<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ...............to ..............
Commission file number 0-82
NORTH CAROLINA NATURAL GAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 56-0646235
- -------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Rowan Street, Fayetteville, North Carolina 28301-4993
(Address of principal executive offices)
(Zip Code)
(910) 483-0315
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
- ----------------------- -----------------------------------------
Common stock, par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Estimate aggregate market value of the voting stock held by nonaffiliates
of the registrant at November 25, 1996............................$198,090,101
Number of shares of Common Stock outstanding at November 25, 1996..6,575,605
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement dated December 6, 1996 relating to the
January 14, 1997 Annual Meeting of Shareholders, are incorporated by
reference into Part III of this annual report.
<PAGE>2
NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
FORM 10-K
ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
Item Page
- ---- ----
PART I.
1. Business 3
Executive Officers of the Registrant 13
2. Properties 14
3. Legal Proceedings 14
4. Submission of Matters to a Vote of Security Holders 14
PART II.
5. Market for Registrant's Common Equity and
Related Stockholder Matters 15
6. Selected Financial Data 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
8. Financial Statements, Notes and Supplementary Data 22
9. Changes in and Disagreements on Accounting and
Financial Disclosure 40
10. Management's Responsibility for Financial Statements 40
PART III.
11. Directors and Executive Officers of the Registrant 41
12. Executive Compensation 41
13. Security Ownership of Certain Beneficial Owners
and Management 41
14. Certain Relationships and Related Transactions 42
PART IV.
15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 43
Report of Independent Public Accountants 45
Signatures 46
Index to Exhibits 47
<PAGE>3
NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
PART I
Item 1. Business
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General
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North Carolina Natural Gas Corporation (NCNG or the Company), whose
principal office is located at 15O Rowan Street, Fayetteville, North
Carolina 28301, was incorporated in 1955 under the laws of the State of
Delaware. It is engaged in the transmission and distribution of natural gas
through approximately 1,033 miles of transmission pipeline and approximately
2,589 miles of distribution mains. Natural gas is sold under regulated
rates to approximately 149,900 customers in 65 cities and towns and four
municipal gas distribution systems in eastern and southcentral North Carolina.
The Company purchases and transports natural gas under long-term
contracts with Transcontinental Gas Pipe Line Corporation (Transco), Columbia
Gas Transmission Corporation (Columbia) and several major oil and gas producers.
Approximately 73% of NCNG's total available gas supply in 1996 was purchased
under long-term contracts, in the spot market or with non-pipeline suppliers
for system supply. The Company also serves propane gas to approximately
9,300 customers and sells gas appliances and home insulation services to gas
customers and new home builders.
The Company has three subsidiaries: NCNG Exploration (Exploration),
Cape Fear Energy Corporation (Cape Fear) and NCNG Energy Corporation (Energy).
Exploration was organized in 1974, Cape Fear was organized in 1980 and Energy
was organized in August 1995, all under the laws of North Carolina. Exploration
and Cape Fear are primarily engaged in the purchase of natural gas for the
Company's system supply and for sale to large industrial plants and the
municipalities served by the Company as well as natural gas resellers. Energy
was formed to hold investments and engage in other activities related to the
natural gas business.
Financial Information About Industry Segments
- ---------------------------------------------
The Company is engaged in principally one industry as described above
and has no other reportable industry segments.
Narrative Description of Business
- ---------------------------------
General -
The Company distributes natural gas to residential, commercial,
industrial and municipal customers in a substantial portion of the southcentral
and eastern sections of North Carolina. The population in the Company's
franchised territory is approximately 2,474,000. Principal cities or towns
served include Albemarle, Dunn, Fayetteville, Goldsboro, Greenville, Indian
Trail, Kinston, Lumberton, New Bern, Monroe, Roanoke Rapids, Rockingham, Rocky
Mount, Smithfield/Selma, Southern Pines, Wilmington and Wilson.
The Company's service area is attractive to industry due largely to
good climate, favorable labor relations, responsible local and state government,
good transportation, and the proximity of this area to major markets.
<PAGE>4
Industrial activities in the service area are diverse. The Company
serves customers engaged in the manufacture of brick and ceramics, chemicals,
fertilizers, glass, nuclear fuels, textiles, plywood and other wood products,
and in the processing of aluminum and other metals, tobacco, rubber, dairy and
food products. The Company also provides natural gas service to three large
military bases and two electric utilities.
Following is a summary of operating revenues (in 000's) by major
customer classification for the years 1992 through 1996:
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Residential & Commercial $ 47,534 $ 57,163 $ 58,748 $ 51,841 $ 78,849
Municipalities for Resale 21,448 22,312 23,471 20,189 31,545
Industrial/electric power
generation 81,528 93,670 78,118 73,642 86,244
------- ------- ------- ------- -------
Total Operating Revenues $150,510 $173,145 $160,337 $145,672 $196,638
======= ======= ======= ======= =======
The above amounts include revenues from both gas sold to customers and
for transportation of customer-owned gas. The Company's revenues from
transportation are lower than from sales because it does not incur or bill the
commodity cost of gas for transported volumes. However, the Company
generally earns the same margin on a dekatherm (dt) of gas whether
transported or sold because transportation rates exclude only the commodity
cost of gas which the customer pays directly to his supplier.
Operating revenues declined to $160.3 million in 1994 from $173.1
million in 1993 due to a combination of factors, primarily lower gas costs
passed on to customers and the shift to more transportation service and less
sales to large customers in 1994 compared to 1993. The strong customer
growth and slight increase in net throughput volumes increased revenues but
only partially offset these factors causing revenues to decline.
Operating revenues declined to $145.7 million in 1995 from $160.3
million in 1994 primarily due to a reduction in gas costs.The average commodity
cost of gas declined to an average of $1.68 per dt from $2.21 per dt in 1994.
However, increased throughput, together with customer growth which provided
additional facilities charges, somewhat offset the decline in revenues related
to lower gas costs.
Operating revenues increased to $196.6 million in 1996 from $145.7
million in 1995 due primarily to: (1) the general rate increase effective
November 1, 1995; (2) increased sales volumes caused by customer growth and
colder winter weather; (3) higher natural gas commodity prices; (4) a switch to
more sales service and less transportation volumes in 1996 compared to 1995; and
(5) an increase in customer base.
Natural gas supply -
During 1996 the Company received 10,268,605 dt of natural gas under its
firm sales contract with Transco. It purchased 31,027,167 dt in the spot market
or from other non-traditional sources, including long-term contracts with seven
major producers and two national natural gas marketers. The Company also
transported 12,826,084 dt of customer-owned gas in 1996. The outlook for natural
gas supplies in the Company's service area remains favorable as both Transco and
Columbia are "open access" pipelines, and the Company has many sources of gas
available on a firm basis. Nationally, gas supplies are adequate and no supply
curtailments are anticipated, although pipeline capacity along the east coast of
the U.S.A. is expected to be tight if winter weather is colder than normal.
See Page 10 of this report for additional information regarding federal
regulation of interstate pipelines.
<PAGE>5
The following table summarizes the supply sources which are under
contract or otherwise available to the Company as of November 1, 1996:
Maximum Contract
Daily Annual Expiration
Deliverability (a) Quantity (a) Date
------------------ ------------ ----------
(dt) (dt)
Transco -
Firm Transportation (FT) 145,935 (b) 53,266,275 2013
Firm Sales (FS) 55,935 20,416,275 2001
General Storage (GSS) 2,070 98,790 2013 (c)
Washington Storage (WSS) 32,154 (d) 2,734,180 1998
Liquefied Gas Storage (LG-A) 5,320 26,600 2016
Southern Expansion (FT) 16,871 (b)(e) 2,444,553 2005
Eminence Storage (ESS) 39,373 (h) 316,914 2013
Columbia Gas Transmission -
Firm Transportation (FT) 19,801 (b) 7,227,365 2004
Firm Storage Service (FSS) 5,199 223,238 2004
Firm Storage Service (FSS) - 256,227 (j) 1997
Amerada Hess -
Firm Sales 15,000 (f)(g) 3,732,750 2004
Enron Gas Marketing -
Firm Sales 15,500 (e)(g) 2,340,500 1998
Exxon Company, U.S.A. -
Firm Sales 14,880 (g) 5,431,200 2003
Pan Energy Trading
and Market Services -
(formerly Mobil) 24,880 (g) 9,081,200 1997
Natural Gas Clearinghouse -
Firm Sales 9,947 (e)(g) 1,501,997 1999
Texaco -
Firm Sales 21,740 (f)(g) 5,422,740 1998
Amoco -
Firm Sales 9,400 (e)(g) 2,489,400 1998
Natural Gas Clearinghouse 9,621 (g) 3,511,665 1998
(formerly Chevron)
Vastar (Arco) 10,000 (e)(g) 1,510,000 1998
LNG Plant (Company owned) 80,000 (i) 1,000,000 N/A
<PAGE>6
(a) Quantities are shown in dekatherms (dt) (one dt equals 1,000,000 Btu or
one Mcf at 1000 Btu/cu. ft.). Transco demand billings were converted
from Mcf determinants to dt determinants on October 1, 1996 as required by
FERC Order 582.
(b) Firm Transportation (FT) contracts are for pipeline capacity only.
The Company is responsible for acquiring its own gas supplies to be transported
on a firm basis under the FT contracts. Gas supplies are available under the
Transco FS Agreement, other long-term agreements (See (g) below),
multi-month term agreements or agreement of one month or less for supplies
purchased in the spot market.
(c) The Company's GSS storage capacity quantity was revised from 103,500 dt to
98,790 dt effective July 1, 1996 per an application filed by Transco in Docket
CP96-226-00 and approved by the Federal Regulatory Commission (FERC). Transco's
application was filed pursuant to a settlement with GSS customers reducing
storage contract quantities to reflect declines in deliverability from certain
storage facilities used to provide the GSS service. The Company has signed a new
GSS agreement extending through March 31, 2013, reflecting the reduced storage
capacity quantity.
(d) Washington Storage volumes may be withdrawn to the extent that the basic
contract gas from Transco or other suppliers is unavailable on any day or if the
Company elects to take such gas instead of other supplies.
(e) Winter months only (November through March).
(f) Provides for a lower daily deliverability volume in the summer period
(April through October).
(g) The Amerada Hess, Enron, Exxon, Pan Energy, Natural Gas Clearinghouse
(2 contracts), Texaco, Vastar (Arco) and Amoco contracts are for gas supply
only - no pipeline capacity is included. Supplies purchased from these
suppliers flow on the Company's FT contracts with Transco and Columbia (See (b)
above).
(h) Transco salt dome storage capacity allocated to customers of Transco
FS sales service by mandate of FERC Order 636. Transco schedules injections
and withdrawals of gas from Eminence storage capacity under agency agreements
with the Company and the other FS sales service customers.
(i) Deliverability of Company's transmission pipeline capacity to
distribute supplies withdrawn from storage at the Company's LNG Plant
under normal operating conditions. Total vaporization capacity from the
LNG Plant is approximately 120,000 Mcf/day.
(j) NCNG contracted for additional FSS storage capacity for a term ending
March 31, 1997 in order to increase days of FSS availability during the 1996-97
winter season. The additional storage capacity does not increase the
daily deliverability from FSS storage.
<PAGE>7
In addition to its basic year-round firm transportation (FT) contract
with Transco providing 145,935 dt per day, the Company has approximately 17,000
dt per day of additional winter season FT capacity from Transco's Southern
Expansion. The Company has also converted 100% of its original Columbia sales
contract to a combination of firm transportation and firm storage service under
Columbia's November 1, 1993 service restructuring mandated by the Federal Energy
Regulatory Commission's Order 636. The FT contracts enable the Company to
acquire gas directly from producers or other natural gas marketers and have the
gas transported on a firm basis at delivered costs that reflect the market price
of natural gas in any month. Many of the Company's industrial and large
commercial customers have the capability to burn a fuel other than natural gas,
and these customers will generally switch from gas when it costs more than the
alternative fuel (primarily residual oil, distillate oil or propane). Some of
these same customers prefer to acquire their own gas supplies, and the Company
works with each pipeline and the customers to arrange transportation service for
them when possible. End-user transportation volumes decreased 25% in 1996 from
1995 due primarily to higher spot market gas prices compared to the previous
year. The Company's primary objectives are to secure adequate and reliable gas
supplies on reasonable terms and conditions consistent with its obligation to
provide service to its firm service customers at the lowest reasonable cost.
Spot market purchases will continue to be utilized primarily in the off-peak
months (generally March through November) when such transactions offer economic
savings compared to other firm purchase options.
As of November 1, 1996, the Company had entered into long-term gas
supply contracts with major producers or national natural gas marketers for firm
supplies in the winter season totaling 126,568 dt/day on Transco and Columbia.
Additionally, the Company has a firm sales contract with Transco to provide gas
supplies of 55,935 dt/day which the Company uses as its primary "swing" supply
to accommodate changes in the level of demand on its system.
The Company has a liquefied natural gas (LNG) storage plant which
provides 80,000 dt per day to the Company's peak-day delivery capability.
Franchises -
The Company holds a certificate of public convenience and necessity
granted by the North Carolina Utilities Commission (NCUC) to provide service to
the area now being served. Under North Carolina law, no company may construct or
operate properties for the sale or distribution of natural gas without having
obtained such a certificate, except that no certificate is required for
construction in the ordinary course of business or for construction into
territory contiguous to that already occupied by a company and not receiving
similar service from another utility.
The Company has nonexclusive franchises from 51 municipalities in which
it distributes natural gas and four municipalities to which the Company sells or
transports gas for resale. The expiration dates of those franchises which have
specific expiration provisions are from 1999 to 2015. The franchises are
substantially uniform in nature. They contain no restrictions of a materially
burdensome nature and are adequate for the Company's business as presently and
as now proposed to be conducted. The Company, in addition, serves 14 communities
from which no franchises are required.
On August 16, 1996 in Docket No. G-100, Sub 69, the NCUC granted to the
Company a Certificate of Public Convenience and Necessity to provide natural gas
utility service in Camden, Currituck, Dare and Tyrrell Counties and all of the
previously unfranchised parts of Montgomery and Moore Counties.
Seasonal nature of business -
The Company's business is seasonal in nature. Cold weather affects
customer demand in high priority markets and generally results in greater
earnings during the winter months. In the Company's October 1995 general Rate
Order, residential and commercial rates were increased while industrial rates
were decreased, thus further increasing the seasonal variation in revenues,
margin and earnings. However, the Company's deliveries to high load factor
industrial customers, together with summer season deliveries for agricultural
crop drying and electricity generation, help to minimize quarterly variations in
throughput volumes and earnings.
The Company normally injects gas into storage during periods of warm
weather and withdraws it during periods of cold weather. The storage and various
other contracts as shown on Pages 5 and 6 provide adequate daily supply to meet
the Company's peak day-requirements.
<PAGE>8
Short-term debt is used for the seasonal financing of stored gas
inventories and for the Company's ongoing construction program prior to
obtaining long-term financing. These loans, either conventional notes or
bankers' acceptances, are normally repaid from the funds generated by the winter
sale of the stored gas. At September 30, 1996, $3.0 million in short-term debt
was outstanding compared to $27.0 million at September 30, 1995. The $27.0
million outstanding at September 30, 1995 is classified as long-term debt on the
Company's balance sheet due to the Company's refinancing of this amount in a
private placement of $30.0 million of 7.15% Senior Notes due 2015. This
transaction closed November 10, 1995, and all short term debt was repaid.
Nonutility Businesses -
Exploration was formed in 1974 when the NCUC approved and authorized
customer participation in four exploration and development programs. Effective
June 7, 1994, the Company and the other three natural gas distribution utilities
in North Carolina sold their combined interests in all of the exploration and
development programs in which Exploration was involved. Exploration's share of
the net proceeds was $615,000, of which $144,500 was deposited in an escrow
account to remain until December 31, 1995 to cover any potential claims
presented by the buyers. At December 31, 1995, no claims had been presented and
the $144,500 in escrow was transferred to the Company. In 1996, NCNG Exploration
marketed natural gas and sold 3.8 million dt of off-system gas on which
Exploration realized a profit margin of $602,000.
Cape Fear was formed in 1980 to make investments without customer
participation in future exploration and drilling programs. Cape Fear has no
material remaining commitments but may make some minor additional investments
for development of successful prospects. The Company's current activities relate
primarily to marketing of natural gas. In 1996, Cape Fear sold 7.1 million dt of
natural gas to NCNG customers and earned a profit margin of $178,000 on such
sales.
Energy was formed in 1995 to hold investments and engage in other
activities related to the natural gas business. Energy has become a 5% equity
owner in Pine Needle LNG Company, LLC which owns a site near Transco's main line
north of Greensboro, North Carolina, and plans to build and operate a 4 Billion
Cubic feet (BCf) liquefied natural gas (LNG) plant to be in service by the
1999-2000 winter heating season. Additionally, Energy has become a 5% equity
owner in another company called Cardinal Expansion Company, LLC which will take
over an existing intrastate pipeline now owned by Piedmont and Public Service
and then extend that pipeline from Burlington, North Carolina, to an
interconnection with the systems of Public Service and NCNG southeast of Raleigh
at Clayton, North Carolina.
The Company also engages in the sale of propane to customers which do
not have access to natural gas, through its propane division. Sales of propane,
aided by a colder than normal winter, increased 33% to 7.2 million gallons in
1996, which resulted in a pretax income of $1.5 million compared to $725,000 in
1995.
<PAGE>9
Regulations and rates -
The Company is subject to regulation by the NCUC as to rates, service
area, adequacy of service, safety standards, acquisition, extension and
abandonment of facilities, accounting and issuance of securities. The Company
operates only in the State of North Carolina and is not subject to Federal
regulation as a "natural gas company" under the Natural Gas Act.
On October 27, 1995, the NCUC issued its Order granting a general rate
increase amounting to $4.2 million in annual revenues effective November 1,
1995. The Commission's Order approved, in all material respects, the Stipulation
of Settlement reached among the Company, the Public Staff of the NCUC, the
Carolina Utility Customers Association, Inc. (CUCA) and other intervenors in the
rate case. The Order provides for a rate of return on net investment of 10.09%
but, pursuant to the Stipulation of Settlement, did not state separately the
rate of return on common equity nor the capital structure used to calculate
revenue requirements. The Order provides for significant rate design changes by
increasing residential and commercial rates while reducing industrial sales and
transportation rates to recognize, among other things, the differences in costs
of serving the various customer classes. The Order establishes several new rate
schedules, including an economic development rate to assist in attracting new
industry to the Company's service area and a rate to provide standby, on-peak
gas supply service to industrial and other customers whose gas service would
otherwise be interrupted.
Also as part of the October 27, 1995 Rate Order, the NCUC approved:
- Continuation of the Weather Normalization Adjustment (WNA)
mechanism originally approved in 1991 (See below).
- Establishment of the Price Sensitive Volume Adjustment (PSVA)
mechanism to replace the Industrial Sales Tracker (IST) effective
November 1, 1995 (See below). The PSVA, while narrower in scope
than the IST, protects the Company against loss of load from eight
large, fuel-switchable customers using heavy fuel oil as an
alternative fuel while providing that all actual margins earned on
deliveries of gas to such customers shall be flowed through to all
other customers.
- An increase in depreciation rates for certain distribution plant.
- The increased depreciation rates account for approximately
$750,000 of the $4.2 million annual revenue increase.
- The accounting for and recovery in rates of costs associated with
environmental assessment and remediation of a former manufactured
gas plant (MGP) site. The NCUC found that NCNG acted in a
reasonable and prudent manner in responding to the 1991 North
Carolina Department of Environmental Health and Natural Resources
Division of Environmental Management's Notice of Violation of
Water Quality Standards as a result of MGP by-products at the
Kinston site. Accordingly, the NCUC approved the Company's
proposal to recover an annualized amount of MGP costs based on
amounts expended, net of recoveries from third parties, through
December 31, 1994.
The WNA benefits both the Company and its space heating customers by
reducing large swings in customers' bills and Company revenues due to
fluctuations in winter weather. This WNA Rider increases margins to the Company
on its temperature sensitive load during warmer than normal winter weather and
decreases the margin during colder than normal weather. In Fiscal 1996, winter
weather was 5% colder than normal and, accordingly, the WNA decreased net
billing to customers by $1.5 million.
The Company's rate tariff for Fiscal 1995 contained an IST Rider. The
purpose of the IST is to stabilize the Company's margin (difference between
revenues and purchased gas cost) earned from sales or transportation to
interruptible industrial customers who use heavy fuel oil as an alternative
fuel. To the extent that actual margins realized from sales or transportation to
such customers exceed, or are less than, the margins included in the Company's
1991 general rate case for IST volumes, refunds payable or additional
receivables are recorded. The actual margin earned from IST deliveries were more
than the base period margin by $1.4 million in 1995 and less than the base
period margin by $3.9 million in 1994.
<PAGE>10
The NCUC, in a general rulemaking proceeding, revised its Purchased Gas
Adjustment (PGA) procedures in April 1992. The revised procedures continue to
allow the Company to recover all of its prudently incurred gas costs, but such
procedures provide for several significant changes which include: (1) the
establishment of a benchmark commodity cost of gas which represents the
Company's estimate of the actual commodity cost of gas from all suppliers that
it will incur in a future period; (2) the recovery of 100% of prudently incurred
fixed costs of pipeline capacity and storage costs, including costs of any new
capacity added since the last general rate case; (3) the notice period for
requesting PGA rate changes was reduced to 14 days from 30 days; (4) the
establishment of a tariff provision which allows the Company to recover margin
losses from negotiated rates to non-IST large commercial and industrial
customers; (5) a true-up of fixed gas costs recovered from the Company's
customers; (6) a true-up of the Company's lost, unaccounted for and Company use
volumes compared to such volumes included in the last general rate case; and (7)
an annual review of the Company's gas costs, including the prudence thereof, by
the Public Staff of the NCUC and a hearing before the NCUC. The Company's annual
review of its gas costs for the 12 months ended October 31, 1995 was held in
April 1996. The NCUC found the Company's gas costs and gas purchasing practices
to be prudent, as it had in all previous reviews.
In August 1995, the NCUC issued its Order approving the Company's first
expansion project to utilize the Expansion Fund established for the Company's
system under legislation passed by the North Carolina General Assembly in 1991.
The project is to extend NCNG's transmission pipeline 71 miles from Mount Olive
to the Marine Base-Camp Lejeune in Jacksonville, North Carolina. In 1996, the
Company began acquiring rights-of-way and performing necessary environmental
studies. It is expected that the construction of the project will begin in 1997
and the project will be completed in 1998. The Company estimates the total cost
of the project will be approximately $18.8 million. The Expansion Fund will
provide $12.4 million based on the economic feasibility analysis approved by the
NCUC.
In April 1996, the Company filed with the NCUC its annual true-up of
lost, unaccounted for and company use volumes for 12 months ended October 31,
1995. Because such volumes exceeded the base period amounts included in the 1995
general rate case, the Company recouped $209,000 in 1996 from the true-up by
charging that amount to the deferred gas cost account for future recovery in
rates from customers.
On December 22, 1995, the NCUC issued an Order in Docket No. G-100, Sub
67 revising the sharing mechanism for Buy/Sell and Interstate Pipeline Capacity
Release transactions effective November 1, 1995. This new Order broadened the
scope of covered transactions to include all "secondary market transactions"
that involve use of the Local Distribution Company's firm transportation or
storage capacity rights on pipelines, the costs of which capacity are recovered
from utility customers. This Order changed the customer's and the Company's
portions of the sharing of net compensation from 90%/10% to 75%/25%,
respectively. Total secondary market transactions increased to $2.4 million in
1996 compared to $1.3 million in 1995 due primarily to higher gas prices which
provided the Company with the opportunity to do more of these types of
transactions.
Both of the Company's interstate pipeline suppliers, Transco and
Columbia, have ongoing rate and certificate matters under jurisdiction of the
Federal Energy Regulatory Commission (FERC). The Company does not expect that
any regulatory decisions or court orders will have a material impact on its
financial position or results of operations because all prudently incurred gas
costs, including interstate pipeline capacity and storage service costs, are
eligible for immediate recovery from the Company's customers, and refunds from
interstate pipelines must be transferred to the Expansion Fund or directly
refunded to the Company's customers.
Competition -
With the exception of four municipalities that operate municipal gas
distribution systems within the Company's service territory, the Company is the
sole distributor of natural gas in its franchise service territory. Natural gas
competes with electricity, residual fuel oil, distillate fuel oil, propane and,
to a lesser extent, coal. The Company has the lowest residential rates in North
Carolina and is in a favorable competitive position.
<PAGE>11
During 1996, approximately 59% of total throughput on the Company's
system was to customers having alternative fuel usage capabilities under
interruptible rates. However, the Company's PGA and PSVA tariffs allow it to
negotiate rates lower than the filed tariff rates and recover the lost margin
from core market customers to keep industrial customers from leaving the system
when the price of their alternative fuel is lower than the gas tariff rate. The
PSVA requires that all margins earned from the eight PSVA customers must be
flowed through to all other customers. Although the Company has benefited from
the favorable spread between the prices of both No. 2 fuel oil and propane
compared to natural gas and has remained competitive in most instances with No.
6 fuel oil, the market could be affected by volatility in the price of fuel oil
as well as increases in the price of natural gas.
Environmental matters -
The Company is subject to regulation with regard to environmental
matters by various Federal, state and local authorities. During fiscal year
1991, the North Carolina Department of Environment, Health and Natural Resources
advised the Company of possible environmental contamination arising from
Company-owned property in Kinston, North Carolina, which is the former site of a
manufactured gas plant (MGP). The Company retained an environmental services
consulting firm which has estimated the costs of investigation and remediation
of this site based on its work to date to be between $1.4 million and $2.8
million. The Company owns another site of a former MGP site in New Bern, North
Carolina, and was the former owner of three other similar sites on which no
significant environmental problems have arisen. The Company believes that any
appreciable costs will be recovered from third parties, including liability
insurance carriers, or in natural gas rates. In its October 27, 1995 Rate Order,
the NCUC approved the Company's proposal to recover an annualized amount of MGP
costs based on amounts expended, net of recoveries from third parties, through
December 31, 1994.
Other -
FASB Statement No. 107, "Disclosure About Fair Value of Financial
Instruments," requires disclosure of the fair value of financial instruments,
both assets and liabilities, for which it is practicable to estimate fair value.
The fair value of the Company's long-term debt is estimated using a discounted
cash flow methodology. Based on published corporate borrowing rates for debt
instruments with similar terms and average maturities, the estimated fair value
of the Company's long-term debt (including maturities) at September 30, 1996, is
approximately $66.7 million as compared to a carrying value of $65.0 million,
and at September 30, 1995, the estimated fair value was approximately $63.7
million as compared to a carrying value of $64.0 million.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." This
Statement imposes stricter criteria for regulatory assets by requiring that such
assets be probable of future recovery at each balance sheet date. The Company
will adopt this standard on October 1, 1996 and does not expect that adoption
will have a material impact in the financial position or results of operations
of the Company based on the current regulatory structure in which the Company
operates. This conclusion may change in the future as competitive factors
influence wholesale and retail pricing in the gas utility industry.
During October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation." This statement encourages companies to adopt a fair
value-based method of accounting for their employee stock compensation plans. It
allows companies to continue to follow the accounting provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
However, pro forma disclosure in the Notes to Consolidated Financial Statements
of net income and earnings per share, as if the fair value-based method of
accounting had been applied, is required. Statement No. 123 disclosure
requirements will be adopted in Fiscal 1997. The disclosure requirements will
not affect the financial position or results of operations.
<PAGE>12
The FASB issued Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires accounting for
these benefits on an accrual basis using a single actuarial method which spreads
the expected cost of such benefits to each year of an employee's service until
the employee becomes fully eligible to receive the benefits. The NCUC approved
the same in the Company's most recent general rate case decided October 27,
1995. The Company is not currently funding this plan.
The FASB issued Statement No. 112, "Employers' Accounting for
Postemployment Benefits," which requires that all types of benefits provided to
former or inactive employees and their families prior to retirement be accounted
for on an accrual basis. The Company adopted this standard in Fiscal 1995 and it
did not have a material impact on the financial statements. The NCUC in its
October 27, 1995 Rate Order allowed the recovery of these costs in rates over a
three-year amortization period.
Effective October 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." The adoption of Statement No. 109 resulted in
additional deferred income taxes and related regulatory assets and liabilities.
The net regulatory liability is due primarily to deferred income taxes
recognized in years prior to 1987 at rates higher than currently enacted.
Natural gas expansion funds were authorized for use by the North
Carolina natural gas distribution companies through legislation passed in 1991
by the North Carolina General Assembly, and an expansion fund for NCNG was
approved by the NCUC in February 1993 to be funded initially by refunds the
Company had received from its pipeline suppliers. As of September 30, 1996, the
Company had remitted $10.4 million of pipeline refunds and accrued interest to
the expansion fund, and it has an additional amount of $5.7 million in gas
supplier refunds currently available for possible inclusion in the Company's
expansion fund. Subsequent to year end the Company transferred an additional
$3.9 million to the expansion fund.
During the next two years, the Company plans to expand its pipeline
approximately 71 miles from Mount Olive through Duplin and Onslow counties to
Jacksonville and the Marine Base-Camp Lejeune. NCNG received NCUC approval for
this project in August 1995, and preliminary work to acquire necessary permits
and rights-of-way along the route is underway. Of the approximately $18.8
million in capital costs of this project, approximately $12.4 million will be
provided by the Company's expansion fund administered by the Commission. Duplin
and Onslow counties presently have no natural gas service, and Jacksonville
represents the second most populous unserved area in NCNG's service territory.
The Marine Base-Camp Lejeune will be the largest customer of this pipeline
extension. Limited distribution systems are planned for the towns of Kenansville
and Faison in Duplin County as well as the City of Jacksonville in Onslow
County. The availability of money from the expansion fund assures that this
project will be profitable and will add value for NCNG's shareholders as NCNG's
investment will be limited to only that portion that is economically feasible
using net present value analysis techniques. The Duplin/Onslow project will be
the first one funded by the expansion fund.
Employees -
At September 30, 1996, the Company had 539 full time employees.
Employee relations are good and the Company has not had any material work
stoppage due to labor disagreements. The Company has a noncontributory Employee
Retirement Plan for substantially all regular employees, provides a group life
and extended hospital insurance program, and other employee benefits, including
an employee stock purchase plan.
<PAGE>13
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
Date
Elected
Name and Age* Title An Officer
- -------------- --------------------------- ----------
Calvin B. Wells Chairman, President and 09/11/74
Age - 60 Chief Executive Officer
Gerald A. Teele Senior Vice President, Treasurer and 01/08/80
Age - 52 Chief Financial Officer
James C. Buie Vice President - Computer Services 01/13/87
Age - 49
Terrence D. Davis Vice President - Operations and 01/07/91
Age - 51 Industrial Sales
Stuart B. Dixon Vice President - 01/10/89
Age - 58 Government Relations
Ronald J. Josephson Vice President - Financial Services 04/17/96
Age - 38
John M. Monaghan, Jr. Vice President - Gas Supply 01/08/91
Age - 44 & Transportation
Louis L. Hanemann Vice President - Human Resources 01/10/89
Age - 48
E. J. Mercier, Jr. Vice President - Customer Service 09/07/77
Age - 58
- ----------------------------
* As of December 1, 1996
The executive officers of the Company are appointed annually by the
Board of Directors immediately following the annual meeting of stockholders. The
present term of all executive officers expires on January 14, 1997, the date of
the next annual meeting of stockholders.
All of the executive officers have been employed by the Company in the
position indicated or other similar managerial positions for more than five
years except for Ronald J. Josephson who was employed on April 17, 1996 as Vice
President-Financial Services. Prior to joining the Company, he was audit manager
with Arthur Andersen LLP in Atlanta, Georgia.
There is no family relationship between any of the executive officers
or directors.
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation of the
ability and integrity of any executive officer during the past five years.
<PAGE>14
Item 2. Properties
- -------------------
The Company owns approximately 1,033 miles of transmission pipelines of
two to 16 inches in diameter which connect its distribution systems with the
Texas-to-New York transmission system of Transco and the southern end of
Columbia's transmission system. Transco delivers gas to the Company at various
points conveniently located with respect to the Company's distribution area.
Columbia delivers gas to one delivery point near the North Carolina-Virginia
border. Gas is distributed by the Company through 2,589 miles of distribution
mains. These transmission pipelines and distribution mains are located primarily
on rights-of-way held under easement, license or permit on lands owned by
others.
During Fiscal 1996, the Company invested approximately $15.8 million in
new plant facilities. Approximately 7,350 natural gas and 500 propane
residential and small commercial customers were added along with several new
industrial customers. In Fiscal 1986, the Company completed and placed in
service a liquefied natural gas storage plant on its system to provide
additional peak day gas supply for future growth in customer demand. The LNG
plant enabled the Company to establish an all-time high peak-day sendout of
265,354 dekatherms on February 4, 1996.
As discussed elsewhere in this report, Cape Fear Energy Corporation
participated in several oil and gas exploration and development programs for
several years. The Company's interest in these oil and gas programs is not
material to the Company's overall operations.
Item 3. Legal Procedures
- -------------------------
None, other than those related to issues before the North Carolina
Utilities Commission and the North Carolina Department of Environment, Health
and Natural Resources discussed above and in Note 9 to the Company's
Consolidated Financial Statements for the year ended September 30, 1996, and
other routine litigation incidental to the Company's business.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of NCNG's security holders during
the three months ended September 30, 1996.
<PAGE>15
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters
- --------------------------------------------------
Principal market - The Company's common stock is traded on the New York
Stock Exchange (NYSE Symbol NCG).
Approximate number of holders of common stock - The number of holders
of record of the Company's common stock as of November 25, 1996: 5,094
Stock price and dividend information -
The table below presents the reported high and low common stock sale
prices along with cash dividends declared per share for each quarter of fiscal
1996 and 1995.
QUARTER Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
ENDED 1996 1996 1996 1995 1995 1995 1995 1994
-------- ------- ------- ------- -------- ------- ------- -------
COMMON STOCK
PRICES -
High . . $31.875 $28.750 $27.25 $25.75 $22.25 $22.63 $23.38 $23.38
Low . . 27.250 24.875 25.00 22.00 20.50 20.88 20.75 19.75
Cash dividends
per share..$ .325 $ .325 $ .325 $ .305 $ .305 $ .305 $ .305 $ .29
A quarterly dividend of 32.5(cent) per share was declared by the Board
of Directors payable on December 13, 1996 to holders of record on December 2,
1996. Cash dividends have been paid on common shares every year since 1969 and
the annual dividend rate has been increased each year since 1979. Under terms of
the Company's debt agreements, there are various provisions relating to the
maintenance of certain financial ratios and conditions. At September 30, 1996,
approximately $14.8 million of the Company's retained earnings is unrestricted.
<PAGE>16
Item 6. Selected Financial Data
- --------------------------------
Years Ended September 30,
- ------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Amounts in Thousands Except Per Share Data)
Operating Revenues $196,638 $145,672 $160,337 $173,145 $150,510
Gross Margin 68,410 57,917 55,097 54,045 50,162
Net income 15,173 11,809 11,150 10,977 9,697
Earnings per share (1) 2.32 1.84 1.76 1.84 1.79
Cash dividends declared
per share (1) 1.28 1.205 1.14 1.06 .983
Total assets 232,779 214,880 205,631 194,178 186,550
Net utility plant 184,434 178,796 164,843 152,543 144,412
Capital expenditures 15,831 22,581 20,756 15,469 23,773
Long-term debt 63,000 62,000 37,000 39,000 45,088
Common equity 101,958 92,778 86,399 80,944 57,413
Book value per share $15.51 $14.32 $13.57 $12.85 $10.54
Average number of
common shares 6,526 6,410 6,331 5,981 5,414
Rate of return on
year-end common equity 14.88% 12.73% 12.91% 13.56% 16.89%
(1) Reflects a 3-for-2 common stock split effective October 30, 1992.
<PAGE>17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
- -----------------------------------------------------
General
North Carolina Natural Gas Corporation (NCNG or the Company) is engaged
primarily in the business of transporting and distributing natural gas
at regulated retail rates to customers in 65 cities, towns and communities, as
well as at regulated wholesale rates to four municipal gas distribution
systems, in southcentral and eastern North Carolina with a peak number of
approximately 149,900 total natural gas customers for the year ended September
30, 1996. The Company also has a propane division with 9,300 customers.
NCNG continues to expand its transmission and distribution systems to keep
pace with the economic development in residential, commercial and industrial
growth in its service area. The Company's financial condition and results
of operations are substantially dependent upon its receiving adequate and
timely increases in rates, which are regulated by the North Carolina Utilities
Commission (NCUC).
Liquidity and Capital Resources
The Company has bank lines of credit totaling $38.0 million, including
$25.0 million on a committed basis. Borrowings under the lines can include
bankers' acceptances and promissory notes not to exceed 90 days, with a maximum
rate of the lending bank's commercial prime interest rate. At September 30,
1996, $3.0 million was outstanding at interest rates ranging from 5.64% to
5.69%, compared to debt outstanding of $27.0 million with interest rates ranging
from 6.05% to 6.17% at September 30, 1995. The decrease of $24.0 million was due
to the issuance of long-term debt, which was used to refinance amounts
outstanding on these lines of credit and the level of cash generated by
operating activities, which was $17.9 million in 1996. These sources were
sufficient to cover the $15.8 million in capital expenditures and $8.4 million
of dividend payments in 1996.
NCNG uses the short-term bank loans as needed to finance construction
expenditures, and it replaces the bank loans with permanent financing when total
borrowings approach the maximum level available under the lines of credit or
when conditions are favorable for obtaining long-term capital. On November 10,
1995, the Company issued in a private placement of $30.0 million of 7.15% Senior
Notes, due 2015, and all of the short-term debt then outstanding was repaid.
Construction expenditures of $15.8 million in 1996 were lower than 1995
by $6.7 million. This was due primarily to the completion of the Company's
transmission line from a point near Goldsboro to Mount Olive in southern Wayne
County in 1995, with no similar expenditures in 1996. The Company has budgeted
1997 construction expenditures of $41.3 million, including approximately $17.0
million for system strengthening, compressors and related projects as well as
$5.4 million for the expansion project to Duplin and Onslow counties.
The Company's ratio of long-term debt to total capitalization was 38.9%
at September 30, 1996, down from 40.8% at September 30, 1995, due to an increase
in overall debt of only $4.0 million compared to an increase in stockholders
investment of $9.2 million. The Company does not anticipate the need to raise
additional capital from the long-term debt market or from the public sale of
common stock during Fiscal 1997. Management expects that the generation of net
cash from operating activities together with its bank lines of credit and other
sources will be sufficient to provide for its construction program and other
capital needs during 1997. The Company expects to raise approximately $2.9
million of additional equity in 1997 from its Dividend Reinvestment Plan, its
Employee Stock Purchase Plan and its Key Employee Stock Option Plan. Common
equity realized from such sources totaled $2.4 million in 1996 and $2.3 million
in 1995.
<PAGE>18
Results of Operations
Earnings -
NCNG earned $15.2 million or $2.32 per share in 1996, compared to $11.8
million or $1.84 per share in 1995 and $11.1 million or $1.76 per share in 1994.
The 29% increase in earnings in 1996 as compared to 1995 was primarily due to:
(1) a general rate increase effective November 1, 1995; (2) higher throughput
volumes driven by customer growth and colder-than-normal weather; (3) an
increase in the customer base of approximately 5% which resulted in increased
facilities charges as well as increased sales volumes; and (4) higher earnings
realized by the Company's propane division and subsidiary gas marketing
activities.
The winter weather in fiscal year 1996 was 5% colder than normal and
24% colder than 1995. This caused total dekatherms (dt) delivered to increase
nearly 2% to 53.1 million dt compared to 52.1 million dt in 1995.
The increase in earnings in 1995 compared to 1994 was due to increased
deliveries of natural gas in the industrial and municipal markets together with
strong customer growth in the core market residential and commercial sectors.
Throughput and Margin -
The Company's total throughput volumes in 1996 increased by 1.0 million
dt to 53.1 million dt. Residential, commercial, and wholesale volumes
increased 1.6 million, 1.0 million and 1.3 million dts, respectively, largely
due to strong customer growth and colder weather. Total industrial throughput
decreased 2.9 million dt primarily due to more weather-induced curtailments of
the larger industrial boiler fuel customers who use heavy oil as an alternative
fuel, a cooler than normal summer which decreased electric power generation and
competition with alternative fuel sources.
NCNG continued adding natural gas customers at an above-average growth
rate in 1996. The addition of approximately 7,800 customers in 1996 represents
a growth rate of 5% compared to the national average of less than 2% for all
natural gas distribution utilities . Even though colder-than-normal weather in
the winter increased sales of gas to residential, commercial and municipal
customers, the Company did not realize a proportional increase in additional
margin from such customers because of the operation of the Weather Normalization
Adjustment (WNA) mechanism which stabilizes the Company's margin from
space-heating customers based on normal weather. The WNA reduced margin $1.5
million in 1996 compared to an increase in margin of $1.8 million in 1995, as a
result of colder weather in the winter of 1996 as compared to the same period in
1995.
The following chart compares margins in fiscal years 1996 and 1995 by
customer class:
Margin
--------------------------------------
Increase (Decrease)
--------------------
Customer Class 1996 1995 Amount %
- -------------- ---- ---- ------ -------
(In Thousands)
Residential $24,229 $17,349 $6,880 39.7%
Commercial and Small Industrial 13,771 10,057 3,714 36.9
Industrial & Electric Power Generation 22,824 23,868 (1,044) (4.4)
Municipal 7,586 6,643 943 14.2
------ ------ ------ -----
Total $68,410 $57,917 $10,493 18.1%
====== ====== ====== =====
<PAGE> 19
The residential, commercial and small industrial and municipal margins
increased primarily due to the general rate increase, colder-than-normal weather
and customer growth which increased volumes by 3.9 million dt. Industrial and
electric power generation margins decreased due to the Company's general rate
case, which lowered industrial and electric power generation rates, and lower
volumes due to curtailment of interruptible customers.
The Company's total margin growth in 1995 was $2.8 million, but NCNG's
total throughput in 1995 increased 5.0 million dt, or 10.6%, to 52.1 million dt.
Weather in both 1995 and 1994 was warmer than normal, so weather had no
significant impact on annual throughput in 1995.
Revenues and Cost of Gas -
In the natural gas distribution industry in recent years, gross margin
rather than revenues has become a more valid indicator of the results of
operations. Two factors account for this change: (1) the steadily increasing
incidence of customers acquiring their own gas supplies for transportation, and
(2) the increased volatility in the commodity price of natural gas. NCNG's
transportation volumes decreased in 1996 after four consecutive years of growth.
Transportation volumes were 12.9 million dt in 1996 compared to 17.3 million
dt in 1995 and 13.5 million dt in 1994. Conversely, the Company's sales volumes
increased 5.5 million dt, growing to 40.2 million dt in 1996 compared to 34.7
million dt in 1995 and 33.5 million dt in 1994. In general, the margin earned on
gas transported is equal to the margin earned on gas sold; however,
transportation, which replaces sales, results in lower revenues because
transportation rates exclude the commodity cost of gas which is paid by the
customer directly to its gas supplier. The Company still delivers the gas and
earns transportation revenue equivalent to the margin contained in a comparable
sales rate.
Gas costs increased by approximately $40.5 million in 1996, primarily
due to a significant increase in the commodity cost of gas to an average of
$2.51 per dt in 1996 from $1.68 per dt in 1995. Additionally, the Company's
fixed charges increased slightly due to an increase in pipeline demand and
storage charges, offset by a decrease in reservation fees.
The Company's operating revenues increased $51.0 million in 1996
because of the increase in gas costs, the switch by industrial customers from
transportation to sales services, a general rate increase and customer growth.
Operating revenues decreased $14.6 million in 1995 due to a combination
of factors, including lower gas costs and the shift to more transportation than
sales services and less sales to large customers in 1995 compared to 1994. These
factors were partially offset by strong customer growth and a slight increase in
net throughput.
Operating Expenses and Taxes -
NCNG's total operating expenses and taxes increased to $49.7 million in
1996, compared to $42.7 million in 1995 and $40.7 million in 1994. As a
percentage of margin, the 1996 amount was 72.6%, down slightly from 73.7% in
1995, and 73.9% in 1994. Operations and maintenance expenses increased to $23.1
million in 1996, compared to $21.1 million in 1995 and $19.5 million in 1994.
This increase was primarily due to increased customer collections expense,
including an increase in the allowance for doubtful accounts, higher
distribution maintenance and transmission operation expenses, higher wages and
higher costs associated with administration, customer service and sales
promotion efforts associated with the rapidly growing customer base.
The Company's depreciation rates must be approved by the North Carolina
Utilities Commission. In connection with the Company's general rate case
effective November 1, 1995, the composite depreciation rate was increased to
3.5% for 1996 from 3.2% in 1995 and 1994. Accordingly, the increases in
depreciation expense relates to the increases in both the depreciation rate and
gross plant investment.
<PAGE> 20
The most significant component of general taxes is gross receipts taxes
related to operating revenues. Therefore, the increase in general taxes in 1996
is in line with the higher operating revenues. General taxes also includes
payroll and property taxes which have increased in each of the years 1996, 1995
and 1994 due to the Company's increasing payroll caused by higher wages and its
additional investment in plant in service.
Income tax expense increased in 1996 and is in line with the increase
in pretax income. The effective income tax rate of 37.9% for 1996 is not
significantly different than 1995 and 1994, with the equity component of
allowance for funds used during construction being the largest variable
influencing the effective tax rate.
Other Matters
On October 27, 1995 the NCUC issued its Order granting a general rate
increase amounting to approximately $4.2 million in annual revenues effective
November 1, 1995. See Note 2 to the Consolidated Financial Statements for
further discussion.
As reported in prior years, the Company retained an environmental
services consulting firm which has estimated the cost of investigation and
remediation of the Kinston manufactured gas plant (MGP) site to be between $1.4
million and $2.8 million. The Company believes that any appreciable costs not
previously provided for will be recovered from third parties, including
liability insurance carriers, or in natural gas rates as approved by the
Commission in the October 1995 Rate Order.
The Company also owns another site of a former MGP site in New Bern,
North Carolina, and was a previous owner of three small former MGP sites. No
significant problems have arisen to date.
NCNG is subject to the provisions of Financial Accounting Standards
Board (FASB) Statement No. 71, "Accounting for the Effects of Certain Types of
Regulation." Regulatory assets represent probable future revenues to the Company
for certain costs that are expected to be recovered from customers through the
rate making process. Regulatory liabilities represent probable future reductions
in revenues associated with amounts that are to be credited to customers through
the rate making process.
In the event that all or a portion of the Company's operations are no
longer subject to the provisions of Statement No. 71, NCNG would be required to
write off related regulatory assets and liabilities. In addition, the Company
would be required to determine any impairment to the other assets, including
plant, and write down the assets, if impaired, to their fair value. To date, no
such write downs or write offs have been made, nor are expected to be made in
the future.
Significant Trends
The natural gas industry continues to evolve into a more competitive
environment. The Company completed its third full year of operations under the
requirements of FERC Order 636, which is applicable to all U.S. interstate
pipelines including the two serving the Company. NCNG has a balanced gas supply
portfolio which provides security of supply at the lowest reasonable cost as the
NCUC has found in all of the Company's annual prudency reviews, the most recent
of which was completed in April 1996. The Company has experienced no major
problems due to Order 636.
<PAGE>21
In response to the growth of the natural gas business in North
Carolina, NCNG established a new subsidiary, NCNG Energy Corporation, in August
1995 to participate in two partnerships with subsidiaries of Transco, Piedmont
Natural Gas Company (Piedmont), and Public Service Company of North Carolina
(Public Service), regarding gas supply and pipeline projects affecting the
entire state. NCNG Energy Corporation has become a 5% equity owner in Pine
Needle LNG Company, LLC, which owns the site and plans to build and operate a
4 BCf liquefied natural gas plant (LNG) at a site near Transco's main line
north of Greensboro, North Carolina. This is scheduled to be in service
by the 1999-2000 winter heating season. NCNG has committed to take 10% of the
capacity in order to support continuing growth in customer base which is
expected for the next five years. Additionally, NCNG Energy and its
partners have organized another company, called Cardinal Expansion Company,
LLC (Cardinal), which will take over an existing intrastate pipeline now
owned by Piedmont and Public Service. The pipeline will be extended from
Burlington, North Carolina to an interconnection with the systems of Public
Service and NCNG southeast of Raleigh at Clayton, North Carolina near NCNG's
service territory. The expanded Cardinal Pipeline would enable the Company
to take substantial additional volumes of natural gas year-round into the
middle of its system. NCNG Energy has a 5% equity interest in Cardinal, also.
In August 1995, the NCUC approved the Company's Duplin/Onslow counties
expansion project. The Marine Base-Camp Lejeune will be the largest customer of
this pipeline extension, with service expected to begin in 1998. See Note 2 to
the consolidated financial statements for further discussion. In addition to the
Duplin/Onslow counties project, the Company is also considering other expansion
projects that it may Seek NCUC approval to construct after the Duplin/Onslow
counties project has been completed.
<PAGE>22
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Consolidated Balance Sheets
As of September 30, 1996 1995
------ ------
Assets
GAS UTILITY PLANT:
In service $277,212,557 $263,067,155
Less - Accumulated depreciation
and amortization 95,577,971 86,493,283
------------ ------------
181,634,586 176,573,872
Construction work in progress 2,799,702 2,222,026
------------ ------------
184,434,288 178,795,898
------------ ------------
INVESTMENTS:
Nonutility property, less
accumulated depreciation
(1996, $2,357,794; 1995, $2,589,057) 3,588,646 3,085,837
Investment in joint ventures, net of
accumulated depletion and amortization
(1996, $3,057,671; 1995, $3,055,507) 743,872 287,254
----------- -----------
4,332,518 3,373,091
----------- -----------
CURRENT ASSETS:
Cash and temporary cash investments 1,116,794 1,639,055
Restricted cash and temporary
cash investments 5,690,906 4,785,259
Accounts receivable, less allowance
for doubtful accounts (1996, $747,455;
1995, $566,109) 17,301,776 12,951,505
Recoverable purchased gas costs 3,236,612 -
Inventories, at average cost --
Gas in storage 9,982,528 7,207,177
Materials and supplies 2,724,821 2,367,880
Merchandise 1,308,728 1,310,892
Deferred gas cost - unbilled volumes 323,621 327,826
Prepaid expenses and other 195,476 272,422
------------ -----------
41,881,262 30,862,016
------------ -----------
DEFERRED CHARGES AND OTHER:
Debt discount and expense, being
amortized over lives of related debt 429,448 285,786
Prepaid pension cost 1,435,243 1,217,009
Other 265,794 345,959
----------- -----------
2,130,485 1,848,754
----------- -----------
$232,778,553 $214,879,759
=========== ===========
(The accompanying notes are an integral part of these financial statements.)
<PAGE>23
Consolidated Balance Sheets 1996 1995
As of September 30, ---- ----
Stockholders' Investment and Liabilities
CAPITALIZATION (See accompanying statements):
Stockholders' investment $101,958,192 $ 92,777,912
Long-term debt 63,000,000 62,000,000
----------- -----------
164,958,192 154,777,912
----------- -----------
CURRENT LIABILITIES:
Current maturities of long-term debt 2,000,000 2,000,000
Notes payable 3,000,000 -
Accounts payable 16,338,770 12,390,101
Refunds payable - 3,646,043
Customer deposits 1,964,492 1,964,258
Restricted supplier refunds 5,690,906 4,785,259
Accrued interest 2,333,881 1,625,964
Accrued income and other taxes 4,280,610 1,870,643
Other 2,265,360 2,290,013
----------- -----------
37,874,019 30,572,281
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
OTHER CREDITS:
Deferred income taxes 21,015,394 20,583,612
Regulatory liability related to
income taxes, net 2,923,772 3,300,446
Unamortized investment tax credits 2,720,027 2,919,828
Postretirement and postemployment
benefit liability 2,262,148 1,645,638
Other 1,025,001 1,080,042
----------- -----------
29,946,342 29,529,566
----------- -----------
$232,778,553 $214,879,759
=========== ===========
(The accompanying notes are an integral part of these financial statements.)
<PAGE>24
Consolidated Statements of Income
For the Years Ended September 30, 1996 1995 1994
------ ------ ------
OPERATING REVENUES $196,637,646 $145,672,779 $160,336,678
COST OF GAS 128,228,053 87,755,318 105,239,767
----------- ----------- -----------
GROSS MARGIN 68,409,593 57,917,461 55,096,911
----------- ----------- -----------
OPERATING EXPENSES AND TAXES:
Operations 19,831,398 18,256,361 16,739,190
Maintenance 3,256,690 2,814,200 2,738,814
Depreciation 9,447,598 8,048,658 7,372,928
General taxes 8,882,369 7,095,874 7,524,483
Income taxes --
Federal 6,531,200 5,115,500 4,995,000
State 1,714,800 1,351,500 1,323,000
----------- ----------- -----------
TOTAL OPERATING EXPENSES AND TAXES 49,664,055 42,682,093 40,693,415
----------- ----------- -----------
OPERATING INCOME 18,745,538 15,235,368 14,403,496
OTHER INCOME, NET 1,003,662 886,212 722,582
INCOME FROM SUBSIDIARIES 423,990 136,503 79,274
----------- ----------- -----------
GROSS INCOME 20,173,190 16,258,083 15,205,352
----------- ----------- -----------
UTILITY INTEREST CHARGES:
Interest on long-term debt 5,215,417 3,476,458 4,126,636
Other interest 51,562 1,744,649 349,980
Amortization of debt discount
and expense 35,439 26,691 78,559
Allowance for funds used
during construction (302,449) (798,942) (499,754)
----------- ----------- -----------
TOTAL UTILITY INTEREST CHARGES 4,999,969 4,448,856 4,055,421
----------- ----------- -----------
NET INCOME $ 15,173,221 $ 11,809,227 $ 11,149,931
=========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 6,526,149 6,410,376 6,331,155
EARNINGS PER SHARE $2.32 $1.84 $1.76
(The accompanying notes are an integral part of these financial statements.)
<PAGE>25
Consolidated Statements of Cash Flows
For the Years Ended September 30, 1996 1995 1994
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15,173,221 $11,809,227 $11,149,931
Adjustments to reconcile
net income to net cash provided
by operating activities -
Depreciation charged to:
Operating expenses 9,447,598 8,048,658 7,372,928
Other income 181,977 396,934 340,887
Amortization of deferred charges 37,604 43,045 168,954
Deferred income taxes 431,782 1,682,249 1,838,672
Investment tax credits (199,801) (201,864) (202,800)
Other 21,602 995,184 537,469
Changes in other current assets
and liabilities:
Accounts receivable, net (4,350,271) (1,156,109) 989,329
Gas in storage (2,775,351) 884,033 (921,775)
Materials, supplies
and merchandise (350,572) 370,278 (763,150)
Accounts payable 3,948,669 2,714,657 (5,048,026)
Refunds payable and recoverable
purchased gas costs (5,977,008) 5,695,168 4,442,298
Accrued income and other taxes 2,409,967 186,047 (742,965)
Other (120,079) (939,630) 439,298
---------- ---------- ----------
Net cash provided by
operating activities 17,879,338 30,527,877 19,601,050
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (15,831,057) (22,580,779) (20,756,334)
Proceeds from sale of property 60,283 - 1,076,210
Other, net (458,782) (36,419) (70,632)
---------- ---------- ----------
Net cash used in
investing activities (16,229,556) (22,617,198) (19,750,756)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable, net 3,000,000 1,000,000 10,500,000
Issuance of long-term debt, net
of issuance coss 29,820,898 - -
Retirement of long-term debt (2,000,000) (2,000,000) (6,088,000)
Retirement of short-term
obligations to be refinanced (27,000,000) - -
Cash dividends paid (8,353,594) (7,721,226) (7,215,800)
Issuance of common stock through
dividend reinvestment plan,
employee stock purchase plan
and key employee stock option plan 2,360,653 2,291,170 1,520,426
---------- ---------- ----------
Net cash used in
financing activities (2,172,043) (6,430,056) (1,283,374)
---------- ---------- ----------
Net (decrease) increase in cash and
temporary cash investments (522,261) 1,480,623 (1,433,080)
Cash and temporary cash investments,
beginning of year 1,639,055 158,432 1,591,512
---------- ---------- ----------
Cash and temporary cash investments,
end of year $1,116,794 $1,639,055 $158,432
========== ========== ==========
Cash paid for:
Interest (net of amounts capitalized) $4,720,931 $5,063,788 $4,533,508
Income taxes (net of refunds) 7,225,821 5,328,827 5,653,288
(The accompanying notes are an integral part of these financial statements.)
<PAGE>26
Consolidated Statements
of Capitalization
as of September 30, 1996 1995
------- ---------
STOCKHOLDERS' INVESTMENT:
Common stock, par value $2.50;
12,000,000 shares authorized;
shares issued and outstanding:
1996-6,572,823; 1995-6,477,200 $ 16,432,058 $ 16,193,000
Capital in excess of par value 29,634,545 27,512,950
Retained earnings 55,891,589 49,071,962
----------- -----------
Total stockholders' investment 101,958,192 92,777,912
----------- -----------
LONG-TERM DEBT:
Debentures, 8.75% Series B,
due June 15, 2001 10,000,000 12,000,000
Debentures, 9.21% Series C,
due November 15, 2011 25,000,000 25,000,000
Senior Debentures, 7.15%,
due November 15, 2015 30,000,000 -
Short-term obligations to
be refinanced - 27,000,000
----------- -----------
65,000,000 64,000,000
Less - Current maturities (2,000,000) (2,000,000)
----------- -----------
Total long-term debt 63,000,000 62,000,000
----------- -----------
TOTAL CAPITALIZATION $164,958,192 $154,777,912
=========== ===========
CAPITALIZATION RATIOS:
Stockholders' investment 61.1% 59.2%
Long-term debt (including
current maturities) 38.9% 40.8%
----------- ----------
100.0% 100.0%
=========== ==========
(The accompanying notes are an integral part of these financial statements.)
<PAGE>27
Consolidated Statements
of Retained Earnings
For the Years Ended September 30, 1996 1995 1994
------ ------ ------
BALANCE AT BEGINNING OF YEAR $49,071,962 $44,983,961 $41,049,830
Net income 15,173,221 11,809,227 11,149,931
Cash dividends on common stock
(per share - $1.28 in 1996;
$1.205 in 1995; and $1.14 in 1994) (8,353,594) (7,721,226) (7,215,800)
---------- ---------- ----------
BALANCE AT END OF YEAR $55,891,589 $49,071,962 $44,983,961
========== ========== ==========
(The accompanying notes are an integral part of these financial statements.)
<PAGE>28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Principles of Consolidation:
Basis of Presentation -
- -----------------------
North Carolina Natural Gas Corporation (NCNG or the Company) is in the
business of providing natural gas, propane gas and related services to 159,000
customers in southcentral and eastern North Carolina. The Company's primary
business is the sale and/or transportation of natural gas to over 95,000
residential customers, almost 12,600 commercial and agricultural customers, 436
industrial and electric utility customers located in 65 towns and cities and
four municipal gas distribution systems which serve nearly 42,000 end users.
Approximately 58% of the natural gas volumes are delivered to industrial and
electric utility customers but no individual customer accounts for more than 7%
of the Company's delivered gas volumes, revenues or margin. Industrial customers
are geographically dispersed throughout the Company's service area, and they are
classified into many different industries including the manufacture of brick and
ceramics, chemicals, glass, nuclear fuels, textiles, paper and paperboard,
plywood and other wood products and the processing of aluminum and other metals,
tobacco, rubber, dairy and food products.
The Company's natural gas business is regulated by the North Carolina
Utilities Commission (NCUC). Its nonutility division serves propane gas to about
9,300 customers and sells and services gas appliances.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, NCNG Exploration Corporation, Cape
Fear Energy Corporation and NCNG Energy Corporation. (See Note 4.) All
significant intercompany transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets 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.
Utility Plant -
- ---------------
Gas utility plant is stated at original cost. Such cost includes
payroll-related costs such as taxes, pension and other fringe benefits, general
and administrative costs and an allowance for funds used during construction.
The Company capitalizes funds used during construction based on the overall cost
of capital, which includes the cost of both debt and equity funds used to
finance construction. The cost of depreciable property retired, plus the cost of
removal less salvage, is charged to accumulated depreciation.
Depreciation -
- --------------
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets. In connection with the October 27, 1995 Rate Order,
the NCUC approved an increase in depreciation rates of approximately $750,000.
(See Note 2.) Depreciation was approximately 3.5% of the cost of total
depreciable property in 1996 and 3.2% for 1995 and 1994.
<PAGE>29
Income Taxes -
- --------------
The Company uses comprehensive interperiod income tax allocation (full
normalization) to account for temporary differences in the recognition of
revenues and expenses for financial and income tax reporting purposes.
Investment tax credits are deferred and amortized to income over the
service lives, which are approximately 30 years, of the related property.
Recognition of Revenue -
- ------------------------
The Company follows the practice of rendering customer bills on a
cyclical basis throughout each month and recording revenue at the time of
billing. The Company defers the cost of gas delivered but unbilled due to cycle
billing and recognizes the revenue and cost of gas in the related period in
which it is billed.
Temporary Cash Investments -
- ----------------------------
Temporary cash investments are securities with maturities of 90 days or
less. For purposes of the Consolidated Statements of Cash Flows, temporary cash
investments are considered cash equivalents.
Restricted Cash and Temporary Cash Investments and
Restricted Supplier Refunds -
- --------------------------------------------------
In February 1993, the NCUC issued its Order establishing an Expansion
Fund for the Company to be funded initially by refunds the Company had
received from its pipeline suppliers. The investment and use of these
funds has been restricted by a previous Order of the NCUC. Pursuant to the
February 1993 Order, the Company has remitted a total of $10,440,000 through
the fiscal year ended 1996 to the NCUC for the Expansion Fund. Subsequent
to year end, the Company transferred an additional $3,895,000. These amounts
represent certain pipeline refunds the Company had received, plus accrued
interest earned on funds invested by the Company, since July 1991 when the
North Carolina General Assembly enacted legislation authorizing the NCUC to
establish expansion funds for all natural gas utilities franchised in North
Carolina. At September 30, 1996, the refunds received plus accrued interest,
which had not been remitted to the NCUC, amounted to $5,691,000 and are
reported on the consolidated balance sheet in restricted cash and temporary
cash investments and restricted supplier refunds.
Pursuant to the NCUC Orders, the funds not yet transferred to the
Expansion Fund are to remain segregated from the Company's general funds and,
pending further order of the NCUC, may be remitted to the NCUC and used for
expansion of the Company's facilities into unserved areas of the Company's
franchised territory or, if not used for expansion, refunded to the Company's
customers. Amounts remitted to the NCUC through September 30, 1996 are not
included in the Company's financial statements because they are no longer
controlled by the Company.
Fair Value of Financial Instruments -
- --------------------------------------
The fair value of the Company's long-term debt is estimated using a
discounted cash flow methodology. Based on published corporate borrowing rates
for debt instruments with similar terms and average maturities, the estimated
fair value of the Company's long-term debt (including current maturities) at
September 30, 1996 is approximately $66.7 million as compared to a carrying
value of $65.0 million and at September 30, 1995, the estimated fair value was
approximately $63.7 million as compared to a carrying value of $64.0 million.
Restricted temporary cash investments are invested primarily in
certificates of deposit and United States Treasury bills. The carrying values of
these investments and all other financial instruments approximate fair market
value.
<PAGE>30
Reclassifications
- -----------------
Certain amounts in the 1995 and 1994 consolidated financial statements have
been reclassified to conform with the 1996 presentation.
2. Regulatory and Gas Supply Matters:
On October 27, 1995, the NCUC issued its Order granting a general rate
increase amounting to approximately $4,205,000 in annual revenues effective
November 1, 1995. The Commission's Order approved, in all material respects, the
Stipulation of Settlement reached among the Company, the Public Staff of the
NCUC, the Carolina Utility Customers Association, Inc. and other intervenors in
the rate case. The Order provided for a rate of return on net investment of
10.09% but, pursuant to the Stipulation of Settlement, did not state separately
the rate of return on common equity nor the capital structure used to calculate
revenue requirements. The Order provided for significant rate design changes by
increasing residential and commercial rates while reducing industrial sales and
transportation rates to recognize, among other things, the differences in costs
of serving the various customer classes. The Order also established several new
rate schedules, including an economic development rate to assist in attracting
new industry to the Company's service area and a rate to provide standby,
on-peak gas supply service to industrial and other customers whose gas service
would otherwise be interrupted.
As part of the October 27, 1995 Rate Order, the NCUC approved continued
use of the Weather Normalization Adjustment (WNA) for the space heating market,
originally approved in the December 6, 1991 Rate Order. The WNA stabilizes the
Company's winter revenues and customers' bills by adjusting rates when weather
deviates from normal. The nongas component of rates for space heating customers
is adjusted upward when weather is warmer than normal and downward when weather
is colder than normal. In Fiscal 1996, winter weather was 5% colder than normal,
and accordingly, the WNA decreased net billings to customers by $1,540,000.
Also, as a part of the October 27, 1995 Rate Order, the NCUC approved
establishment of the Price Sensitive Volume Adjustment (PSVA) mechanism to
replace the Industrial Sales Tracker (IST) effective November 1, 1995. The IST,
approved in the December 6, 1995 Rate Order, was designed to stabilize the
Company's margin earned from sales and transportation to interruptible
industrial customers who use heavy fuel oil as an alternative fuel. To the
extent actual margins realized from deliveries to such customers exceeded, or
were less than, the base period margins from sales or transportation, refunds
payable or additional receivables were recorded. The actual margins earned from
IST deliveries were more than base period margins by $1,420,000 in 1995.
The PSVA mechanism, while narrower in scope than the IST, protects the
Company against loss of load from eight large fuel-switchable customers using
heavy fuel oil as an alternative fuel, while providing that all actual margins
earned on deliveries of gas to such customers should be flowed through to all
other customers. The actual margin earned on gas delivered to PSVA customers and
flowed through to all other customers was $827,000 for 1996.
Finally, the NCUC approved the accounting for and recovery in rates of
costs associated with environmental assessment and remediation of a former
manufactured gas plant (MGP) site in Kinston, North Carolina. (See Note 9.) The
NCUC found that NCNG acted in a reasonable and prudent manner, and accordingly,
the NCUC approved the Company's proposal to recover an annualized amount of MGP
costs based on amounts expended, net of recoveries from third parties, through
December 31, 1994.
On May 15, 1996, the Company filed with the NCUC to recover net
customer costs of $3,005,000 from exploration and development activities. The
recovery is a result of a true-up of distributions of costs and revenue benefits
from the Company's exploration and drilling programs. A Final Order has not been
issued by the NCUC, and as a result, no asset or gain has been recorded in these
financial statements.
<PAGE> 31
On December 22, 1995, the NCUC issued an Order effective November 1,
1995, which required all natural gas utilities to flow through to customers 75%
of the net compensation received from capacity release, buy/sell, off-system
sales and other secondary market transactions while retaining 25% of such
compensation. The Company has previously accounted for such transactions in
accordance with a 90%/10% sharing mechanism pursuant to a Commission Order
issued in 1994.
In August 1995, the NCUC issued its Order approving the Company's first
expansion project to utilize the Expansion Fund. The project is to extend NCNG's
transmission pipeline 71 miles from Mount Olive to the Marine Base-Camp Lejeune
in Jacksonville, North Carolina. In Fiscal 1996, the Company began acquiring
rights-of-way and performing necessary environmental studies and it is expected
that the project will be completed in Fiscal 1998. The Company estimates the
total cost of the project will be approximately $18.8 million of which $12.4
million will be provided by the Expansion Fund based on the economic feasibility
analysis approved by the NCUC.
The Company's annual review of its gas costs was held in April 1996 for
the 12 months ended October 31, 1995. The NCUC found NCNG's gas costs and gas
purchasing practices to be prudent, as it had in all previous reviews.
Both of the Company's interstate pipeline suppliers, Transcontinental
Gas Pipe Line Corporation (Transco) and Columbia Gas Transmission Corporation
(Columbia), have ongoing rate and certificate matters under jurisdiction of the
Federal Energy Regulatory Commission (FERC). The Company does not expect that
any regulatory decisions or court orders will have a material impact on its
financial position or results of operations because all prudently incurred gas
costs, including interstate pipeline capacity and storage service costs, are
eligible for immediate recovery from the Company's customers, and refunds from
interstate pipelines must be transferred to the Expansion Fund or directly
refunded to the Company's customers.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." This statement imposes stricter criteria
for regulatory assets by requiring that such assets be probable of future
recovery at each balance sheet date. The Company will adopt this standard on
October 1, 1996 and does not expect that adoption will have a material impact on
the financial position or results of operations of the Company based on the
current regulatory structure in which the Company operates. However, this
conclusion may change in the future as competitive factors influence wholesale
and retail pricing in the gas utility industry.
<PAGE>32
3. Income Taxes:
The components of income tax expense are as follows (in thousands):
For the years ended September 30,
--------------------------------------------------
1996 1995 1994
-------------- --------------- --------------
Federal State Federal State Federal State
------- ----- ------- ----- ------- -----
Income taxes charged to
operations -
Payable currently $6,741 $1,656 $4,025 $ 972 $3,937 $ 937
Deferred to subsequent years (12) 59 1,289 380 1,256 386
Amortization of Investment
tax credits (198) - (198) - (198) -
----- ----- ----- ----- ------ -----
$6,531 $1,715 $5,116 $1,352 $4,995 $1,323
===== ===== ===== ===== ===== =====
Income taxes charged to
other income $ 803 $ 194 $ 552 $ 134 $ 429 $ 106
===== ===== ===== ===== ===== =====
The effective income tax rate, computed by dividing total income tax
expense by the sum of such income tax expense and net income, is 37.9% in 1996,
37.7% in 1995, and 38.1% in 1994.
A reconciliation of income tax expense at the federal statutory rate to
recorded income tax expense is as follows (in thousands):
For the years ended September 30
----------------------------------------
1996 1995 1994
---------- ----------- ---------
Federal taxes at 35% statutory rate $8,546 $6,637 $6,301
State income taxes, net of
federal benefit 1,241 966 929
Amortization of investment
tax credits (200) (202) (203)
Amortization of excess deferred income
taxes returned to customers (222) (222) (222)
Tax effect of allowance for funds used
during construction - equity portion (66) (154) ( 97)
Other (56) 129 145
----- ----- -----
Total income tax expense $9,243 $7,154 $6,853
===== ===== =====
Effective October 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." The adoption of Statement No. 109 resulted in
additional accumulated deferred income taxes and related regulatory assets and
liabilities. The regulatory net liability is due primarily to deferred income
taxes recognized in years prior to 1987 at rates higher than currently enacted.
<PAGE>33
The tax effects of temporary differences in the carrying amounts of
assets and liabilities in the consolidated financial statements and their
respective tax bases which give rise to deferred tax assets and liabilities are
as follows (in thousands):
For the years ended September 30,
---------------------------------
1996 1995
-------------- ---------------
Deferred tax liabilities:
Accelerated depreciation $23,112 $21,936
Property basis differences 3,558 3,705
Other 879 910
------ ------
Total deferred tax liabilities $27,549 $26,551
------ ------
Deferred Tax Assets:
Unamortized investment tax credits $ 1,087 $ 1,166
Regulatory liability related to
income taxes, net 1,171 1,526
Other postretirement benefits 796 552
Environmental reserves 410 410
Exploration and development activities 438 438
Other 2,632 1,875
------ ------
Total deferred tax assets $ 6,534 $ 5,967
------ ------
Net deferred tax liabilities $21,015 $20,584
====== ======
4. Subsidiary Operations:
In September 1995, the Company formed a new subsidiary, NCNG Energy
Corporation (Energy), to participate in gas supply and pipeline projects in
North Carolina. Energy has a 5% ownership interest in Pine Needle LNG Company,
LLC. (Pine Needle) which plans to build and operate a large liquefied natural
gas plant (LNG) to be located near Transco's main interstate pipeline north of
Greensboro, North Carolina. The LNG plant is expected to cost $107 million. It
will have a storage capacity of four billion cubic feet of gas and is expected
to be in operation prior to the 1999-2000 winter. As of September 30, 1996,
Energy had advanced to Pine Needle $603,000 which is included in the balance
sheet as investment in joint ventures. Transco has two subsidiaries, one which
will act as a partner and one as the operator of Pine Needle. Also, subsidiaries
of Piedmont Natural Gas Company (Piedmont), Public Service Company of North
Carolina, Inc. (Public Service) and Amerada Hess Company, as well as The
Municipal Gas Authority of Georgia are partners in Pine Needle. Piedmont, Public
Service and NCNG will be Pine Needle's largest customers. Pine Needle expects to
receive authorization from the FERC prior to December 31, 1996 to construct the
LNG plant and provide firm storage services to its customers.
Energy is also involved with subsidiaries of Transco, Piedmont and
Public Service in the organization of another limited liability company to
acquire an existing pipeline and extend it to provide the capacity needed to
deliver gas from the Pine Needle LNG plant and Transco's existing pipeline into
NCNG's system at a point near Clayton, North Carolina on the Wake-Johnston
County line. In 1996, Energy committed $56,000 to participate as the owner of a
5% interest in the new pipeline company, known as Cardinal Expansion Company,
LLC.
Cape Fear Energy Corporation's (Cape Fear) primary activities are
natural gas marketing for industrial and municipal customers located on NCNG's
system. Its oil and gas exploration and development activities are not
significant. Cape Fear's earnings decreased to $43,000 in 1996 from $104,000 in
1995 due to substantially decreased sales volumes as a result of customers
transporting less gas.
<PAGE> 34
NCNG Exploration Corporation's (Exploration) interests in all of its
exploration and development programs were sold effective June 7, 1994.
Exploration received net proceeds of $615,000, of which $144,500 was deposited
in an escrow account to cover any potential claims presented by the buyers. On
December 31, 1995, under the terms of the sales agreement, the escrow amount was
transferred to the Company as no such claims had been presented. During 1996,
Exploration engaged in gas marketing activities primarily to gas resellers and
generated net income of $381,000 compared to $32,000 in 1995.
5. Short-term Borrowing Arrangements:
The Company has lines of credit with North Carolina banks for an
aggregate amount of $38,000,000 of which $25,000,000 is on a committed basis.
Under these lines, the Company borrows funds on a short-term basis in connection
with its construction program and also for seasonal financing of storage gas.
Such borrowings are normally on a demand basis for a period of 90 days. The
Company also uses bankers' acceptances to finance the cost of gas in storage for
periods up to 180 days. The maximum amount of such bankers' acceptances is
dependent upon the market value of gas in storage and these loans are made at
rates below the prime rate. At September 30, 1996, $3,000,000 under lines of
credit was outstanding at interest rates ranging from 5.64% to 5.69%. The
$27,000,000 outstanding at September 30, 1995 is classified as long-term debt on
the balance sheet due to the Company's refinancing of this amount in a private
placement of $30,000,000 of its 7.15% Senior Notes due 2015. This transaction
closed on November 10, 1995, and all short-term debt was repaid.
In connection with the lines of credit, the Company is expected to
maintain certain annual, average nonrestricted cash balances in the banks
ranging from 5% to 10% of the loans outstanding. In addition, there are nominal
commitment fees on the unused lines of credit. To the extent that bankers'
acceptances are outstanding, no commitment fees are payable. At September 30,
1996 and 1995, no such bankers' acceptances were outstanding.
6. Long-term Debt Maturities:
Maturities of existing long-term debt during each of the next five
years will be as follows: 1997, $2,000,000; 1998, $2,000,000; 1999, $3,250,000;
2000, $3,250,000 and 2001, $3,250,000.
7. Pension and Other Postretirement and Postemployment Benefits:
The Company has a defined benefit pension plan which provides
retirement benefits for its employees within specified age limits and periods of
service. Plan benefits are based on years of service and the employee's
compensation during the last five years of employment. The Company's funding
policy is to contribute annually an amount equal to the maximum allowable
tax-deductible amount.
The total pension cost was $386,000 in 1996, $374,000 in 1995,
and $222,000 in 1994, of which approximately 20% was capitalized in each year.
<PAGE>35
The plan's funded status as of September 30, 1996 and 1995 and pension
costs for 1996, 1995 and 1994 were as follows (in thousands):
Funded Status: 1996 1995
-------------------------------------------------------------------------
Actuarial present value of
accumulated plan benefits:
Vested $16,371 $15,516
Nonvested 64 98
------ ------
Subtotal 16,435 15,614
Effect of salary progression 4,344 3,828
------ ------
Projected benefit obligation 20,779 19,442
Plan assets at market value 22,548 21,719
------ ------
Plan assets in excess of projected
benefit obligation 1,769 2,277
Unrecognized prior service cost being amortized
over twelve years 575 640
Unrecognized net (gain) loss being amortized
over ten years (689) (1,229)
Unrecognized net asset existing at the date
of transition, being amortized over
approximately ten years (214) (471)
------ ------
Prepaid pension cost $ 1,441 $ 1,217
====== ======
Pension Cost: 1996 1995 1994
------------------------------------------------------------------------
Net pension cost was
comprised of the following items:
Service cost $ 731 $ 662 $ 633
Interest cost on projected
benefit obligation 1,528 1,418 1,346
Actual return on plan assets (1,681) (1,813) 299
Amortization of unrecognized prior
service cost 66 66 66
Amortization of transition
net asset (258) (258) (258)
Deferred gain (loss) on
net assets - 299 (1,864)
----- ----- -----
Net pension cost $ 386 $ 374 $ 222
===== ===== =====
The expected long-term rate of return on plan assets was 8%. At
September 30, 1996, plan assets were invested approximately 57% in fixed income
securities and 43% in equity securities, including 2% in the common stock of the
Company.
The Company also provides certain medical and life insurance benefits
for retired employees, and substantially all employees may remain eligible for
these benefits when they retire on a prospective basis. Effective October 1,
1993, the Company adopted FASB Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," on a prospective basis. These
benefits are accrued using a single actuarial method which spreads the expected
cost of such benefits to each year of an employee's service until the employee
becomes fully eligible to receive the benefits. The Commission approved this
treatment in the Company's most recent general rate case decided on October 27,
1995.
<PAGE>36
The following tables show the funded status of the plan and the
components of the plan's net costs (in thousands) for fiscal years 1996 and
1995:
Funded Status 1996 1995
- ------------------------------ --------------------- ----------------------
Medical Life Medical Life
------- ------- ------- ------
Actuarial present value of
benefit obligation:
Retirees and dependents $ 2,106 $ 358 $ 2,292 $ 354
Employees eligible to retire 852 143 944 137
Other Employees 2,372 228 2,136 197
------- -------- -------- --------
Accumulated benefit
obligation: 5,330 729 5,372 688
Unrecognized net gain (loss) (118) 14 (5) 19
Unrecognized transition
obligation (3,486) (541) (4,212) (572)
------- -------- ------- -------
Postretirement Benefit
Liability $ 1,726 $ 202 $ 1,155 $ 135
======= ======== ======= =======
Components of Net Cost:
- -----------------------
Service cost during the year $ 150 $ 14 $ 136 $ 12
Interest cost on accumulated
benefit obligation 384 55 394 51
Amortization of unrecognized
transition obligation over
20 years 205 32 234 32
------ -------- ------- -------
Net periodic postretirement
benefit cost $ 739 $ 101 $ 764 $ 95
====== ======= ======= =======
Of the net postretirement medical and life insurance costs recorded in
1996 and 1995, $799,000 and $704,000, respectively, were charged to operating
expenses and the remainder were charged to construction and other accounts.
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligations (pension, medical and life insurance) were 8% and 6%, respectively,
as of September 30, 1996 and 1995.
An additional assumption used in measuring the accumulated
postretirement medical benefit obligation as of September 30, 1996 was a medical
care cost trend rate of 10.5%, decreasing gradually to 5.5% through the year
2005 and remaining at that level thereafter. An annual increase in the assumed
medical care cost trend rate by 1% would increase the accumulated medical
benefit obligation at September 30, 1996, by approximately $941,000 and the
aggregate of the service and interest cost components of the net retiree medical
cost by approximately $123,000.
In November 1992, the FASB issued Statement No. 112, "Employers'
Accounting for Postemployment Benefits", which requires that all types of
benefits provided to former or inactive employees and their families prior to
retirement be accounted for on an accrual basis. The Company adopted this
standard in Fiscal 1995 with no material impact on the financial statements. In
its October 27, 1995 Rate Order, the NCUC allowed the recovery of these costs in
rates over a three-year amortization period.
<PAGE>37
8. Stockholders' Investment:
The changes in common stock and capital in excess of par value for the
three years ended September 30, 1996, were as follows:
Common Stock
----------------------------
Capital in
Shares Excess of
Outstanding Amount Par Value
----------- ----------- ------------
Balance at September 30, 1993 6,300,999 $15,752,498 $24,141,856
Issuance through Dividend
Reinvestment Plan (DRP) 52,868 132,170 1,123,814
Issuance through Employee
Stock Purchase Plan (ESPP) 12,677 31,692 232,750
---------- ----------- -----------
Balance at September 30, 1994 6,366,544 15,916,360 25,498,420
Issuance through DRP 62,448 156,120 1,130,367
Issuance through ESPP 13,258 33,145 225,519
Issuance through exercise of
stock options 34,950 87,375 658,644
---------- ---------- ----------
Balance at September 30, 1995 6,477,200 16,193,000 27,512,950
Issuance through DRP 66,314 165,785 1,512,826
Issuance through ESPP 12,959 32,398 220,432
Issuance through exercise
of stock options 16,350 40,875 388,337
---------- ---------- ----------
Balance at September 30, 1996 6,572,823 $16,432,058 $29,634,545
========== ========== ==========
At September 30, 1996, there are 365,939 shares of common stock
reserved for issuance under the Company's Dividend Reinvestment Plan. Under the
most restrictive covenants of the Company's long-term debt agreements,
approximately $14,820,000 of the Company's retained earnings at September 30,
1996 is unrestricted.
The Company sponsors an employee stock purchase plan (ESPP) and a key
employee nonqualified stock option plan (KESOP). The ESPP enables employees to
contribute up to 6% of their wages toward purchase of the Company's common stock
at 90% of the lower of current or prior year-end market value. At September 30,
1996, 233,754 shares were reserved for issuance under this plan.
The option price is equal to 90% of the market value of the stock at
the grant date. The period during which these options are exercisable begins
five years after, but may not exceed seven years after, the date of grant. In
addition, the plan provides that an amount equal to 50% of the dividends that
would have been paid on the stock from the date of grant shall be paid in cash
to the employee at the exercise date.
<PAGE>38
Option activity for the three years ended September 30, 1996, is as
follows:
----------------- -------------------
Options Option Price
Outstanding Per Share
----------------- -------------------
Balance at September 30, 1993 72,750 $13.80-$14.10
Granted 2,600 24.98
------
Balance at September 30, 1994 75,350 $13.80-$24.98
Exercised (34,950) 13.80
------
Balance at September 30, 1995 40,400 $13.80-$24.98
Exercised (16,350) 13.80
------
Balance at September 30, 1996 24,050 $13.80-$24.98
====== =============
---------------- -------------- -------------
1996 1995 1994
---------------- -------------- -------------
Options Exercisable at Year End 21,450 32,100 --
Options Available for Grant at
Year End 69,475 69,475 69,475
====== ====== ======
During October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation." This statement encourages companies to adopt a fair
value based method of accounting for their employee stock compensation plans. It
allows companies to continue to follow the accounting provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
However, pro forma disclosure in the "Notes to Consolidated Financial
Statements" of net income and earnings per share, as if the fair value based
method of accounting had been applied as required. Statement No. 123 disclosure
requirements will be adopted in Fiscal 1997. The disclosure requirements will
not affect the financial position or results of operations.
9. Commitments and Contingencies:
During fiscal year 1991, the North Carolina Department of Environment,
Health and Natural Resources advised the Company of possible environmental
contamination arising from Company-owned property in Kinston, North Carolina,
which is the former site of a manufactured gas plant. The Company retained an
environmental services consulting firm which has evaluated the site. Based on
that firm's investigation to date and actual expenditures for sites of similar
scope and complexity, the cost for investigation and remediation of this site is
estimated to be between $1.4 million and $2.8 million. As of September 30, 1996,
the Company had incurred no significant expenditures which were not at least
partially covered by reimbursements from third parties. In its October 27, 1995
general Rate Order, the NCUC approved the Company's accounting for and recovery
in rates of the net costs associated with the Kinston site (See Note 2) incurred
through December 31, 1994.
The Company owns another site of a former manufactured gas plant in New
Bern, North Carolina, and was the former owner of three other similar sites on
which no environmental problems have arisen. Management believes that any
appreciable investigation or remediation costs not previously provided for will
be recovered from third parties, including insurance carriers, or in natural gas
rates. Based on the anticipated recovery from these sources, the Company does
not believe that the cost of any evaluation and remediation work will have a
material adverse effect on the Company's financial position or results of
operations.
The Company is subject to claims and lawsuits arising in the ordinary
course of business. Management does not expect any litigation from such claims
or lawsuits to have a material effect on the Company's business, financial
condition, or results of operations.
<PAGE>39
Supplementary data-
The following table presents certain financial information for each
quarter during the fiscal years ended September 30, 1996 and 1995 (amounts in
thousands, except per share data).
1996
- --------------------------------------------------------------------------------
Fourth Third Second First
------ ----- ------ -----
Operating revenues $31,420 $44,875 $73,535 $46,808
Gross margin 11,578 13,998 26,314 16,520
Operating income 1,257 2,424 10,111 4,954
Net income 188 1,195 9,523 4,267
Earnings per share .02 .18 1.46 .66
1995
- -------------------------------------------------------------------------------
Fourth Third Second First
------ ----- ------ -----
Operating revenues $24,474 $34,271 $52,513 $34,415
Gross margin 10,737 10,913 21,831 14,436
Operating income 1,586 1,524 8,036 4,089
Net income 433 439 7,621 3,316
Earnings per share .06 .07 1.19 .52
<PAGE>40
Item 9. Changes in and Disagreements on Accounting and Financial Disclosures
- -----------------------------------------------------------------------------
None.
Item 10. Management's Responsibility for Financial Statements
- --------------------------------------------------------------
Management is responsible for the preparation, presentation and
integrity of the financial statements and other financial information in this
report. The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles applicable to rate-regulated
public utilities, including estimates and judgments made by management that were
necessary to prepare the statements in accordance with such accounting
principles, and are not misstated due to material fraud or error. To assure the
integrity of the underlying financial records supporting the financial
statements, management maintains a system of internal accounting controls
sufficient to provide reasonable assurances that NCNG assets are properly
accounted for, safeguarded and are utilized only in accordance with management's
authorization. The concept of reasonable assurance recognizes that the costs of
a system of internal controls should not exceed the related benefits derived
from it.
The system of internal accounting controls is augmented by NCNG's
Internal Audit Department, which has unrestricted access to all levels of NCNG
management. The Internal Audit Department meets periodically, with and without
the presence of management, with the Audit Committee of the Board of Directors
to discuss, among other things, NCNG's system of internal accounting controls
and the adequacy of the internal audit program. The Audit Committee is comprised
of four directors who are not officers or employees of NCNG.
The Audit Committee also meets periodically with Arthur Andersen LLP,
NCNG's independent public accountants, with and without the presence of
management, to discuss the results of the annual audit of NCNG's financial
statements and related data. The Audit Committee and Arthur Andersen LLP also
discuss internal accounting control matters that come to the attention of Arthur
Andersen LLP during the course of the audit.
/s/ Calvin B. Wells /s/ Gerald A. Teele
- ----------------------- --------------------------
Calvin B. Wells Gerald A. Teele
Chairman, President and Senior Vice President, Treasurer and
Chief Executive Officer Chief Financial Officer
<PAGE>41
PART III
Item 11. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Directors -
The information for this item covering directors of the Company is set
forth in the section entitled "Election of Directors" on Pages 1, 2 and 3 in the
Company's Proxy Statement dated December 6, 1996 relating to the January 14,
1997 Annual Meeting of Stockholders, which section is hereby incorporated by
reference.
Executive officers -
The information for this item concerning executive officers of the
Company is set forth on Page 13 of this annual report.
Item 12. Executive Compensation
- --------------------------------
The information for this item is set forth in the sections entitled
"Executive Compensation and Stock Option Information," "Annual Incentive Plan,"
"Key Employee Stock Option Plan", "Employee Stock Purchase Plan", "Employee
Retirement Plans," "Executive Employment Agreements in the Event of Change in
Control" and "Report of Personnel and Compensation Committee on Executive
Compensation" on Pages 4, 5, 6, 7, 8, 9, and 10 in the Company's Proxy Statement
dated December 6, 1996 relating to the January 14, 1997 Annual Meeting of
Stockholders, which sections are hereby incorporated by reference.
Item 13. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Security ownership of certain beneficial owners -
There is no person who is known to the Company to be the beneficial owner
of more than five percent of the Company's common stock as of September 30,
1996.
Security ownership of management -
The information for this item is set forth in the section entitled
"Election of Directors" on Pages 1, 2 and 3 in the Company's Proxy Statement
dated December 6, 1996 relating to the January 14,1997 Annual Meeting of
Stockholders, which section is hereby incorporated by reference.
Changes in control -
The Company knows of no contractual arrangements which may at a subsequent
date result in a change in control of the Company.
<PAGE>42
Item 14. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information for this item is set forth in the section entitled
"Compensation Committee Interlocks and Insider Participation" on Page 8 in
the Company's Proxy Statement dated December 6, 1996 relating to the
January 14, 1997 Annual Meeting of Stockholders, which section is hereby
incorporated by reference.
<PAGE>43
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ---------------------------------------------------------------------------
(a) 1. Financial Statements Page
- ----------------------------- ----
Consolidated Balance Sheets as of September 30, 1996 and 1995 22
Consolidated Statements of Income for the Years Ended
September 30, 1996, 1995 and 1994 24
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994 25
Consolidated Statements of Capitalization as of September 30,
1996 and 1995 26
Consolidated Statements of Retained Earnings for the Years
Ended September 30, 1996, 1995 and 1994 27
Notes to Consolidated Financial Statements for the Years
Ended September 1996, 1995 and 1994 29
Management's Responsibility for Financial Statements 40
No separate financial statements are presented for the Company's
consolidated subsidiaries because the Company and its subsidiaries meet the
requirements for omissions set forth in Regulation S-X, Rule 3-09.
(a) 2. Financial Statement Schedules
- ---------------------------------------
The following data and financial statement schedules are included
herein:
Page
----
Report of Independent Public Accountants 45
Schedule II - Valuation and Qualifying Accounts for the Years
Ended September 30, 1996, 1995 and 1994 44
All other financial statement schedules are omitted as not applicable,
or nor required, or because the required information is given in the
Consolidated Financial Statements or Notes thereto.
(a) 3. Exhibits
See Index of Exhibits on Pages 47, 48 and 49 of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months
ended September 30, 1996.
<PAGE>44
SCHEDULE II
NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Col. A Col. B. Col. C Col. D Col. E
Additions
Charged to
Balance at ------------------ Balance
Beginning Operating Other Deductions At End
Description of Period Expenses Income (Note 1) of Period
- ----------- ---------- --------- ------ ---------- ---------
DEDUCTED IN BALANCE SHEET FROM ASSET TO
WHICH IT APPLIES:
Allowance for doubtful accounts
1996 $ 566,019 $ 538,477 $158,111 $515,152 $ 747,455
========= ======== ======= ======= =========
1995 $ 416,048 $ 305,358 $102,558 $257,945 $ 566,019
========= ======== ======= ======= =========
1994 $ 434,375 $ 328,840 $ 67,346 $414,513 $ 416,048
========= ======== ======= ======= =========
Note 1:
Deductions represent uncollectible accounts written off,
net of recoveries, as follows -
1996 1995 1994
---- ---- ----
Write off of accounts considered
to be uncollectible $659,112 $475,259 $505,993
Less-Recoveries on accounts
previously written off 143,960 217,314 91,480
------- ------- -------
$515,152 $257,945 $414,513
======= ======= =======
<PAGE>45
Report of Independent Public Accountants
To the Stockholders and the Board of Directors of North Carolina
Natural Gas Corporation:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of North Carolina Natural Gas Corporation
(a Delaware corporation) and subsidiaries as of September 30, 1996 and 1995,
and the related consolidated statements of income, retained earnings, and cash
flows for each of the three years ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of North
Carolina Natural Gas Corporation and subsidiaries as of September 30, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years ended September 30, 1996, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 7, 1996
<PAGE>46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NORTH CAROLINA NATURAL GAS CORPORATION
AND SUBSIDIARIES
--------------------------------------
(Registrant)
By: /s/ Calvin B. Wells
---------------------------------------
Calvin B. Wells
Chairman, President and Chief Executive Officer
December 12, 1996:
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title
/s/ Calvin B. Wells Chairman, President, and
- ------------------------------ Chief Executive Officer
Calvin B. Wells (Principal Executive Officer)
/s/ Gerald A. Teele Senior Vice President, Treasurer
- ------------------------------ and Chief Financial Officer
Gerald A. Teele (Principal Financial Officer)
/s/ Ronald J. Josephson Vice President-Financial Services
- ------------------------------ (Principal Accounting Officer)
Ronald J. Josephson
/s/ George T. Clark, Jr. /s/ John O. McNairy
- ------------------------------ --------------------------------
George T. Clark, Jr. - Director John O. McNairy - Director
/s/ Paul A. DelaCourt /s/ William E. Prestage
- ------------------------------- --------------------------------
Paul A. Delacourt - Director William H. Prestage - Director
/s/ Frank B. Holding, Jr. /s/ Richard F. Waid
- ------------------------------- --------------------------------
Frank B. Holding, Jr. - Director Richard F. Waid - Director
/s/ James E.S. Hynes /s/ Calvin B. Wells
- -------------------------------- --------------------------------
James E.S. Hynes - Director Calvin B. Wells - Director
/s/ Robert T. Johnson
- --------------------------------
Robert T. Johnson - Director
<PAGE> 47
INDEX OF EXHIBITS
The following exhibits are filed as part of this 1996 Form 10-K report.
Those exhibits previously filed and incorporated herein by reference
are identified below by a note reference to the previous filing.
Exhibit
Number
-------
3-1 - Certificate of Incorporation and By-Laws. (1)
3-2 - Amendments of Certificate of Incorporation and By-Laws. (4)
3-3 - Amendment of Certificate of Incorporation. (10)
4-1 - Indenture dated as of September 1, 1984, covering 12 7/8%
Debentures Series A due September 1, 1996. (3)
4-2 - First Supplemental Indenture dated as of June 15, 1986,
supplementing Indenture dated as of September 1, 1984,
and creating 8.75% Debentures, Series B due June 15, 2001. (6)
4-3 - Second Supplemental Indenture dated as of November 1, 1991,
supplementing Indenture dated as of September 1, 1984, and
creating 9.21% Debentures, Series C due November 15, 2011.(10)
4-4 - Note Purchase Agreement dated as of November 1, 1995 covering
7.15% Senior Notes due November 15, 2015.
10-1 - Service Agreement dated August 31, 1967, with Transcontinental
Gas Pipe Line Corporation covering storage service under Rate
Schedule GSS. (1)
10-2 - Service Agreement dated August 2, 1974, with Transcontinental
Gas Pipe Line Corporation covering storage service under Rate
Schedule LG-A. (1)
10-3 - Precedent Agreement to provide Contract Demand Service of
25,000 Dt/day dated December 19, 1988, with Columbia Gas
Transmission Corporation. (7)
10-4 - Contract Demand Service Agreement dated November 1, 1989, with
Columbia Gas Transmission Corporation.(8)
10-5 - Firm Seasonal Transportation Agreement dated July 2, 1990, with
Transcontinental Gas Pipe Line Corporation.(8)
10-6 - Service Agreement dated August 1, 1991, with
Transcontinental Gas Pipeline Corporation covering storage
service under Rate Schedule WSS (9)
10-7 - Firm Sales Agreement with Transcontinental Gas Pipe
Line Corporation dated August 1, 1991 covering 54,043 Mcf
per day.(9)
10-8 - Firm Transportation Agreement with Transcontinental Gas Pipe
Line Corporation dated February 1, 1991 for 141,000 Mcf per
day. (10)
10-9 - Supplemental Retirement Benefit Agreement dated January 13,
1981. (2)
<PAGE>48
Exhibit
Number
-------
10-10 - Employment Agreements executed in 1985 with certain Executive
Officers. (5)
10-11 - Employment Agreements executed in 1986 with certain Executive
Officers. (6)
10-12 - Employment Agreements executed in 1991 with certain Executive
Officers.
10-13 - Employment Agreements executed in 1992 with certain Executive
Officers.
10-14 - Employment Agreements executed in 1994 with certain Executive
Officers.
10-15 - Natural Gas Service Agreement dated January 9, 1992 with the
City of Wilson. (10)
10-16 - Natural Gas Service Agreement dated January 13, 1992 with the
City of Rocky Mount. (10)
10-17 - Service Area Territory Agreement dated January 13, 1992 with
the City of Rocky Mount. (10)
10-18 - Natural Gas Service Agreement dated March 12, 1992 with the
Greenville Utilities Commission. (10)
10-19 - Natural Gas Service Agreement dated March 27, 1992 with the
City of Monroe. (10)
10-20 - Amendment to Natural Gas Service Agreement dated March 27,
1992 with the City of Greenville Utilities Commission. (11)
10-21 - Amendment to Natural Gas Service Agreement dated January 13,
1992 with the City of Rocky Mount. (11)
10-22 - Amendment to Natural Gas Service Agreement dated November 1,
1992 with the City of Monroe. (12)
10-23 - North Carolina Natural Gas Corporation Executive Pension
Restoration Plan dated September 1, 1995. (12)
10-24 - Fourth Amendment to Natural Gas Service Agreement dated
December 1, 1995 with the Greenville Utilities Commission,
Greenville, NC.
10-25 - Second Amendment to Natural Gas Service Agreement dated
November 1, 1995 with The City of Rocky Mount, NC.
10-26 - Third Amendment to Natural Gas Service Agreement dated
December 1, 1995 with The City of Wilson, NC.
10-27 - Addendum No. Third dated August 29, 1996 covering Standby
On-Peak Supply Service with the City of Rocky Mount, NC.
10-28 - Addendum No. Four dated August 28, 1996 covering Standby
On-Peak Supply Service with The City of Wilson, NC.
<PAGE> 49
10-29 - Employment Agreements executed in 1996 with certain Executive
Officers.
24 - Consent of Experts.
27 - Financial Data Schedule.
NOTES:
(1) Filed as exhibits to Form 10-K report for fiscal year ended September
30, 1980
(2) Filed as exhibits to Form 10-K report for fiscal year ended September 30,
1981
(3) Filed as exhibit to Form 10-K report for fiscal year ended September 30,
1984
(4) Filed as exhibits to Form 8-K report dated February 6, 1985
(5) Filed as exhibit to Form 10-K report for fiscal year ended September 30,
1985
(6) Filed as exhibit to Form 10-K report for fiscal year ended September 30,
1986
(7) Filed as exhibit to Form 10-K report for fiscal year ended September 30,
1989
(8) Filed as exhibit to Form 10-K report for fiscal year ended September 30,
1990
(9) Filed as exhibit to Form 10-K report for fiscal year ended September 30,
1991
(10)Filed as exhibit to Form 10-K report for fiscal year ended September 30,
1992
(11)Filed as exhibit to Form 10-K report for fiscal year ended September 30,
1994
(12)Filed as exhibit to Form 10-K report for fiscal year ended September 30,
1995
<PAGE>50
Exhibit 4-4
Page 1 of 56
------------------------------------------------------------------
NORTH CAROLINA NATURAL GAS CORPORATION
-----------------------------------------------
NOTE PURCHASE AGREEMENT
Dated as of November 1, 1995
-----------------------------------------------
$30,000,000
7.15% Senior Notes
Due November 15, 2015
------------------------------------------------------------------
<PAGE>51
Exhibit 4-4
Page 2 of 56
TABLE OF CONTENTS
(Not Part of Agreement)
Page
SECTION 1. AUTHORIZATION OF ISSUE OF NOTES ...................... 1
SECTION 2. PURCHASE AND SALE OF NOTES .............................1
SECTION 3. CLOSING CONDITIONS ................ ...................2
3.1. Representations and Warranties; No Default .............2
3.2. Certain Documents ......................... ...........2
3.3. Legal Matters ........................... ..........3
3.4. Commission Approval ........................... ........3
3.5. Purchase Permitted By Applicable Laws ..................3
3.6. Fees Payable at Closing ................................3
3.7. Private Placement Number ...............................3
3.8. Sale of Notes to Other Purchasers ......................3
3.9. Proceedings .............................. .......3
SECTION 4. PREPAYMENTS ............................... ......4
4.1. Required Prepayments ............................. .....4
4.2. Optional Prepayment With Yield-Maintenance Premium ....4
4.3. Notice of Optional Prepayment ..........................4
4.4. Application of Prepayments ......................... ...4
SECTION 5. AFFIRMATIVE COVENANTS ..................................5
5.1. Taxes and Assessments ..................................5
5.2. Maintenance of Corporate Existence and Rights;
Compliance With Laws ..................................5
5.3. Carry on Business and Maintain Property ....... ........6
5.4. Nature of Business ............................. .......6
5.5. Insurance ......................................6
5.6. Inspection of Properties and Books .....................6
5.7. Records of Account and Certificate .............. ......7
5.8. Certificate as to Compliance ...........................7
5.9. Financial Statements, etc. ....................... .....7
5.9.1. Quarterly Statements ..........................7
5.9.2. Annual Statements .............................8
5.9.3. Securities and Exchange Commission Reports ....8
5.9.4. Officers' Certificates .....................8
<PAGE>52
Exhibit 4-4
Page 3 of 56
5.9.5. Notice of Default .....................8
5.9.6. Requested Information .........................8
5.10. Compliance with Environmental Law ......................8
SECTION 6. NEGATIVE COVENANTS .....................................9
6.1. Consolidated Operating Margin ..........................9
6.2. Restrictions on Encumbrances ...........................9
6.3. Limitations on Additional Funded Debt or Current Debt .11
6.4. Restrictions on Subsidiary Indebtedness ...............11
6.5. Limitations on Leases .................................11
6.6. Restricted Payments ...................................12
6.7. Limitations on Sale of Assets .........................12
6.8. Sale of Subsidiary Stock ..............................12
6.9. Limitation on Merger, Consolidation and Sale ..........13
6.10. Transactions with Affiliates ..........................13
6.11. Purchase of Notes .....................................14
SECTION 7. EVENTS OF DEFAULT AND REMEDIES ........................14
7.1. Events of Default Defined, Acceleration of Maturity ...14
7.2. Rescission of Acceleration ............................17
7.3. Notice of Acceleration or Rescission ..................17
7.4. Other Remedies .....................................17
SECTION 8. REPRESENTATIONS OF THE PURCHASER ......................17
SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS .............18
9.1. Subsidiaries .....................................18
9.2. Business and Property .................................18
9.3. Organization .....................................18
9.4. Financial Statements ..................................18
9.5. No Adverse Change .....................................19
9.6. Title to Properties, Liens ............................19
9.7. Regulatory Approval ...................................19
9.8. Franchises, etc. .....................................19
9.9. Litigation .....................................19
9.10. Burdensome Agreements .................................20
9.11. Conformity with Law and Other Agreements ..............20
9.12. Outstanding Debt .....................................20
9.13. Taxes .....................................20
9.14. Public Utility Holding Company Act; Federal Power Act..21
ii
<PAGE>53
Exhibit 4-4
Page 4 of 56
9.15. Investment Company Act Status .........................21
9.16. Private Offering .....................................21
9.17. Disclosure .....................................21
9.18. Use of Proceeds .....................................21
9.19. Compliance with Orders and Law ........................22
9.20. ERISA .....................................22
9.21. Compliance with Environmental Laws ....................22
9.22. Brokerage .....................................23
SECTION 10. DEFINITIONS .....................................23
10.1. Yield-Maintenance Terms ...............................23
10.2. Other Defined Terms ...................................24
10.3. Accounting Terms and Determinations ...................29
SECTION 11. MISCELLANEOUS PROVISIONS ...................................29
11.1. Note Payment .....................................29
11.2. Loss, Theft, Etc., of Notes ...........................29
11.3. Notices .....................................29
11.4. Form, Registration, Transfer and Exchange of Notes ....30
11.5. Expenses .....................................30
11.5.1. Generally ....................................30
11.5.2. Counsel .....................................31
11.5.3. Survival .....................................31
11.6. Consent to Amendments .................................31
11.7. Solicitation of Holders of Notes ......................32
11.7.1. Solicitation .................................32
11.7.2. Payment .....................................32
11.8. Payments Due on Non-Business Days .....................32
11.9. Notes Held by Company, etc. ...........................32
11.10. Persons Deemed Owners; Participations .................33
11.11. Disclosure to Other Persons; Confidentiality ..........33
11.12. Senior Status of the Notes ............................33
11.13. Survival of Representations and Warranties;
Entire Agreement .....................................33
11.14. Successors and Assigns ................................34
11.15. Descriptive Headings ..................................34
11.16. Satisfaction Requirement ..............................34
11.17. Governing Law .....................................34
11.18. Counterparts .....................................34
iii
<PAGE>54
Exhibit 4-4
Page 5 of 56
PURCHASER SCHEDULE
SCHEDULE 9.1 - SUBSIDIARIES
EXHIBIT A - FORM OF NOTE
EXHIBIT B - FORM OF OPINION OF ISSUER'S COUNSEL
EXHIBIT C - EXISTING INDEBTEDNESS
EXHIBIT D - CONTINGENT ERISA LIABILITY
EXHIBIT E - LETTER FROM CALVIN B. WELLS REGARDING ENVIRONMENTAL MATTERS
EXHIBIT F - REPORT FROM AQUATERRA INC. AND WARE LIND FURLOW ENGINEERS,
INC. REGARDING ENVIRONMENTAL MATTERS
iv
<PAGE>55
Exhibit 4-4
Page 6 of 56
NORTH CAROLINA NATURAL GAS CORPORATION
150 Rowan Street
Fayetteville, North Carolina 28302
NOTE PURCHASE AGREEMENT
Re: $30,000,000 7.15% Senior Notes
Due November 15, 2015
Dated as of November 1, 1995
To Each of the Purchasers Identified
on the Signature Pages of this Agreement
Gentlemen:
The undersigned, NORTH CAROLINA NATURAL GAS CORPORATION, a Delaware
corporation (the "Company"), hereby agrees with each Purchaser as follows:
SECTION 1. AUTHORIZATION OF ISSUE OF NOTES.
The Company will authorize the issue of its senior promissory notes
(the "Notes") in the aggregate principal amount of $30,000,000, to be dated the
date of issue thereof, to mature November 15, 2015, to bear interest on the
unpaid balance thereof from the date thereof until the principal thereof shall
have become due and payable at the rate of 7.15% per annum and on overdue
principal, Yield-Maintenance Premium, if any, and interest at the rate specified
therein, and to be substantially in the form of Exhibit A attached hereto. The
term "Notes" as used herein shall include each Note delivered pursuant to any
provision of this Agreement and each Note delivered in substitution or exchange
for any such Note pursuant to any such provision. Capitalized terms used herein
have the meanings specified in Section 10.
SECTION 2. PURCHASE AND SALE OF NOTES.
The Company hereby agrees to sell to you and, subject to the terms and
conditions herein set forth, you severally agree to purchase from the Company,
Notes in the aggregate principal amount of $30,000,000 at 100% of such aggregate
principal amount. The Company will deliver to you, at the offices of Baker &
Botts, L.L.P., 2001 Ross Avenue, Suite 800, Dallas, Texas 75201, one or more
Notes registered in your name, evidencing the aggregate principal amount of the
Notes to be purchased by you and in the denomination or denominations specified
with respect to you in the Purchaser Schedule attached hereto, against payment
of the purchase price thereof by transfer of immediately available funds for
credit to the Company's account # 2072683002859 at First Union National Bank,
ABA No. 053000219,
<PAGE>56
Exhibit 4-4
Page 7 of 56
Charlotte, North Carolina on the date of closing, which shall be
November 10, 1995 (the "Closing" or the "Date of Closing").
SECTION 3. CLOSING CONDITIONS.
Each Purchaser's obligation to purchase and pay for the Notes to be
purchased by it as herein contemplated shall be subject to the performance by
the Company of its agreements hereunder, and to the following additional
conditions precedent to be satisfied on or before the Date of Closing:
Section 3.1. Representations and Warranties; No Default. The
representations and warranties contained in Section 9 shall be true on and as of
the Date of Closing; there shall exist on the Date of Closing no Event of
Default or Default and no Default or Event of Default would result from the
issuance of the Notes on the Date of Closing; and the Company shall have
delivered to such Purchaser an Officer's Certificate, dated the Date of Closing,
to both such effects.
Section 3.2. Certain Documents. Each Purchaser shall have received
the following, each dated the Date of Closing unless otherwise specified:
(i) The Notes to be purchased by such Purchaser;
(ii) A certificate of the Secretary or Assistant Secretary of the
Company certifying (a) the resolutions of the Board of Directors
approving this Agreement and the Notes, and of all documents
evidencing other necessary corporate action and governmental
approvals, if any, with respect to this Agreement and the
Notes, and (b) the names and true signatures of the officers of
the Company authorized to sign this Agreement and the
Notes and the other documents to be delivered hereunder;
(iii) Certified copies of the Certificate of Incorporation and bylaws
of the Company;
(iv) A favorable opinion of McCoy, Weaver, Wiggins, Cleveland &
Raper, counsel to the Company, satisfactory to such Purchaser
and substantially in the form of Exhibit B attached hereto
and as to such other matters as such Purchaser may reasonably
request. The Company hereby directs such counsel to deliver
such opinion, and understands and agrees that each Purchaser
receiving such opinion will and is hereby authorized to rely on
such opinion; and
(v) A letter from Dean Witter Investment Banking, in form, scope
and substance satisfactory to such Purchaser, regarding the
limited nature of the offering of the Notes.
2
<PAGE>57
Exhibit 4-4
Page 8 of 56
Section 3.3. Legal Matters. Counsel to such Purchaser, including any
special counsel retained in connection with the purchase and sale of the Notes,
shall be satisfied as to all legal matters relating to such purchase and sale,
and such Purchaser shall have received from such counsel favorable opinions as
to such legal matters as such Purchaser may reasonably request.
Section 3.4. Commission Approval. The North Carolina Utilities
Commission shall have authorized the issuance and sale of the Notes upon terms
not inconsistent with this Agreement, which authorization shall also be a
condition to the Company's obligation to issue and sell the Notes. The order
entered by the North Carolina Utilities Commission shall be in effect and shall
not be subject to any condition, modification or appeal which would affect the
terms or validity of the Notes.
Section 3.5. Purchase Permitted By Applicable Laws. The purchase of and
payment for the Notes to be purchased by such Purchaser on the Date of Closing
on the terms and conditions herein provided (including the use of the proceeds
of the Notes by the Company) shall not violate any applicable law or
governmental regulation (including, without limitation, Section 5 of the
Securities Act or Regulation G, T or X of the Board of Governors of the Federal
Reserve System) and shall not subject such Purchaser to any tax, penalty,
liability or other onerous condition under or pursuant to any applicable law or
governmental regulation, and such Purchaser shall have received such
certificates or other evidence as it may request to establish compliance with
this condition.
Section 3.6 Fees Payable at Closing. Without limiting the generality of
Section ll.5, the Company shall have paid on or before the Date of Closing the
fees, charges and disbursements of such Purchaser's special counsel referred to
in Section 3.3 to the extent reflected in a statement of such counsel rendered
to the Company at least one Business Day prior to the Closing.
Section 3.7. Private Placement Number. The Company shall have obtained
or caused to be obtained a private placement number for the Notes from the CUSIP
Service Bureau of Standard & Poor's Corporation and such Purchaser shall have
been informed of such private placement number.
Section 3.8. Sale of Notes to Other Purchasers. The Company shall have
sold to the other Purchasers the Note(s) to be purchased by them at the Closing
and shall have received payment in full therefor.
Section 3.9. Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in substance and form to such
Purchaser, and such Purchaser shall have received all such counterpart originals
or certified or other copies of such documents as such Purchaser may reasonably
request.
3
<PAGE>58
Exhibit 4-4
Page 9 of 56
SECTION 4. PREPAYMENTS.
The Notes shall be subject to prepayment only with respect to the
required prepayments specified in Section 4.1 and also under the circumstances
set forth in Section 4.2.
Section 4. 1. Required Prepayments. Until the Notes shall be paid in
full, the Company shall apply to the prepayment of the Notes, without premium,
the sum of $1,500,000 on November 15 in each of the years 2003 to 2011,
inclusive, and such principal amounts of the Notes, together with interest
accrued thereon to the prepayment dates, shall become due and payable on such
prepayment dates. Furthermore, until the Notes shall be paid in full, the
Company shall apply to the prepayment of the Notes, without premium, the sum of
$3,000,000 on November 15 in each of the years 2012 to 2014, inclusive, and such
principal amounts of the Notes, together with interest thereon to the prepayment
dates, shall become due and payable on such prepayment dates. Any prepayment
made by the Company pursuant to Section 4.2 shall not reduce or otherwise affect
its obligation to make any prepayment required by this Section 4.1. The
remaining principal amount of the Notes, together with interest accrued thereon,
shall become due and payable on the maturity date of the Notes.
Section 4.2. Optional Prepayment With Yield-Maintenance Premium.
Beginning November 15, 1997, the Notes shall be subject to prepayment on any
Business Day, in whole at any time or from time to time in part (in aggregate
principal amounts of not less than $1,000,000), at the option of the Company, at
100% of the principal amount so prepaid plus interest accrued thereon to the
prepayment date and the Yield-Maintenance Premium, if any, with respect to each
Note.
Section 4.3. Notice of Optional Prepayment. The Company shall give the
holder of each Note irrevocable written notice of any prepayment pursuant to
Section 4.2 not less than 30 or more than 60 calendar days prior to the
prepayment date (which shall be on a Business Day), specifying such prepayment
date, specifying the aggregate principal amount of the Notes to be prepaid on
such date, identifying each Note held by such holder, and the principal amount
of and the interest accrued on each such Note, to be prepaid on such date,
providing an estimate of the Yield-Maintenance Premium, if any, to become due on
such prepayment date (the Reinvestment Yield used in determining such estimate
to be calculated as if the date of such notice were the Settlement Date) and the
calculation of such estimate, and stating that such prepayment is to be made
pursuant to Section 4.2. Notice of prepayment having been given as aforesaid,
the principal amount of the Notes specified in such notice, together with
interest thereon to the prepayment date and together with the Yield-Maintenance
Premium, if any, with respect thereto, shall become due and payable on such
prepayment date and, on the Business Day next preceding such prepayment date,
the Company shall transmit by facsimile and by overnight courier to the holder
of each Note to be so prepaid the calculation of the Yield-Maintenance Premium,
if any, to be due on such prepayment date.
Section 4.4. Application of Prepayments. (a) In the case of each
partial prepayment pursuant to Section 4.1, the principal amount to be prepaid
shall be allocated to all Notes at the time outstanding (including, for the
purpose of this Section 4.4(a) only, all Notes prepaid or otherwise retired or
purchased or otherwise acquired by the Company or any of its Subsidiaries or
Affiliates other than by prepayment
4
<PAGE>59
Exhibit 4-4
Page 10 of 56
pursuant to Sections 4.1 and 4.2) in proportion to the respective outstanding
principal amounts thereof.
(b) In the case of each partial prepayment pursuant to Section
4.2, the principal amount to be prepaid shall be allocated to all Notes at the
time outstanding (including, for the purpose of this Section 4.4(b) only, all
Notes prepaid or otherwise retired or purchased or otherwise acquired by any
Subsidiary or Affiliate of the Company other than by prepayment pursuant to
Sections 4.1 and 4.2, in proportion to the respective outstanding principal
amounts thereof. Upon any partial prepayment of the Notes pursuant to Section
4.2, the principal amount so prepaid shall be allocated to all Notes at the time
outstanding, in inverse order of the respective maturities thereof.
SECTION 5. AFFIRMATIVE COVENANTS.
The Company hereby covenants and agrees for the benefit of
the holders of the Notes and their successors in interest that, so long as any
Notes remain outstanding:
Section 5.1. Taxes and Assessments. The Company will, and will cause
each Subsidiary to, duly and punctually pay and discharge, or cause to be paid
and discharged, all taxes, assessments and governmental charges or levies
imposed upon or assessed against the Company or any Subsidiary, or upon any
property of the Company or any Subsidiary; provided, however, that nothing
herein contained shall require the Company or any Subsidiary to pay any such
tax, assessment, charge or levy so long as the Company or such Subsidiary shall
in good faith contest the validity of the same by appropriate legal proceedings
and stay any execution thereof and so long as adequate reserves in respect
thereof have been established in accordance with generally accepted accounting
principles and the Company's or such Subsidiary's title to and right to use its
property is not adversely affected thereby.
Section 5.2. Maintenance of Corporate Existence and Rights; Compliance
With Laws. Subject to the provisions of Section 6.9 hereof, the Company will do
or cause to be done, at its own cost and expense, all things necessary to
preserve, extend and renew the corporate existence of the Company and each
Subsidiary under the laws of its respective state of incorporation, and the
qualified status of the Company and each Subsidiary in any state in which it may
engage in business, and will use its best efforts to preserve and renew all
franchises, rights of way, easements, permits and licenses now held by the
Company or any Subsidiary or hereafter granted to or conferred upon the Company
or any Subsidiary; provided, however, that the Company shall not be required to
preserve any such franchise, right, easement, permit or license if the Board of
Directors shall determine that such preservation is no longer desirable in the
conduct of the business of the Company or such Subsidiary. The Company will
comply, and cause each Subsidiary to comply, with all valid laws, ordinances,
regulations and requirements applicable to the Company or any Subsidiary or the
property of the Company or any Subsidiary.
5
<PAGE>60
Exhibit 4-4
Page 11 of 56
Section 5.3. Carry on Business and Maintain Property. The Company will,
and will cause each Subsidiary to, at all times endeavor to carry on and conduct
its business in an efficient manner and will cause its property and the property
of each Subsidiary to be maintained and preserved and kept in good repair and
working order and will cause to be made all necessary repairs, renewals,
replacements, and substitutions, so that at all times the efficiency of such
property shall be fully preserved and maintained in accordance with the
standards generally accepted in the gas distribution utility industry and by
such regulatory authorities then exercising jurisdiction over the Company and
its Subsidiaries.
Section 5.4. Nature of Business. The Company and its Subsidiaries will
continue to engage in substantially the same type of business carried on as of
the Date of Closing, and the Company and its Subsidiaries will not engage in any
new type of business if, as a result, the general nature of the business which
would then be engaged in by the Company and its Subsidiaries would be
substantially changed from the general nature of the business engaged in by the
Company and its Subsidiaries as of the Date of Closing.
Section 5.5. Insurance. The Company will, and will cause each
Subsidiary to, (i) insure and keep insured all property and equipment of a
character usually insured by companies of relatively the same size engaged in
the same, or a similar, business against liabilities or damages of the kind
customarily insured against by such companies, and (ii) maintain liability
insurance against claims for personal injury or death or property damages
suffered by members of the public or others in or about any property or premises
owned or occupied or used by it or occurring by reason of its ownership,
maintenance, use or operation of any pipelines, compressing stations, plants,
shops, machinery, automobiles, trucks or other vehicles, or airplanes or other
facilities. All such insurance shall be carried in such amounts as are
customarily carried under similar circumstances by other corporations and with
financially sound and reputable insurance companies, provided that the Company
may at its election act as self-insurer, any such system of self-insurance
(including any appropriate reserve or reserves therefor) to be upon such terms
and conditions as may be determined by the Board of Directors provided that the
same conform to approved practices of similar companies maintaining systems of
self-insurance or to regulations of any regulatory commission having
jurisdiction over the Company and its Subsidiaries.
Section 5.6. Inspection of Properties and Books. The Company agrees
that the holder of each Note, may from time to time, during regular business
hours, visit any of the offices and properties of the Company and its
Subsidiaries and discuss in reasonable detail the affairs, finances and accounts
of the Company and its Subsidiaries with the officers of the Company or its
independent public accountants. The Company further agrees that all books,
documents and vouchers relating to the business and affairs of the Company and
its Subsidiaries shall at all reasonable times be open to the inspection of such
holder or its agent (each of whom may make copies at such holder's expense of
any or all such records), and such holder agrees that it will not use any
information concerning the Company or its Subsidiaries which it may obtain
pursuant to any such investigation other than for a proper purpose (including,
but not limited to, disclosure to the National Association of Insurance
Commissioners and such other regulatory authorities exercising jurisdiction over
such holder and such disclosure as may be necessary in connection with the sale
of the Notes) in connection with such holder's investment and the safeguarding
thereof. The Company also agrees to pay and reimburse such holder for reasonable
expenses which may be incurred in connection with any such visitation or
inspection following the occurrence and during the continuation of a Default or
an Event of Default, provided, however, that the Company shall not
6
<PAGE>61
Exhibit 4-4
Page 12 of 56
otherwise be required to pay or reimburse such holder for expenses which such
holder may incur in connection with any visitation or inspection.
Section 5.7. Records of Account and Certificate. The Company will at
all times keep, and cause its Subsidiaries to keep, proper books of record and
account and therein will make full, true and proper entries of all dealings and
transactions in relation to the property, business and affairs of the Company
and its Subsidiaries.
Section 5.8. Certificate as to Compliance. Concurrently with the
delivery of financial statements pursuant to Section 5.9.2, the Company will
deliver to the holder of each Note a certificate of the firm of public
accountants that prepared the financial statements for the Company for the
immediately preceding fiscal year to the effect that such firm, in making the
examination in connection with its report on such financial statements, has
obtained no knowledge of any Default or Event of Default (or if knowledge
thereof has been obtained, specifying each such Default or Event of Default), by
the Company during such fiscal year in the observance, performance, or
fulfillment of any of the terms, provisions, or conditions contained in this
Agreement.
Section 5.9. Financial Statements, etc. The Company agrees that it will
deliver to the holder of each Note, in duplicate, and, in the case of annual
statements delivered pursuant to Section 5.9.2, to the Securities Valuation
Office, National Association of Insurance Commissioners, 195 Broadway, Suite
1903, New York, New York 10007, the following:
Section 5.9.1. Quarterly Statements. As soon as available and
in any event within 45 days after the end of each quarterly period,
except the last, of each fiscal year of the Company, (i) a consolidated
balance sheet of the Company and its Subsidiaries as at the end of such
period and (ii) consolidated statements of income and cash flows of the
Company and its Subsidiaries for the period beginning on the first day
of such fiscal year and ending on the date of such balance sheet,
setting forth in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, all in reasonable
detail and certified by the principal financial officer of the Company;
provided, however, that delivery pursuant to Section 5.9.3 below,
within the period specified above, of copies of the Quarterly Report on
Form 10-Q of the Company for such quarterly period filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 5.9.1 as long as such report contains the
financial statements referenced in the immediately preceding clauses
(i) and (ii);
7
<PAGE>62
Exhibit 4-4
Page 13 of 56
Section 5.9.2. Annual Statements. As soon as available and in
any event within 90 days after the last day of each fiscal year, (i) an
audit report, certified by Arthur Andersen LLP or another firm of
independent public accountants of recognized national standing selected
by the Company and containing a consolidated balance sheet as at the
end of such year and consolidated statements of income, retained
earnings, capitalization and cash flows for such year, such statements
of income, retained eamings, capitalization and cash flows to be on a
comparative basis with a corresponding statement for the preceding
fiscal year, and (ii) a consolidating balance sheet and consolidating
statements of income and cash flows prepared by the Company in support
of the consolidated statements referred to in the preceding clause (i);
provided, however, that delivery pursuant to Section 5.9.3 below,
within the period specified above, of copies of the Annual Report on
Form 10-K of the Company for such fiscal year filed with the Securities
and Exchange Commission shall be deemed to satisfy the requirements of
this Section 5.9.2 as long as such report contains the financial
statements referenced in the immediately preceding clauses (i) and
(ii);
Section 5.9.3. Securities and Exchange Commission Reports.
Promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports that it sends to its
public stockholders, copies of all material press releases that it
makes and copies of all registration statements (without exhibits) and
all reports that it files with the Securities and Exchange Commission
(or any governmental body or agency succeeding to the functions of the
Securities and Exchange Commission);
Section 5.9.4. Officers' Certificates. Together with each
delivery of financial statements under Section 5.9.1 and Section 5.9.2,
the written statement of the Company, signed by its principal financial
officer, demonstrating in reasonable detail compliance with the
provisions of Sections 6.1, 6.3, 6.4, 6.5, 6.6, 6.7 and 6.8 of this
Agreement and to the effect that at the date of said statement the
Company is not in default in the fulfillment of any of the terms,
covenants and provisions of this Agreement and that no Event of Default
or Default, has occurred, or if the signer is aware of any such Event
of Default or Default, he shall disclose in such statement the nature
thereof and the action the Company is taking or proposes to take with
respect thereto;
Section 5.9.5. Notice of Default. Promptly following the
occurrence of any Default or Event of Default of which a Responsible
Officer shall have knowledge, the Company shall give written notice to
each holder of the Notes describing such Default or Event of Default
and the action the Company is taking or proposes to take with respect
thereto;
Section 5.9.6 Requested Information. Such additional
information as such Purchaser or any subsequent holder of any
Notes may reasonably request.
Section 5.10. Compliance with Environmental Law. The Company
will, and will cause each of its Subsidiaries and each of its Affiliates that
are controlled by the Company or its Subsidiaries to, comply in a timely
fashion with, or operate pursuant to valid waivers of the provisions of, all
applicable federal,
8
<PAGE>63
Exhibit 4-4
Page 14 of 56
state and local environmental, or pollution-control laws, regulations, orders
and decrees governing, without limitation, the emission of wastewater effluent,
solid and hazardous waste and air pollution, and setting forth general
environmental conditions together with any other applicable requirements for
conducting, on a timely basis, periodic tests and monitoring for contamination
of ground water, surface water, air and land and for biological toxicity of the
aforesaid, and diligently comply with the applicable regulations (except to the
extent such regulations are waived by appropriate governmental authorities) of
the Environmental Protection Agency or other relevant federal, state or local
governmental authority except where noncompliance would not materially adversely
affect the business, property or assets, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole. The Company
shall not be deemed to have breached or violated the preceding sentence of this
Section 5. 10 if the Company, any Subsidiary or any Affiliate of the Company is
challenging in good faith by appropriate proceedings diligently pursued the
application or enforcement of any such governmental requirements for which
adequate reserves have been established in accordance with generally accepted
accounting principles. To the fullest extent permitted by applicable law, the
Company agrees to indemnify and hold each holder of Notes and their respective
officers, agents and employees harmless from any loss, liability, claim or
expenses that such holder or other indemnified person may incur or suffer as a
result of a breach by the Company, its Subsidiaries or Affiliates, as the case
may be, of this covenant.
SECTION 6. NEGATIVE COVENANTS.
Section 6.1. Consolidated Operating Margin. The Company will not permit
the Operating Gas Utility Margin for any fiscal year to be an amount which is
less than 90% of Consolidated Operating Margin for such fiscal year. For
purposes of this Section 6.1, (i) "Operating Gas Utility Margin" shall mean
Consolidated Gas Revenues of the Company, less Consolidated Gas Expenses; (ii)
"Consolidated Gas Revenues" shall mean, the revenues of the Company and its
Subsidiaries derived from the sale, distribution and transportation of natural
gas and propane gas; (iii) "Consolidated Gas Expenses" shall mean, all expenses
incurred by the Company and its Subsidiaries in connection with the acquisition
of natural gas and propane gas for sale, distribution and transportation by the
Company; and (iv) "Consolidated Operating Margin" shall mean the total revenues
of the Company and its Subsidiaries, less the cost of goods sold; all of the
foregoing clauses (ii) through (iv) determined in accordance with generally
accepted accounting principles.
Section 6.2. Restrictions on Encumbrances. The Company covenants that
it will not, and will not permit any Subsidiary to, create, assume or suffer to
exist any mortgage, pledge, lien, security interest or other encumbrance upon
any of its property or assets, whether now owned or hereafter acquired unless it
shall simultaneously or beforehand make or cause to be made effective provision
whereby the Notes will be secured by such mortgage, pledge, lien, security
interest or encumbrance equally and ratably with any and all other Indebtedness
or other obligation thereby secured so long as any such other Indebtedness or
other obligation shall be so secured pursuant to such agreements and instruments
as shall be approved by the Required Holder(s), and unless the Company shall
cause to be delivered to the holder of each Note an Opinion of Counsel to the
effect that such agreements and instruments are
9
<PAGE>64
Exhibit 4-4
Page 15 of 56
enforceable in accordance with their terms; provided, however, that the
foregoing covenant shall not be applicable to the following:
(i) liens on the oil and/or natural gas reserves of any Subsidiary securing
Indebtedness of such Subsidiary;
(ii) liens securing Indebtedness of a Subsidiary payable to the Company or
another Subsidiary or both;
(iii) liens on natural gas of the Company in storage or in pipelines;
(iv) the lien of Capitalized Leases permitted by Sections 6.3 and 6.4 and the
lien, if any, of those leases permitted by Section 6.5 hereof;
(v) minor defects and irregularities in the titles to any property which
do not materially impair the use of such property for the purposes for
which it is held by the Company or any Subsidiary;
(vi) undetermined liens and charges incidental to construction;
(vii) liens of any mortgage or security agreement created by any
Person other than the Company or a Subsidiary on property on
which the Company or any Subsidiary has an easement; provided
that the Indebtedness secured by such instrument shall not
have been assumed or guaranteed by the Company or any
Subsidiary;
(viii) the lien for taxes and assessments which are not at the time delinquent;
(ix) the lien of specified taxes and assessments which are delinquent but
the validity of which is being contested at the time by the Company in
good faith;
(x) easements, exceptions or reservations in any property of the
Company granted or reserved for the purpose of railroads,
telephone and telegraph lines, electric power lines, sewers,
pipelines, streets, alleys, highways, roads, the removal of
oil, gas, coal or other minerals and other like purposes, or
or the joint or common use of real property, facilities and
equipment, which do not materially impair the use of such
property for the purposes for which it is held by the Company
or restrictive covenants or reservations related to property
on which manufactured gas plants were formerly operated in
Kinston and New Bern, North Carolina, as described in the
Environmental Reports;
10
<PAGE>65
Exhibit 4-4
Page 16 of 56
(xi) rights reserved to or vested in any municipality or public
authority to control or regulate any property of the Company,
or to use such property in any manner which does not
materially impair the use of such property for the purposes
for which it is held by the Company; and
(xii) any irregularities in or deficiencies of titles to any
rights-of-way for pipelines, telephone lines, power lines,
water lines and/or appurtenances thereto, and to any real
estate used or to be used primarily for right-of-way purposes.
Section 6.3. Limitations on Additional Funded Debt or Current Debt. The
Company will not, and will not permit any Subsidiary to, create, issue,
guarantee, assume or otherwise become liable in respect to any Funded Debt or
Current Debt, unless, after giving effect thereto,
(i) the sum of (a) the aggregate unpaid principal amount of
Consolidated Current Debt and (b) the aggregate unpaid principal amount of
Consolidated Funded Debt is not greater than 70% of the sum of (x)
Consolidated Capitalization and (y) the aggregate unpaid principal arnount
of Consolidated Current Debt; and
(ii) Consolidated Net Eamings for Interest for a period of twelve
consecutive calendar months within the eighteen calendar months immediately
preceding the month such Consolidated Funded Debt or Consolidated Current Debt
is to be incurred, shall have not been less than 1.50 times the Pro Forma
Fixed Charges during the period of twelve consecutive months commencing
with the month of incurrence.
For purposes of this Section 6.3 and Section 6.4, any Funded Debt or
Current Debt of a corporation when it becomes a Subsidiary shall be deemed to
have been incurred at that time.
Section 6.4. Restrictions on Subsidiary Indebtedness. The Company will
not permit any Subsidiary to create, issue, guarantee, assume or otherwise
become liable, directly or indirectly, with respect to any Funded Debt or
Current Debt owing to any Person other than the Company and its wholly owned
Subsidiaries in excess of 15% of Consolidated Stockholders' Equity.
Section 6.5. Limitations on Leases. The Company will not, and will not
permit any Subsidiary to, become obligated as lessee under leases of real
property (other than Capitalized Leases and leases under which the Company or a
Subsidiary is lessor) having a term (exclusive of any renewal options by the
lessee), or renewable at the option of the lessor for a term, of more than three
years, if after giving effect thereto the aggregate annual net rental obligation
under all such leases of the Company and its Subsidiaries, the remaining terms
of which are then in excess of three years, will exceed in the aggregate an
amount equal to 5% of Consolidated Stockholders' Equity. For purposes of this
computation (i) the net rental obligations for any period under any lease shall
be the sum of the rental and other payments required to be paid in such period
by the lessee thereunder, not including, however, any amounts required to be
paid by such lessee (whether or not therein designated as rental or additional
rental) on account of
11
<PAGE>66
Exhibit 4-4
Page 17 of 56
maintenance and repairs, insurance, taxes, assessments, water rates and
similar charges with respect to the property which is subject to such lease;
and (ii) net rentals under any so-called "percentage lease" for any period
shall be computed on the basis of either the actual net rentals paid
during the immediately preceding comparable period or, if actual
information is not available, on the basis of the best good faith
estimate of the Board of Directors as to what such net rentals will be.
Section 6.6. Restricted Payments. The Company will not declare or pay
any dividend (other than a dividend payable solely in shares of its common
stock) or make any other distribution on or with respect to any class of its
capital stock, or purchase or otherwise acquire, or permit any Subsidiary to
purchase or otherwise acquire, any shares of capital stock of the Company, of
any class, unless after giving effect to such dividend, distribution, purchase,
or other acquisition, the sum of (a) the aggregate amount of all dividends
declared and all other distributions made (other than dividends declared or
distributions made solely in shares of common stock of the Company) on shares of
its capital stock, of any class, subsequent to September 30, 1995, plus (b) the
amount applied to or set apart for the purchase or other acquisition of any
shares of its capital stock, of any class, subsequent to September 30, 1995,
over the net cash proceeds received by the Company from sales of its capital
stock, of any class, subsequent to September 30, 1995, would not exceed the sum
of (i) $8,000,000, plus (ii) the Consolidated Net Income of the Company and its
Subsidiaries for the period from September 30, 1995 through the end of the
fiscal quarter ending on or next preceding the date of such dividend,
distribution, purchase or other acquisition.
Section 6.7. Limitations on Sale of Assets. Subject to Section 6.9, the
Company will not and will not permit any Subsidiary to, sell, lease, transfer
or otherwise dispose of any of its assets except for sales of (a) all or any
part of its current assets in the ordinary course of business, (b) all or any
part of its assets by any Subsidiary to the Company or a wholly owned
Subsidiary, and (c) all or any part of its noncurrent assets if (x) the sum of
the aggregate Net Book Value of all such noncurrent assets sold and the
aggregate net book value of all assets of all Subsidiaries the stock of which
has been sold or otherwise disposed of pursuant to Section 6.8(b) in any fiscal
year are less than or equal to 10% of consolidated total assets of the
Company and its Subsidiaries, determined as of the last day of the
immediately preceding fiscal year, (y) in the aggregate, said noncurrent
assets sold pursuant to this Section 6.7(c) and all assets of all Subsidiaries
the stock of which has been sold or otherwise disposed of pursuant to
Section 6.8(b) generated no more than 15% of Consolidated Net Income
Before Taxes for the immediately preceding fiscal year and (z) no Default
or Event of Default exists immediately prior to or would exist immediately
after giving effect to such sale of assets.
Section 6.8. Sale of Subsidiary Stock. The Company will not, and will
not permit any Subsidiary to, issue any capital stock or sell or otherwise
dispose of less than all of the capital stock of a Subsidiary except (a) to the
Company or another wholly-owned Subsidiary, or (b) unless at the time of such
issuance, sale or other disposition (i) the Company and its Subsidiaries could
incur at least $1 of additional Funded Debt under Sections 6.3 and 6.4, (ii) the
sum of the aggregate Net Book Value of all such noncurrent assets sold pursuant
to Section 6.7(c) and the aggregate net book value of all assets of such
Subsidiary and of all Subsidiaries the stock of which has been sold or otherwise
disposed of pursuant to this Section 6.8(b) in any fiscal year are less than or
equal to 10% of consolidated total assets of the Company and its Subsidiaries,
determined as of the last day of the immediately preceding fiscal year, (iii) in
the aggregate, said noncurrent assets sold pursuant to Section 6.7(c) and all
assets of such Subsidiary and of all Subsidiaries the stock of which has been
sold or otherwise disposed of pursuant to
12
<PAGE>67
Exhibit 4-4
Page 18 of 56
this Section 6.8(b) generated no more than 15% of Consolidated Net Income Before
Taxes for the immediately preceding fiscal year and (iv) no Default or Event of
Default exists immediately prior to or would exist immediately after giving
effect to such sale of stock, and provided further that, at the time of such
sale, such Subsidiary shall not own, directly or indirectly, any shares of stock
or Indebtedness of, or any other continuing investment in, any other Subsidiary
(unless all of the shares of stock and Indebtedness of such other Subsidiary
owned, directly or indirectly, by the Company and all Subsidiaries are
simultaneously being sold as permitted by this Section 6.8), or any shares of
stock or Indebtedness of the Company.
Section 6.9. Limitation on Merger Consolidation and Sale. The Company
will not consolidate with or merge into any Person or Persons (whether or not
affiliated with the Company), be a party to successive consolidations or mergers
in which the Company or its successor or successors shall be a party or parties,
and in which the Company shall not be the surviving corporation, or sell all or
substantially all of its assets (in one transaction or a series of transactions)
unless (i) such successor or purchasing Person shall be a United States
corporation having not less than 75% of its gross assets in the United States,
(ii) such successor or purchasing Person shall assume the due and punctual
payment of the principal of (and Yield-Maintenance Premium, if any) and interest
on all Notes and the performance and observance of every covenant and condition
of this Agreement to be performed or observed by the Company, (iii) no Event of
Default or Default shall exist immediately prior to or after giving effect to
such merger, consolidation or sale of assets, (iv) such successor or purchasing
Person and any surviving Subsidiaries shall be able to incur at least $1 of
additional Funded Debt and Current Debt under Sections 6.3 and 6.4,
respectively, immediately after the consolidation, merger or sale of assets and
(v) the Company shall have delivered to the holder of each Note an Officer's
Certificate and an Opinion of Counsel, each stating that such consolidation or
merger complies with this Section 6.9 and that the parties have complied with
all conditions precedent herein provided for or relating to such transaction.
No merger, consolidation or sale of assets permitted under this Section
6.9 shall have the effect of releasing the entity named as the Company in the
introductory sentence of this Agreement or any successor or purchasing
corporation that shall theretofore have become such in the manner prescribed in
this Section 6.9 from its liability as obligor and maker on any of the Notes.
Section 6.10. Transactions with Affiliates. Subject to applicable
regulatory requirements, the Company will not enter into or be a party to, and
will not permit any Subsidiary to enter into or be a party to, any transaction
or arrangement with any Affiliate (including without limitation, the purchase
from, sale to or exchange of property with, or the rendering of any service by
or for, any Affiliate), except in the ordinary course of and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and upon
fair and reasonable terms no less favorable to the Company or such Subsidiary
than it would obtain in a comparable arm's length transaction with a Person
other than an Affiliate.
13
<PAGE>68
Exhibit 4-4
Page 19 of 56
Section 6.11. Purchase of Notes.
The Company will not, and will not permit any Subsidiary or Affiliate
to, purchase, redeem, prepay or otherwise acquire, directly or
indirectly, any of the outstanding Notes except (a) upon the payment or
prepayment of the Notes in accordance with the terms of this Agreement and the
Notes or (b) pursuant to an offer to purchase made by the Company, Subsidiary or
an Affiliate pro rata to the holders of all Notes at the time outstanding upon
the same terms, conditions and inducements. Any such offer shall provide each
holder with sufficient information to enable it to make an informed decision
with respect to such offer, and shall remain open for at least 20 Business Days.
If the holders of more than 25% of the principal amount of the Notes then
outstanding accept such offer, the Company shall promptly notify the remaining
holders of such fact and the expiration date for the acceptance by holders of
Notes of such offer shall be extended by the number of days necessary to give
each such remaining holder at least 20 Business Days from its receipt of such
notice to accept such offer. The Company will promptly cancel all Notes acquired
by it, any Subsidiary or any Affiliate pursuant to any payment, prepayment or
purchase of Notes pursuant to any provision of this Agreement and no Notes may
be issued in substitution or exchange for any such Notes.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES.
Section 7.1 Events of Default Defined, Acceleration of Maturity. If one
or more of the following events (herein called "Events of Default") shall occur
and be continuing for any reason whatsoever (and whether such occurrence shall
be voluntary or involuntary or come about or be effected by operation of law of
otherwise):
(i) the Company defaults in the payment of any installment of
interest upon any Note, when the same shall become due and
payable, and such default continues for a period of five days;
or
(ii) the Company defaults in the payment of the principal of (or
Yield-Maintenance Premium, if any, on) any Note as and when
the same shall become due and payable whether at maturity or
upon any required or optional prepayment; or
(iii) any representation or warranty made by the Company herein or
by the Company or any of its officers in any writing furnished
in connection with or pursuant to this Agreement shall be
false in any material respect on the date as of which made; or
14
<PAGE>69
Exhibit 4-4
Page 20 of 56
(iv) the Company defaults in the performance of any other of the
covenants or agreements on the part of the Company in this
Agreement and such default continues for a period of thirty
days after the date on which a Responsible Officer of the
Company has knowledge of such default; or
(v) the Company or any Subsidiary defaults in the payment of
principal or interest on any Indebtedness for borrowed money
of the Company or such Subsidiary with an aggregate principal
amount in excess of $5,000,000 as and when the same shall
become due and payable by the lapse of time, by declaration,
or call for redemption or otherwise, and such default shall
continue beyond the period of grace, if any, applicable
thereto; or
(vi) the Company or any Subsidiary defaults in the performance of
any of the covenants or agreements on the part of the Company
or such Subsidiary in any indenture, agreement or other
instrument under which any Indebtedness of the Company or such
Subsidiary for borrowed money with an aggregate principal
amount in excess of $5,000,000 or more may be issued and such
default or event shall continue for a period of time
sufficient to permit the acceleration of the maturity of any
Indebtedness of the Company or such Subsidiary outstanding
thereunder; or
(vii) the entry of an order for relief or of a decree or order by a
court having jurisdiction in the premises (1) with respect to
the Company or any Material Subsidiary under the federal
bankruptcy laws or any other similar, applicable federal or
state law, or (2) appointing, on the ground of insolvency or
bankruptcy, a custodian, receiver, liquidator, trustee or
other official in bankruptcy or insolvency of the Company or
any Material Subsidiary or of any substantial part of its
property, or for the winding up or liquidation of its affairs,
and the continuance of such decree or order unvacated and
unstayed for a period of thirty days; or
(viii) the Company or any Material Subsidiary shall commence a
voluntary bankruptcy proceeding, or shall consent to the
filing of a bankruptcy proceeding against it, or shall file a
petition or answer or consent seeking reorganization under the
federal bankruptcy laws or any other similar applicable
federal or state law, or shall consent to the filing of any
such petition, or shall consent to the appointment on the
ground of insolvency or bankruptcy of a custodian or receiver
or liquidator or trustee or similar official in bankruptcy or
insolvency of it or of any substantial part of its property,
or shall make a general assignment for the benefit of
creditors or shall admit in writing its inability to pay its
debts generally as they become due; or
(ix) if final judgment for the payment of money in excess of
$100,000 shall be entered against the Company or any Material
Subsidiary and such judgment shall remain unsatisfied and the
execution thereof shall remain unstayed for a period of sixty
days after the entry of such judgment and receipt of actual
notice thereof by the Company or such Material Subsidiary, or
such judgment shall remain unsatisfied for a period of sixty
days after termination of any stay of execution thereon
entered within such sixty day period; or
15
<PAGE>70
Exhibit 4-4
Page 21 of 56
(x) any Termination Event with respect to a Plan shall have
occurred, and, within 30 days after the occurrence thereof,
(i) such Termination Event (if correctable) shall not have
been corrected and (ii) the then present value of such Plan's
vested benefits exceeds the then current value of assets
accumulated in such Plan by more than the amount of $1,000,000
(or in the case of a Termination Event involving the
withdrawal of a "substantial employer" (as defined in Section
4001 (a) (2) of ERISA), the withdrawing employer's
proportionate share of such excess shall exceed such amount);
or
(xi) the Company or any of its ERISA Affiliates as employer under a
Multiemployer Plan shall have made a complete or partial
withdrawal from such Multiemployer Plan and the plan sponsor
of such Multiemployer Plan shall have notified such
withdrawing employer that such employer has incurred a
withdrawal liability in an annual amount exceeding $
1,000,000;
then (a) if such event is an Event of Default specified in clause (vii) or
(viii) of this Section 7.1 with respect to the Company, all of the Notes at the
time outstanding shall automatically become immediately due and payable together
with interest accrued thereon and the Yield-Maintenance Premium, if any, with
respect to each such Note, without presentment, demand, protest or notice of any
kind (including, without limitation, notice of intent to accelerate and notice
of acceleration of maturity), all of which are hereby waived by the Company, (b)
if such event is an Event of Default specified in clause (i) or (ii) of this
Section 7.1, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) as to which such an Event of Default shall have
occurred may at its option during the continuance of such Event of Default, by
notice in writing to the Company, declare such Note to be, and such Note shall
thereupon be and become, immediately due and payable together with interest
accrued thereon and together with the Yield-Maintenance Premium, if any, with
respect to each such Note, without presentment, demand, protest or further
notice of any kind (including, without limitation, notice of intent to
accelerate), all of which are hereby waived by the Company, (c) if such event is
any other Event of Default, the Required Holder(s) may at its or their option
during the continuance of such Event of Default, by notice in writing to the
Company, declare all of the Notes to be, and all of the Notes shall thereupon be
and become, immediately due and payable together with interest accrued thereon
and together with the Yield-Maintenance Premium, if any, with respect to each
Note, without presentment, demand, protest or further notice of any kind
(including, without limitation, notice of intent to accelerate), all of which
are hereby waived by the Company, and (d) if any Note shall have been declared
to be due and payable pursuant to clause (b) above, any holder of any other Note
may at any time thereafter, so long as the Event of Default described in clause
(b) above shall at such time be continuing, by notice in writing to the Company,
declare all of the Notes held by such holder to be, and all of the Notes held by
such holder shall thereupon be and become, immediately due and payable together
with interest accrued thereon and together with the Yield-Maintenance Premium,
if any, with respect to each such Note, without presentment, demand, protest or
16
<PAGE>71
Exhibit 4-4
Page 22 of 56
further notice of any kind (including, without limitation, notice of intent to
accelerate), all of which are hereby waived by the Company. The Company
acknowledges and the parties hereto agree, that the holder of each Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and the provisions for payment of
the Yield-Maintenance Premium by the Company in the event that the Notes are
prepaid or are accelerated as a result of an Event of Default, are intended to
provide compensation for the deprivation of such right under such circumstances.
Section 7.2. Rescission of Acceleration. At any time after any or all
of the Notes are declared immediately due and payable and have not been paid in
full, the Required Holder(s) may, by notice in writing to the Company, rescind
and annul such declaration and its consequences if (i) the Company has paid all
overdue interest on the Notes, the principal of and Yield-Maintenance Premium,
if any, payable with respect to any Notes which have become due otherwise than
by reason of such declaration, and interest on such overdue interest and overdue
principal and Yield Maintenance Premium at the rate specified in the Notes, (ii)
all Events of Default and Defaults, other than non-payment of amounts which have
become due solely by reason of such declaration have been cured or waived
pursuant to Section 11.6, and (iii) no judgment or decree has been entered for
the payment of any monies due pursuant to the Notes or this Agreement. No such
rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
Section 7.3. Notice of Acceleration or Rescission. Whenever any Note
shall be declared immediately due and payable pursuant to Section 7.1 or any
such declaration shall be rescinded and annulled pursuant to Section 7.2, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
Section 7.4. Other Remedies. If any Event of Default or Default shall
occur and be continuing, the holder of any Note may proceed to protect and
enforce its rights under this Agreement and such Note by exercising such
remedies as are available to such holder in respect thereof under applicable
law, either by suit in equity or by action at law, or both, whether for specific
performance of any covenant or other agreement contained in this Agreement or in
aid of the exercise of any power granted in this Agreement. No remedy conferred
in this Agreement upon the holder of any Note is intended to be exclusive of any
other remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
SECTION 8. REPRESENTATIONS OF THE PURCHASER.
Each Purchaser severally represents and in entering into this Agreement
the Company understands, that such Purchaser is purchasing the Notes for the
purpose of investment and not with a view to the resale or distribution thereof,
and that such Purchaser has no present intention of selling, negotiating or
otherwise disposing of the Notes, it being understood, however, that the
disposition of such Purchaser's property shall at all times be and remain within
such Purchaser's control.
17
<PAGE>72
Exhibit 4-4
Page 23 of 56
Each Purchaser further represents that such Purchaser is acquiring the
Notes for its own account with its general account assets and not with the
assets of any separate account in which any employee benefit plan has any
interest. As used in this Section 8, the terms "separate account" and "employee
benefit plan" shall have the respective meanings assigned to them in the ERISA.
SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS
The Company hereby represents and warrants to each Purchaser as
follows:
Section 9.1. Subsidiaries. Schedule 9.1 attached hereto sets forth the
name and jurisdiction of incorporation of each Subsidiary and the percentage of
the Company's ownership interest in each such Subsidiary, all as of the Date of
Closing. Each Subsidiary is a corporation duly incorporated, validly existing
and in good standing under the laws of its respective state of incorporation and
has the corporate power to own its property and carry on its business as now
being conducted and as proposed to be conducted. Each Subsidiary is duly
licensed or qualified and is in good standing in each state in which the
properties owned or leased by it or the business conducted by such Subsidiary
requires such licensing or qualification. The Company has good and marketable
title to all of the shares it purports to own of the stock of each Subsidiary,
free and clear in each case of any adverse claim. All such shares have been duly
issued and are fully paid and non-assessable.
Section 9.2. Business and Property. You have heretofore been furnished
with a copy of the Memorandum which generally sets forth the business conducted
and proposed to be conducted by the Company and its Subsidiaries and the
principal properties of the Company and its Subsidiaries.
Section 9.3. Organization. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the corporate power and authority and all necessary licenses
and permits to own its property and to carry on its business as now being
conducted and as proposed to be conducted. The Company is duly qualified,
authorized to do business and in good standing as a foreign corporation in the
State of North Carolina. The properties owned and the business transacted by the
Company do not require it to be qualified as a foreign corporation in any other
state.
Section 9.4. Financial Statements. The Company has heretofore delivered
to each Purchaser copies of its consolidated balance sheet as of September 30,
1991 through 1994, together with consolidated statements of income, retained
earnings, capitalization and cash flows for the fiscal years ended on said dates
and September 30, 1990, certified by Arthur Andersen LLP, independent certified
public accountants, and the consolidated balance sheet of the Company as at June
30, 1995 and the related consolidated statements of income and cash flows for
the nine-month and twelvemonth periods then ended, prepared by the Company. Such
financial statements are correct and complete, were prepared in accordance with
generally accepted accounting principles and fairly present the financial
condition of the Company and its Subsidiaries on the aforesaid basis as at such
dates and for such periods, subject in the case of such interim statements to
year-end audit adjustments, and the results of their operations and changes in
their financial position or cash flows for said periods.
18
<PAGE>73
Exhibit 4-4
Page 24 of 56
Section 9.5. No Adverse Change. Since September 30, 1994 there have
been no material adverse changes in the condition, financial or otherwise, of
the Company and its Subsidiaries from that set forth in said balance sheet as at
said date and neither the business nor properties of the Company or its
Subsidiaries have been materially adversely affected in any way.
Section 9.6. Title to Properties, Liens. The Company and its
Subsidiaries have good and valid title to all fixed property and assets
reflected in the balance sheet as at September 30, 1994 referred to in Section
9.4 above, except properties and assets, not material in aggregate amount
disposed of in the ordinary course of business. There are no liens on properties
and assets of the Company and its Subsidiaries which are not permitted by this
Agreement. All leases necessary in any material respect for the conduct of the
respective business(es) of the Company and its Subsidiaries are valid and
subsisting and are in full force and effect.
Section 9.7. Regulatory Approval. The issuance and sale of the Notes by
the Company and the consummation of the transactions contemplated by this
Agreement do not require the authorization, approval or consent of any
governmental body, commission, board or agency other than the order of the North
Carolina Utilities Commission authorizing the issuance and sale of the Notes by
the Company, which order has been obtained and is not subject to any condition,
modification or appeal which would affect the terms or validity of the Notes.
Section 9.8. Franchises, etc. The Company holds valid and subsisting
certificates of convenience and necessity, grants, franchises, licenses, permits
and easements, free from unduly burdensome restrictions, sufficient to enable it
to carry on the business now being conducted by it except for a municipal
franchise for service to customers in the municipality of Albemarle, North
Carolina. The Company has served customers in Albemarle, North Carolina, for
approximately twenty-eight years without a municipal franchise and does not
foresee any discontinuance of service to customers in such municipality. Neither
the Company nor any Subsidiary is in violation of any of the aforementioned
certificates of convenience and necessity, grants, franchises, licenses, permits
and easements in any material respect.
Section 9.9. Litigation. There is no action, suit or proceeding pending
or, to the knowledge of the Company, threatened against or affecting the Company
or its Subsidiaries at law or in equity or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality domestic or foreign, which, in the opinion of the Company,
involves the possibility of any judgment or liability which may result in any
material adverse change in the business, properties or assets or in the
condition, financial or otherwise, of the Company and its Subsidiaries.
19
<PAGE>74
Exhibit 4-4
Page 25 of 56
Section 9.10. Burdensome Agreements. Neither the Company nor any
Subsidiary is a party to any contract, agreement, judgment, decree or order, or
subject to any charter, by-laws or other like corporate restriction which
materially adversely affects, or in the future may, in the opinion of management
of the Company, based upon information known at this date, materially and
adversely affect, the business, properties or assets of the Company or any
Subsidiary or the condition, financial or otherwise, of the Company or any
Subsidiary, nor is the Company or any Subsidiary a party to any material
management contract providing for special bonus or profit sharing arrangements.
Section 9.11. Conformity with Law and Other Agreements. The
execution and delivery of this Agreement and the Notes and the performance of
and compliance with all of the terms and provisions thereof
(i) are within the corporate powers of the Company;
(ii) will not violate any provisions of any law or any order of any
court or government authority or agency and will not conflict
with or result in any breach of any of the terms, conditions
or provisions of, or constitute a default under the Certificate
of Incorporation or By-laws of the Company or other agreement or
instrument to which the Company is a party or by which it may be
bound; and
(iii) have been duly authorized by proper corporate action on
the part of the Company (no action by the stockholders of the
Company being required by law, the Certificate of Incorporation
or By-laws of the Company or otherwise), executed and delivered
by the Company and the Agreement and the Notes constitute the legal,
valid and binding obligations, contracts and agreements of the
Company enforceable in accordance with their respective terms.
Section 9.12. Outstanding Debt. Neither the Company nor any of its
Subsidiaries has outstanding any Indebtedness except as set forth in Exhibit C.
There exists no event of default or default (and no waiver of any default or
event of default that is conditional or limited in duration) under the
provisions of any instrument evidencing such Indebtedness or of any agreement
relating thereto.
Section 9.13. Taxes. All tax returns required to be filed by the
Company or any Subsidiary in any jurisdiction have, in fact, been filed, and all
taxes, assessments, fees and other governmental charges upon the Company or any
Subsidiary or upon any of their respective properties, income or franchises,
which are shown to be due and payable in such returns have been paid. For all
taxable years ending on or before September 30, 1992, the federal income tax
liability of the Company and its Subsidiaries has been satisfied and either the
period of limitations on assessment of additional federal income tax has expired
or the Company and its Subsidiaries have entered into an agreement with the
Internal Revenue Service closing conclusively the total tax liability for the
taxable year. The Company does not know of any proposed additional tax
assessment against it for which adequate provision has not been made on its
accounts, and no material controversy in respect of additional federal or state
income taxes due since said date is pending or to the knowledge of the Company
threatened. The provisions for taxes on the books of the Company and its
Subsidiaries are adequate for all open years, and for its current fiscal period.
20
<PAGE>75
Exhibit 4-4
Page 26 of 56
Section 9.14. Public Utility Holding Company Act. Neither the Company
nor any Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company" as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
Section 9.15. Investment Company Act Status. Neither the Company nor
any Subsidiary is, or is directly or indirectly "controlled" by, or acting on
behalf of any Person which is, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Section 9.16. Private Offering. Neither the Company, directly or
indirectly, nor any agent on its behalf has offered or will offer the Notes or
any similar security to or has solicited or will solicit an offer to acquire the
Notes or any similar security from or has otherwise approached or negotiated or
will approach or negotiate in respect of the Notes or any similar security with
any person other than you and forty other institutional investors. Neither the
Company, directly or indirectly, nor any agent on its behalf has offered or will
offer the Notes or any similar security to or has solicited or will solicit an
offer to acquire the Notes or any similar security from any person so as to
bring the issuance and sale of the Notes within the provisions of Section 5 of
the Securities Act.
Section 9.17. Disclosure. Neither the financial statements heretofore
furnished to you in connection with the issuance of the Notes, the Memorandum
nor any certificate, statement or other information furnished to you by or on
behalf of the Company in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein or
herein not misleading. To the best of the knowledge of the Company, there is no
fact which materially adversely affects or in the future may (so far as the
Company can now foresee) materially adversely affect the business or prospects
or condition (financial or otherwise) of the Company and its Subsidiaries, taken
as a whole, or any of their respective properties or assets which has not been
set forth herein or in a certificate or statement furnished to you by the
Company.
Section 9.18. Use of Proceeds. The Company will use the net proceeds
from the sale of the Notes to repay short-term bank indebtedness. None of the
transactions contemplated by this Agreement (including, without limitation
thereof, the use of the proceeds from the issuance of the Notes) will, violate
or result in a violation of Section 7 of the Securities Exchange Act of 1934, as
amended, or any regulation issued pursuant thereto, including, without
limitation, Regulations G, T and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II. Neither the Company nor any Subsidiary
owns or intends to carry or purchase any "margin stock" within the meaning of
said Regulation G. None of the proceeds from the sale of the Notes will be used
to purchase, or refinance any borrowing, the proceeds of which were used to
purchase any "security" within the meaning of the Securities Exchange Act of
1934, as amended.
21
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Exhibit 4-4
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Section 9.19. Compliance with Orders and Law. Neither the Company nor
any Subsidiary (a) is in violation of any law, ordinance, franchise,
governmental rule or regulation to which it is subject or (b) has failed to
obtain any license, permit, franchise or other governmental authorization
necessary to the ownership of its property or to the conduct of its business,
which violation under clause (a) or failure to obtain under clause (b) would
materially adversely affect the business, prospects, profits, properties or
condition (financial or otherwise) of the Company and its Subsidiaries, taken as
a whole, or impair the ability of the Company to perform its obligations
contained in this Agreement or the Notes. Except as disclosed in Exhibit E
attached hereto, neither the Company nor any Subsidiary is in default with
respect to any order of any court or governmental authority or arbitration board
or tribunal.
Section 9.20. ERISA. The consummation of the transactions provided for
in this Agreement and compliance by the Company with the provisions thereof and
the Notes issued thereunder will not involve any prohibited transaction within
the meaning of ERISA or Section 4975 of the Code. Each Plan maintained by the
Company complies in all material respects with all applicable statutes and
governmental rules and regulations, and (a) no Reportable Event has occurred and
is continuing with respect to any Plan, (b) the Company has not withdrawn from
any Plan or instituted steps to do so and (c) no steps have been instituted to
terminate any Plan. No condition exists or event or transaction has occurred in
connection with any Plan which could result in the incurrence by the Company of
any material liability, fine or penalty. No Plan maintained by the Company, nor
any trusts created thereunder, have incurred any "accumulated funding
deficiency" as defined in Section 302 of ERISA nor does the present value of all
benefits vested under all Plans exceed, as of the last annual valuation date,
the value of the assets of the Plans allocable to such vested benefits except as
disclosed to each Purchaser in Exhibit D. The Company does not have any
contingent liability with respect to any post-retirement "welfare benefit plan"
(as such term is defined in ERISA) except as has been disclosed to each
Purchaser in Exhibit D.
Section 9.21. Compliance with Environmental Laws. Except as disclosed
in the Environmental Reports, the Company is not in violation of any applicable
federal, state, or local laws, statutes, rules, regulations or ordinances
relating to public health, safety or the environment, including, without
limitation, relating to releases, discharges, emissions or disposals to air,
water, land or ground water, to the withdrawal or use of ground water, to the
use, handling or disposal of polychlorinated biphenyls (PCB's),asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of hazardous
substances (including, without limitation, petroleum, crude oil or any fraction
thereof, or other hydrocarbons), pollutants or contaminants, to exposure to
toxic, hazardous or other controlled, prohibited or regulated substances which
violation could have a material adverse effect on the business, prospects,
profits, properties or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole. Except as disclosed in the Environmental
Reports, neither the Company nor any of its Subsidiaries owns any property which
currently is, or which it is anticipated will be, the subject of a review by any
federal, state or local regulatory agency. Except as disclosed in the
Environmental Reports, the Company does not know of any liability or class of
liability of the Company or any Subsidiary under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section
9601 et seq.), or the Resource Conservation and Recovery Act of 1976, as amended
(42 U.S.C. Section 6901 et seq), or similar federal, state, or local laws. The
Company has implemented and complied in all material respects with all
suggestions and recommendations in the Environmental Report attached hereto as
Exhibit F.
22
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Exhibit 4-4
Page 28 of 56
Section 9.22. Brokerage. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by the Company
without the intervention of any Person that might give rise to a valid claim
against you for a brokerage commission or other like payment; and the Company
agrees to indemnify and hold each Purchaser harmless from and against any such
claims.
SECTION 10. DEFINITIONS.
For the purpose of this Agreement, the terms defined in the
introductory sentence and in Sections 1 and 2 shall have the respective meanings
specified therein, and the following terms shall have the meanings specified
with respect thereto below (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
Section 10.1. Yield-Maintenance Terms.
"Called Principal" shall mean, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 4.2 (any partial prepayment
being applied in satisfaction of required payments of principal in inverse
order of their scheduled due dates) or is declared to be immediately due
and payable pursuant to Section 7.1, as the context requires.
"Discounted Value" shall mean, with respect to the Called Principal of any Note,
the amount obtained by discounting all Remaining Scheduled Payments with respect
to such Called Principal from their respective scheduled due dates to the
Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on a semiannual
basis) equal to the Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" shall mean, with respect to the Called Principal of any
Note, the yield to maturity implied by (a) the yields reported, as of 10:00 A.M.
(New York City local time) on the Business Day next preceding the Settlement
Date with respect to such Called Principal, on the display designated as "Page
500" on the Telerate Service (or such other display as may replace page 500 on
the Telerate Service) for actively traded U.S. Treasury securities having a
maturity equal to the Remaining Average Life of such Called Principal as of such
Settlement Date, plus 0.50%, or if such yields shall not be reported as of such
time or the yields reported as of such time shall not be ascertainable, (b) the
Treasury Constant Maturity Series yields reported, for the latest day for which
such yields shall have been so reported as of the Business Day next preceding
the Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date, plus
0.50%. All implied yields under either clause (a) or (b) shall be
23
<PAGE>78
Exhibit 4-4
Page 29 of 56
determined, if necessary, by (x) converting U.S. Treasury bill quotations to
bond-equivalent yields in accordance with accepted financial practice and (y)
interpolating linearly between yields reported for various maturities.
"Remaining Average Life" shall mean, with respect to the Called Principal of any
Note, the number of years (calculated to the nearest one-twelfth year) obtained
by dividing (i) such Called Principal into (ii) the sum of the products obtained
by multiplying (a) each Remaining Scheduled Payment of such Called Principal
(but not of interest thereon) by (b) the number of years (calculated to the
nearest one-twelfth year) which will elapse between the Settlement Date with
respect to such Called Principal and the scheduled due date of such Remaining
Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with respect to the Called Principal
of any Note, all payments of such Called Principal and interest that would
accrue thereon starting on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"Settlement Date" shall mean, with respect to the Called Principal of any Note,
the date on which such Called Principal is to be prepaid pursuant to Section 4.2
or is declared to be immediately due and payable pursuant to Section 7.1, as the
context requires.
"Yield-Maintenance Premium" shall mean, with respect to any Note, a premium
equal to the excess, if any, of the Discounted Value of the Called Principal of
such Note over such Called Principal. The Yield-Maintenance Premium shall in no
event be less than zero.
Section 10.2. Other Defined Terms.
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Company, except a Subsidiary. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
stock or otherwise.
"Agreement" means this Note Purchase Agreement, as from time to time amended.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day on
which commercial banks in New York City are required or authorized to be closed.
24
<PAGE>79
Exhibit 4-4
Page 30 of 56
"Capitalized Lease" means any lease which is required to be capitalized under
generally accepted accounting principles.
"Closing" or "Date of Closing" shall have the meaning specified in Section 2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" means North Carolina Natural Gas Corporation, a Delaware corporation,
and, subject to the provisions of Section 6.9, shall also include its successors
and assigns.
"Consolidated Capitalization" means the sum of Consolidated Funded Debt and
Consolidated Stockholders' Equity.
"Consolidated Current Debt" means the aggregate principal amount of Current Debt
of the Company and its Subsidiaries consolidated in accordance with generally
accepted accounting principles.
"Consolidated Funded Debt" means the aggregate principal amount of Funded Debt
of the Company and its Subsidiaries consolidated in accordance with generally
accepted accounting principles.
"Consolidated Net Earnings for Interest" for any period shall mean (i) the total
operating revenues of the Company and its Subsidiaries, less all operating
expenses, charges for repair and maintenance, accruals for taxes (other than
income and excess profits taxes or other taxes which are imposed on income after
the deduction of interest charges) and all income deductions, for the period for
which Consolidated Net Earnings for Interest are being computed, but excluding
from such deduction all interest charges on Consolidated Funded Debt and
Consolidated Current Debt and all amortization of debt discount and expense on
such Consolidated Funded Debt and Consolidated Current Debt, plus (ii) net
nonoperating income of the Company and its Subsidiaries for such period;
provided, however, that the total amount of net nonoperating income so included
shall not exceed 10% of the Consolidated Net Earnings for Interest so computed,
including the net non-operating income so included. Consolidated Net Earnings
for Interest shall be determined in accordance with the following additional
requirements: (x) no interest received by the Company or any Subsidiary on
obligations of any Person, which is in excess of the net earnings available for
interest of such company for the corresponding period, and no dividends received
by the Company or any of its Subsidiaries upon stock of any Person which are in
excess of the net earnings of such Person for the corresponding period, shall be
included in the revenues of the Company and its Subsidiaries in making such
computations; and (y) no profits or losses from the sale, abandonment or other
disposition of capital assets (which shall mean assets other than current
assets) or appreciation or diminution in value thereof, shall be included in
making such computations.
"Consolidated Net Income" for any period shall mean (i) the total operating
revenues of the Company and its Subsidiaries, less all operating expenses,
charges for repairs and maintenance, accruals for interest and taxes and all
income deductions, all for the period for which Consolidated Net Income is being
computed, plus (ii) net nonoperating income of the Company and its Subsidiaries
for such period.
25
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Exhibit 4-4
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"Consolidated Net Income Before Income Taxes" for any period shall mean the sum
of (i) Consolidated Net Income, plus (ii) all accruals for income taxes
(including excess profits taxes or other taxes which are imposed on income after
the deduction of interest charges) for such period.
"Consolidated Stockholders' Equity" means the sum of all capital stock, capital
surplus and retained earnings of the Company, less minority interests, treasury
stock and common stock expenses.
"Current Debt" means all Indebtedness of, or created, guaranteed or assumed by,
the Company or any Subsidiary other than Funded Debt.
"Default" means any event or condition, the occurrence of which would,
with the lapse of time or the giving of notice, or both, constitute an Event
of Default.
"Environmental Reports" shall mean that (i) letter dated November 10, 1995
from Calvin B. Wells, President of the Company, to each Purchaser and (ii)
that report dated September 1, 1993 from Aquaterra, Inc. and Ware Lind
Furlow Engineers, Inc. to Roy W. Ericson, attached hereto as Exhibit E
and Exhibit F, respectively.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any trade or business (whether or not incorporated)
that is a member of a group of which the Company is a member and that is under
common control within the meaning of the regulations under Section 414 of the
Code.
"Event of Default" shall have the meaning specified in Section 7.1.
"Funded Debt" means all Indebtedness of, or created, guaranteed or assumed by,
the Company or any Subsidiary, or upon which any such Person customarily pays
interest charges, which matures one year or more after the date of its creation
or by its terms is renewable or refundable by the Company or any Subsidiary to
a date one year or more after the date of its creation or is issued under
any revolving credit agreement.
"Indebtedness" means and includes (i) all items which in accordance with
generally accepted accounting principles would be included on the liability side
of the balance sheet as at the date of which indebtedness is to be determined
excluding capital stock, surplus, reserves, accumulated provisions for deferred
taxes and deferred credits, (ii) obligations in respect of Capitalized Leases,
indebtedness secured by any mortgage, pledge or lien existing on property or by
mortgages or liens existing on property at the time of acquisition thereof or by
conditional sales or other title retention agreements with respect to any
property, whether or not the indebtedness secured thereby shall have been
assumed and (iii) guarantees, endorsements and other contingent obligations in
respect of Indebtedness of the types described in clauses (i) and (ii);
26
<PAGE>81
Exhibit 4-4
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provided, however, that such term shall not mean and include any
indebtedness in respect of which moneys (in the form of cash or United
States Treasury securities) sufficient to pay and discharge the same in full
(either on the expressed date of maturity thereof or on such earlier date as
such indebtedness may be duly called for redemption and payment) shall be
deposited with a depository, agency or trustee in trust for the payment thereof
so long as such moneys are excluded from all calculations of the total assets of
the Company and its Subsidiaries and Consolidated Stockholders' Equity.
"Material Subsidiary" shall mean, at any date, any Subsidiary that, during any
of the three fiscal years of the Company most recently ended prior to such date,
shall have had assets, gross revenues or net income in excess of 10% of the
consolidated assets, consolidated gross revenues, or Consolidated Net Income of
the Company and its Subsidiaries.
"Memorandum" means the Confidential Private Placement Memorandum with respect to
North Carolina Natural Gas Corporation's offering of $30,000,000 Senior
Debentures Due 2015 prepared by Dean Witter Investment Banking.
"Multiemployer Plan" shall mean any plan that is a "multiemployer plan" (as such
term is defined in section 4001 (a)(3) of ERISA).
"Net Book Value" at any period end shall mean the capitalized value of any
noncurrent assets, as determined in accordance with generally accepted
accounting principles, after deduction of accumulated depreciation, depletion
and amortization, if any, in respect to such noncurrent asset.
"Notes" shall have the meaning specified in Section 1.
"Officer's Certificate" shall mean a certificate signed by the President or a
Vice President, and by the Treasurer, an Assistant Treasurer, the Controller,
an Assistant Controller, the Secretary or an Assistant Secretary, of the
Company.
"Opinion of Counsel" shall mean an opinion in writing signed by legal counsel,
who must be satisfactory to the holder of each Note, and who may be of counsel
for the Company.
"Person" shall mean an individual, corporation, partnership, company, trust or
unincorporated organization, and a governmental agency or political subdivision
thereof.
"Plan" shall mean an "employee pension benefit plan" (as defined in section 3 of
ERISA) that is or has been established or maintained, or to which contributions
are or have been made, by the Company or by any trade or business, whether or
not incorporated, that, together with the Company, is under common control, as
described in section 414(b) or (c) of the Code.
27
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Exhibit 4-4
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"Pro Forma Fixed Charges" means, as of the date of determination thereof,
the maximum aggregate amount of interest charges and all amortization
of debt discount and expense on Consolidated Funded Debt and Consolidated
Current Debt of the Company and its Subsidiaries as well as the maximum
aggregate amount of any dividends to be paid on preferred stock of the Company,
all for the period for which Pro Forma Fixed Charges are being computed, all
determined on a pro forma basis giving effect to the incurrence of any Funded
Debt and Current Debt and the concurrent retirement of outstanding Funded
Debt or Current Debt. Computations of interest charges on a pro forma basis
for Consolidated Funded Debt and Consolidated Current Debt having a
variable interest rate shall be calculated at the rate in effect on the date
of any determination.
"Purchasers" shall mean the purchasers of the Notes identified on the signature
pages hereof.
"Reportable Event" shall have the meaning attributed to such term in ERISA.
"Required Holder(s)" shall mean the holder or holders of at least 66 2/3% of
the aggregate principal amount of the Notes from time to time outstanding.
"Responsible Officer" shall mean the chief executive officer, the president,
the chief financial officer, the treasurer or the controller of the Company.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subsidiary" means any corporation of which 50% or more of the Voting Stock is
owned or controlled by the Company or a Subsidiary.
"Termination Event" shall mean (i) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the Pension Benefit
Guaranty Corporation under such regulations), or (ii) the withdrawal of the
Company or any of its ERISA Affiliates from a Plan during a plan year in
which it was a "substantial employer" as defined in Section 4001 (a)(2) of
ERISA, or (iii) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under Section 4041 of ERISA,
or (iv) the institution of proceedings to terminate a Plan by the Pension
Benefit Guaranty Corporation, or (v) any other event or condition that might
constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Plan.
"Transferee" shall mean any direct or indirect transferee of all or any part
of any Note purchased by any Purchaser under this Agreement.
"Voting Stock" means stock or similar interests of any class or classes
(however designated), the holders of which are generally and ordinarily in the
absence of contingencies, entitled to vote for the election of the directors
(or persons performing similar functions) of a corporation or other business
entity.
28
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Exhibit 4-4
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Section 10.3. Accounting Terms and Determinations. All references in
this Agreement to "generally accepted accounting principles" shall be deemed to
refer to generally accepted accounting principles in effect in the United States
at the time of application thereof, subject to the next sentence. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all financial statements and certificates and reports as to
financial matters required to be furnished hereunder shall be prepared, in
accordance with generally accepted accounting principles, applied on a basis
consistent with the audited consolidated financial statements of the Company and
its Subsidiaries delivered pursuant to Section 5.9.2 or, if no such statements
have been delivered, the most recent audited financial statements referred to in
Section 9.4.
SECTION 11. MISCELLANEOUS PROVISIONS
Section 11.1. Note Payments. The Company agrees that, so long as any
Purchaser shall hold any Note, it will make payments of principal of, interest
on and any Yield-Maintenance Premium payable with respect to such Note, which
comply with the terms of this Agreement, by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) to your account or accounts, if any, as are specified in the
Purchaser Schedule attached hereto, or, in the case you wish to change the
account specified for you in the Purchaser Schedule such account or accounts in
the United States as you may from time to time designate in writing,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. You agree that, before disposing of any Note, you will make a
notation thereon (or on a schedule attached thereto) of all principal payments
previously made thereon and of the date to which interest thereon has been paid.
The Company agrees to afford the benefits of this Section 11.1 to any Transferee
which shall have made the same agreement as you have made in this Section 11.1.
Section 11.2. Loss, Theft, Etc., of Notes. In the event of mutilation
of any Note, upon surrender and cancellation of such Note by the holder thereof,
the Company will deliver a new Note, of like tenor, in lieu of such mutilated
Note. Upon receipt of an affidavit from the President or Vice President of the
holder of any Note setting forth the fact of loss, theft or destruction of such
Note and such holder's ownership of the Note at the time of such loss, theft or
destruction and upon receipt of such holder's unsecured indemnity agreement, the
Company will make and deliver a new Note, of like tenor, in lieu of the lost,
stolen or destroyed Note. No charge will be made for the delivery of a new Note
pursuant to this section.
Section 11.3. Notices. All communications provided for hereunder shall
be in writing, and delivered or mailed, prepaid by registered or certified mail
or overnight air courier, or facsimile communication followed by written
confirmation delivered by registered or certified mail or overnight air courier,
and (i) if to the Company, such communications shall be sent to the address set
forth on the first page of this Agreement, (ii) if to you, such communications
shall be sent to your address set forth in the Purchaser Schedule hereto, or to
such other address as may be designated in writing by the party to receive such
notice and, (iii) if to any other holder of any Note, addressed to such other
holder at such address as such other holder shall have specified to the Company
in writing or, if any such other holder shall not have so specified an address
to the Company, then addressed to such other holder in care of the last holder
of such Note that shall have so specified an address to the Company.
29
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Exhibit 4-4
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Section 11.4. Form, Registration, Transfer and Exchange of Notes. The
Notes are issuable as registered notes without coupons in denominations of at
least $100,000, except as may be necessary to reflect any principal amount not
evenly divisible by $100,000. The Company shall keep at its principal office a
register in which the Company shall provide for the registration of Notes and of
transfers of Notes. Upon surrender for registration of transfer of any Note at
the principal office of the Company, the Company shall, at its expense, execute
and deliver one or more new Notes of like tenor and of a like aggregate
principal amount, registered in the name of such transferee or transferees. At
the option of the holder of any Note, such Note may be exchanged for other Notes
of like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office of
the Company. Whenever any Notes are so surrendered for exchange, the Company
shall, at its expense, execute and deliver the Notes that the holder making the
exchange is entitled to receive. Every Note surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or such
holder's attorney duly authorized in writing. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue that were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall result from any
such transfer or exchange.
Section 11.5. Expenses.
Section 11.5.1. Generally. Whether or not the transactions
contemplated hereby shall be consummated, the Company will promptly
(and in any event within thirty (30) days after receiving any statement
or invoice therefor) pay, and save each Purchaser and any Transferee
harmless against liability for the payment of, all reasonable fees,
expenses and costs relating hereto, including, but not limited to:
(i) the cost of reproducing this Agreement and the Notes;
(ii) the fees and disbursements of any special counsel
engaged by the Purchasers;
(iii) the cost of delivering to such Purchaser's home
office or custodian bank, insured to such Purchaser's
satisfaction, the Notes purchased by such Purchaser
at the Closing;
(iv) the fees, expenses and costs incurred complying with
each of the conditions to closing set forth in
Section 3 hereof (including, without limitation the
fees, expenses and costs incurred obtaining a Private
Placement Number for the Notes);
30
<PAGE>85
Exhibit 4-4
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(v) the fees, expenses and costs of Dean Witter
Investment Banking and any other broker or investment
banker, if any, incurred by the Company in connection
with the offer, issuance, sale and delivery of the
Notes or the transactions contemplated hereby;
(vi) the fees, expenses and costs relating to the
consideration, negotiation, preparation, duplication
or execution of any amendments, waivers or consents
pursuant to the provisions hereof (including, without
limitation, (i) the fees, expense and costs
associated with such Purchaser's or Transferee's
accountants, advisers, and agents and (ii) the
allocated cost of such Purchaser's or Transferee's
counsel who are such Purchaser's or such Transferee's
employees or such Purchaser's or such Transferee's
affiliates' employees), whether or not any such
amendments, waivers or consents are executed; and
(vii) the fees, expenses and costs incurred by such
Purchaser or any Transferee in enforcing (or
determining whether or how to enforce) any rights
under this Agreement or the Notes or in responding to
any subpoena or other legal process, including
without limitation (i) fees, expenses and costs
incurred in any bankruptcy case and (ii) fees,
expenses and costs incurred by such Purchaser's or
any Transferee's accountants, advisers, or agents.
Section 11.5.2. Counsel. Without limiting the generality of
the foregoing, it is agreed and understood that the Company will pay,
at the time of the execution of this Agreement, the statement, rendered
as set forth in Section 3.6, for reasonable fees and disbursements of
any special counsel engaged by the Purchasers incurred up to that time,
and the Company will also pay, upon receipt of any statement thereof,
each additional statement for reasonable fees and disbursements of any
special counsel engaged by the Purchasers rendered at and after the
Closing in connection with the issuance of the Notes or the matters
referred to in Sections 11.5.1(vi) or (vii) hereof.
Section 11.5.3. Survival. The obligations of the Company under
this Section 11.5 and under the final sentence of Section 5.10 shall
survive the transfer of any Note or portion thereof or interest therein
by any Purchaser or any Transferee, the payment or prepayment of the
Notes and the termination hereof.
Section 11.6 Consent to Amendments. This Agreement may be amended, and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the written
consent to such amendment, action or omission to act, of the Required Holder(s)
except that, without the written consent of the holder or holders of all Notes
at the time outstanding, no amendment to this Agreement shall change the
maturity of any Note, or change the principal of, or the rate or time of payment
of interest or any Yield-Maintenance Premium payable with respect to any Note,
or affect the time, amount or allocation of any required or optional
prepayments, or reduce the proportion of the principal amount of the Notes
required with respect to any consent, or amend or modify this Section 11.6 or
the definition of Required Holder(s) contained in Section 10.2. Each holder of
any Note at the time or thereafter outstanding shall be bound by any consent
authorized by this Section 11.6, whether or not such Note shall have been marked
to indicate such consent, but any Notes issued thereafter may bear a notation
31
<PAGE>86
Exhibit 4-4
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referring to any such consent. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights
hereunder or under any Note shall operate as a waiver of any rights of any
holder of such Note.
Section 11.7. Solicitation of Holders of Notes.
Section 11.7.1. Solicitation. The Company will provide each
holder of the Notes (irrespective of the amount of Notes then owned by it) with
sufficient information, sufficiently far in advance of the date a decision is
required, to enable such holder to make an informed and considered decision with
respect to any proposed amendment, waiver or consent in respect of any of the
provisions hereof or of the Notes. The Company will deliver executed or true and
correct copies of each amendment, waiver or consent effected pursuant to the
provisions of Section 11.6 to each holder of outstanding Notes promptly
following the date on which it is executed and delivered by, or receives the
consent or approval of, the requisite holders of Notes.
Section 11.7.2. Payment. The Company will not directly or
indirectly pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, or grant any
security or any other inducement, to any holder of Notes as consideration
for or as an inducement to the entering into by any holder of Notes or
any waiver or amendment of any of the terms and provisions hereof unless
such remuneration is concurrently paid, or security or other inducement is
concurrently granted, on the same terms, ratably to each holder of Notes
then outstanding even if such holder did not consent to such waiver or
amendment.
Section 11.8. Payments Due on Non-Business Days. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of or interest on any Note that is due on a date other than a Business Day shall
be made on the next succeeding Business Day. If the date for any payment is
extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension shall be included in the computation of
the interest payable on such Business Day.
Section 11.9. Notes Held by Company, etc.
For the purpose of determining whether the holders of the requisite
percentage of the aggregate principal amount of Notes then outstanding approved
or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company, its Affiliates
or any of its Subsidiaries shall be deemed not to be outstanding.
32
<PAGE>87
Exhibit 4-4
Page 38 of 56
Section 11.10. Persons Deemed Owners; Participations. Prior to due
presentment for registration of transfer, the Company may treat the Person in
whose name any Note is registered as the owner and holder of such Note for the
purpose of receiving payment of principal of and Yield Maintenance Premium, if
any, and interest on such Note and for all other purposes whatsoever, whether or
not such Note shall be overdue, and the Company shall not be affected by notice
to the contrary. Subject to the preceding sentence, the holder of any Note may
from time to time grant participations in all or any part of such Note to any
Person on such terms and conditions as may be determined by such holder in its
sole and absolute discretion.
Section 11.11. Disclosure to Other Persons; Confidentiality. The
Company acknowledges that the holder of any Note may deliver copies of any
financial statements and other documents delivered to such holder, and disclose
any other information disclosed to such holder, by or on behalf of the Company
or any Subsidiary in connection with or pursuant to this Agreement to (i) such
holder's directors, officers, employees, agents and professional consultants,
(ii) any other holder of any Note, (iii) any Person to which such holder offers
to sell such Note or any part thereof, (iv) any Person to which such holder
sells or offers to sell a participation in all or any part of such Note, (v) any
federal or state regulatory authority having jurisdiction over such holder, (vi)
the National Association of Insurance Commissioners or any similar organization
or (vii) any other Person to which such delivery or disclosure may be necessary
or appropriate (a) in compliance with any law, rule, regulation or order
applicable to such holder, (b) in response to any subpoena or other legal
process or informal investigative demand, (c) in connection with any litigation
to which such holder is a party or (d) in order to protect such holder's
investment in such Note; provided that prior to disclosing any such information
to any Person referred to in clause (vii) above, such holder will use reasonable
efforts to provide notice to the Company of such disclosure.
Section 11.12. Senior Status of the Notes. The designation of the Notes
as "senior promissory notes" signifies that the Notes are not subordinated to
any unsecured Indebtedness and are pari passu with any debentures issued under
the indenture existing as of the Closing Date.
Section 11.13. Survival of Representations and Warranties; Entire
Agreement. All representations and warranties contained herein or made in
writing by or on behalf of the Company in connection herewith shall survive the
execution and delivery of this Agreement and the Notes, the transfer by such
Purchaser of any Note or portion thereof or interest therein and the payment of
any Note, and may be relied upon by any Transferee, regardless of any
investigation made at any time by or on behalf of such Purchaser or any
Transferee. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between you and the Company and
supersede all prior agreements and understandings relating to the subject matter
hereof.
33
<PAGE>88
Exhibit 4-4
Page 39 of 56
Section 11.14. Successors and Assigns. All covenants and other
agreements in this Agreement contained by or on behalf of either of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto (including, without limitation, any Transferee),
whether so expressed or not.
Section 11.15. Descriptive Headings. The descriptive headings
of the several sections of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
Section 11.16. Satisfaction Requirement. If any agreement, certificate
or other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to you or to the Required Holder(s), the
determination of such satisfaction shall be made by you or the Required
Holder(s), as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
Section 11.17. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF NORTH CAROLINA AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAW OF THE STATE OF NORTH CAROLINA. This Agreement may not
be changed orally, but (subject to the provisions of Section 11.6) only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
Section 11.18. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGES FOLLOW.]
34
<PAGE>89
Exhibit 4-4
Page 40 of 56
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed copy of this Agreement,
whereupon it shall become a binding agreement between us.
NORTH CAROLINA NATURAL GAS
CORPORATION
By /s/ Calvin B. Wells
-------------------------------
Its President
Attest:
/s/ Sally T. Sowers
- -------------------
Secretary
[Corporate Seal]
The foregoing is hereby confirmed and accepted as of the date first
above written.
THE FRANKLIN LIFE INSURANCE COMPANY
By__________________________________
By__________________________________
Authorized Signatories
AMERICAN GENERAL LIFE AND ACCIDENT
INSURANCE COMPANY
By__________________________________
By__________________________________
Authorized Signatories
<PAGE>90
Exhibit 4-4
Page 41 of 56
PURCHASER SCHEDULE
INFORMATION AS TO PURCHASERS
Purchaser Name AMERICAN GENERAL LIFE AND
ACCIDENT INSURANCE COMPANY
Name in Which Note is Registered American General Life and Accident
Insurance Company
Note Registration Number; Principal R-1; $20,000,000
Amount
Payment on Account of Note
Method Wire Transfer of immediately
available funds
Account Information ABA #011000028
State Street Bank and Trust Company
Boston, MA 02101 Re: American General
Life and Accident Insurance Company
AC-0125-934-0
OBI=PPN# and description of payment
Fund Number PA 10
Accompanying Information PPN#, interest rate, maturity date,
interest amount, principal amount,
and premium, if applicable
Address for Notices Related to Payments American General Life and Accident
Insurance Company
and PA 10
c/o State Street Bank and
Trust Company
Insurance Services Custody (AH2)
1776 Heritage Drive
North Quincy, MA 02171
Facsimile Number: (617) 985-4923
1
<PAGE>91
Exhibit 4-4
Page 42 of 56
Purchaser Name AMERICAN GENERAL LIFE AND
ACCIDENT INSURANCE COMPANY
Duplicate Payment Notices and all other American General Life and Accident
Insurance Company
Correspondence to: c/o American General Corporation
Attn: Investment Research
Development, A37-01
P.O. Box 3247
Houston, TX 77253-3247
Overnight Mail Address:
2929 Allen Parkway
Houston, TX 77019-2155
Facsimile Number: (713) 831-1366
Tax Identification Number 62-0306330
Purchaser Name THE FRANKLIN LIFE INSURANCE COMPANY
Name in Which Note is Registered The Franklin Life Insurance Company
Note Registration Number; Principal R-2; $10,000,000
Amount
Payment on Account of Note
Method Wire Transfer of immediately
available funds
Account Information ABA #011000028
State Street Bank and Trust Company
Boston, MA 02101 Re:The Franklin Life
Insurance Company AC-2492-440-9
OBI = PPN# and description of payment
Fund Number PA 37
Accompanying Information PPN#, interest rate, maturity date,
interest amount, principal amount,
and premium, if applicable
2
<PAGE>92
Exhibit 4-4
Page 43 of 56
Purchaser Name THE FRANKLIN LIFE INSURANCE COMPANY
Address for Notices Related to Payments The Franklin Life Insurance Company
and PA 37
c/o State Street Bank and TrustCompany
Insurance Services Custody (AH2)
1776 Heritage Drive
North Quincy, MA 02171
Facsimile Number: (617) 985-4923
Duplicate Payment Notices and all other The Franklin Life Insurance Company
Correspondence to: c/o American General Corporation
Attn: Investment Research Department,
A37-01
P.O. Box 3247
Houston, TX 77253-3247
Overnight Mail Address:
2929 Allen Parkway
Houston, TX 77019-2155
Facsimile Number: (713) 831-1366
Tax Identification Number 37-028165
3
<PAGE>93
Exhibit 4-4
Page 44 of 56
SCHEDULE 9.1
(To Note Purchase Agreement)
Percentage of Company's Jurisdiction of
Name of Subsidiary Ownership Incorporation
- ------------------ ----------------------- ---------------
NCNG Exploration Corporation 100% North Carolina
Cape Fear Energy Corporation 100% North Carolina
NCNG Energy Corporation 100% North Carolina
<PAGE>94
Exhibit 4-4
Page 45 of 56
EXHIBIT A
[FORM OF NOTE]
NORTH CAROLINA NATURAL GAS CORPORATION
7.15% SENIOR NOTE DUE NOVEMBER 15, 2015
No. R-______ [Date]
$__________ 658221 B*6
FOR VALUE RECEIVED, the undersigned, NORTH CAROLINA NATURAL GAS
CORPORATION (the "Company"), a corporation organized and existing under the laws
of the State of Delaware, hereby promises to pay to
________________________________________________, or registered assigns, the
principal sum of ________________________ DOLLARS ($__________) on November 15,
2015 with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 7.15% per annum from
the date hereof, payable semiannually in arrears on the fifteenth day of May and
November in each year, commencing with the May 15 or November 15 next succeeding
the date hereof, until the principal hereof shall have become due and payable,
and (b) on any overdue payment (including any overdue prepayment) of principal,
any overdue payment of interest and any overdue payment of any Yield-Maintenance
Premium (as defined in the Note Purchase Agreement referred to below), payable
semiannually as aforesaid (or, at the option of the registered holder hereof, on
demand), at a rate per annum from time to time equal to the greater of (i) 9.15%
or (ii) 2.0% over the rate of interest publicly announced by Morgan Guaranty
Trust Company of New York from time to time in New York City as its Prime Rate.
Payments of principal of, interest on and any Yield-Maintenance Premium
payable with respect to this Note are to be made at the main office of the
Company in Fayetteville, North Carolina or at such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America.
This Note (the "Note") is issued pursuant to a Note Purchase Agreement,
dated as of November 1, 1995 (the "Agreement"), among the Company and the
original purchasers of the Notes named in the Purchaser Schedule attached
thereto and is entitled to the benefits thereof.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
<PAGE>95
Exhibit 4-4
Page 46 of 56
Company may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
The Company agrees to make required prepayments of principal on the
dates and in the amounts specified in the Agreement. This Note is also subject
to optional prepayment, in whole or from time to time in part, on the terms
specified in the Agreement.
If an Event of Default, as defined in the Agreement, shall occur and be
continuing, the principal of this Note may be declared or otherwise become due
and payable in the manner and with the effect provided in the Agreement.
THIS NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF SUCH STATE.
NORTH CAROLINA NATURAL
GAS CORPORATION
By /s/ Calvin B. Wells
President
Attest:
/s/ Sally T. Sowers
- -------------------
Secretary
[Corporate Seal]
<PAGE>96
Exhibit 4-4
Page 47 of 56
EXHIBIT B
[FORM OF OPINION OF ISSUER'S COUNSEL]
November 10, 1995
The Franklin Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019-2155
American General Life and Accident Insurance Company
2929 Allen Parkway
Houston, Texas 77019-2155
Gentlemen:
In connection with the authorization and issuance by North
Carolina Natural Gas Corporation (hereinafter called the "Company") of its 7.15%
Senior Notes due November 1, 2015 (the "Notes") in the aggregate principal
amount of $30,000,000 issued pursuant to the terms and provisions of that
certain Note Purchase Agreement, dated as of November 1, 1995, among the
Company, The Franklin Life Insurance Company and American General Life and
Accident Insurance Company (the "Agreement"), we have reviewed the terms of the
Agreement, the corporate and other proceedings with respect thereto and with
respect to the issuance and sale of the Notes and have examined such records,
certificates and documents and questions of law as we consider necessary or
appropriate for the purposes of this opinion. Capitalized terms not defined
herein shall be defined as in the Agreement.
On the basis of the foregoing matters and of our familiarity with the
affairs of the Company and its Subsidiaries, we advise you that in our
opinion:
1. The Company is a corporation duly incorporated and validly existing
and in good standing under the laws of the State of Delaware and has
corporate power and authority, and is duly authorized, to enter into and perform
the Agreement and to issue the Notes and incur the indebtedness to be evidenced
thereby. The Company is duly qualified as a foreign corporation in each state in
which the properties owned or leased by it or the business conducted by it
requires such qualification.
2. Each Subsidiary is a corporation duly incorporated and validly
existing and in good standing under the laws of its respective state of
incorporation and has adequate corporate power and authority to carry on its
business as now conducted. Each Subsidiary is duly qualified as a foreign
corporation in each state in which the properties owned or leased by it or the
business conducted by such Subsidiary requires such qualification.
B-1
<PAGE>97
Exhibit 4-4
Page 48 of 56
3. The Agreement has been duly authorized by the Company and duly
executed and delivered by an authorized officer of the Company and is a
legal, valid and legally binding agreement of the Company enforceable in
accordance with its terms except as such terms may be limited by bankruptcy,
insolvency, or similar laws affecting creditors' rights generally, and subject,
as to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
4. The Notes issued on the Date of Closing have been duly authorized
by the Company, have been duly executed and delivered by the authorized
officers of the Company and constitute the legal, valid and binding obligations
of the Company enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally, and subject, as to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law), and are entitled to the benefits afforded by the Agreement.
5. The offering, issuance and delivery of the Notes under the
circumstances contemplated by the Agreement constitute an exempt transaction
which does not require registration of the Notes under the Securities Act and
does not require qualification of any indenture with respect to the Notes under
the Trust Indenture Act of 1939, as amended.
6. The Company has valid certificates of convenience and necessity,
franchises, licenses and permits adequate for the conduct of its business
in the territory served by it except for a municipal franchise for service
to customers in the municipality of Albemarle, North Carolina. The
Company has served customers in Albemarle, North Carolina, for approximately
twenty-eight (28) years without a municipal franchise and does not foresee any
discontinuance of service to customers in such municipality.
7. The issuance and sale of the Notes have been duly authorized
by order of the North Carolina Utilities Commission and said order is a final
order and is not subject to any condition, modification or appeal which would
affect the terms or validity of the Notes. No approval or consent of any
other government authority is required for the issue of the Notes under the
circumstances contemplated by the Agreement.
8. The execution and delivery of the Agreement, the consummation
of the transactions therein contemplated and the fulfillment of the terms
thereof by the Company will not (a) conflict with or result in a breach of
any of the terms, conditions or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, credit agreement, preferred stock
agreement, franchise or other agreement or instrument to which the Company or
its Subsidiaries are now a party or by which the Company or its Subsidiaries are
bound, (b) conflict with or violate the charter instruments or by-laws of the
Company or its Subsidiaries, as presently in effect, (c) conflict with any
applicable law, rule or regulation or (d) conflict with any order, writ,
injunction or decree applicable to or binding upon the Company, its
Subsidiaries, or their respective properties.
B-2
<PAGE>98
Exhibit 4-4
Page 49 of 56
9. There is no action, suit or other proceeding pending not covered by
insurance in any court or by or before any other governmental or public
authority or agency or any arbitrator against or affecting, or, to our best
knowledge, threatened against, the Company or its Subsidiaries or any of
its properties, that, either individually or in the aggregate, involves the
possibility of a material judgment against the Company or its Subsidiaries or
could materially adversely affect the business, prospects, earnings, properties
or condition (financial or other) of the Company or its Subsidiaries, except for
potential claims arising from the ownership by the Company and its Subsidiaries
of property on which former manufactured gas plants were located at Kinston,
North Carolina, and New Bern, North Carolina, of which you have been advised by
the Environmental Reports.
10. Neither the Company nor any Subsidiary is a "holding company" or
a "subsidiary company" of a "holding company" as such terms are defined in
the Public Utility Holding Company Act of 1935, as amended.
11. Neither the Company nor any Subsidiary is, or is directly or
indirectly "controlled" by, or acting on behalf of any Person which is, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
12. None of the transactions contemplated by the Agreement (including,
without limitation thereof, the use of the proceeds from the issuance
of the Notes) will, violate or result in a violation of Section 7 of the
Securities Exchange Act of 1934, as amended, or any regulation issued
pursuant thereto, including, without limitation, Regulations G, T and X of
the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11.
It is understood that this opinion is limited in all respects to the laws
of the State of North Carolina, the General Corporation Law of the State of
Delaware and applicable federal law. The opinions expressed herein are
rendered solely for your benefit, the benefit of subsequent holders of the
Notes in connection with the transactions contemplated by the Agreement and
Baker & Botts, L.L.P., and may not be relied upon or used for any purpose by
any other Person without our prior written consent.
Very truly yours,
McCOY, WEAVER, WIGGINS,
CLEVELAND & RAPER
B-3
<PAGE>99
Exhibit 4-4
Page 50 of 56
EXHIBIT C
(To Note Purchase Agreement)
Indebtedness of North Carolina
Natural Gas Corporation and Subsidiaries
as of November 1, 1995
Long-term Debt:
8 3/4% Debentures, Series B, Due June 15, 2001....................$12,000,000
9.21 % Debentures, Series C, Due November 15, 2011............... 25,000,000
Current Debt - Notes Payable..................................... 27,000,000
Accounts Payable and Other Indebtedness
as defined in Note Purchase Agreement
dated as of November 1, 1995................................... 22,727,000 1
----------
Total $86,727,000
- ---------------------------
1 Per books as of August 31, 1995. See accompanying Details of Accounts
Payable and Other Indebtedness as Defined in Note Purchase Agreement
Dated as of November 1, 1995.
C-1
<PAGE>100
Exhibit 4-4
Page 51 of 56
Details of Accounts Payable
and Other Indebtedness as
Defined in Note Purchase Agreement
Dated as of November 1, 1995
Accounts Payable $7,608,425
Customer Deposits l,946,744
Accrued Taxes 3,498,439
Accrued Interest l,329,883
Miscellaneous Current & Accrued Liabilities 2,515,929
Dividends Payable 1,969,211
Customer Refunds Payable 3,858,654
----------
Total $22,727,285
==========
C-2
<PAGE>101
Exhibit 4-4
Page 52 of 56
EXHIBIT D
(To Note Purchase Agreement)
CONTINGENT ERISA LIABILITY
Other than the NCNG's Employees Pension Plan which is fully funded, the
Company provides the following postretirement benefits that are unfunded.
However, the annual cost of these benefits is included in rates under the
stipulation in the Company's pending general rate case.
1. Limited medical and life insurance benefits for retirees under the
Company's group medical and life insurance plan. The actuarial
present value of these benefit obligations for 1994 and 1995 are
shown below.
1994 1995
---- ----
Medical $4,896,000 $5,372,000
Life Insurance 638,000 688,000
2. The Company provides supplemental retirement benefits to Messrs.
Barragan and Gnann in the following amounts:
Frank Barragan, Jr. (age 77) -.............$3,225 per month
Arthur P. Gnann, Jr. (age 75) -.............$ 279 per month
3. The Directors recently approved a Pension Restoration Plan on
a pay-as-you-go basis to restore the reduction in benefits
under the NCNG Employees Pension Plan because of IRS
regulations. Only two employees, Calvin Wells and Gerald
Teele, are included under this plan at the present time.
Godwin, Brooke & Dickerson estimates that the net present
value of these benefits at the end of various time periods are
shown below.
End of 10 years ..........................$ 96,000
End of 15 years ...........................$219,000
End of 20 years ...........................$348,000
End of 31 years (life expectancy)....................$457,000
D-1
<PAGE>102
Exhibit 4-4
Page 53 of 56
EXHIBIT E
(To Note Purchase Agreement)
[NORTH CAROLINA NATURAL GAS CORPORATION STATIONARY]
November 10, 1995
AMERICAN GENERAL LIFE AND
ACCIDENT INSURANCE COMPANY
Post Office Box 3247
Houston, Texas 77253-3247
FRANKLIN LIFE INSURANCE COMPANY
Post Office Box 3247
Houston, Texas 77253-3247
Pursuant to the provisions of Sections 5.10, 9.19, 9.21 and 10.2 of the
Note Purchase Agreement dated as of November 1, 1995, I provide you with the
following report on behalf of North Carolina Natural Gas Corporation (the
"Company") concerning certain environmental matters:
In 1964, Tidewater Natural Gas Company ("Tidewater") which operated
gas distribution systems in several towns in eastern North Carolina,
merged into the Company. In 1953, Tidewater acquired from another
utility company its gas distribution systems and certain other
properties. Among the properties that Tidewater acquired were
portions of five (5) sites of former manufactured gas plants ("MGP")
that use coal and oil to manufacture gas. Records indicate that
these MGPs had ceased to operate prior to the acquisition by
Tidewater of these sites. The Company currently owns two (2)
of these former MGP sites located in Kinston, North Carolina and New
Bern, North Carolina.
On December 17, 1990, the North Carolina Department of
Environment, Health and Natural Resources ("NCDEHNR") advised
the Company that an oily substance was discovered in November,
1990 in a storm sewer discharging into the Neuse River and of
its belief that such substance was coming from the Kinston
site. The Company retained an environmental consulting firm to
evaluate the situation. The consulting firm's investigation to
date has revealed that MGP residuals are present, both on and
off the Kinston site. The results of that investigation have
been furnished to the NCDEHNR. In July, 1991, the NCDEHNR
wrote the Company a letter setting forth a notice of violation
of North Carolina water quality standards and laws as a
result of contaminated soils from the MGP operation in Kinston.
<PAGE>103
Exhibit 4-4
Page 54 of 56
In August, 1995, the Company performed abandonment work in
relation to the storm sewer which had acted as a direct
conduit for MGP constituents to reach the Neuse River. This
was done in conjunction with the city of Kinston which
absorbed that portion of the cost related to rerouting the
storm sewer.
At September 20, 1995 the Company had spent $519,220.00 on the
environmental investigation of the Kinston site. Based upon
the investigation conducted to date by the environmental
consultants retained by the Company, the cost of the
investigation and remediation of the Kinston site is estimated
to be between $1.4 million and $2.8 million. The Company has
entered into an agreement with a third party relating to the
Kinston site pursuant to which the Company will share equally
the cost of the investigation and clean-up with the third
party. Further, in July, 1992, the Company entered into an
agreement with one of its insurance carriers, which had
provided the Company with excess insurance coverage for a
three year period over ten (10) years ago, whereby the Company
released that carrier from all liability under its insurance
policy in consideration for a payment of $325,000. In the
Company's recent general rate case, the Commission authorized
the Company to amortize MGP cost to expense up to $61,000 each
year to address recovery of such cost in natural gas rates.
The NCDEHNR is in the process of performing preliminary
assessments of approximately thirty-one (31) former MGP sites
across North Carolina, including the five (5) sites mentioned
above, to determine whether remediation is necessary or if no
further action is required at particular sites. The NCDEHNR
has been investigating with industry, including the Company,
whether a framework, acceptable to the NCDEHNR and to parties
potentially responsible for these sites, can be established to
address former MGP sites in North Carolina. In December, 1994
the NCDEHNR completed its preliminary assessment of the New
Bern MGP site on which the Company currently has a local
service office. No MGP constituents were observed on the site
and based upon current conditions, the NCDEHNR concluded,
among other things, that the risk of contact exposure to
potentially contaminated soil or ground water or releases of
potential contaminates to air are minimal. The NCDEHNR
designated the New Bern site for further inspection but
assigned it a low priority.
E-2
<PAGE>104
Exhibit 4-4
Page 55 of 56
The Company believes that the potential for contribution from
other sources, including but not limited to recovery of costs
in rates, will be sufficient to avoid any material, adverse
impact upon the financial condition or results of operation of
the Company for the foreseeable future.
Sincerely,
/s/ Calvin B. Wells
Calvin B. Wells
President
E-3
<PAGE>105
Exhibit 4-4
Page 56 of 56
EXHIBIT F
(To Note Purchase Agreement)
F-1
<PAGE>106
Exhibit 10-12
Page 1 of 8
EMPLOYMENT AGREEMENT
AGREEMENT made this 8th day of January, 1991, between NORTH CAROLINA
NATURAL GAS CORPORATION, a Delaware corporation, (the "Company"), and TERRENCE
D. DAVIS, (the "Executive");
The Executive is presently employed by the Company as Vice President;
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
substantial. The Board desires to provide for the continued employment of the
Executive and to specify certain aspects of the Executive's employment
arrangements with the Company in order to reinforce and encourage the continued
attention and dedication to the Company of the Executive as a member of the
Company's management, in the best interests of the Company and its shareholders.
The Executive is willing to commit himself to continue to serve the Company.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement providing certain severance benefits in the
event that the Executive's employment is terminated following a change of
control in the Company. Nothing in this Agreement, however, shall alter the
Company's right to terminate the Executive's employment prior to a change in
control as defined herein.
Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Operation of Agreement.
The effective date of this Agreement shall be the date on which a
change of control of the Company occurs. A "Change in Control" shall be deemed
to have occurred if (i) the Company consolidates or merges into or with another
corporation as a result of which the Company is not the surviving corporation,
or (ii) a majority of the outstanding shares of the Company is acquired by any
other corporation or other person or group. "Group" shall mean persons who act
in concert as described in Section 14(d)(2) of the Securities Exchange Act of
1934, as amended.
2. Period of Employment.
The Company shall continue the Executive in its employ for a period of
three years commencing upon a Change in Control (the "Period of Employment"), in
the position and duties and responsibilities set forth below.
3. Position, Duties, Responsibilities.
During the period of Employment, the Executive shall continue to
exercise such authority and perform such executive duties as are substantially
equivalent to and reasonably commensurate with his position immediately prior to
the Change in Control, with consideration being given to the size of the
Surviving Corporation if the Company is merged into another corporation.
4. Compensation and Related Matters.
(a) Salary. During the period of Employment, the Company shall pay
to the Executive a salary not less than his annual rate of salary in effect
at the change in control, payable in a manner
<PAGE>107
Exhibit 10-12
Page 2 of 8
consistent with the Company's policy. Compensation of the Executive by salary
payments shall not be deemed exclusive and shall not prevent the Executive from
participating in any other compensation or benefit plan of the Company.
(b) Other Benefits. During the period of Employment, the Company shall
maintain in full force and effect, and the Executive shall be entitled to
continue to participate in, all of its employee benefit plans and arrangements
in effect at the Change in Control, or plans or arrangements providing the
Executive with at least equivalent benefits thereunder based on all service with
the Company, including without limitation any pension and retirement plan, life
insurance, health and accident plan, and disability income plan.
The Company shall not make any changes in any employee benefit plans or
arrangements which would adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executives of the Company and does not result in a proportionately greater
reduction in the rights of, or benefits to, the Executive as compared with any
other executive of the Company. Nothing paid to the Executive under any employee
benefit plan presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to the Executive pursuant to paragraph (a)
of this Section.
5. Termination Following Change in Control.
(a) If, after a Change in Control shall have occurred, the Executive's
employment by the Company shall be terminated, then the Executive shall be
entitled to the benefits provided below, unless such termination is (a) because
of his death or Retirement, (ii) by the Company for Cause or Disability, or
(iii) by the Executive other than for Good Reason, as such terms as defined in
paragraph (b) of this Section.
(1) The Executive's salary shall continued for two (2) years and eleven
(11) months, provided that if the Executive shall obtain a position with another
employer at a lesser salary, the amount of the salary paid hereunder shall be
reduced to the difference, if any, between the salary continued hereunder and
the Executive's salary in the position obtained with another employer, and (2)
the Executive shall be entitled to continue to participate in any pension or
retirement plan, life insurance, health and accident plan and disability income
plan for two (2) years and eleven (11) months at a level which is not materially
less than that in effect at the time of Change of Control provided that if the
Executive shall obtain a position with another employer, the benefit plans as
set out above shall be discontinued sixty (60) days after the date the Executive
is so employed.
(2) The Company shall also reimburse the Executive for all legal fees
and expenses incurred in Seeking to obtain or enforce any right or benefit
provided by this Agreement.
(b) Definitions of terms as used herein are as follows:
(1) Disability. Termination by the Company of the Executive's
employment based on "Disability" shall mean termination because of his absence
from his duties with the Company on a full time basis for 180 consecutive
business days, as a result of his incapacity due to physical or mental illness.
(2) Retirement. Termination by the Company or the Executive of his
employment based on "Retirement" shall mean termination in accordance with the
Company's retirement policy, including early retirement, generally applicable to
its salaried employees.
<PAGE>108
Exhibit 10-12
Page 3 of 8
(3) Cause. Termination by the Company of the Executive's employment for
"Cause" shall mean termination upon (a) the willful and continued failure by him
substantially to perform his duties with the Company (other than any such
failure resulting from his incapacity due to physical or mental illness), or (b)
the willful engaging by him in misconduct which is materially injurious to the
Company, monetarily or otherwise.
(4) Good Reason. Termination by the Executive of his employment for
"Good Reason" shall mean termination subsequent to a Change in Control based on
(a) the assignment to the Executive of any duties which are materially
inconsistent with his position as described above; or (b) a reduction by the
Company in the Executive's base salary or other benefits as described above or
as the same may be increased from time to time; or (c) the failure by the
Company to obtain the assumption of this Agreement by any successor as
contemplated herein.
6. Successors; Binding Agreement.
The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company by agreement in form and substance
satisfactory to the Executive expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as defined and any successor to its
business and/or assets as aforesaid which executes and delivers the agreement
provided for in this paragraph or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
7. Miscellaneous.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed
by the Executive and such officer as may be specifically designated by the
Board of Directors of the Company. No waiver by either party hereto at any
time of any breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
8. Governing Law.
The provisions of this Agreement shall be construed in accordance with
the laws of the State of North Carolina.
9. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
<PAGE>109
Exhibit 10-12
Page 4 of 8
IN WITNESS WHEREOF, the Executive has hereunto set his hand and seal,
and, pursuant to the authorization of its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
/s/ Terrence D. Davis
--------------------------------------
TERRENCE D. DAVIS, Executive
NORTH CAROLINA NATURAL GAS CORPORATION
ATTEST: BY /s/ Calvin B. Wells
---------------------------------------
President
BY /s/ Donald W. McCoy
-------------------
Secretary
<PAGE>110
Exhibit 10-12
Page 5 of 8
EMPLOYMENT AGREEMENT
AGREEMENT made this 8th day of January, 1991, between NORTH CAROLINA
NATURAL GAS CORPORATION, a Delaware corporation, (the "Company"), and LOUIS
HANEMANN, (the "Executive");
The Executive is presently employed by the Company as Vice President-
Human Resources;
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
substantial. The Board desires to provide for the continued employment of the
Executive and to specify certain aspects of the Executive's employment
arrangements with the Company in order to reinforce and encourage the continued
attention and dedication to the Company of the Executive as a member of the
Company's management, in the best interests of the Company and its shareholders.
The Executive is willing to commit himself to continue to serve the Company.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement providing certain severance benefits in the
event that the Executive's employment is terminated following a change of
control in the Company. Nothing in this Agreement, however, shall alter the
Company's right to terminate the Executive's employment prior to a change in
control as defined herein.
Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Operation of Agreement.
The effective date of this Agreement shall be the date on which a
change of control of the Company occurs. A "Change in Control" shall be deemed
to have occurred if (i) the Company consolidates or merges into or with another
corporation as a result of which the Company is not the surviving corporation,
or (ii) a majority of the outstanding shares of the Company is acquired by any
other corporation or other person or group. "Group" shall mean persons who act
in concert as described in Section 14(d)(2) of the Securities Exchange Act of
1934, as amended.
2. Period of Employment.
The Company shall continue the Executive in its employ for a period of
three years commencing upon a Change in Control (the "Period of Employment"), in
the position and duties and responsibilities set forth below.
3. Position, Duties, Responsibilities.
During the period of Employment, the Executive shall continue to
exercise such authority and perform such executive duties as are substantially
equivalent to and reasonably commensurate with his position immediately prior to
the Change in Control, with consideration being given to the size of the
Surviving Corporation if the Company is merged into another corporation.
<PAGE>111
Exhibit 10-12
Page 6 of 8
4. Compensation and Related Matters.
(a) Salary. During the period of Employment, the Company shall pay to
the Executive a salary not less than his annual rate of salary in effect at the
change in control, payable in a manner consistent with the Company's policy.
Compensation of the Executive by salary payments shall not be deemed exclusive
and shall not prevent the Executive from participating in any other compensation
or benefit plan of the Company.
(b) Other Benefits. During the period of Employment, the Company shall
maintain in full force and effect, and the Executive shall be entitled to
continue to participate in, all of its employee benefit plans and arrangements
in effect at the Change in Control, or plans or arrangements providing the
Executive with at least equivalent benefits thereunder based on all service with
the Company, including without limitation any pension and retirement plan, life
insurance, health and accident plan, and disability income plan.
The Company shall not make any changes in any employee benefit plans or
arrangements which would adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executives of the Company and does not result in a proportionately greater
reduction in the rights of, or benefits to, the Executive as compared with any
other executive of the Company. Nothing paid to the Executive under any employee
benefit plan presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to the Executive pursuant to paragraph (a)
of this Section.
5. Termination Following Change in Control.
(a) If, after a Change in Control shall have occurred, the Executive's
employment by the Company shall be terminated, then the Executive shall be
entitled to the benefits provided below, unless such termination is (a) because
of his death or Retirement, (ii) by the Company for Cause or Disability, or
(iii) by the Executive other than for Good Reason, as such terms as defined in
paragraph (b) of this Section.
(1) The Executive's salary shall continued for two (2) years and eleven
(11) months, provided that if the Executive shall obtain a position with another
employer at a lesser salary, the amount of the salary paid hereunder shall be
reduced to the difference, if any, between the salary continued hereunder and
the Executive's salary in the position obtained with another employer, and (2)
the Executive shall be entitled to continue to participate in any pension or
retirement plan, life insurance, health and accident plan and disability income
plan for two (2) years and eleven (11) months at a level which is not materially
less than that in effect at the time of Change of Control provided that if the
Executive shall obtain a position with another employer, the benefit plans as
set out above shall be discontinued sixty (60) days after the date the Executive
is so employed.
(2) The Company shall also reimburse the Executive for all legal fees
and expenses incurred in Seeking to obtain or enforce any right or benefit
provided by this Agreement.
(b) Definitions of terms as used herein are as follows:
(1) Disability. Termination by the Company of the Executive's
employment based on "Disability" shall mean termination because of his absence
from his duties with the Company on a full time basis for 180 consecutive
business days, as a result of his incapacity due to physical or mental illness.
<PAGE>112
Exhibit 10-12
Page 7 of 8
(2) Retirement. Termination by the Company or the Executive of his
employment based on "Retirement" shall mean termination in accordance with the
Company's retirement policy, including early retirement, generally applicable to
its salaried employees.
(3) Cause. Termination by the Company of the Executive's employment for
"Cause" shall mean termination upon (a) the willful and continued failure by him
substantially to perform his duties with the Company (other than any such
failure resulting from his incapacity due to physical or mental illness), or (b)
the willful engaging by him in misconduct which is materially injurious to the
Company, monetarily or otherwise.
(4) Good Reason. Termination by the Executive of his employment for
"Good Reason" shall mean termination subsequent to a Change in Control based on
(a) the assignment to the Executive of any duties which are materially
inconsistent with his position as described above; or (b) a reduction by the
Company in the Executive's base salary or other benefits as described above or
as the same may be increased from time to time; or (c) the failure by the
Company to obtain the assumption of this Agreement by any successor as
contemplated herein.
6. Successors; Binding Agreement.
The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company by agreement in form and substance
satisfactory to the Executive expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as defined and any successor to its
business and/or assets as aforesaid which executes and delivers the agreement
provided for in this paragraph or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
7. Miscellaneous.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and such officer as may be specifically designated by the Board of
Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
8. Governing Law.
The provisions of this Agreement shall be construed in accordance with
the laws of the State of North Carolina.
9. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
<PAGE>113
Exhibit 10-12
Page 8 of 8
10. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and seal,
and, pursuant to the authorization of its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
/s/ Louis L. Hanemann (SEAL)
Executive
NORTH CAROLINA NATURAL GAS CORPORATION
ATTEST: BY /s/ Calvin B. Wells
President
BY /s/ Donald W. McCoy
Secretary
<PAGE>114
Exhibit 10-13
Page 1 of 8
EMPLOYMENT AGREEMENT
AGREEMENT made this 14th day of January, 1992, between NORTH CAROLINA
NATURAL GAS CORPORATION, a Delaware corporation, (the "Company"), and JAMES C.
BUIE, (the "Executive");
The Executive is presently employed by the Company as Vice President-
Computer Services;
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
substantial. The Board desires to provide for the continued employment of the
Executive and to specify certain aspects of the Executive's employment
arrangements with the Company in order to reinforce and encourage the continued
attention and dedication to the Company of the Executive as a member of the
Company's management, in the best interests of the Company and its shareholders.
The Executive is willing to commit himself to continue to serve the Company.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement providing certain severance benefits in the
event that the Executive's employment is terminated following a change of
control in the Company. Nothing in this Agreement, however, shall alter the
Company's right to terminate the Executive's employment prior to a change in
control as defined herein.
Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Operation of Agreement.
The effective date of this Agreement shall be the date on which a
change of control of the Company occurs. A "Change in Control" shall be deemed
to have occurred if (i) the Company consolidates or merges into or with another
corporation as a result of which the Company is not the surviving corporation,
or (ii) a majority of the outstanding shares of the Company is acquired by any
other corporation or other person or group. "Group" shall mean persons who act
in concert as described in Section 14(d)(2) of the Securities Exchange Act of
1934, as amended.
2. Period of Employment.
The Company shall continue the Executive in its employ for a period of
three years commencing upon a Change in Control (the "Period of Employment"), in
the position and duties and responsibilities set forth below.
3. Position, Duties, Responsibilities.
During the period of Employment, the Executive shall continue to
exercise such authority and perform such executive duties as are substantially
equivalent to and reasonably commensurate with his position immediately prior to
the Change in Control, with consideration being given to the size of the
Surviving Corporation if the Company is merged into another corporation.
<PAGE>115
Exhibit 10-13
Page 2 of 8
4. Compensation and Related Matters.
(a) Salary. During the period of Employment, the Company shall pay to
the Executive a salary not less than his annual rate of salary in effect at the
change in control, payable in a manner consistent with the Company's policy.
Compensation of the Executive by salary payments shall not be deemed exclusive
and shall not prevent the Executive from participating in any other compensation
or benefit plan of the Company.
(b) Other Benefits. During the period of Employment, the Company shall
maintain in full force and effect, and the Executive shall be entitled to
continue to participate in, all of its employee benefit plans and arrangements
in effect at the Change in Control, or plans or arrangements providing the
Executive with at least equivalent benefits thereunder based on all service with
the Company, including without limitation any pension and retirement plan, life
insurance, health and accident plan, and disability income plan.
The Company shall not make any changes in any employee benefit plans or
arrangements which would adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executives of the Company and does not result in a proportionately greater
reduction in the rights of, or benefits to, the Executive as compared with any
other executive of the Company. Nothing paid to the Executive under any employee
benefit plan presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to the Executive pursuant to paragraph (a)
of this Section.
5. Termination Following Change in Control.
(a) If, after a Change in Control shall have occurred, the Executive's
employment by the Company shall be terminated, then the Executive shall be
entitled to the benefits provided below, unless such termination is (a) because
of his death or Retirement, (ii) by the Company for Cause or Disability, or
(iii) by the Executive other than for Good Reason, as such terms as defined in
paragraph (b) of this Section.
(1) The Executive's salary shall continued for two (2) years and eleven
(11) months, provided that if the Executive shall obtain a position with another
employer at a lesser salary, the amount of the salary paid hereunder shall be
reduced to the difference, if any, between the salary continued hereunder and
the Executive's salary in the position obtained with another employer, and (2)
the Executive shall be entitled to continue to participate in any pension or
retirement plan, life insurance, health and accident plan and disability income
plan for two (2) years and eleven (11) months at a level which is not materially
less than that in effect at the time of Change of Control provided that if the
Executive shall obtain a position with another employer, the benefit plans as
set out above shall be discontinued sixty (60) days after the date the Executive
is so employed.
(2) The Company shall also reimburse the Executive for all legal fees
and expenses incurred in Seeking to obtain or enforce any right or benefit
provided by this Agreement.
(b) Definitions of terms as used herein are as follows:
(1) Disability. Termination by the Company of the Executive's
employment based on "Disability" shall mean termination because of his absence
from his duties with the Company on a full time basis for 180 consecutive
business days, as a result of his incapacity due to physical or mental illness.
<PAGE>116
Exhibit 10-13
Page 3 of 8
(2) Retirement. Termination by the Company or the Executive of his
employment based on "Retirement" shall mean termination in accordance with the
Company's retirement policy, including early retirement, generally applicable to
its salaried employees.
(3) Cause. Termination by the Company of the Executive's employment for
"Cause" shall mean termination upon (a) the willful and continued failure by him
substantially to perform his duties with the Company (other than any such
failure resulting from his incapacity due to physical or mental illness), or (b)
the willful engaging by him in misconduct which is materially injurious to the
Company, monetarily or otherwise.
(4) Good Reason. Termination by the Executive of his employment for
"Good Reason" shall mean termination subsequent to a Change in Control based on
(a) the assignment to the Executive of any duties which are materially
inconsistent with his position as described above; or (b) a reduction by the
Company in the Executive's base salary or other benefits as described above or
as the same may be increased from time to time; or (c) the failure by the
Company to obtain the assumption of this Agreement by any successor as
contemplated herein.
6. Successors; Binding Agreement.
The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company by agreement in form and substance
satisfactory to the Executive expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as defined and any successor to its
business and/or assets as aforesaid which executes and delivers the agreement
provided for in this paragraph or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
7. Miscellaneous.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and such officer as may be specifically designated by the Board of
Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
8. Governing Law.
The provisions of this Agreement shall be construed in accordance with
the laws of the State of North Carolina.
9. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
<PAGE>117
Exhibit 10-13
Page 4 of 8
10. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and seal,
and, pursuant to the authorization of its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
/s/ James C. Buie (SEAL)
James C. Buie, Executive
NORTH CAROLINA NATURAL GAS CORPORATION
ATTEST: BY /s/ Calvin B. Wells
President
BY /s/ Donald W. McCoy
--------------------------------
Secretary
<PAGE>118
Exhibit 10-13
Page 5 of 8
EMPLOYMENT AGREEMENT
AGREEMENT made this 13th day of May, 1992, between NORTH CAROLINA
NATURAL GAS CORPORATION, a Delaware corporation, (the "Company"), and STUART B.
DIXON, (the "Executive");
The Executive is presently employed by the Company as Vice President;
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
substantial. The Board desires to provide for the continued employment of the
Executive and to specify certain aspects of the Executive's employment
arrangements with the Company in order to reinforce and encourage the continued
attention and dedication to the Company of the Executive as a member of the
Company's management, in the best interests of the Company and its shareholders.
The Executive is willing to commit himself to continue to serve the Company.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement providing certain severance benefits in the
event that the Executive's employment is terminated following a change of
control in the Company. Nothing in this Agreement, however, shall alter the
Company's right to terminate the Executive's employment prior to a change in
control as defined herein.
Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Operation of Agreement.
The effective date of this Agreement shall be the date on which a
change of control of the Company occurs. A "Change in Control" shall be deemed
to have occurred if (i) the Company consolidates or merges into or with another
corporation as a result of which the Company is not the surviving corporation,
or (ii) a majority of the outstanding shares of the Company is acquired by any
other corporation or other person or group. "Group" shall mean persons who act
in concert as described in Section 14(d)(2) of the Securities Exchange Act of
1934, as amended.
2. Period of Employment.
The Company shall continue the Executive in its employ for a period of
three years commencing upon a Change in Control (the "Period of Employment"), in
the position and duties and responsibilities set forth below.
3. Position, Duties, Responsibilities.
During the period of Employment, the Executive shall continue to
exercise such authority and perform such executive duties as are substantially
equivalent to and reasonably commensurate with his position immediately prior to
the Change in Control, with consideration being given to the size of the
Surviving Corporation if the Company is merged into another corporation.
<PAGE>119
Exhibit 10-13
Page 6 of 8
4. Compensation and Related Matters.
(a) Salary. During the period of Employment, the Company shall pay to
the Executive a salary not less than his annual rate of salary in effect at the
change in control, payable in a manner consistent with the Company's policy.
Compensation of the Executive by salary payments shall not be deemed exclusive
and shall not prevent the Executive from participating in any other compensation
or benefit plan of the Company.
(b) Other Benefits. During the period of Employment, the Company shall
maintain in full force and effect, and the Executive shall be entitled to
continue to participate in, all of its employee benefit plans and arrangements
in effect at the Change in Control, or plans or arrangements providing the
Executive with at least equivalent benefits thereunder based on all service with
the Company, including without limitation any pension and retirement plan, life
insurance, health and accident plan, and disability income plan.
The Company shall not make any changes in any employee benefit plans or
arrangements which would adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executives of the Company and does not result in a proportionately greater
reduction in the rights of, or benefits to, the Executive as compared with any
other executive of the Company. Nothing paid to the Executive under any employee
benefit plan presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to the Executive pursuant to paragraph (a)
of this Section.
5. Termination Following Change in Control.
(a) If, after a Change in Control shall have occurred, the Executive's
employment by the Company shall be terminated, then the Executive shall be
entitled to the benefits provided below, unless such termination is (a) because
of his death or Retirement, (ii) by the Company for Cause or Disability, or
(iii) by the Executive other than for Good Reason, as such terms as defined in
paragraph (b) of this Section.
(1) The Executive's salary shall continued for two (2) years and eleven
(11) months, provided that if the Executive shall obtain a position with another
employer at a lesser salary, the amount of the salary paid hereunder shall be
reduced to the difference, if any, between the salary continued hereunder and
the Executive's salary in the position obtained with another employer, and (2)
the Executive shall be entitled to continue to participate in any pension or
retirement plan, life insurance, health and accident plan and disability income
plan for two (2) years and eleven (11) months at a level which is not materially
less than that in effect at the time of Change of Control provided that if the
Executive shall obtain a position with another employer, the benefit plans as
set out above shall be discontinued sixty (60) days after the date the Executive
is so employed.
(2) The Company shall also reimburse the Executive for all legal fees
and expenses incurred in Seeking to obtain or enforce any right or benefit
provided by this Agreement.
(b) Definitions of terms as used herein are as follows:
(1) Disability. Termination by the Company of the Executive's
employment based on "Disability" shall mean termination because of his absence
from his duties with the Company on a full time basis for 180 consecutive
business days, as a result of his incapacity due to physical or mental illness.
<PAGE>120
Exhibit 10-13
Page 7 of 8
(2) Retirement. Termination by the Company or the Executive of his
employment based on "Retirement" shall mean termination in accordance with the
Company's retirement policy, including early retirement, generally applicable to
its salaried employees.
(3) Cause. Termination by the Company of the Executive's employment for
"Cause" shall mean termination upon (a) the willful and continued failure by him
substantially to perform his duties with the Company (other than any such
failure resulting from his incapacity due to physical or mental illness), or (b)
the willful engaging by him in misconduct which is materially injurious to the
Company, monetarily or otherwise.
(4) Good Reason. Termination by the Executive of his employment for
"Good Reason" shall mean termination subsequent to a Change in Control based on
(a) the assignment to the Executive of any duties which are materially
inconsistent with his position as described above; or (b) a reduction by the
Company in the Executive's base salary or other benefits as described above or
as the same may be increased from time to time; or (c) the failure by the
Company to obtain the assumption of this Agreement by any successor as
contemplated herein.
6. Successors; Binding Agreement.
The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company by agreement in form and substance
satisfactory to the Executive expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as defined and any successor to its
business and/or assets as aforesaid which executes and delivers the agreement
provided for in this paragraph or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
7. Miscellaneous.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and such officer as may be specifically designated by the Board of
Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
8. Governing Law.
The provisions of this Agreement shall be construed in accordance with
the laws of the State of North Carolina.
9. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
<PAGE>121
Exhibit 10-13
Page 8 of 8
10. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and seal,
and, pursuant to the authorization of its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
/s/ Stuart B. Dixon (SEAL)
STUART B. DIXON, Executive
NORTH CAROLINA NATURAL GAS CORPORATION
ATTEST: BY /s/ Calvin B. Wells
President
BY /s/ Donald W. McCoy
--------------------------------
Donald W. McCoy,Secretary
<PAGE>122
Exhibit 10-14
Page 1 of 8
EMPLOYMENT AGREEMENT
AGREEMENT made this 11th day of January, 1994, between NORTH CAROLINA
NATURAL GAS CORPORATION, a Delaware corporation, (the "Company"), and ROY W.
ERICSON, (the "Executive");
The Executive is presently employed by the Company as Vice President-
Planning and Regulatory Compliance;
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
substantial. The Board desires to provide for the continued employment of the
Executive and to specify certain aspects of the Executive's employment
arrangements with the Company in order to reinforce and encourage the continued
attention and dedication to the Company of the Executive as a member of the
Company's management, in the best interests of the Company and its shareholders.
The Executive is willing to commit himself to continue to serve the Company.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement providing certain severance benefits in the
event that the Executive's employment is terminated following a change of
control in the Company. Nothing in this Agreement, however, shall alter the
Company's right to terminate the Executive's employment prior to a change in
control as defined herein.
Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Operation of Agreement.
The effective date of this Agreement shall be the date on which a
change of control of the Company occurs. A "Change in Control" shall be deemed
to have occurred if (i) the Company consolidates or merges into or with another
corporation as a result of which the Company is not the surviving corporation,
or (ii) a majority of the outstanding shares of the Company is acquired by any
other corporation or other person or group. "Group" shall mean persons who act
in concert as described in Section 14(d)(2) of the Securities Exchange Act of
1934, as amended.
2. Period of Employment.
The Company shall continue the Executive in its employ for a period of
three years commencing upon a Change in Control (the "Period of Employment"), in
the position and duties and responsibilities set forth below.
3. Position, Duties, Responsibilities.
During the period of Employment, the Executive shall continue to
exercise such authority and perform such executive duties as are substantially
equivalent to and reasonably commensurate with his position immediately prior to
the Change in Control, with consideration being given to the size of the
Surviving Corporation if the Company is merged into another corporation.
<PAGE>123
Exhibit 10-14
Page 2 of 8
4. Compensation and Related Matters.
(a) Salary. During the period of Employment, the Company shall pay to
the Executive a salary not less than his annual rate of salary in effect at the
change in control, payable in a manner consistent with the Company's policy.
Compensation of the Executive by salary payments shall not be deemed exclusive
and shall not prevent the Executive from participating in any other compensation
or benefit plan of the Company.
(b) Other Benefits. During the period of Employment, the Company shall
maintain in full force and effect, and the Executive shall be entitled to
continue to participate in, all of its employee benefit plans and arrangements
in effect at the Change in Control, or plans or arrangements providing the
Executive with at least equivalent benefits thereunder based on all service with
the Company, including without limitation any pension and retirement plan, life
insurance, health and accident plan, and disability income plan.
The Company shall not make any changes in any employee benefit plans or
arrangements which would adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executives of the Company and does not result in a proportionately greater
reduction in the rights of, or benefits to, the Executive as compared with any
other executive of the Company. Nothing paid to the Executive under any employee
benefit plan presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to the Executive pursuant to paragraph (a)
of this Section.
5. Termination Following Change in Control.
(a) If, after a Change in Control shall have occurred, the Executive's
employment by the Company shall be terminated, then the Executive shall be
entitled to the benefits provided below, unless such termination is (a) because
of his death or Retirement, (ii) by the Company for Cause or Disability, or
(iii) by the Executive other than for Good Reason, as such terms as defined in
paragraph (b) of this Section.
(1) The Executive's salary shall continued for two (2) years and eleven
(11) months, provided that if the Executive shall obtain a position with another
employer at a lesser salary, the amount of the salary paid hereunder shall be
reduced to the difference, if any, between the salary continued hereunder and
the Executive's salary in the position obtained with another employer, and (2)
the Executive shall be entitled to continue to participate in any pension or
retirement plan, life insurance, health and accident plan and disability income
plan for two (2) years and eleven (11) months at a level which is not materially
less than that in effect at the time of Change of Control provided that if the
Executive shall obtain a position with another employer, the benefit plans as
set out above shall be discontinued sixty (60) days after the date the Executive
is so employed.
(2) The Company shall also reimburse the Executive for all legal fees
and expenses incurred in Seeking to obtain or enforce any right or benefit
provided by this Agreement.
(b) Definitions of terms as used herein are as follows:
(1) Disability. Termination by the Company of the Executive's
employment based on "Disability" shall mean termination because of his absence
from his duties with the Company on a full time basis for 180 consecutive
business days, as a result of his incapacity due to physical or mental illness.
<PAGE>124
Exhibit 10-14
Page 3 of 8
(2) Retirement. Termination by the Company or the Executive of his
employment based on "Retirement" shall mean termination in accordance with the
Company's retirement policy, including early retirement, generally applicable to
its salaried employees.
(3) Cause. Termination by the Company of the Executive's employment for
"Cause" shall mean termination upon (a) the willful and continued failure by him
substantially to perform his duties with the Company (other than any such
failure resulting from his incapacity due to physical or mental illness), or (b)
the willful engaging by him in misconduct which is materially injurious to the
Company, monetarily or otherwise.
(4) Good Reason. Termination by the Executive of his employment for
"Good Reason" shall mean termination subsequent to a Change in Control based on
(a) the assignment to the Executive of any duties which are materially
inconsistent with his position as described above; or (b) a reduction by the
Company in the Executive's base salary or other benefits as described above or
as the same may be increased from time to time; or (c) the failure by the
Company to obtain the assumption of this Agreement by any successor as
contemplated herein.
6. Successors; Binding Agreement.
The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company by agreement in form and substance
satisfactory to the Executive expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as defined and any successor to its
business and/or assets as aforesaid which executes and delivers the agreement
provided for in this paragraph or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
7. Miscellaneous.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and such officer as may be specifically designated by the Board of
Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
8. Governing Law.
The provisions of this Agreement shall be construed in accordance with
the laws of the State of North Carolina.
9. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
<PAGE>125
Exhibit 10-14
Page 4 of 8
10. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and seal,
and, pursuant to the authorization of its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
/s/ Roy W. Ericson (SEAL)
ROY W. ERICSON, Executive
NORTH CAROLINA NATURAL GAS CORPORATION
ATTEST: BY /s/ C. B. Wells
C. B. Wells, President
BY /s/ Donald W. McCoy
Donald W. McCoy, Secretary
<PAGE>126
Exhibit 10-14
Page 5 of 8
EMPLOYMENT AGREEMENT
AGREEMENT made this 11th day of January, 1994, between NORTH CAROLINA
NATURAL GAS CORPORATION, a Delaware corporation, (the "Company"), and JOHN
MONAGHAN, (the "Executive");
The Executive is presently employed by the Company as Vice President-Gas
Supply and Transportation;
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
substantial. The Board desires to provide for the continued employment of the
Executive and to specify certain aspects of the Executive's employment
arrangements with the Company in order to reinforce and encourage the continued
attention and dedication to the Company of the Executive as a member of the
Company's management, in the best interests of the Company and its shareholders.
The Executive is willing to commit himself to continue to serve the Company.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement providing certain severance benefits in the
event that the Executive's employment is terminated following a change of
control in the Company. Nothing in this Agreement, however, shall alter the
Company's right to terminate the Executive's employment prior to a change in
control as defined herein.
Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Operation of Agreement.
The effective date of this Agreement shall be the date on which a
change of control of the Company occurs. A "Change in Control" shall be deemed
to have occurred if (i) the Company consolidates or merges into or with another
corporation as a result of which the Company is not the surviving corporation,
or (ii) a majority of the outstanding shares of the Company is acquired by any
other corporation or other person or group. "Group" shall mean persons who act
in concert as described in Section 14(d)(2) of the Securities Exchange Act of
1934, as amended.
2. Period of Employment.
The Company shall continue the Executive in its employ for a period of
three years commencing upon a Change in Control (the "Period of Employment"), in
the position and duties and responsibilities set forth below.
3. Position, Duties, Responsibilities.
During the period of Employment, the Executive shall continue to
exercise such authority and perform such executive duties as are substantially
equivalent to and reasonably commensurate with his position immediately prior to
the Change in Control, with consideration being given to the size of the
Surviving Corporation if the Company is merged into another corporation.
<PAGE>127
Exhibit 10-14
Page 6 of 8
4. Compensation and Related Matters.
(a) Salary. During the period of Employment, the Company shall pay to
the Executive a salary not less than his annual rate of salary in effect at the
change in control, payable in a manner consistent with the Company's policy.
Compensation of the Executive by salary payments shall not be deemed exclusive
and shall not prevent the Executive from participating in any other compensation
or benefit plan of the Company.
(b) Other Benefits. During the period of Employment, the Company shall
maintain in full force and effect, and the Executive shall be entitled to
continue to participate in, all of its employee benefit plans and arrangements
in effect at the Change in Control, or plans or arrangements providing the
Executive with at least equivalent benefits thereunder based on all service with
the Company, including without limitation any pension and retirement plan, life
insurance, health and accident plan, and disability income plan.
The Company shall not make any changes in any employee benefit plans or
arrangements which would adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executives of the Company and does not result in a proportionately greater
reduction in the rights of, or benefits to, the Executive as compared with any
other executive of the Company. Nothing paid to the Executive under any employee
benefit plan presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to the Executive pursuant to paragraph (a)
of this Section.
5. Termination Following Change in Control.
(a) If, after a Change in Control shall have occurred, the Executive's
employment by the Company shall be terminated, then the Executive shall be
entitled to the benefits provided below, unless such termination is (a) because
of his death or Retirement, (ii) by the Company for Cause or Disability, or
(iii) by the Executive other than for Good Reason, as such terms as defined in
paragraph (b) of this Section.
(1) The Executive's salary shall continued for two (2) years and eleven
(11) months, provided that if the Executive shall obtain a position with another
employer at a lesser salary, the amount of the salary paid hereunder shall be
reduced to the difference, if any, between the salary continued hereunder and
the Executive's salary in the position obtained with another employer, and (2)
the Executive shall be entitled to continue to participate in any pension or
retirement plan, life insurance, health and accident plan and disability income
plan for two (2) years and eleven (11) months at a level which is not materially
less than that in effect at the time of Change of Control provided that if the
Executive shall obtain a position with another employer, the benefit plans as
set out above shall be discontinued sixty (60) days after the date the Executive
is so employed.
(2) The Company shall also reimburse the Executive for all legal fees
and expenses incurred in Seeking to obtain or enforce any right or benefit
provided by this Agreement.
(b) Definitions of terms as used herein are as follows:
(1) Disability. Termination by the Company of the Executive's
employment based on "Disability" shall mean termination because of his absence
from his duties with the Company on a full time basis for 180 consecutive
business days, as a result of his incapacity due to physical or mental illness.
<PAGE>128
Exhibit 10-14
Page 7 of 8
(2) Retirement. Termination by the Company or the Executive of his
employment based on "Retirement" shall mean termination in accordance with the
Company's retirement policy, including early retirement, generally applicable to
its salaried employees.
(3) Cause. Termination by the Company of the Executive's employment for
"Cause" shall mean termination upon (a) the willful and continued failure by him
substantially to perform his duties with the Company (other than any such
failure resulting from his incapacity due to physical or mental illness), or (b)
the willful engaging by him in misconduct which is materially injurious to the
Company, monetarily or otherwise.
(4) Good Reason. Termination by the Executive of his employment for
"Good Reason" shall mean termination subsequent to a Change in Control based on
(a) the assignment to the Executive of any duties which are materially
inconsistent with his position as described above; or (b) a reduction by the
Company in the Executive's base salary or other benefits as described above or
as the same may be increased from time to time; or (c) the failure by the
Company to obtain the assumption of this Agreement by any successor as
contemplated herein.
6. Successors; Binding Agreement.
The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company by agreement in form and substance
satisfactory to the Executive expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as defined and any successor to its
business and/or assets as aforesaid which executes and delivers the agreement
provided for in this paragraph or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
7. Miscellaneous.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and such officer as may be specifically designated by the Board of
Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
8. Governing Law.
The provisions of this Agreement shall be construed in accordance with
the laws of the State of North Carolina.
9. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
<PAGE>129
Exhibit 10-14
Page 8 of 8
10. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and seal,
and, pursuant to the authorization of its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
/s/ John Monaghan (SEAL)
JOHN MONAGHAN, Executive
NORTH CAROLINA NATURAL GAS CORPORATION
ATTEST: BY /s/ C. B. Wells
C. B. Wells, President
BY /s/ Donald W. McCoy
Donald W. McCoy, Secretary
<PAGE>130
Exhibit 10-24
Page 1 of 2
FOURTH AMENDMENT TO
NATURAL GAS SERVICE AGREEMENT BETWEEN
GREENVILLE UTILITIES COMMISSION, GREENVILLE, NC
AND
NORTH CAROLINA NATURAL GAS CORPORATION
This Fourth Amendment entered into to be effective on the 1st day of
December 1995, between Greenville Utilities Commission, Greenville, North
Carolina, (as "Customer") and North Carolina Natural Gas Corporation, a Delaware
corporation (as "Company").
WITNESSETH:
WHEREAS, Customer and Company are parties to a certain "Natural Gas
Service Agreement By and Between Greenville Utilities Commission, Greenville,
North Carolina and North Carolina Natural Gas Corporation" dated March 12, 1992
("the Agreement"); the First Amendment dated November 1, 1992; the Second
Amendment dated January 1, 1994; the Third Amendment dated December 1, 1994 to
such Agreement; and
WHEREAS, Company and Customer wish to amend that contract as more fully
set forth herein:
NOW THEREFORE, in consideration of the premises and mutual covenants
herein and in Agreement, Company and Customer agree as follows:
1. Section 2.01 is deleted in its entirety and the following is
substitute therefore:
2.01 Subject to the terms and provisions of this Agreement,
Company agrees to sell and deliver to Customer and Customer
agrees to purchase and receive from Company, Customer's
natural gas requirements, excluding that portion of Customer's
requirements which are transported pursuant to Article III
below. Customer agrees that the maximum quantity of gas that
Company is required to deliver, either by sale or
transportation, shall be 13,500 dekatherms ("Dth") per day and
675 Dth per hour. For purposes of computing the Demand Charge
under Rate Schedule RE-2 and T-6, the foregoing maximum daily
quantity, subject to adjustments as provided herein, shall
constitute the Contract Demand, during the respective periods
to which each maximum is applicable, and Customer agrees to
pay Company therefor as provided in the applicable rate
schedule.
2. This Fourth Amendment shall become effective on December 1, 1995.
3. Except as specifically provided herein, the Agreement shall continue
in force and affect as previously written.
<PAGE>131
Exhibit 10-24
Page 2 of 2
IN WITNESS WHEREOF, this instrument is executed effective as of the day
and year first written above.
GREENVILLE UTILITIES COMMISSION
GREENVILLE, N.C.
/s/ Maven A. Green
----------------------------------
Title: General Manager
NORTH CAROLINA NATURAL GAS
CORPORATION
/s/ Calvin B. Wells
----------------------------------
Title: President
<PAGE>132
Exhibit 10-25
Page 1 of 2
SECOND AMENDMENT TO
NATURAL GAS SERVICE AGREEMENT BETWEEN
THE CITY OF ROCKY MOUNT, NC
AND
NORTH CAROLINA NATURAL GAS CORPORATION
This Second Amendment entered into to be effective on the 1st day of
November 1995, between The City of Rocky Mount, North Carolina, (as "Customer")
and North Carolina Natural Gas Corporation, a Delaware corporation (as
"Company").
WITNESSETH:
WHEREAS, Customer and Company are parties to a certain "Natural Gas
Service Agreement By and Between The City of Rocky Mount, North Carolina and
North Carolina Natural Gas Corporation" dated January 13, 1992 ("the
Agreement"); the First Amendment dated January 1, 1994 to such Agreement; and
WHEREAS, Company and Customer wish to amend that contract as more fully
set forth herein:
NOW THEREFORE, in consideration of the premises and mutual covenants
herein and in Agreement, Company and Customer agree as follows:
1. Section 2.01 is deleted in its entirety and the following is
substitute therefore:
2.01 Subject to the terms and provisions of this Agreement,
Company agrees to sell and deliver to Customer and Customer
agrees to purchase and receive from Company, Customer's
natural gas requirements, excluding that portion of Customer's
requirements which are transported pursuant to Article III
below. Customer agrees that the maximum quantity of gas that
Company is required to deliver, either by sale or
transportation, shall be 20,000 dekatherms ("Dth") per day and
1200 Dth per hour. For purposes of computing the Demand Charge
under Rate Schedule RE-2 and T-6, the foregoing maximum daily
quantity, subject to adjustments as provided herein, shall
constitute the Contract Demand, during the respective periods
to which each maximum is applicable, and Customer agrees to
pay Company therefor as provided in the applicable rate
schedule. Customer agrees that starting November 1, 1996 the
maximum quantity of gas that Company is required to deliver,
either by sale or transportation, and upon which the demand
charge is calculated, shall return to 18,000 dekatherms per
day with all other provisions or Section 2.01 as set forth in
the Second Amendment to the contract remaining the same.
2. This Second Amendment shall become effective on November 1, 1995.
3. Except as specifically provided herein, the Agreement shall continue
in force and affect as previously written.
<PAGE>133
Exhibit 10-25
Page 2 of 2
IN WITNESS WHEREOF, this instrument is executed effective as of the day
and year first written above.
CITY OF ROCKY MOUNT, N.C
/s/ Frederick E. Turnage
CITY SEAL -----------------------------
Title: Mayor
Attest: /s/ Jean M . Bailey
City Clerk
NORTH CAROLINA NATURAL GAS
CORPORATION
/s/ Calvin B. Wells
------------------------------
Calvin B. Wells
Title: Chairman and President
<PAGE>134
Exhibit 10-26
Page 1 of 2
THIRD AMENDMENT TO
NATURAL GAS SERVICE AGREEMENT BETWEEN
THE CITY OF WILSON, NC
AND
NORTH CAROLINA NATURAL GAS CORPORATION
This Third Amendment entered into to be effective on the 1st day of
December, 1995, between The City of Wilson, North Carolina, (as "Customer") and
North Carolina Natural Gas Corporation, a Delaware corporation (as "Company"),
WITNESSETH:
WHEREAS, Customer and Company are parties to a certain "Natural Gas
Service Agreement By and Between The City of Wilson, North Carolina and North
Carolina Natural Gas Corporation" dated January 9, 1992 ("the Agreement"); the
First Amendment dated January 1, 1994; the Second Amendment dated December 1,
1994 to such Agreement; and
WHEREAS, Company and Customer wish to amend that contract as more fully
set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein and in the Agreement, Company and Customer agree as follows:
1. Section 2.01 is deleted in its entirety and the following is
substituted therefor:
2.01 Subject to the terms and provisions of this
Agreement, Company agrees to sell and deliver to
Customer and Customer agrees to purchase and receive
from Company, Customer's natural gas requirements,
excluding that portion of Customer's requirements
which are transported pursuant to Article III below.
Customer agrees that the maximum quantity of gas that
Company is required to deliver, either by sale or
transportation, shall be 12,500 dekatherms ("Dth")
per day and 625 Dth per hour. For purposes of
computing the Demand Charge under Rate Schedules RE-2
and T-6, the foregoing maximum daily quantity,
subject to adjustments as provided herein, shall
constitute the Contract Demand, during the respective
periods to which each maximum is applicable, and
Customer agrees to pay Company therefor as provided
in the applicable rate schedule.
2. This Third Amendment shall become effective on December 1, 1995.
3. Except as specifically provided herein, the Agreement shall
continue in force and affect as previously written.
<PAGE>135
Exhibit 10-26
Page 2 of 2
IN WITNESS WHEREOF, this instrument is executed effective as of the day
and year first written above.
CITY OF WILSON, N.C
/s/ C. Brunes Rose
-----------------------------
CITY SEAL
Title: Mayor
Attest: /s/ Ana S. Heder
City Clerk
NORTH CAROLINA NATURAL GAS
CORPORATION
/s/ Calvin B. Wells
----------------------------
Calvin B. Wells
Title: Chairman and President
<PAGE>136
Exhibit 10-27
Page 1 of 2
ADDENDUM NO. Third
NORTH CAROLINA NATURAL GAS CORPORATION
ADDENDUM COVERING STANDBY ON-PEAK SUPPLY SERVICE
The parties agree that the following provisions covering standby
on-peak supply service are incorporated into and made a part of the Natural Gas
Service Contract between the parties dated January 13, 1992, and that the term
of service under this Addendum will begin on November 1, 1996, and end on March
31, 1998.
1. The Company and the Customer acknowledge that under the Gas Service
Contract to which this addendum applies, Customer subscribes to a rate schedule
under which Company may curtail service to the Customer.
2. Subject to the availability of an adequate supply of natural gas and
capacity to deliver that gas to Customer's specific location on Company's
system, whenever the Company issued a curtailment order, Customer may request
deliveries under Company's Rate Schedule ST-1.
3. Customer may not request more than the maximum quantity of 2,000
dekatherms daily or, cumulatively, more than 10,000 dekatherms maximum
seasonal quantity.
4. If Company issues a restoration of service order terminating
Company's curtailment order, Customer's service shall revert to the rate
schedules affected by such restoration of service order, as of the effective
time of such order, and Customer's request for deliveries under Rate Schedule
ST-1 shall be deemed to have been reduced to the quantity of gas actually
delivered to Customer thereunder prior to the effective time of such restoration
of service order.
5. Deliveries of natural gas under this addendum shall be subject to
curtailment only in the event of force majeure or a demand for gas necessary to
meet human needs on the Company's system. The Company shall not be liable for
any damages that may result to Customer or any other person, firm, or
corporation by reason of the Company's curtailment or interruption of service
hereunder.
6. Customer agrees to pay the applicable monthly per dekatherm daily
demand charge, the monthly per dekatherm seasonal capacity reservation charge
and the per therm commodity charge set forth in that portion of the currently
effective Sheet No. 4 of the Company's service tariff which relates to Rate
Schedule ST-1. The daily demand charge and seasonal reservation charge shall be
payable for each of the months November through March based on the maximum daily
and seasonal quantities set forth in Paragraph 3 above for service under Rate
Schedule ST-1. Charges at the per therm commodity charge shall be based on
actual deliveries to Customer under Rate Schedule ST-1.
7. Customer agrees to pay the monthly/daily demand charge and monthly
seasonal reservation charge multiplied by the maximum daily and seasonal
quantity set forth in Paragraph 3 above for service under Rate Schedule
ST-1 each of the months November through March regardless of the quantity of
gas purchased under Rate Schedule ST-1 during each such month.
<PAGE>137
Exhibit 10-27
Page 2 of 2
8. Company agrees to deliver the maximum daily and seasonal quantities
of natural as set forth in Paragraph 3 above.
9. In the event Customer's consumption of Natural Gas under Rate
Schedule ST-1 exceeds either the maximum daily or seasonal quantities set forth
in Paragraph 3 above for service under Rate Schedule ST-1, or customer fails to
reduce takes of gas as required herein, if Company has issued a curtailment
order in an event of force majeure or to meet human needs, the quantity of gas
taken on each such day in excess of either (1) the maximum daily or seasonal
quantity or, (2) the quantity set out in Company's curtailment order shall
constitute an unauthorized overrun quantity.
10. Customer agrees to pay Company for the unauthorized overrun
quantity taken on each day a penalty of $1 per therm for that portion of the
unauthorized overrun quantity up to 3 1/2% percent (3.5%) of the maximum daily
quantity or up to 3 1/2 percent (3.5%) of the quantity taken in excess of the
quantity set out in a curtailment order, whichever is the lesser quantity, and a
penalty of $2.50 per therm for the remaining portion of the unauthorized overrun
quantity. Customer shall pay the penalty to the Company in addition to the
charges otherwise payable by customer under Rate Schedule ST-1 or any other rate
schedule.
11. The payment of the penalty for unauthorized overrun volumes shall
under no circumstances be considered as giving any customer the right to take an
unauthorized overrun quantity.
IN WITNESS WHEREOF, the parties hereto have subscribed their names and
affixed their seals, this 29th day of August, 1996.
ATTEST: COMPANY
/s/ Sally T. Sowers BY: /s/ Calvin B. Wells
Secretary (Corporate Seal) Calvin B. Wells
President and Chief Executive Officer
ATTEST: CUSTOMER
/s/ Jean M. Bailey BY: /s/ Frederick E. Turnage
City Clerk (Corporate Seal) Print Name: Frederick E. Turnage
Title: Mayor
<PAGE>138
Exhibit 10-28
Page 1 of 2
ADDENDUM NO. FOUR
NORTH CAROLINA NATURAL GAS CORPORATION
ADDENDUM COVERING STANDBY ON-PEAK SUPPLY SERVICE
The parties agree that the following provisions covering standby
on-peak supply service are incorporated into and made a part of the Natural Gas
Service Contract between the parties dated January 9, 1992, and that the term of
service under this Addendum will begin on November 1, 1996, and end on March 31,
1998.
1. The Company and the Customer acknowledge that under the Gas Service
Contract to which this addendum applies, Customer subscribes to a rate schedule
under which Company may curtail service to the Customer.
2. Subject to the availability of an adequate supply of natural gas and
capacity to deliver that gas to Customer's specific location on Company's
system, whenever the Company issued a curtailment order, Customer may request
deliveries under Company's Rate Schedule ST-1.
3. Customer may not request more than the maximum quantity of 1,500
dekatherms daily or, cumulatively, more than 7,500 dekatherms maximum
seasonal quantity.
4. If Company issues a restoration of service order terminating
Company's curtailment order, Customer's service shall revert to the rate
schedules affected by such restoration of service order, as of the effective
time of such order, and Customer's request for deliveries under Rate Schedule
ST-1 shall be deemed to have been reduced to the quantity of gas actually
delivered to Customer thereunder prior to the effective time of such restoration
of service order.
5. Deliveries of natural gas under this addendum shall be subject to
curtailment only in the event of force majeure or a demand for gas necessary to
meet human needs on the Company's system. The Company shall not be liable for
any damages that may result to Customer or any other person, firm, or
corporation by reason of the Company's curtailment or interruption of service
hereunder.
6. Customer agrees to pay the applicable monthly per dekatherm daily
demand charge, the monthly per dekatherm seasonal capacity reservation charge
and the per therm commodity charge set forth in that portion of the currently
effective Sheet No. 4 of the Company's service tariff which relates to Rate
Schedule ST-1. The daily demand charge and seasonal reservation charge shall be
payable for each of the months November through March based on the maximum daily
and seasonal quantities set forth in Paragraph 3 above for service under Rate
Schedule ST-1. Charges at the per therm commodity charge shall be based on
actual deliveries to Customer under Rate Schedule ST-1.
7. Customer agrees to pay the monthly/daily demand charge and
monthly seasonal reservation charge multiplied by the maximum daily and
seasonal quantity set forth in Paragraph 3 above for service under Rate
Schedule ST-1 each of the months November through March regardless of the
quantity of gas purchased under Rate Schedule ST-1 during each such month.
<PAGE>139
Exhibit 10-28
Page 2 of 2
8. Company agrees to deliver the maximum daily and seasonal
quantities of natural as set forth in Paragraph 3 above.
9. In the event Customer's consumption of Natural Gas under Rate
Schedule ST-1 exceeds either the maximum daily or seasonal quantities set forth
in Paragraph 3 above for service under Rate Schedule ST-1, or customer fails to
reduce takes of gas as required herein, if Company has issued a curtailment
order in an event of force majeure or to meet human needs, the quantity of gas
taken on each such day in excess of either (1) the maximum daily or seasonal
quantity or, (2) the quantity set out in Company's curtailment order shall
constitute an unauthorized overrun quantity.
10. Customer agrees to pay Company for the unauthorized overrun
quantity taken on each day a penalty of $1 per therm for that portion of the
unauthorized overrun quantity up to 3 1/2% percent (3.5%) of the maximum daily
quantity or up to 3 1/2 percent (3.5%) of the quantity taken in excess of the
quantity set out in a curtailment order, whichever is the lesser quantity, and a
penalty of $2.50 per therm for the remaining portion of the unauthorized overrun
quantity. Customer shall pay the penalty to the Company in addition to the
charges otherwise payable by customer under Rate Schedule ST-1 or any other rate
schedule.
11. The payment of the penalty for unauthorized overrun volumes shall
under no circumstances be considered as giving any customer the right to take an
unauthorized overrun quantity.
IN WITNESS WHEREOF, the parties hereto have subscribed their names and
affixed their seals, this 28th day of August, 1996.
ATTEST: COMPANY
/s/ Sally T. Sowers BY: /s/ Calvin B. Wells
Secretary (Corporate Seal) Calvin B. Wells
President and Chief Executive Officer
ATTEST: CUSTOMER
/s/ Ann S. Hedes BY: /s/ Charles Whitley Jr.
City Clerk (Corporate Seal) Print Name: Charles Whitley Jr.
Title: Director of Utilities
<PAGE>140
Exhibit 10-24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports inlcuded in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-34779.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
December 12, 1996
<PAGE>141
Exhibit 10-29
Page 1 of 9
EMPLOYMENT AGREEMENT
AGREEMENT made this 8th day of October, 1996, between NORTH CAROLINA
NATURAL GAS CORPORATION, a Delaware corporation, (the "Company"), and RONALD J.
JOSEPHSON, (the "Executive");
The Executive is presently employed by the Company as Vice President-
Financial Services;
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
substantial. The Board desires to provide for the continued employment of the
Executive and to specify certain aspects of the Executive's employment
arrangements with the Company in order to reinforce and encourage the continued
attention and dedication to the Company of the Executive as a member of the
Company's management, in the best interests of the Company and its shareholders.
The Executive is willing to commit himself to continue to serve the Company.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement providing certain severance benefits in the
event that the Executive's employment is terminated following a change of
control in the Company. Nothing in this Agreement, however, shall alter the
Company's right to terminate the Executive's employment prior to a change in
control as defined herein.
Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Operation of Agreement.
The effective date of this Agreement shall be the date on which a
change of control of the Company occurs. A "Change in Control" shall be deemed
to have occurred if (i) the Company consolidates or merges into or with another
corporation as a result of which the Company is not the surviving corporation,
or (ii) a majority of the outstanding shares of the Company is acquired by any
other corporation or other person or group. "Group" shall mean persons who act
in concert as described in Section 14(d)(2) of the Securities Exchange Act of
1934, as amended.
2. Period of Employment.
The Company shall continue the Executive in its employ for a period of
three years commencing upon a Change in Control (the "Period of Employment"), in
the position and duties and responsibilities set forth below.
3. Position, Duties, Responsibilities.
During the period of Employment, the Executive shall continue to
exercise such authority and perform such executive duties as are substantially
equivalent to and reasonably commensurate with his position immediately prior to
the Change in Control, with consideration being given to the size of the
Surviving Corporation if the Company is merged into another corporation.
<PAGE>142
Exhibit 10-29
Page 2 of 4
4. Compensation and Related Matters.
(a) Salary. During the period of Employment, the Company shall pay to
the Executive a salary not less than his annual rate of salary in effect at the
change in control, payable in a manner consistent with the Company's policy.
Compensation of the Executive by salary payments shall not be deemed exclusive
and shall not prevent the Executive from participating in any other compensation
or benefit plan of the Company.
(b) Other Benefits. During the period of Employment, the Company shall
maintain in full force and effect, and the Executive shall be entitled to
continue to participate in, all of its employee benefit plans and arrangements
in effect at the Change in Control, or plans or arrangements providing the
Executive with at least equivalent benefits thereunder based on all service with
the Company, including without limitation any pension and retirement plan, life
insurance, health and accident plan, and disability income plan.
The Company shall not make any changes in any employee benefit plans or
arrangements which would adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executives of the Company and does not result in a proportionately greater
reduction in the rights of, or benefits to, the Executive as compared with any
other executive of the Company. Nothing paid to the Executive under any employee
benefit plan presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to the Executive pursuant to paragraph (a)
of this Section.
5. Termination Following Change in Control.
(a) If, after a Change in Control shall have occurred, the Executive's
employment by the Company shall be terminated, then the Executive shall be
entitled to the benefits provided below, unless such termination is (a) because
of his death or Retirement, (ii) by the Company for Cause or Disability, or
(iii) by the Executive other than for Good Reason, as such terms as defined in
paragraph (b) of this Section.
(1) The Executive's salary shall continued for two (2) years and eleven
(11) months, provided that if the Executive shall obtain a position with another
employer at a lesser salary, the amount of the salary paid hereunder shall be
reduced to the difference, if any, between the salary continued hereunder and
the Executive's salary in the position obtained with another employer, and (2)
the Executive shall be entitled to continue to participate in any pension or
retirement plan, life insurance, health and accident plan and disability income
plan for two (2) years and eleven (11) months at a level which is not materially
less than that in effect at the time of Change of Control provided that if the
Executive shall obtain a position with another employer, the benefit plans as
set out above shall be discontinued sixty (60) days after the date the Executive
is so employed.
(2) The Company shall also reimburse the Executive for all legal fees
and expenses incurred in Seeking to obtain or enforce any right or benefit
provided by this Agreement.
(b) Definitions of terms as used herein are as follows:
(1) Disability. Termination by the Company of the Executive's
employment based on "Disability" shall mean termination because of his absence
from his duties with the Company on a full time basis for 180 consecutive
business days, as a result of his incapacity due to physical or mental illness.
<PAGE>143
Exhibit 10-29
Page 3 of 4
(2) Retirement. Termination by the Company or the Executive of his
employment based on "Retirement" shall mean termination in accordance with the
Company's retirement policy, including early retirement, generally applicable to
its salaried employees.
(3) Cause. Termination by the Company of the Executive's employment for
"Cause" shall mean termination upon (a) the willful and continued failure by him
substantially to perform his duties with the Company (other than any such
failure resulting from his incapacity due to physical or mental illness), or (b)
the willful engaging by him in misconduct which is materially injurious to the
Company, monetarily or otherwise.
(4) Good Reason. Termination by the Executive of his employment for
"Good Reason" shall mean termination subsequent to a Change in Control based on
(a) the assignment to the Executive of any duties which are materially
inconsistent with his position as described above; or (b) a reduction by the
Company in the Executive's base salary or other benefits as described above or
as the same may be increased from time to time; or (c) the failure by the
Company to obtain the assumption of this Agreement by any successor as
contemplated herein.
6. Successors; Binding Agreement.
The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company by agreement in form and substance
satisfactory to the Executive expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as defined and any successor to its
business and/or assets as aforesaid which executes and delivers the agreement
provided for in this paragraph or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
7. Miscellaneous.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and such officer as may be specifically designated by the Board of
Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
8. Governing Law.
The provisions of this Agreement shall be construed in accordance with
the laws of the State of North Carolina.
9. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
<PAGE>144
Exhibit 10-29
Page 4 of 4
10. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and seal,
and, pursuant to the authorization of its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
/s/ Ronald J. Josephson (SEAL)
RONALD J. JOSEPHSON, Executive
NORTH CAROLINA NATURAL GAS CORPORATION
ATTEST: BY /s/ Calvin B. Wells
-------------------------------
Calvin B. Wells, President
BY /s/ Sally T. Sowers
--------------------------------
Sally T. Sowers, Secretary
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