A
waiver by a Holder of such Holder's right to consent under this Section shall be
deemed to be a consent of such Holder.
SECTION 1203. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 901) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties, immunities or liabilities under this
Indenture or otherwise.
SECTION 1204. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby. Any supplemental indenture permitted by this
Article may restate this Indenture in its entirety, and, upon the execution and
delivery thereof, any such restatement shall supersede this Indenture as
theretofore in effect for all purposes.
SECTION 1205. Conformity With Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 1206. Reference in Securities to Supplemental Indentures.
Securities of any series, or any Tranche thereof,
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article may, and shall if required by the Trustee, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Securities of any
series, or any Tranche thereof, so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series or Tranche.
SECTION 1207. Modification Without Supplemental Indenture.
If the terms of any particular series of Securities shall have
been established in a Board Resolution or an Officer's Certificate as
contemplated by Section 301, and not in an indenture supplemental hereto,
additions to, changes in or the elimination of any of such terms may be effected
by means of a supplemental Board Resolution or Officer's Certificate, as the
case may be, delivered to, and accepted by, the Trustee; provided, however, that
such supplemental Board Resolution or Officer's Certificate shall not be
accepted by the Trustee or otherwise be effective unless all conditions set
forth in this Indenture which would be required to be satisfied if such
additions, changes or elimination were contained in a supplemental indenture
shall have been appropriately satisfied. Upon the acceptance thereof by the
Trustee, any such supplemental Board Resolution or Officer's Certificate shall
be deemed to be a "supplemental indenture" for purposes of Section 1204 and
1206.
ARTICLE THIRTEEN
Meetings of Holders; Action Without Meeting
SECTION 1301. Purposes for Which Meetings May Be Called.
A meeting of Holders of Securities of one or more, or all,
series, or any Tranche or Tranches thereof, may be called at any time and from
time to time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities of such
series or Tranches.
SECTION 1302. Call, Notice and Place of Meetings.
(a) The Trustee may at any time call a meeting of Holders of
Securities of one or more, or all, series, or any Tranche or
Tranches thereof, for any purpose specified in Section 1301, to be
held at such time and (except as provided in subsection (b) of
this Section) at such place in the Borough of Manhattan, The City
of New York, as the Trustee shall determine, or, with the approval
of the Company, at any other place. Notice of every such meeting,
setting forth the time and the place of such meeting and in
general terms the action proposed to be taken at such meeting,
shall be given, in the manner provided in Section 106, not less
than 21 nor more than 180 days prior to the date fixed for the
meeting.
(b) The Trustee may be asked to call a meeting of the Holders
of Securities of one or more, or all, series, or any Tranche or
Tranches thereof, by the Company or by the Holders of 33% in
aggregate principal amount of all of such series and Tranches,
considered as one class, for any purpose specified in Section
1301, by written request setting forth in reasonable detail the
action proposed to be taken at the meeting. If the Trustee shall
have been asked by the Company to call such a meeting, the Company
shall determine the time and place for such meeting and may call
such meeting by giving notice thereof in the manner provided in
Subsection (a) of this Section, or shall direct the Trustee, in
the name and at the expense of the Company, to give such notice.
If the Trustee shall have been asked by Holders to call such a
meeting in accordance with this Subsection (b), and the Trustee
shall not have given the notice of such meeting within 21 days
after receipt of such request or shall not thereafter proceed to
cause the meeting to be held as provided herein, then the Holders
of Securities of such series and Tranches, in the principal amount
above specified, may determine the time and the place in the
Borough of Manhattan, The City of New York, or in such other place
as shall be determined or approved by the Company, for such
meeting and may call such meeting for such purposes by giving
notice thereof as provided in Subsection (a) of this Section.
(c) Any meeting of Holders of Securities of one or more, or
all, series, or any Tranche or Tranches thereof, shall be valid
without notice if the Holders of all Outstanding Securities of
such series or Tranches are present in person or by proxy and if
representatives of the Company and the Trustee are present, or if
notice is waived in writing before or after the meeting by the
Holders of all Outstanding Securities of such series, or any
Tranche or Tranches thereof, or by such of them as are not present
at the meeting in person or by proxy, and by the Company and the
Trustee.
SECTION 1303. Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities
of one or more, or all, series, or any Tranche or Tranches thereof, a Person
shall be (a) a Holder of one or more Outstanding Securities of such series or
Tranches, or (b) a Person appointed by an instrument in writing as proxy for a
Holder or Holders of one or more Outstanding Securities of such series or
Tranches by such Holder or Holders. The only Persons who shall be entitled to
attend any meeting of Holders of Securities of any series or Tranche shall be
the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 1304. Quorum; Action.
The Persons entitled to vote a majority in aggregate principal
amount of the Outstanding Securities of the series and Tranches with respect to
which a meeting shall have been called as hereinbefore provided, considered as
one class, shall constitute a quorum for a meeting of Holders of Securities of
such series and Tranches; provided, however, that if any action is to be taken
at such meeting which this Indenture expressly provides may be taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Securities of such series and Tranches, considered as
one class, the Persons entitled to vote such specified percentage in principal
amount of the Outstanding Securities of such series and Tranches, considered as
one class, shall constitute a quorum. In the absence of a quorum within one hour
of the time appointed for any such meeting, the meeting shall, if convened at
the request of Holders of Securities of such series and Tranches, be dissolved.
In any other case the meeting may be adjourned for such period as may be
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for such period as may be determined
by the chairman of the meeting prior to the adjournment of such adjourned
meeting. Except as provided by Section 1305(e), notice of the reconvening of any
meeting adjourned for more than 30 days shall be given as provided in Section
1302(a) not less than 10 days prior to the date on which the meeting is
scheduled to be reconvened. Notice of the reconvening of an adjourned meeting
shall state expressly the percentage, as provided above, of the principal amount
of the Outstanding Securities of such series and Tranches which shall constitute
a quorum.
Except as limited by Section 1202, any resolution presented to
a meeting or adjourned meeting duly reconvened at which a quorum is present as
aforesaid may be adopted only by the affirmative vote of the Holders of a
majority in aggregate principal amount of the Outstanding Securities of the
series and Tranches with respect to which such meeting shall have been called,
considered as one class; provided, however, that, except as so limited, any
resolution with respect to any action which this Indenture expressly provides
may be taken by the Holders of a specified percentage, which is less than a
majority, in principal amount of the Outstanding Securities of such series and
Tranches, considered as one class, may be adopted at a meeting or an adjourned
meeting duly reconvened and at which a quorum is present as aforesaid by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Securities of such series and Tranches, considered as one
class.
Any resolution passed or decision taken at any meeting of
Holders of Securities duly held in accordance with this Section shall be binding
on all the Holders of Securities of the series and Tranches with respect to
which such meeting shall have been held, whether or not present or represented
at the meeting.
SECTION 1305. Attendance at Meetings; Determination of Voting Rights;
Conduct and Adjournment of Meetings.
(a) Attendance at meetings of Holders of Securities may be in
person or by proxy; and, to the extent permitted by law, any such
proxy shall remain in effect and be binding upon any future Holder
of the Securities with respect to which it was given unless and
until specifically revoked by the Holder or future Holder of such
Securities before being voted.
(b) Notwithstanding any other provisions of this Indenture,
the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Holders of Securities in regard to
proof of the holding of such Securities and of the appointment of
proxies and in regard to the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates
and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall deem
appropriate. Except as otherwise permitted or required by any such
regulations, the holding of Securities shall be proved in the
manner specified in Section 104 and the appointment of any proxy
shall be proved in the manner specified in Section 104. Such
regulations may provide that written instruments appointing
proxies, regular on their face, may be presumed valid and genuine
without the proof specified in Section 104 or other proof.
(c) The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have
been called by the Company or by Holders as provided in Section
1302(b), in which case the Company or the Holders of Securities of
the series and Tranches calling the meeting, as the case may be,
shall in like manner appoint a temporary chairman. A permanent
chairman and a permanent secretary of the meeting shall be elected
by vote of the Persons entitled to vote a majority in aggregate
principal amount of the Outstanding Securities of all series and
Tranches represented at the meeting, considered as one class.
(d) At any meeting each Holder or proxy shall be entitled to
one vote for each $1 principal amount of Outstanding Securities
held or represented by such Holder; provided, however, that no
vote shall be cast or counted at any meeting in respect of any
Security challenged as not Outstanding and ruled by the chairman
of the meeting to be not Outstanding. The chairman of the meeting
shall have no right to vote, except as a Holder of a Security or
proxy.
(e) Any meeting duly called pursuant to Section 1302 at which
a quorum is present may be adjourned from time to time by Persons
entitled to vote a majority in aggregate principal amount of the
Outstanding Securities of all series and Tranches represented at
the meeting, considered as one class; and the meeting may be held
as so adjourned without further notice.
SECTION 1306. Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of
Holders shall be by written ballots on which shall be subscribed the signatures
of the Holders or of their representatives by proxy and the principal amounts
and serial numbers of the Outstanding Securities, of the series and Tranches
with respect to which the meeting shall have been called, held or represented by
them. The permanent chairman of the meeting shall appoint two inspectors of
votes who shall count all votes cast at the meeting for or against any
resolution and who shall make and file with the secretary of the meeting their
verified written reports of all votes cast at the meeting. A record of the
proceedings of each meeting of Holders shall be prepared by the secretary of the
meeting and there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one or
more persons having knowledge of the facts setting forth a copy of the notice of
the meeting and showing that said notice was given as provided in Section 1302
and, if applicable, Section 1304. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
SECTION 1307. Action Without Meeting.
In lieu of a vote of Holders at a meeting as hereinbefore
contemplated in this Article, any request, demand, authorization, direction,
notice, consent, waiver or other action may be made, given or taken by Holders
by written instruments as provided in Section 104.
ARTICLE FOURTEEN
Immunity of Incorporators, Shareholders, Officers and Directors
SECTION 1401. Liability Solely Corporate.
No recourse shall be had for the payment of the principal of
or premium, if any, or interest, if any, on any Securities, or any part thereof,
or for any claim based thereon or otherwise in respect thereof, or of the
indebtedness represented thereby, or upon any obligation, covenant or agreement
under this Indenture, against any incorporator, shareholder, officer or
director, as such, past, present or future of the Company or of any predecessor
or successor corporation (either directly or through the Company or a
predecessor or successor corporation), whether by virtue of any constitutional
provision, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that this
Indenture and all the Securities are solely corporate obligations, and that no
personal liability whatsoever shall attach to, or be incurred by, any
incorporator, shareholder, officer or director, past, present or future, of the
Company or of any predecessor or successor corporation, either directly or
indirectly through the Company or any predecessor or successor corporation,
because of the indebtedness hereby authorized or under or by reason of any of
the obligations, covenants or agreements contained in this Indenture or in any
of the Securities or to be implied herefrom or therefrom, and that any such
personal liability is hereby expressly waived and released as a condition of,
and as part of the consideration for, the execution of this Indenture and the
issuance of the Securities.
-------------------------
This instrument 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the day and year first above written.
NATIONAL FUEL GAS COMPANY
By: /s/P.C. Ackerman
---------------------------
P.C. Ackerman
President
THE BANK OF NEW YORK, Trustee
By: /s/Van K. Brown
---------------------------
Van K. Brown
Assistant Vice President
National Fuel Gas Company
OFFICER'S CERTIFICATE
Establishing Medium-Term Notes
Joseph P. Pawlowski, the Treasurer of National Fuel Gas Company, a New
Jersey corporation (the "Company"), pursuant to the authority granted in the
Board Resolutions of the Company dated October 14, 1999, and Sections 102, 201
and 301 of the Indenture defined herein, does hereby certify to The Bank of New
York (the "Trustee"), as Trustee under the Indenture of the Company (For
Unsecured Debt Securities) dated as of October 1, 1999 (the "Indenture"), that:
1. The Securities of the first series to be issued under the Indenture
shall be designated "Medium-Term Notes, Series E" (the "Medium-Term
Notes of the First Series"). The Medium-Term Notes of the First Series
are subject to a Periodic Offering. All capitalized terms used in this
certificate which are not defined herein shall have the meanings set
forth in the Indenture;
2. The aggregate principal amount of Medium-Term Notes of the First Series
which may be authenticated and delivered under the Indenture is limited
to $500,000,000, except as otherwise contemplated in Section 301(b) of
the Indenture;
3. The Medium-Term Notes of the First Series shall mature, and the
principal thereof shall be due and payable together with all accrued
and unpaid interest, on such date not less than nine months nor more
than forty years from the date of issuance, as shall be specified in
the Medium-Term Notes of the First Series, a form of which is hereto
attached as Exhibit A in the case of Medium-Term Notes of the First
Series with a fixed interest rate ("Fixed Rate Notes"), and
communicated by the Company to the Trustee by a written instruction
pursuant to, and in substantially the form attached to, Company Order
No. 1 of even date herewith (each, an "Instruction");
4. The Medium-Term Notes of the First Series shall be issued in the
denominations of $1,000 and any integral multiple thereof unless
otherwise provided in an Instruction;
5. The Medium-Term Notes of the First Series shall bear interest as shall
be specified in the Medium-Term Notes of the First Series, a form of
which is hereto attached as Exhibit A in the case of Fixed Rate Notes,
and as shall be communicated by the Company to the Trustee by an
Instruction;
6. The principal of, premium, if any, and each installment of interest on
the Medium-Term Notes of the First Series shall be payable at, and
registration and registration of transfers and exchanges in respect of
the Medium-Term Notes of the First Series may be effected at, the
office or agency of the Company in The City of New York; provided that
payment of interest may be made at the option of the Company by check
mailed to the address of the persons entitled thereto or, in certain
circumstances described in the form of Medium-Term Notes of the First
Series hereto attached as Exhibit A, by wire transfer to an account
designated by the person entitled thereto. Notices and demands to or
upon the Company in respect of the Medium-Term Notes of the First
Series may be served at the office or agency of the Company in The City
of New York. The Corporate Trust Office of the Trustee will initially
be the agency of the Company for such payment, registration and
registration of transfers and exchanges and service of notices and
demands and the Company hereby appoints the Trustee as its agent for
all such purposes; provided, however, that the Company reserves the
right to change, by one or more Officer's Certificates, any such office
or agency and such agent. The Trustee will initially be the Security
Registrar and the Paying Agent for the Medium-Term Notes of the First
Series;
7. The Medium-Term Notes of the First Series shall be redeemable as shall
be specified in the Medium-Term Notes of the First Series, a form of
which is hereto attached as Exhibit A in the case of Fixed-Rate Notes,
and as shall be communicated by the Company to the Trustee by an
Instruction;
8. The Medium-Term Notes of the First Series shall be initially issued in
global form registered in the name of Cede & Co. (as nominee for The
Depository Trust Company, New York, New York). The Medium-Term Notes of
the First Series in global form shall bear the depository legend in
substantially the form set forth in Exhibit A hereto, containing
certain restrictions on transfer;
9. No service charge will be made for the registration of transfer or
exchange of the Medium-Term Notes of the First Series; provided,
however, that the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in
connection with the exchange or transfer;
10. If the Company shall make any deposit of money and/or Eligible
Obligations with respect to any Medium-Term Notes of the First Series,
or any portion of the principal amount thereof, as contemplated by
Section 701 of the Indenture, the Company shall not deliver an
Officer's Certificate described in clause (z) in the first paragraph of
said Section 701 unless the Company shall also deliver to the Trustee,
together with such Officer's Certificate, either:
(A) an instrument wherein the Company, notwithstanding the
satisfaction and discharge of its indebtedness in respect of the
Medium-Term Notes of the First Series, shall assume the obligation
(which shall be absolute and unconditional) to irrevocably deposit with
the Trustee or Paying Agent such additional sums of money, if any, or
additional Eligible Obligations (meeting the requirements of Section
701), if any, or any combination thereof, at such time or times, as
shall be necessary, together with the money and/or Eligible Obligations
theretofore so deposited, to pay when due the principal of and premium,
if any, and interest, if any, due and to become due on such Medium-Term
Notes of the First Series or portions thereof, all in accordance with
and subject to the provisions of said Section 701; provided, however,
that such instrument may state that the obligation of the Company to
make additional deposits as aforesaid shall be subject to the delivery
to the Company by the Trustee of a notice asserting the deficiency
accompanied by an opinion of an independent public accountant of
nationally recognized standing, selected by the Trustee, showing the
calculation thereof; or
(B) an Opinion of Counsel to the effect that, as a result of (i)
the receipt by the Company from, or the publication by, the Internal
Revenue Service of a ruling or (ii) a change in law occurring after the
date of this certificate, the Holders of such Medium-Term Notes of the
First Series, or portions of the principal amount thereof, will not
recognize income, gain or loss for United States federal income tax
purposes as a result of the satisfaction and discharge of the Company's
indebtedness in respect thereof and will be subject to United States
federal income tax on the same amounts, at the same times and in the
same manner as if such satisfaction and discharge had not been
effected;
11. The Medium-Term Notes of the First Series that are Fixed Rate Notes
shall have such other terms and provisions as are provided in the form
thereof set forth in Exhibit A hereto and as are specified, or
incorporated by reference, in, and communicated by the Company to the
Trustee by, an Instruction, and, in the case of Fixed Rate Notes, shall
be issued in substantially such form;
12. The undersigned has read all of the covenants and conditions contained
in the Indenture, and the definitions in the Indenture relating
thereto, relating to the Company's issuance of the Medium-Term Notes of
the First Series and in respect of compliance with which this
certificate is made;
13. The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents
accompanying this certificate, and upon discussions by the undersigned
with officers, employees and counsel of the Company familiar with the
matters set forth herein;
14. In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed
opinion as to whether or not such covenants and conditions have been
complied with; and
15. In the opinion of the undersigned, such conditions and covenants and
conditions precedent, if any, provided for in the Indenture (including
any covenants compliance with which constitutes a condition precedent),
relating to the authentication and delivery of the Medium-Term Notes of
the First Series requested in the accompanying Company Order No. 1 have
been complied with.
IN WITNESS WHEREOF, I have executed this Officer's Certificate this
14th day of October, 1999.
/s/ J. P. Pawlowski
-------------------
Treasurer
<PAGE>
EXHIBIT A
FORM OF FIXED-RATE NOTE
[depository legend]
[Unless this Certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Company
or its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]
[FORM OF FACE OF MEDIUM-TERM NOTE]
NATIONAL FUEL GAS COMPANY
MEDIUM-TERM NOTE, SERIES E
NO.
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT: CUSIP:
ORIGINAL INTEREST INTEREST RATE: MATURITY DATE:
ACCRUAL DATE:
INTEREST PAYMENT DATES:
REDEEMABLE AT OPTION OF THE COMPANY: YES ___ NO ___
[Redemption provisions will be inserted here].
NATIONAL FUEL GAS COMPANY, a corporation duly organized and existing
under the laws of the State of New Jersey (herein referred to as the "Company",
which term includes any successor Person under the Indenture referred to on the
reverse hereof), for value received, hereby promises to pay to
or registered assigns, the principal sum of ____________________ Dollars on the
Maturity Date specified above, and to pay interest thereon at the Interest Rate
specified above, semi-annually on the Interest Payment Dates specified above of
each year and on the Maturity Date specified above, from the Original Interest
Accrual Date specified above or from the most recent Interest Payment Date to
which interest has been paid, unless the Company shall default in the payment of
interest due on such Interest Payment Date, in which case interest shall be
payable from the next preceding Interest Payment Date to which interest has been
paid, or, if no interest has been paid on this Security, from the Original
Interest Accrual Date. In the event that any Interest Payment Date is not a
Business Day, then payment of interest payable on such date will be made on the
next succeeding day which is a Business Day (and without any interest or other
payment in respect of such delay) with the same force and effect as if made on
such Interest Payment Date. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the 15th day of the calendar month (whether or
not a Business Day) next preceding such Interest Payment Date; provided, that if
the Original Issue Date of this Security is after a Regular Record Date and
before the corresponding Interest Payment Date, interest so payable for the
period from and including the Original Issue Date to but excluding such Interest
Payment Date shall be paid on the next succeeding Interest Payment Date to the
Holder hereof on the related Regular Record Date; and provided, further, that
interest payable at Maturity shall be paid to the Person to whom principal shall
be paid. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice of which shall be given to Holders of Securities of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of this series may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in the Indenture.
Payment of the principal of (and premium, if any) and interest
on this Security will be made at the office or agency of the Company maintained
for that purpose in The City of New York, the State of New York in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that (a) at
the option of the Company, interest on this Security may be paid by check mailed
to the address of the person entitled thereto, as such address shall appear on
the Security Register or by wire transfer to an account designated by the person
entitled thereto, and (b) upon the written request of a Holder of not less than
$10 million in aggregate principal amount of Securities of this series delivered
to the Company and the Paying Agent at least ten days prior to any Interest
Payment Date, payment of interest on such Securities to such Holder on such
Interest Payment Date shall be made by wire transfer of immediately available
funds to an account maintained within the continental United States specified by
such Holder or, if such Holder maintains an account with the entity acting as
Paying Agent, by deposit into such account.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
NATIONAL FUEL GAS COMPANY
By:_______________________________________
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK, as Trustee
By:_______________________________________
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF MEDIUM-TERM NOTE]
This Security is one of a duly authorized issue of securities
of the Company (herein called the "Securities"), issued and to be issued in one
or more series under an Indenture (For Unsecured Debt Securities), dated as of
October 1, 1999 (herein, together with any amendments or supplements thereto,
called the "Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and The Bank of New York, as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), and reference is hereby made to the Indenture, including the Board
Resolutions and Officer's Certificate filed with the Trustee on October 14, 1999
creating the series designated on the face hereof, for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof. The acceptance of
this Security shall be deemed to constitute the consent and agreement by the
Holder hereof to all terms and provisions of the Indenture.
The Indenture contains provisions for defeasance at any time
of the entire indebtedness of the Company in respect of this Security, or any
portion of the principal amount thereof, upon compliance with certain conditions
set forth in the Indenture, including the Officer's Certificate described above.
If an Event of Default with respect to Securities of this
series shall occur and be continuing, the principal of the Securities of this
series may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Indenture at any time by the Company and
the Trustee with the consent of the Holders of a majority in principal amount of
the Securities at the time Outstanding of all series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
As provided in and subject to the provisions of the Indenture,
the Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless (a) such Holder shall have previously
given the Trustee written notice of a continuing Event of Default with respect
to the Securities of this series, (b) the Holders of a majority in aggregate
principal amount of the Securities of all series at the time Outstanding in
respect of which an Event of Default shall have occurred and be continuing shall
have made written request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee, (c) such Holder shall have
offered the Trustee reasonable indemnity, (d) the Trustee shall have failed to
institute any such proceeding for 60 days after receipt of such notice, request
and offer of indemnity, and (e) the Trustee shall not have received from the
Holders of a majority in aggregate principal amount of Securities of all series
at the time Outstanding in respect of which an Event of Default shall have
occurred and be continuing a direction inconsistent with such request. The
foregoing shall not apply to any suit instituted by the Holder of this Security
for the enforcement of any payment of principal hereof or any premium or
interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest on this Security at the times, place and rate, and in the
coin or currency, herein prescribed.
The Securities of this series are issuable only in registered
form without coupons in denominations of $____. As provided in the Indenture and
subject to certain limitations therein set forth, Securities of this series are
transferable to a transferee or transferees, as designated by the Holder
surrendering the same for such registration of transfer, and exchangeable for a
like aggregate principal amount of Securities of this series and of like tenor
and of authorized denominations, as requested by the Holder surrendering the
same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Security is registered as the
absolute owner hereof for all purposes, whether or not this Security be overdue,
and neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
TENTH AMENDMENT TO EMPLOYMENT AGREEMENT
This Agreement, entered into and made effective as of September 1,
1999, by and between NATIONAL FUEL GAS COMPANY, a New Jersey corporation
("Employer") having its headquarters at 10 Lafayette Square, Buffalo, New York,
14203, and BERNARD J. KENNEDY ("Employee"), an individual residing at 33 Ruskin
Road, Amherst, New York, 14226, is an amendment to that certain Employment
Agreement between Employer and Employee entered into the 17th day of September
1981 (the "Employment Agreement"), as extended by amendment on September 20,
1984, September 18, 1985, September 16, 1986, September 11, 1987, September 12,
1988, September 19, 1989, September 20, 1990, September 20, 1991 and September
19, 1996. The last amendment extended the term of Employment Agreement to
September 1, 1999.
WHEREAS, the parties desire to amend the Employment Agreement to
further extend its term and to update certain other provisions as provided
herein;
NOW THEREFORE, in consideration thereof and of the mutual covenants
contained herein, the parties agree as follows:
1. The Employment Agreement is extended from September 1, 1999 to
September 1, 2002.
2. The duties of Employee are those of the Chairman of the Board and
Chief Executive Officer. Employee shall also serve in such
directorships and other capacities of affiliated corporations of
the Employer to which he may be duly elected.
3. Employee's monthly salary shall be $70,679.16 payable by Employer
and it affiliates corporations in accordance with their regular
payroll procedures. This amount may be increased and/or
reallocated among the Employer and it affiliates from time to time
in the discretion of Employer's Board of Directors, but in no
event shall the total amount be reduced from its then current
level.
4. While employed by Employer (both during the term of this agreement
and thereafter), Employee shall be allowed to participate, on the
same basis generally as other executive officers of Employer, in
all general employee benefit plans and programs and in all benefit
plans available to executive officers, including improvements or
modifications of the same, which on the effective date or
thereafter are made available by Employer to all or substantially
all of Employer's executive officers. Such benefits, plans, and
programs may include, without limitation, medical, health, and
dental care, life insurance, disability protection, and pension
plans.
5. Without limiting the foregoing paragraph, Employee shall
participate in the Annual At Risk Compensation Incentive Program
("AARCIP"). Any incentive paid shall be in accordance with the
terms and provisions of the AARCIP, as amended from time to time.
Employer and Employee agree to negotiate Employee's incentive
opportunity for fiscal years 2000, 2001 and 2002, no later than
December 30 of such fiscal year.
6. Employer consents to Employee's service on the Boards of Directors
set out in Exhibit A, and such service shall not be deemed a
violation of this Employment Agreement
The parties agree that all other terms, conditions and stipulations
contained in the Employment Agreement, and any amendments thereto, shall remain
in full force and effect and without any change or modification, except as
provided herein.
NATIONAL FUEL GAS COMPANY
By: /s/ George L. Mazanec
--------------------------
George L. Mazanec
Chairman
Compensation Committee
/s/ Bernard J. Kennedy
----------------------
Bernard J. Kennedy
Employee
<PAGE>
EXHIBIT A
---------
Name of Entity Position Held
- -------------- -------------
National Petroleum Council Member
Associated Electric & Gas Officer, Director and Chairman
Insurance Services Limited
Interstate Natural Gas Director
Association of America
American Precision Industries, Inc. Director
Institute of Gas Technology Trustee
HSBC Bank USA Director
HSBC Bank USA - Western Region Board Director
Merchants Mutual Insurance Director
Company
The Business Council of New York Director
State, Inc.
Buffalo Niagara Partnership Director
Niagara University Trustee
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 Core 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 Core 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 Core Employee in illegal
conduct which is materially and demonstrably injurious to the Company or a
Subsidiary.
2.6 "Change in Control" shall be deemed to have occurred at such time as (i)
any "person" within the meaning of Section 14(d) of the Exchange Act, other than
the Company, a Subsidiary, or any employee benefit plan or plans sponsored by
the Company or any Subsidiary, is or has become the "beneficial owner," as
defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of twenty
percent (20%) or more of the combined voting power of the outstanding securities
of the Company ordinarily having the right to vote at the election of directors,
or (ii) approval by the stockholders of the Company of (a) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of stock of the Company would be
converted into cash, securities or other property, other than a consolidation or
merger of the Company in which the common stockholders of the Company
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 the Company is the continuing or surviving
corporation but in which the common stockholders of the Company 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 the Company), 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 the Company, or
(iii) individuals who constitute the Board on January 1, 1997 (the "Incumbent
Board") have ceased for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to January 1, 1997 whose
election, or nomination for election by the Company's stockholders, was approved
by a vote of at least three-quarters (3/4) of the directors comprising the
Incumbent Board (either by specific vote or by approval of the proxy statement
of the Company in which such person is named as nominee for director without
objection to such nomination) shall be, for purposes of this Plan, considered as
though such person were a member of the Incumbent Board.
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 "Core Employee" means an officer or other core management employee of
the company or a Subsidiary as determined by the Committee. Every Key Management
Employee is also a Core Employee.
2.14 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
2.15 "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.
2.16 "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.
2.17 "Key Management Employee" means a management employee of the Company or
a Subsidiary (i) who has significant policymaking responsibilities, and (ii)
whose current base salary at the time an Award is issued is among the highest
two percent (2%) of the current base salaries of all the employees of the
Company or any Subsidiary, all as determined by the Committee.
2.18 "Participant" means any individual to whom an Award has been granted by
the Committee under this Plan.
2.19 "Plan" means the National Fuel Gas Company 1997 Award and Option Plan.
2.20 "Restricted Stock" means an Award granted pursuant to paragraph 10
hereof.
2.21 "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.
2.22 "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 Management Employees and Core 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 Core Employee is eligible to become a Participant of the Plan who
receives Stock Options only. A Key Management Employee is also eligible to
become a Participant of the Plan who receives other awards under 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 3,800,000; 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 3,800,000 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. The
Committee shall not have the authority to decrease such price after the date of
the stock option's grant, except for adjustments appropriate to reflect a Common
Stock dividend, stock split, reverse stock-split or other combination pursuant
to Section 18(a). 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
3,800,000.
(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. Once a SAR has been issued, the Committee
shall not reprice the SAR by changing the initial Fair Market Value from which
the payment is calculated except for adjustments appropriate to reflect a Common
Stock dividend, stock split, reverse stock-split or other combination pursuant
to Section 18(a). 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. No more than 50,000 restricted shares
may be issued in a single fiscal year. 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 nonqualified 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 spinoff 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 Participant 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 Participant 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 NUMBER 1
TO
AMENDED AND RESTATED SPLIT DOLLAR INSURANCE AND
DEATH BENEFIT AGREEMENT
BY AND BETWEEN
NATIONAL FUEL GAS COMPANY
AND
Philip C. Ackerman
This Amendment Number 1 to the Amended and Restated Split Dollar
Insurance and Death Benefit Agreement is made and entered into this 23rd day of
March, 1999, by and between National Fuel Gas Company (the "Company") and Philip
C. Ackerman (the "Executive").
WHEREAS, Company and Executive are parties to a certain Amended and
Restated Split Dollar Insurance and Death Benefit Agreement made as of September
17, 1997 (the "Agreement"); and
WHEREAS, Company and Executive agree to this further amendment of the
Agreement, as permitted in Article XI, to revise the calculation of the Death
Benefit therein to include restricted stock awarded in lieu of a cash award
under the Company's Annual At Risk Compensation Incentive Program (the
"AARCIP").
NOW THEREFORE. in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. Article VI, Paragraph A shall be amended to insert the following
sentence after the first complete sentence thereof-
"Awards of restricted stock made to the Executive for service
in the Company's fiscal year 1996 or later to supplement an
AARCIP award for that fiscal year, which was approximately
equal to the maximum AARCIP award then permissible consistent
with the shareholder approval applicable to that AARCIP award,
shall also be included in the calculation of the Executive's
Death Benefit at the rate of two times the most recent such
award of restricted stock, if any. The restricted stock shall
be valued at the average of the high and low market value on
the grant date."
2. The amendments to the Agreement, contained herein. will be
effective as of the date of this Amendment Number 1 and shall
remain in effect for the entire term of the Agreement.
3. All other terms and provisions of the Agreement that are not
inconsistent with the terms and conditions of this Amendment
Number 1 shall remain in effect and are incorporated herein by
reference.
4. This Amendment Number 1 is binding upon the parties hereto and
their assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Number 1 to the Amended and Restated Split Dollar Insurance and Death Benefit
Agreement to be executed, with full knowledge of its contents and with the
intent to be legally bound, on the date first written above.
NATIONAL FUEL GAS COMPANY EXECUTIVE
By: /s/ Bernard J. Kennedy /s/ Philip C. Ackerman
- --------------------------- -----------------------
Name: Bernard J. Kennedy Name: Philip C. Ackerman
Title: Chairman of the Board, President
and Chief Executive Officer Date: 3/8/99
Date: 3/23/99
Witnessed: Witnessed:
/s/ Bonnie J. Nation /s/ Janet M. Conrad
- -------------------- -------------------
3/23/99 3/8/99
- ------- ------
Date Date
SECOND AMENDED AND RESTATED
SPLIT DOLLAR INSURANCE AGREEMENT
WHEREAS, National Fuel Gas Company (hereinafter, with any of its
subsidiaries, collectively called the "Company"), in recognition of the highly
valued services of Richard Hare (hereinafter called the "Executive"), the
Executive's importance to the success of the Company, and the need of
Executive's family for financial security in the event of Executive's death, has
authorized the adoption of a split dollar insurance agreement benefiting the
Executive; and
WHEREAS, the Executive and the Company desire to amend in certain
respects and to restate in its entirety the terms of the Amended and Restated
Split Dollar Insurance and Death Benefit Agreement between them dated September
15, 1997, as amended by an agreement dated March 29, 1999; which Amended and
Restated Agreement amended in certain respects and restated in its entirety the
agreement between them dated April 1, 1991; and
WHEREAS, the Executive has agreed not to participate in any
noncontributory group term life insurance program while employed by the Company;
and
WHEREAS, the Company desires to recover the premiums it pays for the
purchase of a life insurance policy or policies for these purposes upon
termination of this Agreement; and
WHEREAS, the Executive has assigned all of his interest in a certain
life insurance policy to his Trustees, as hereinafter more fully described, and
the Company has consented to such assignment;
NOW THEREFORE, for mutual consideration, the receipt and adequacy of
which the parties each acknowledge, the Company, the Executive and the Trustees
agree as follows:
<PAGE>
I. LIFE INSURANCE
By a Trust Agreement dated June 7, 1999, the Executive has established
a trust to which the Executive has assigned all of his interest in a life
insurance policy, Policy Number 3484315 (hereinafter, together with any
additional or replacement policy and any supplementary contracts issued in
connection therewith, called the "Policy") in the face amount of $1,297,401,
issued by the Guardian Life Insurance Company of America, of New York, New York
(hereafter called the "Insurer"). The Company has or will consent to such
assignment. The Trustee or Trustees acting from time to time under such Trust
Agreement (the "Trustees") shall be the sole owner of the Policy and may
exercise all rights and incidents of ownership with respect to the Policy,
except as specifically provided in this Agreement. To secure the Company's
interest under this Agreement, the Trustees have executed a collateral
assignment of the Policy to the Company (the "Collateral Assignment").
II. PREMIUMS
The Company shall pay the total premiums due on the Policy during the
term of this Agreement. Premiums shall be paid directly to the Insurer on or
before the due date, extended by any grace period. At the Company's election,
Policy dividends may be applied to reduce premiums. Notwithstanding the above,
after the Executive reaches age 65 or if the Executive's employment with the
Company terminates prior to such age, the Company shall have no further
obligation to make premium payments pursuant to this Section 11.
III. BENEFICIARY
The Trustees may from time to time while this Agreement is in force, by
such written notice to the Insurer as the Insurer may require, designate the
beneficiary or beneficiaries (the "Beneficiary") to receive the Death Benefit as
provided in this Agreement.
<PAGE>
IV. TERMINATION OF AGREEMENT
A. This Agreement shall terminate upon the earliest to occur of the
following:
a) August 24, 2008 (the Executive's 70th birthday), unless the
Company and the Executive agree in writing to a later date;
b) mutual agreement of the Company and the Executive prior to such
date;
c) the Executive's death.
B. If the Executive's employment with the Company is terminated for Cause,
as hereinafter defined, or if the Executive engages in Competition, as
hereinafter defined, with the Company, whether or not the Executive's employment
with the Company has been terminated, the Company may terminate this Agreement
by written notice to the Executive. In the event of termination under this
Subsection B, the Executive shall forfeit all rights under this Agreement, and,
notwithstanding anything in this Agreement, the Company shall be entitled to any
and all interests in the Policy.
V. REPAYMENT OF PREMIUMS TO THE COMPANY
Upon termination of this Agreement, the Company shall be entitled to
repayment of the amount of the total premiums paid by the Company to maintain
the Policy, less the amount of any distributions therefrom to the Company
(including the outstanding balance of any Policy loans to the Company) (the "Net
Premiums"). Such repayment may be made in cash or, if this Agreement terminates
during the Executive's lifetime, in the form of a paid-up policy having
equivalent value, as the Company may elect. If full repayment is not made within
60 days of termination of this Agreement, the Company may enforce its rights
under the Collateral Assignment, including (without limitation) recovery from
the Insurer out of the proceeds of the Policy or by surrender thereof Upon
receipt of the Net Premiums, the Company shall promptly release the Collateral
Assignment.
<PAGE>
VI. DEATH BENEFIT WHILE AGREEMENT IS IN FORCE
A. If this Agreement terminates by reason of the Executive's death, the
Beneficiary shall be entitled to receive from the proceeds of the Policy, after
repayment of the Net Premiums, an amount (the "Death Benefit") equal to the sum
of 24 times the base monthly salary payable by the Company to the Executive in
the month preceding the Executive's death (or, if the Executive is retired, in
the month prior to the commencement of such retirement) and two times the most
recent award, if any, paid to the Executive under any of the Company's lump sum
payment programs including the Annual At Risk Compensation Incentive Program
(AARCIP). The value of restricted stock awarded to the Executive for service in
the Company's fiscal year 1996 or later to supplement an AARCIP award for that
fiscal year shall be deemed to be part of the Executive's AARCIP award for
purposes of determining the Death Benefit. The restricted stock shall be valued
at the average of the high and low market value on the grant date. If the
Executive has retired (on disability or otherwise) and becomes reemployed by the
Company, the latest date of commencement of retirement shall be used for
purposes of computing the Death Benefit. If the proceeds of the Policy after
repayment of the Net Premiums are inadequate to pay the Death Benefit in full,
the Company shall have no obligation for the shortfall.
B. The Company shall notify the Insurer of the amount of the Death Benefit
within 30 days of the death of the Executive while this Agreement is in force,
and the Death Benefit shall be paid to the Beneficiary under the settlement
option elected by the Trustees or the Beneficiary.
C. After payment of the Death Benefit, the Company shall be entitled to
any remaining balance of the proceeds of the Policy, and the Beneficiary, the
Trustees and the Executive's estate shall have no further rights in or under
this Agreement or the Policy.
<PAGE>
VII. OTHER COMPANY BENEFITS
The Executive shall have no right to participate in any
non-contributory group-term life insurance plan maintained by the Company. In
other respects, the benefits provided to the Executive under this Agreement and
the Policy shall be separate from and in addition to other benefits that may be
offered by the Company to the Executive, including any non-contributory
accidental death and dismemberment coverage that the Company maintains.
VIII. POLICY LOANS
While this Agreement is in force, neither the Trustees nor any Assignee
shall borrow against or pledge the Policy as security for any debt.
IX. ASSIGNMENT OF THE POLICY AND THIS AGREEMENT
A. The Policy may not be assigned, transferred, pledged, surrendered or
otherwise encumbered or alienated without the written consent of the Company.
Any assignee pursuant to this Section and any other successor to the Executive's
or the Trustees' interest in the Policy (both referred to herein as the
"Assignee") shall be bound by this restriction.
B. The rights and obligations of this Agreement are personal to the
Executive and the Trustees and may not be assigned; however, one or more
successor Trustees may be appointed.
X. REPLACEMENT OF THE POLICY
The Company shall have the right to replace the Policy with a new
policy or policies, with the consent of the Executive and the Trustees, which
consent shall not unreasonably be withheld. In the event of such replacement,
the Company shall have the right to receive the cash surrender value of any
policy being canceled or surrendered.
<PAGE>
XI. AMENDMENT
This Agreement may be altered, amended or modified only by a written
Agreement signed by the Company, the Executive and the Trustees (or, if the
Policy has been assigned, the Assignee). This Agreement and any amendments
hereto shall be binding upon the Company, the Executive and the Trustees and
their legal representatives, successors, beneficiaries and assigns. In the event
that the Company becomes a party to any merger, consolidation or reorganization,
this Agreement shall remain in full force and effect as an obligation of the
Company or its successors in interest.
XII. DEFINITION OF TERMS
A. "Cause" means serious, willful misconduct in respect of the Executive's
obligations to the Company that has damaged or is likely to damage the Company,
including (without limitation) any endeavor by the Executive, directly or
indirectly, to interfere in the business relations of or otherwise harm the
Company as the Company shall reasonably determine.
B. "Competition" means any employment, consulting contract or other
arrangement, before or after the termination of the Executive's employment with
the Company, with any person or entity that is then or becomes engaged in a
business enterprise of any sort that is, in any material respect, competitive
with the Company, or any assistance by the Executive to any such enterprise in
engaging in such competition.
XIII. NONINTERFERENCE
The Executive and the Trustees covenant that the Executive, the
Trustees, any Assignee and the Beneficiary shall not interfere with the
Company's rights under this Agreement or take any voluntary action that causes
the Policy to fail or lapse, in whole or in part. The Executive, the Trustees,
any Assignee and the Beneficiary will cooperate with Company and the Insurer in
all respects in obtaining and maintaining the Policy and shall, if necessary,
use their best efforts
<PAGE>
to provide, from time to time, such evidence of insurability as the Insurer may
require.
XIV. MISCELLANEOUS
A. If any part of this Agreement or the application of any part to certain
persons or circumstances shall be invalid or unenforceable, the remainder of the
Agreement shall continue to be effective.
B. This Agreement shall be construed and regulated under the laws of the
State of New York.
C. The Executive understands that the benefits provided under this
Agreement will or may result in taxable income to him, and the Company reserves
the right to implement tax withholding respecting such amounts as and when it
may deem such withholding appropriate.
XV. ERISA PROVISIONS
This Agreement constitutes part of a welfare benefit plan ("Welfare
Plan") and, as such, the following provisions are part of this Agreement and are
intended to meet the requirements of Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA"):
1. The named fiduciary of the Welfare Plan is the Company.
2. The funding policies under the Welfare Plan are that all
premiums on the Policy be remitted to the Insurer by the
Company when due, less any amount paid by the Executive, the
Trustees, or the Assignee, in their sole discretion.
3. Direct payment by the Insurer is the basis of payment of
benefits under this Agreement.
4. For claims procedure purposes with respect to claims asserted
under the Welfare Plan, the "Claims Manager" shall be Robert
J. Dauer, or such other person as may be designated from time
to time by the Company.
<PAGE>
a. If for any reason a claim for benefits is made by a
participant under the Welfare Plan ("Claimant") and is denied
by the Company, the Claims Manager shall deliver to the
Claimant a written explanation specifying the reasons for the
denial, the provisions on which such denial is based, such
other data as may be pertinent, and the procedures available
to the Claimant to obtain review of the claim, all written in
a manner calculated to be understood by the Claimant. For this
purpose,
(i) the claim shall be deemed filed when presented in writing to
the Claims Manager; and
(ii) the Claims Manager's explanation shall be in writing delivered
to the Claimant within 90 days of the date the claim is filed.
(b) The Claimant shall have 60 days following receipt of the
denial of the claim to file with the Claims Manager a written
request for review of the denial. For such review, the
Claimant or his or her representative may submit pertinent
documents and written issues and comments.
(c) The Claims Manager shall have discretion to decide the issue
on review and shall furnish the Claimant with a copy of the
decision within 60 days of receiving the Claimant's request
for review of the claim. The decision on review shall be
written in a manner calculated to be understood by the
Claimant and shall specify the reasons for the decision, as
well as the provisions on which the decision is based. If a
copy of the decision is not so furnished to the Claimant
within such 60 days, the claim shall be deemed denied on
review.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates set opposite their respective signatures, to be effective on the 9th day
of August, 1999.
NATIONAL FUEL GAS COMPANY
August 9, 1999
- --------------
Date
/s/ Janet M. Conrad By: /s/ Phillip C. Ackerman
- ------------------- ----------------------------
Witness Philip C. Ackerman
President
EXECUTIVE:
August 9, 1999
- --------------
/s/ Janet M. Conrad /s/ Richard Hare
- ------------------- ----------------
Witness Richard Hare
TRUSTEES:
July 20, 1999
- -------------
Date
/s/ Mary Penny Hamilton /s/ Deborah Lynn Lenahan
- ----------------------- ------------------------
Witness Deborah Lynn Lenahan
July 28, 1999
- -------------
Date
/s/ Mary Penny Hamilton /s/ Diana Fields
- ----------------------- ----------------
Witness Diana Fields
July 20, 1999
- -------------
Date
/s/ Mary Penny Hamilton /s/ Nancy Ann Hartung
- ----------------------- ---------------------
Witness Nancy Ann Hartung
AMENDMENT NUMBER 1
TO
AMENDED AND RESTATED SPLIT DOLLAR INSURANCE AND
DEATH BENEFIT AGREEMENT
BY AND BETWEEN
NATIONAL FUEL GAS COMPANY
AND
Joseph P. Pawlowski
This Amendment Number 1 to the Amended and Restated Split Dollar
Insurance and Death Benefit Agreement is made and entered into this 29th day of
March 1999 by and between National Fuel Gas Company (the "Company") and Joseph
P. Pawlowski (the "Executive").
WHEREAS, Company and Executive are parties to a certain Amended and
Restated Split Dollar Insurance and Death Benefit Agreement made as of September
15, 1997 (the "Agreement"); and
WHEREAS, Company and Executive agree to this further amendment of the
Agreement, as permitted in Article XI, to revise the calculation of the Death
Benefit therein to include restricted stock awarded in lieu of a cash award
under the Company's Annual At Risk Compensation Incentive Program (the
"AARCIP").
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the par-ties hereto agree as follows:
1. Article VI, Paragraph A shall be amended to insert the following
sentence after the first complete sentence thereof.
"Awards of restricted stock made to the Executive for service in the
Company's fiscal year 1996 or later to supplement an AARCIP award for
that fiscal year, which was approximately equal to the maximum AARCIP
award then permissible consistent with the shareholder approval
applicable to that AARCIP award, shall also be included in the
calculation of the Executive's Death Benefit at the rate of two times
the most recent such award of restricted stock, if any. The restricted
stock shall be valued at the average of the high and low market value
on the grant date."
2. The amendments to the Agreement, contained herein. will be effective
as of the date of this Amendment Number 1 and shall remain in effect for the
entire term of the Agreement.
3. All other terms and provisions of the Agreement that are not
inconsistent with the terms and conditions of this Amendment Number 1 shall
remain in effect and are incorporated herein by reference.
4. This Amendment Number 1 is binding upon the parties hereto and their
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Number 1 to the Amended and Restated Split Dollar Insurance and Death Benefit
Agreement to be executed, with full knowledge of its contents and with the
intent to be legally bound, on the date first written above.
NATIONAL FUEL GAS COMPANY EXECUTIVE
By: /s/ Philip C. Ackerman /s/ Joseph P. Pawlowski
- -------------------------- -----------------------
Name: Philip. Ackerman Name Joseph P. Pawlowski
Title: Senior Vice President Date: 3/19/99
- ----------------------------- ----------------
Date: 3/29/99
- --------------
Witnessed: Witnessed:
/s/ Janet M. Conrad /s/ Robert J. Dauer
- ------------------- -------------------
3/29/99 3/19/99
- ------- -------
Date Date
SECOND AMENDED AND RESTATED
SPLIT DOLLAR INSURANCE AGREEMENT
WHEREAS. National Fuel Gas Company (hereinafter, with any of its
subsidiaries, collectively called the "Company"), in recognition of the highly
valued services of Gerald T. Wehrlin (hereinafter called the "Executive"), the
Executive's importance to the success of the Company, and the need of
Executive's family for financial security in the event of Executive's death, has
authorized the adoption of a split dollar insurance agreement benefiting the
Executive; and
WHEREAS, the Executive and the Company desire to amend in certain
respects and to restate in its entirety the terms of the Amended and Restated
Split Dollar Insurance and Death Benefit Agreement between them dated September
15, 1997, as amended by an agreement dated March 29, 1999; which Amended and
Restated Agreement amended in certain respects and restated in its entirety the
agreement between them dated April 1, 199 1; and
WHEREAS, the Executive has agreed not to participate in any
noncontributory group term life insurance program while employed by the Company;
and
WHEREAS, the Company desires to recover the premiums it pays for the
purchase of a life insurance policy or policies for these purposes upon
termination of this Agreement; and
WHEREAS, the Executive has assigned all of his interest in a certain
life insurance policy to his Trustees, as hereinafter more fully described.
NOW THEREFORE, for mutual consideration, the receipt and adequacy of
which the Company and Executive each acknowledge, the Company, the Executive and
the Trustees agree as follows:
<PAGE>
I. LIFE INSURANCE
By an Irrevocable Trust Agreement dated January 26, 1999, the Executive
has established a trust to which the Executive has assigned all of his interest
in a life insurance policy, Policy Number 3485474 (hereinafter, together with
any additional or replacement policy and any supplementary contracts issued in
connection therewith, called the "Policy") in the face amount of $711,529,
issued by the Guardian Life Insurance Company of America, of New York, New York
(hereafter called the "Insurer"). The Trustee or Trustees acting from time to
time under such Trust Agreement (the "Trustees") shall be the sole owner of the
Policy and may exercise all rights and incidents of ownership with respect to
the Policy, except as specifically provided in this Agreement. To secure the
Company's interest under this Agreement, the Trustees have executed a collateral
assignment of the Policy to the Company (the "Collateral Assignment").
II. PREMIUMS
The Company shall pay the total premiums due on the Policy during the
term of this Agreement. Premiums shall be paid directly to the Insurer on or
before the due date, extended by any grace period. At the Company's election,
Policy dividends may be applied to reduce premiums. Notwithstanding the above,
after the Executive reaches age 65 or if the Executive's employment with the
Company terminates prior to such age, the Company shall have no further
obligation to make premium payments pursuant to this Section II.
III. BENEFICIARY
The Trustees may from time to time while this Agreement is in force, by
such written notice to the Insurer as the Insurer may require, designate the
beneficiary or beneficiaries (the "Beneficiary") to receive the Death Benefit as
provided in this Agreement.
<PAGE>
IV. TERMINATION OF AGREEMENT
A. This Agreement shall terminate upon the earliest to occur of the
following:
a) January 1, 2008 (the Executive's 70th birthday), unless the
Company and the Executive agree in writing to a later date;
b) mutual agreement of the Company and the Executive prior to
such date;
c) the Executive's death.
B. If the Executive's employment with the Company is terminated for
Cause, as hereinafter defined, or if the Executive engages in Competition, as
hereinafter defined, with the Company, whether or not the Executive's employment
with the Company has been terminated, the Company may terminate this Agreement
by written notice to the Executive. In the event of termination under this
Subsection B, the Executive shall forfeit all rights under this Agreement, and,
notwithstanding anything in this Agreement, the Company shall be entitled to any
and all interests in the Policy.
V. REPAYMENT OF PREMIUMS TO THE COMPANY
Upon termination of this Agreement, the Company shall be entitled to
repayment of the amount of the total premiums paid by the Company to maintain
the Policy, less the amount of any distributions therefrom to the Company
(including the outstanding balance of any Policy loans to the Company) (the "Net
Premiums"). Such repayment may be made in cash or, if this Agreement terminates
during the Executive's lifetime, in the form of a paid-up policy having
equivalent value, as the Company may elect. If full repayment is not made within
60 days of termination of this Agreement, the Company may enforce its rights
under the Collateral Assignment, including (without limitation) recovery from
the Insurer out of the proceeds of the Policy or by surrender thereof. Upon
receipt of the Net Premiums, the Company shall promptly release the Collateral
Assignment.
<PAGE>
VI. DEATH BENEFIT WHILE AGREEMENT IS IN FORCE
A. If this Agreement terminates by reason of the Executive's death, the
Beneficiary shall be entitled to receive from the proceeds of the Policy, after
repayment of the Net Premiums, an amount (the "Death Benefit") equal to the sum
of 24 times the base monthly salary payable by the Company to the Executive in
the month preceding the Executive's death (or, if the Executive is retired, in
the month prior to the commencement of such retirement) and two times the most
recent award, if any, paid to the Executive under any of the Company's lump sum
payment programs including the Annual At Risk Compensation Incentive Program
(AARCIP). Awards of restricted stock made to the Executive for service in the
Company's fiscal year 1996 or later to supplement an AARCIP award for that
fiscal year, which was approximately equal to the maximum AARCIP award then
permissible consistent with the shareholder approval applicable to that AARCIP
award, shall also be included in the calculation of the Executive's Death
Benefit at the rate of two times the most recent such award of restricted stock,
if any. The restricted stock shall be valued at the average of the high and low
market value on the grant date. If the Executive has retired (on disability or
otherwise) and becomes reemployed by the Company, the latest date of
commencement of retirement shall be used for purposes of computing the Death
Benefit. If the proceeds of the Policy after repayment of the Net Premiums are
inadequate to pay the Death Benefit in full, the Company shall have no
obligation for the shortfall.
B. The Company shall notify the Insurer of the amount of the Death
Benefit within 30 days of the death of the Executive while this Agreement is in
force, and the Death Benefit shall be paid to the Beneficiary under the
settlement option elected by the Trustees or the Beneficiary.
C. After payment of the Death Benefit, the Company shall be entitled to
any remaining balance of the proceeds of the Policy, and the Beneficiary, the
Trustees and the Executive's estate shall have no further rights in or under
this Agreement or the Policy.
<PAGE>
VII. OTHER COMPANY BENEFITS
The Executive shall have no right to participate in any
non-contributory group-term life insurance plan maintained by the Company. In
other respects, the benefits provided to the Executive under this Agreement and
the Policy shall be separate from and in addition to other benefits that may be
offered by the Company to the Executive, including any non-contributory
accidental death and dismemberment coverage that the Company maintains.
VIII. POLICY LOANS
While this Agreement is in force, neither the Trustees nor any Assignee
shall borrow against or pledge the Policy as security for any debt.
IX. ASSIGNMENT OF THE POLICY AND THIS AGREEMENT
A. The Policy may not be assigned, transferred, pledged, surrendered or
otherwise encumbered or alienated without the written consent of the Company.
Any assignee pursuant to this Section and any other successor to the Executive's
interest in the Policy (both referred to herein as the "Assignee") shall be
bound by this restriction.
B. The rights and obligations of this Agreement are personal to the
Executive and the Trustees and may not be assigned; however, one or more
successor Trustees may be appointed.
X. REPLACEMENT OF THE POLICY
The Company shall have the night to replace the Policy with a new
policy or policies, with the consent of the Executive and the Trustees, which
consent shall not unreasonably be withheld. In the event of such replacement,
the Company shall have the right to receive the cash surrender value of any
policy being canceled or surrendered.
<PAGE>
XI. AMENDMENT
This Agreement may be altered, amended or modified only by a written
Agreement signed by the Company, the Executive and the Trustees (or, if the
Policy has been assigned, the Assignee). This Agreement and any amendments
hereto shall be binding upon the Company, the Executive and the Trustees and
their legal representatives, successors, beneficiaries and assigns. In the event
that the Company becomes a party to any merger, consolidation or reorganization,
this Agreement shall remain in full force and effect as an obligation of the
Company or its successors in interest.
XII. DEFINITION OF TERMS
A. "Cause" means serious, willful misconduct in respect of the
Executive's obligations to the Company that has damaged or is likely to damage
the Company, including (without limitation) any endeavor by the Executive,
directly or indirectly, to interfere in the business relations of or otherwise
harm the Company, as the Company shall reasonably determine.
B. "Competition" means any employment, consulting contract or other
arrangement, before or after the termination of the Executive's employment with
the Company, with any person or entity that is then or becomes engaged in a
business enterprise of any sort that is, in any material respect, competitive
with the Company, or any assistance by the Executive to any such enterprise in
engaging in such competition.
XIII. NONINTERFERENCE
The Executive and the Trustees covenant that the Executive, the
Trustees, any Assignee and the Beneficiary shall not interfere with the
Company's rights under this Agreement or take any voluntary action that causes
the Policy to fall or lapse, in whole or in part. The Executive, the Trustees,
any Assignee and the Beneficiary will cooperate with Company and the Insurer in
all respects in obtaining and maintaining the Policy and shall, if necessary,
use their best efforts
<PAGE>
to provide, from time to time, such evidence of insurability as the Insurer may
require.
XIV. MISCELLANEOUS
A. If any part of this Agreement or the application of any part to
certain persons or circumstances shall be invalid or unenforceable, the
remainder of the Agreement shall continue to be effective.
B. This Agreement shall be construed and regulated under the laws of
the State of New York.
C. The Executive understands that the benefits provided under this
Agreement will or may result in taxable income to him and the Company reserves
the right to implement tax withholding respecting such amounts as and when it
may deem such withholding appropriate.
XV. ERISA PROVISIONS
This Agreement constitutes part of a welfare benefit plan ("Welfare
Plan") and, as such, the following provisions are part of this Agreement and are
intended to meet the requirements of Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA"):
1. The named fiduciary of the Welfare Plan is the Company.
2. The funding policies under the Welfare Plan are that all
premiums on the Policy be remitted to the Insurer by the
Company when due, less any amount paid by the Executive, the
Trustees, or the Assignee, in their sole discretion.
3. Direct payment by the Insurer is the basis of payment of
benefits under this Agreement.
4. For claims procedure purposes with respect to claims asserted
under the Welfare Plan, the "Claims Manager" shall be Robert
J. Dauer, or such other person as may be designated from time
to time by the Company.
<PAGE>
a. If for any reason a claim for benefits is made by a
participant under the Welfare Plan ("Claimant") and
is denied by the Company, the Claims Manager shall
deliver to the Claimant a written explanation
specifying the reasons for the denial, the provisions
on which such denial is based, such other data as may
be pertinent, and the procedures available to the
Claimant to obtain review of the claim, all written
in a manner calculated to be understood by the
Claimant. For this purpose,
(i) the claim shall be deemed filed when presented in
writing to the Claims Manager; and
(ii) the Claims Manager's explanation shall be in writing
delivered to the Claimant within 90 days of the date
the claim is filed.
(b) The Claimant shall have 60 days following receipt of
the denial of the claim to file with the Claims
Manager a written request for review of the denial.
For such review, the Claimant or his or her
representative may submit pertinent documents and
written issues and comments.
(c) The Claims Manager shall have discretion to decide
the issue on review and shall furnish the Claimant
with a copy of the decision within 60 days of
receiving the Claimant's request for review of the
claim. The decision on review shall be written in a
manner calculated to be understood by the Claimant
and shall specify the reasons for the decision, as
well as the provisions on which the decision is
based. If a copy of the decision is not so furnished
to the Claimant within such 60 days, the claim shall
be deemed denied on review.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates set opposite their respective signatures, to be effective on the 15th day
of June 1999.
NATIONAL FUEL GAS COMPANY
June 15, 1999
- -------------
Date
/s/ Janet M. Conrad By: /s/ Philip C. Ackerman
- ------------------- --------------------------
Witness Philip C. Ackerman
Senior Vice President
EXECUTIVE:
June 2, 1999
- ------------
Date
/s/ Jan M.Wojcik /s/ Gerald T. Wehrlin
- ---------------- ---------------------
Witness Gerald T. Wehrlin
June 9, 1999
- ------------
Date
/s/ (illegible signature) /s/ Russell L. Wehrlin
- ------------------------- ----------------------
Witness Russell L. Wehrlin
June 3, 1999
- ------------
Date
/s/ Jan M. Wojcik /s/ Kathleen M. Mann
- ----------------- --------------------
Witness Kathleen M. Mann
AMENDED AND RESTATED
SPLIT DOLLAR INSURANCE AND DEATH BENEFIT AGREEMENT
WHEREAS, National Fuel Gas Company (hereinafter, with any of its
subsidiaries, collectively called the "Company"), in recognition of the highly
valued services of Walter E. DeForest (hereinafter called the "Executive"), the
Executive's importance to the success of the Company, and the need of
Executive's family for financial security in the event of Executive's death, has
authorized the adoption of a split dollar insurance and death benefit agreement
benefiting the Executive; and
WHEREAS, the Executive and the Company desire to amend in certain
respects and to restate in its entirety the terms of the Split Dollar Death
Benefits Agreement between them dated October 1, 1991; and
WHEREAS, the Executive has agreed not to participate in any
noncontributory group term life insurance program while employed by the Company;
and
WHEREAS, the Company desires to recover the premiums it pays for the
purchase of a life insurance policy or policies for these purposes upon
termination of this Agreement.
NOW THEREFORE, for mutual consideration, the receipt and adequacy of
which the Company and Executive each acknowledge, the Company and Executive
agree as follows:
I. LIFE INSURANCE
The Executive is the owner of a life insurance policy, Policy Number
3492786 (hereinafter, together with any additional or replacement policy and any
supplementary contracts issued in connection therewith, called the "Policy") in
the face amount of $575,057, issued by the Guardian Life Insurance Company of
America, of New York, New York (hereafter called the "Insurer"). The Executive
(or the Executive's Assignee pursuant to Article IX) shall be the sole owner of
the Policy and may exercise all rights and incidents of ownership with respect
to the Policy, except as specifically provided in this Agreement. To secure the
Company's interest under this Agreement, the Executive has executed a collateral
assignment of the Policy to the Company (the "Collateral Assignment").
II. PREMIUMS
The Company shall pay the total premiums due on the Policy during the
term of this Agreement. Premiums shall be paid directly to the Insurer on or
before the due date, extended by any grace period. At the Company's election,
Policy dividends may be applied to reduce premiums. Notwithstanding the above,
after the Executive reaches age 65 or if the Executive's employment with the
Company terminates prior to such age, the Company shall have no further
obligation to make premium payments pursuant to this Section II.
III. BENEFICIARY
The Executive (or the Executive's Assignee) may from time to time while
this Agreement is in force, by such written notice to the Insurer as the Insurer
may require, designate the beneficiary or beneficiaries (the "Beneficiary") to
receive the Death Benefit as provided in this Agreement.
IV. TERMINATION OF AGREEMENT
A. This agreement shall terminate upon the earliest to occur of the
following:
a) May 29, 2011 (the Executive's 70th birthday), unless the Company
and the Executive agree in writing to a later date;
b) mutual agreement of the Company and the Executive prior to such
date;
c) the Executive's death.
B. If the Executive's employment with the Company is terminated for
Cause, as hereinafter defined, or if the Executive engages in Competition, as
hereinafter defined, with the Company, whether or not the Executive's employment
with the Company has been terminated, the Company may terminate this Agreement
by written notice to the Executive. In the event of termination under this
Subsection B, the Executive shall forfeit all rights under this Agreement and in
the Policy.
V. REPAYMENT OF PREMIUMS TO THE COMPANY
Upon termination of this Agreement, the Company shall be entitled to
repayment of the amount of the total premiums paid by the Company to maintain
the Policy, less the amount of any distributions therefrom to the Company
(including the outstanding balance of any Policy loans to the Company) (the "Net
Premiums"). Such repayment may be made in cash or, if this Agreement terminates
during the Executive's lifetime, in the form of a paid-up policy having
equivalent value, as the Company may elect. If full repayment is not made within
60 days of termination of this Agreement, the Company may enforce its rights
under the Collateral Assignment, including (without limitation) recovery from
the Insurer out of the proceeds of the Policy or by surrender thereof. Upon
receipt of the Net Premiums, the Company shall promptly release the Collateral
Assignment.
VI. DEATH BENEFIT WHILE AGREEMENT IS IN FORCE
A. If this Agreement terminates by reason of the Executive's death, the
Beneficiary shall be entitled to receive from the proceeds of the Policy, after
repayment of the Net Premiums, an amount (the "Death Benefit") equal to the sum
of 24 times the base monthly salary payable by the Company to the Executive in
the month preceding the Executive's death (or, if the Executive is retired, in
the month prior to the commencement of such retirement) and two times the most
recent award, if any, paid to the Executive under any of the Company's lump sum
payment programs including the Annual At Risk Compensation Incentive Program
(AARCIP). If the Executive has retired (on disability or otherwise) and becomes
reemployed by the Company, the latest date of commencement of retirement shall
be used for purposes of computing the Death Benefit. If the proceeds of the
Policy after repayment of the Net Premiums are inadequate to pay the Death
Benefit in full, the Company shall have no obligation for the shortfall.
B. The Company shall notify the Insurer of the amount of the Death
Benefit within 30 days of the death of the Executive while this Agreement is in
force, and the Death Benefit shall be paid to the Beneficiary under the
settlement option elected by the Executive, the Executive's Assignee or the
Beneficiary.
C. After payment of the Death Benefit, the Company shall be entitled to
any remaining balance of the proceeds of the Policy, and neither the Beneficiary
nor the Executive's estate shall have any further rights in or under this
Agreement or the Policy.
VII. OTHER COMPANY BENEFITS
The Executive shall have no right to participate in any non-contributory
group-term life insurance plan maintained by the Company. In other respects, the
benefits provided to the Executive under this Agreement and the Policy shall be
separate from and in addition to other benefits that may be offered by the
Company to the Executive, including any non-contributory accidental death and
dismemberment coverage that the Company maintains.
VIII. POLICY LOANS
While this Agreement is in force, neither the Executive nor any Assignee
shall borrow against or pledge the Policy as security for any debt.
IX. ASSIGNMENT OF THE POLICY AND THIS AGREEMENT
A. The Policy may not be assigned, transferred, pledged, surrendered or
otherwise encumbered or alienated without the written consent of the Company.
Any assignee pursuant to this Section and any other successor to the Executive's
interest in the Policy (both referred to herein as the "Assignee") shall be
bound by this restriction.
B. The rights and obligations of this Agreement are personal to the
Executive and may not be assigned.
X. REPLACEMENT OF THE POLICY
The Company shall have the right to replace the Policy with a new policy
or policies, with the Executive's consent, which consent shall not unreasonably
be withheld. In the event of such replacement, the Company shall have the right
to receive the cash surrender value of any policy being canceled or surrendered.
XI. AMENDMENT
This Agreement may be altered, amended or modified only by a written
Agreement signed by the Company and the Executive (or, if the Policy has been
assigned, the Assignee). This Agreement and any amendments hereto shall be
binding upon the Company and the Executive and their legal representatives,
successors, beneficiaries and assigns. In the event that the Company becomes a
party to any merger, consolidation or reorganization, this Agreement shall
remain in full force and effect as an obligation of the Company or its
successors in interest.
XII. DEFINITION OF TERMS
A. "Cause" means serious, willful misconduct in respect of the
Executive's obligations to the Company that has damaged or is likely to damage
the Company, including (without limitation) any endeavor by the Executive,
directly or indirectly, to interfere in the business relations of or otherwise
harm the Company, as the Company shall reasonably determine.
B. "Competition" means any employment, consulting contract or other
arrangement, before or after the termination of the Executive's employment with
the Company, with any person or entity that is then or becomes engaged in a
business enterprise of any sort that is, in any material respect, competitive
with the Company, or any assistance by the Executive to any such enterprise in
engaging in such competition.
XIII. NONINTERFERENCE
The Executive covenants that the Executive, any Assignee and the
Beneficiary shall not interfere with the Company's rights under this Agreement
or take any voluntary action that causes the Policy to fail or lapse, in whole
or in part. The Executive, any Assignee and the Beneficiary will cooperate with
Company and the Insurer in all respects in obtaining and maintaining the Policy
and shall, if necessary, use their best efforts to provide, from time to time,
such evidence of insurability as the Insurer may require.
XIV. MISCELLANEOUS
A. If any part of this Agreement or the application of any part to
certain persons or circumstances shall be invalid or unenforceable, the
remainder of the Agreement shall continue to be effective.
B. This Agreement shall be construed and regulated under the laws of the
State of New York.
C. The Executive understands that the benefits provided under this
Agreement will or may result in taxable income to him, and the Company reserves
the right to implement tax withholding respecting such amounts as and when it
may deem such withholding appropriate.
XV. ERISA PROVISIONS
This Agreement constitutes part of a welfare benefit plan ("Welfare
Plan") and, as such, the following provisions are part of this Agreement and are
intended to meet the requirements of Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA"):
1. The named fiduciary of the Welfare Plan is the Company.
2. The funding policies under the Welfare Plan are that all
premiums on the Policy be remitted to the Insurer by the
Company when due, less any amount paid by the Executive or the
Assignee, in their sole discretion.
3. Direct payment by the Insurer is the basis of payment of
benefits under this Agreement.
4. For claims procedure purposes with respect to claims asserted
under the Welfare Plan, the "Claims Manager" shall be Robert
J. Dauer, or such other person as may be designated from time
to time by the Company.
a. If for any reason a claim for benefits is made by a
participant under the Welfare Plan ("Claimant") and is
denied by the Company, the Claims Manager shall deliver
to the Claimant a written explanation specifying the
reasons for the denial, the provisions on which such
denial is based, such other data as may be pertinent, and
the procedures available to the Claimant to obtain review
of the claim, all written in a manner calculated to be
understood by the Claimant. For this purpose,
(i) the claim shall be deemed filed when presented in
writing to the Claims Manager; and
(ii) the Claims Manager's explanation shall be in writing
delivered to the Claimant within 90 days of the date
the claim is filed.
(b) The Claimant shall have 60 days following receipt of the
denial of the claim to file with the Claims Manager a
written request for review of the denial. For such
review, the Claimant or his or her representative may
submit pertinent documents and written issues and
comments.
(c) The Claims Manager shall have discretion to decide the
issue on review and shall furnish the Claimant with a
copy of the decision within 60 days of receiving the
Claimant's request for review of the claim. The decision
on review shall be written in a manner calculated to be
understood by the Claimant and shall specify the reasons
for the decision, as well as the provisions on which the
decision is based. If a copy of the decision is not so
furnished to the Claimant within such 60 days, the claim
shall be deemed denied on review.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
set opposite their respective signatures, to be effective on the 15th day of
September, 1997.
NATIONAL FUEL GAS COMPANY
9/15/97
- -------
Date
/s/ Robert J. Dauer By: /s/ Phillip C. Ackerman
- ------------------- ---------------------------
Witness Philip C. Ackerman
Senior Vice President
EXECUTIVE:
8/28/97
- -------
Date
/s/ Robert J. Dauer /s/ Walter E. DeForest
- ------------------- ----------------------
Witness Walter E. DeForest
AMENDMENT NUMBER I
TO
AMENDED AND RESTATED SPLIT DOLLAR INSURANCE AND
DEATH BENEFIT AGREEMENT
BY AND BETWEEN
NATIONAL FUEL GAS COMPANY
AND
Walter E. DeForest
This Amendment Number I to the Amended and Restated Split Dollar
Insurance and Death Benefit Agreement is made and entered into this 29th day of
March,1999 by and between National Fuel Gas Company (the "Company") and Walter
E. DeForest (the "Executive").
WHEREAS, Company and Executive are parties to a certain Amended and
Restated Split Dollar Insurance and Death Benefit Agreement made as of September
15, 1997 (the "Agreement"); and
WHEREAS, Company and Executive agree to this further amendment of the
Agreement, as permitted in Article XI, to revise the calculation of the Death
Benefit therein to include restricted stock awarded in lieu of a cash award
under the Company's Annual At Risk Compensation Incentive Program (the
"AARCIP").
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the par-ties hereto agree as follows:
1. Article VI, Paragraph A shall be amended to insert the following
sentence after the first complete sentence thereof:
"Awards of restricted stock made to the Executive for service in the
Company's fiscal year 1996 or later to supplement an AARCIP award for
that fiscal year, which was approximately equal to the maximum AARCIP
award then permissible consistent with the shareholder approval
applicable to that AARCIP award, shall also be included in the
calculation of the Executive's Death Benefit at the rate of two times
the most recent such award of restricted stock, if any. The restricted
stock shall be valued at the average of the high and low market value
on the grant date."
2. The amendments to the Agreement, contained herein, will be effective
as of the date of this Amendment Number I and shall remain in effect for the
entire term of the Agreement.
3. All other terms and provisions of the Agreement that are not
inconsistent with the terms and conditions of this Amendment Number I shall
remain in effect and are incorporated herein by reference.
4. This Amendment Number 1 is binding upon the parties hereto and their
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Number I to the Amended and Restated Split Dollar Insurance and Death Benefit
Agreement to be executed, with full knowledge of its contents and with the
intent to be legally bound, on the date first written above.
NATIONAL FUEL GAS COMPANY EXECUTIVE
By: /s/ Philip C. Ackerman /s/ Walter E. DeForest
- --------------------------- ----------------------
Name: Philip C. Ackerman Name: Walter E. DeForest
Title: Senior Vice President Date: 3-8-99
Date: 3/29/99
Witnessed: Witnessed:
/s/ Janet M. Conrad /s/ Robert J. Dauer
- ------------------- -------------------
3/29/99 3/8/99
- ------- ------
Date Date
AMENDED AND RESTATED
SPLIT DOLLAR INSURANCE AND DEATH BENEFIT AGREEMENT
WHEREAS, National Fuel Gas Company (hereinafter, with any of its
subsidiaries, collectively called the "Company"), in recognition of the highly
valued services of Dennis J. Seeley (hereinafter called the "Executive"), the
Executive's importance to the success of the Company, and the need of
Executive's family for financial security in the event of Executive's death, has
authorized the adoption of a split dollar insurance and death benefit agreement
benefiting the Executive; and
WHEREAS, the Executive and the Company desire to amend in certain
respects and to restate in its entirety the terms of the Split Dollar Death
Benefits Agreement between them dated October 1, 1993; and
WHEREAS, the Executive has agreed not to participate in any
noncontributory group term life insurance program while employed by the Company;
and
WHEREAS, the Company desires to recover the premiums it pays for the
purchase of a life insurance policy or policies for these purposes upon
termination of this Agreement.
NOW THEREFORE, for mutual consideration, the receipt and adequacy of
which the Company and Executive each acknowledge, the Company and Executive
agree as follows:
I. LIFE INSURANCE
The Executive is the owner of a life insurance policy, Policy Number
3548226 (hereinafter, together with any additional or replacement policy and any
supplementary contracts issued in connection therewith, called the "Policy") in
the face amount of $1,081,310, issued by the Guardian Life Insurance Company of
America, of New York, New York (hereafter called the "Insurer"). The Executive
(or the Executive's Assignee pursuant to Article IX) shall be the sole owner of
the Policy and may exercise all rights and incidents of ownership with respect
to the Policy, except as specifically provided in this Agreement. To secure the
Company's interest under this Agreement, the Executive has executed a collateral
assignment of the Policy to the Company (the "Collateral Assignment").
II. PREMIUMS
The Company shall pay the total premiums due on the Policy during the
term of this Agreement. Premiums shall be paid directly to the Insurer on or
before the due date, extended by any grace period. At the Company's election,
Policy dividends may be applied to reduce premiums. Notwithstanding the above,
after the Executive reaches age 65 or if the Executive's employment with the
Company terminates prior to such age, the Company shall have no further
obligation to make premium payments pursuant to this Section II.
III. BENEFICIARY
The Executive (or the Executive's Assignee) may from time to time while
this Agreement is in force, by such written notice to the Insurer as the Insurer
may require, designate the beneficiary or beneficiaries (the "Beneficiary") to
receive the Death Benefit as provided in this Agreement.
IV. TERMINATION OF AGREEMENT
A. This agreement shall terminate upon the earliest to occur of the
following:
a) February 4, 2013 (the Executive's 70th birthday), unless the
Company and the Executive agree in writing to a later date;
b) mutual agreement of the Company and the Executive prior to such
date;
c) the Executive's death.
B. If the Executive's employment with the Company is terminated for
Cause, as hereinafter defined, or if the Executive engages in Competition, as
hereinafter defined, with the Company, whether or not the Executive's employment
with the Company has been terminated, the Company may terminate this Agreement
by written notice to the Executive. In the event of termination under this
Subsection B, the Executive shall forfeit all rights under this Agreement and in
the Policy.
V. REPAYMENT OF PREMIUMS TO THE COMPANY
Upon termination of this Agreement, the Company shall be entitled to
repayment of the amount of the total premiums paid by the Company to maintain
the Policy, less the amount of any distributions therefrom to the Company
(including the outstanding balance of any Policy loans to the Company) (the "Net
Premiums"). Such repayment may be made in cash or, if this Agreement terminates
during the Executive's lifetime, in the form of a paid-up policy having
equivalent value, as the Company may elect. If full repayment is not made within
60 days of termination of this Agreement, the Company may enforce its rights
under the Collateral Assignment, including (without limitation) recovery from
the Insurer out of the proceeds of the Policy or by surrender thereof. Upon
receipt of the Net Premiums, the Company shall promptly release the Collateral
Assignment.
VI. DEATH BENEFIT WHILE AGREEMENT IS IN FORCE
A. If this Agreement terminates by reason of the Executive's death, the
Beneficiary shall be entitled to receive from the proceeds of the Policy, after
repayment of the Net Premiums, an amount (the "Death Benefit") equal to the sum
of 24 times the base monthly salary payable by the Company to the Executive in
the month preceding the Executive's death (or, if the Executive is retired, in
the month prior to the commencement of such retirement) and two times the most
recent award, if any, paid to the Executive under any of the Company's lump sum
payment programs including the Annual At Risk Compensation Incentive Program
(AARCIP). If the Executive has retired (on disability or otherwise) and becomes
reemployed by the Company, the latest date of commencement of retirement shall
be used for purposes of computing the Death Benefit. If the proceeds of the
Policy after repayment of the Net Premiums are inadequate to pay the Death
Benefit in full, the Company shall have no obligation for the shortfall.
B. The Company shall notify the Insurer of the amount of the Death
Benefit within 30 days of the death of the Executive while this Agreement is in
force, and the Death Benefit shall be paid to the Beneficiary under the
settlement option elected by the Executive, the Executive's Assignee or the
Beneficiary.
C. After payment of the Death Benefit, the Company shall be entitled to
any remaining balance of the proceeds of the Policy, and neither the Beneficiary
nor the Executive's estate shall have any further rights in or under this
Agreement or the Policy.
VII. OTHER COMPANY BENEFITS
The Executive shall have no right to participate in any non-contributory
group-term life insurance plan maintained by the Company. In other respects, the
benefits provided to the Executive under this Agreement and the Policy shall be
separate from and in addition to other benefits that may be offered by the
Company to the Executive, including any non-contributory accidental death and
dismemberment coverage that the Company maintains.
VIII. POLICY LOANS
While this Agreement is in force, neither the Executive nor any Assignee
shall borrow against or pledge the Policy as security for any debt.
IX. ASSIGNMENT OF THE POLICY AND THIS AGREEMENT
A. The Policy may not be assigned, transferred, pledged, surrendered or
otherwise encumbered or alienated without the written consent of the Company.
Any assignee pursuant to this Section and any other successor to the Executive's
interest in the Policy (both referred to herein as the "Assignee") shall be
bound by this restriction.
B. The rights and obligations of this Agreement are personal to the
Executive and may not be assigned.
X. REPLACEMENT OF THE POLICY
The Company shall have the right to replace the Policy with a new policy
or policies, with the Executive's consent, which consent shall not unreasonably
be withheld. In the event of such replacement, the Company shall have the right
to receive the cash surrender value of any policy being canceled or surrendered.
XI. AMENDMENT
This Agreement may be altered, amended or modified only by a written
Agreement signed by the Company and the Executive (or, if the Policy has been
assigned, the Assignee). This Agreement and any amendments hereto shall be
binding upon the Company and the Executive and their legal representatives,
successors, beneficiaries and assigns. In the event that the Company becomes a
party to any merger, consolidation or reorganization, this Agreement shall
remain in full force and effect as an obligation of the Company or its
successors in interest.
XII. DEFINITION OF TERMS
A. "Cause" means serious, willful misconduct in respect of the
Executive's obligations to the Company that has damaged or is likely to damage
the Company, including (without limitation) any endeavor by the Executive,
directly or indirectly, to interfere in the business relations of or otherwise
harm the Company, as the Company shall reasonably determine.
B. "Competition" means any employment, consulting contract or other
arrangement, before or after the termination of the Executive's employment with
the Company, with any person or entity that is then or becomes engaged in a
business enterprise of any sort that is, in any material respect, competitive
with the Company, or any assistance by the Executive to any such enterprise in
engaging in such competition.
XIII. NONINTERFERENCE
The Executive covenants that the Executive, any Assignee and the
Beneficiary shall not interfere with the Company's rights under this Agreement
or take any voluntary action that causes the Policy to fail or lapse, in whole
or in part. The Executive, any Assignee and the Beneficiary will cooperate with
Company and the Insurer in all respects in obtaining and maintaining the Policy
and shall, if necessary, use their best efforts to provide, from time to time,
such evidence of insurability as the Insurer may require.
XIV. MISCELLANEOUS
A. If any part of this Agreement or the application of any part to
certain persons or circumstances shall be invalid or unenforceable, the
remainder of the Agreement shall continue to be effective.
B. This Agreement shall be construed and regulated under the laws of the
State of New York.
C. The Executive understands that the benefits provided under this
Agreement will or may result in taxable income to him, and the Company reserves
the right to implement tax withholding respecting such amounts as and when it
may deem such withholding appropriate.
XV. ERISA PROVISIONS
This Agreement constitutes part of a welfare benefit plan ("Welfare
Plan") and, as such, the following provisions are part of this Agreement and are
intended to meet the requirements of Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA"):
1. The named fiduciary of the Welfare Plan is the Company.
2. The funding policies under the Welfare Plan are that all
premiums on the Policy be remitted to the Insurer by the
Company when due, less any amount paid by the Executive or the
Assignee, in their sole discretion.
3. Direct payment by the Insurer is the basis of payment of
benefits under this Agreement.
4. For claims procedure purposes with respect to claims asserted
under the Welfare Plan, the "Claims Manager" shall be Robert
J. Dauer, or such other person as may be designated from time
to time by the Company.
a. If for any reason a claim for benefits is made by a
participant under the Welfare Plan ("Claimant") and is
denied by the Company, the Claims Manager shall deliver
to the Claimant a written explanation specifying the
reasons for the denial, the provisions on which such
denial is based, such other data as may be pertinent, and
the procedures available to the Claimant to obtain review
of the claim, all written in a manner calculated to be
understood by the Claimant. For this purpose,
(i) the claim shall be deemed filed when presented in
writing to the Claims Manager; and
(ii) the Claims Manager's explanation shall be in writing
delivered to the Claimant within 90 days of the date
the claim is filed.
(b) The Claimant shall have 60 days following receipt of the
denial of the claim to file with the Claims Manager a
written request for review of the denial. For such
review, the Claimant or his or her representative may
submit pertinent documents and written issues and
comments.
(c) The Claims Manager shall have discretion to decide the
issue on review and shall furnish the Claimant with a
copy of the decision within 60 days of receiving the
Claimant's request for review of the claim. The decision
on review shall be written in a manner calculated to be
understood by the Claimant and shall specify the reasons
for the decision, as well as the provisions on which the
decision is based. If a copy of the decision is not so
furnished to the Claimant within such 60 days, the claim
shall be deemed denied on review.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
set opposite their respective signatures, to be effective on the 15th day of
September, 1997.
NATIONAL FUEL GAS COMPANY
9/15/97
- -------
Date
/s/ Robert J. Dauer By: /s/ Philip C. Ackerman
- ------------------- ----------------------------
Witness Philip C. Ackerman
Senior Vice President
EXECUTIVE:
8/28/97
- -------
Date
/s/ Robert J. Dauer /s/ Dennis J. Seeley
- ------------------- --------------------
Witness Dennis J. Seeley
AMENDMENT NUMBER I
TO
AMENDED AND RESTATED SPLIT DOLLAR INSURANCE AND
DEATH BENEFIT AGREEMENT
BY AND BETWEEN
NATIONAL FUEL GAS COMPANY
AND
Dennis J. Seeley
This Amendment Number I to the Amended and Restated Split Dollar
Insurance and Death Benefit Agreement is made and entered into this, 29th day of
March, 1999 by and between National Fuel Gas Company (the "Company") and Dennis
J. Seeley (the "Executive").
WHEREAS, Company and Executive are parties to a certain Amended and
Restated Split Dollar Insurance and Death Benefit Agreement made as of September
15, 1997 (the "Agreement"); and
WHEREAS, Company and Executive agree to this further amendment of the
Agreement, as permitted in Article XI, to revise the calculation of the Death
Benefit therein to include restricted stock awarded in lieu of a cash award
under the Company's Annual At Risk Compensation Incentive Program (the
"AARCIP").
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. Article VI, Paragraph A shall be amended to insert the following
sentence after the first complete sentence thereof:
"Awards of restricted stock made to the Executive for service in the
Company's fiscal year 1996 or later to supplement an AARCIP award for
that fiscal year, which was approximately equal to the maximum AARCIP
award then permissible consistent with the shareholder approval
applicable to that AARCIP award, shall also be included in the
calculation of the Executive's Death Benefit at the rate of two times
the most recent such award of restricted stock, if any. The restricted
stock shall be valued at the average of the high and low market value
on the grant date."
2. The amendments to the Agreement, contained herein, will be effective
as of the date of this Amendment Number I and shall remain in effect for the
entire term of the Agreement.
3. All other terms and provisions of the Agreement that are not
inconsistent with the terms and conditions of this Amendment Number I shall
remain in effect and are incorporated herein by reference.
4. This Amendment Number I is binding upon the parties hereto and their
assigns.
IN WITNESS WHEREOF, the par-ties hereto have caused this Amendment
Number I to the Amended and Restated Split Dollar Insurance and Death Benefit
Agreement to be executed, with full knowledge of its contents and with the
intent to be legally bound, on the date first written above.
NATIONAL FUEL GAS COMPANY EXECUTIVE
By: /s/ Philip C. Ackerman /s/ Dennis J. Seeley
- -------------------------- --------------------
Name: Philip C. Ackerman Name: Dennis J. Seeley
Title: Senior Vice President Date: 3/8/99
Date: 3/29/99
Witnessed: Witnessed:
/s/ Janet M. Conrad /s/ Robert J. Dauer
- ------------------- -------------------
3/29/99 3/8/99
- ------- ------
Date Date
SPLIT DOLLAR INSURANCE AND DEATH BENEFIT AGREEMENT
WHEREAS, National Fuel Gas Company (hereinafter, with any of its
subsidiaries, collectively called the "Company"), in recognition of the highly
valued services of Bruce H. Hale (hereinafter called the "Executive"), the
Executive's importance to the success of the Company, and the need of
Executive's family for financial security in the event of Executive's death, has
authorized the adoption of a split dollar insurance and death benefit agreement
benefiting the Executive; and
WHEREAS, the Executive has agreed not to participate in any
noncontributory group term life insurance program while employed by the Company;
and
WHEREAS, the Company desires to recover the premiums it pays for the
purchase of a life insurance policy or policies for these purposes upon
termination of this Agreement.
NOW THEREFORE, for mutual consideration, the receipt and adequacy of
which the Company and Executive each acknowledge, the Company and Executive
agree as follows:
I. LIFE INSURANCE
The Executive is the owner of a life insurance policy, Policy Number
3637398 (hereinafter, together with any additional or replacement policy and any
supplementary contracts issued in connection therewith, called the "Policy") in
the face amount of $2,000,000, issued by the Guardian Life Insurance Company of
America, of New York, New York (hereafter called the "Insurer"). The Executive
(or the Executive's Assignee pursuant to Article IX) shall be the sole owner of
the Policy and may exercise all rights and incidents of ownership with respect
to the Policy, except as specifically provided in this Agreement. To secure the
Company's interest under this Agreement, the Executive has executed a collateral
assignment of the Policy to the Company (the "Collateral Assignment").
II. PREMIUMS
The Company shall pay the total premiums due on the Policy during the
term of this Agreement. Premiums shall be paid directly to the Insurer on or
before the due date, extended by any grace period. At the Company's election,
Policy dividends may be applied to reduce premiums. Notwithstanding the above,
after the Executive reaches age 65 or if the Executive's employment with the
Company terminates prior to such age, the Company shall have no further
obligation to make premium payments pursuant to this Section II.
III. BENEFICIARY
The Executive (or the Executive's Assignee) may from time to time while
this Agreement is in force, by such written notice to the Insurer as the Insurer
may require, designate the beneficiary or beneficiaries (the "Beneficiary") to
receive the Death Benefit as provided in this Agreement.
IV. TERMINATION OF AGREEMENT
A. This agreement shall terminate upon the earliest to occur of the
following:
a) August 30, 2019 (the Executive's 70th birthday), unless the Company
and the Executive agree in writing to a later date;
b) mutual agreement of the Company and the Executive prior to such
date;
c) the Executive's death.
B. If the Executive's employment with the Company is terminated for
Cause, as hereinafter defined, or if the Executive engages in Competition, as
hereinafter defined, with the Company, whether or not the Executive's employment
with the Company has been terminated, the Company may terminate this Agreement
by written notice to the Executive. In the event of termination under this
Subsection B, the Executive shall forfeit all rights under this Agreement and in
the Policy.
V. REPAYMENT OF PREMIUMS TO THE COMPANY
Upon termination of this Agreement, the Company shall be entitled to
repayment of the amount of the total premiums paid by the Company to maintain
the Policy, less the amount of any distributions therefrom to the Company
(including the outstanding balance of any Policy loans to the Company) (the "Net
Premiums"). Such repayment may be made in cash or, if this Agreement terminates
during the Executive's lifetime, in the form of a paid-up policy having
equivalent value, as the Company may elect. If full repayment is not made within
60 days of termination of this Agreement, the Company may enforce its rights
under the Collateral Assignment, including (without limitation) recovery from
the Insurer out of the proceeds of the Policy or by surrender thereof. Upon
receipt of the Net Premiums, the Company shall promptly release the Collateral
Assignment.
VI. DEATH BENEFIT WHILE AGREEMENT IS IN FORCE
A. If this Agreement terminates by reason of the Executive's death, the
Beneficiary shall be entitled to receive from the proceeds of the Policy, after
repayment of the Net Premiums, an amount (the "Death Benefit") equal to the sum
of 24 times the base monthly salary payable by the Company to the Executive in
the month preceding the Executive's death (or, if the Executive is retired, in
the month prior to the commencement of such retirement) and two times the most
recent award, if any, paid to the Executive under any of the Company's lump sum
payment programs including the Annual At Risk Compensation Incentive Program
(AARCIP). If the Executive has retired (on disability or otherwise) and becomes
reemployed by the Company, the latest date of commencement of retirement shall
be used for purposes of computing the Death Benefit. If the proceeds of the
Policy after repayment of the Net Premiums are inadequate to pay the Death
Benefit in full, the Company shall have no obligation for the shortfall.
B. The Company shall notify the Insurer of the amount of the Death
Benefit within 30 days of the death of the Executive while this Agreement is in
force, and the Death Benefit shall be paid to the Beneficiary under the
settlement option elected by the Executive, the Executive's Assignee or the
Beneficiary.
C. After payment of the Death Benefit, the Company shall be entitled to
any remaining balance of the proceeds of the Policy, and neither the Beneficiary
nor the Executive's estate shall have any further rights in or under this
Agreement or the Policy.
VII. OTHER COMPANY BENEFITS
The Executive shall have no right to participate in any non-contributory
group-term life insurance plan maintained by the Company. In other respects, the
benefits provided to the Executive under this Agreement and the Policy shall be
separate from and in addition to other benefits that may be offered by the
Company to the Executive, including any non-contributory accidental death and
dismemberment coverage that the Company maintains.
VIII. POLICY LOANS
While this Agreement is in force, neither the Executive nor any Assignee
shall borrow against or pledge the Policy as security for any debt.
IX. ASSIGNMENT OF THE POLICY AND THIS AGREEMENT
A. The Policy may not be assigned, transferred, pledged, surrendered or
otherwise encumbered or alienated without the written consent of the Company.
Any assignee pursuant to this Section and any other successor to the Executive's
interest in the Policy (both referred to herein as the "Assignee") shall be
bound by this restriction.
B. The rights and obligations of this Agreement are personal to the
Executive and may not be assigned.
X. REPLACEMENT OF THE POLICY
The Company shall have the right to replace the Policy with a new policy
or policies, with the Executive's consent, which consent shall not unreasonably
be withheld. In the event of such replacement, the Company shall have the right
to receive the cash surrender value of any policy being canceled or surrendered.
XI. AMENDMENT
This Agreement may be altered, amended or modified only by a written
Agreement signed by the Company and the Executive (or, if the Policy has been
assigned, the Assignee). This Agreement and any amendments hereto shall be
binding upon the Company and the Executive and their legal representatives,
successors, beneficiaries and assigns. In the event that the Company becomes a
party to any merger, consolidation or reorganization, this Agreement shall
remain in full force and effect as an obligation of the Company or its
successors in interest.
XII. DEFINITION OF TERMS
A. "Cause" means serious, willful misconduct in respect of the
Executive's obligations to the Company that has damaged or is likely to damage
the Company, including (without limitation) any endeavor by the Executive,
directly or indirectly, to interfere in the business relations of or otherwise
harm the Company, as the Company shall reasonably determine.
B. "Competition" means any employment, consulting contract or other
arrangement, before or after the termination of the Executive's employment with
the Company, with any person or entity that is then or becomes engaged in a
business enterprise of any sort that is, in any material respect, competitive
with the Company, or any assistance by the Executive to any such enterprise in
engaging in such competition.
XIII. NONINTERFERENCE
The Executive covenants that the Executive, any Assignee and the
Beneficiary shall not interfere with the Company's rights under this Agreement
or take any voluntary action that causes the Policy to fail or lapse, in whole
or in part. The Executive, any Assignee and the Beneficiary will cooperate with
Company and the Insurer in all respects in obtaining and maintaining the Policy
and shall, if necessary, use their best efforts to provide, from time to time,
such evidence of insurability as the Insurer may require.
XIV. MISCELLANEOUS
A. If any part of this Agreement or the application of any part to
certain persons or circumstances shall be invalid or unenforceable, the
remainder of the Agreement shall continue to be effective.
B. This Agreement shall be construed and regulated under the laws of the
State of New York.
C. The Executive understands that the benefits provided under this
Agreement will or may result in taxable income to him, and the Company reserves
the right to implement tax withholding respecting such amounts as and when it
may deem such withholding appropriate.
XV. ERISA PROVISIONS
This Agreement constitutes part of a welfare benefit plan ("Welfare
Plan") and, as such, the following provisions are part of this Agreement and are
intended to meet the requirements of Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA"):
1. The named fiduciary of the Welfare Plan is the Company.
2. The funding policies under the Welfare Plan are that all premiums
on the Policy be remitted to the Insurer by the Company when due,
less any amount paid by the Executive or the Assignee, in their
sole discretion.
3. Direct payment by the Insurer is the basis of payment of benefits
under this Agreement.
4. For claims procedure purposes with respect to claims asserted
under the Welfare Plan, the "Claims Manager" shall be Robert J.
Dauer, or such other person as may be designated from time to time
by the Company.
a. If for any reason a claim for benefits is made by a
participant under the Welfare Plan ("Claimant") and is denied
by the Company, the Claims Manager shall deliver to the
Claimant a written explanation specifying the reasons for the
denial, the provisions on which such denial is based, such
other data as may be pertinent, and the procedures available
to the Claimant to obtain review of the claim, all written in
a manner calculated to be understood by the Claimant. For this
purpose,
(i) the claim shall be deemed filed when presented in writing
to the Claims Manager; and
(ii) the Claims Manager's explanation shall be in writing
delivered to the Claimant within 90 days of the date the
claim is filed.
(b) The Claimant shall have 60 days following receipt of the
denial of the claim to file with the Claims Manager a written
request for review of the denial. For such review, the
Claimant or his or her representative may submit pertinent
documents and written issues and comments.
(c) The Claims Manager shall have discretion to decide the issue
on review and shall furnish the Claimant with a copy of the
decision within 60 days of receiving the Claimant's request
for review of the claim. The decision on review shall be
written in a manner calculated to be understood by the
Claimant and shall specify the reasons for the decision, as
well as the provisions on which the decision is based. If a
copy of the decision is not so furnished to the Claimant
within such 60 days, the claim shall be deemed denied on
review.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
set opposite their respective signatures, to be effective on the 15th day of
September, 1997.
NATIONAL FUEL GAS COMPANY
9/15/97
- -------
Date
/s/ Robert J. Dauer By: /s/ Philip C. Ackerman
- ------------------- ----------------------------
Witness Philip C. Ackerman
Senior Vice President
EXECUTIVE:
8/28/97
- -------
Date
/s/ Robert J. Dauer /s/ Bruce H. Hale
- ------------------- -----------------
Witness Bruce H. Hale
AMENDMENT NUMBER I
TO
SPLIT DOLLAR INSURANCE AND DEATH BENEFIT AGREEMENT
BY AND BETWEEN
NATIONAL FUEL GAS COMPANY
AND
Bruce H. Hale
This Amendment Number I to the Split Dollar Insurance and Death Benefit
Agreement is made and entered into this 29th day of March, 1999 , by and between
National Fuel Gas Company (the "Company") and Bruce H. Hale (the "Executive").
WHEREAS, Company and Executive are parties to a certain Split Dollar
Insurance and Death Benefit Agreement made as of September 15, 1997 (the
"Agreement"); and
WHEREAS, Company and Executive agree to this amendment of the
Agreement, as permitted in Article XI, to revise the calculation of the Death
Benefit therein to include restricted stock awarded in lieu of a cash award
under the Company's Annual At Risk Compensation Incentive Program (the
"AARCIP").
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1 . Article VI, Paragraph A shall be amended to insert the following
sentence after the first complete sentence thereof:
"Awards of restricted stock made to the Executive for service
in the Company's fiscal year 1996 or later to supplement an AARCIP
award for that fiscal year, which was approximately equal to the
maximum AARCIP award then permissible consistent with the shareholder
approval applicable to that AARCIP award, shall also be included in the
calculation of the Executive's Death Benefit at the rate of two times
the most recent such award of restricted stock, if any. The restricted
stock shall be valued at the average of the high and low market value
on the grant date."
2. The amendments to the Agreement, contained herein, will be effective
as of the date of this Amendment Number I and shall remain in effect for the
entire term of the Agreement.
3. All other terms and provisions of the Agreement that are not
inconsistent with the terms and conditions of this Amendment Number I shall
remain in effect and are incorporated herein by reference.
4. This Amendment Number I is binding upon the parties hereto and their
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Number I to the Split Dollar Insurance and Death Benefit Agreement to be
executed, with full knowledge of its contents and with the intent to be legally
bound, on the date first written above.
NATIONAL FUEL GAS COMPANY EXECUTIVE
By: /s/ Philip C. Ackerman /s/ Bruce H. Hale
- -------------------------- -----------------
Name: Philip C. Ackerman Name: Bruce H. Hale
Title: Senior Vice President Date: Mar 9, 1999
Date: 3/29/99
Witnessed: Witnessed:
/s/ Janet M. Conrad /s/ Robert J. Dauer
- ------------------- -------------------
3/29/99 3/9/99
- ------- ------
Date Date
SPLIT DOLLAR INSURANCE AND DEATH BENEFIT AGREEMENT
WHEREAS, National Fuel Gas Company (hereinafter, with any of its
subsidiaries, collectively called the "Company"), in recognition of the highly
valued services of David F. Smith (hereinafter called the "Executive"), the
Executive's importance to the success of the Company, and the need of
Executive's family for financial security in the event of Executive's death, has
authorized the adoption of a split dollar insurance and death benefit agreement
benefiting the Executive; and
WHEREAS, the Executive has agreed not to participate in any
noncontributory group term life insurance program while employed by the Company;
and
WHEREAS, the Company desires to recover the premiums it pays for the
purchase of a life insurance policy or policies for these purposes upon
termination of this Agreement.
NOW THEREFORE, for mutual consideration, the receipt and adequacy of
which the Company and Executive each acknowledge, the Company and Executive
agree as follows:
I. LIFE INSURANCE
The Executive is the owner of a life insurance policy, Policy Number
3637396 (hereinafter, together with any additional or replacement policy and any
supplementary contracts issued in connection therewith, called the "Policy") in
the face amount of $2,000,000, issued by the Guardian Life Insurance Company of
America, of New York, New York (hereafter called the "Insurer"). The Executive
(or the Executive's Assignee pursuant to Article IX) shall be the sole owner of
the Policy and may exercise all rights and incidents of ownership with respect
to the policy, except as specifically provided in this Agreement. To secure the
Company's interest under this Agreement, the Executive has executed a collateral
assignment of the Policy to the Company (the "Collateral Assignment").
II. PREMIUMS
The Company shall pay the total premiums due on the Policy during the
term of this Agreement. Premiums shall be paid directly to the Insurer on or
before the due date, extended by any grace period. At the Company's election,
Policy dividends may be applied to reduce premiums. Notwithstanding the above,
after the Executive reaches age 65 or if the Executive's employment with the
Company terminates prior to such age, the Company shall have no further
obligation to make premium payments pursuant to this Section II.
III. BENEFICIARY
The Executive (or the Executive's Assignee) may from time to time while
this Agreement is in force, by such written notice to the Insurer as the Insurer
may require, designate the beneficiary or beneficiaries (the "Beneficiary") to
receive the Death Benefit as provided in this Agreement.
IV. TERMINATION OF AGREEMENT
A. This agreement shall terminate upon the earliest to occur of the
following:
a) August 18, 2023 (the Executive's 70th birthday), unless the
Company and the Executive agree in writing to a later date;
b) mutual agreement of the Company and the Executive prior to such
date;
c) the Executive's death.
B. If the Executive's employment with the Company is terminated for
Cause, as hereinafter defined, or if the Executive engages in Competition, as
hereinafter defined, with the Company, whether or not the Executive's employment
with the Company has been terminated, the Company may terminate this Agreement
by written notice to the Executive. In the event of termination under this
Subsection B, the Executive shall forfeit all rights under this Agreement and in
the Policy.
V. REPAYMENT OF PREMIUMS TO THE COMPANY
Upon termination of this Agreement, the Company shall be entitled to
repayment of the amount of the total premiums paid by the Company to maintain
the Policy, less the amount of any distributions therefrom to the Company
(including the outstanding balance of any Policy loans to the Company) (the "Net
Premiums"). Such repayment may be made in cash or, if this Agreement terminates
during the Executive's lifetime, in the form of a paid-up policy having
equivalent value, as the Company may elect. If full repayment is not made within
60 days of termination of this Agreement, the Company may enforce its rights
under the Collateral Assignment, including (without limitation) recovery from
the Insurer out of the proceeds of the Policy or by surrender thereof. Upon
receipt of the Net Premiums, the Company shall promptly release the Collateral
Assignment.
VI. DEATH BENEFIT WHILE AGREEMENT IS IN FORCE
A. If this Agreement terminates by reason of the Executive's death, the
Beneficiary shall be entitled to receive from the proceeds of the Policy, after
repayment of the Net Premiums, an amount (the "Death Benefit") equal to the sum
of 24 times the base monthly salary payable by the Company to the Executive in
the month preceding the Executive's death (or, if the Executive is retired, in
the month prior to the commencement of such retirement) and two times the most
recent award, if any, paid to the Executive under any of the Company's lump sum
payment programs including the Annual At Risk Compensation Incentive Program
(AARCIP). If the Executive has retired (on disability or otherwise) and becomes
reemployed by the Company, the latest date of commencement of retirement shall
be used for purposes of computing the Death Benefit. If the proceeds of the
Policy after repayment of the Net Premiums are inadequate to pay the Death
Benefit in full, the Company shall have no obligation for the shortfall.
B. The Company shall notify the Insurer of the amount of the Death
Benefit within 30 days of the death of the Executive while this Agreement is in
force, and the Death Benefit shall be paid to the Beneficiary under the
settlement option elected by the Executive, the Executive's Assignee or the
Beneficiary.
C. After payment of the Death Benefit, the Company shall be entitled to
any remaining balance of the proceeds of the Policy, and neither the Beneficiary
nor the Executive's estate shall have any further rights in or under this
Agreement or the Policy.
VII. OTHER COMPANY BENEFITS
The Executive shall have no right to participate in any non-contributory
group-term life insurance plan maintained by the Company. In other respects, the
benefits provided to the Executive under this Agreement and the Policy shall be
separate from and in addition to other benefits that may be offered by the
Company to the Executive, including any non-contributory accidental death and
dismemberment coverage that the Company maintains.
VIII. POLICY LOANS
While this Agreement is in force, neither the Executive nor any Assignee
shall borrow against or pledge the Policy as security for any debt.
IX. ASSIGNMENT OF THE POLICY AND THIS AGREEMENT
A. The Policy may not be assigned, transferred, pledged, surrendered or
otherwise encumbered or alienated without the written consent of the Company.
Any assignee pursuant to this Section and any other successor to the Executive's
interest in the Policy (both referred to herein as the "Assignee") shall be
bound by this restriction.
B. The rights and obligations of this Agreement are personal to the
Executive and may not be assigned.
X. REPLACEMENT OF THE POLICY
The Company shall have the right to replace the Policy with a new policy
or policies, with the Executive's consent, which consent shall not unreasonably
be withheld. In the event of such replacement, the Company shall have the right
to receive the cash surrender value of any policy being canceled or surrendered.
XI. AMENDMENT
This Agreement may be altered, amended or modified only by a written
Agreement signed by the Company and the Executive (or, if the Policy has been
assigned, the Assignee). This Agreement and any amendments hereto shall be
binding upon the Company and the Executive and their legal representatives,
successors, beneficiaries and assigns. In the event that the Company becomes a
party to any merger, consolidation or reorganization, this Agreement shall
remain in full force and effect as an obligation of the Company or its
successors in interest.
XII. DEFINITION OF TERMS
A. "Cause" means serious, willful misconduct in respect of the
Executive's obligations to the Company that has damaged or is likely to damage
the Company, including (without limitation) any endeavor by the Executive,
directly or indirectly, to interfere in the business relations of or otherwise
harm the Company, as the Company shall reasonably determine.
B. "Competition" means any employment, consulting contract or other
arrangement, before or after the termination of the Executive's employment with
the Company, with any person or entity that is then or becomes engaged in a
business enterprise of any sort that is, in any material respect, competitive
with the Company, or any assistance by the Executive to any such enterprise in
engaging in such competition.
XIII. NONINTERFERENCE
The Executive covenants that the Executive, any Assignee and the
Beneficiary shall not interfere with the Company's rights under this Agreement
or take any voluntary action that causes the Policy to fail or lapse, in whole
or in part. The Executive, any Assignee and the Beneficiary will cooperate with
Company and the Insurer in all respects in obtaining and maintaining the Policy
and shall, if necessary, use their best efforts to provide, from time to time,
such evidence of insurability as the Insurer may require.
XIV. MISCELLANEOUS
A. If any part of this Agreement or the application of any part to
certain persons or circumstances shall be invalid or unenforceable, the
remainder of the Agreement shall continue to be effective.
B. This Agreement shall be construed and regulated under the laws of the
State of New York.
C. The Executive understands that the benefits provided under this
Agreement will or may result in taxable income to him, and the Company reserves
the right to implement tax withholding respecting such amounts as and when it
may deem such withholding appropriate.
XV. ERISA PROVISIONS
This Agreement constitutes part of a welfare benefit plan ("Welfare
Plan") and, as such, the following provisions are part of this Agreement and are
intended to meet the requirements of Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA"):
1. The named fiduciary of the Welfare Plan is the Company.
2. The funding policies under the Welfare Plan are that all premiums
on the Policy be remitted to the Insurer by the Company when due,
less any amount paid by the Executive or the Assignee, in their
sole discretion.
3. Direct payment by the Insurer is the basis of payment of benefits
under this Agreement.
4. For claims procedure purposes with respect to claims asserted
under the Welfare Plan, the "Claims Manager" shall be Robert J.
Dauer, or such other person as may be designated from time to time
by the Company.
a. If for any reason a claim for benefits is made by a
participant under the Welfare Plan ("Claimant") and is denied
by the Company, the Claims Manager shall deliver to the
Claimant a written explanation specifying the reasons for the
denial, the provisions on which such denial is based, such
other data as may be pertinent, and the procedures available
to the Claimant to obtain review of the claim, all written in
a manner calculated to be understood by the Claimant. For this
purpose,
(i) the claim shall be deemed filed when presented in writing
to the Claims Manager; and
(ii) the Claims Manager's explanation shall be in writing
delivered to the Claimant within 90 days of the date the
claim is filed.
(b) The Claimant shall have 60 days following receipt of the
denial of the claim to file with the Claims Manager a written
request for review of the denial. For such review, the
Claimant or his or her representative may submit pertinent
documents and written issues and comments.
(c) The Claims Manager shall have discretion to decide the issue
on review and shall furnish the Claimant with a copy of the
decision within 60 days of receiving the Claimant's request
for review of the claim. The decision on review shall be
written in a manner calculated to be understood by the
Claimant and shall specify the reasons for the decision, as
well as the provisions on which the decision is based. If a
copy of the decision is not so furnished to the Claimant
within such 60 days, the claim shall be deemed denied on
review.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
set opposite their respective signatures, to be effective on the 15th day of
September, 1997.
NATIONAL FUEL GAS COMPANY
9/15/97
- -------
Date
/s/ Robert J. Dauer By: /s/ Philip C. Ackerman
- ------------------- ----------------------------
Witness Philip C. Ackerman
Senior Vice President
EXECUTIVE:
8/28/97
- -------
Date
/s/ Robert J. Dauer /s/ David F. Smith
- ------------------- ------------------
Witness David F. Smith
AMENDMENT NUMBER I
TO
SPLIT DOLLAR INSURANCE AND DEATH BENEFIT AGREEMENT
BY AND BETWEEN
NATIONAL FUEL GAS COMPANY
AND
David F. Smith
This Amendment Number I to the Split Dollar Insurance and Death Benefit
Agreement is made and entered into this 29th day of March, 1999 , by and between
National Fuel Gas Company (the "Company") and David F. Smith (the "Executive").
WHEREAS, Company and Executive are parties to a certain Split Dollar
Insurance and Death Benefit Agreement made as of September 15, 1997 (the
"Agreement"); and
WHEREAS, Company and Executive agree to this amendment of the
Agreement, as permitted in Article XI, to revise the calculation of the Death
Benefit therein to include restricted stock awarded in lieu of a cash award
under the Company's Annual At Risk Compensation Incentive Program (the
"AARCIP").
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. Article VI, Paragraph A shall be amended to insert the following
sentence after the first complete sentence thereof:
"Awards of restricted stock made to the Executive for service
in the Company's fiscal year 1996 or later to supplement an AARCIP
award for that fiscal year, which was approximately equal to the
maximum AARCIP award then permissible consistent with the shareholder
approval applicable to that AARCTP award, shall also be included in the
calculation of the Executive's Death Benefit at the rate of two times
the most recent such award of restricted stock, if any. The restricted
stock shall be valued at the average of the high and low market value
on the grant date."
2. The amendments to the Agreement, contained herein, will be effective
as of the date of this Amendment Number I and shall remain in effect for the
entire term of the Agreement.
3. All other terms and provisions of the Agreement that are not
inconsistent with the terms and conditions of this Amendment Number I shall
remain in effect and are incorporated herein by reference.
4. This Amendment Number 1 is binding upon the parties hereto and their
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Number I to the Split Dollar Insurance and Death Benefit Agreement to be
executed, with full knowledge of its contents and with the intent to be legally
bound, on the date first written above.
NATIONAL FUEL GAS COMPANY EXECUTIVE
By:/s/ Philip C. Ackerman /s/ David F. Smith
- ------------------------- ------------------
Name: Philip C. Ackerman Name: David F. Smith
Title: Senior Vice President Date: 3/11/99
Date: 3/29/99
Witnessed: WITNESSED:
/s/ Janet M. Conrad /s/ Robert J. Dauer
- ------------------- -------------------
3/29/99 3/11/99
- ------- -------
Date Date
AMENDMENTS TO
NATIONAL FUEL GAS COMPANY AND PARTICIPATING SUBSIDIARIES
EXECUTIVE RETIREMENT PLAN
I, the undersigned, being duly authorized and empowered by resolutions
adopted by the National Fuel Gas Company Board of Directors on September 16,
1999, do hereby amend the National Fuel Gas Company and Participating
Subsidiaries Executive Retirement Plan ("Plan"), effective September 16, 1999,
as follows:
1. Section 2.9 shall be amended and restated to read as follows:
"Company means National Fuel Gas Company and each of the
-------
following subsidiaries, which participate in the Plan:
National Fuel Gas Distribution Corporation, National Fuel Gas
Supply Corporation, Seneca Resources Corporation, National
Fuel Resources, Inc., Penn-York Energy Corporation and Empire
Exploration, Inc., each of which has adopted or has indicated
that it will adopt the Plan."
2. Section 2.18 shall be amended and restated to read as follows:
"Vesting (a) With respect to a Member's benefit which
-------
compensates for any reduction in Basic Pension Plan benefits
resulting from Internal Revenue Code limitations and/or
participation in the National Fuel Gas Company Deferred
Compensation Plan (frequently called a "tophat"), vesting
occurs in the same manner as vesting occurs under the Basic
Pension Plan.
<PAGE>
(b) With respect to a Member's supplemental benefit portion of
the Plan, vesting occurs on the latter of (i) the first of the
month coinciding with or immediately following his 55th
birthday or (ii) the date on which the Member has completed
five Years of Service with a Company. A "Vested" Member is a
Member with respect to whom "Vesting" has occurred."
3. Article 3 shall be revised by adding a new Section 3.0 as
follows:
"3.0 Introduction. The Plan provides a Member with a
two-part benefit. The first part will make a Member whole
for any reduction in the regular pension he receives under
the Basic Pension Plan resulting from Internal Revenue
Code limitations and/or his participation in the National
Fuel Gas Company Deferred Compensation Plan. This is
frequently called a "tophat." The second part is a
supplemental benefit which provides an additional
retirement benefit to the Basic Pension Plan."
<PAGE>
4. Section 3.4(a) shall be amended and restated to read as
follows:
"(a) Adjusted Basic Pension Plan Benefit Base equals the
Benefit Base as determined under the Basic Pension Plan
without reduction on account of Benefit Limitations and
adjusted as if deferrals under the National Fuel Gas
Company Deferred Compensation Plan were not excluded from
the definition of Final Average Pay under the Basic
Pension Plan, and multiplied by the appropriate Early
Retirement Percentage, if applicable, as provided for in
Section 3.5 of the Basic Pension Plan. (The Adjusted Basic
Pension Plan Benefit minus the Basic Pension Plan benefit
equals the "tophat" portion of the Plan's two-part
benefit.)"
5. Section 3.4(c) shall be amended by deleting the first three
sentences in their entirety and restating the fourth sentence
to read as follows:
"At early retirement, the supplemental benefit is equal to
a percentage of the plan benefit normally paid at age 65."
The remainder of Section 3.4(c) shall remain unchanged.
6. In all other respects, the Plan shall remain unchanged.
NATIONAL FUEL GAS COMPANY
Dated: October 1, 1999 /s/ P.C. Ackerman
------------------------
P.C. Ackerman
President
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EXHIBIT 12
EARNINGS TO FIXED CHARGES
UNAUDITED
Fiscal Year Ended September 30
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income Before Interest Charges and Minority Interest
in Foreign Subsidiaries (2) $202,512 $118,085 $169,783 $159,599 $128,061
Allowance for Borrowed Funds Used in Construction 303 110 346 205 195
Federal Income Tax 44,583 43,626 57,807 55,148 30,522
State Income Tax 6,215 6,635 7,067 7,266 4,905
Deferred Inc. Taxes - Net (3) 14,030 (26,237) 3,800 3,907 8,452
Investment Tax Credit - Net (729) (663) (665) (665) (672)
Rentals (1) 4,281 4,672 5,328 5,640 5,422
-----------------------------------------------------------------------------
$271,195 $146,228 $243,466 $231,100 $176,885
=============================================================================
FIXED CHARGES:
Interest & Amortization of Premium and
Discount of Funded Debt $65,402 $53,154 $42,131 $40,872 $40,896
Interest on Commercial Paper and
Short-Term Notes Payable 17,319 13,605 8,808 7,872 6,745
Other Interest (2) 2,835 16,919 4,502 6,389 4,721
Rentals (1) 4,281 4,672 5,328 5,640 5,422
-----------------------------------------------------------------------------
$89,837 $88,350 $60,769 $60,773 $57,784
=============================================================================
RATIO OF EARNINGS TO FIXED CHARGES 3.02 1.66 4.01 3.80 3.06
</TABLE>
Notes:
(1) Rentals shown above represent the portion of all rentals (other than
delay rentals) deemed representative of the interest factor.
(2) The twelve months ended September 30, 1999, 1998, 1997, 1996 and 1995
reflect the reclassification of $1,839, $1,716, $1,716, $1,716 and $1,716
representing the loss on reacquired debt amortized during each period,
from Other Interest Charges to Operation Expense.
(3) Deferred Income Taxes - Net for fiscal 1998 excludes the cumulative
effect of change in accounting.
Exploration and Production
If this discussion had taken place in March, six months into 1999, the
tone and message would have been considerably different. Oil prices were
excessively low at $9.03 per bbl and natural gas prices of $1.92 per Mcf were
dropping significantly because of record storage volumes resulting mostly from a
warmer than normal winter. This segment had only contributed about $.01 per
share to the Company's earnings.
What a difference six months makes! By the end of 1999 oil prices were
moving toward $25.00 per bbl and natural gas prices increased to approximately
$2.80 per Mcf . This segment's earnings for 1999 of $7.1 million, or $.18 per
share, contributed 6% of Company earnings, and we also finished the year with a
stellar production record. Total revenue this year was $147.0 million which was
18% higher than 1998. Production increased 17% from 1998 levels to 61.3 Bcf
equivalent. A total of 118 wells were drilled this year, and our team, aided by
3-D seismic technology achieved a 91% success rate. We replaced 187% of 1999
production with new reserves from our exploration program, and total reserves
increased 7% in 1999 to 776 Bcf equivalent.
Performance improvements in our California operations were truly
impressive in 1999. After completing our three acquisitions in 1998, initial
operating costs were nearly $6.00 per bbl of oil. At the end of 1999, those
costs were reduced to $4.07 per bbl . Production had also significantly
improved, primarily due to a 95-well drilling program completed this year. At
the end of 1999, daily oil production had increased 17% from initial production
to 7,333 barrels per day.
In the Gulf Coast, our successful offshore exploration program
continued. New discoveries at Vermilion 309, Vermilion 253, West Delta 78, High
Island 365, and Galveston 225 contributed to the reserve replacement discussed
above. The most significant of these was the announced discovery at Vermilion
253 where the first well had over 900 feet of oil and gas pay sands. Production
platforms and facilities are being installed, and we anticipate production to
begin in late Spring 2000.* Drilling will continue on both Vermilion 253 and 309
in 2000 with more production expected to be placed on line from these blocks.*
Cost controls and an extremely efficient operation helped make us one
of the lowest cost operators in the Appalachian region. The nearly 450,000 acres
controlled by Seneca Resources Corporation (Seneca) in Pennsylvania and New York
are a potential untapped opportunity.* However, the relatively low reserves per
well and the long lives of the wells mean that we have to be convinced that gas
prices would reach a sustainable $3.00 per Mcf before we will commence large
scale development.*
Total production for Seneca for 2000 is expected to increase over 20%
to 74.4 Bcf equivalent in a ratio of approximately 64% gas and 36% oil, and
nearly 60% of this production is locked in through financial hedges.* Capital
spending, exclusive of acquisitions, is anticipated to be $112.2 million with
approximately 84% targeted for the Gulf Coast Region and the remainder for an
additional 40 development well program which has begun in our West Coast
operations.*
Although 2000 could be as volatile as 1999, we expect it to present
many opportunities as consolidation, strategic selling and asset monetization
continue in the exploration and production sector.* The management and employees
of Seneca will concentrate on continuing our success in reducing production
costs, enhancing reserve replacement and growing your Company through the drill
bit and through acquisitions.* Seneca is prepared to take advantage of these
opportunities.*
Timber
The Timber segment is an increasingly important source of earnings.*
This year's earnings of $4.8 million, or $.12 per share, increased nearly 151%
from 1998.
This past July we acquired approximately 36,300 acres of land, timber
and minerals from PennzEnergy Company for approximately $47.0 million. This
property is largely quality timber acreage located within the "cherry corridor"
of Pennsylvania.
Presently, we are conducting a timber inventory, or "cruise," of all
our holdings in order to better optimize the value of our timber assets. Many of
our trees are nearing their economic maturity and detailed information is
required to plan the most efficient realization of this value. We presently
estimate that we own over 400 million board feet of hardwood timber, consisting
mostly of cherry, maple and oak. Even after the cruise is completed and our
plans are developed, it is likely that the maximum level of production will not
be achieved for many years because of the sheer physical magnitude of carefully
dealing with over 140,000 acres.* However, in the interim, we expect to sell
certain noncore portions of our holdings in order to reduce debt.*
Pipeline and Storage
Currently the third largest segment in terms of net plant, this
segment continued to be a strong contributor to Company earnings, second only to
the Utility. Net income of $39.8 million, or $1.03 per share, provided nearly
35% of 1999 Company earnings.
In anticipation of the growing demand for natural gas in the East Coast
markets, a portion of this year's capital budget was spent expanding the
throughput capacity of our Ellisburg, Pennsylvania compressor station from 369
MMcf per day to over 431 MMcf per day. This additional capacity is designed to
increase both pipeline throughput and storage customer access to Leidy Hub, a
key link to the East Coast. We also anticipate expanding capacity incrementally
in the Niagara Spur as demand increases.*
Discussion at this Fall's annual meeting of the Interstate Natural Gas
Association of America centered on the increasing use of gas-powered
combined-cycle electric generation plants and gas peaking units and the
anticipated construction of new power plants, the vast majority of which will be
gas-fired.* Some of the reasons for gas-fired electric generation include
reduced environmental air quality issues from coal-fired generation and
efficiencies from technological advances in combined-cycle turbines and other
types of gas-fired units.* This anticipated movement towards gas-fired
generation presents tremendous growth opportunities for gas pipeline companies.*
Much of this new power plant construction is expected to be directed
to, and constructed near, the East Coast markets.* The question then becomes,
where will these power generators get the gas for these new plants? We expect
that some of it will come from the Gulf Coast, but that supply is likely to
mainly feed the West Coast, lower Rockies, and the Southeast.* Much of the gas
is therefore expected to come from the hubs near Chicago which are fed by
Canadian producers via the Northern Border Pipeline Expansion, completed in
1998, and the Alliance Pipeline, which is currently under construction.* With
this influx of Canadian gas, Chicago should have pent up capacity, while markets
on the East Coast are expected to have pent up demand.* Consequently, capacity
needs to be made available to move gas from Chicago eastward.* Another pipeline
project, Vector, has received approval from the Federal Energy Regulatory
Commission (FERC) to build a pipeline from Chicago to Dawn, Ontario. Designed to
transport 1 Bcf per day of gas, we understand the Vector Pipeline has
approximately half of its capacity subscribed to Eastern Canadian markets.* We
expect the remaining capacity from Vector should most logically come across the
Niagara River and through our system.*
Of course, we are convinced that the best route for the Canadian gas is
still through the Independence Pipeline. We are pursuing this $680 million
project with our partners, affiliates of Transcontinental Gas Pipe Line
Corporation (one of the Williams Companies) and ANR Pipeline Company (a
subsidiary of The Coastal Corporation).* This pipeline, when constructed, should
be the key link in a chain of pipelines from the Canadian Rockies to the East
Coast.* In November 1999 the project received the FERC final Environmental
Impact Statement which is a very positive step toward project certification. We
are awaiting final certification of the project. We believe that by supplying
over 900,000 Dth per day of gas to the East Coast markets, this pipeline will be
instrumental in capitalizing on the anticipated movement by the power generation
industry toward gas-fired generation.*
Your Company is, indeed, the "Gateway to the East" more so than it has
ever been. We stand directly between the gas supplies heading from Western
Canada to the East Coast markets, and we believe our pipeline and storage
facilities are strategically located to take advantage of this growth
opportunity.*
Utility
This segment's earnings of $56.9 million, or $1.47 per share,
contributed the largest portion, approximately 49%, of the Company's net income
in 1999. This is a remarkable achievement since our two year rate settlement in
New York required an annual rate reduction of $7.2 million, and required us to
set aside $7.2 million of 1999 revenues to fund future restructuring expenses
incurred as New York State separates the sale of gas from transportation.
Our continuing emphasis on cost containment has been instrumental in
helping us to achieve better than expected results thanks to the efforts of our
employees. By embracing the message of change, they helped us to further reduce
total operating and maintenance expenses below last year's figures. This
accomplishment is all the more noteworthy in light of the increased expense
caused by our early retirement initiatives.
During 1999, the local and national media made much of customer choice
for utility customers. Electric choice initiatives in New York and Pennsylvania
jumped into the spotlight as regulatory agencies launched public education
programs and electric marketers began advertising campaigns for retail
customers. The publicity suggests that there is a great deal of customer choice
activity going on in the business, with customers switching suppliers and
telemarketers pitching utility service and nontraditional products to an
ever-growing pool of eligible utility customers. In fact, however, the reality
is somewhat less exciting. While we have seen an increase in customer choice
activity - currently over 70,000 of our more than 733,000 customers have
switched to transportation service - we continue to manage the transition to
competition as an evolutionary, considered process. Choice as an end unto itself
is a dubious proposition, and we remain focused on building restructured
services that preserve reliability and provide a framework for fair competition.
These efforts have yielded a successful choice program that we expect will
continue to produce benefits for the Utility, the Company and our customers as
the industry's restructuring proceeds.*
In an environment of rapid change, we have maintained the Utility's
steadfast dedication to superior customer service. For instance, new programs
were established in New York and Pennsylvania to provide gas appliance repairs
or replacement for some of our neediest customers. We continued to work with
local social service agencies to bring the benefits of competition to thousands
of public assistance customers who might otherwise be overlooked as a potential
market. We organized a Transportation Services Department in order to better and
more efficiently serve the needs of our transportation customers. We continued
to enhance our field procedures to allow more customers to initiate or transfer
service without having to provide access to Company personnel. Finally, our
traditional service performance measures continued to improve or remain at
historically high levels.
We have also scrutinized the Utility's practices and procedures in
order to identify opportunities for technology improvement and efficiency gains.
Currently, we are installing a new PeopleSoft(R) system that will greatly
enhance our ability to retrieve and efficiently process financial and accounting
information. Additionally, we are modifying our Customer Information System to
allow for more flexibility in customer and marketer billing functions. In the
field, technological advances have allowed our personnel to respond more
effectively and efficiently to many situations, from environmental site
monitoring to pipeline system repairs and maintenance. For example, by using a
"vacuum" truck for line repairs, we significantly reduced the cost of gas line
maintenance and site restoration costs. We are also using a "gas cam" which
allows our crews to "see" through a tiny camera inserted into a pipe, thereby
making corrosion and other line problems easier and less costly to isolate and
repair.
Finally, we are exploring a number of value added services and
products designed to increase revenues from our existing customer base. In the
Utility's service territories, National Fuel is a name that customers have long
trusted for reliable gas service and expert energy advice. Particularly during
these times of rapid change, opportunities for the Utility to offer
non-traditional products and services are at their greatest. As a result, we are
looking at energy end-use technologies, including microturbines and distributed
generation projects, retail billing services, pipeline insurance and appliance
leasing, among other things. Indications are promising that customers would be
strongly interested in these and other products and services offered by the
Utility.*
In these changing times, we believe it is particularly important that
we remain focused on the fundamentals. Thus, we will continue to emphasize our
strengths: cost containment, superior customer service, and a managed transition
to competition. At the same time, however, change presents new opportunities. We
look forward to exploring those opportunities during the next year and as the
business environment continues to evolve.
Energy Marketing
In what may be a unique record among gas company marketing affiliates,
each year since its inception in 1991 National Fuel Resources, Inc. (NFR) has
contributed positively to Company earnings. In 1999, net income of $2.1 million,
or $.05 per share, provided a return on its equity of 16.8%. As you can see from
the charts provided, over 75% of our customer growth is attributed to
residential gas customers, but the dramatic increase in volumes was accomplished
across-the-board with growth in all customer segments. NFR has a multi-state
presence and continues to expand its markets in New Jersey and Pennsylvania.
However, regulatory changes in New York have been most favorable, and, as a
result, our most dynamic growth has taken place there.
NFR has strategically acquired upstream pipeline capacity and storage
to assure reliable service to our customers at competitive prices.* Providing
energy solutions for customers cannot be limited to natural gas and related
value added services. We are also pursuing opportunities related to gas-fired
generation which could position us for future retail electric opportunities.*
While retail electric prospects are modest at the moment, we are confident that
a fully competitive market will unfold over time and we will be well positioned
for this opportunity.*
International
Net income of $2.3 million, or $.06 per share, is a gratifying result
from this relatively new segment. These earnings were $1.0 million or 78% higher
than 1998's earnings of $1.3 million. This year also marked the first full 12
months of sales and revenues from our investment in Prvni severozapadni
teplarenska, a.s. (PSZT).
Capital expenditures of $27.6 million were used primarily for the
construction of new boilers at our PSZT heating plant to comply with certain
clean air standards mandated by the Czech Republic. Our net plant in the Czech
Republic now stands at $203.5 million with total assets of $255.0 million.
The merger of Severoceske teplarny, a.s. (SCT) and PSZT is expected to
occur in 2000, and should provide efficiency improvements and cost reductions.*
Future growth could come from a joint venture or similar alliance, preferably
with a U.S.-based electric company.* We believe their knowledge of electricity
and our natural gas expertise will provide enhanced development opportunities.*
We are comfortable with our base in Prague which allows us to look at
numerous prospects within Eastern Europe. As you may know, projects here happen
later rather than sooner; thus, patience and a long-term view are key
considerations as we continue to evaluate potential energy projects.*
* 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 "*", should be read with the
cautionary statements and important factors included in this Annual Report
on Form 10-K at Item 7, under the heading "Safe Harbor for Forward-Looking
Statements."
APPENDIX TO EXHIBIT 13 - This appendix contains a narrative description of image
and graphic information as contained in the business segment discussion included
in the paper copy of the Company's combined Annual Report to Shareholders/Form
10-K.
Images 1 - 6 are contained in a section devoted to the Exploration & Production
segment as follows:
1.) Image - Picture of James A. Beck, President, Seneca Resources
Corporation. The following quote appears under the picture: "In the
Gulf Coast, our successful offshore exploration program continued. The
most significant of these was . . . Vermilion 253 where the first well
had over 900 feet of oil and gas pay sands."
2.) Image - Picture of Seneca employees analyzing data, with the following
caption: Geologists and geophysicists use computer technology to
interpret three dimensional (3-D) seismic data in order to recommend
prospective oil and gas drilling sites. Pictured here: Scott Gorham and
Gerald Langille of Seneca's Houston office.
3.) Image - Picture of heavy oil pumping units with the following caption:
These pumping units are part of the heavy oil operation on Seneca's
Cherokee property at the Midway-Sunset Field. In 1999, Seneca drilled
51 wells at this site, which is located in California's San Joaquin
Basin.
4.) Image - Picture of Seneca employees reviewing 3-D seismic data with the
following caption: Recommendations from analysis of 3-D seismic data
are carefully reviewed and evaluated. Pictured here: Seneca Houston
personnel Linda Holmberg and John McKnight.
5.) Graph - Proved Developed and Undeveloped Reserves
Bar graph showing oil and gas proved developed and undeveloped reserves
(in billion cubic feet (Bcf) equivalent), at September 30, 1995 through
1999, as follows:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Oil 137.2 154.5 107.9 399.5 454.9
Gas 221.5 207.1 232.4 325.1 320.8
----- ----- ----- ----- -----
358.7 361.6 340.3 724.6 775.7
6.) Graph - Oil and Gas Production
Bar graph showing oil and gas production (in billion cubic feet (Bcf)
equivalent), for the years 1995 through 1999, as follows:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Oil 4.5 10.4 11.4 15.7 24.1
Gas 20.9 38.8 38.6 36.5 37.2
---- ---- ---- ---- ----
25.4 49.2 50.0 52.2 61.3
Images 7 - 9 are contained in a section devoted to the Timber segment as
follows:
7.) Image - Picture of Highland employee operating machinery in sawmill
with the following caption: Gregory Ochs operates the edger at the
Marienville, Pennsylvania sawmill. The four sawmills owned by the
Timber segment sold approximately 21.1 million board feet of logs and
lumber this year.
8.) Image - Picture of timber harvesting with the following caption: Much
of the timber harvested is taken from the 140,000 acres owned by
Seneca Resources.
9.) Graph - Timber Production
Bar graph showing timber production in millions of board feet for the
years 1995 through 1999, as follows:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
6.6 6.4 9.8 14.6 21.1
Images 10 - 14 are contained in a section devoted to the Pipeline and Storage
segment as follows:
10.) Image - Picture of Richard Hare, President, National Fuel Gas Supply
Corporation. The following quote appears under the picture: "Your
Company is, indeed, the "Gateway to the East" . . . We stand directly
between the gas supplies heading from Western Canada to the East Coast
markets . . ."
11.) Image - Picture of welding crew with the following caption: This year
National Fuel Gas Supply Corporation replaced 14,000 feet of Line K, a
major supply line which runs from Clarion, Pennsylvania to Buffalo, New
York. Here, a welding crew works on a section of the new 20-inch steel
pipe.
12.) Image - Map of northeast United States showing the proposed
Independence Pipeline Project, with the following caption: Plans are in
place to construct and operate the Independence Pipeline, a 370-mile
interstate pipeline, of which we are 1/3 owner. This pipeline would
transport about 900,000 Dth per day of natural gas from Defiance, Ohio
to Leidy, Pennsylvania.
13.) Image - Picture of gas flare-ups with the following caption: Dramatic
gas flare-ups at Summit Storage Field near Erie, Pennsylvania could be
seen from quite a distance. This operation removes deposits that have
accumulated in the wells and improves deliverability of natural gas out
of the storage field.
14.) Image - Picture of Compressor at Ellisburg, Pennsylvania with the
following caption: A $5.7 million investment was made in this 3,200
horsepower compressor at the Ellisburg, Pennsylvania Station, near the
Leidy Hub. Put into service in March 1999, this new equipment increased
capacity for both pipeline throughput and customer access to storage.
Images 15 - 23 are contained in a section devoted to the Utility segment as
follows:
15.) Image - Picture of David F. Smith, President, National Fuel Gas
Distribution Corporation. The following quote appears under the
picture: "While we have seen an increase in customer choice activity .
. . we remain focused on building restructured services that preserve
reliability and provide a framework for fair competition."
16.) Image - Picture of plastic pipe with the following caption: Plastic
pipe is now used more frequently by the Utility for mainline
replacement projects. In addition to being lighter and more flexible
than steel pipe, it is resistant to corrosion and lessens the time and
costs associated with pipe fitting and welding.
17.) Image -Picture of Utility employees working on a construction site with
the following caption: A new vacuum truck is now used throughout the
Utility service territory. This equipment, often used in place of a
backhoe, minimizes the size of construction sites thus reducing both
restoration costs and related customer complaints. Pictured here: Jurel
Hunt and Michael Siler of the Construction Department.
18.) Image - Picture of Utility employees working on gas service lines with
the following caption: The Utility works with local businesses to
support economic development. Over the summer, gas service lines were
relocated to facilitate expansion of the Buffalo Bills' Ralph Wilson
Fieldhouse in Orchard Park, New York. Pictured here: Orchard Park
Service Center personnel Kevin McCarthy and Patrick McNerney.
19.) Graph - Utility Operation and Maintenance Expense
Bar graph showing the Utility segment's operation and maintenance
expense (in millions of dollars) for 1995 through 1999, as follows:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
$194 $201 $187 $184 $182
20.) Image - Picture of Utility employees with the following caption:
Training and preliminary implementation has begun for the PeopleSoft(R)
Financials system. This new accounting and financial system is intended
to improve timeliness of reporting as well as to simplify access to
information. Pictured here: Marjorie Minotti instructs employee
implementation team members, from left, Mark Kraemer, Robert
Schneggenburger, Susan Bender, Joseph Short and Brian Hirsch.
21.) Image: Picture of Utility employees monitoring ground water with the
following caption: Utility employees closely monitor ground water
levels following a two year long environmental clean-up recently
completed at the Erie, Pennsylvania Service Center. Pictured here:
Tanya Alexander and Joseph Hartleb.
<PAGE>
22.) Graph - New Service Commitments
Bar graph showing the Utility's percent of orders completed within 10
days, as follows:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
97.9% 99.1% 99.1% 99.8% 99.8%
23.) Graph - Non-Emergency Appointments
Bar graph showing the Utility's percent of appointments kept, as
follows:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
96.8% 97.0% 97.8% 98.5% 98.8%
Images 24 - 27 are contained in a section devoted to the Energy Marketing
segment as follows:
24.) Image - Picture of Robert J. Kreppel, President, National Fuel
Resources, Inc. The following quote appears under the picture:
"Regulatory changes in New York have been most favorable, and, as a
result, our most dynamic growth has taken place there."
25.) Image - Picture of homeowner with the following caption: Through
deregulation, gas marketers such as National Fuel Resources can offer
homeowners the opportunity to receive savings on their natural gas
bills.
26.) Graph - NFR Number of Customers
Bar graph showing number of customers of National Fuel Resources for
the years 1995 to 1999, as follows:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Electric - - - 105 430
Residential Gas - - 370 3,872 13,300
Commercial/
Industrial Gas 246 672 937 1,499 3,750
---- --- ----- ----- ------
Total 246 672 1,307 5,476 17,480
27.) Graph - Natural Gas Marketing Volumes
Bar graph showing NFR's natural gas marketing volumes in Bcf for the
years 1995 to 1999, as follows:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
18.8 20.2 21.0 26.5 34.5
Images 28 - 30 are contained in a section devoted to the International segment
as follows:
28.) Image - Picture of Bruce H. Hale, Vice President, Horizon Energy
Development, Inc. The following quote appears under the picture:
"Future growth could come from a joint venture or similar alliance,
preferably with a U.S.-based electric company."*
29.) Image - Picture of turbine generators with the following caption: At
our electric generation and district heating plant in Komorany, Czech
Republic, steam produced in nine high pressure boilers is used to fuel
these eight turbine generators before being delivered to the primary
pipeline as an energy source for industrial and municipal heating
customers.
30.) Image - Picture of PSZT employees with the following caption: PSZT
employees dispatch electricity to the local distribution grid from this
control center 24 hours a day and 365 days a year.
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 19, 1999, and to the reference to our estimate dated October 1, 1999,
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. 2-94539), 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. 333-03055 and No. 333-03057), 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. 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,
(iv) the Registration Statements (Form S-3, No. 33-51881 and Form S-3D, No.
333-51769), as amended, relating to the National Fuel Gas Company Dividend
Reinvestment and Stock Purchase Plan, and in the related Prospectuses, (v) 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, (vi) 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, and (vii) the Registration Statement (Form S-8,
No. 333-51595) relating to the National Fuel Gas Company 1997 Award and Option
Plan, and in the related Prospectus, (viii) the Registration Statement (Form
S-4, No. 333-74887), as amended, relating to the acquisition of the assets of
Cunningham Natural Gas, and in the related Prospectus, (ix) the Registration
Statement (Form S-3, No. 333-83497), as amended, relating to $625,000,000 of
National Fuel Gas Company debentures and/or common stock, and in the related
Prospectus, (x) the Registration Statement (Form S-3, No. 333-85711) relating to
National Fuel Gas Company Direct Stock Purchase and Dividend Reinvestment Plan,
and in the related Prospectus, of the reproduction of our report dated October
19, 1999, appearing in this National Fuel Gas Company Annual Report on Form
10-K.
RALPH E. DAVIS ASSOCIATES, INC.
/s/ Allen C. Barron, P. E.
Allen C. Barron, P.E.
Vice President
Houston, Texas
October 28, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-85711), Form S-3 (No. 333-83497), Form S-3 (No.
33-51881), Form S-3 (No. 33-36868), Form S-3 (No. 333-03803), Form S-3 (No.
333-51769), Form S-8 (No. 2-94539), Form S-8 (No. 33-49693), Form S-8 (No.
333-03057), Form S-8 (No. 333-03055), Form S-8 (No. 333-51595), and Form S-4
(No. 333-74887) of National Fuel Gas Company of our report dated October 25,
1999, relating to the financial statements and financial statement schedules,
which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Buffalo, New York
December 21, 1999
<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-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,353,894
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 257,289
<TOTAL-DEFERRED-CHARGES> 14,266
<OTHER-ASSETS> 217,137
<TOTAL-ASSETS> 2,842,586
<COMMON> 38,837
<CAPITAL-SURPLUS-PAID-IN> 431,952
<RETAINED-EARNINGS> 472,517
<TOTAL-COMMON-STOCKHOLDERS-EQ> 939,293
0
0
<LONG-TERM-DEBT-NET> 822,743
<SHORT-TERM-NOTES> 245,995
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 147,500
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 687,055
<TOT-CAPITALIZATION-AND-LIAB> 2,842,586
<GROSS-OPERATING-REVENUE> 1,263,274
<INCOME-TAX-EXPENSE> 64,829
<OTHER-OPERATING-EXPENSES> 1,006,437
<TOTAL-OPERATING-EXPENSES> 1,071,266
<OPERATING-INCOME-LOSS> 192,008
<OTHER-INCOME-NET> 12,343
<INCOME-BEFORE-INTEREST-EXPEN> 204,351
<TOTAL-INTEREST-EXPENSE> 87,698
<NET-INCOME> 115,037
0
<EARNINGS-AVAILABLE-FOR-COMM> 115,037
<COMMON-STOCK-DIVIDENDS> 70,632
<TOTAL-INTEREST-ON-BONDS> 54,501
<CASH-FLOW-OPERATIONS> 271,890
<EPS-BASIC> 2.98
<EPS-DILUTED> 2.95
</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.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,248,137
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 210,517
<TOTAL-DEFERRED-CHARGES> 8,619
<OTHER-ASSETS> 217,186
<TOTAL-ASSETS> 2,684,459
<COMMON> 38,469
<CAPITAL-SURPLUS-PAID-IN> 416,239
<RETAINED-EARNINGS> 428,112
<TOTAL-COMMON-STOCKHOLDERS-EQ> 890,085
0
0
<LONG-TERM-DEBT-NET> 693,021
<SHORT-TERM-NOTES> 196,300
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 130,000
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 775,053
<TOT-CAPITALIZATION-AND-LIAB> 2,684,459
<GROSS-OPERATING-REVENUE> 1,248,000
<INCOME-TAX-EXPENSE> 24,024
<OTHER-OPERATING-EXPENSES> 1,140,045
<TOTAL-OPERATING-EXPENSES> 1,164,069
<OPERATING-INCOME-LOSS> 83,931
<OTHER-INCOME-NET> 35,870
<INCOME-BEFORE-INTEREST-EXPEN> 119,801
<TOTAL-INTEREST-EXPENSE> 85,284
<NET-INCOME> 23,188
0
<EARNINGS-AVAILABLE-FOR-COMM> 23,188
<COMMON-STOCK-DIVIDENDS> 67,671
<TOTAL-INTEREST-ON-BONDS> 47,767
<CASH-FLOW-OPERATIONS> 252,978
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.60
</TABLE>
RALPH E. DAVIS ASSOCIATES, INC.
CONSULTANTS-PETROLEUM AND NATURAL GAS
3555 TIMMONS LANE-SUITE 1105
HOUSTON, TEXAS 77027
(713) 622-8955
October 19, 1999
Seneca Resources Corporation
1201 Louisiana, Suite 400
Houston, Texas 77002
Attention: Mr. Don A. Brown
Vice President
Re: Oil, Condensate and Natural Gas Reserves, Seneca
Resources Corporation As of October 1, 1999
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>
RALPH E. DAVIS ASSOCIATES, INC.
Seneca Resources Corp.
Mr. Don A. Brown
October 19, 1999
Page 2
<TABLE>
<CAPTION>
Estimated Proved Reserves
Net to Seneca Resources Corporation
As of October 1, 1999
Proved Reserves
--------------------------------------------
Developed
-----------------------
Remaining Reserves Producing Non-Producing Undeveloped Total
<S> <C> <C> <C> <C>
East Coast Division:
Oil/Condensate, MBbls 77 0 0 77
Gas, MMSCF 78,910 178 0 79,088
Gulf Coast Division:
Oil/Condensate, MBbls 2,527 1,805 2,903 7,235
Gas, MMSCF 40,388 61,890 19,294 121,572
West Coast Division:
Oil/Condensate, MBbls 50,046 2,879 15,583 68,508
Gas, MMSCF 35,397 6,166 78,568 120,131
TOTAL:
Oil/Condensate, MBbls 52,650 4,684 18,486 75,820
Gas, MMSCF 154,695 68,234 97,862 320,791
</TABLE>
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. In each of Seneca's producing divisions all 1999 additions and
those properties of significant value were reviewed by Ralph E. Davis. Reserve
estimates of current producing zones, productive zones behind pipe and undrilled
well locations were reviewed in detail. Certain changes to either
<PAGE>
RALPH E. DAVIS ASSOCIATES, INC.
Seneca Resources Corp.
Mr. Don A. Brown
October 19, 1999
Page 3
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.
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
<PAGE>
RALPH E. DAVIS ASSOCIATES, INC.
CLASSIFICATION OF RESERVES
Proved Oil and Gas Reserves
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas, and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions.
1. Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test.
The area of a reservoir considered proved includes (A) that portion
delineated by drilling and defined by gas-oil and/or oil-water
contacts, if any; and (B) the immediately adjoining portions not yet
drilled, but which can be reasonably judged as economically productive
on the basis of available geological and engineering data. In the
absence of information on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the
reservoir.
2. Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in
the "proved" classification when successful testing by a pilot
project, or the operation of an installed program in the reservoir,
provides support for the engineering analysis on which the project or
program was based.
3. Estimates of proved reserves do not include the following: (A) oil
that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural
gas, and natural gas liquids, the recovery of which is subject to
reasonable doubt because of uncertainty as to geology, reservoir
characteristics, or economic factors; (C) crude oil, natural gas, and
natural gas liquids, that may occur in undrilled prospects; and (D)
crude oil, natural gas, and natural gas liquids, that may be recovered
from oil shales, coal, gilsonite and other such sources.
Proved Developed Reserves
Proved developed oil and gas reserves are reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery should be included as "proved
developed reserves" only after testing by a pilot project or after the operation
of an installed program has confirmed through production response that increased
recovery will be achieved.
Proved Undeveloped Reserves
Proved undeveloped oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation.
