PART I
ITEM l. BUSINESS
GENERAL
PG Energy Inc. ("PG Energy"), formerly known as Pennsylvania Gas and Water
Company, is a subsidiary of Pennsylvania Enterprises, Inc. ("PEI"). PG Energy,
incorporated in Pennsylvania in 1867 as Dunmore Gas & Water Company, is engaged
in the distribution of natural gas. On February 14, 1997, PG Energy acquired
all of the outstanding capital stock of Honesdale Gas Company ("Honesdale"), a
regulated public utility engaged in distributing natural gas to portions of
Wayne and Pike Counties, in an area adjacent to PG Energy's service territory.
Until February 16, 1996, when its water utility operations were sold, PG Energy
was also engaged in the distribution of water (See "-Sale of Water Utility
Operations."). Both PG Energy and Honesdale are regulated by the Pennsylvania
Public Utility Commission ("PPUC"). As of December 31, 1997, PG Energy provided
service to approximately 147,000 natural gas customers and Honesdale provided
service to approximately 3,300 customers.
PG Energy and Honesdale employed approximately 570 persons as of December
31, 1997.
Restructuring of Natural Gas Industry
The natural gas industry, which historically has included producers,
interstate pipelines and local distribution companies ("LDCs"), is undergoing
significant restructuring. The industry is rapidly progressing from a highly
regulated environment to one in which there is competition, customer choice and
only partial regulation. The same change is also beginning to occur in the
electric industry which competes with the natural gas industry for many of the
same energy uses.
The restructuring of the natural gas industry has already involved the
decontrol of the wellhead price of natural gas, and interstate pipelines have
been required by the Federal Energy Regulatory Commission ("FERC") to separate
the merchant function of selling natural gas from the transportation and storage
services they provide (frequently referred to as "unbundling") and to make those
services available to end users on the same terms as LDCs. These changes in the
operations of the interstate pipelines were designed to enhance competition and
maximize the benefits of wellhead price decontrol.
As a result of actions by FERC, the interstate pipelines now primarily
provide transportation and storage services, and LDCs, such as PG Energy, are
presently responsible for procuring competitively-priced gas supplies and
arranging for the appropriate transportation capacity and storage services with
the interstate pipelines. Additionally, in accordance with regulations
promulgated by the PPUC, PG Energy currently offers transportation service to
certain customers.
Prior to the unbundling of services by the interstate pipelines and those
services being made available to end users as well as LDCs, and until the PPUC
adopted regulations providing for the transportation of natural gas, PG Energy
charged all its customers bundled rates. These rates included a commodity
charge based on the cost, as approved by FERC, which PG Energy paid the
pipelines for natural gas delivered to the entry point on its distribution
system. Except for the approximately 560 customers currently receiving
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transportation service, PG Energy's customers continue to be charged bundled
rates as approved by the PPUC, which include a commodity charge based on the
costs prudently incurred by PG Energy for the purchase of natural gas and for
interstate pipeline transportation capacity and storage services. Customers
receiving transportation service, which accounted for approximately 48% of PG
Energy's total gas deliveries in 1997, are charged rates approved by the PPUC,
which exclude the commodity cost that is reflected in the bundled rates charged
to other customers.
Although the regulations promulgated by the PPUC only require LDCs to offer
transportation service to individual customers having an annual consumption of
at least 5,000 thousand cubic feet ("MCF") of natural gas and groups of not more
than ten customers having a combined consumption of at least 5,000 MCF per year,
the PPUC has allowed certain LDCs to make transportation service available to
other customers, regardless of their consumption. One of these companies is
Honesdale which, with the approval of the PPUC, began offering transportation
service to all of its some 3,300 customers effective November 1, 1997. As of
February 1, 1998, approximately 1,250 of Honesdale's customers had elected to
receive transportation service and to purchase their natural gas supplies from
PG Energy Services Inc. ("Energy Services"), a nonregulated affiliate of PG
Energy and the only marketer currently selling gas to customers served by
Honesdale. PG Energy is also planning to file tariffs with the PPUC in the near
future seeking approval to make transportation service available to all of its
147,000 customers. Moreover, as noted below, PG Energy currently believes that
Pennsylvania may enact legislation in 1998 requiring that all customers of LDCs
have the right, within the next several years, to receive transportation service
and to choose the supplier of their natural gas.
In December, 1996, legislation was enacted in Pennsylvania which provides
all customers of electric utilities in the state with the right to choose the
generator of their electricity. This customer choice, which is intended to
increase competition and to lower costs for electricity, is being phased in over
a three-year period ending on January 1, 2001. Under this legislation, the
electric utilities in Pennsylvania are required to unbundle generation charges
from the other charges included in their currently bundled rates and customers
can contract with qualified suppliers of their choosing, including the utility
currently serving them, to purchase electric energy at nonregulated rates. The
electric utilities will continue to utilize their transmission and distribution
networks to distribute electricity to their customers regardless of supplier, a
function which will remain subject to rate regulation by the PPUC.
PG Energy believes that Pennsylvania may enact similar legislation with
respect to the natural gas industry in 1998. As currently envisioned, such
legislation would require that PG Energy provide all of its customers with
unbundled transportation service within one to two years. While the rates for
the transportation of natural gas through PG Energy's distribution system and
the storage services offered by PG Energy would continue to be price regulated
by the PPUC, the commodity cost of gas purchased from suppliers other than PG
Energy would not be so regulated. Customers could, however, continue to receive
a bundled sales service from PG Energy which would be subject to price
regulation by the PPUC. Essentially, the legislation would extend the
transportation service which is now available to a limited number of PG Energy's
customers to all its customers, and customers could choose to have their natural
gas provided by a supplier other than PG Energy, based on nonregulated market
prices and other considerations.
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If Pennsylvania enacts legislation which permits all customers of LDCs to
choose their supplier of natural gas, PG Energy will be faced with significant
competition from marketers and brokers for the sale of natural gas to its
customers. However, under current regulations of the PPUC, PG Energy does not
realize a profit or incur any loss with respect to the commodity cost of natural
gas. Moreover, PG Energy would not expect the pending legislation to result in
the bypass of its distribution system by any significant number of customers
because of the nature of its customer base and the cost of any such bypass.
Additionally, based on various provisions of the legislation currently being
considered, PG Energy does not believe that the legislation will result in any
significant amount of transition costs (such as the negotiated buyout of
contracts with interstate pipelines, the recovery of deferred purchased gas
costs or the recovery of regulated assets). Further, PG Energy believes that
any transition costs it may incur would generally be recoverable through rates
or other customer charges. Accordingly, although it cannot be certain, because
the terms of such legislation have not been finalized and the ultimate effect on
PG Energy cannot be determined, PG Energy does not believe that the enactment of
legislation providing for customers to purchase their natural gas from third
parties would have any material adverse impact on its earnings or financial
condition despite the increased competition to which PG Energy would be subject
regarding the sale of natural gas to its customers.
Sale of Water Utility Operations
On February 16, 1996, PG Energy sold its regulated water operations and
certain related assets to Pennsylvania-American Water Company ("Pennsylvania-
American"), a wholly-owned subsidiary of American Water Works Company, Inc.
("American"), for $414.3 million, consisting of $262.1 million in cash and the
assumption of $152.2 million of PG Energy's liabilities, including $141.0
million of its long-term debt. (See Note 2, Discontinued Operations, of the
Notes to Consolidated Financial Statements in Item 8 of this Form 10-K).
The cash proceeds from the sale of approximately $205.4 million, net of
$56.7 million of income taxes, were used by PEI and PG Energy to retire debt, to
repurchase stock, for construction expenditures and for working capital
purposes. (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources-Sale of Water Utility
Operations" in Item 7 of this Form 10-K).
GAS BUSINESS
PG Energy and Honesdale (collectively referred to as the "Company")
distribute natural gas to an area in northeastern Pennsylvania lying within the
Counties of Luzerne, Lackawanna, Lycoming, Wyoming, Northumberland, Wayne,
Columbia, Union, Montour, Snyder, Susquehanna, Pike and Clinton, a territory
that includes the cities of Scranton, Wilkes-Barre and Williamsport. The total
estimated population of the Company's natural gas service area, based on the
1990 U.S. Census, is 760,000.
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Number and Type of Customers. At December 31, 1997, the Company had
approximately 150,300 natural gas customers, from which it derived total natural
gas revenues of $190.6 million during 1997. The following chart shows a
breakdown of the types of customers and the percentages of gas revenues
generated by each type of customer in 1997:
[CAPTION]
Type of Customer % of Customers % of Revenues
[S] [C] [C]
Residential 90.8% 66.4%
Commercial 9.0 24.3*
Industrial 0.2 7.8*
Other Users - 1.5
Total 100.0% 100.0%
* Includes the 2.7% of total gas revenues derived from interruptible
customers.
During 1997, the Company delivered an estimated total of 48,300,000 MCF of
natural gas to its customers, of which 51.2% was sold at normal tariff rates,
47.5% represented gas transported for customers and 1.3% was sold under the
Alternate Fuel Rate (as described below).
The Company sells gas to "firm" customers with the understanding that their
supply will not be interrupted except during periods of supply deficiency or
emergency conditions. "Interruptible" gas customers are required to have
equipment installed capable of using an alternate energy form. Interruptible
customers, therefore, do not require a continuous supply of gas and their supply
can be interrupted at any time under the conditions set forth in their contracts
for gas service. In 1997, a total of 5,484,000 MCF of natural gas was sold to
interruptible customers, of which 5,042,000 MCF was transported for such
customers, which together represented 11.4% of the total deliveries of natural
gas to customers during 1997.
PG Energy's largest natural gas customer accounted for less than 1% of its
operating revenues in 1997.
Transportation and Storage Service. In accordance with current regulations
of the PPUC, PG Energy provides transportation service to natural gas customers
who consume at least 5,000 MCF of natural gas per year, meet certain other
conditions and execute a transportation agreement. In addition, groups of up to
ten customers, with a combined consumption of at least 5,000 MCF per year, are
eligible for transportation service. The PPUC has, however, allowed certain
LDCs to make transportation service available to other customers, regardless of
their consumption. One of these companies is Honesdale which, with the approval
of the PPUC, began offering transportation service to all of its some 3,300
customers effective November 1, 1997. As of February 1, 1998, approximately
1,250 of Honesdale's customers had elected to receive transportation service and
to purchase their natural gas supplies from Energy Services, the only marketer
currently selling gas to customers served by Honesdale.
Transportation service is provided on both a firm and an interruptible basis
and includes provisions regarding over and under deliveries of gas on behalf of
the respective customer. In addition, firm transportation customers are offered
a "storage service" pursuant to which such customers may have gas delivered
during the period from April through October for storage and redelivery during
the winter period. The Company also offers firm transportation customers a
"standby service" under the terms of which the customer will be supplied with
gas in the event the customer's transportation service is interrupted or
curtailed by its broker, supplier or other third party.
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Set forth below is a summary of gas transported by the Company and the
number of customers using transportation service from 1995 to 1997:
[CAPTION]
Number Volume of Gas Transported (MCF)
of Interstate Pennsylvania
Year Customers Gas Gas Total
[S] [C] [C] [C] [C]
1997 1,244 (a) 22,584,000 99,000 22,683,000
1996 503 15,959,000 4,459,000 20,418,000
1995 480 14,543,000 5,054,000 19,597,000
(a) Includes 729 residential and commercial customers of Honesdale
receiving transportation service as of December 31, 1997.
During 1998, the Company expects to transport approximately 25,676,000 MCF
of natural gas.
The rates charged by the Company for the transportation of interstate gas
are essentially equal to its tariff rates for the sale of gas with all gas costs
removed. Accordingly, the transportation of interstate gas has had no
significant adverse effect on earnings. Prior to January 15, 1997, the rates
charged for the transportation of Pennsylvania-produced natural gas
("Pennsylvania gas") were lower than those charged for the transportation of
interstate gas. As a result, the rates charged for the transportation of
Pennsylvania gas yielded considerably less revenue than the gross margin (gas
operating revenues less the cost of gas) that would be realized from sales under
normal tariff rates. However, as of January 15, 1997, in connection with PG
Energy's rate increase which was effective on such date (see "-Rates"), the
lower rates charged for the transportation of Pennsylvania gas were eliminated
and those rates were conformed with the rates charged for the transportation of
interstate gas. The elimination of such differential was the primary reason for
the dramatic decrease in the volume of Pennsylvania-produced gas transported by
the Company in 1997.
Alternate Fuel Sales. In order to be more competitive in terms of price
with certain alternate fuels, PG Energy offers an Alternate Fuel Rate for
eligible customers. This rate applies to large commercial and industrial
accounts that have the capability of using No. 2, 4 or 6 fuel oil or propane as
an alternate source of energy. Whenever the cost of such alternate fuel drops
below the cost of natural gas at PG Energy's normal tariff rates, PG Energy is
permitted by the PPUC to lower its price to these customers so that PG Energy
can remain competitive with the alternate fuel. However, in no instance may PG
Energy sell gas under this special arrangement for less than its average
commodity cost of gas purchased during the month. PG Energy's revenues under
the Alternate Fuel Rate amounted to $2.4 million in 1997, $1.8 million in 1996
and $2.0 million in 1995. These revenues reflected the sale of 651,000 MCF,
491,000 MCF and 603,000 MCF in 1997, 1996 and 1995, respectively. It is
anticipated that approximately 666,000 MCF will be sold under the Alternate Fuel
Rate in 1998. The change in volumes sold under the Alternate Fuel Rate reflects
the switching by certain customers between alternate fuel service and
transportation service as a result of periodic changes in the relative cost of
natural gas and alternate fuels.
FERC Order 636. On April 8, 1992, FERC issued Order No. 636 ("Order 636"),
requiring interstate pipelines to restructure their services and operations in
order to enhance competition and maximize the benefits of wellhead price
decontrol. The objectives of Order 636 were to be accomplished primarily by
unbundling the services provided by the interstate pipelines and by making those
services available to end users on the same terms as LDCs.
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Pursuant to Order 636, the interstate pipelines have been required to: (1)
unbundle transportation service from sales service; (2) allocate sufficient
storage capacity, together with firm transportation, to replicate previous sales
services; (3) provide a no-notice transportation service; (4) provide open
access storage service; (5) reallocate upstream pipeline capacity and upstream
storage for the benefit of downstream interstate pipeline suppliers; and (6)
implement a straight fixed-variable rate design to replace all modified fixed-
variable rate designs. The interstate pipelines have been granted a blanket
sales certificate to make unbundled sales in competition with non-pipeline
merchants and are being permitted recovery of all reasonable and prudent
transition costs incurred in order to comply with Order 636. Such transition
costs include: (1) the cost of renegotiating existing gas supply contracts with
producers ("Gas Supply Realignment Costs"); (2) recovery of gas costs included
in the interstate pipelines' purchased gas adjustment accounts at the time they
adopted market-based pricing for gas sales ("Account 191 Costs"); (3)
unrecovered costs of assets that cannot be assigned to customers of unbundled
services ("Stranded Costs"); and (4) costs of new facilities to physically
implement Order 636 ("New Facility Costs"). Additionally, the interstate
pipelines have been allowed pre-granted abandonment of sales and transportation
services to customers upon expiration of applicable contracts, subject to
customers' rights of first refusal.
On October 15, 1993, the PPUC adopted an annual purchased gas cost ("PGC")
order (the "PGC Order") regarding the recovery of Order 636 transition costs.
The PGC Order stated that Account 191 and New Facility Costs (the "Gas
Transition Costs") are subject to recovery through the annual PGC rate filing
made with the PPUC by PG Energy and other larger LDCs.
As of February 1, 1994, PG Energy began to recover the Gas Transition Costs
billed by its interstate pipelines through an increase in its PGC rate. As of
December 31, 1997, PG Energy had been billed a total of $1.3 million of Gas
Transition Costs by its interstate pipelines, which is the entire amount of such
billings that PG Energy expects. Of this amount, $857,000 was recovered by PG
Energy over a twelve-month period ended January 31, 1995, through an increase in
its PGC rate, $252,000 was recovered by PG Energy in its annual PGC rate that
the PPUC approved effective December 1, 1995, and the remaining $213,000 was
recovered by PG Energy in its PGC rate that was effective December 1, 1996.
The PGC Order also indicated that while Gas Supply Realignment and Stranded
Costs (the "Non-Gas Transition Costs") are not natural gas costs eligible for
recovery under the PGC rate filing mechanism, such costs are subject to full
recovery by LDCs through the filing of a tariff pursuant to either the existing
surcharge or base rate provisions of the Pennsylvania Public Utility Code (the
"Code"). By Order of the PPUC entered August 26, 1994, PG Energy began
recovering the Non-Gas Transition Costs that it estimates it will ultimately be
billed pursuant to Order 636 through the billing of a surcharge to its customers
effective September 12, 1994. It is currently estimated that $10.7 million of
Non-Gas Transition Costs will be billed to PG Energy, generally over a five-year
period extending through January 1, 1999, of which $9.6 million had been billed
to PG Energy and $9.5 million had been recovered from its customers as of
December 31, 1997. In addition, during 1997 $1.1 million of take-or-pay costs
refunded to PG Energy by its suppliers were applied as a reduction of the total
Non-Gas Transition Costs recoverable from customers. The remaining balance of
Non-Gas Transition Costs, which is presently estimated to be $134,000, is
expected to be recovered by PG Energy from its customers during 1998.
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Sources of Supply. The Company purchases natural gas from marketers,
producers, and integrated energy companies, generally under the terms of supply
arrangements that extend for the heating season (i.e., November through March)
or for periods of one year or longer. These contracts typically provide for an
adjustment each month in the cost of gas purchased pursuant thereto based on the
then current market prices for natural gas. The largest individual supplier, an
integrated energy company, accounted for 21% of the Company's total purchases of
natural gas in 1997. Two other suppliers accounted for 20% and 17%,
respectively, of the Company's total purchases of natural gas in 1997. No other
suppliers accounted for more than 10% the Company's purchases during 1997.
The purchases of natural gas by the Company during 1997 and by PG Energy
during 1996 and 1995 are summarized below:
[CAPTION]
Volume Average
Year Purchased (MCF) Cost per MCF
[S] [C] [C]
1997 25,831,000 $3.27
1996 27,955,000 $3.35
1995 24,173,000 $2.62
The higher average cost for 1996 reflected the increase in the wellhead
price of natural gas during much of the year that resulted from the unusually
cold weather experienced in the northeastern United States during the winter of
1995/96 and the associated reduction in the volumes of gas held in storage to
abnormally low levels in the spring of 1996. The average cost decreased only
slightly in 1997 because of market demand and concerns regarding the adequacy of
storage levels.
During 1998, the Company expects to purchase approximately 29,306,000 MCF of
natural gas under seasonal or longer-term contracts at a currently projected
average cost of $2.82 per MCF.
The Company presently has adequate supplies of natural gas to meet the
demands of existing customers through October, 1998, and believes it will be
able to obtain sufficient supplies to meet the demands of existing customers
beyond October, 1998, and to serve new customers (of which approximately 4,000
are expected to be added in 1998).
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Pipeline Transportation and Storage Entitlements. Pursuant to the terms of
Order 636, the Company has entered into agreements with its former interstate
pipeline suppliers providing for the firm long haul transportation by those
pipelines on a daily basis of the following quantities of gas:
[CAPTION]
Daily Percentage of Total
Expiration Transportation Transportation
Pipeline Date (a) Entitlement (MCF) Entitlement
[S] [C] [C] [C]
Transco Various through 2015 74,100 (b) 59.8%
Tennessee 1999 and 2000 38,894 (c) 31.4
Columbia 2004 11,016 8.8
124,010 100.0%
(a) Agreements are automatically extended from month-to-month or year-
to-year after their expiration unless notice of termination is given
by one of the parties and the Company agrees to such termination.
In no event may any of the agreements be unilaterally terminated by
the pipelines without the approval of the FERC.
(b) Includes 3,300 MCF per day that PG Energy can transport during the
period December through February pursuant to an agreement with
Transco that extends through 2011.
(c) Includes up to 2,300 MCF per day that Honesdale can transport during
the period November through January pursuant to an agreement with
Tennessee that extends through November, 2000.
The Company has also contracted with its former interstate pipeline
suppliers and the New York State Electric and Gas Company ("NYSEG") for the
following volumes of gas storage and storage withdrawals:
<TABLE>
<CAPTION>
Maximum
Expiration Total Storage Daily Withdrawal
Pipeline/Party Date (a) (MCF) (b) From Storage (MCF)
<S> <C> <C> <C>
Transco Various through 2013 6,500,000 131,044
Tennessee November 1, 2000 3,800,000 25,885
Columbia October 31, 2004 1,100,000 16,036
NYSEG (c) March 31, 2002 290,000 29,000
11,690,000 201,965
</TABLE>
(a) Agreements are automatically extended from month-to-month or year-
to-year after their expiration unless notice of termination is given
by one of the parties and the Company agrees to such termination.
In no event may any of the agreements be unilaterally terminated by
the pipelines without the approval of the FERC.
(b) Storage is utilized in order to meet peak day and seasonal demands.
(c) Storage gas is delivered via Transco.
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Based on its present pipeline transportation and storage entitlements, the
Company is entitled to a maximum daily delivery of the following quantities of
gas:
[CAPTION]
Firm Pipeline Withdrawals
Transportation From Storage Percentage
Pipeline (MCF) (MCF) Total (MCF) of Total
[S] [C] [C] [C] [C]
Transco 74,100 (a) 160,044 (c) 234,144 71.8%
Tennessee 38,894 (b) 25,885 64,779 19.9
Columbia 11,016 16,036 27,052 8.3
124,010 201,965 325,975 100.0%
(a) Includes 3,300 MCF that may be transported by PG Energy during the
period December through February.
(b) Includes up to 2,300 MCF that may be transported by Honesdale during
the period November through January.
(c) Includes 29,000 MCF that may be withdrawn under the terms of the
storage contract with NYSEG.
In accordance with the provisions of Order 636, the Company may release to
customers and other parties the portions of firm pipeline transportation and
storage entitlements which are in excess of its requirements. Such releases may
be made upon notice in accordance with the provisions of Order 636 and for a
consideration not in excess of the cost of the respective entitlement. Releases
may be made for periods ranging from one day to the remaining term of the
entitlement.
Since September 1, 1993, PG Energy has released portions of its firm
pipeline transportation capacity to certain of its customers and third parties
for varying periods extending up to three years. Honesdale has also released
portions of its firm pipeline transportation capacity since August 1, 1997.
During 1997, the average daily capacity so released was 42,296 MCF, and the
maximum capacity released on any one day in 1997 was 55,114 MCF. Through
December 31, 1997, the Company has not, however, released any storage capacity.
The Company believes it has sufficient firm pipeline transportation and
storage entitlements to meet the demands of its existing customers and to supply
new customers.
Peak Day Requirements. The Company plans for peak day demand on the basis
of a daily mean temperature of 0 degrees Fahrenheit. Requirements for such a
design peak day, assuming the curtailment of service to interruptible customers,
are currently estimated to be 338,000 MCF, of which 247,000 MCF would be
required for customers to whom the Company sells gas and 91,000 MCF would be
required for customers for whom the Company provides transportation service.
The Company's historic maximum daily sendout is 307,237 MCF, which occurred on
January 17, 1997, when service to interruptible customers and select industrial
users was curtailed. The mean temperature in its gas service area on that day
was 5 degrees Fahrenheit.
Capital Expenditures. Capital expenditures totaled $30.2 million during
1997 and are estimated to be $36.3 million during 1998.
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Regulation. The Company's natural gas utility operations are regulated by
the PPUC, particularly as to utility rates, service and facilities, accounts,
issuance of certain securities, the encumbering or disposition of public utility
properties, the design, installation, testing, construction, and maintenance of
pipeline facilities and various other matters associated with broad regulatory
authority.
In addition to those regulations promulgated by the PPUC, the Company must
also comply with federal, state and local regulations relating generally to the
discharge of materials into the environment or otherwise relating to the
protection of the environment. Compliance with such regulations has not had any
material effect upon the capital expenditures, earnings or competitive position
of the Company's gas business. Although it cannot predict the future impact of
these regulations, the Company believes that any additional expenditures and
costs made necessary by them would be fully recoverable through rates.
PG Energy, like many gas distribution companies, once utilized manufactured
gas plants in connection with providing gas service to its customers. None of
these plants has been in operation since 1972, and several of the plant sites
are no longer owned by PG Energy. Pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), PG Energy filed
notices with the United States Environmental Protection Agency (the "EPA") with
respect to the former plant sites. None of the sites is or was formerly on the
proposed or final National Priorities List. The EPA has conducted site
inspections and made preliminary assessments of each site and has concluded that
no further remedial action is planned. Notwithstanding this determination by
the EPA, some of the sites may ultimately require remediation. One site that
was owned by PG Energy from 1951 to 1967 and at which it operated a manufactured
gas plant from 1951 to 1954 was subject to remediation in 1996. The remediation
at this site, which was performed by the party from whom PG Energy acquired the
site in 1951, required the removal of materials from two former gas holders.
The cost of such remediation is purported to have been approximately $525,000,
of which the party performing the remediation is seeking to recover a material
portion from PG Energy. PG Energy, however, believes that any liability it may
have with respect to such remediation would be considerably less than the amount
that the other party is seeking. While the final resolution of the matter is
uncertain, PG Energy does not believe that it will have any material impact on
its financial position or results of operations. Although the conclusion by the
EPA that it anticipates no further remedial action with respect to the sites at
which PG Energy operated manufactured gas plants does not constitute a legal
prohibition against further regulatory action under CERCLA or other applicable
federal or state law, the Company does not believe that additional costs, if
any, related to these manufactured gas plant sites would be material to its
financial position or results of operations since environmental remediation
costs generally are recoverable through rates over a period of time.
The Company's gas distribution and transportation activities are not subject
to the Natural Gas Act, as amended.
Rates. By Order adopted December 19, 1996, the PPUC approved an overall
5.3% increase in PG Energy's base gas rates, designed to produce $7.5 million of
additional annual revenue, effective January 15, 1997. Under the terms of the
Order, the billing for the impact of the rate increase relative to PG Energy's
residential heating customers, which totaled $2.4 million through June 30, 1997,
was deferred, without carrying charges, until July, 1997.
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The provisions of the Code require that the tariffs of LDCs be adjusted on
an annual basis, and, in the case of larger LDCs such as PG Energy, on an
interim basis when circumstances dictate, to reflect changes in their purchased
gas costs. The procedure includes a process for the reconciliation of actual
gas costs incurred and actual revenues received and also provides for the refund
of any overcollections, plus interest thereon, or the recoupment of any
undercollections of gas costs. The procedure is limited to purchased gas costs,
to the exclusion of other rate matters, and requires a formal evidentiary
proceeding conducted by the PPUC, the submission of specific information
regarding gas procurement practices and specific findings of fact by the PPUC
regarding the "least cost fuel procurement" policies of the utility.
In accordance with these procedures PG Energy has been permitted to make the
following changes since January 1, 1995, to the gas costs contained in its
tariff rates:
[CAPTION]
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
[S] [C] [C] [C]
March 1, 1998 $4.05 $3.95 $ (2,100,000)
December 1, 1997 4.49 4.05 (12,100,000)
March 1, 1997 4.18 4.49 8,300,000
December 1, 1996 3.01 4.18 32,400,000
September 1, 1996 2.88 3.01 3,600,000
June 1, 1996 2.75 2.88 3,400,000
December 1, 1995 2.42 2.75 9,600,000
May 15, 1995 3.68 2.42 (8,200,000)*
* Represents estimated reduction in revenue for the period May 15, 1995,
through November 30, 1995.
The changes in gas rates on account of purchased gas costs have no effect on
earnings since the change in revenue is offset by a corresponding change in the
cost of gas.
FERC Order 636, among other matters, requires that the Company contract for
sufficient gas supplies, pipeline capacity and storage for its annual needs.
These added responsibilities have resulted in increased scrutiny by the PPUC as
to the prudence of gas procurement and supply activities. However, to date, the
PPUC has permitted the Company to recover its gas supply costs in the rates
charged to customers. Additionally, although it cannot be certain, the Company
believes that it will be able to continue demonstrating to the PPUC the prudence
of its gas supply costs and, therefore, will be allowed to recover all such
costs in future purchased gas cost rates.
Tax Surcharge Adjustments. Regulations of the PPUC provide for the Company
to apply a state tax adjustment surcharge tariff to its bills for gas service to
recoup any increased taxes or pass through any decreased taxes resulting from
changes in the law with respect to the Pennsylvania Capital Stock Tax, Corporate
Net Income Tax, Gross Receipts Tax or Public Utility Realty Tax. Honesdale is
currently recovering approximately $20,000 of increased taxes on an annual basis
in accordance with these regulations, while no state tax adjustment surcharge is
presently being applied to PG Energy's bills for gas service.
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<PAGE>
WATER BUSINESS
Prior to the sale of its water operations to Pennsylvania-American on
February 16, 1996, PG Energy distributed water to an area lying within the
Counties of Lackawanna, Luzerne, Susquehanna and Wayne, which included the
Cities of Scranton and Wilkes-Barre and 63 other municipalities. The total
estimated population of the water service area, based on the 1990 U.S. Census,
was 373,000.
Number and Type of Customers. At December 31, 1995, PG Energy had
approximately 133,400 water customers from which it derived total water revenues
of $66.3 million during 1995 and $7.5 million during the period January 1
through February 15, 1996.
Filtration of Water Supplies. All of PG Energy's water customers were
supplied with filtered water (except for several hundred who were supplied with
ground water from wells). The filtration of PG Energy's water supplies was
performed at ten water treatment plants, located throughout PG Energy's water
service area, which had an aggregate daily capacity of 101.1 million gallons.
Construction Expenditures. PG Energy's construction expenditures for water
utility plant totaled $15.3 million in 1995 and $815,000 during the period
January 1 through February 15, 1996.
ITEM 2. PROPERTIES
Gas. The Company's gas system consists of approximately 2,400 miles of
distribution lines, eleven city gate and 80 major regulating stations and
miscellaneous related and additional property. The Company believes that its
gas utility properties are adequately maintained and in good operating condition
in all material respects.
Most of PG Energy's gas utility properties are subject to a first mortgage
lien pursuant to the Indenture of Mortgage and Deed of Trust dated as of March
15, 1946, as supplemented by thirty supplemental indentures (collectively, the
"Indenture") from PG Energy to First Trust of New York, National Association, as
Trustee.
Land. As of February 25, 1998, PG Energy owned approximately 45,000 acres
of undeveloped land situated in northeastern Pennsylvania.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings other than ordinary routine litigation
incidental to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, there were no matters submitted to a vote
of security holders of the registrant through the solicitation of proxies or
otherwise.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrant's common stock is owned entirely by PEI and is not traded.
The cash dividends per share of common stock paid by PG Energy during the
years ended December 31, 1997 and 1996 were as follows:
[CAPTION]
1997 1996
[S] [C] [C]
First quarter $ - $10.2170
Second quarter - -
Third quarter - -
Fourth quarter - -
Total $ - $10.2170
The cash dividends per share for the first quarter of 1996 include $9.0770
with respect to a special $30.0 million dividend in the form of a 10.125%
promissory note that was issued by PG Energy to PEI on February 16, 1996, in
connection with the sale of PG Energy's water utility operations on such date.
The 10.125% promissory note was paid in full by PG Energy on March 8, 1996.
Information relating to restrictions on the payment of dividends by PG
Energy is set forth in Note 7 of the Notes to Consolidated Financial Statements
in Item 8 of this Form 10-K.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESTRUCTURING OF NATURAL GAS INDUSTRY
PG Energy Inc. ("PG Energy"), a subsidiary of Pennsylvania Enterprises, Inc.
("PEI"), and PG Energy's wholly-owned subsidiary, Honesdale Gas Company
("Honesdale"), are regulated public utilities engaged in the sale and
distribution of natural gas. The natural gas industry, which historically has
included producers, interstate pipelines and local distribution companies
("LDCs"), is undergoing significant restructuring. The industry is rapidly
progressing from a highly regulated environment to one in which there is
competition, customer choice and only partial regulation. The same change is
also beginning to occur in the electric industry which competes with the natural
gas industry for many of the same energy uses.
The restructuring of the natural gas industry has already involved the
decontrol of the wellhead price of natural gas, and interstate pipelines have
been required by the Federal Energy Regulatory Commission ("FERC") to separate
the merchant function of selling natural gas from the transportation and storage
services they provide (frequently referred to as "unbundling") and to make those
services available to end users on the same terms as LDCs. These changes in the
operations of the interstate pipelines were designed to enhance competition and
maximize the benefits of wellhead price decontrol.
As a result of actions by FERC, the interstate pipelines now primarily
provide transportation and storage services, and LDCs, such as PG Energy, are
presently responsible for the procurement of competitively-priced gas supplies
and arranging for the appropriate transportation capacity and storage services
with the interstate pipelines. Additionally, in accordance with regulations
promulgated by the Pennsylvania Public Utility Commission (the "PPUC"), PG
Energy currently offers transportation service to certain customers.
Prior to the unbundling of services by the interstate pipelines and those
services being made available to end users as well as LDCs, and until the PPUC
adopted regulations providing for the transportation of natural gas, PG Energy
charged all its customers bundled rates. These rates included a commodity
charge based on the cost, as approved by FERC, which PG Energy paid the
pipelines for natural gas delivered to the entry point on its distribution
system. Except for the approximately 560 customers currently receiving
transportation service, PG Energy's customers continue to be charged bundled
rates as approved by the PPUC, which include a commodity charge based on the
costs prudently incurred by PG Energy for the purchase of natural gas and for
interstate pipeline transportation capacity and storage services. Customers
receiving transportation service, which accounted for approximately 48% of PG
Energy's total gas deliveries in 1997, are charged rates approved by the PPUC,
which exclude the commodity cost that is reflected in the bundled rates charged
to other customers.
Although the regulations promulgated by the PPUC only require LDCs to offer
transportation service to individual customers having an annual consumption of
at least 5,000 thousand cubic feet ("MCF") of natural gas and groups of not more
than ten customers having a combined consumption of at least 5,000 MCF per year,
the PPUC has allowed certain LDCs to make transportation service available to
other customers, regardless of their consumption. One of these companies is
Honesdale which, with the approval of the PPUC, began offering transportation
service to all of its some 3,300 customers effective November 1, 1997. As of
February 1, 1998, approximately 1,250 of Honesdale's customers had elected to
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<PAGE>
receive transportation service and to purchase their natural gas supplies from
PG Energy Services Inc. ("Energy Services"), a nonregulated affiliate of PG
Energy and the only marketer currently selling gas to customers served by
Honesdale. PG Energy is also planning to file tariffs with the PPUC in the near
future seeking approval to make transportation service available to all of its
147,000 customers. Moreover, as noted below, PG Energy currently believes that
Pennsylvania may enact legislation in 1998 requiring that all customers of LDCs
have the right, within the next several years, to receive transportation service
and to choose the supplier of their natural gas.
In December, 1996, legislation was enacted in Pennsylvania which provides
all customers of electric utilities in the state with the right to choose the
generator of their electricity. This customer choice, which is intended to
increase competition and to lower costs for electricity, is being phased in over
a three-year period ending on January 1, 2001. Under this legislation, the
electric utilities in Pennsylvania are required to unbundle generation charges
from the other charges included in their currently bundled rates and customers
can contract with qualified suppliers of their choosing, including the utility
currently serving them, to purchase electric energy at nonregulated rates. The
electric utilities will continue to utilize their transmission and distribution
networks to distribute electricity to their customers regardless of supplier, a
function which will remain subject to rate regulation by the PPUC.
PG Energy believes that Pennsylvania may enact similar legislation with
respect to the natural gas industry in 1998. As currently envisioned, such
legislation would require that PG Energy provide all of its customers with
unbundled transportation service within one to two years. While the rates for
the transportation of natural gas through PG Energy's distribution system and
the storage services offered by PG Energy would continue to be price regulated
by the PPUC, the commodity cost of gas purchased from suppliers other than PG
Energy would not be so regulated. Customers could, however, continue to receive
a bundled sales service from PG Energy which would be subject to price
regulation by the PPUC. Essentially, the legislation would extend the
transportation service which is now available to a limited number of PG Energy's
customers to all its customers, and customers could choose to have their natural
gas provided by a supplier other than PG Energy, based on nonregulated market
prices and other considerations.
If Pennsylvania enacts legislation which permits all customers of LDCs to
choose their supplier of natural gas, PG Energy will be faced with significant
competition from marketers and brokers for the sale of natural gas to its
customers. However, under current regulations of the PPUC, PG Energy does not
realize a profit or incur any loss with respect to the commodity cost of natural
gas. Moreover, PG Energy would not expect the pending legislation to result in
the bypass of its distribution system by any significant number of customers
because of the nature of its customer base and the cost of any such bypass.
Additionally, based on various provisions of the legislation currently being
considered, PG Energy does not believe that the legislation will result in any
significant amount of transition costs (such as the negotiated buyout of
contracts with interstate pipelines, the recovery of deferred purchased gas
costs or the recovery of regulated assets). Further, PG Energy believes that
any transition costs it may incur would generally be recoverable through rates
or other customer charges. Accordingly, although it cannot be certain, because
the terms of such legislation have not been finalized and the ultimate effect on
PG Energy cannot be determined, PG Energy does not believe that the enactment of
legislation providing for customers to purchase their natural gas from third
parties would have any material adverse impact on its earnings or financial
condition despite the increased competition to which PG Energy would be subject
regarding the sale of natural gas to its customers.
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<PAGE>
DISCONTINUED OPERATIONS
Pursuant to an Asset Purchase Agreement dated April 26, 1995, as amended
(the "Agreement"), among PEI, PG Energy, American Water Works Company, Inc.
("American") and Pennsylvania-American Water Company ("Pennsylvania-American"),
a wholly-owned subsidiary of American, PEI and PG Energy sold substantially all
of the assets, properties and rights of PG Energy's water utility operations to
Pennsylvania-American on February 16, 1996 (see "Liquidity and Capital Resources
- - Sale of Water Utility Operations").
In accordance with generally accepted accounting principles, the
consolidated financial statements reflect PG Energy's water utility operations
as "discontinued operations" effective March 31, 1995, and the following
sections of Management's Discussion and Analysis generally relate only to PG
Energy's continuing operations. For additional information regarding the
discontinued operations, see Note 2 of the accompanying Notes to Consolidated
Financial Statements.
RESULTS OF CONTINUING OPERATIONS
The following table expresses certain items in PG Energy's statements of
income as percentages of operating revenues for each of the calendar years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Percentage of Operating Revenues
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATING REVENUES........................... 100.0% 100.0% 100.0%
Cost of gas................................ 58.2 55.0 55.3
OPERATING MARGIN............................. 41.8 45.0 44.7
OTHER OPERATING EXPENSES:
Operation.................................. 12.9 15.6 14.7
Maintenance................................ 2.7 3.4 3.2
Depreciation............................... 4.7 4.7 4.6
Income taxes............................... 3.9 4.0 3.4
Taxes other than income taxes.............. 6.1 6.9 6.5
Total operating expenses................. 30.3 34.6 32.4
OPERATING INCOME............................. 11.5 10.4 12.3
OTHER INCOME, NET............................ 0.1 0.1 0.2
INTEREST CHARGES............................. (5.2) (4.6) (7.0)
INCOME FROM CONTINUING OPERATIONS............ 6.4 5.9 5.5
LOSS WITH RESPECT TO DISCONTINUED
OPERATIONS................................. - (0.2) (2.5)
NET INCOME................................... 6.4 5.7 3.0
DIVIDENDS ON PREFERRED STOCK(1).............. (0.7) (1.1) (1.8)
EARNINGS APPLICABLE TO COMMON STOCK.......... 5.7% 4.6% 1.2%
</TABLE>
(1) None of the dividends on preferred stock has been allocated to the
discontinued operations.
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<PAGE>
o Year Ended December 31, 1997, Compared With Year Ended December 31, 1996
Operating Revenues. Operating revenues increased $30.0 million (18.7%) from
$160.6 million for 1996 to $190.6 million for 1997, primarily as a result of
higher levels in PG Energy's gas cost rate and the effect of the rate increase
granted PG Energy by the PPUC which became effective on January 15, 1997 (see
"Rate Matters"). The effect of the increases in rates was partially offset by a
749,000 cubic feet (2.9%) decrease in deliveries to PG Energy's residential and
commercial heating customers. There was a decrease of 130 (2.0%) heating degree
days from 6,627 (105.3% of normal) during 1996 to 6,497 (103.3% of normal)
during 1997. Operating revenues of Honesdale totaling $3.0 million from its
February 14, 1997, acquisition date through December 31, 1997, also contributed
to the increased operating revenues.
Cost of Gas. The cost of gas increased $22.6 million (25.6%) from $88.3
million for 1996 to $110.9 million for 1997, primarily because of higher levels
in PG Energy's gas cost rate (see "-Rate Matters"). Also contributing to the
increase was $2.0 million of gas costs related to Honesdale from its February
14, 1997, acquisition date through December 31, 1997.
Operating Margin. The operating margin increased $7.4 million (10.2%) from
$72.3 million in 1996 to $79.7 million in 1997, primarily because of the
aforementioned rate increase granted to PG Energy and $1.0 million of operating
margin of Honesdale since its February 14, 1997, acquisition date. As a
percentage of operating revenues, the margin decreased from 45.0% in 1996 to
41.8% in 1997, largely as a result of the proportionately higher ratio of cost
of gas to operating revenues.
Other Operating Expenses. Other operating expenses, including depreciation
and income taxes, increased $2.1 million (3.8%) from $55.6 million for 1996 to
$57.7 million for 1997. As a percentage of operating revenues, total operating
expenses decreased from 34.6% during 1996 to 30.3% during 1997, largely as a
result of the proportionately greater increase in operating revenues. This
increase was primarily the result of a $1.4 million (18.1%) increase in
depreciation expense attributable to additions to utility plant and a $629,000
(5.7%) increase in taxes other than income taxes resulting from a higher level
of gross receipts tax because of the increased sales by PG Energy and the sales
by Honesdale from its acquisition date.
Income taxes increased $957,000 (15.0%) from $6.4 million in 1996 to $7.3
million in 1997 due to an increase in income before income taxes (for this
purpose, operating income net of interest charges).
Operating Income. As a result of the above, operating income increased by
$5.2 million (31.4%) from $16.7 million for 1996 to $22.0 million for 1997, and
increased as a percentage of total operating revenues from 10.4% in 1996 to
11.5% in 1997.
Other Income, Net. Other income, net decreased $43,000 (30.1%) from
$143,000 for 1996 to $100,000 for 1997, largely because 1996 included income
from the temporary investment of certain proceeds from the sale of PG Energy's
regulated water utility operations in February, 1996.
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<PAGE>
Interest Charges. Interest charges increased $2.6 million (35.5%) from $7.3
million for 1996 to $9.9 million for 1997. This increase was largely
attributable to bank borrowings to finance construction expenditures and for
other working capital needs and the reduction in PG Energy's interest expense in
1996 resulting from the repayment of its $50.0 million term loan and all of its
then outstanding bank borrowings on February 16, 1996, with proceeds from the
sale of its regulated water utility operations on such date.
Income From Continuing Operations. Income from continuing operations
increased $2.6 million (27.3%) from $9.5 million for 1996 to $12.1 million for
1997. This increase was largely the result of the matters discussed above,
principally the increase in operating margin, the effects of which were
partially offset by increased operating expenses and interest charges.
Net Income (Loss). The increase in net income of $3.0 million (32.3%) from
$9.2 million for 1996 to $12.1 million for 1997 was the result of the higher
income from continuing operations, as discussed above, and the absence of any
loss with respect to discontinued operations.
Dividends on Preferred Stock. Dividends on preferred stock decreased
$418,000 (24.2%) from $1.7 million for 1996 to $1.3 for 1997, primarily as a
result of the repurchase by PG Energy in 1996 of 134,359 shares of its 9%
cumulative preferred stock, 9,408 shares of its 5.75% cumulative preferred stock
and 20,330 shares of its 4.10% cumulative preferred stock, largely during the
second quarter of that year, as well as its repurchase of an additional 30,560
shares of the 4.10% cumulative preferred stock in 1997.
Earnings (Loss) Applicable to Common Stock. The increase in earnings
applicable to common stock of $3.4 million (45.5%) from $7.4 million for 1996 to
$10.8 million for 1997, as well as the increase in earnings per share of common
stock of $1.80 from $1.69 per share for 1996 (after a $.37 per share charge for
premiums on the repurchase of preferred stock) to $3.49 per share for 1997
(including a $.23 per share discount on the repurchase of preferred stock) were
the result of the higher income from continuing operations and the reduced
dividends on preferred stock, as discussed above, and the absence of any loss
with respect to discontinued operations. The increase in earnings applicable to
common stock also reflected a 8.0% decrease in the weighted average number of
shares outstanding as a result of the repurchase by PG Energy of shares of its
common stock on February 16, 1996, with proceeds from the sale of its regulated
water utility operations.
o Year Ended December 31, 1996, Compared With Year Ended December 31, 1995
Operating Revenues. Operating revenues increased $7.8 million (5.1%) from
$152.8 million for 1995 to $160.6 million for 1996 primarily as a result of a
1.5 billion cubic feet (6.8%) increase in sales to residential and commercial
heating customers. There was a 598 (9.9%) increase in heating degree days from
6,029 (95.8% of normal) during 1995 to 6,627 (105.3% of normal) during 1996.
The effects of the increased sales to heating customers were partially offset by
lower levels in PG Energy's gas cost rate. See "-Rate Matters."
Cost of Gas. The cost of gas increased $3.9 million (4.6%) from $84.4
million for 1995 to $88.3 million for 1996 primarily because of the
aforementioned increase in sales to residential and commercial heating
customers, the effects of which were partially offset by lower levels in PG
Energy's gas cost rate (see "-Rate Matters").
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<PAGE>
Operating Margin. The operating margin increased $3.9 million (5.7%) from
$68.4 million in 1995 to $72.3 million in 1996, primarily because of the 1.5
billion cubic feet (6.8%) increase in consumption by residential and commercial
heating customers. As a percentage of operating revenues, the margin increased
from 44.7% in 1995 to 45.0% in 1996.
Other Operating Expenses. Other operating expenses increased $6.1 million
(12.4%) from $49.5 million for 1995 to $55.6 million for 1996, and increased as
a percentage of operating revenues from 32.4% during 1995 to 34.6% during 1996.
The $6.1 million increase in other operating expenses was attributable to a
number of factors, the most significant of which was a $2.6 million (11.7%)
increase in operation expenses, primarily as a result of higher payroll and
payroll-related costs. Payroll and payroll-related costs increased largely
because of charges, which had formerly been allocated to PG Energy's
discontinued operations, being absorbed by its continuing operations. Also
contributing to the higher operating expenses was a $641,000 (9.2%) increase in
depreciation expense attributable to additions to PG Energy's utility plant, as
well as a $546,000 (11.0%) increase in maintenance expenses caused by charges
relating to the maintenance of gas valves and a $1.1 million (11.2%) increase in
taxes other than income taxes as a result of increased gross receipts tax.
Income taxes increased $1.2 million (23.1%) from $5.2 million in 1995 to
$6.4 million in 1996 due to an increase in income before income taxes (for this
purpose, operating income net of interest charges).
Operating Income. As a result of the above, operating income decreased by
$2.2 million (11.7%) from $18.9 million for 1995 to $16.7 million for 1996, and
decreased as a percentage of total operating revenues for such periods from
12.3% in 1995 to 10.4% in 1996, primarily because of the higher level of other
operating expenses.
Other Income, Net. Other income, net decreased $158,000 (52.5%) from
$301,000 for 1995 to $143,000 for 1996, largely as a result of a $548,000 charge
relative to the sale and abandonment of PG Energy's interest in certain gas
rights and properties in western Pennsylvania.
Interest Charges. Interest charges decreased by $3.4 million (31.7%) from
$10.8 million for 1995 to $7.3 million for 1996. This decrease was largely
attributable to the lower level of indebtedness resulting from the repayment of
PG Energy's $50.0 million term loan and all of its then outstanding bank
borrowings on February 16, 1996, with proceeds from the sale of its regulated
water utility operations on such date.
Income From Continuing Operations. Income from continuing operations
increased $1.0 million (12.3%) from $8.5 million for 1995 to $9.5 million for
1996. This increase was largely the result of the matters discussed above,
principally the increase in operating margin and the decrease in interest
charges, the effects of which were partially offset by the higher level of other
operating expenses.
Net Income. The increase in net income of $4.5 million from $4.6 million
for 1995 to $9.1 million for 1996, was largely the result of the higher income
from continuing operations, as discussed above, and the decreased loss with
respect to discontinued operations.
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<PAGE>
Dividends on Preferred Stock. Dividends on preferred stock decreased $1.0
million (37.4%) from $2.8 million for 1995 to $1.7 million for 1996, primarily
as a result of the repurchase by PG Energy in 1996 of 134,359 shares of its 9%
cumulative preferred stock, 9,408 shares of its 5.75% cumulative preferred stock
and 20,330 shares of its 4.10% cumulative preferred stock, largely during the
second quarter of the year.
Earnings Applicable to Common Stock. The increase in earnings applicable to
common stock of $5.6 million from $1.9 million for 1995 to $7.4 million for
1996, as well as the increase in earnings per share of common stock of $1.36
from $.33 per share for 1995 to $1.69 per share for 1996 (after a $.37 per share
charge for premiums on the repurchase of preferred stock), were the result of
higher income from continuing operations and reduced dividends on preferred
stock, as discussed above, and the decrease of $.59 per share, from $.69 per
share for 1995 to $.10 per share for 1996, in the loss with respect to
discontinued operations. The increase in earnings applicable to common stock
reflected a 35.3% decrease in the weighted average number of shares outstanding
for 1996 resulting from the aforementioned repurchase of common stock on
February 16, 1996.
RATE MATTERS
Rate Increase. By Order adopted December 19, 1996, the PPUC approved an
overall 5.3% increase in PG Energy's base gas rates, designed to produce $7.5
million of additional annual revenue, effective January 15, 1997. Under the
terms of the Order, the billing for the impact of the rate increase relative to
PG Energy's residential heating customers, which totaled $2.4 million through
June 30, 1997, was deferred, without carrying charges, until July, 1997.
Gas Cost Adjustments. The provisions of the Pennsylvania Public Utility
Code require that the tariffs of LDCs be adjusted on an annual basis, and, in
the case of larger LDCs such as PG Energy, on an interim basis when
circumstances dictate, to reflect changes in their purchased gas costs. The
procedure includes a process for the reconciliation of actual gas costs incurred
and actual revenues received and also provides for the refund of any
overcollections, plus interest thereon, or the recoupment of any
undercollections of gas costs.
In accordance with these procedures PG Energy has been permitted to make the
following changes since January 1, 1995, to the gas costs contained in its
tariff rates:
[CAPTION]
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
[S] [C] [C] [C]
March 1, 1998 $4.05 $3.95 $ (2,100,000)
December 1, 1997 4.49 4.05 (12,100,000)
March 1, 1997 4.18 4.49 8,300,000
December 1, 1996 3.01 4.18 32,400,000
September 1, 1996 2.88 3.01 3,600,000
June 1, 1996 2.75 2.88 3,400,000
December 1, 1995 2.42 2.75 9,600,000
May 15, 1995 3.68 2.42 (8,200,000)*
* Represents estimated reduction in revenue for the period May 15, 1995,
through November 30, 1995.
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<PAGE>
The changes in gas rates on account of purchased gas costs have no effect on
earnings since the change in revenue is offset by a corresponding change in the
cost of gas.
Effects of Inflation. When utility property reaches the end of its useful
life and must be replaced, PG Energy and Honesdale (collectively referred to as
the "Company") will incur replacement costs in amounts that due to the effects
of inflation would materially exceed either the original cost or the accrued
depreciation of such property as reflected on their books of account. However,
the cost of such replacement property would be includable in rate base, and the
Company would be entitled to recover depreciation expense and earn a return
thereon, to the extent that its investment in such property was prudently
incurred and the property is used and useful in furnishing public utility
service.
LIQUIDITY AND CAPITAL RESOURCES
Sale of Water Utility Operations
On February 16, 1996, PG Energy sold its regulated water operations and
certain related assets to Pennsylvania-American for $414.3 million, consisting
of $262.1 million in cash and the assumption of $152.2 million of PG Energy's
liabilities, including $141.0 million of its long-term debt. PEI and PG Energy
used the $205.4 million of cash proceeds from the sale, net of $56.7 million of
income taxes, to retire debt, to repurchase stock, for construction expenditures
and for other working capital purposes. In this regard, PG Energy repurchased
2,297,297 shares of its common stock from PEI for an aggregate consideration of
$85.0 million, repaid its $50.0 million term loan due 1996 and all of its then
outstanding bank borrowings on February 16, 1996, and PEI and PG Energy
temporarily invested the balance of the proceeds. A portion of these proceeds
were subsequently used by PG Energy (i) on March 8, 1996, to repay the $30.0
million principal amount of its 10.125% promissory note (the "10.125% Promissory
Note") which was issued to PEI as a common stock dividend on February 16, 1996
(proceeds from the repayment of the 10.125% Promissory Note were used by PEI for
the defeasance of PEI's 10.125% Senior Notes on September 30, 1996) and (ii) to
repurchase 134,359 shares of its 9% cumulative preferred stock for an aggregate
consideration of $14.5 million and 20,330 shares of its 4.10% cumulative
preferred stock for an aggregate consideration of $1.0 million, largely pursuant
to self tender offers conducted during March and April, 1996. Additionally, on
June 17, 1996, PG Energy repurchased 9,408 shares of its 5.75% cumulative
preferred stock (including 800 shares redeemed in accordance with annual sinking
fund provisions) for an aggregate consideration of $838,000.
Liquidity
The primary capital needs of the Company continue to be the funding of its
construction program and the seasonal funding of its gas purchases and increases
in customer accounts receivable. The Company's revenues are highly seasonal and
weather-sensitive, with approximately 75% of its revenues normally being
realized in the first and fourth quarters of the calendar year when the
temperatures in its service area are the coldest.
The cash flow from the Company's operations is generally sufficient to fund
a portion of its construction expenditures. However, to the extent external
financing is required, it is the Company's practice to use bank borrowings to
fund such expenditures, pending the periodic issuance of stock and long-term
debt. Bank borrowings are also used for the seasonal funding of the Company's
gas purchases and increases in its customer accounts receivable.
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<PAGE>
In order to temporarily finance construction expenditures and to meet its
seasonal borrowing requirements, the Company has made arrangements for a total
of $69.5 million of unsecured revolving bank credit, which is deemed adequate
for its immediate needs. Specifically, PG Energy currently has seven bank lines
of credit with an aggregate borrowing capacity of $68.5 million which provide
for borrowings at interest rates generally less than prime and which mature at
various times during 1998 and 1999. Honesdale has a $1.0 million revolving bank
line of credit which provides for borrowing at the prime rate (currently 8.50%)
and which matures in June, 1998. The Company intends to renew or replace these
lines of credit as they expire. As of February 25, 1998, the Company had $15.5
million of borrowings outstanding under these bank lines of credit. In
addition, PG Energy can borrow up to $70.0 million from PEI through December 31,
1999 (at interest rates generally less than prime), to repay bank borrowings and
for construction expenditures and other working capital requirements, to the
extent that PEI has funds available for lending to PG Energy. As of February
25, 1998, PG Energy had approximately $23.5 million outstanding under its
borrowing arrangement with PEI. Such interim borrowings by PG Energy from PEI
will be repaid with proceeds from bank borrowings by PG Energy. PG Energy plans
to arrange new and replacement bank lines of credit when the funds that are
available for borrowing from PEI are no longer available and as it requires
additional funding for working capital and other purposes.
The Company believes it will be able to raise in a timely manner such funds
as are required for future construction expenditures, refinancings and other
working capital requirements.
Long-Term Debt and Capital Stock Financings
The Company periodically engages in long-term debt and capital stock
financings in order to obtain funds required for construction expenditures, the
refinancing of existing debt and various working capital purposes. Set forth
below is a summary of such financings consummated since the beginning of 1996,
exclusive of interim bank borrowings.
On September 12, 1997, PG Energy borrowed $25.0 million pursuant to a five-
year term loan agreement dated August 14, 1997 (the "Term Loan Agreement"),
which matures on August 14, 2002. Borrowings under the Term Loan Agreement bear
interest at LIBOR ("London Interbank Offered Rates") plus one-quarter of one
percent (5.880% as of February 25, 1998). Under the terms of the Term Loan
Agreement, PG Energy can choose interest rate periods of one, two, three or six
months. PG Energy utilized the proceeds from such loan to repay $25.0 million
of its bank borrowings.
On September 30, 1997, PG Energy issued $25.0 million of its 6.92% Senior
Notes due September 30, 2004 (the "6.92% Senior Notes"). The proceeds from the
issuance of the 6.92% Senior Notes were used by PG Energy to repay $25.0 million
of its bank borrowings.
Under the terms of PEI's Customer Stock Purchase Plan (the "Customer Plan"),
which then provided the residential customers of PG Energy with a method of
purchasing newly-issued shares of PEI's common stock at a 5% discount from the
market price, 176,462 shares ($2.4 million) of PEI's common stock were issued in
1995. PEI used proceeds from the issuance of shares through the Customer Plan
to purchase common stock of PG Energy. PG Energy realized $2.4 million from the
issuance of common stock to PEI in connection with the Customer Plan during
1995. Effective May 9, 1995, PEI suspended the Customer Plan because of the
significant reduction in its capital requirements resulting from the sale of PG
Energy's water utility operations to Pennsylvania-American and because of the
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<PAGE>
proceeds received from such sale. However, based on its currently-anticipated
funding requirements and in order to help maintain an appropriate capital
structure, PEI reinstated the Customer Plan, effective February 4, 1998. Upon
such reinstatement, the Customer Plan was amended to provide the residential
customers of all PEI's subsidiaries, including PG Energy and Honesdale, with a
method of purchasing newly-issued shares of PEI's common stock at a 5% discount
from the market price.
PG Energy also obtains funds from the sale of its common stock to PEI in
connection with PEI's Dividend Reinvestment and Stock Purchase Plan (the "DRP").
Effective May 9, 1995, PEI suspended the cash investment feature of the DRP and
the 5% discount from the market price on the reinvestment of dividends under the
DRP because of the significant reduction in its capital requirements resulting
from the sale of PG Energy's water utility operations to Pennsylvania-American
and because of the proceeds received from such sale. The cash investment
feature was, however, reinstated effective June 1, 1996. Additionally, from
June 14, 1996, through December 31, 1996, PEI temporarily suspended the sale of
newly-issued stock to the DRP as a result of the proceeds received from the sale
of PG Energy's water utility operations, and during that period the DRP obtained
shares of PEI common stock for participants through open market purchases.
Effective January 1, 1997, PEI resumed selling newly-issued stock to the DRP.
On January 30, 1998, the DRP was amended to reinstate the provision whereby
shareholders may reinvest cash dividends and make supplemental cash investments
to purchase newly-issued shares of PEI's common stock at a 5% discount from the
market price.
Although PEI resumed selling newly-issued stock to the DRP effective January
1, 1997, PG Energy did not issue any shares of its common stock to PEI in
connection with the DRP during 1997 because of the reduction in its capital
requirements resulting from the sale of PG Energy's water utility operations to
Pennsylvania-American and because of the proceeds received from such sale.
During 1996 and 1995, PG Energy realized $340,000 and $3.3 million,
respectively, from the issuance of common stock to PEI in connection with the
DRP. However, based on its currently-anticipated funding requirements and in
order to help maintain an appropriate capital structure, PG Energy plans to
resume selling shares of its common stock to PEI in connection with the DRP
during 1998.
Construction Expenditures and Related Financings
Expenditures for the construction of utility plant totaled $30.2 million,
$29.2 million and $21.1 million in 1997, 1996 and 1995, respectively. Such
expenditures were financed with internally-generated funds and bank borrowings,
and to the extent necessary by the periodic issuance of stock and long-term
debt.
The Company currently estimates that its capital expenditures will total
$36.3 million during 1998. Capital expenditures are currently expected to
approximate $37.0 million in each of the years 1999 and 2000. It is anticipated
that such expenditures will be financed with internally generated funds and bank
borrowings, pending the periodic issuance of stock and long-term debt.
Current Maturities of Long-Term Debt and Preferred Stock
As of December 31, 1997, $24.8 million of PG Energy's long-term debt, and
$80,000 of PG Energy's preferred stock was required to be repaid within twelve
months.
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<PAGE>
Year 2000
The Company is currently replacing its financial and customer information
systems with purchased software packages. In connection with the installation
of these new systems, the primary year 2000 issues will be resolved. The new
financial systems are anticipated to be operational in mid-1998 and the new
customer information system is anticipated to be operational in early 1999.
The Company has completed a review of the program coding of other
significant in-house developed applications and determined that they are
presently year 2000 compliant. Additionally, the Company is reviewing its
installed base of personal computers to identify non-compliant machines that
would be in service at year 2000.
Forward-Looking Statements
Certain statements made above relating to plans, conditions, objectives and
economic performance go beyond historical information and may provide an
indication of future results. To that extent, they are forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, and each is subject to factors that could cause actual results to differ
from those in the forward-looking statement, such as the nature of Pennsylvania
legislation restructuring the natural gas industry and general economic
conditions and uncertainties. The Company undertakes no obligation to publicly
release any revision to these forward-looking statements to reflect events or
circumstances after the date of this filing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the reports of
independent accountants thereon are presented on pages 25 through 49 of this
Form 10-K.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of PG Energy Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) and (2) on page 51 present fairly, in all
material respects, the financial position of PG Energy Inc. and its subsidiary
at December 31, 1997, and the results of their operations and their cash flows
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. The financial statements of
PG Energy Inc. for the two years in the period ended December 31, 1996, were
audited by other independent accountants whose report dated February 19, 1997,
expressed an unqualified opinion on those statements.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
February 18, 1998
-25-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To PG Energy Inc.:
We have audited the accompanying balance sheet and statement of capitalization
of PG Energy Inc. ("PG Energy"), formerly known as Pennsylvania Gas and Water
Company (a Pennsylvania corporation and a wholly-owned subsidiary of
Pennsylvania Enterprises, Inc.) as of December 31, 1996, and the related
statements of income, common shareholder's investment, and cash flows for each
of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of PG Energy'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 financial statements referred to above present fairly, in
all material respects, the financial position of PG Energy Inc. as of December
31, 1996, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 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. Supplemental Schedule II, Valuation and Qualifying
Accounts for the three-year period ended December 31, 1996 (see 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
New York, N.Y.
February 19, 1997
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<PAGE>
<TABLE>
<CAPTION>
PG ENERGY INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1997 1996 1995
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES $ 190,567 $ 160,594 $ 152,756
Cost of gas 110,905 88,291 84,372
OPERATING MARGIN 79,662 72,303 68,384
OTHER OPERATING EXPENSES:
Operation 24,534 25,070 22,438
Maintenance 5,201 5,513 4,967
Depreciation 8,986 7,612 6,971
Income taxes 7,321 6,364 5,168
Taxes other than income taxes 11,657 11,028 9,918
Total other operating expenses 57,699 55,587 49,462
OPERATING INCOME 21,963 16,716 18,922
OTHER INCOME, NET 100 143 301
INCOME BEFORE INTEREST CHARGES 22,063 16,859 19,223
INTEREST CHARGES:
Interest on long-term debt 9,481 6,862 9,304
Other interest 700 658 1,543
Allowance for borrowed funds used
during construction (231) (177) (94)
Total interest charges 9,950 7,343 10,753
INCOME FROM CONTINUING OPERATIONS 12,113 9,516 8,470
LOSS WITH RESPECT TO DISCONTINUED
OPERATIONS (Note 2) - (363) (3,834)
NET INCOME 12,113 9,153 4,636
DIVIDENDS ON PREFERRED STOCK 1,312 1,730 2,763
EARNINGS APPLICABLE TO COMMON STOCK $ 10,801 $ 7,423 $ 1,873
COMMON STOCK:
Earnings (loss) per share of common stock:
Continuing operations $ 3.26 $ 2.16 $ 1.02
Discontinued operations - (.10) (.69)
Income before discount (premium) on
repurchase/redemption of preferred stock 3.26 2.06 .33
Discount (premium) on repurchase/redemption
of preferred stock .23 (.37) -
Total $ 3.49 $ 1.69 $ .33
Weighted average number of shares outstanding 3,314,155 3,601,072 5,569,765
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PG ENERGY INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
(Thousands of Dollars)
ASSETS
<S> <C> <C>
UTILITY PLANT:
At original cost $351,106 $319,205
Accumulated depreciation (88,129) (79,783)
262,977 239,422
OTHER PROPERTY AND INVESTMENTS 4,459 4,894
CURRENT ASSETS:
Cash and cash equivalents 304 690
Accounts receivable -
Customers 23,551 17,183
Affiliates, net 63 58
Others 280 565
Reserve for uncollectible accounts (1,168) (1,140)
Accrued utility revenues 11,680 11,830
Materials and supplies, at average cost 2,716 2,460
Gas held by suppliers, at average cost 21,933 20,265
Natural gas transition costs collectible 134 2,525
Deferred cost of gas and supplier refunds, net 6,182 19,316
Prepaid expenses and other 1,633 1,313
67,308 75,065
DEFERRED CHARGES:
Regulatory assets -
Deferred taxes collectible 30,592 29,771
Other 4,415 4,274
Unamortized debt expense 1,164 1,153
Other 225 -
36,396 35,198
TOTAL ASSETS $371,140 $354,579
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PG ENERGY INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION (see accompanying statements):
Common shareholder's investment $107,425 $ 96,005
Preferred stock of PG Energy -
Not subject to mandatory redemption, net 15,864 18,851
Subject to mandatory redemption 640 739
Long-term debt 129,500 55,000
253,429 170,595
CURRENT LIABILITIES:
Current portion of long-term debt
Parent - 31,400
Other 24,776 38,721
Preferred stock subject to repurchase or mandatory
redemption 80 115
Note payable 2,170 10,000
Accounts payable -
Suppliers 14,515 17,831
Parent 199 348
Accrued general business and realty taxes 2,797 2,239
Accrued income taxes 4,946 14,559
Accrued interest 1,844 1,936
Accrued natural gas transition costs 1,087 2,095
Other 1,188 3,375
53,602 122,619
DEFERRED CREDITS:
Deferred income taxes 52,207 49,119
Unamortized investment tax credits 4,596 4,767
Operating reserves 2,825 3,086
Other 4,481 4,393
64,109 61,365
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
TOTAL CAPITALIZATION AND LIABILITIES $371,140 $354,579
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PG ENERGY INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1997 1996 1995
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations $ 12,113 $ 9,516 $ 8,470
Effects of noncash charges to income -
Depreciation 9,034 7,675 7,018
Deferred income taxes, net 1,863 1,940 (265)
Provisions for self insurance 711 1,042 2,652
Other, net 1,902 1,390 5,190
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and accrued utility revenues (5,220) 46 (3,309)
Gas held by suppliers (1,668) (5,125) 4,885
Accounts payable (4,425) 215 839
Deferred cost of gas and supplier refunds, net 14,397 (18,493) 5,715
Other current assets and liabilities, net 1,526 2,958 (6,622)
Other operating items, net (1,809) (5,644) 2,675
Net cash provided by (used for) continuing
operations 28,424 (4,480) 27,248
Net cash provided by (used for) discontinued
operations (13,655) (45,173) 3,764
Net cash provided by (used for) operating
activities 14,769 (49,653) 31,012
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant (30,971) (29,312) (20,615)
Proceeds from the sale of discontinued
operations - 261,752 -
Acquisition of regulated business (2,019) - -
Other, net 557 1,078 (4,934)
Net cash provided by (used for) investing
activities (32,433) 233,518 (25,549)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock - 339 5,720
Repurchase of common stock - (85,008) -
Redemption of preferred stock (3,121) (15,670) (80)
Dividends on common and preferred stock (1,312) (35,498) (18,032)
Issuance of long-term debt 25,000 - 50,000
Issuance of long-term debt to parent - 49,900 -
Repayment of long-term debt - (50,000) (53,535)
Repayment of long-term debt to parent (7,900) (18,500) -
Net increase (decrease) in bank borrowings 4,053 (27,723) 10,519
Other, net 558 (1,343) (31)
Net cash provided by (used for)
financing activities 17,278 (183,503) (5,439)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (386) 362 24
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 690 328 304
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 304 $ 690 $ 328
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 9,395 $ 7,139 $ 23,802
Income taxes $ 15,548 $ 46,483 $ 8,694
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PG ENERGY INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
1997 1996
(Thousands of Dollars)
<S> <C> <C>
COMMON SHAREHOLDER'S INVESTMENT:
Common stock, no par value
(stated value $10 per share)
Authorized - 15,000,000 shares
Outstanding - 3,314,155 shares $ 33,142 $ 33,142
Additional paid-in capital 32,677 32,677
Retained earnings 41,606 30,186
Total common shareholder's investment 107,425 42.4% 96,005 56.3%
PREFERRED STOCK, par value $100 per share
Authorized - 997,500 shares:
Not subject to mandatory redemption, net -
4.10% cumulative preferred,
49,110 and 79,670 shares outstanding,
respectively 4,911 7,967
Less current repurchases - (35)
9% cumulative preferred, 115,641 shares
outstanding, net of issuance costs 10,953 10,919
Total preferred stock not subject to
mandatory redemption, net 15,864 6.3% 18,851 11.1%
Subject to mandatory redemption -
5.75% cumulative preferred, 7,200 and
8,192 shares outstanding, respectively 720 819
Less current redemption requirements (80) (80)
Total preferred stock subject to
mandatory redemption 640 0.2% 739 0.4%
LONG-TERM DEBT:
First mortgage bonds 55,000 55,000
Notes 99,276 70,121
Less current maturities and sinking
fund requirements (24,776) (70,121)
Total long-term debt 129,500 51,1% 55,000 32.2%
TOTAL CAPITALIZATION $ 253,429 100.0% $ 170,595 100.0%
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PG ENERGY INC. AND SUBSIDIARY
STATEMENTS OF COMMON SHAREHOLDER'S INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Additional
Common Paid-In Retained
Stock Capital Earnings Total
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Balance at December 31, 1994 54,567 90,201 71,264 216,032
Net income for 1995 - - 4,636 4,636
Issuance of common stock 1,458 4,262 - 5,720
Dividends on:
Preferred stock - - (2,763) (2,763)
Common stock - - (15,269) (15,269)
Balance at December 31, 1995 56,025 94,463 57,868 208,356
Net income for 1996 - - 9,153 9,153
Issuance of common stock 90 249 - 339
Repurchase of common stock (22,973) (62,035) - (85,008)
Premium on repurchase of
preferred stock - - (1,337) (1,337)
Dividends on:
Preferred stock - - (1,730) (1,730)
Common stock - - (33,768) (33,768)
Balance at December 31, 1996 33,142 32,677 30,186 96,005
Net income for 1997 - - 12,113 12,113
Discount on redemption of
preferred stock - - 746 746
Dividends on:
Preferred stock - - (1,312) (1,312)
Common stock - - (127) (127)
Balance at December 31, 1997 $33,142 $ 32,677 $ 41,606 $107,425
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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<PAGE>
PG ENERGY INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business. PG Energy Inc. ("PG Energy"), formerly known as
Pennsylvania Gas and Water Company, a wholly-owned subsidiary of Pennsylvania
Enterprises, Inc. ("PEI"), and its wholly-owned subsidiary, Honesdale Gas
Company ("Honesdale"), acquired on February 14, 1997, are regulated public
utilities subject to the jurisdiction of the Pennsylvania Public Utility
Commission ("PPUC") for rate and accounting purposes. Together PG Energy and
Honesdale distribute natural gas to a thirteen-county area in northeastern
Pennsylvania, a territory that includes the cities of Scranton, Wilkes-Barre and
Williamsport.
Principles of Consolidation. The consolidated financial statements include
the accounts of PG Energy and Honesdale, beginning February 14, 1997, the date
Honesdale was acquired by PG Energy. All material intercompany accounts have
been eliminated in consolidation.
Both PG Energy and Honesdale (collectively referred to as the "Company") are
subject to the jurisdiction of the PPUC for rate and accounting purposes. The
consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles, including the
provisions of Financial Accounting Standards Board ("FASB") Statement 71,
"Accounting for the Effects of Certain Types of Regulation," which give
recognition to the rate and accounting practices of regulatory agencies such as
the PPUC.
Use of Accounting Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets 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. These estimates involve judgments with respect to,
among other things, various future economic factors and regulatory matters (see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Restructuring of Natural Gas Industry" in Item 7 of this Form 10-K)
which are difficult to predict and are beyond the control of the Company.
Therefore, actual amounts could differ from these estimates.
Utility Plant and Depreciation. Utility plant is stated at cost, which
represents the original cost of construction, including payroll, administrative
and general costs, and an allowance for funds used during construction.
The allowance for funds used during construction ("AFUDC") is defined as the
net cost during the period of construction of borrowed funds used and a
reasonable rate upon other funds when so used. Such allowance is charged to
utility plant and reported as a reduction of interest expense (with respect to
the cost of borrowed funds) in the accompanying consolidated statements of
income. AFUDC varies according to changes in the level of construction work in
progress and in the sources and costs of capital. The weighted average rate for
such allowance was approximately 8% in 1997, 9% in 1996 and 8% in 1995.
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<PAGE>
The Company provides for depreciation on a straight-line basis. Exclusive
of transportation and work equipment, the annual provision for depreciation, as
related to the average depreciable original cost of utility plant, was 2.81% in
1997, 2.60% in 1996 and 2.75% in 1995, respectively.
When depreciable property is retired, the original cost of such property is
removed from the utility plant accounts and is charged, together with the cost
of removal less salvage, to accumulated depreciation. No gain or loss is
recognized in connection with retirements of depreciable property, other than in
the case of significant involuntary conversions or extraordinary retirements.
Revenues and Cost of Gas. The Company bills customers monthly based on
estimated or actual meter readings on cycles that extend throughout the month.
The estimated unbilled amounts from the most recent meter reading dates through
the end of the period being reported on are recorded as accrued revenues.
The Company generally passes on to its customers increases or decreases in
gas costs from those reflected in its tariff charges. In accordance with this
procedure, the Company defers any current under or over-recoveries of gas costs
and collects or refunds such amounts in subsequent periods. The Company had
underrecoveries of gas costs totaling $17.0 million, $29.6 million and $10.4
million as of December 31, 1997, 1996 and 1995, respectively.
Deferred Charges (Regulatory Assets). The Company generally accounts for
and reports costs in accordance with the economic effect of rate actions by the
PPUC. To this extent, certain costs are recorded as deferred charges pending
their recovery in rates. These amounts relate to previously-issued orders of
the PPUC and are of a nature which, in the opinion of the Company, will be
recoverable in future rates, based on such rate orders. In addition to deferred
taxes collectible, which represent the probable future rate recovery of the
previously unrecorded deferred taxes primarily relating to certain temporary
differences in the basis of utility plant not previously recorded because of the
regulatory rate practices of the PPUC, the following deferred charges are
included as "Other" regulatory assets as of December 31, 1997 and 1996:
[CAPTION]
1997 1996
(Thousands of Dollars)
[S] [C] [C]
Computer software costs $ 1,945 $ 1,293
Early retirement plan charges 618 664
Low income usage reduction program 432 492
Rate case expense 356 588
Extraordinary charges due to flooding 348 426
Customer assistance program 181 219
Other postretirement benefits 174 -
Corrosion control costs 46 194
Other 315 398
Total $ 4,415 $ 4,274
The Company also records, as deferred charges, the direct financing costs
incurred in connection with the issuance of long-term debt and equitably
amortizes such amounts over the life of the securities.
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<PAGE>
Cash and Cash Equivalents. For the purposes of the consolidated statements
of cash flows, the Company considers all highly liquid debt instruments
purchased, which generally have a maturity of three months or less, to be cash
equivalents. Such instruments are carried at cost, which approximates market
value.
Income Taxes. The Company provides for deferred taxes in accordance with
the provisions of FASB Statement 109. The components of the net deferred income
tax liability relative to continuing operations as of December 31, 1997 and
1996, are shown below:
[CAPTION]
1997 1996
(Thousands of Dollars)
[S] [C] [C]
Utility plant basis differences $55,497 $53,132
FERC Order 636 transition costs (394) 181
Postretirement benefits (700) (726)
Take-or-pay costs, net - (467)
Operating reserves (1,181) (1,406)
Other (1,015) (1,595)
Net deferred income tax liability $52,207 $49,119
The provision for income taxes relative to continuing operations consists of
the following components:
[CAPTION]
1997 1996 1995
(Thousands of Dollars)
[S] [C] [C] [C]
Included in operating expenses:
Currently payable -
Federal $ 4,196 $ 3,235 $ 4,457
State 1,357 1,361 1,169
Total currently payable 5,553 4,596 5,626
Deferred, net -
Federal 1,844 2,059 198
State 96 (119) (463)
Total deferred, net 1,940 1,940 (265)
Amortization of investment tax credits (172) (172) (193)
Total included in operating expenses 7,321 6,364 5,168
Included in other income, net:
Currently payable -
Federal 33 (59) 135
State 11 (19) 43
Total currently payable 44 (78) 178
Deferred, net -
Federal - - -
State - - -
Total deferred, net - - -
Total included in other income, net 44 (78) 178
Total provision for income taxes $ 7,365 $ 6,286 $ 5,346
-35-
<PAGE>
The total provision for income taxes relative to continuing operations shown
in the accompanying consolidated statements of income differs from the amount
which would be computed by applying the statutory federal income tax rate to
income before income taxes. The following table summarizes the major reasons
for this difference:
[CAPTION]
1997 1996 1995
(Thousands of Dollars)
[S] [C] [C] [C]
Income before income taxes $19,478 $15,802 $13,816
Tax expense at statutory federal
income tax rate $ 6,817 $ 5,531 $ 4,836
Increases (reductions) in taxes
resulting from -
State income taxes, net of
federal income tax benefit 952 795 487
Amortization of investment tax
credits (172) (172) (193)
Other, net (232) 132 216
Total provision for income taxes $ 7,365 $ 6,286 $ 5,346
Earnings Per Share. In February, 1997, FASB Statement 128, "Earnings Per
Share" was issued. The provisions of this statement, which the Company adopted
in 1997, simplify the computation of earnings per share. The adoption of FASB
Statement 128 did not have an impact on the Company since it has a basic capital
structure and has not issued any stock options or warrants.
Reporting Comprehensive Income. In June, 1997, FASB Statement 130
"Reporting Comprehensive Income", was issued. The provisions of this statement,
which are effective for fiscal years beginning after December 15, 1997,
establish standards for reporting and display of comprehensive income and its
components in financial statements. The reporting provisions of FASB Statement
130, which the Company will adopt in 1998, are not expected to have a material
impact on the reported results of operations of the Company.
(2) DISCONTINUED OPERATIONS
Pursuant to an Asset Purchase Agreement dated April 26, 1995, as amended
(the "Agreement"), among PEI, PG Energy, American Water Works Company, Inc.
("American") and Pennsylvania-American Water Company ("Pennsylvania-American"),
a wholly-owned subsidiary of American, PEI and PG Energy sold substantially all
of the assets, properties and rights of PG Energy's water utility operations to
Pennsylvania-American on February 16, 1996. Under the terms of the Agreement,
Pennsylvania-American paid PG Energy $414.3 million consisting of $262.1 million
in cash and the assumption of $152.2 million of PG Energy's liabilities,
including $141.0 million of its long-term debt. PG Energy continued to operate
the water utility business until February 16, 1996. The cash proceeds from the
sale of approximately $205.4 million, net of $56.7 million of income taxes, were
used by PEI and PG Energy to retire debt, to repurchase stock (see Note 4 of
these Notes to Consolidated Financial Statements), for construction expenditures
and for other working capital purposes.
The sale price reflected a $6.5 million premium over the book value of the
assets sold. However, after transaction costs and the net effect of other
items, the sale resulted in an after tax loss of approximately $6.2 million, net
of the income from the water operations during the phase-out period (which for
financial reporting purposes was April 1, 1995, through February 15, 1996).
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<PAGE>
The accompanying consolidated financial statements reflect PG Energy's water
utility operations as "discontinued operations" effective March 31, 1995.
Interest charges relating to indebtedness of PG Energy were allocated through
the date of disposition to the discontinued operations based on the relationship
of the gross water utility plant that was sold to the total of PG Energy's gross
gas and water utility plant. This is the same method as was utilized by PG
Energy and the PPUC in establishing the revenue requirements of both PG Energy's
gas and water utility operations. None of the dividends on PG Energy's
preferred stock nor any of PEI's interest expense were allocated to the
discontinued operations.
Selected financial information for the discontinued operations for the year
ended December 31, 1995, is set forth below:
[CAPTION]
Income From Discontinued Operations*
(Thousands of Dollars)
[S] [C]
Operating revenues $ 15,640
Operating expenses, excluding income taxes 8,875
Operating income before income taxes 6,765
Income taxes 1,403
Operating income 5,362
Other income 9
Allocated interest charges (3,244)
Income from discontinued operations $ 2,127
Net Cash Provided by Discontinued Operations*
(Thousands of Dollars)
Income from discontinued operations $ 2,127
Noncash charges (credits) to income:
Depreciation 1,946
Deferred treatment plant costs, net 145
Deferred income taxes 447
Changes in working capital, exclusive
of long-term debt 1,648
Additions to utility plant (2,276)
Net increase (decrease) in long-term debt 1,010
Other, net (1,283)
Net cash provided by discontinued operations $ 3,764
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PG Energy's water utility operations for financial
statement purposes.
(3) RATE MATTERS
Rate Increase. By Order adopted December 19, 1996, the PPUC approved an
overall 5.3% increase in PG Energy's base gas rates, designed to produce $7.5
million of additional annual revenue, effective January 15, 1997. Under the
terms of the Order, the billing for the impact of the rate increase relative to
PG Energy's residential heating customers, which totaled $2.4 million through
June 30, 1997, was deferred, without carrying charges, until July, 1997.
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<PAGE>
Gas Cost Adjustments. The provisions of the Pennsylvania Public Utility
Code require that the tariffs of local gas distribution companies ("LDCs") be
adjusted on an annual basis, and, in the case of larger LDCs such as PG Energy,
on an interim basis when circumstances dictate, to reflect changes in their
purchased gas costs. The procedure includes a process for the reconciliation of
actual gas costs incurred and actual revenues received and also provides for the
refund of any overcollections, plus interest thereon, or the recoupment of any
undercollections of gas costs.
In accordance with these procedures PG Energy has been permitted to make the
following changes since January 1, 1995, to the gas costs contained in its
tariff rates:
[CAPTION]
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
[S] [C] [C] [C]
December 1, 1997 $4.49 $4.05 $(12,100,000)
March 1, 1997 4.18 4.49 8,300,000
December 1, 1996 3.01 4.18 32,400,000
September 1, 1996 2.88 3.01 3,600,000
June 1, 1996 2.75 2.88 3,400,000
December 1, 1995 2.42 2.75 9,600,000
May 15, 1995 3.68 2.42 (8,200,000)*
* Represents estimated reduction in revenue for the period May 15, 1995,
through November 30, 1995.
The changes in gas rates on account of purchased gas costs have no effect on
earnings since the change in revenue is offset by a corresponding change in the
cost of gas.
Recovery of FERC Order 636 Transition Costs. On October 15, 1993, the PPUC
adopted an annual purchased gas cost ("PGC") order (the "PGC Order") regarding
recovery of Federal Energy Regulatory Commission ("FERC") Order 636 transition
costs. The PGC Order stated that Account 191 and New Facility Costs (the "Gas
Transition Costs") were subject to recovery through the annual PGC rate filings
made with the PPUC by PG Energy and other LDCs. The PGC Order also indicated
that while Gas Supply Realignment and Stranded Costs (the "Non-Gas Transition
Costs") were not natural gas costs eligible for recovery under the PGC rate
filing mechanism, such costs were subject to full recovery by LDCs through the
filing of a tariff pursuant to either the existing surcharge or base rate
provisions of the Code. The PGC Order further stated that all such filings
would be evaluated on a case-by-case basis.
PG Energy was billed a total of $1.3 million of Gas Transition Costs by its
interstate pipelines. Of this amount, $857,000 was recovered by PG Energy over
a twelve-month period ended January 31, 1995, through an increase in its PGC
rate, $252,000 was recovered by PG Energy in its annual PGC rate that the PPUC
approved effective December 1, 1995, and the remaining $213,000 was recovered by
PG Energy in its PGC rate that was effective December 1, 1996.
By Order of the PPUC entered August 26, 1994, PG Energy began recovering the
Non-Gas Transition Costs that it estimates it will ultimately be billed pursuant
to FERC Order 636 through the billing of a surcharge to its customers effective
September 12, 1994. It is currently estimated that $10.7 million of Non-Gas
Transition Costs will be billed to PG Energy, generally over a six-year period
extending through January 1, 1999, of which $9.6 million had been billed to PG
Energy and $9.5 million had been recovered from its customers as of December 31,
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<PAGE>
1997. In addition, during 1997 $1.1 million of take-or-pay costs refunded to PG
Energy by its suppliers were applied as a reduction of the total Non-Gas
Transition Costs recoverable from customers. The remaining balance of Non-Gas
Transition Costs, which is presently estimated to be $134,000, is expected to be
recovered by PG Energy during 1998.
(4) COMMON STOCK
On July 28, 1994, PEI implemented a Customer Stock Purchase Plan (the
"Customer Plan") which provided the residential customers of PG Energy with a
method of purchasing newly-issued shares of PEI's common stock at a 5% discount
from the market price. PEI used proceeds from the issuance of shares through
the Customer Plan to purchase common stock of PG Energy. PG Energy realized
$2.4 million from the issuance of common stock to PEI in connection with the
Customer Plan during 1995. Effective May 9, 1995, PEI suspended the Customer
Plan because of the significant reduction in its capital requirements resulting
from the sale of PG Energy's water utility operations to Pennsylvania-American
and because of the proceeds received from such sale.
PG Energy also obtains funds from the sale of its common stock to PEI in
connection with PEI's Dividend Reinvestment and Stock Purchase Plan (the "DRP").
Effective May 9, 1995, PEI suspended the cash investment feature of the DRP and
the 5% discount from the market price on the reinvestment of dividends under the
DRP because of the significant reduction in its capital requirements resulting
from the sale of PG Energy's water utility operations to Pennsylvania-American
and because of the proceeds received from such sale. The cash investment
feature was, however, reinstated effective June 1, 1996. Additionally, from
June 14, 1996, through December 31, 1996, PEI temporarily suspended the sale of
newly-issued stock to the DRP as a result of the proceeds received from the sale
of PG Energy's water utility operations, and during that period the DRP obtained
shares of PEI common stock for participants through open market purchases.
Effective January 1, 1997, PEI resumed selling newly-issued stock to the DRP.
Although PEI resumed selling newly-issued stock to the DRP effective January
1, 1997, PG Energy did not issue any shares of its common stock to PEI in
connection with the DRP during 1997 because of the reduction in its capital
requirements resulting from the sale of PG Energy's water utility operations to
Pennsylvania-American and because of the proceeds received from such sale.
During 1996 and 1995, PG Energy realized $340,000 and $3.3 million,
respectively, from the issuance of common stock to PEI in connection with the
DRP.
On February 16, 1996, PG Energy repurchased 2,297,297 shares of its common
stock from PEI for an aggregate consideration of $85.0 million, with a portion
of the proceeds from the sale of its water utility operations to Pennsylvania-
American.
(5) PREFERRED STOCK
Preferred Stock of PG Energy Subject to Mandatory Redemption. The holders
of the 5.75% cumulative preferred stock have a noncumulative right each year to
tender to PG Energy and to require it to purchase at a per share price not
exceeding $100, up to (a) that number of shares of the 5.75% cumulative
preferred stock which can be acquired for an aggregate purchase price of $80,000
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<PAGE>
less (b) the number of such shares which PG Energy may already have purchased
during the year at a per share price of not more than $100. During 1997 and
1996, PG Energy repurchased 992 and 9,408 shares, respectively, of its 5.75%
cumulative preferred stock (including 800 shares redeemed in each of the years
in accordance with annual sinking fund provisions) for an aggregate
consideration of $99,000 in 1997 and $838,000 in 1996. Eight hundred such
shares were acquired and cancelled by PG Energy in the year ended December 31,
1995, for an aggregate purchase price of $80,000.
As of December 31, 1997, the sinking fund requirements relative to PG
Energy's 5.75% cumulative preferred stock (the only series of preferred stock
subject to mandatory redemption that was outstanding as of such date) were
$80,000 for each of the years 1998 through 2002. At PG Energy's option, the
5.75% cumulative preferred stock may currently be redeemed at a price of $102.00
per share ($734,400 in the aggregate).
Preferred Stock of PG Energy Not Subject to Mandatory Redemption. During
the year ended December 31, 1996, PG Energy repurchased 134,359 shares of its 9%
cumulative preferred stock, $100 par value, for an aggregate consideration of
$14.5 million, largely pursuant to a self tender offer conducted during March
and April, 1996. The 9% cumulative preferred stock is redeemable at the option
of PG Energy, in whole or in part, upon not less than 30 days' notice, at $100
per share plus accrued dividends to the date of redemption and at a premium of
$8 per share if redeemed on or before September 14, 1998, and a premium of $4
per share if redeemed from September 15, 1998, to September 14, 1999.
During the year ended December 31, 1996, PG Energy repurchased 20,330 shares
of its 4.10% cumulative preferred stock, $100 par value, for an aggregate
consideration of $1.0 million, largely pursuant to a self tender offer conducted
during March and April, 1996. During the year ended December 31, 1997, PG
Energy repurchased 30,560 shares of its 4.10% cumulative preferred stock for an
aggregate consideration of $2.1 million, largely pursuant to a self tender offer
conducted during April and May, 1997. At PG Energy's option, the 4.10%
cumulative preferred stock may currently be redeemed at a redemption price of
$105.50 per share or for an aggregate redemption price of $5,181,105.
Dividend Information. The dividends on the preferred stock of PG Energy in
each of the three years in the period ended December 31, 1997, were as follows:
[CAPTION]
Series 1997 1996 1995
(Thousands of Dollars)
[S] [C] [C] [C]
4.10% $ 228 $ 348 $ 410
5.75% 44 72 103
9.00% 1,040 1,310 2,250
Total $1,312 $1,730 $2,763
Dividends on all series of PG Energy's preferred stock are cumulative and PG
Energy may not declare dividends on its common stock if any dividends on shares
of preferred stock then outstanding are in default.
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<PAGE>
(6) LONG-TERM DEBT
Long-term debt consisted of the following components at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
(Thousands of Dollars)
<S> <C> <C>
First mortgage bonds -
8.375% Series, due 2002 $ 30,000 $ 30,000
9.23 % Series, due 1999 10,000 10,000
9.34 % Series, due 2019 15,000 15,000
55,000 55,000
Notes -
6.92% Senior Notes, due 2004 25,000 -
Term loan, due 2002 25,000 -
Bank borrowings, at weighted average interest
rates of 6.11% and 6.18%, respectively (Note 8) 25,776 38,721
Note payable to PEI 23,500 31,400
99,276 70,121
Less current maturities and sinking
fund requirements (24,776) (70,121)
Total long-term debt $129,500 $ 55,000
</TABLE>
On September 12, 1997, PG Energy borrowed $25.0 million pursuant to a five-
year term loan agreement dated August 14, 1997 (the "Term Loan Agreement"),
which matures on August 14, 2002. Borrowings under the Term Loan Agreement bear
interest at London Interbank Offered Rates ("LIBOR") plus one-quarter of one
percent. Under the terms of the Term Loan Agreement, PG Energy can choose
interest rate periods of one, two, three or six months. PG Energy utilized the
proceeds from such loan to repay $25.0 million of its bank borrowings.
On September 30, 1997, PG Energy issued $25.0 million of its 6.92% Senior
Notes due September 30, 2004 (the "6.92% Senior Notes"). The proceeds from the
issuance of the 6.92% Senior Notes were used by PG Energy to repay $25.0 million
of its bank borrowings.
PG Energy can borrow up to $70.0 million from PEI through December 31, 1999,
at interest rates generally less than prime, to repay bank borrowings and for
construction expenditures and other working capital requirements, to the extent
that PEI has funds available for lending to PG Energy. As of December 31, 1997
and 1996, PG Energy had $23.5 million and $31.4 million, respectively,
outstanding under its borrowing arrangement with PEI. Such interim borrowings
by PG Energy from PEI will be repaid with proceeds from bank borrowings by PG
Energy.
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<PAGE>
Maturities and Sinking Fund Requirements. As of December 31, 1997, the
aggregate annual maturities and sinking fund requirements of long-term debt for
each of the next five years ending December 31, were:
[CAPTION]
Year Amount
[S] [C]
1998 $ 24,776,000 (a)
1999 $ 34,500,000 (b)
2000 $ -
2001 $ -
2002 $ 55,000,000 (c)
(a) Represents the $24.8 million of PG Energy bank borrowings outstanding as
of December 31, 1997.
(b) Includes PG Energy's 9.23% Series First Mortgage Bonds in the principal
amount of $10.0 million due September 1, 1999, and $23.5 million of
borrowings payable to PEI.
(c) Represents the $25.0 million of borrowings outstanding as of December
31, 1997, under PG Energy's Term Loan Agreement due August 14, 2002, and
PG Energy's 8.375% Series First Mortgage Bonds in the principal amount
of $30.0 million due December 1, 2002.
(7) DIVIDEND RESTRICTIONS
The preferred stock provisions of PG Energy's Restated Articles of
Incorporation and certain of the agreements under which PG Energy has issued
long-term debt provide for certain dividend restrictions. As of December 31,
1997, $5,416,000 of the consolidated retained earnings of the Company were
restricted against the payment of cash dividends on common stock under the most
restrictive of these covenants.
(8) BANK NOTES PAYABLE
The Company currently has arrangements for eight revolving bank lines of
credit with an aggregate borrowing capacity of $69.5 million which provide for
borrowings at interest rates generally less than prime and which mature at
various times during 1998 and 1999.
Because of limitations imposed by the terms of PG Energy's preferred stock,
PG Energy is prohibited, without the consent of the holders of a majority of the
outstanding shares of its preferred stock, from issuing more than $12.0 million
of unsecured debt due on demand or within one year from issuance. PG Energy had
$2.0 million due on demand or within one year from issuance outstanding as of
December 31, 1997.
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<PAGE>
Information relating to the Company's bank lines of credit and borrowings
under those lines of credit is set forth below:
<TABLE>
<CAPTION>
As of December 31,
1997 1996 1995
(Thousands of Dollars)
<S> <C> <C> <C>
Borrowings under lines of credit
Short-term $ 2,170 $ 10,000 $ 10,000
Long-term 25,776 38,721 65,801
$ 27,946 $ 48,721 $ 75,801
Unused lines of credit
Short-term $ 5,830 $ - $ -
Long-term 35,724 16,779 4,699
$ 41,554 $ 16,779 $ 4,699
Total lines of credit
Prime rate $ 1,000 $ - $ -
Less than prime rate 68,500 65,500 80,500
$ 69,500 $ 65,500 $ 80,500
Short-term bank borrowings
Maximum amount outstanding $ 10,000 $ 10,000 $ 10,000
Daily average amount outstanding $ 3,740 $ 1,392 $ 2,581
Weighted daily average interest rate 6.343% 6.241% 6.513%
Weighted average interest rate at year-end 6.536% 6.206% 6.334%
Range of interest rates 5.800- 5.875- 6.290-
8.500% 6.438% 6.660%
</TABLE>
(9) POSTEMPLOYMENT BENEFITS
Pension Benefits. Substantially all employees of the Company, except those
of Honesdale, are covered by PEI's trusteed, noncontributory, defined benefit
pension plan. Pension benefits are based on years of service and average final
salary. The Company's funding policy is to contribute an amount necessary to
provide for benefits based on service to date, as well as for benefits expected
to be earned in the future by current participants.
Under the terms of the agreement regarding the sale of PG Energy's water
utility operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-
American assumed the accumulated benefit obligations relating to employees of PG
Energy who accepted employment with Pennsylvania-American (the "Transferred
Employees"). In this regard, plan assets in an amount equal to the actuarial
present value of accumulated plan benefits relative to the Transferred
Employees, with interest from February 16, 1996, were transferred to the
American pension plan in June, 1996. As a result of this and other actions, the
Company recognized, as of December 31, 1995, an estimated settlement loss of
$200,000 ($117,000 net of the related income tax benefit) and curtailment gain
of $2.7 million ($1.6 million net of related income taxes) in its determination
of the estimated loss on the disposal of PG Energy's water utility operations.
In December, 1995, the Company offered an Early Retirement Plan (the "1995
ERP") to its employees who would be 59 years of age or older and had a minimum
of five years of service as of December 31, 1995. Of the 63 eligible employees,
50 elected to accept this offer and retired as of December 31, 1995, resulting
in the recording, as of December 31, 1995, of an additional pension liability of
$1.6 million reflecting the increased costs associated with the 1995 ERP. Such
amount was charged to the estimated loss on the disposal of PG Energy's water
utility operations.
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<PAGE>
In January, 1998, as part of its cost reduction efforts, the Company offered
an Early Retirement Plan (the "1998 ERP") to its 41 active employees who are or
will be at least age 59 on or before March 31, 1998, and have a minimum of five
years of service on or before February 28, 1998. A total of 27 employees
elected to accept this offer and retire as of March 1, 1998. The Company is not
presently able to estimate the related termination benefits expected to be paid
as a result of the 1998 ERP. However, in accordance with FASB Statement 88
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," the Company will record, as of
March 1, 1998, an additional pension liability not expected to exceed $1.4
million. This liability will reflect the increased costs associated with the
1998 ERP. Since this liability will be offset by an asset representing the
probable future rate recovery of such liability, the provisions of FASB
Statement 88 are not expected to have a significant effect on the Company's
results of operations.
Net pension costs relative to continuing operations, including amounts
capitalized, were a credit of $247,000 in 1997 and costs of $385,000 and
$353,000 in 1996 and 1995, respectively. The following items were the
components of such net pension costs:
[CAPTION]
1997 1996 1995
(Thousands of Dollars)
[S] [C] [C] [C]
Present value of benefits earned
during the year $ 622 $ 799 $ 430
Interest cost on projected benefit
obligations 2,697 2,731 1,459
Return on plan assets (7,231) (5,875) (1,502)
Net amortization and deferral (122) (79) (34)
Deferral of investment gain 3,787 2,809 -
Net pension cost $ (247) $ 385 $ 353
The funded status of the plan as of December 31, 1997 and 1996, was as
follows:
<TABLE>
<CAPTION>
1997 1996
(Thousands of Dollars)
<S> <C> <C>
Actuarial present value of the projected
benefit obligations:
Accumulated benefit obligations
Vested $ 32,843 $ 28,613
Nonvested 15 21
Total 32,858 28,634
Provision for future salary increases 9,526 6,933
Projected benefit obligations 42,384 35,567
Approximate market value of plan assets,
primarily invested in equities and bonds 45,106 39,000
Plan assets in excess of projected benefit
obligations 2,722 3,433
Unrecognized net transition asset as of
January 1, 1986, being amortized over 20 years (1,724) (1,939)
Unrecognized prior service costs 4,138 2,258
Unrecognized net gain (4,315) (4,259)
Prepaid (accrued) pension cost at year-end $ 821 $ (507)
</TABLE>
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<PAGE>
The assumptions used in determining pension obligations were:
[CAPTION]
1997 1996 1995
[S] [C] [C] [C]
Discount rate 7.00 % 7.75 % 7.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.00 % 5.00 %
Other Postretirement Benefits. In addition to pension benefits, the Company
provides certain health care and life insurance benefits for retired employees.
All of the Company's employees, except those of Honesdale, may become eligible
for those benefits if they reach retirement age while working for the Company.
The Company records the cost of retiree health care and life insurance benefits
as a liability over the employees' active service periods instead of on a
benefits-paid basis.
Under the terms of the agreement regarding the sale of PG Energy's water
utility operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-
American assumed the Company's obligation to provide retiree health care and
life insurance benefits to the Transferred Employees, as well as 45% of PG
Energy's retired employees as of that date. In this regard, plan assets in an
amount proportional to the actuarial present value of accumulated plan benefits
relative to the Transferred Employees and 45% of the retired employees as of
February 16, 1996, were transferred to trusts established by Pennsylvania-
American in 1997. As a result of the transfer, early retirement and
displacement of employees, the Company recognized an estimated settlement and
curtailment loss of $385,000 ($225,000 net of the related income tax benefit) as
part of the loss on the disposal of PG Energy's water utility operations.
In conjunction with the 1995 ERP offered by the Company to certain of its
employees, PG Energy recorded, as of December 31, 1995, an additional liability
of $805,000, ($471,000 net of the related income tax benefit) reflecting the
cost of future health care benefits required to be recognized in conjunction
with the 1995 ERP. Such amount was charged to the estimated loss on disposal of
PG Energy's water utility operations.
The Company is not presently able to estimate the cost of the related future
health care benefits required to be recognized as a result of the 1998 ERP.
However, in accordance with FASB Statement 88 the Company will record, as of
March 1, 1998, an additional other postretirement benefit liability not expected
to exceed $600,000. This liability will reflect the increased costs resulting
from the 1998 ERP. Since this liability will be offset by an asset representing
the probable future rate recovery of such liability, the provisions of FASB
Statement 88 are not expected to have a significant effect on the Company's
results of operations.
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<PAGE>
The following items were the components of the net cost of postretirement
benefits other than pensions relative to continuing operations for the years
1997, 1996 and 1995:
[CAPTION]
1997 1996 1995
(Thousands of Dollars)
[S] [C] [C] [C]
Present value of benefits earned during
the year $ 282 $ 253 $ 127
Interest cost on accumulated benefit
obligation 673 506 577
Return on plan assets 23 - (69)
Net amortization and deferral 278 314 391
Net cost of postretirement benefits other
than pensions 1,256 1,073 1,026
Less disbursements for benefits (669) (501) (555)
Increase in liability for postretirement
benefits other than pensions $ 587 $ 572 $ 471
Reconciliations of the accumulated benefit obligation to the accrued
liability for postretirement benefits other than pensions as of December 31,
1997 and 1996, follow:
[CAPTION]
1997 1996
(Thousands of Dollars)
[S] [C] [C]
Accumulated benefit obligation:
Retirees $ 5,682 $ 4,359
Fully eligible active employees 1,722 1,033
Other active employees 2,307 1,552
9,711 6,944
Plan assets at fair value 580 169
Accumulated benefit obligation
in excess of plan assets 9,131 6,775
Unrecognized transition obligation
being amortized over 20 years (4,708) (5,022)
Unrecognized net gain (loss) (1,390) 1,116
Accrued liability for postretirement
benefits other than pensions $ 3,033 $ 2,869
The assumptions used in determining other postretirement benefit obligations
were:
[CAPTION]
1997 1996 1995
[S] [C] [C] [C]
Discount rate 7.00 % 7.75 % 7.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.00 % 5.00 %
It was also assumed that the per capita cost of covered health care benefits
would increase at an annual rate of 8% in 1998 and that this rate would decrease
gradually to 5-1/2% for the year 2003 and remain at that level thereafter. The
health care cost trend rate assumption had a significant effect on the amounts
accrued. To illustrate, increasing the assumed health care cost trend rate by 1
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<PAGE>
percentage point in each year would increase the transition obligation as of
January 1, 1998, by approximately $493,000 and the aggregate of the service and
interest cost components of the net cost of postretirement benefits other than
pensions for the year 1997 by approximately $58,000.
Effective with its January 15, 1997, base rate increase (see Note 3 of these
Notes to Consolidated Financial Statements), PG Energy began funding and
recovering in rates its accumulated benefit obligations with respect to other
postretirement benefits. In this regard, the PPUC Order adopted December 19,
1996, specified that any excess or deficiency in other postretirement benefit
costs over the amount of such costs included in rates be deferred and included
in PG Energy's next rate filing. As of December 31, 1997, $174,000 of such
costs relative to the year 1997 had been so deferred. In addition, $442,000
($259,000 net of related income taxes) and $441,000 ($258,000 net of related
income taxes) of additional cost incurred in 1996 and 1995, respectively, as a
result of the adoption of the provisions of FASB Statement 106 were expensed
without any adjustment being made to PG Energy's gas rates.
(10) CAPITAL EXPENDITURES
The Company estimates the cost of its 1998 capital expenditure program will
be $36.3 million. It is anticipated that such expenditures will be financed
with internally generated funds and bank borrowings and, to the extent
necessary, by the periodic issuance of stock and long-term debt.
(11) COMMITMENTS AND CONTINGENCIES
Environmental Matters. PG Energy, like many gas distribution companies,
once utilized manufactured gas plants in connection with providing gas service
to its customers. None of these plants has been in operation since 1972, and
several of the plant sites are no longer owned by PG Energy. Pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), PG Energy filed notices with the United States Environmental
Protection Agency (the "EPA") with respect to the former plant sites. None of
the sites is or was formerly on the proposed or final National Priorities List.
The EPA has conducted site inspections and made preliminary assessments of each
site and has concluded that no further remedial action is planned.
Notwithstanding this determination by the EPA, some of the sites may ultimately
require remediation. One site that was owned by PG Energy from 1951 to 1967 and
at which it operated a manufactured gas plant from 1951 to 1954 was subject to
remediation in 1996. The remediation at this site, which was performed by the
party from whom PG Energy acquired the site in 1951, required the removal of
materials from two former gas holders. The cost of such remediation is
purported to have been approximately $525,000, of which the party performing the
remediation is seeking to recover a material portion from PG Energy. PG Energy,
however, believes that any liability it may have with respect to such
remediation would be considerably less than the amount that the other party is
seeking. While the final resolution of the matter is uncertain, PG Energy does
not believe that it will have any material impact on its financial position or
results of operations. Although the conclusion by the EPA that it anticipates
no further remedial action with respect to the sites at which PG Energy operated
manufactured gas plants does not constitute a legal prohibition against further
regulatory action under CERCLA or other applicable federal or state law, the
Company does not believe that additional costs, if any, related to these
manufactured gas plant sites would be material to its financial position or
results of operations since environmental remediation costs generally are
recoverable through rates over a period of time.
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<PAGE>
(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
o Long-term debt. The fair value of long-term debt has been estimated based
on the quoted market price as of the respective dates for the portion of
such debt which is publicly traded and, with respect to the portion of such
debt which is not publicly traded, on the estimated borrowing rate as of the
respective dates for long-term debt of comparable credit quality with
similar terms and maturities.
o Preferred stock subject to mandatory redemption. The fair value of PG
Energy's preferred stock subject to mandatory redemption has been estimated
based on the market value as of the respective dates for preferred stock of
comparable credit quality with similar terms and maturities.
The carrying amounts and estimated fair values of financial instruments at
December 31, 1997 and 1996, were as follows:
[CAPTION]
1997 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands of Dollars)
[S] [C] [C] [C] [C]
Long-term debt (including current
portion) $130,776 $ 136,914 $ 93,721 $ 99,222
Preferred stock subject to
mandatory redemption (including
current portion) 720 734 819 836
The Company believes that the regulatory treatment of any excess or
deficiency of fair value relative to the carrying amounts of these items, if
such items were settled at amounts approximating those above, would dictate that
these amounts be used to increase or reduce its rates over a prescribed
amortization period. Accordingly, any settlement would not result in a material
impact on the financial position or the results of operations of the Company.
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<PAGE>
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
[CAPTION]
QUARTER ENDED
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
(Thousands of Dollars, Except Per Share Amounts)
[S] [C] [C] [C] [C]
Operating revenues $ 79,939 $ 33,229 $ 16,276 $ 61,123
Operating income 10,864 2,104 (484) 9,479
Income (loss) from continuing
operations 8,421 (622) (3,195) 6,197
Net income (loss) $ 8,421 $ (622) $ (3,195) $ 6,197
Earnings (loss) per share
of common stock:
Continuing operations $ 2.54 $ (.19) $ (.96) $ 1.87
Discount (premium) on
repurchase/redemption
of preferred stock - .24 (.01) -
Earnings (loss) per share of
common stock $ 2.54 $ .05 $ (.97) $ 1.87
[CAPTION]
QUARTER ENDED
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
(Thousands of Dollars, Except Per Share Amounts)
[S] [C] [C] [C] [C]
Operating revenues $ 69,415 $ 25,457 $ 13,998 $ 51,724
Operating income (loss) 10,033 803 (659) 6,539
Income (loss) from continuing
operations 7,485 (757) (2,690) 3,748
Loss with respect to
discontinued operations (365) (21) - 23
Net income (loss) $ 7,120 $ (778) $ (2,690) $ 3,771
Earnings (loss) per share
of common stock: (a)
Continuing operations $ 1.67 $ (.23) $ (.81) $ 1.13
Discontinued operations (.08) (.01) - .01
Net income (loss) before
discount (premium) on
repurchase/redemption of
preferred stock 1.59 (.24) (.81) 1.14
Discount (premium) on
repurchase/redemption of
preferred stock - (.39) (.03) .01
Earnings (loss) per share of
common stock (a) $ 1.59 $ (.63) $ (.84) $ 1.15
(a) The total of the earnings per share for the quarters does not equal the
earnings per share for the year, as shown elsewhere in the consolidated
financial statements and supplementary data of this report, as a result of
PG Energy's repurchase of shares of common stock during 1996.
Because of the seasonal nature of the Company's gas heating business, there
are substantial variations in operations reported on a quarterly basis.
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<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In its Form 8-K dated May 22, 1997, the Company reported a "Change in
Registrant's Certifying Accountant" for its fiscal year beginning January 1,
1997. Because the Form 8-K dated May 22, 1997, did not include a reported
disagreement on any matter of accounting principles or practices or financial
statement disclosure, no disclosure pursuant to Item 304 of Regulation S-K of
the Commission's Rules and Regulations is required in Item 9.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements, notes to
consolidated financial statements and reports of independent
accountants for PG Energy and its subsidiary are presented in Item 8 of
this Form 10-K.
Page
Report of Independent Accountants on the Consolidated
Financial Statements as of December 31, 1997 . . . . . . . . 25
Report of Independent Accountants on the Financial
Statements as of December 31, 1996 . . . . . . . . . . . . . 26
Consolidated Statements of Income for each of the three years
in the period ended December 31, 1997. . . . . . . . . . . . 27
Consolidated Balance Sheets as of December 31, 1997 and 1996 . 28
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1997. . . . . . . . . 30
Consolidated Statements of Capitalization as of December 31,
1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Common Shareholder's Investment
for each of the three years in the period ended December
31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Notes to Consolidated Financial Statements . . . . . . . . . . 33
2. Financial Statement Schedules
The following consolidated financial statement schedule for PG
Energy and its subsidiary is filed as a part of this Form 10-K.
Schedules not included have been omitted because they are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
Schedule Number Page
II Valuation and Qualifying Accounts for the three-year
period ended December 31, 1997 . . . . . . . . . . . . . 54
3. Exhibits
See "Index to Exhibits" located on page 56 for a listing of all
exhibits filed herein or incorporated by reference to a previously
filed registration statement or report with the Securities and Exchange
Commission.
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<PAGE>
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - continued
<S> <C>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1997.
(c) Executive Compensation Plans and Arrangements
The following listing includes the Company's executive compensation plans
and arrangements in effect as of December 31, 1997.
Exhibit
10-27 Form of Change in Control Agreement between PEI and certain of its
Officers -- filed as Exhibit 10-34 to PG Energy's Annual Report on
Form 10-K for 1989, File No. 1-3490.
10-28 First Amendment to Form of Change in Control Agreement, dated as of
May 24, 1995, between PEI and certain of its Officers -- filed as
Exhibit 10-29 to PEI's Annual Report on Form 10-K for 1995, File No.
0-7812.
10-29 Agreement, dated as of March 15, 1991, by and between PEI, PG Energy
and Robert L. Jones -- filed as Exhibit No. 10-38 to PG Energy's
Annual Report on Form 10-K for 1990, File No. 1-3490.
10-30 Employment Agreement effective September 1, 1995, between PEI and
Dean T. Casaday -- filed as Exhibit 10-2 to PEI's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995, File No.
0-7812.
10-31 Supplemental Retirement Agreement, dated as of December 23, 1991,
between PEI and Dean T. Casaday -- filed as Exhibit 10-17 to PEI's
Common Stock Form S-2, Registration No. 33-43382.
10-32 First Amendment to the Supplemental Retirement Agreement, dated as
of September 1, 1994, between PEI and Dean T. Casaday -- filed as
Exhibit 10-37 to PEI's Annual Report on Form 10-K for 1994, File No.
0-7812.
10-33 Pennsylvania Enterprises, Inc. 1992 Stock Option Plan, effective
June 3, 1992 -- filed as Exhibit A to PEI's 1993 definitive Proxy
Statement, File No. 0-7812.
10-34 Form of Stock Option Agreement, dated as of June 20, 1997, between
PEI and certain of its Officers -- filed as Exhibit 10-1 to PEI's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997, File No. 0-7812.
10-35 Form of Stock Option Agreement, dated as of June 20, 1997, between
PEI and certain of its non-employee directors -- filed as Exhibit
10-2 to PEI's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, File No. 0-7812.
10-36 Pennsylvania Enterprises, Inc. Stock Incentive Plan, effective May
14, 1997 -- filed as Exhibit A to PEI's 1997 definitive Proxy
Statement, File No. 0-7812.
</TABLE>
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<PAGE>
Exhibit
10-37 Employment Agreement dated as of June 26, 1996, by and among PEI, PG
Energy and Kenneth L. Pollock -- filed as Exhibit 10-1 to PEI's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, File No. 0-7812.
10-38 Employment Agreement dated as of August 28, 1996, by and among PEI,
PG Energy and Thomas F. Karam -- filed as Exhibit 10-2 to PEI's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, File No. 0-7812.
10-39 Director Deferred Compensation Plan dated as of April 23, 1997 --
filed as Exhibit 10-1 to PEI's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, File No. 0-7812.
10-40 First Amendment to the Director Deferred Compensation Plan, Amended
and Restated as of November 19, 1997 -- filed as Exhibit 10-40 to
PEI's Annual Report on Form 10-K for 1997, File No. 0-7812.
10-41 1995 Directors' Stock Compensation Plan, effective January 18, 1995
-- filed as Exhibit A to PEI's 1995 definitive Proxy Statement, File
No. 0-7812.
10-42 First Amendment to the 1995 Directors' Stock Compensation Plan,
amended and restated effective as of November 19, 1997 -- filed as
Exhibit 10-42 to PEI's Annual Report on Form 10-K for 1997, File No.
0-7812.
(d) Statements Excluded from Annual Report to Shareholders
Not applicable.
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<PAGE>
Schedule II
-54-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
PG ENERGY INC.
(Registrant)
<S> <C>
Date: March 5, 1998 By: /s/ Thomas F. Karam
Thomas F. Karam
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 5, 1998 By: /s/ John F. Kell, Jr.
John F. Kell, Jr.
Vice President, Financial Services
(Principal Financial Officer
and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
/s/ Kenneth L. Pollock Chairman of the Board of March 5, 1998
Kenneth L. Pollock Directors
/s/ William D. Davis Vice Chairman of the Board March 5, 1998
William D. Davis of Directors
/s/ Thomas F. Karam Director, President and March 5, 1998
Thomas F. Karam Chief Executive Officer
/s/ Paul R. Freeman Director March 5, 1998
Paul R. Freeman
/s/ Robert J. Keating Director March 5, 1998
Robert J. Keating
/s/ John D. McCarthy Director March 5, 1998
John D. McCarthy
/s/ John D. McCarthy, Jr. Director March 5, 1998
John D. McCarthy, Jr.
/s/ Kenneth M. Pollock Director March 5, 1998
Kenneth M. Pollock
/s/ Richard A. Rose, Jr. Director March 5, 1998
Richard A. Rose, Jr.
/s/ James A. Ross Director March 5, 1998
James A. Ross
/s/ Ronald W. Simms Director March 5, 1998
Ronald W. Simms
</TABLE>
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<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
2-1 Asset Purchase Agreement dated as of April 26, 1995, among PEI, PG
Energy, American Water Works Company, Inc., and Pennsylvania-
American Water Company -- filed as Exhibit 2-1 to PG Energy's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995,
File No. 1-3490.
(3) Articles of Incorporation and By-Laws:
3-1 Restated Articles of Incorporation -- filed as Exhibit 3-1 to PG
Energy's Annual Report on Form 10-K for 1995, File No. 1-3490.
3-2 By-Laws of PG Energy, as amended and restated -- filed as Exhibit 3-
2 to PG Energy's Annual Report on Form 10-K for 1995, File No. 1-
3490.
(4) Instruments Defining the Rights of Security Holders, Including Debentures:
4-1 Indenture of Mortgage and Deed of Trust, dated as of March 15, 1946,
between Scranton-Spring Brook Water Service Company (now PG Energy)
and First Trust of New York, National Association, as Successor
Trustee to Morgan Guaranty Trust Company of New York -- filed as
Exhibit 2(c) to PG Energy's Bond Form S-7, Registration No. 2-55419.
4-2 Fourth Supplemental Indenture, dated as of March 15, 1952 -- filed
as Exhibit 2(d) to PG Energy's Bond Form S-7, Registration No. 2-
55419.
4-3 Ninth Supplemental Indenture, dated as of March 15, 1957 -- filed as
Exhibit 2(e) to PG Energy's Bond Form S-7, Registration No. 2-55419.
4-4 Tenth Supplemental Indenture, dated as of September 1, 1958 -- filed
as Exhibit 2(f) to PG Energy's Bond Form S-7, Registration No. 2-
55419.
4-5 Twelfth Supplemental Indenture, dated as of July 15, 1960 -- filed
as Exhibit 2(g) to PG Energy's Bond Form S-7, Registration No. 2-
55419.
4-6 Fourteenth Supplemental Indenture, dated as of December 15, 1961 --
filed as Exhibit 2(h) to PG Energy's Bond Form S-7, Registration No.
2-55419.
4-7 Fifteenth Supplemental Indenture, dated as of December 15, 1963 --
filed as Exhibit 2(i) to PG Energy's Bond Form S-7, Registration No.
2-55419.
4-8 Sixteenth Supplemental Indenture, dated as of June 15, 1966 -- filed
as Exhibit 2(j) to PG Energy's Bond Form S-7, Registration No. 2-
55419.
4-9 Seventeenth Supplemental Indenture, dated as of October 15, 1967 --
filed as Exhibit 2(k) to PG Energy's Bond Form S-7, Registration No.
2-55419.
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<PAGE>
Exhibit
Number
4-10 Eighteenth Supplemental Indenture, dated as of May 1, 1970 -- filed
as Exhibit 2(1) to PG Energy's Bond Form S-7, Registration No. 2-
55419.
4-11 Nineteenth Supplemental Indenture, dated as of June 1, 1972 -- filed
as Exhibit 2(m) to PG Energy's Bond Form S-7, Registration No. 2-
55419.
4-12 Twentieth Supplemental Indenture, dated as of March 1, 1976 -- filed
as Exhibit 2(n) to PG Energy's Bond Form S-7, Registration No. 2-
55419.
4-13 Twenty-first Supplemental Indenture, dated as of December 1, 1976 --
filed as Exhibit 4-16 to PG Energy's Annual Report on Form 10-K for
1982, File No. 1-3490.
4-14 Twenty-second Supplemental Indenture, dated as of August 15, 1989 --
filed as Exhibit 4-22 to PG Energy's Annual Report on Form 10-K for
1989, File No. 1-3490.
4-15 Twenty-third Supplemental Indenture, dated as of August 15, 1989 --
filed as Exhibit 4-23 to PG Energy's Annual Report on Form 10-K for
1989, File No. 1-3490.
4-16 Twenty-fourth Supplemental Indenture, dated as of September 1, 1991
-- filed as Exhibit 4-3 to PEI's Common Stock Form S-2, Registration
No. 33-43382.
4-17 Twenty-fifth Supplemental Indenture, dated as of September 1, 1992
-- filed as Exhibit 4-1 to PG Energy's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992, File No. 1-3490.
4-18 Twenty-sixth Supplemental Indenture, dated as of December 1, 1992 --
filed as Exhibit 4-20 to PG Energy's Bond Form S-2, Registration No.
33-54278.
4-19 Twenty-seventh Supplemental Indenture, dated as of December 1, 1992
-- filed as Exhibit 4-19 to PG Energy's Annual Report on Form 10-K
for 1992, File No. 0-7812.
4-20 Twenty-eighth Supplemental Indenture, dated as of December 1, 1993
-- filed as Exhibit 4-20 to PG Energy's Annual Report on Form 10-K
for 1993, File No. 1-3490.
4-21 Twenty-ninth Supplemental Indenture, dated as of November 1, 1994 --
filed as Exhibit 4-21 to PG Energy's Annual Report on Form 10-K for
1994, File No. 1-3490.
4-22 Thirtieth Supplemental Indenture, dated as of December 1, 1995 --
filed as Exhibit 4-22 to PG Energy's Annual Report on Form 10-K for
1995, File No. 1-3490.
NOTE: The First, Second, Third, Fifth, Sixth, Seventh, Eighth,
Eleventh and Thirteenth Supplemental Indentures merely convey
additional properties to the Trustee.
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<PAGE>
Exhibit
Number
(10) Material Contracts:
10-1 Service Agreement for storage service under Rate Schedule LGA, dated
August 6, 1974, between PG Energy and Transcontinental Gas Pipe Line
Corporation -- filed as Exhibit 10-3 to PG Energy's Annual Report on
Form 10-K for 1984, File No. 1-3490.
10-2 Service Agreement for transportation service under Rate Schedule FT,
dated February 1, 1992, by and between PG Energy and
Transcontinental Gas Pipe Line Corporation -- filed as Exhibit 10-4
to PG Energy's Annual Report on Form 10-K for 1991, File No. 1-3490.
10-3 Service Agreement for storage service under Rate Schedule SS-2,
dated April 1, 1990, between PG Energy and Transcontinental Gas Pipe
Line Corporation -- filed as Exhibit 10-8 to PEI's Common Stock Form
S-2, Registration No. 33-43382.
10-4 Service Agreement for sales service under Rate Schedule FS, dated
August 1, 1991, between PG Energy and Transcontinental Gas Pipe Line
Corporation -- filed as Exhibit 10-6 to PG Energy's Annual Report on
Form 10-K for 1991, File No. 1-3490.
10-5 Service Agreement for transportation service under Rate Schedule FT,
dated August 1, 1991, between PG Energy and Transcontinental Gas
Pipe Line Corporation -- filed as Exhibit 10-10 to PEI's Common
Stock Form S-2, Registration No. 33-43382.
10-6 Service Agreement for transportation service under Rate Schedule IT,
dated January 31, 1992, between PG Energy and Transcontinental Gas
Pipe Line Corporation -- filed as Exhibit 10-8 to PG Energy's Annual
Report on Form 10-K for 1991, File No. 1-3490.
10-7 Service Agreement for storage service under Rate Schedule LSS, dated
October 1, 1993, by and between PG Energy and Transcontinental Gas
Pipe Line Corporation -- filed as Exhibit 10-7 to PG Energy's Annual
Report on Form 10-K for 1993, File No. 1-3490.
10-8 Service Agreement for storage service under Rate Schedule GSS, dated
October 1, 1993, by and between PG Energy and Transcontinental Gas
Pipeline Corporation Company -- filed as Exhibit 10-8 to PG Energy's
Annual Report on Form 10-K for 1993, File No. 1-3490.
10-9 Service Agreement for transportation service under Rate Schedule FT,
dated April 1, 1995, by and between PG Energy and Transcontinental
Gas Pipe Line Corporation -- filed as Exhibit 10-1 to PG Energy's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995,
File No. 1-3490.
10-10 Service Agreement for transportation service under Rate Schedule
FTPO, dated July 10, 1997, effective November 1, 1997, by and
between PG Energy and Transcontinental Gas Pipe Line Corporation --
filed herewith.
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<PAGE>
Exhibit
Number
10-11 Service Agreement for transportation service under Rate Schedule
FTS, dated November 1, 1993, by and between PG Energy and Columbia
Gas Transmission Corporation -- filed as Exhibit 10-9 to PG Energy's
Annual Report on Form 10-K for 1993, File No. 1-3490.
10-12 Service Agreement for transportation service under Rate Schedule
SST, dated November 1, 1993, by and between PG Energy and Columbia
Gas Transmission Corporation -- filed as Exhibit 10-10 to PG
Energy's Annual Report on Form 10-K for 1993, File No. 1-3490.
10-13 Service Agreement for storage service under Rate Schedule FSS, dated
November 1, 1993, by and between PG Energy and Columbia Gas
Transmission Corporation -- filed as Exhibit 10-11 to PG Energy's
Annual Report on Form 10-K for 1993, File No. 1-3490.
10-14 Service Agreement for transportation service under Rate Schedule
FTS-1, dated November 1, 1993, by and between PG Energy and Columbia
Gulf Transmission Company -- filed as Exhibit 10-12 to PG Energy's
Annual Report on Form 10-K for 1993, File No. 1-3490.
10-15 Service Agreement for transportation service under Rate Schedule
ITS-1, dated November 1, 1993, by and between PG Energy and Columbia
Gulf Transmission Company -- filed as Exhibit 10-13 to PG Energy's
Annual Report on Form 10-K for 1993, File No. 1-3490.
10-16 Service Agreement for transportation service under Rate Schedule
ITS, dated November 1, 1993, by and between PG Energy and Columbia
Gas Transmission Corporation -- filed as Exhibit 10-14 to PG
Energy's Annual Report on Form 10-K for 1993, File No. 1-3490.
10-17 Service Agreement (Contract No. 946) for transportation service
under Rate Schedule FT-A, dated September 1, 1993, by and between PG
Energy and Tennessee Gas Pipeline Company -- filed as Exhibit 10-1
to PG Energy's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, File No. 1-3490.
10-18 Service Agreement (Service Package No. 171) for transportation
service under Rate Schedule FT-A, dated September 1, 1993, by and
between PG Energy and Tennessee Gas Pipeline Company -- filed as
Exhibit 10-2 to PG Energy's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, File No. 1-3490.
10-19 Service Agreement (Service Package No. 187) for transportation
service under Rate Schedule FT-A, dated September 1, 1993, by and
between PG Energy and Tennessee Gas Pipeline Company -- filed as
Exhibit 10-3 to PG Energy's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, File No. 1-3490.
10-20 Service Agreement (Service Package No. 190) for transportation
service under Rate Schedule FT-A, dated September 1, 1993, by and
between PG Energy and Tennessee Gas Pipeline -- filed as Exhibit 10-
4 to PG Energy's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, File No. 1-3490.
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<PAGE>
Exhibit
Number
10-21 Service Agreement (Contract No. 2289) for storage service under Rate
Schedule FS, dated September 1, 1993, by and between PG Energy and
Tennessee Gas Pipeline -- filed as Exhibit 10-5 to PG Energy's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1993, File No. 1-3490.
10-22 Service Agreement for storage service, dated April 15, 1997,
effective November 1, 1997, by and between PG Energy and New York
State Electric & Gas Corporation -- filed herewith.
10-23 Service Agreement for transportation service under Rate Schedule FT,
dated April 30, 1997, effective November 1, 1997, by and between PG
Energy and CNG Transmission Corporation -- filed herewith.
10-24 Bond Purchase Agreement, dated September 1, 1989, relating to PG
Energy's First Mortgage Bonds 9.23% Series due 1999 and First
Mortgage Bonds 9.34% Series due 2019 among Allstate Life Insurance
Company, Allstate Life Insurance Company of New York and PG Energy
-- filed as Exhibit 10-33 to PG Energy's Annual Report on Form 10-K
for 1989, File No. 1-3490.
10-25 Term Loan Agreement dated August 14, 1997, among PG Energy, the
Banks parties thereto and PNC Bank, National Association, in its
capacity as Agent for the Banks -- filed herewith
10-26 6.92% Senior Notes Purchase Agreement, dated September 30, 1997,
between PG Energy and the Purchasers -- filed herewith
10-27 Form of Change in Control Agreement between PEI and certain of its
Officers -- filed as Exhibit 10-34 to PG Energy's Annual Report on
Form 10-K for 1989, File No. 1-3490.
10-28 First Amendment to Form of Change in Control Agreement, dated as of
May 24, 1995, between PEI and certain of its Officers -- filed as
Exhibit 10-29 to PEI's Annual Report on Form 10-K for 1995, File No.
0-7812.
10-29 Agreement, dated as of March 15, 1991, by and between PEI, PG Energy
and Robert L. Jones -- filed as Exhibit 10-38 to PG Energy's Annual
Report on Form 10-K for 1990, File No. 1-3490.
10-30 Employment Agreement, effective September 1, 1995, between PEI and
Dean T. Casaday -- filed as Exhibit 10-2 to PEI's Quarterly Report
on Form 10-Q for the Quarter ended September 30, 1995, File No.
0-7812.
10-31 Supplemental Retirement Agreement, dated as of December 23, 1991,
between PEI and Dean T. Casaday -- filed as Exhibit 10-17 to PEI's
Common Stock Form S-2, Registration No. 33-43382.
10-32 First Amendment to the Supplemental Retirement Agreement, dated as
of September 1, 1994, between PEI and Dean T. Casaday -- filed as
Exhibit 10-37 to PEI's Annual Report on Form 10-K for 1994, File No.
0-7812.
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<PAGE>
Exhibit
Number
10-33 Pennsylvania Enterprises, Inc. 1992 Stock Option Plan, effective
June 3, 1992 -- filed as Exhibit A to PEI's 1993 definitive Proxy
Statement, File No. 0-7812.
10-34 Form of Stock Option Agreement, dated as of June 20, 1997, between
PEI and certain of its Officers -- filed as Exhibit 10-1 to PEI's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997, File No. 0-7812.
10-35 Form of Stock Option Agreement, dated as of June 20, 1997, between
PEI and certain of its non-employee directors -- filed as Exhibit
10-2 to PEI's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, File No. 0-7812.
10-36 Pennsylvania Enterprises, Inc. Stock Incentive Plan, effective May
14, 1997 -- filed as Exhibit A to PEI's 1997 definitive Proxy
Statement, File No. 0-7812.
10-37 Employment Agreement dated as of June 26, 1996, by and among PEI, PG
Energy and Kenneth L. Pollock -- filed as Exhibit 10-1 to PEI's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, File No. 0-7812.
10-38 Employment Agreement dated as of August 28, 1996, by and among PEI,
PG Energy and Thomas F. Karam -- filed as Exhibit 10-2 to PEI's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, File No. 0-7812.
10-39 Director Deferred Compensation Plan dated as of April 23, 1997 --
filed as Exhibit 10-1 to PEI's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, File No. 0-7812.
10-40 First Amendment to the Director Deferred Compensation Plan, amended
and restated effective as of November 19, 1997 -- filed as Exhibit
10-40 to PEI's Annual Report on Form 10-K for 1997, File No. 0-7812.
10-41 1995 Directors' Stock Compensation Plan, effective January 18, 1995
-- filed as Exhibit A to PEI's 1995 definitive Proxy Statement, File
No. 0-7812.
10-42 First Amendment to the 1995 Directors' Stock Compensation Plan,
amended and restated effective as of November 19, 1997 -- filed as
Exhibit 10-42 to PEI's Annual Report on Form 10-K for 1997, File No.
0-7812.
(21) Subsidiaries of the Registrant:
21-1 Subsidiaries of the Registrant -- filed herewith.
-61-
<PAGE>
TABLE OF CONTENTS
PART I PAGE
Item l. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . 12
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . 13
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . *
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 14
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . 24
Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . 50
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . *
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . *
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . *
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . *
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . 51**
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 55
________________________
* These items have been omitted from this Form 10-K as Registrant meets the
conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K
and is therefore filing this form with the reduced disclosure format.
** The "Index to Exhibits" is located on page 56.
<PAGE>
<TABLE>
<CAPTION>
PG ENERGY INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1997
Balance at Charged Charged Balance
beginning to to other at end
Description of year income accounts Deductions of year
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Deducted from the asset to which it applies:
Reserve for uncollectible accounts-
Year ended December 31, 1997 $ 1,140 $ 2,112 $ 4 $ 2,088(a) $ 1,168
Year ended December 31, 1996 $ 781 $ 2,015 $ - $ 1,656(a) $ 1,140
Year ended December 31, 1995 $ 921 $ 1,541 $ - $ 1,681(a) $ 781
Shown as operating reserves on the balance sheets:
Insurance -
Year ended December 31, 1997 $ 3,086 $ 711 $ - $ 972(b) $ 2,825
Year ended December 31, 1996 $ 3,709 $ 1,042 $ - $ 1,665(b) $ 3,086
Year ended December 31, 1995 $ 2,383 $ 2,652 $ - $ 1,326(b) $ 3,709
NOTES:
(a) Deductions represent uncollectible balances of accounts receivable written off, net of recoveries.
(b) Deductions are principally payments made in settlement of claims.
</TABLE>
<PAGE>
EXHIBIT 21-1
PG ENERGY INC. AND SUBSIDIARY
Subsidiaries of the Registrant
The following are subsidiaries of the Registrant. Their voting securities
are owned 100% by the Registrant and are incorporated in Pennsylvania.
Penn Gas Development Co. (1)
Honesdale Gas Company (2)
(1) A subsidiary of PG Energy Inc. accounted for on the equity method which has
not been consolidated since it is insignificant.
(2) A subsidiary of PG Energy Inc. acquired on February 14, 1997, and included
in the consolidation of PG Energy Inc.
<PAGE>
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1455377
PG Energy Inc.
$25,000,000
6.92% Senior Notes due September 30, 2004
________________
Note Purchase Agreement
________________
Dated September 30, 1997
- --
Table of Contents
Section Heading Page
Section 1. Authorization of Notes 1
Section 2. Sale and Purchase of Notes 1
Section 3. Closing 2
Section 4. Conditions to Closing 2
Section 4.1. Representations and Warranties 2
Section 4.2. Performance; No Default 2
Section 4.3. Compliance Certificates 2
Section 4.4. Opinions of Counsel 3
Section 4.5. Purchase Permitted by Applicable Law, etc 3
Section 4.6. Sale of Other Notes 3
Section 4.7. Payment of Special Counsel Fees 3
Section 4.8. Private Placement Number 3
Section 4.9. Changes in Corporate Structure 3
Section 4.10. Governmental Approval. 3
Section 4.11. ERISA Certificate 3
Section 4.12. Proceedings and Documents 4
Section 5. Representations and Warranties of the Company 4
Section 5.1. Organization; Power and Authority 4
Section 5.2. Authorization, etc 4
Section 5.3. Disclosure 4
Section 5.4. Organization and Ownership of Shares of
Subsidiaries 5
Section 5.5. Financial Statements 5
Section 5.6. Compliance with Laws, Other Instruments, etc 5
Section 5.7. Governmental Authorizations, etc 6
Section 5.8. Litigation; Observance of Statutes and Orders
6
Section 5.9. Taxes 6
Section 5.10. Title to Property; Leases 7
Section 5.11. Licenses, Permits, etc 7
Section 5.12. Compliance with ERISA 7
Section 5.13. Private Offering by the Company 8
Section 5.14. Use of Proceeds; Margin Regulations 8
Section 5.15. Existing Debt 8
Section 5.16. Foreign Assets Control Regulations, etc 8
Section 5.17. Status under Certain Statutes 9
Section 5.18. Environmental Matters 9
Section 6. Representations of the Purchaser 10
Section 6.1. Purchase for Investment 10
Section 6.2. Source of Funds 10
Section 7. Information as to Company 12
Section 7.1. Financial and Business Information 12
Section 7.2. Officer's Certificate 14
Section 7.3. Inspection 14
Section 8. Prepayment of the Notes 15
Section 8.1. Prepayments 15
Section 8.2. Optional Prepayments with Make-Whole Amount 15
Section 8.3. Change in Control 15
Section 8.4. Restricted Event 17
Section 8.5. Allocation of Partial Prepayments 20
Section 8.6. Maturity; Surrender, etc 20
Section 8.7. Purchase of Notes 20
Section 8.8. Make-Whole Amount 20
Section 9. Affirmative Covenants 22
Section 9.1. Compliance with Law 22
Section 9.2. Insurance 22
Section 9.3. Maintenance of Properties 22
Section 9.4. Payment of Taxes 22
Section 9.5. Corporate Existence, etc 23
Section 10. Negative Covenants 23
Section 10.1. Fixed Charges Coverage Ratio 23
Section 10.2. Incurrence of Consolidated Funded Debt 23
Section 10.3. Liens 24
Section 10.4. Consolidated Net Worth 26
Section 10.5. Restricted Investments 26
Section 10.6. Sale-and-Leasebacks 26
Section 10.7. Line of Business 27
Section 10.8. Transactions with Affiliates 27
Section 10.9. Guaranties 27
Section 11. Events of Default 27
Section 12. Remedies on Default, Etc 29
Section 12.1. Acceleration 29
Section 12.2. Other Remedies 30
Section 12.3. Rescission 30
Section 12.4. No Waivers or Election of Remedies, Expenses, etc
30
Section 13. Registration; Exchange; Substitution of Notes 31
Section 13.1. Registration of Notes 31
Section 13.2. Transfer and Exchange of Notes 31
Section 13.3. Replacement of Notes 32
Section 14. Payments on Notes 32
Section 14.1. Place of Payment 32
Section 14.2. Home Office Payment 32
Section 15. Expenses, Etc 33
Section 15.1. Transaction Expenses 33
Section 15.2. Survival 33
Section 16. Survival of Representations and Warranties; Entire
Agreement 33
Section 17. Amendment and Waiver 34
Section 17.1. Requirements 34
Section 17.2. Solicitation of Holders of Notes 34
Section 17.3. Binding Effect, etc 34
Section 17.4. Notes Held by Company, etc 35
Section 18. Notices 35
Section 19. Reproduction of Documents 35
Section 20. Confidential Information 36
Section 21. Substitution of Purchaser 37
Section 22. Miscellaneous 37
Section 22.1. Successors and Assigns 37
Section 22.2. Payments Due on Non-Business Days 37
Section 22.3. Severability 37
Section 22.4. Construction 37
Section 22.5. Headings 38
Section 22.6. Counterparts 38
Section 22.7. Governing Law 38
Schedule A _ Information Relating To PurchasersSchedule B _
Defined TermsSchedule 4.9 _ Changes in Corporate
StructureSchedule 5.3 _ Disclosure MaterialsSchedule 5.4 _
Organization and Ownership of Shares of SubsidiariesSchedule 5.5 _
Financial StatementsSchedule 5.8 _ Certain LitigationSchedule
5.11 _ Licenses, Permits, Etc.Schedule 5.15 _ Existing Debt;
Investments of the Company
Schedule 5.18 _ Certain Environmental MattersExhibit 1 _ Form
of 6.92% Senior Note due September 30, 2004Exhibit 4.4(a) _ Form
of Opinion of Special Counsel to the Company
Exhibit 4.4(b) _ Form of Opinion of House Counsel to the
CompanyExhibit 4.4(c) _ Form of Opinion of Special Counsel to
the Purchasers
- --
PG Energy Inc.
One PEI Center
Wilkes-Barre, PA 18711-0601
6.92% Senior Notes due September 30, 2004
September 30, 1997
To each of the Purchasers listed in
the attached Schedule A:
Ladies and Gentlemen:
PG Energy Inc., a Pennsylvania corporation (the "Company"),
agrees with you as follows:
.c.Section 1. Authorization of Notes;.
The Company will authorize the issue and sale of $25,000,000
aggregate principal amount of its 6.92% Senior Notes due September
30, 2004 (the "Notes", such term to include any such notes issued in
substitution therefor pursuant to Section 13 of this Agreement or the
Other Agreements (as hereinafter defined)). The Notes shall be
substantially in the form set out in Exhibit 1, with such changes
therefrom, if any, as may be approved by you and the Company.
Certain capitalized terms used in this Agreement are defined in
Schedule B; references to a "Schedule" or an "Exhibit" are, unless
otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.
.c.Section 2. Sale and Purchase of Notes;.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to you and you will purchase from the
Company, at the Closing provided for in Section 3, Notes in the
principal amount specified opposite your name in Schedule A at the
purchase price of 100% of the principal amount thereof.
Contemporaneously with entering into this Agreement, the Company is
entering into separate Note Purchase Agreements (the "Other
Agreements") identical with this Agreement with each of the other
purchasers named in Schedule A (the "Other Purchasers"), providing
for the sale at such Closing to each of the Other Purchasers of Notes
in the principal amount specified opposite its name in Schedule A.
Your obligation hereunder and the obligations of the Other Purchasers
under the Other Agreements are several and not joint obligations and
you shall have no obligation under any Other Agreement and no
liability to any Person for the performance or nonperformance by any
Other Purchaser thereunder.
.c.Section 3. Closing;.
The sale and purchase of the Notes to be purchased by you and
the Other Purchasers shall occur at the offices of Hughes Hubbard &
Reed LLP, One Battery Park Plaza, New York, New York 10004, at 10:00
a.m. New York time, at a closing (the "Closing") on September 30,
1997 or on such other Business Day thereafter on or prior to October
15, 1997 as may be agreed upon by the Company and you and the Other
Purchasers. At the Closing the Company will deliver to you the Notes
to be purchased by you in the form of a single Note (or such greater
number of Notes in denominations of at least $500,000 as you may
request) dated the date of the Closing and registered in your name
(or in the name of your nominee), against delivery by you to the
Company or its order of immediately available funds in the amount of
the purchase price therefor by wire transfer of immediately available
funds for the account of the Company to account number 3509-6183 at
CoreStates Bank, Philadelphia, Pennsylvania, (ABA# 031000011). If at
the Closing the Company shall fail to tender such Notes to you as
provided above in this Section 3, or any of the conditions specified
in Section 4 shall not have been fulfilled to your satisfaction, you
shall, at your election, be relieved of all further obligations under
this Agreement, without thereby waiving any rights you may have by
reason of such failure or such nonfulfillment.
.c.Section 4. Conditions to Closing;.
Your obligation to purchase and pay for the Notes to be sold to
you at the Closing is subject to the fulfillment to your
satisfaction, prior to or at the Closing, of the following
conditions:
.c2.Section 4.1. Representations and Warranties;. The
representations and warranties of the Company in this Agreement shall
be correct when made and at the time of the Closing.
.c2.'Section 4.2. Performance; No Default';. The Company
shall have performed and complied in all material respects with all
agreements and conditions contained in this Agreement required to be
performed or complied with by it prior to or at the Closing, and
after giving effect to the issue and sale of the Notes (and the
application of the proceeds thereof as contemplated by Section 5.14),
no Default or Event of Default shall have occurred and be continuing.
.c2.Section 4.3. Compliance Certificates;.
(a) Officer's Certificate. The Company shall have
delivered to you
an Officer's Certificate, dated the date of the Closing,
certifying that
the conditions specified in Sections 4.1, 4.2 and 4.9 have been
fulfilled.
(b) Secretary's Certificate. The Company shall have
delivered to
you a certificate certifying as to the resolutions attached
thereto and
other corporate proceedings relating to the authorization,
execution and
delivery of the Notes and the Agreements.
.c2.Section 4.4. Opinions of Counsel;. You shall have
received opinions in form and substance satisfactory to you, dated
the date of the Closing (a) from Hughes Hubbard & Reed LLP, special
counsel for the Company, covering the matters set forth in Exhibit
4.4(a), (b) from Jeffrey H. Sunday, house counsel of the Company
covering the matters set forth in Exhibit 4.4(b) and (c) from Chapman
and Cutler, your special counsel in connection with such
transactions, substantially in the form set forth in Exhibit 4.4(c).
.c2.Section 4.5. Purchase Permitted by Applicable Law, etc;.
On the date of the Closing your purchase of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which
you are subject, without recourse to provisions (such as Section
1405(a)(8) of the New York Insurance Law) permitting limited
investments by insurance companies without restriction as to the
character of the particular investment, (ii) not violate any
applicable law or regulation (including, without limitation,
Regulation G, T or X of the Board of Governors of the Federal Reserve
System) and (iii) not subject you to any tax, penalty or liability
under or pursuant to any applicable law or regulation, which law or
regulation was not in effect on the date hereof.
.c2.Section 4.6. Sale of Other Notes;. Contemporaneously
with the Closing the Company shall sell to the Other Purchasers and
the Other Purchasers shall purchase, the Notes to be purchased by
them at the Closing as specified in Schedule A.
.c2.Section 4.7. Payment of Special Counsel Fees;. Without
limiting the provisions of Section 15.1, the Company shall have paid
on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4 to the extent reflected in
a statement of such counsel rendered to the Company at least one
Business Day prior to the Closing.
.c2.Section 4.8. Private Placement Number;. A Private
Placement number issued by Standard & Poor's CUSIP Service Bureau (in
cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for
the Notes.
.c2.Section 4.9. Changes in Corporate Structure;. Except as
specified in Schedule 4.9, the Company shall not have changed its
jurisdiction of incorporation or been a party to any merger or
consolidation and shall not have succeeded to all or any substantial
part of the liabilities of any other entity, at any time following
the date of the most recent financial statements referred to in
Schedule 5.5.
.c2.Section 4.10. Governmental Approval. ; The Pennsylvania
Public Utility Commission shall have entered an order authorizing the
sale of the Notes by the Company to the Purchasers and such order
shall be final and not subject to appeal.
.c2.Section 4.11. ERISA Certificate;. If you shall have made
the disclosures referred to in Sections 6.2(b), (c) or (e), you shall
have received the certificate from the Company described in the last
paragraph of Section 6.2 and such certificate shall state that (i)
the Company is neither a party in interest nor a "disqualified
person" (as defined in Section 4975(e)(2) of the Code), with respect
to any plan identified pursuant to Sections 6.2(b) or (e), or (ii)
with respect to any plan, identified pursuant to Section 6.2(c),
neither the Company nor any "affiliate" (as defined in Section V(c)
of the QPAM Exemption) has, at such time or during the immediately
preceding one year, exercised the authority to appoint or terminate
said QPAM as manager of the assets of any plan identified in writing
pursuant to Section 6.2(c) or to negotiate the terms of said QPAM's
management agreement on behalf of any such identified plans.
.c2.Section 4.12. Proceedings and Documents;. All corporate
and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your
special counsel, and you and your special counsel shall have received
all such counterpart originals or certified or other copies of such
documents as you or they may reasonably request.
.c.Section 5. Representations and Warranties of the Company;.
The Company represents and warrants to you that:
.c2.'Section 5.1. Organization; Power and Authority';. The
Company is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation,
and is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is required
by law, other than those jurisdictions as to which the failure to be
so qualified or in good standing would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
The Company has the corporate power and authority to own or hold
under lease the properties it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to
execute and deliver this Agreement and the Other Agreements and the
Notes and to perform the provisions hereof and thereof.
.c2.Section 5.2. Authorization, etc;. This Agreement, the
Other Agreements and the Notes have been duly authorized by all
necessary corporate action on the part of the Company, and this
Agreement constitutes, and upon execution and delivery thereof each
Note will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally or
limiting the right of specific performance and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
.c2.Section 5.3. Disclosure;. The Company, through its
agent, PNC Capital Markets, Inc., has delivered to you and each Other
Purchaser a copy of a Private Placement Memorandum, dated July, 1997
(the "Memorandum"), relating to the transactions contemplated hereby.
Except as disclosed in Schedule 5.3, this Agreement, the Memorandum,
the documents, certificates or other writings identified in Schedule
5.3 and the financial statements listed in Schedule 5.5 (such
financial statements being hereinafter referred to as the "SEC
Reports"), taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make
the statements therein regarding the Company (excluding Pennsylvania
Enterprises, Inc. and its subsidiaries other than the Company and its
Subsidiaries) not misleading in light of the circumstances under
which they were made. Except as disclosed in the Memorandum or as
expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings identified therein, or in the
financial statements listed in Schedule 5.5, since December 31, 1996,
there has been no change in the financial condition, operations,
business or properties of the Company or any of its Subsidiaries
except changes that individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
.c2.Section 5.4. Organization and Ownership of Shares of
Subsidiaries;. (a) Schedule 5.4 is a complete and correct list of
the Company's Subsidiaries, showing, as to each Subsidiary, the
correct name thereof, the jurisdiction of its organization, and the
percentage of shares of each class of its capital stock or similar
equity interests outstanding owned by the Company and each other
Subsidiary.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being
owned by the Company and its Subsidiaries have been validly issued,
are fully paid and nonassessable and are owned by the Company or
another Subsidiary free and clear of any Lien (other than Liens
permitted by Section 10.3 and except as otherwise disclosed in
Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation
or other legal entity duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation or other legal entity and is
in good standing in each jurisdiction in which such qualification is
required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate or
other power and authority to own or hold under lease the properties
it purports to own or hold under lease and to transact the business
it transacts and proposes to transact.
.c2.Section 5.5. Financial Statements;. The Company has
delivered to each Purchaser copies of the financial statements of the
Company and its Subsidiaries listed on Schedule 5.5. All of said
financial statements (including in each case the related schedules
and notes) fairly present in all material respects the consolidated
financial position of the Company and its Subsidiaries as of the
respective dates specified in such Schedule and the consolidated
results of their operations and cash flows for the respective periods
so specified and have been prepared in accordance with GAAP
consistently applied throughout the periods involved except as set
forth in the notes thereto (subject, in the case of any interim
financial statements, to normal year-end adjustments).
.c2.Section 5.6. Compliance with Laws, Other Instruments,
etc;. The execution, delivery and performance by the Company of this
Agreement and the Notes will not (i) contravene, result in any breach
of, or constitute a default under, or result in the creation of any
Lien in respect of any property of the Company or any Subsidiary
under, any indenture, mortgage, deed of trust, or loan agreement,
pursuant to which indebtedness for borrowed money in excess of
$1,000,000 is outstanding or any corporate charter or by-law, or any
other Material agreement or instrument to which the Company or any
Subsidiary is bound or by which the Company or any Subsidiary or any
of their respective properties may be bound or affected, (ii)
conflict with or result in a breach of any of the material terms,
conditions or provisions of any order, judgment, decree, or ruling of
any court, arbitrator or Governmental Authority applicable to the
Company or any Subsidiary or (iii) violate any material provision of
any statute or other rule or regulation of any Governmental Authority
applicable to the Company or any Subsidiary, which contraventions,
breaches, defaults, liens, conflicts or violations, individually or
in the aggregate, would reasonably be expected to have a Material
Adverse Effect.
.c2.Section 5.7. Governmental Authorizations, etc;. Except
for the approval of the Pennsylvania Public Utility Commission, which
has been obtained pursuant to an order dated July 10, 1997, and which
is final and not subject to appeal, no consent, approval or
authorization of, or registration, filing or declaration with, any
Governmental Authority is required in connection with the execution,
delivery or performance by the Company of this Agreement or the Notes
except ordinary disclosures in filings required to be made by the
Company pursuant to the disclosure requirements of the Securities Act
of 1933 and the Securities Exchange Act of 1934.
.c2.'Section 5.8. Litigation; Observance of Statutes and
Orders';. (a) Except as disclosed in Schedule 5.8 or in the SEC
Reports, there are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or involving the
Company or any Subsidiary or any property of the Company or any
Subsidiary in any court or before any arbitrator of any kind or
before or by any Governmental Authority that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse
Effect.
(b) Except as disclosed in Schedule 5.8 or in the SEC Reports,
neither the Company nor any Subsidiary is in default under any order,
judgment, decree or ruling of any court, arbitrator or Governmental
Authority or is in violation of any applicable law, ordinance, rule
or regulation (other than Environmental Laws as described in Section
5.18) of any Governmental Authority, which default or violation,
individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect.
.c2.Section 5.9. Taxes;. The Company and its Subsidiaries
have filed all income tax returns that are required to have been
filed in any jurisdiction, and have paid all taxes shown to be due
and payable on such returns and all other taxes and assessments
payable by them, to the extent such taxes and assessments have become
due and payable and before they have become delinquent, except for
any taxes and assessments (i) the amount of which is not individually
or in the aggregate Material or (ii) the amount, applicability or
validity of which is currently being contested in good faith by
appropriate proceedings or (iii) with respect to which the Company or
a Subsidiary, as the case may be, has established adequate reserves
in accordance with GAAP. The Federal income tax liabilities of the
Company and its Subsidiaries have been determined by the Internal
Revenue Service and paid for all fiscal years up to and including the
fiscal year ended December 31, 1992.
.c2.'Section 5.10. Title to Property; Leases';. The Company
and its Subsidiaries have good title to their respective Material
properties, including all such properties reflected in the most
recent audited balance sheet referred to in Section 5.5 or purported
to have been acquired by the Company or any Subsidiary after said
date (except as sold or otherwise disposed of in the ordinary course
of business), in each case free and clear of Liens prohibited by this
Agreement, except for those defects in title and Liens that,
individually or in the aggregate, would not have a Material Adverse
Effect. All Material leases are valid and subsisting and are in full
force and effect in all material respects.
.c2.Section 5.11. Licenses, Permits, etc;. Except as
disclosed in Schedule 5.11, the Company and its Subsidiaries own or
possess all licenses, permits, franchises, approvals, authorizations,
patents, copyrights, service marks, trademarks and trade names, or
rights thereto, that are Material, without known conflict with the
rights of others, except for those conflicts that, individually or in
the aggregate, would not have a Material Adverse Effect.
.c2.Section 5.12. Compliance with ERISA;. (a) The Company and
each ERISA Affiliate have operated and administered each Plan in
compliance with all applicable laws except for such instances of
noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company
nor any ERISA Affiliate has incurred any liability pursuant to Title
I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of
ERISA), and no event, transaction or condition has occurred or exists
that would reasonably be expected to result in the incurrence of any
such liability by the Company or any ERISA Affiliate, or in the
imposition of any Lien on any of the rights, properties or assets of
the Company or any ERISA Affiliate, in either case pursuant to Title
I or IV of ERISA or to such penalty or excise tax provisions or to
Section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not be individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined
as of the end of such Plan's most recently ended plan year on the
basis of the actuarial assumptions specified for funding purposes in
such Plan's most recent actuarial valuation report, did not exceed
the aggregate current value of the assets of such Plan allocable to
such benefit liabilities by more than $5,000,000 in the case of any
single Plan and by more than $5,000,000 in the aggregate for all
Plans. The term "benefit liabilities" has the meaning specified in
Section 4001 of ERISA and the terms "current value" and "present
value" have the meanings specified in Section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are
Material.
(d) The expected postretirement benefit obligation (determined
as of the last day of the Company's most recently ended fiscal year
in accordance with Financial Accounting Standards Board Statement No.
106, without regard to liabilities attributable to continuation
coverage mandated by section 4980B of the Code) of the Company and
its Subsidiaries is not Material.
(e) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any
transaction that is subject to the prohibitions of section 406 of
ERISA or in connection with which a tax could be imposed pursuant to
section 4975(c)(1)(A)-(D) of the Code. The representation by the
Company in the first sentence of this Section 5.12(e) is made in
reliance upon and subject to the accuracy of your representation in
Section 6.2 as to the sources of the funds to be used to pay the
purchase price of the Notes to be purchased by you.
.c2.Section 5.13. Private Offering by the Company;. Neither
the Company nor anyone acting on its behalf has offered the Notes or
any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect
thereof with, any Person other than you, the Other Purchasers and not
more than 33 other Institutional Investors, each of which has been
offered the Notes at a private sale for investment. Neither the
Company nor anyone acting on its behalf has taken, or will take, any
action that would subject the issuance or sale of the Notes to the
registration requirements of Section 5 of the Securities Act.
.c2.'Section 5.14. Use of Proceeds; Margin Regulations';. The
Company will apply the proceeds of the sale of the Notes to repay
outstanding Debt. No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for the purpose of
buying or carrying any margin stock within the meaning of Regulation
G of the Board of Governors of the Federal Reserve System (12 CFR
207), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a
violation of Regulation X of said Board (12 CFR 224) or to involve
any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). As used in this Section, the terms "margin stock" and
"purpose of buying or carrying" shall have the meanings assigned to
them in said Regulation G.
.c2.Section 5.15. Existing Debt;. Except as described
therein, Schedule 5.15 sets forth a complete and correct list of all
outstanding Debt of the Company and its Subsidiaries as of September
15, 1997, since which date there has been no Material change in the
amounts, interest rates, sinking funds, installment payments or
maturities of the Debt of the Company or its Subsidiaries. Neither
the Company nor any Subsidiary is in default and no waiver of default
is currently in effect, in the payment of any principal or interest
on any Debt of the Company or such Subsidiary and no event or
condition exists with respect to any Debt of the Company or any
Subsidiary the outstanding principal amount of which exceeds
$1,000,000 that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such Debt
to become due and payable before its stated maturity or before its
regularly scheduled dates of payment.
.c2.Section 5.16. Foreign Assets Control Regulations, etc;.
Neither the sale of the Notes by the Company hereunder nor its use of
the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the
United States Treasury Department (31 CFR, Subtitle B, Chapter V, as
amended) or any enabling legislation or executive order relating
thereto.
.c2.Section 5.17. Status under Certain Statutes;. Neither the
Company nor any Subsidiary is subject to regulation under the
Investment Company Act of 1940, as amended, the Public Utility
Holding Company Act of 1935, as amended, except for Section 9(a)(2)
thereof, the ICC Termination Act of 1995, as amended, or the Federal
Power Act, as amended.
.c2.Section 5.18. Environmental Matters;. Except as disclosed
on Schedule 5.18 hereto or as described in the SEC Reports:
(i) Except for conditions, violations or failures which
individually
and in the aggregate are not reasonably likely to have a
Material Adverse
Effect, there are no circumstances at, on or under the Real
Property that
constitute a breach of or non-compliance with any of the
Environmental
Laws, and there are no past or present Environmental Conditions
at, on or
under the Real Property or, to the Company's knowledge, without
any
inquiry, at, on or under adjacent property, that prevent
compliance with
the Environmental Laws at the Real Property.
(ii) Neither the Real Property nor any structures,
improvements,
equipment, fixtures, activities or facilities thereon or
thereunder
contain or use Regulated Substances except in compliance with
the
Environmental Laws, other than such containment or use which
individually
or in the aggregate is not reasonably likely to have any
Material Adverse
Effect. There are no processes, facilities, operations,
equipment or any
other activities at, on or under the Real Property, or, to the
Company's
knowledge, without any inquiry, at, on or under adjacent
property, that
currently result in the release of Regulated Substances onto the
Real
Property in violation of the Environmental Laws, except to the
extent that
such releases are not likely to result in a Material Adverse
Change.
(iii) There are no underground storage tanks, or
underground piping
associated with such tanks, used for the management of Regulated
Substances at, on or under the Real Property that are not in
compliance
with applicable Environmental Laws, other than those with
respect to which
the failure to comply with Environmental Laws is not reasonably
likely,
either individually or in the aggregate, to have a Material
Adverse
Effect, and there are no abandoned underground storage tanks or
underground piping associated with such tanks, previously used
for the
management of Regulated Substances at, on or under the Real
Property that
have not been either abandoned in place, or removed, in
accordance with
the Environmental Laws, other than those with respect to which
the failure
to comply with the Environmental Laws is not reasonably likely,
either
individually or in the aggregate, to have a Material Adverse
Effect.
(iv) The Company and each of its Subsidiaries have all
material
permits, licenses, authorizations and approvals necessary under
the
Environmental Laws for the conduct of the business of the
Company and each
of its Subsidiaries as presently conducted, other than those
with respect
to which the failure to comply with the Environmental Laws is
not
reasonably likely, either individually or in the aggregate, to
have a
Material Adverse Effect. The Company and each of its
Subsidiaries have,
to the Company's knowledge, submitted all material notices,
reports and
other filings required by the Environmental Laws to be submitted
to a
governmental body which pertain to past and current operations
on the Real
Property.
(v) Except for instances which individually and in the
aggregate are
not likely to have a Material Adverse Effect, all past and
present on-site
generation, storage, processing, treatment, recycling,
reclamation or
disposal of Regulated Substances at, on, or under the Real
Property and
all off-site transportation, storage, processing, treatment,
recycling,
reclamation or disposal of Regulated Substances have been done
in
accordance with the Environmental Laws.
.c.Section 6. Representations of the Purchaser;.
.c2.Section 6.1. Purchase for Investment;. You represent
that you are an "accredited investor" as defined in Rule 501(a) of
Regulation D of the Securities Act and that you are purchasing the
Notes for your own account or for one or more separate accounts
maintained by you or for the account of one or more pension or trust
funds and not with a view to the distribution thereof, provided that
the disposition of your or their property shall at all times be
within your or their control. You acknowledge (and each transferee
of a Note, by accepting a Note, will be deemed to have acknowledged)
that the Notes have not been registered under the Securities Act and
may be resold only if registered pursuant to the provisions of the
Securities Act or if an exemption from registration is available,
except under circumstances where neither such registration nor such
an exemption is required by law, and that the Company is not required
to register the Notes.
.c2.Section 6.2. Source of Funds;. You represent (and each
transferee of a Note, by accepting a Note, will be deemed to have
represented and warranted to the Company as if it were a purchaser
hereunder) that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be
used by you to pay the purchase price of the Notes to be purchased by
you hereunder:
(a) the Source is an "insurance company general account"
within the
meaning of Department of Labor Prohibited Transaction Exemption
("PTE")
95-60 (issued July 12, 1995) and there is no employee benefit
plan,
treating as a single plan, all plans maintained by the same
employer or
employee organization, with respect to which the amount of the
general
account reserves and liabilities for all contracts held by or on
behalf of
such plan, exceeds ten percent (10%) of the total reserves and
liabilities
of such general account (exclusive of separate account
liabilities) plus
surplus, as set forth in the NAIC Annual Statement filed with
your state
of domicile; or
(b) the Source is either (i) an insurance company pooled
separate
account, within the meaning of PTE 90-1 (issued January 29,
1990), or
(ii) a bank collective investment fund, within the meaning of
the PTE
91-38 (issued July 12, 1991) and, except as you have disclosed
to the
Company in writing pursuant to this paragraph (b), no employee
benefit
plan or group of plans maintained by the same employer or
employee
organization beneficially owns more than 10% of all assets
allocated to
such pooled separate account or collective investment fund; or
(c) (i) the Source constitutes assets of an "investment
fund"
(within the meaning of Part V of the QPAM Exemption) managed by
a
"qualified professional asset manager" or "QPAM" (within the
meaning of
Part V of the QPAM Exemption), (ii) no employee benefit plan's
assets that
are included in such investment fund, when combined with the
assets of all
other employee benefit plans established or maintained by the
same
employer or by an affiliate (within the meaning of Section
V(c)(1) of the
QPAM Exemption) of such employer or by the same employee
organization and
managed by such QPAM, exceed 20% of the total client assets
managed by
such QPAM, (iii) the conditions of Part I(c) and (g) of the QPAM
Exemption
are satisfied, (iv) neither the QPAM nor a person controlling or
controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest
in the
Company, and (v) (y) the identity of such QPAM and (z) the names
of all
employee benefit plans whose assets are included in such
investment fund
have been disclosed to the Company in writing pursuant to this
paragraph
(c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate
account or trust fund comprised of one or more employee benefit
plans,
each of which has been identified to the Company in writing
pursuant to
this paragraph (e); or
(f) the Source does not include assets of any employee
benefit plan,
other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account" shall
have the respective meanings assigned to such terms in Section 3 of
ERISA.
If you or any prospective transferee of a Note identifies a plan
pursuant to paragraphs (b), (c) or (e) above, the Company shall
deliver a certificate on the Closing Date, with respect to you and on
or prior to the date of any transfer of any Note, with respect to any
prospective transferee, which certificate shall state (x) whether it
is a party in interest or a "disqualified, person" (as defined in
Section 4975(e)(2) of the Code), with respect to any plan identified
pursuant to paragraphs (b) or (e) above, or (y) with respect to any
plan, identified pursuant to paragraph (c) above, whether it or any
"affiliate" (as defined in Section V(c) of the QPAM Exemption) has,
at such time or during the immediately preceding one year, exercised
the authority to appoint or terminate said QPAM as manager of the
assets of any plan identified in writing pursuant to paragraph (c)
above or to negotiate the terms of said QPAM's management agreement
on behalf of any such identified plans.
.c.Section 7. Information as to Company;.
.c2.Section 7.1. Financial and Business Information;. The
Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements _ within 60 days after the end of
each
quarterly fiscal period in each fiscal year of the Company
(other than the
last quarterly fiscal period of each such fiscal year), a copy
of,
(i) a consolidated balance sheet of the Company and
its
Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries,
for such quarter and (in the case of the second and third
quarters) for
the portion of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for
the
corresponding periods in the previous fiscal year, all in
reasonable
detail, prepared in accordance with GAAP (except as noted
therein)
applicable to quarterly financial statements generally, and
certified by a
Senior Financial Officer as fairly presenting, in all material
respects,
the financial position of the companies being reported on and
their
results of operations and cash flows, subject to changes
resulting from
year-end adjustments;
(b) Annual Statements _ within 105 days after the end of
each fiscal
year of the Company, a copy of,
(i) a consolidated balance sheet of the Company and
its
Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries,
for such year,
setting forth in each case in comparative form the figures for
the
previous fiscal year, all in reasonable detail, prepared in
accordance
with GAAP, and accompanied by an opinion thereon of independent
certified
public accountants of recognized national standing, which
opinion shall
state that such financial statements present fairly, in all
material
respects, the financial position of the companies being reported
upon and
their results of operations and cash flows and have been
prepared in
conformity with GAAP, and that the examination of such
accountants in
connection with such financial statements has been made in
accordance with
generally accepted auditing standards, and that such audit
provides a
reasonable basis for such opinion in the circumstances;
(c) SEC and Other Reports _ promptly upon their becoming
available,
one copy of (i) each financial statement, report, notice or
proxy
statement sent by the Company or any Subsidiary to public
securities
holders generally, and (ii) each regular or periodic report,
each
registration statement that shall have become effective (without
exhibits
except as expressly requested by such holder), and each final
prospectus
and all amendments thereto filed by the Company or any
Subsidiary with the
Securities and Exchange Commission;
(d) Notice of Default or Event of Default _ promptly, and
in any
event within five days after a Responsible Officer becoming
aware of the
existence of any Default or Event of Default, a written notice
specifying
the nature and period of existence thereof and what action the
Company is
taking or proposes to take with respect thereto;
(e) ERISA Matters _ promptly, and in any event within five
days
after a Responsible Officer becoming aware of any of the
following, a
written notice setting forth the nature thereof and the action,
if any,
that the Company or an ERISA Affiliate proposes to take with
respect
thereto:
(i) with respect to any Plan, any reportable event,
as defined
in section 4043(b) of ERISA and the regulations thereunder,
for which
notice thereof has not been waived pursuant to such
regulations as in
effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or
the
threatening by the PBGC of the institution of, proceedings
under
section 4042 of ERISA for the termination of, or the
appointment of a
trustee to administer, any Plan, or the receipt by the
Company or any
ERISA Affiliate of a notice from a Multiemployer Plan that
such action has
been taken by the PBGC with respect to such Multiemployer
Plan; or
(iii) any event, transaction or condition that
could result in
the incurrence of any liability by the Company or any ERISA
Affiliate
pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions
of the Code relating to employee benefit plans, or in the
imposition of
any Lien on any of the rights, properties or assets of the
Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such
penalty or
excise tax provisions, if such liability or Lien, taken
together with any
other such liabilities or Liens then existing, would
reasonably be
expected to have a Material Adverse Effect; and
(f) Requested Information _ with reasonable promptness,
such other
data and information relating to the business, operations,
affairs,
financial condition, assets or properties of the Company or any
of its
Subsidiaries or relating to the ability of the Company to
perform its oblig
ations hereunder and under the Notes as from time to time may be
reasonably requested by any such holder of Notes.
.c2.Section 7.2. Officer's Certificate;. Each set of
financial statements delivered to a holder of Notes pursuant to
Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance _ the information (including
detailed
calculations) required in order to establish whether the Company
was in
compliance with the requirements of Section 10.1 through Section
10.7
hereof, inclusive, during the quarterly or annual period covered
by the sta
tements then being furnished (including with respect to each
such Section,
where applicable, the calculations of the maximum or minimum
amount, ratio
or percentage, as the case may be, permissible under the terms
of such
Sections, and the calculation of the amount, ratio or percentage
then in
existence); and
(b) Event of Default _ a statement that such officer has
reviewed
the relevant terms hereof and has made, or caused to be made,
under his or
her supervision, a review of the transactions and conditions of
the
Company and its Subsidiaries from the beginning of the quarterly
or annual
period covered by the statements then being furnished to the
date of the
certificate and that such review shall not have disclosed the
existence
during such period of any condition or event that constitutes a
Default or
an Event of Default or, if any such condition or event existed
or exists
(including, without limitation, any such event or condition
resulting from
the failure of the Company or any Subsidiary to comply with any
Environmental Law), specifying the nature and period of
existence thereof
and what action the Company shall have taken or proposes to take
with
respect thereto.
.c2.Section 7.3. Inspection;. The Company shall permit the
representatives of each holder of Notes that is an Institutional
Investor:
(a) No Default _ if no Default or Event of Default then
exists, at
the expense of such holder and upon reasonable prior notice to
the
Company, to visit the principal executive office of the Company,
to
discuss the affairs, finances and accounts of the Company and
its Su
bsidiaries with the Company's officers, and, with the consent of
the
Company (which consent will not be unreasonably withheld) to
visit the
other offices and properties of the Company and each Subsidiary,
all at
such reasonable times and as often as may be reasonably
requested in
writing; and
(b) Default _ if a Default or Event of Default then
exists, at the
expense of the Company to visit and inspect any of the offices
or
properties of the Company or any Subsidiary, to examine all
their
respective books of account, records, reports and other papers,
to make
copies and extracts therefrom, and to discuss their respective
affairs,
finances and accounts with their respective officers and
independent
public accountants (and by this provision the Company authorizes
said
accountants to discuss the affairs, finances and accounts of the
Company
and its Subsidiaries), all at such times and as often as may be
requested.
.c.Section 8. Prepayment of the Notes;.
.c2.Section 8.1. Prepayments;. The entire outstanding
principal amount of the Notes shall be due on September 30, 2004.
Except as set forth in Section 8.2, the Notes may not be prepaid
prior to maturity at the option of the Company.
.c2.Section 8.2. Optional Prepayments with Make-Whole
Amount;. The Company may, at its option, upon notice as provided
below, prepay at any time all, or from time to time any part of, the
Notes, in a principal amount not less than 10% of the aggregate
principal amount of the Notes then outstanding in the case of a
partial prepayment, at 100% of the principal amount so prepaid, plus
the Make-Whole Amount determined for the prepayment date with respect
to such principal amount. The Company will give each holder of Notes
written notice of each optional prepayment under this Section 8.2 not
less than 30 days and not more than 60 days prior to the date fixed
for such prepayment. Each such notice shall specify such date, the
aggregate principal amount of the Notes to be prepaid on such date,
the principal amount of each Note held by such holder to be prepaid
(determined in accordance with Section 8.5), and the interest to be
paid on the prepayment date with respect to such principal amount
being prepaid, and shall be accompanied by a certificate of a Senior
Financial Officer as to the estimated Make-Whole Amount due in
connection with such prepayment (calculated as if the date of such
notice were the date of the prepayment), setting forth the details of
such computation. Two Business Days prior to such prepayment, the
Company shall deliver to each holder of Notes a certificate of a
Senior Financial Officer specifying the calculation of such Make-
Whole Amount as of the specified prepayment date.
.c2.Section 8.3. Change in Control;.
(a) Notice of Change in Control or Control Event. The Company
will, within 5 Business Days after any Responsible Officer has
knowledge of the occurrence of any Change in Control or Control
Event, give written notice of such Change in Control or Control Event
to each holder of Notes. Such notice shall contain and constitute an
offer to prepay Notes as described in subparagraph (b) of this
Section 8.3 and shall be accompanied by the certificate described in
subparagraph (f) of this Section 8.3.
(b) Offer to Prepay Notes. The offer to prepay Notes
contemplated by subparagraph (a) of this Section 8.3 shall be an
offer to prepay, in accordance with and subject to this Section 8.3,
all, but not less than all, the Notes held by each holder (in this
case only, "holder" in respect of any Note registered in the name of
a nominee for a disclosed beneficial owner shall mean such beneficial
owner) on a date specified in such offer (the "Proposed Prepayment
Date"). Such date shall be not less than 30 days and not more than
60 days after the date of such offer (if the Proposed Prepayment Date
shall not be specified in such offer, the Proposed Prepayment Date
shall be the 30th day after the date of such offer).
(c) Acceptance. A holder of Notes may accept the offer to
prepay made pursuant to this Section 8.3 by causing a notice of such
acceptance to be delivered to the Company at least 10 days prior to
the Proposed Prepayment Date. A failure by a holder of Notes to
respond to an offer to prepay made pursuant to this Section 8.3 shall
be deemed to constitute an acceptance of such offer by such holder.
(d) Prepayment. Prepayment of the Notes to be prepaid pursuant
to this Section 8.3 shall be at 100% of the principal amount of such
Notes, plus the Make-Whole Amount determined for the date of
prepayment with respect to such principal amount, together with
interest on such Notes accrued to the date of prepayment. On the
second Business Day preceding the date of prepayment, the Company
shall deliver to each holder of Notes being prepaid a statement
showing the Make-Whole Amount due in connection with such prepayment
and setting forth the details of the computation of such amount. The
prepayment shall be made on the Proposed Prepayment Date except as
provided in subparagraph (e) of this Section 8.3.
(e) Deferral Pending Change in Control. The obligation of the
Company to prepay Notes pursuant to the offer required by
subparagraph (a) and accepted in accordance with subparagraph (c) of
this Section 8.3 is subject to the occurrence of the Change in
Control in respect of which such offer and acceptances shall have
been made. In the event that such Change in Control does not occur
on or prior to the Proposed Prepayment Date in respect thereof, the
prepayment shall be deferred until and shall be made on the date on
which such Change in Control occurs. The Company shall keep each
holder of Notes reasonably and timely informed of (i) any such
deferral of the date of prepayment, (ii) the date on which such
Change in Control and the prepayment are expected to occur, and (iii)
any determination by the Company that efforts to effect such Change
in Control have ceased or been abandoned (in which case the offers
and acceptances made pursuant to this Section 8.3 in respect of such
Change in Control shall be deemed rescinded).
(f) Officer's Certificate. Each offer to prepay the Notes
pursuant to this Section 8.3 shall be accompanied by a certificate,
executed by a Senior Financial Officer of the Company and dated the
date of such offer, specifying: (i) the Proposed Prepayment Date;
(ii) that such offer is made pursuant to this Section 8.3; (iii) the
principal amount of each Note offered to be prepaid; (iv) the
estimated Make-Whole Amount, if any, due in connection with such
prepayment (calculated as if the date of such notice were the date of
the prepayment), setting forth the details of such computation; (v)
the interest that would be due on each Note offered to be prepaid,
accrued to the Proposed Prepayment Date; (vi) that the conditions of
this Section 8.3 have been fulfilled; and (vii) in reasonable detail,
the nature and date or proposed date of the Change in Control.
(g) "Change in Control" Defined. "Change in Control" means any
event after which any person (as such term is used in section 13(d)
and section 14(d)(2) of the Exchange Act as in effect on the date of
the Closing) or related persons constituting a group (as such term is
used in Rule 13d-5 under the Exchange Act), other than Pennsylvania
Enterprises, Inc., become the "beneficial owners" (as such term is
used in Rule 13d-3 under the Exchange Act as in effect on the date of
the Closing), directly or indirectly, of more than 50% of the total
voting power of all classes then outstanding of the Company's voting
stock.
(h) "Control Event" Defined. "Control Event" means a public
announcement by the Company of any of the following events:
(i) the execution by the Company or any of its
Subsidiaries or
Affiliates of any agreement or letter of intent with respect to
any
proposed transaction or event or series of transactions or
events which,
individually or in the aggregate, may reasonably be expected to
result in
a Change in Control,
(ii) the execution of any written agreement which, when
fully
performed by the parties thereto, would result in a Change in
Control, or
(iii) the making of any written offer by any person (as
such term is
used in section 13(d) and section 14(d)(2) of the Exchange Act
as in
effect on the date of the Closing) or related persons
constituting a group
(as such term is used in Rule 13d-5 under the Exchange Act as in
effect on
the date of the Closing) to the holders of the common stock of
the
Company, which offer, if accepted by the requisite number of
holders,
would result in a Change in Control.
.c2.Section 8.4. Restricted Event;.
(a) Condition to Restricted Event. The Company will not take
any action that consummates or finalizes a Restricted Event unless
(i) at least 30 days prior to such action it shall have given to each
holder of Notes written notice containing and constituting an offer
to prepay Notes as described in subparagraph (b) of this Section 8.4,
accompanied by the certificate described in subparagraph (f) of this
Section 8.4, and (ii) contemporaneously with such action, it prepays
all Notes required to be prepaid in accordance with this Section 8.4.
(b) Offer to Prepay Notes. The offer to prepay Notes
contemplated by subparagraph (a) of this Section 8.4 shall be an
offer to prepay, in accordance with and subject to this Section 8.4,
all, but not less than all, the Notes held by each holder (in this
case only, "holder" in respect of any Note registered in the name of
a nominee for a disclosed beneficial owner shall mean such beneficial
owner) on a date specified in such offer (the "Proposed Prepayment
Date") which shall be not less than 30 days and not more than 60 days
after the date of such offer.
(c) Acceptance. A holder of Notes may accept the offer to
prepay made pursuant to this Section 8.4 by causing a notice of such
acceptance to be delivered to the Company at least 10 days prior to
the Proposed Prepayment Date. A failure by a holder of Notes to
respond to an offer to prepay made pursuant to this Section 8.4 shall
be deemed to constitute an acceptance of such offer by such holder.
(d) Prepayment. Prepayment of the Notes to be prepaid pursuant
to this Section 8.4 shall be at 100% of the principal amount of such
Notes, plus the Make-Whole Amount determined for the date of
prepayment with respect to such principal amount, together with
interest on such Notes accrued to the date of prepayment. On the
second Business Day preceding the date of prepayment, the Company
shall deliver to each holder of Notes being prepaid a statement
showing the Make-Whole Amount due in connection with such prepayment
and setting forth the details of the computation of such amount. The
prepayment shall be made on the Proposed Prepayment Date except as
provided in subparagraph (e) of this Section 8.4.
(e) Deferral Pending Restricted Event. The obligation of the
Company to prepay Notes pursuant to the offers required by
subparagraph (a) and accepted in accordance with subparagraph (c) of
this Section 8.4 is subject to the occurrence of the Restricted Event
in respect of which such offers and acceptances shall have been made.
In the event that such Restricted Event does not occur on or prior to
the Proposed Prepayment Date in respect thereof, the prepayment shall
be deferred until and shall be made on the date on which such
Restricted Event occurs. The Company shall keep each holder of Notes
reasonably and timely informed of (i) any such deferral of the date
of prepayment, (ii) the date on which such Restricted Event and the
prepayment are expected to occur, and (iii) any determination by the
Company that efforts to effect such Restricted Event have ceased or
been abandoned (in which case the offers and acceptances made
pursuant to this Section 8.4 in respect of such Restricted Event
shall be deemed rescinded).
(f) Officer's Certificate. Each offer to prepay the Notes
pursuant to this Section 8.4 shall be accompanied by a certificate,
executed by a Senior Financial Officer of the Company and dated the
date of such offer, specifying: (i) the Proposed Prepayment Date;
(ii) that such offer is made pursuant to this Section 8.4; (iii) the
principal amount of each Note offered to be prepaid; (iv) the
estimated Make-Whole Amount, if any, due in connection with such
prepayment (calculated as if the date of such notice were the date of
the prepayment), setting forth the details of such computation; (v)
the interest that would be due on each Note offered to be prepaid,
accrued to the Proposed Prepayment Date; (vi) that the conditions of
this Section 8.4 have been fulfilled; and (vii) in reasonable detail,
the nature and date or proposed date of the Restricted Event.
(g) "Restricted Event" Defined. "Restricted Event" means any
Restricted Merger and any Restricted Asset Disposition.
(h) "Restricted Merger" Defined. "Restricted Merger" means any
consolidation or merger of the Company or any Subsidiary with any
other corporation or the conveyance, transfer or lease of
substantially all of its assets in a single transaction or series of
transactions to any Person (except that a Subsidiary of the Company
may (x) consolidate with or merge with, or convey, transfer or lease
substantially all of its assets in a single transaction or series of
transactions to, the Company or another Subsidiary of the Company and
(y) convey, transfer or lease all of its assets in a transaction
which is not a Restricted Asset Disposition), provided that the
consolidation or merger of the Company with, or the conveyance,
transfer or lease of substantially all of the assets of the Company
in a single transaction or series of transactions to, any Person
shall not constitute a Restricted Merger so long as:
(1) the successor formed by such consolidation or the
survivor of
such merger or the Person that acquires by conveyance, transfer
or lease
substantially all of the assets of the Company as an entirety,
as the case
may be (the "Successor Corporation"), shall be a solvent
corporation
organized and existing under the laws of the United States of
America, any
State thereof or the District of Columbia;
(2) if the Company is not the Successor Corporation, such
corporation shall have executed and delivered to each holder of
Notes its
assumption of the due and punctual performance and observance of
each
covenant and condition of this Agreement and the Notes (pursuant
to such
agreements and instruments as shall be reasonably satisfactory
to the
Required Holders), and the Company shall have caused to be
delivered to
each holder of Notes an opinion of nationally recognized
independent
counsel, or other independent counsel reasonably satisfactory to
the
Required Holders, to the effect that all agreements or
instruments
effecting such assumption are enforceable in accordance with
their terms
and comply with the terms hereof; and
(3) immediately after giving effect to such transaction
(x) no
Default or Event of Default would exist and (y) the Successor
Corporation
could incur $1 of additional Consolidated Funded Debt pursuant
to Section
10.2(3).
(i) "Restricted Asset Disposition" Defined. "Restricted Asset
Disposition" means each Asset Disposition by the Company or any of
its Subsidiaries unless:
(1) in the good faith opinion of the Company, the Asset
Disposition
is in exchange for consideration having a Fair Market Value at
least equal
to that of the property exchanged and is in the best interest of
the
Company or such Subsidiary; and
(2) immediately after giving effect to the Asset
Disposition, no
Default or Event of Default would exist; and
(3) immediately after giving effect to the Asset
Disposition, either
(x) the Disposition Value of all property that was the subject
of any
Asset Disposition occurring in the same transaction or a series
of related
transactions would not exceed 10% of Consolidated Assets as of
the end of
the then most recently ended fiscal year of the Company, or (y)
the
Disposition Value of all property that was the subject of any
Asset
Disposition occurring on or after the Closing Date would not
exceed 25% of
Consolidated Assets as of the end of the then most recently
ended fiscal
year of the Company.
If the Net Proceeds Amount for any Transfer is applied to a Debt
Prepayment Application or a Property Reinvestment Application within
30 days after such Transfer, then such Transfer, for the purpose of
determining whether a Restricted Asset Disposition shall have
occurred as of any date, shall be deemed not to be an Asset
Disposition.
.c2.Section 8.5. Allocation of Partial Prepayments;. In the
case of each partial prepayment of the Notes (excluding prepayments
pursuant to Sections 8.3 and 8.4), the principal amount of the Notes
to be prepaid shall be allocated among all of the Notes at the time
outstanding in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof not theretofore called
for prepayment.
.c2.'Section 8.6. Maturity; Surrender, etc';. In the case of
each prepayment of Notes pursuant to this Section 8, the principal
amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest
on such principal amount accrued to such date and the applicable Make-
Whole Amount, if any. From and after such date, unless the Company
shall fail to pay such principal amount when so due and payable,
together with the interest and Make-Whole Amount, if any, as
aforesaid, interest on such principal amount shall cease to accrue.
Any Note paid or prepaid in full shall be surrendered to the Company
and canceled and shall not be reissued, and no Note shall be issued
in lieu of any prepaid principal amount of any Note.
.c2.Section 8.7. Purchase of Notes;. The Company will not
and will not permit any 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 or an Affiliate
pro rata to the holders of all Notes at the time outstanding upon the
same terms and conditions. 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 10
Business Days. If the holders of more than 50% 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 5 Business Days from its receipt of such
notice to accept such offer. The Company will promptly cancel all
Notes acquired by it 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.
.c2.Section 8.8. Make-Whole Amount;. The term "Make-Whole
Amount" means, with respect to any Note, an amount equal to the
excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount
may in no event be less than zero. For the purposes of determining
the Make-Whole Amount, the following terms have the following
meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to
Sections 8.2, 8.3
or 8.4 or has become or is declared to be immediately due and
payable
pursuant to Section 12.1, as the context requires.
"Discounted Value" means, 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 the same periodic basis as that on
which
interest on the Notes is payable) equal to the Reinvestment
Yield with
respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal
of any Note, .50% over the yield to maturity implied by (i) the
yields
reported, as of 10:00 A.M. (New York City time) on the second
Business Day
preceding the Settlement Date with respect to such Called
Principal, on
the display designated as "Page 678" on the Telerate Access
Service (or
such other display as may replace Page 678 on the Telerate
Access 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, or (ii) if such yields are not reported as of such time or
the
yields reported as of such time are not ascertainable, the
Treasury
Constant Maturity Series Yields reported, for the latest day for
which such
yields have been so reported as of the second Business Day
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. Such implied yield will be determined, if
necessary, by
(a) converting U.S. Treasury bill quotations to bond-equivalent
yields in
accordance with accepted financial practice and (b)
interpolating linearly
between (1) the actively traded U.S. Treasury security with the
duration
closest to and greater than the Remaining Average Life and (2)
the
actively traded U.S. Treasury security with the duration closest
to and
less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, 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) the principal component
of each
Remaining Scheduled Payment with respect to such Called
Principal by
(b) the number of years (calculated to the nearest one-twelfth
year) that
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" means, with respect to the
Called
Principal of any Note, all payments of such Called Principal and
interest
thereon that would be due 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, provided that if such Settlement Date is
not a
date on which interest payments are due to be made under the
terms of the
Notes, then the amount of the next succeeding scheduled interest
payment
will be reduced by the amount of interest accrued to such
Settlement Date
and required to be paid on such Settlement Date pursuant to
Sections 8.2,
8.3, 8.4 or 12.1.
"Settlement Date" means, with respect to the Called
Principal of
any Note, the date on which such Called Principal is to be
prepaid
pursuant to Sections 8.2, 8.3 or 8.4 or has become or is
declared to be
immediately due and payable pursuant to Section 12.1, as the
context
requires.
.c.Section 9. Affirmative Covenants;.
The Company covenants that so long as any of the Notes are
outstanding:
.c2.Section 9.1. Compliance with Law;. The Company will and
will cause each of its Subsidiaries to comply with all laws,
ordinances or governmental rules or regulations to which each of them
is subject, including, without limitation, Environmental Laws, and
will obtain and maintain in effect all licenses, certificates,
permits, franchises and other governmental authorizations necessary
to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to
ensure that non-compliance with such laws, ordinances or governmental
rules or regulations or failures to obtain or maintain in effect such
licenses, certificates, permits, franchises and other governmental
authorizations would not reasonably be expected, individually or in
the aggregate, to have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the
Company and its Subsidiaries taken as a whole.
.c2.Section 9.2. Insurance;. The Company will and will cause
each of its Subsidiaries to maintain, with insurers that it believes
are financially sound and reputable, insurance with respect to their
respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts
(including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the
case of entities of established reputations engaged in the same or a
similar business and similarly situated.
.c2.Section 9.3. Maintenance of Properties;. The Company
will and will cause each of its Subsidiaries to maintain and keep, or
cause to be maintained and kept, their respective properties in good
repair, working order and condition (other than ordinary wear and
tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not
prevent the Company or any Subsidiary from discontinuing the
operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the
Company has concluded that such discontinuance would not,
individually or in the aggregate, reasonably be expected to have a
materially adverse effect on the business, operations, affairs,
financial condition, properties or assets of the Company and its
Subsidiaries taken as a whole.
.c2.Section 9.4. Payment of Taxes;. The Company will and
will cause each of its Subsidiaries to file all income tax or similar
tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and
all other taxes, assessments, governmental charges, or levies payable
by any of them, to the extent such taxes and assessments have become
due and payable and before they have become delinquent, provided that
neither the Company nor any Subsidiary need pay any such tax or
assessment if (i) the amount, applicability or validity thereof is
contested by the Company or such Subsidiary on a timely basis in good
faith and in appropriate proceedings, (ii) the Company or a
Subsidiary has established adequate reserves therefor in accordance
with GAAP on the books of the Company or such Subsidiary or (iii) the
nonpayment of all such taxes and assessments in the aggregate would
not reasonably be expected to have a materially adverse effect on the
business, operations, affairs, financial condition, properties or
assets of the Company and its Subsidiaries taken as a whole.
.c2.Section 9.5. Corporate Existence, etc;. The Company will
at all times preserve and keep in full force and effect its corporate
existence. Subject to Sections 10.5 and 10.6, the Company will at
all times preserve and keep in full force and effect the corporate
existence of each of its Subsidiaries (unless merged into the Company
or a Subsidiary) and all rights and franchises of the Company and its
Subsidiaries unless, in the good faith judgment of the Company, the
termination of or failure to preserve and keep in full force and
effect such corporate existence, right or franchise would not,
individually or in the aggregate, have a materially adverse effect on
the business, operations, affairs, financial condition, properties or
assets of the Company and its Subsidiaries taken as a whole.
.c.Section 10. Negative Covenants;.
The Company covenants that so long as any of the Notes are
outstanding:
.c2.Section 10.1. Fixed Charges Coverage Ratio;. The Company
will not, at any time, permit the Fixed Charges Coverage Ratio to be
less than 1.25 to 1.
.c2.Section 10.2. Incurrence of Consolidated Funded Debt;.
The Company will not, and will not permit any Subsidiary to, directly
or indirectly, create, incur, assume, guarantee, or otherwise become
directly or indirectly liable with respect to, any Consolidated
Funded Debt, except:
(1) Consolidated Funded Debt evidenced by the Notes;
(2) Consolidated Funded Debt of the Company and its
Subsidiaries
outstanding as of the date of this Agreement and reflected on
Schedule 5.15; and
(3) Consolidated Funded Debt of the Company; provided that
on the
date the Company or such Subsidiary becomes liable with respect
to any
such Debt and immediately after giving effect thereto and the
concurrent
retirement of any other Debt,
(a) no Default or Event of Default exists,
(b) Consolidated Funded Debt does not exceed 65% of
Consolidated Total Capitalization, and
(c) in the case of Consolidated Funded Debt of
Subsidiaries
(excluding Acquired Subsidiary Debt), the aggregate unpaid
principal
amount of (x) such Consolidated Funded Debt of Subsidiaries
(excluding
Acquired Subsidiary Debt) and (y) all Debt of the Company
and its
Subsidiaries secured by Liens permitted by Section 10.3(j)
shall not
exceed 10% of Consolidated Total Capitalization.
For the purposes of this Section 10.2, any Person becoming a
Subsidiary after the date hereof shall be deemed, at the time it
becomes a Subsidiary, to have incurred all of its then outstanding
Debt, and any Person extending, renewing or refunding any Debt shall
be deemed to have incurred such Debt at the time of such extension,
renewal or refunding.
.c2.Section 10.3. Liens;. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly create,
incur, assume or permit to exist (upon the happening of a contingency
or otherwise) any Lien on or with respect to any property or asset
(including, without limitation, any document or instrument in respect
of goods or accounts receivable) of the Company or any such
Subsidiary, whether now owned or held or hereafter acquired, or any
income or profits therefrom or assign or otherwise convey any right
to receive income or profits (unless it makes, or causes to be made,
effective provision whereby the Notes will be equally and ratably
secured with any and all other obligations thereby secured, such
security to be pursuant to an agreement reasonably satisfactory to
the Required Holders), except:
(a) Liens for taxes, assessments or other governmental
charges which
are not yet due and payable or the payment of which is not at
the time
required by Section 9.4;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Liens, in
each
case, incurred in the ordinary course of business for sums not
yet due and
payable or the payment of which is not at the time required by
Section 9.1;
(c) Liens (other than any Lien imposed by ERISA) incurred
or
deposits made in the ordinary course of business (i) in
connection with
workers' compensation, unemployment insurance and other types of
social
security or retirement benefits, or (ii) to secure (or to obtain
letters
of credit that secure) the performance of tenders, statutory
obligations,
surety bonds, appeal bonds, bids, leases (other than Capital
Leases),
performance bonds, purchase, construction or sales contracts and
other
similar obligations, in each case not incurred or made in
connection with
the borrowing of money, the obtaining of advances or credit or
the payment
of the deferred purchase price of property;
(d) any attachment or judgment Lien, unless the judgment
it secures
shall not, within 30 days after the entry thereof, have been
discharged or
execution thereof stayed pending appeal, or shall not have been
discharged
within 30 days after the expiration of any such stay;
(e) leases or subleases granted to others, easements,
rights-of-way,
restrictions, defects and irregularities of title, and other
similar
charges or encumbrances, in each case incidental to, and not
interfering
with, the ordinary conduct of the business of the Company or any
of its
Subsidiaries, provided that such Liens do not, in the aggregate,
materially detract from the value of such property;
(f) Liens existing on the date of this Agreement and
securing the
Debt of the Company and its Subsidiaries referred to in Schedule
5.15 and
which is outstanding on the date of this Agreement including
first
mortgage bonds in the aggregate principal amount of $55,000,000
outstanding under the Indenture dated as of March 15, 1946 from
the
Company (formerly known as Scranton _ Spring Brook Water Service
Company)
to First Trust New York, National Association, as Trustee, as
supplemented
from time to time;
(g) any Lien created to secure all or any part of the
purchase
price, or to secure Debt incurred or assumed to pay all or any
part of the
purchase price or cost of construction, of real and/or tangible
property
(or any improvement thereon) acquired or constructed by the
Company or a
Subsidiary after the date of the Closing, provided that
(i) any such Lien shall extend solely to the item or
items of
such property (or improvement thereon) so acquired or
constructed and, if
required by the terms of the instrument originally creating
such Lien,
other property (or improvement thereon) which is an
improvement to or is
acquired for specific use in connection with such acquired
or constructed
property (or improvement thereon) or which is real property
being improved
by such acquired or constructed property (or improvement
thereon),
(ii) the principal amount of the Debt secured by any
such Lien
shall at no time exceed an amount equal to the cost to the
Company or such
Subsidiary of the property (or improvement thereon) so
acquired or
constructed, and
(iii) any such Lien shall be created
contemporaneously with, or
within 180 days after, the acquisition or construction of
such property;
(h) any Lien existing on property of a Person immediately
prior to
its being consolidated with or merged into the Company or a
Subsidiary or
its becoming a Subsidiary, or any Lien existing on any property
acquired
by the Company or any Subsidiary at the time such property is so
acquired
(whether or not the Debt secured thereby shall have been
assumed), provided
that (i) no such Lien shall have been created or assumed in
contemplation
of such consolidation or merger or such Person's becoming a
Subsidiary or
such acquisition of property, and (ii) each such Lien shall
extend solely
to the item or items of property so acquired and, if required by
the terms
of the instrument originally creating such Lien, other property
which is
an improvement to or is acquired for specific use in connection
with such
acquired property;
(i) any Lien renewing, extending or refunding any Lien
permitted by
paragraphs (f), (g) or (h) of this Section 10.3, provided that
(i) the
principal amount of Debt secured by such Lien immediately prior
to such
extension, renewal or refunding is not increased or the maturity
thereof
reduced, (ii) such Lien is not extended to any other property,
(iii) immediately after such extension, renewal or refunding no
Default or
Event of Default would exist and in the case of Funded Debt, the
incurrence of such Debt is permitted by Section 10.2(3); and
(j) other Liens not otherwise permitted by paragraphs (f)
through
(i), provided that the sum of (x) the aggregate principal amount
of Debt
of the Company and its Subsidiaries secured by Liens permitted
by this
paragraph (j), and (y) the aggregate unpaid principal amount of
unsecured
Consolidated Funded Debt (excluding Acquired Subsidiary Debt) of
Subsidiaries shall not at any time exceed 10% of Consolidated
Total
Capitalization.
.c2.Section 10.4. Consolidated Net Worth;. The Company will
not, at any time, permit Consolidated Net Worth to be less than the
sum of (a) $75,000,000, plus (b) an aggregate amount equal to 20% of
its Consolidated Net Income (but, in each case, only if a positive
number) for each completed fiscal year beginning with the fiscal year
ended December 31, 1997.
.c2.Section 10.5. Restricted Investments;.
(a) Limitation. The Company will not, and will not permit any
of its Subsidiaries to, declare, make or authorize any Restricted
Investment unless immediately after giving effect to such action:
(i) the aggregate value of all Restricted Investments of
the Company
and its Subsidiaries (valued immediately after such action)
would not
exceed 10% of Consolidated Net Worth; and
(ii) no Default or Event of Default would exist.
(b) Investments of Subsidiaries. Each Person which becomes a
Subsidiary of the Company after the date of the Closing will be
deemed to have made, on the date such Person becomes a Subsidiary of
the Company, all Restricted Investments of such Person in existence
on such date. Investments in any Person that ceases to be a
Subsidiary of the Company after the date of the Closing (but in which
the Company or another Subsidiary continues to maintain an
Investment) will be deemed to have been made on the date on which
such Person ceases to be a Subsidiary of the Company.
.c2.Section 10.6. Sale-and-Leasebacks;. The Company will not,
and will not permit any Subsidiary to, enter into any Sale-and-
Leaseback Transaction unless
(a) the Company or such Subsidiary shall have received
cash in an
amount not less than the Fair Market Value of the property which
is
Transferred in such Sale-and-Leaseback Transaction;
(b) immediately after giving effect thereto no Default or
Event of
Default would exist; and
(c) the Net Proceeds Amount received by the Company or
such
Subsidiary in respect of such Sale-and-Leaseback Transaction is
applied
within 90 days of the consummation thereof to a Debt Prepayment
Application or a Property Reinvestment Application.
.c2.Section 10.7. Line of Business;. The Company will not,
and will not permit any of its Subsidiaries to, engage in any
business if, as a result, the general nature of the business in which
the Company and its Subsidiaries, taken as a whole, would then be
engaged would be substantially changed from the general nature of the
business in which the Company and its Subsidiaries, taken as a whole,
are engaged on the date of this Agreement as described in the
Memorandum.
.c2.Section 10.8. Transactions with Affiliates;. The Company
will not and will not permit any Subsidiary to enter into directly or
indirectly any Material transaction or Material group of related
transactions (including without limitation the purchase, lease, sale
or exchange of properties of any kind or the rendering of any
service) with any Affiliate (other than the Company or another
Subsidiary), except 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 would
be obtainable in a comparable arm's-length transaction with a Person
not an Affiliate.
.c2.Section 10.9. Guaranties;. The Company will not, and will
not permit any Subsidiary to, become or be liable in respect of any
Guaranty except Guaranties by the Company which are limited in amount
to a stated maximum dollar exposure or which constitute Guaranties of
obligations incurred by any Subsidiary which will not violate the
provisions of this Agreement.
.c.Section 11. Events of Default;.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal
or
Make-Whole Amount, if any, on any Note when the same becomes due
and
payable, whether at maturity or at a date fixed for prepayment
or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on
any Note
for more than five Business Days after the same becomes due and
payable; or
(c) the Company defaults in the performance of or
compliance with
any term contained in Sections 10.1 through 10.6 which default
continues
for more than five Business Days; or
(d) the Company defaults in the performance of or
compliance with
any term contained herein (other than those referred to in
paragraphs (a),
(b) and (c) of this Section 11) and such default is not remedied
within 30
Business Days after the earlier of (i) a Responsible Officer
obtaining
actual knowledge of such default and (ii) the Company receiving
written
notice of such default from any holder of a Note (any such
written notice
to be identified as a "notice of default" and to refer
specifically to
this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or
on behalf
of the Company or by any officer of the Company in this
Agreement or in
any writing furnished in connection with the transactions
contemplated
hereby proves to have been false or incorrect in any material
respect on
the date as of which made; or
(f) (i) the Company or any Significant Subsidiary is in
default (as
principal or as guarantor or other surety) in the payment of any
principal
of or premium or make-whole amount or interest on any Debt that
is
outstanding in an aggregate principal amount of at least
$5,000,000 beyond
the lesser of (x) 30 Business Days, or (y) any period of grace
or cure
period provided with respect thereto and which entitles the
trustee or
holder of such Debt to accelerate the maturity thereof, or (ii)
the
Company or any Significant Subsidiary is in default in the
performance of
or compliance with any term of any evidence of any Debt in an
aggregate
outstanding principal amount of at least $5,000,000 or of any
mortgage,
indenture or other agreement relating thereto or any other
condition
exists, and such default shall continue beyond the lesser of (x)
30
Business Days, or (y) any period of grace or cure period
provided with
respect thereto and which entitles the trustee or holder of such
Debt to
accelerate the maturity thereof; or
(g) the Company or any Significant Subsidiary (i) is
generally not
paying, or admits in writing its inability to pay, its debts as
they
become due, (ii) files, or consents by answer or otherwise to
the filing
against it of, a petition for relief or reorganization or
arrangement or
any other petition in bankruptcy, for liquidation or to take
advantage of
any bankruptcy, insolvency, reorganization, moratorium or other
similar
law of any jurisdiction, (iii) makes a general assignment for
the benefit
of its creditors, (iv) consents to the appointment of a
custodian,
receiver, trustee or other officer with similar powers with
respect to it
or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) the Board
of
Directors of the Company authorizes any of the action described
in clauses
(ii), (iii) or (iv) of this paragraph (g); or
(h) a court or governmental authority of competent
jurisdiction
enters an order appointing, without consent by the Company or
any of its
Significant Subsidiaries, a custodian, receiver, trustee or
other officer
with similar powers with respect to it or with respect to any
substantial
part of its property, or constituting an order for relief or
approving a
petition for relief or reorganization or any other petition in
bankruptcy
or for liquidation or to take advantage of any bankruptcy or
insolvency
law of any jurisdiction, or ordering the dissolution, winding-up
or
liquidation of the Company or any of its Significant
Subsidiaries, or any
such petition shall be filed against the Company or any of its
Significant
Subsidiaries and such petition shall continue unstayed,
undismissed and in
effect for 60 Business Days; or
(i) a final judgment or judgments for the payment of money
for an
amount aggregating in excess of 5% of consolidated assets of the
Company
and its Subsidiaries are rendered against one or more of the
Company and
its Significant Subsidiaries by a court having jurisdiction in
the
premises and which judgments are not, within 30 Business Days
after entry
thereof, bonded, discharged or stayed by appeal or otherwise, or
are not
discharged within 60 Business Days after the expiration of such
stay; or
(j) If (i) any Plan shall fail to satisfy the minimum
funding
standards of ERISA or the Code for any plan year or part thereof
or a
waiver of such standards or extension of any amortization period
is sought
or granted under section 412 of the Code, (ii) a notice of
intent to
terminate any Plan shall have been or is reasonably expected to
be filed
with the PBGC or the PBGC shall have instituted proceedings
under ERISA
section 4042 to terminate or appoint a trustee to administer any
Plan or
the PBGC shall have notified the Company or any ERISA Affiliate
that a
Plan may become a subject of any such proceedings, (iii) the
Company or
any ERISA Affiliate shall have incurred or is reasonably
expected to incur
any liability pursuant to Title I or IV of ERISA or the penalty
or excise
tax provisions of the Code relating to employee benefit plans,
(iv) the
Company or any ERISA Affiliate withdraws from any Multiemployer
Plan, or
(v) the Company or any Subsidiary establishes or amends any
employee
welfare benefit plan that provides post-employment welfare
benefits in a
manner that would increase the liability of the Company or any
Subsidiary
thereunder; and any such event or events described in clauses
(i) through
(v) above, either individually or together with any other such
event or
events, would reasonably be expected to have a Material Adverse
Effect.
As used in Section 11(j), the terms "employee benefit plan" and
"employee welfare benefit plan" shall have the respective meanings
assigned to such terms in Section 3 of ERISA.
.c.Section 12. Remedies on Default, Etc;.
.c2.Section 12.1. Acceleration;. (a) If an Event of Default
with respect to the Company described in paragraph (g) or (h) of
Section 11 (other than an Event of Default described in clause (i) of
paragraph (g) or described in clause (vi) of paragraph (g) by virtue
of the fact that such clause encompasses clause (i) of paragraph (g))
has occurred, all the Notes then outstanding shall automatically
become immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of at least 51% in principal amount
of the Notes at the time outstanding may at any time at its or their
option, by notice or notices to the Company, declare all the Notes
then outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders
of Notes at the time outstanding affected by such Event of Default
may at any time, at its or their option, by notice or notices to the
Company, declare all the Notes held by it or them to be immediately
due and payable.
Upon any Note's becoming due and payable under this Section
12.1, whether automatically or by declaration, such Note will
forthwith mature and the entire unpaid principal amount of such Note,
plus (x) all accrued and unpaid interest thereon and (y) the Make-
Whole Amount determined in respect of such principal amount (to the
full extent permitted by applicable law), shall all be immediately
due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived.
.c2.Section 12.2. Other Remedies;. If any Default or Event of
Default has occurred and is continuing, and irrespective of whether
any Notes have become or have been declared immediately due and
payable under Section 12.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement
contained herein or in any Note, or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or by law or
otherwise.
.c2.Section 12.3. Rescission;. At any time after any Notes
have been declared due and payable pursuant to clause (b) or (c) of
Section 12.1, the holders of not less than 51% in principal amount of
the Notes then outstanding, by written notice to the Company, may
rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue interest on the Notes, all principal
of and Make-Whole Amount, if any, on any Notes that are due and
payable and are unpaid other than by reason of such declaration, and
all interest on such overdue principal and Make-Whole Amount, if any,
and (to the extent permitted by applicable law) any overdue interest
in respect of the Notes, at the Default Rate, (b) all Events of
Default and Defaults, other than non-payment of amounts that have
become due solely by reason of such declaration, have been cured or
have been waived pursuant to Section 17, and (c) no judgment or
decree has been entered for the payment of any monies due pursuant
hereto or to the Notes. No rescission and annulment under this
Section 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.
.c2.Section 12.4. No Waivers or Election of Remedies,
Expenses, etc;. No course of dealing and no delay on the part of any
holder of any Note in exercising any right, power or remedy shall
operate as a waiver thereof or otherwise prejudice such holder's
rights, powers or remedies. No right, power or remedy conferred by
this Agreement or by any Note upon any holder thereof shall be
exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under
Section 15, the Company will pay to the holder of each Note on demand
such further amount as shall be sufficient to cover all costs and
expenses of such holder incurred in any enforcement or collection
under this Section 12, including, without limitation, reasonable
attorneys' fees, expenses and disbursements.
.c.'Section 13. Registration; Exchange; Substitution of Notes';.
.c2.Section 13.1. Registration of Notes;. The Company shall
keep at its principal executive office a register for the
registration and registration of transfers of Notes. The name and
address of each holder of one or more Notes, each transfer thereof
and the name and address of each transferee of one or more Notes
shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be
registered shall be deemed and treated as the owner and holder
thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company
shall give to any holder of a Note that is an Institutional Investor
promptly upon request therefor, a complete and correct copy of the
names and addresses of all registered holders of Notes.
.c2.Section 13.2. Transfer and Exchange of Notes;. Upon
surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of
a surrender for registration of transfer, duly endorsed or
accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or its attorney duly authorized in
writing and accompanied by the address for notices of each transferee
of such Note or part thereof), the Company shall execute and deliver,
at the Company's expense (except as provided below), one or more new
Notes (as requested by the holder thereof) in exchange therefor, in
an aggregate principal amount equal to the unpaid principal amount of
the surrendered Note. Each such new Note shall be payable to such
Person as such holder may request and shall be substantially in the
form of Exhibit 1. Each such new Note shall be dated and bear
interest from the date to which interest shall have been paid on the
surrendered Note or dated the date of the surrendered Note if no
interest shall have been paid thereon. The Company may require
payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall
not be transferred in denominations of less than $500,000, provided
that if necessary to enable the registration of transfer by a holder
of its entire holding of Notes, one Note may be in a denomination of
less than $500,000. Any transferee of a Note shall, by its
acceptance of such Note, be deemed to have made the same
representations and acknowledgments to the Company regarding the
purchase of the Note as the original purchasers made pursuant to
Section 6.2, provided, however, that such transferee will not be
deemed to have chosen the options set forth in Sections 6.2(b), (c)
or (e) unless such transferee shall have made the disclosure referred
to therein at least ten Business Days prior to its acceptance of such
Note and shall have received prior to such acceptance of such Note
the certificate provided for in the last paragraph of Section 6.2 and
such certificate shall contain the statement set forth in Section
5.12(e); and provided, further, that such transferee will not be
deemed to have chosen an option set forth in Sections 6.2(b), (c) or
(e) unless the applicable Class Exemption referred to therein remains
in effect at that time. The Company shall exercise reasonable due
diligence as is necessary to respond to any such disclosure, provided
that, if the Company shall not respond within ten Business Days
following receipt of such disclosure, it shall be deemed to have made
the statement set forth in Section 5.12(e).
.c2.Section 13.3. Replacement of Notes;. Upon receipt by the
Company of evidence reasonably satisfactory to it of the ownership of
and the loss, theft, destruction or mutilation of any Note (which
evidence shall be, in the case of an Institutional Investor, notice
from such Institutional Investor of such ownership and such loss,
theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of
indemnity
reasonably satisfactory to it (provided that if the holder of
such Note
is, or is a nominee for, an original Purchaser or another holder
of a Note
with a minimum net worth of at least $10,000,000, such Person's
own
unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and
cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu
thereof, a new Note, dated and bearing interest from the date to
which interest shall have been paid on such lost, stolen, destroyed
or mutilated Note or dated the date of such lost, stolen, destroyed
or mutilated Note if no interest shall have been paid thereon.
.c.Section 14. Payments on Notes;.
.c2.Section 14.1. Place of Payment;. Subject to Section 14.2,
payments of principal, Make-Whole Amount, if any, and interest
becoming due and payable on the Notes shall be made in Wilkes-Barre,
Pennsylvania at the principal office of PG Energy Inc. in such
jurisdiction. The Company may at any time, by notice to each holder
of a Note, change the place of payment of the Notes so long as such
place of payment shall be either the principal office of the Company
in such jurisdiction or the principal office of a bank or trust
company in such jurisdiction.
.c2.Section 14.2. Home Office Payment;. So long as you or
your nominee shall be the holder of any Note, and notwithstanding
anything contained in Section 14.1 or in such Note to the contrary,
the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount, if any, and interest by the method and
at the address specified for such purpose below your name in Schedule
A, or by such other method or at such other address as you shall have
from time to time specified to the Company in writing for such
purpose, without the presentation or surrender of such Note or the
making of any notation thereon, except that upon written request of
the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such
Note for cancellation, reasonably promptly after any such request, to
the Company at its principal executive office or at the place of
payment most recently designated by the Company pursuant to Section
14.1. Prior to any sale or other disposition of any Note held by you
or your nominee you will, at your election, either endorse thereon
the amount of principal paid thereon and the last date to which
interest has been paid thereon or surrender such Note to the Company
in exchange for a new Note or Notes pursuant to Section 13.2. The
Company will afford the benefits of this Section 14.2 to any
Institutional Investor that is the direct or indirect transferee of
any Note purchased by you under this Agreement and that has made the
same agreement relating to such Note as you have made in this Section
14.2.
.c.Section 15. Expenses, Etc;.
.c2.Section 15.1. Transaction Expenses;. Whether or not the
transactions contemplated hereby are consummated, the Company will
pay all reasonable costs and expenses (including reasonable
attorneys' fees of a special counsel and, if reasonably required,
local or other counsel, provided that in no event shall the Company
be required to pay the charges and disbursements of more than one of
each such counsel representing holders) incurred by you and each
Other Purchaser or holder of a Note in connection with such
transactions and in connection with any amendments, waivers or
consents under or in respect of this Agreement or the Notes (whether
or not such amendment, waiver or consent becomes effective),
including, without limitation: (a) reasonable costs and expenses
incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement or the Notes or in
responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the
Notes, or by reason of being a holder of any Note, and (b) reasonable
costs and expenses, including financial advisors' fees, incurred in
connection with the insolvency or bankruptcy of the Company or any
Subsidiary or in connection with any work-out or restructuring of the
transactions contemplated hereby and by the Notes, provided that in
no event shall the Company be required to pay the charges and
disbursements of more than one of each such counsel representing
holders. The Company will pay, and will save you and each other
holder of a Note harmless from, all claims in respect of any fees,
costs or expenses if any, of brokers and finders (other than those
retained by you).
.c2.Section 15.2. Survival;. The obligations of the Company
under this Section 15 will survive the payment or transfer of any
Note, the enforcement, amendment or waiver of any provision of this
Agreement or the Notes, and the termination of this Agreement.
.c.'Section 16. Survival of Representations and Warranties;
Entire
Agreement';.
All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes,
the purchase or transfer by you of any Note or portion thereof or
interest therein and the payment of any Note, and may be relied upon
by any subsequent holder of a Note, regardless of any investigation
made at any time by or on behalf of you or any other holder of a
Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this
Agreement (excluding any forward-looking statements or projections)
shall be deemed representations and warranties of the Company under
this Agreement. 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.
.c.Section 17. Amendment and Waiver;.
.c2.Section 17.1. Requirements;. This Agreement and the Notes
may be amended, and the observance of any term hereof or of the Notes
may be waived (either retroactively or prospectively), with (and only
with) the written consent of the Company and the Required Holders,
except that (a) no amendment or waiver of any of the provisions of
Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is
used therein), will be effective as to you unless consented to by you
in writing, and (b) no such amendment or waiver may, without the
written consent of the holder of each Note at the time outstanding
affected thereby, (i) subject to the provisions of Section 12
relating to acceleration or rescission, change the amount or time of
any prepayment or payment of principal of, or reduce the rate or
change the time of payment or method of computation of interest or of
the Make-Whole Amount on, the Notes, (ii) change the percentage of
the principal amount of the Notes the holders of which are required
to consent to any such amendment or waiver, or (iii) amend any of
Sections 8, 11(a), 11(b), 12, 17 or 20.
.c2.Section 17.2. Solicitation of Holders of Notes;.
(a) 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
this Section 17 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.
(b) 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, 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 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.
.c2.Section 17.3. Binding Effect, etc;. Any amendment or
waiver consented to as provided in this Section 17 applies equally to
all holders of Notes and is binding upon them and upon each future
holder of any Note and upon the Company without regard to whether
such Note has been marked to indicate such amendment or waiver. No
such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon. 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. As
used herein, the term "this Agreement" and references thereto shall
mean this Agreement as it may from time to time be amended or
supplemented.
.c2.Section 17.4. Notes Held by Company, etc;. Solely 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 or any of its Affiliates shall be
deemed not to be outstanding.
.c.Section 18. Notices;.
All notices and communications provided for hereunder shall be
in writing and sent (a) by telefacsimile if the sender on the same
day sends a confirming copy of such notice by a recognized overnight
delivery service (charges prepaid), or (b) by registered or certified
mail with return receipt requested (postage prepaid), or (c) by a
recognized overnight delivery service (with charges prepaid). Any
such notice must be sent:
(i) if to you or your nominee, to you or it at the address
specified
for such communications in Schedule A, or at such other address
as you or
it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at
such
address as such other holder shall have specified to the Company
in
writing, or
(iii) if to the Company, to the Company at its address
set forth at
the beginning hereof to the attention of Chief Financial
Officer, or at
such other address as the Company shall have specified to the
holder of
each Note in writing.
Notices under this Section 18 will be deemed given only when actually
received.
.c.Section 19. Reproduction of Documents;.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may
hereafter be executed, (b) documents received by you at the Closing
(except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished
to you, may be reproduced by you by any photographic, photostatic,
microfilm, microcard, miniature photographic or other similar process
and you may destroy any original document so reproduced. The Company
agrees and stipulates that, to the extent permitted by applicable
law, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether
or not the original is in existence and whether or not such
reproduction was made by you in the regular course of business) and
any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence. This Section
19 shall not prohibit the Company or any other holder of Notes from
contesting any such reproduction to the same extent that it could
contest the original, or from introducing evidence to demonstrate the
inaccuracy of any such reproduction.
.c.Section 20. Confidential Information;.
For the purposes of this Section 20, "Confidential Information"
means information delivered to you by or on behalf of the Company or
any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature
and that was clearly marked or labeled or otherwise adequately
identified when received by you as being confidential information of
the Company or such Subsidiary, provided that such term does not
include information that (a) was publicly known or otherwise known to
you prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by you or any person acting
on your behalf, (c) otherwise becomes known to you other than through
disclosure by the Company or any Subsidiary or (d) constitutes
financial statements delivered to you under Section 7.1 that are
otherwise publicly available. You will maintain the confidentiality
of such Confidential Information in accordance with procedures
adopted by you in good faith to protect confidential information of
third parties delivered to you, provided that you may deliver or
disclose Confidential Information to (i) your directors, officers,
employees, agents, attorneys and affiliates (to the extent such
disclosure reasonably relates to the administration of the investment
represented by your Notes); provided that you shall reasonably
believe that such Persons shall abide by the restrictions of this
Section 20 as if such Person were a party to this Agreement, (ii)
your financial advisors and other professional advisors acting in the
course of their respective duties who agree to hold confidential the
Confidential Information substantially in accordance with the terms
of this Section 20, (iii) any other holder of any Note, (iv) any bona
fide prospective transferee, who is an Institutional Investor to
which you sell or offer to sell such Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to
its receipt of such Confidential Information to be bound by the
provisions of this Section 20), (v) any Person from which you offer
to purchase any security of the Company (if such Person has agreed in
writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 20), (vi) to the extent
necessary to comply with the request of (x) any federal or state
regulatory authority having jurisdiction over you, (y) the National
Association of Insurance Commissioners or any similar organization,
or any nationally recognized rating agency that requires access to
information about your investment portfolio, or (z) any other Person
to which such delivery or disclosure may be necessary or appropriate
(1) to effect compliance with any law, rule, regulation or order
applicable to you, (2) in response to any subpoena or other legal
process, (3) in connection with any litigation to which you are a
party or (4) if an Event of Default has occurred and is continuing,
to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for
the protection of the rights and remedies under your Notes and this
Agreement. Each holder of a Note, by its acceptance of a Note, will
be deemed to have agreed to be bound by and to be entitled to the
benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with
the delivery to any holder of a Note of information required to be
delivered to such holder under this Agreement or requested by such
holder (other than a holder that is a party to this Agreement or its
nominee), such holder will enter into an agreement with the Company
embodying the provisions of this Section 20.
.c.Section 21. Substitution of Purchaser;.
You shall have the right to substitute any one of your
Affiliates as the purchaser of the Notes that you have agreed to
purchase hereunder, by written notice to the Company, which notice
shall be signed by both you and such Affiliate, shall contain such
Affiliate's agreement to be bound by this Agreement and shall contain
a confirmation by such Affiliate of the accuracy with respect to it
of the representations set forth in Section 6. Upon receipt of such
notice, wherever the word "you" is used in this Agreement (other than
in this Section 21), such word shall be deemed to refer to such
Affiliate in lieu of you. In the event that such Affiliate is so
substituted as a purchaser hereunder and such Affiliate thereafter
transfers to you all of the Notes then held by such Affiliate, upon
receipt by the Company of notice of such transfer, wherever the word
"you" is used in this Agreement (other than in this Section 21), such
word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder
of the Notes under this Agreement.
.c.Section 22. Miscellaneous;.
.c2.Section 22.1. Successors and Assigns;. All covenants and
other agreements contained in this Agreement by or on behalf of any
of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any
subsequent holder of a Note) whether so expressed or not.
.c2.Section 22.2. Payments Due on Non-Business Days;.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-whole Amount 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 without including
the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day.
.c2.Section 22.3. Severability;. Any provision of this
Agreement that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall (to the full extent permitted by law) not
invalidate or render unenforceable such provision in any other
jurisdiction.
.c2.Section 22.4. Construction;. Each covenant contained
herein shall be construed (absent express provision to the contrary)
as being independent of each other covenant contained herein, so that
compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with any other
covenant. Where any provision herein refers to action to be taken by
any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly
or indirectly by such Person.
.c2.Section 22.5. Headings;. The section and other headings
contained in this Agreement are for reference purposes only and shall
not control or affect the construction of this Agreement or the
interpretation thereof in any respect.
.c2.Section 22.6. Counterparts;. This Agreement may be
executed in any number of counterparts, each of which shall be an
original but all of which together shall constitute one instrument.
Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties
hereto.
.c2.Section 22.7. Governing Law;. This Agreement shall be
construed and enforced in accordance with, and the rights of the
parties shall be governed by, the law of the State of New York
excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other
than such State.
* * * * *
If you are in agreement with the foregoing, please sign the form
of agreement on the accompanying counterpart of this Agreement and
return it to the Company, whereupon the foregoing shall become a
binding agreement between you and the Company.
Very truly yours,
PG Energy Inc.
By
Its
The foregoing is hereby
agreed to as of the
date thereof.
[Variation]
A-
Schedule A(to Note Purchase Agreement)
Information Relating to Purchasers
Purchaser
Principal Amount of Notes to Be Purchased
Great-West Life & Annuity Insurance Company $8,500,000
8515 East Orchard Road 3T2
Englewood, Colorado 80111
Attn: U.S. Private Placements
Facsimile: (303) 689-6193
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds (identifying
each payment as "6.92% Senior Notes due September 30, 2004 of PG
Energy Inc., PPN 69332L A* 8, principal or interest and confirmation
of principal balance") to:
Norwest Bank Minnesota/Trust Clearing
ABA #091-000-019
NWMPLS/Trust Clearing
Account Number: 08-40-245
Attn: Account #12468800
Notices
All notices of payments, on or in respect of the Notes and written
confirmation of each such payment to:
Norwest Bank Minnesota, N.A.
733 Marquette Ave., Investors Bldg., 5th Floor
Minneapolis, Minnesota 55479-0047
Attn: Income Collections
All notices and communications other than those in respect to
payments to be addressed as first provided.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 84-0467907
Purchaser
Principal Amount of Notes to Be Purchased
United of Omaha Life Insurance Company $8,500,000
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment Division
Telefacsimile: (402) 978-2913
Confirmation: (402) 978-2583
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds (identifying
each payment as "6.92% Senior Notes due September 30, 2004 of PG
Energy Inc., PPN 69332L A* 8, principal or interest") to:
First Bank, N.A.
ABA #1040-0002-9
17th & Farnam Streets
Omaha, Nebraska 68102
for credit to: United of Omaha Life Insurance Company
Account Number 1-4871447-0769
Notices
All notices and communications, to be addressed as first provided
above, except notices with respect to payment and written
confirmation of each such payment, to be addressed:
Attention: Investments/Securities Accounting
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 47-322111.
Purchaser
Principal Amount of Notes to Be Purchased
(Two Notes)
American United Life Insurance Company $3,000,000
One American Square and
Post Office Box 368 $2,000,000
Indianapolis, Indiana 46206
Attention: Securities Department
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds (identifying
each payment as "6.92% Senior Notes due September 30, 2004 of PG
Energy Inc., PPN 69332L A* 8" and identifying the breakdown of
principal and interest and the payment date) to:
Bank of New York (ABA #021000018)
BNF:IOC 566 Attn P&I
One Wall Street, 3rd Floor
New York, New York 10286
Window A
for credit to: American United Life Insurance Company
Account Number 186683/AUL
Notices
All notices and communications, including notices with respect to
payments and written confirmation of each such payment, to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 35-0145825
Purchaser
Principal Amount of Notes to Be Purchased
Indianapolis Life Insurance Company $2,000,000
2960 North Meridian Street
Indianapolis, Indiana 46208
Attention: Securities Department
Fax: (317) 927-3363
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds (identifying
each payment as "6.92% Senior Notes due September 30, 2004 of PG
Energy Inc., PPN 69332L A* 8, principal or interest") to:
The Bank of New York
New York, New York 10286
BNF: IOC 566
ABA #021000018
For credit to: Indianapolis Life Insurance Company
Account #177862
Notices
All notices of payment, on or in respect of the Notes and written
confirmation of each such payment to:
Indianapolis Life Insurance Company/#177862
c/o The Bank of New York
Attention: P&I Department
P. O. Box 19266
Newark, New Jersey 07195
All notices and communications other than those in respect to
payments to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 35-0413330
Purchaser
Principal Amount of Notes to Be Purchased
IL Annuity and Insurance Company $1,000,000
2960 North Meridian Street
Indianapolis, Indiana 46208
Attention: Securities Department
Fax: (317) 927-3363
Payments
All payments on or in respect of the Notes to be by bank wire
transfer of Federal or other immediately available funds (identifying
each payment as "6.92% Senior Notes due September 30, 2004 of PG
Energy Inc., PPN 69332L A* 8, principal or interest") to:
The Bank of New York
New York, New York 10286
BNF: IOC 566
ABA #021000018
For credit to: IL Annuity and Insurance Company-Transamerica
Trust
Account #177832
Notices
All notices of payment, on or in respect of the Notes and written
confirmation of each such payment to:
IL Annuity and Insurance Company-Transamerica Trust/#177832
c/o The Bank of New York
Attention: P&I Department
P. O. Box 19266
Newark, New Jersey 07195
All notices and communications other than those in respect to
payments to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 35-1935680
Schedule 4.9
(to Note Purchase Agreement)
Defined Terms
As used herein, the following terms have the respective meanings
set forth below or set forth in the Section hereof following such
term:
"Acquired Subsidiary Debt" shall mean Debt of a Person
outstanding immediately prior to its being consolidated with or
merged into a Subsidiary or its becoming a Subsidiary (including
renewals, extensions and refinancings of such Debt without increase
in principal amount thereof) provided that such Debt shall not have
been created or assumed in contemplation of such consolidation or
merger.
"Affiliate" means, at any time, and with respect to any Person,
any other Person that at such time directly or indirectly through one
or more intermediaries Controls, or is Controlled by, or is under
common Control with, such first Person. As used in this definition,
"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 securities, by
contract or otherwise. Unless the context otherwise clearly
requires, any reference to an "Affiliate" is a reference to an
Affiliate of the Company.
"Asset Disposition" means any Transfer except:
(a) any
(i) Transfer from a Subsidiary to the Company or a
Wholly-Owned
Subsidiary;
(ii) Transfer from the Company to a Wholly-Owned
Subsidiary;
and
(iii) Transfer from the Company to a Subsidiary
(other than a
Wholly-Owned Subsidiary) or from a Subsidiary to another
Subsidiary (other
than a Wholly-Owned Subsidiary), which in either case is
for Fair Market
Value,
so long as immediately before and immediately after the
consummation
of any such Transfer and after giving effect thereto, no Default
or Event
of Default exists; and
(b) any Transfer made in the ordinary course of business
and
involving only property that is either (i) inventory held for
sale or (ii)
equipment, fixtures, supplies or materials no longer required in
the
operation of the business of the Company or any of its
Subsidiaries or
that is obsolete; and
(c) any Transfer of property in a Sale-and-Leaseback
Transaction
permitted by Section 10.6.
"Business Day" means (a) for the purposes of Section 8.8 only,
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, and
(b) for the purposes of any other provision of this Agreement, any
day other than a Saturday, a Sunday or a day on which commercial
banks in New York, New York or Wilkes-Barre, Pennsylvania are
required or authorized to be closed.
"Capital Lease" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the
acquisition of an asset and the incurrence of a liability in
accordance with GAAP.
"Capital Lease Obligation" means, with respect to any Person and
a Capital Lease, the amount of the obligation of such Person as the
lessee under such Capital Lease which would, in accordance with GAAP,
appear as a liability on a balance sheet of such Person.
"Change in Control" has the meaning set forth in Section 8.3.
"Closing" is defined in Section 3.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder
from time to time.
"Company" means PG Energy Inc., a Pennsylvania corporation.
"Confidential Information" is defined in Section 20.
"Consolidated Assets" means, at any time, the total assets of
the Company and its Subsidiaries which would be shown as assets on a
consolidated balance sheet of the Company and its Subsidiaries as of
such time prepared in accordance with GAAP, after eliminating all
amounts properly attributable to Minority Interests, if any, in the
stock and surplus of Subsidiaries.
"Consolidated Funded Debt" means, as of any date of
determination, the total of all Funded Debt of the Company and its
Subsidiaries outstanding on such date, after eliminating all
offsetting debits and credits between the Company and its
Subsidiaries and all other items required to be eliminated in the
course of the preparation of consolidated financial statements of the
Company and its Subsidiaries in accordance with GAAP.
"Consolidated Income Available for Fixed Charges" means, with
respect to any period, Consolidated Net Income for such period plus
all amounts deducted in the computation thereof on account of (a)
Fixed Charges for such period and (b) taxes imposed on or measured by
income or excess profits during such period.
"Consolidated Net Income" means, with reference to any period,
the net income (or loss) of the Company and its Subsidiaries for such
period (taken as a cumulative whole), as determined in accordance
with GAAP, after eliminating all offsetting debits and credits
between the Company and its Subsidiaries and all other items required
to be eliminated in the course of the preparation of consolidated
financial statements of the Company and its Subsidiaries in
accordance with GAAP; provided that any net income or gain or loss
arising during such period on account of extraordinary items or
discontinued operations or the disposition thereof shall be excluded
from the determination of Consolidated Net Income.
"Consolidated Net Worth" means, at any time,
(a) the sum of (i) the par value (or value stated on the
books of
the corporation) of the capital stock (but excluding treasury
stock and
capital stock subscribed and unissued) of the Company and its
Subsidiaries
plus (ii) the amount of the paid-in capital and retained
earnings of the
Company and its Subsidiaries, in each case as such amounts would
be shown
on a consolidated balance sheet of the Company and its
Subsidiaries as of
such time prepared in accordance with GAAP, minus
(b) to the extent included in clause (a), all amounts
properly
attributable to Minority Interests, if any, in the stock and
surplus of
Subsidiaries.
"Consolidated Total Capitalization" means, at any time, the sum
of Consolidated Net Worth and Consolidated Funded Debt.
"Control Event" has the meaning set forth in Section 8.3.
"Debt" means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price of
property
acquired by such Person (excluding accounts payable arising in
the
ordinary course of business but including, without limitation,
all
liabilities created or arising under any conditional sale or
other title
retention agreement with respect to any such property);
(c) its Capital Lease Obligations;
(d) all liabilities for borrowed money secured by any Lien
with
respect to any property owned by such Person (whether or not it
has
assumed or otherwise become liable for such liabilities); and
(e) any Guaranty of such Person with respect to
liabilities of a
type described in any of clauses (a) through (d) hereof.
Debt of any Person shall include all obligations of such Person of
the character described in clauses (a) through (e) to the extent such
Person remains legally liable in respect thereof notwithstanding that
any such obligation is deemed to be extinguished under GAAP.
"Debt Prepayment Application" means, with respect to any
Transfer of property, the application by the Company or its
Subsidiaries of cash in an amount equal to the Net Proceeds Amount
with respect to such Transfer to pay Senior Funded Debt of the
Company (other than Senior Funded Debt owing to the Company, any of
its Subsidiaries or any Affiliate and Senior Funded Debt in respect
of any revolving credit or similar credit facility providing the
Company or any of its Subsidiaries with the right to obtain loans or
other extensions of credit from time to time, except to the extent
that in connection with such payment of Senior Funded Debt the
availability of credit under such credit facility is permanently
reduced by an amount not less than the amount of such proceeds
applied to the payment of such Senior Funded Debt).
"Default" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of
notice or both, become an Event of Default.
"Default Rate" means 8.92% per annum.
"Disposition Value" means, at any time, with respect to any
property
(a) in the case of property that does not constitute
Subsidiary
Stock, the book value thereof, valued at the time of such
disposition in
good faith by the Company, and
(b) in the case of property that constitutes Subsidiary
Stock, an
amount equal to that percentage of book value of the assets of
the
Subsidiary that issued such stock as is equal to the percentage
that the
book value of such Subsidiary Stock represents of the book value
of all of
the outstanding capital stock of such Subsidiary (assuming, in
making such
calculations, that all Securities convertible into such capital
stock are
so converted and giving full effect to all transactions that
would occur
or be required in connection with such conversion) determined at
the time
of the disposition thereof, in good faith by the Company.
"Environmental Conditions" means any conditions of the
environment, including, without limitation, the work place, the
ocean, natural resources (including flora or fauna), soil, surface
water, ground water, any actual or potential drinking water supply
sources, substrata or the ambient air, relating to or arising out of,
or caused by the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping,
emptying, discharging, injecting, escaping, leaching, disposal,
dumping, threatened release or other management or mismanagement of
Regulated Substances resulting from the use of, or operations on the
Real Property.
"Environmental Laws" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or governmental restrictions relating to
pollution and the protection of the environment or the release of any
materials into the environment, including but not limited to those
related to hazardous substances or wastes, air emissions and
discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations
promulgated thereunder from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the
Company under section 414 of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, at any time and with respect to any
property, the sale value of such property that would be realized in
an arm's-length sale at such time between an informed and willing
buyer and an informed and willing seller (neither being under a
compulsion to buy or sell).
"Fixed Charges" means, with respect to any period, the sum of
(a) Interest Charges for such period and (b) Lease Rentals for such
period.
"Fixed Charges Coverage Ratio" means, at any time, the ratio of
(a) Consolidated Income Available for Fixed Charges for the period of
four consecutive fiscal quarters ending on, or most recently ended
prior to, such time to (b) Fixed Charges for such period.
"Funded Debt" means, with respect to any Person, all Debt of
such Person which by its terms or by the terms of any instrument or
agreement relating thereto matures, or which is otherwise payable or
unpaid, one year or more from, or is directly or indirectly renewable
or extendible at the option of the obligor in respect thereof to a
date one year or more (including, without limitation, an option of
such obligor under a revolving credit or similar agreement obligating
the lender or lenders to extend credit over a period of one year or
more) from, the date of determination thereof.
"GAAP" means generally accepted accounting principles as in
effect at the relevant time in the United States of America.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any State or
other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary
conducts all or any part of its business, or which asserts
jurisdiction
over any properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative,
judicial,
regulatory or administrative functions of, or pertaining to, any
such
government.
"Guaranty" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person
guaranteeing or in effect guaranteeing any indebtedness, dividend or
other obligation of any other Person in any manner, whether directly
or indirectly, including (without limitation) obligations incurred
through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any
property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or
payment of
such indebtedness or obligation, or (ii) to maintain any working
capital
or other balance sheet condition or any income statement
condition of any
other Person or otherwise to advance or make available funds for
the
purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or
services
primarily for the purpose of assuring the owner of such
indebtedness or
obligation of the ability of any other Person to make payment of
the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or
obligation
against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the
obligor under any Guaranty, the indebtedness or other obligations
that are the subject of such Guaranty shall be assumed to be direct
obligations of such obligor.
"holder" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the
Company pursuant to Section 13.1.
"Institutional Investor" means (a) any original purchaser of a
Note, (b) any holder of a Note holding more than 5% of the aggregate
principal amount of the Notes then outstanding, and (c) any bank,
trust company, savings and loan association or other financial
institution, any pension plan, any investment company, any insurance
company, any broker or dealer, or any other similar financial
institution or entity, regardless of legal form.
"Interest Charges" means, with respect to any period
(eliminating all offsetting debits and credits between the Company
and its Subsidiaries and all other items required to be eliminated in
the course of the preparation of consolidated financial statements of
the Company and its Subsidiaries in accordance with GAAP), all
interest in respect of Funded Debt of the Company and its
Subsidiaries (including imputed interest on Capital Lease
Obligations) deducted in determining Consolidated Net Income for such
period, together with all interest capitalized or deferred during
such period and not deducted in determining Consolidated Net Income
for such period.
"Investment" means any investment, made in cash or by delivery
of property, by the Company or any of its Subsidiaries (i) in any
Person, whether by acquisition of stock, indebtedness or other
obligation or Security, or by loan, Guaranty, advance, capital
contribution or otherwise, or (ii) in any property.
"Lease Rentals" means, with respect to any period, the sum of
the minimum amount of rental and other obligations required to be
paid during such period by the Company or any Subsidiary as lessee
under all leases of real or personal property (other than Capital
Leases), excluding any amounts required to be paid by the lessee
(whether or not therein designated as rental or additional rental)
(a) which are on account of maintenance and repairs, insurance,
taxes, assessments, water rates and similar charges, or (b) which
are based on profits, revenues or sales realized by the lessee from
the leased property or otherwise based on the performance of the
lessee.
"Lien" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any
interest or title of any vendor, lessor, lender or other secured
party to or of such Person under any conditional sale or other title
retention agreement or Capital Lease, upon or with respect to any
real property or asset of such Person.
"Make-Whole Amount" is defined in Section 8.8.
"Material" means material in relation to the business,
operations, affairs, financial condition, assets, or properties of
the Company and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or
properties of the Company and its Subsidiaries taken as a whole, or
(b) the ability of the Company to perform its obligations under this
Agreement and the Notes, or (c) the validity or enforceability of
this Agreement or the Notes.
"Memorandum" is defined in Section 5.3.
"Minority Interest" means any shares of stock of any class of a
Subsidiary (other than directors' qualifying shares as required by
law) that are not owned by the Company and/or one of its
Subsidiaries. Minority Interests shall be valued in accordance with
GAAP.
"Multiemployer Plan" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"Net Proceeds Amount" means, with respect to any Transfer of any
Property by any Person, an amount equal to the difference of
(a) the aggregate amount of the consideration (valued at
the Fair
Market Value of such consideration at the time of the
consummation of such
Transfer) received by such Person in respect of such Transfer,
minus
(b) all ordinary and reasonable out-of-pocket costs and
expenses
actually incurred by such Person in connection with such
Transfer.
"Notes" is defined in Section 1.
"Officer's Certificate" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose
responsibilities extend to the subject matter of such certificate.
"Other Agreements" is defined in Section 2.
"Other Purchasers" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"Person" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization,
or a government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been
established or maintained, or to which contributions are or, within
the preceding five years, have been made or required to be made, by
the Company or any ERISA Affiliate or with respect to which the
Company or any ERISA Affiliate may have any liability.
"Preferred Stock" means any class of capital stock of a
corporation that is preferred over any other class of capital stock
of such corporation as to the payment of dividends or the payment of
any amount upon liquidation or dissolution of such corporation.
"property" or "properties" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or
intangible, choate or inchoate.
"Property Reinvestment Application" means, with respect to any
Transfer of property, the satisfaction of each of the following
conditions:
(a) an amount equal to the Net Proceeds Amount with
respect to such
Transfer shall have been applied to the acquisition by the
Company, or any
of its Subsidiaries making such Transfer, of property that upon
such
acquisition is unencumbered by any Lien (other than Liens
described in
subparagraphs (a) through (e), inclusive, of Section 10.3) and
that
(i) constitutes property that is (x) property
classifiable
under GAAP as non-current to the extent that such proceeds
are derived
from the transfer of property that was properly
classifiable as
non-current, and otherwise properly classifiable as either
current or
non-current, and (y) to be used in the ordinary course of
business of the
Company and the Subsidiaries, or
(ii) constitutes equity interests of a Person that
shall be, on
or prior to the time of such acquisition, a Subsidiary of
the Company, and
that shall invest the proceeds of such acquisition in
property of the
nature described in the immediately preceding clause (i);
and
(b) the Company shall have delivered a certificate of a
Responsible
Officer of the Company to each holder of a Note referring to
Section 8.4
or Section 10.6, as the case may be, and identifying the
property that was
the subject of such Transfer, the Disposition Value of such
property, and
the nature, terms, amount and application of the proceeds from
the
Transfer.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-
14 issued by the United States Department of Labor.
"Real Property" means all real property, both owned and leased,
of the Company.
"Regulated Substances" means any substance, the generation,
processing, distribution, treatment, storage, disposal, transport,
recycling, reclamation, use, reuse or other management or
mismanagement of which is regulated by the Environmental Laws.
"Required Holders" means, at any time, the holders of at least
51% in principal amount of the Notes at the time outstanding
(exclusive of Notes then owned by the Company or any of its
Affiliates).
"Responsible Officer" means any Senior Financial Officer and any
other officer of the Company with responsibility for the
administration of the relevant portion of this agreement.
"Restricted Disposition" is defined in Section 8.4.
"Restricted Event" is defined in Section 8.4.
"Restricted Investments" means all Investments except the
following:
(a) property to be used in the ordinary course of business
of the
Company and its Subsidiaries;
(b) current assets arising from the sale of goods and
services in
the ordinary course of business of the Company and its
Subsidiaries;
(c) Investments in one or more Subsidiaries or any Person
that
concurrently with such Investment becomes a Subsidiary;
(d) Investments existing on the date of the Closing and
disclosed in
Schedule 5.15;
(e) Investments in United States Governmental Securities,
provided
that such obligations mature within 365 days from the date of
acquisition
thereof;
(f) Investments in certificates of deposit or banker's
acceptances
issued by an Acceptable Bank, provided that such obligations
mature within
365 days from the date of acquisition thereof;
(g) Investments in commercial paper given the highest
rating by a
credit rating agency of recognized national standing and
maturing not more
than 270 days from the date of creation thereof;
(h) Investments in Repurchase Agreements; and
(i) Investments in tax-exempt obligations of any state of
the United
States of America, or any municipality of any such state, in
each case
rated "AA" or better by S&P, "Aa2" or better by Moody's or an
equivalent
rating by any other credit rating agency of recognized national
standing,
provided that such obligations mature within 365 days from the
date of
acquisition thereof.
As of any date of determination, each Restricted Investment shall be
valued at the greater of:
(x) the amount at which such Restricted Investment is
shown on the
books of the Company or any of its Subsidiaries (or zero if such
Restricted Investment is not shown on any such books); and
(y) either
(i) in the case of any Guaranty of the obligation of
any
Person, the amount which the Company or any of its
Subsidiaries has paid
on account of such obligation less any recoupment by the
Company or such
Subsidiary of any such payments, or
(ii) in the case of any other Restricted Investment,
the excess
of (x) the greater of (A) the amount originally entered on
the books of
the Company or any of its Subsidiaries with respect thereto
and (B) the
cost thereof to the Company or its Subsidiary over (y) any
return of
capital (after income taxes applicable thereto) upon such
Restricted
Investment through the sale or other liquidation thereof or
part thereof
or otherwise.
As used in this definition of "Restricted Investments":
"Acceptable Bank" means any bank or trust company (i) which
is
organized under the laws of the United States of America or any
State
thereof, (ii) which has capital, surplus and undivided profits
aggregating
at least $250,000,000, and (iii) whose long-term unsecured debt
obligations (or the long-term unsecured debt obligations of the
bank
holding company owning all of the capital stock of such bank or
trust
company) shall have been given a rating of "A" or better by S&P,
"A2" or
better by Moody's or an equivalent rating by any other credit
rating
agency of recognized national standing.
"Acceptable Broker-Dealer" means any Person other than a
natural
person (i) which is registered as a broker or dealer pursuant to
the
Exchange Act and (ii) whose long-term unsecured debt obligations
shall
have been given a rating of "A" or better by S&P, "A2" or better
by
Moody's or an equivalent rating by any other credit rating
agency of
recognized national standing.
"Moody's" means Moody's Investors Service, Inc.
"Repurchase Agreement" means any written agreement
(a) that provides for (i) the transfer of one or more
United
States Governmental Securities in an aggregate principal
amount at least
equal to the amount of the Transfer Price (defined below)
to the Company
or any of its Subsidiaries from an Acceptable Bank or an
Acceptable
Broker-Dealer against a transfer of funds (the "Transfer
Price") by the
Company or such Subsidiary to such Acceptable Bank or
Acceptable
Broker-Dealer, and (ii) a simultaneous agreement by the
Company or such
Subsidiary, in connection with such transfer of funds, to
transfer to such
Acceptable Bank or Acceptable Broker-Dealer the same or
substantially
similar United States Governmental Securities for a price
not less than
the Transfer Price plus a reasonable return thereon at a
date certain not
later than 365 days after such transfer of funds,
(b) in respect of which the Company or such
Subsidiary shall
have the right, whether by contract or pursuant to
applicable law, to
liquidate such agreement upon the occurrence of any default
thereunder, and
(c) in connection with which the Company or such
Subsidiary, or
an agent thereof, shall have taken all action required by
applicable law
or regulations to perfect a Lien in such United States
Governmental
Securities.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc.
"United States Governmental Security" means any direct
obligation of, or obligation guaranteed by, the United States of
America,
or any agency controlled or supervised by or acting as an
instrumentality
of the United States of America pursuant to authority granted by
the
Congress of the United States of America, so long as such
obligation or
guarantee shall have the benefit of the full faith and credit of
the
United States of America which shall have been pledged pursuant
to
authority granted by the Congress of the United States of
America.
"Restricted Merger" is defined in Section 8.4.
"Sale-and-Leaseback Transaction" means a transaction or series
of transactions pursuant to which the Company or any Subsidiary shall
sell or transfer to any Person (other than the Company or a
Subsidiary) any property, whether now owned or hereafter acquired,
and, as part of the same transaction or series of transactions, the
Company or any Subsidiary shall rent or lease as lessee (other than
pursuant to a Capital Lease), or similarly acquire the right to
possession or use of, such property or one or more properties which
it intends to use for the same purpose or purposes as such property.
"SEC Reports" has the meaning set forth in Section 5.3.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Security" has the meaning set forth in section 2(1) of the
Securities Act of 1933, as amended.
"Senior Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the
Company.
"Senior Funded Debt" means (a) any Funded Debt of the Company
(other than Subordinated Debt) and (b) any Funded Debt of any
Subsidiary.
"Significant Subsidiary" means at any time any Subsidiary that
would at such time constitute a "significant subsidiary" (as such
term is defined in Regulation SX of the Securities and Exchange
Commission as in effect on the date of the Closing) of the Company.
"Subordinated Debt" means any debt that is in any manner
subordinated in right of payment or security in any respect to Debt
evidenced by the Notes.
"Subsidiary" means, as to any Person, any corporation,
association or other business entity in which such Person or one or
more of its Subsidiaries or such Person and one or more of its
Subsidiaries owns sufficient equity or voting interests to enable it
or them (as a group) ordinarily, in the absence of contingencies, to
elect a majority of the directors (or Persons performing similar
functions) of such entity, and any partnership or joint venture if
more than a 50% interest in the profits or capital thereof is owned
by such Person or one or more of its Subsidiaries or such Person and
one or more of its Subsidiaries (unless such partnership can and does
ordinarily take major business actions without the prior approval of
such Person or one or more of its Subsidiaries). Unless the context
otherwise clearly requires, any reference to a "Subsidiary" is a
reference to a Subsidiary of the Company.
"Subsidiary Stock" means, with respect to any person, the stock
(or any options or warrants to purchase stock or other Securities
exchangeable for or convertible into stock) of any Subsidiary of such
Person.
"Transfer" means, with respect to any Person, any transaction in
which such Person sells, conveys, transfers or leases (as lessor) any
of its property, including, without limitation, Subsidiary Stock. For
purposes of determining the application of the Net Proceeds Amount in
respect of any Transfer, the Company may designate any Transfer as
one or more separate Transfers each yielding a separate Net Proceeds
Amount. In any such case, the Disposition Value of any property
subject to each such separate Transfer shall be determined by ratably
allocating the aggregate Disposition Value attributable to all
property subject to all such separate Transfers to each such separate
Transfer on a proportionate basis.
"Wholly-Owned Subsidiary" means any Subsidiary of the Company
all of the equity interests (except director's qualifying shares) and
voting interests and Debt of which are owned by any one or more of
the Company and the Company's other Wholly-Owned Subsidiaries.
Schedule 4.9
(to Note Purchase Agreement)
Changes in Corporate Structure
None
Schedule 5.3
(to Note Purchase Agreement)
Disclosure Materials
None
Schedule 5.4
(to Note Purchase Agreement)
Organization and Ownership of Shares of Subsidiaries
Name
Jurisdiction of Organization
Percentage of Capital
Stock and Equity
Interests Owned by
the Company
Honesdale Gas Company
Commonwealth of Pennsylvania
100%
Penn Gas Development Co.
Commonwealth of Pennsylvania
100%
Schedule 5.5
(to Note Purchase Agreement)
Financial Statements
1. Annual Report of the Company on Form 10-K for the fiscal year
ended December 31, 1996.
2. Annual Report of the Company for the fiscal year ended December
31, 1995.
3. Quarterly Report of the Company on Form 10-Q for the fiscal
quarter ended March 31, 1997.
4. Quarterly Report of the Company on Form 10-Q for the fiscal
quarter ended June 30, 1997.
Schedule 5.8
(to Note Purchase Agreement)
Certain Litigation
None
Schedule 5.11
(to Note Purchase Agreement)
Licenses, Permits, Etc.
None
2
Schedule 5.15
(to Note Purchase Agreement)
Existing Debt; Investments of the Company
Existing Debt
1. Indebtedness under the Indenture of Mortgage and Deed of Trust
dated as of March 15, 1946, from the Company (formerly Scranton-
Spring Brook Water Service Company) to First Trust of New York,
National Association, as supplemented by thirty supplemental
indentures aggregating $55,000,000 as of September 15, 1997.
2. Indebtedness under a Promissory Note dated April 8, 1997, issued
by the Company in favor of Mellon Bank, N.A., in the amount of
$4,000,000 as of September 15, 1997.
3. Indebtedness under a Promissory Note dated May 30, 1996, as
amended, issued by the Company in favor of PNC Bank, National
Association, in the amount of $14,000,000 as of September 15, 1997.
4. Indebtedness under a Promissory Note dated March 25, 1997,
issued by the Company in favor of First Union National Bank, National
Association, in the amount of $5,000,000 as of September 15, 1997.
5. Indebtedness under a Promissory Note dated July 3, 1997, issued
by the Company in favor of CoreStates Bank, N.A. in the amount of
$8,800,000 as of September 15, 1997.
6. Indebtedness under a Promissory Note dated May 28, 1997, issued
by the Company in favor of Fleet Bank in the amount of $4,500,000 as
of September 15, 1997.
7. Indebtedness under a Promissory Note dated June 24, 1997, issued
by the Company in favor of First Heritage Bank in the amount of
$1,500,000 as of September 15, 1997.
8. Indebtedness under a Promissory Note dated August 1, 1997,
issued by the Company in favor of Penn Security Bank & Trust Company
in the amount of $1,000,000 as of September 15, 1997.
9. Indebtedness under a Promissory Note dated August 22, 1996,
issued by the Company in favor of Pennsylvania Enterprises, Inc., in
the amount of $24,700,000 as of September 15, 1997.
10. Indebtedness in the amount of $25,000,000 as of September 15,
1997, issued by the Company under Term Loan Notes executed and
delivered pursuant to a Term Loan Agreement by and among the Company
and the Banks parties thereto, dated as of August 14, 1997.
11. Indebtedness under a Promissory Note dated February 14, 1997,
issued by Honesdale Gas Company, a Subsidiary of the Company, in
favor of Wayne Bank in the amount of $100,000 as of September 15,
1997.
Existing Investments
None
B-
Schedule 5.18(to Note Purchase Agreement)
Certain Environmental Matters
None
E-1-
Exhibit 1(to Note Purchase Agreement)
PG Energy Inc.6.92% Senior Note due September 30, 2004
No. [_______] [Date]$[__________] PPN 69332L A* 8
For Value Received, the undersigned, PG Energy Inc. (herein
called the "Company"), a corporation organized and existing under the
laws of the Commonwealth of Pennsylvania, hereby promises to pay to
____________________________________ or registered assigns, the
principal sum of ______________________________ Dollars on September
30, 2004 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 6.92% per annum from the date hereof, payable semiannually, on the
thirtieth day of March and September in each year, commencing with
the March or September next succeeding the date hereof, until the
principal hereof shall have become due and payable, and (b) to the
extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any
overdue payment of any Make-Whole Amount (as defined in the Note
Purchase Agreements referred to below), payable semiannually as
aforesaid (or, at the option of the registered holder hereof, on
demand), at a rate per annum equal to 8.92%.
Payments of principal of, interest on and any Make-Whole Amount
with respect to this Note are to be made in lawful money of the
United States of America at the principal office of the Company in
Wilkes-Barre, Pennsylvania or at such other place as the Company
shall have designated by written notice to the holder of this Note as
provided in the Note Purchase Agreements referred to below.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated
as of September 30, 1997 (as from time to time amended, the "Note
Purchase Agreements"), between the Company and the respective
Purchasers named therein and is entitled to the benefits thereof.
Each holder of this Note will be deemed, by its acceptance hereof,
(i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreements and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase
Agreements.
This Note is a registered Note and, as provided in the Note
Purchase Agreements, 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 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 will not be affected by
any notice to the contrary.
This Note is subject to optional prepayment, in whole or from
time to time in part, at the times and on the terms specified in the
Note Purchase Agreements, but not otherwise.
If an Event of Default, as defined in the Note Purchase
Agreements, occurs and is continuing, the principal of this Note may
be declared or otherwise become due and payable in the manner, at the
price (including any applicable Make-Whole Amount) and with the
effect provided in the Note Purchase Agreements.
This Note shall be construed and enforced in accordance with the
law of the State of New York excluding choice-of-law principles of
the law of such State that would require the application of the laws
of a jurisdiction other than such State.
PG Energy Inc.
By
Title:
Exhibit 4.4(a)-
(to Note Agreement)
Exhibit 4.4(a)(to Note Agreement)
Form of Opinion of Special Counselto the Company
The closing opinion of Hughes Hubbard & Reed LLP, counsel to the
Company, which is called for by Section 4.4 of the Note Purchase
Agreements, shall be dated the date of Closing and addressed to the
Purchasers, shall be satisfactory in scope and form to each Purchaser
and shall be to the effect that:
1. The execution, issuance, sale and delivery of the Note
Purchase
Agreements and the Notes under the circumstances contemplated by
the Note
Purchase Agreements do not, under existing law, require the
registration
or qualification of the Notes under the Securities Act of 1933,
as amended
(the "Securities Act"), or the Securities Exchange Act of 1934,
as amended
(the "Exchange Act"), or the qualification of an indenture under
the Trust
Indenture Act of 1939, as amended, other than ordinary
disclosures in
filings required to be made by the Company pursuant to the
disclosure
requirements of the Securities Act and the Exchange Act, none of
which
disclosures are required to be made prior to the execution and
delivery of
the Note Purchase Agreements and the Notes.
2. The Company is a subsidiary company of a holding
company, as such
terms are defined in the Public Utility Holding Company Act of
1935 (the
"PUHCA"). The Company is exempt from regulation pursuant to
Section
3(a)(1) of the Act, except for Section 9(a)(2) thereof. The
issuance by
the Company of the Notes does not require that a declaration
with respect
thereto shall have become effective under Section 7 of PUHCA,
nor other
authorization or approval of the Securities and Exchange
Commission under
PUHCA.
3. The Company is not an "investment company" or a
company
"controlled" by an "investment company", within the meaning of
the
Investment Company Act of 1940, as amended.
The opinion of Hughes Hubbard & Reed LLP shall cover such other
matters relating to the sale of the Notes as each Purchaser may
reasonably request. With respect to matters of fact on which such
opinion is based, such counsel shall be entitled to rely on
appropriate certificates of public officials and other officers of
the Company.
Exhibit 4.4(b)-
(to the Note Agreement)
Exhibit 4.4(b)(to Note Agreement)
Form of Opinion of House Counselto the Company
The closing opinion of Jeffrey H. Sunday, counsel to the
Company, which is called for by Section 4.4 of the Note Purchase
Agreements, shall be dated the date of Closing and addressed to the
Purchasers, shall be satisfactory in scope and form to each Purchaser
and shall be to the effect that:
1. The Company is a corporation, duly incorporated,
validly existing
and in good standing under the laws of the Commonwealth of
Pennsylvania,
has the corporate power and the corporate authority to execute
and perform
the Note Purchase Agreements and to issue the Notes and has the
full
corporate power and the corporate authority to conduct the
activities in
which it is now engaged and is duly licensed or qualified and is
in good
standing as a foreign corporation in each jurisdiction in which
the
character of the properties owned or leased by it or the nature
of the
business transacted by it makes such licensing or qualification
necessary
except in jurisdictions where the failure to be so qualified or
licensed
would not have a material adverse affect on the business of the
Company.
2. Each Subsidiary is a corporation duly organized,
validly existing
and in good standing under the laws of its jurisdiction of
incorporation
and is duly licensed or qualified and is in good standing in
each
jurisdiction in which the character of the properties owned or
leased by
it or the nature of the business transacted by it makes such
licensing or
qualification necessary except in jurisdictions where the
failure to be so
qualified or licensed would not have a material adverse affect
on the
business of such Subsidiary, and all of the issued and
outstanding shares
of capital stock of each such Subsidiary have been duly issued,
are fully
paid and non-assessable and are owned by the Company, by one or
more
Subsidiaries, or by the Company and one or more Subsidiaries.
3. Each Note Purchase Agreement has been duly authorized
by all
necessary corporate action on the part of the Company, has been
duly
executed and delivered by the Company and constitutes the legal,
valid and
binding contract of the Company enforceable in accordance with
its terms,
subject to bankruptcy, insolvency, fraudulent conveyance and
similar laws
affecting creditors' rights generally or limiting the right of
specific
performance, and general principles of equity (regardless of
whether the
application of such principles is considered in a proceeding in
equity or
at law).
4. The Notes have been duly authorized by all necessary
corporate
action on the part of the Company, have been duly executed and
delivered
by the Company and constitute the legal, valid and binding
obligations of
the Company enforceable in accordance with their terms, subject
to
bankruptcy, insolvency, fraudulent conveyance and similar laws
affecting
creditors' rights generally, or limiting the right of specific
performance
and general principles of equity (regardless of whether the
application of
such principles is considered in a proceeding in equity or at
law).
5. Neither the issuance of the Notes nor the application
of the
proceeds of the sale of the Notes will violate or result in a
violation of
Section 7 of the Exchange Act or any regulation issued pursuant
thereto,
including, without limitation, Regulation G, T or X of the Board
of
Governors of the Federal Reserve System.
6. Except for the approval of the Pennsylvania Public
Utility
Commission, which has been obtained pursuant to an order dated
July 10,
1997, and which is final and not subject to appeal, no approval,
consent
or withholding of objection on the part of, or filing,
registration or
qualification with, any governmental body of the Commonwealth of
Pennsylvania is necessary in connection with the execution and
delivery of
the Note Purchase Agreements or the Notes.
7. The issuance and sale of the Notes and the execution,
delivery
and performance by the Company of the Note Purchase Agreements
do not
conflict with or result in any breach of any of the provisions
of or
constitute a default under or result in the creation or
imposition of any
Lien upon any of the property of the Company pursuant to the
provisions of
the Articles of Incorporation or By-laws of the Company or any
material
agreement or other instrument known to such counsel to which the
Company
is a party or by which the Company may be bound.
8. There are no actions, suits or proceedings pending or,
to the
knowledge of such counsel after due inquiry, threatened against
or
affecting the Company or any Subsidiary in any court or before
any
governmental authority or arbitration board or tribunal which,
if
adversely determined, would be reasonably likely to have a
materially
adverse effect on the properties, business or financial
condition of the
Company and its Subsidiaries, taken as a whole, or the ability
of the
Company to perform its obligations under the Note Purchase
Agreements and
the Notes or on the legality, validity or enforceability of the
Company's
obligations under the Note Purchase Agreements or the Notes.
The opinion of Jeffrey H. Sunday shall cover such other matters
relating to the sale of the Notes as each Purchaser may reasonably
request. With respect to matters of fact on which such opinion is
based, such counsel shall be entitled to rely on appropriate
certificates of public officials and other officers of the Company.
Exhibit 4.4(c)-
(to Note Agreement)
Exhibit 4.4(c)
(to Note Agreement)
Form of Opinion of Special Counselto the Purchasers
The closing opinion of Chapman and Cutler, special counsel to
the Purchasers, called for by Section 4.4 of the Note Purchase
Agreements, shall be dated the date of Closing and addressed to each
Purchaser, shall be satisfactory in form and substance to each
Purchaser and shall be to the effect that:
1. The Company is a corporation, validly existing and in
good
standing under the laws of the Commonwealth of Pennsylvania and
has the
corporate power and the corporate authority to execute and
deliver the
Note Purchase Agreements and to issue the Notes.
2. Each Note Purchase Agreement has been duly authorized
by all
necessary corporate action on the part of the Company, has been
duly
executed and delivered by the Company and constitutes the legal,
valid and
binding contract of the Company enforceable in accordance with
its terms,
subject to bankruptcy, insolvency, fraudulent conveyance and
similar laws
affecting creditors' rights generally, and general principles of
equity
(regardless of whether the application of such principles is
considered in
a proceeding in equity or at law).
3. The Notes have been duly authorized by all necessary
corporate
action on the part of the Company, and the Notes being delivered
on the
date hereof have been duly executed and delivered by the Company
and
constitute the legal, valid and binding obligations of the
Company
enforceable in accordance with their terms, subject to
bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting
creditors'
rights generally, and general principles of equity (regardless
of whether
the application of such principles is considered in a proceeding
in equity
or at law).
4. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Note Purchase Agreements do
not, under
existing law, require the registration of the Notes under the
Securities
Act of 1933, as amended, or the qualification of an indenture
under the
Trust Indenture Act of 1939, as amended.
The opinion of Chapman and Cutler shall also state that the
opinions of Hughes Hubbard & Reed LLP, special counsel to the
Company, and Jeffrey H. Sunday, house counsel to the Company, are
satisfactory in scope and form to Chapman and Cutler and that, in
their opinion, the Purchasers are justified in relying thereon.
With respect to matters of fact upon which such opinion is
based, Chapman and Cutler may rely on appropriate certificates of
public officials and officers of the Company and upon representations
of the Company and the Purchasers delivered in connection with the
issuance and sale of the Notes.
In rendering the opinion set forth in paragraph 1 above, Chapman
and Cutler may rely, as to matters referred to in paragraph 1, solely
upon an examination of the Articles of Incorporation certified by,
and a certificate of good standing of the Company from, the Secretary
of State of the Commonwealth of Pennsylvania, the By-laws of the
Company and the general business corporation law of the Commonwealth
of Pennsylvania. The opinion of Chapman and Cutler is limited to the
laws of the State of New York, the general business corporation law
of the Commonwealth of Pennsylvania and the Federal laws of the
United States.
SERVICE AGREEMENT
FOR TRANSPORTATION OF NATURAL GAS
UNDER RATE SCHEDULE FT
[Part 284 Service - Rate Discount]
AGREEMENT made as of this 30th day of April, by and
between CNG TRANSMISSION CORPORATION, a Delaware
corporation, hereinafter called "Pipeline", and PG ENERGY
INC., a Pennsylvania corporation, hereinafter called
"Customer".
WITNESSETH: That, in consideration of the mutual
covenants herein contained, the parties hereto agree as
follows:
ARTICLE I
Quantities
A. During the term of this Agreement, Pipeline will
transport for Customer, on a firm basis, and Customer may
furnish, or cause to be furnished, to Pipeline natural gas
for such transportation, and Customer will accept, or cause
to be accepted, delivery from Pipeline of the quantities
Customer has tendered for transportation.
B. The maximum quantities of gas which Pipeline shall
deliver and which Customer may tender shall be as set forth
on Exhibit A, attached hereto.
ARTICLE II
Rate
A. Beginning on November 1, 1997, Customer shall pay
Pipeline for transportation services rendered pursuant to
this Agreement, the following rates and charges:
1. A Reservation Charge of $4.55 per dekatherm of
MDTQ plus the currently effective reservation
Section 18 surcharge in Rate Schedule FT,
2. The maximum Usage Charge in Rate Schedule FT
per dekatherm of gas transported,
3. All applicable surcharges, including ACA, as
provided in Rate Schedule FT, and
4. The Fuel Retention Percentage as provided in
Rate Schedule FT.
B. Pipeline shall have the right to propose, file and
make effective with the FERC or any other body having
jurisdiction, revisions to any applicable rate schedule, or
to propose, file, and make effective superseding rates or
rate schedules for the purpose of changing the rate,
charges, and other provisions thereof effective as to
Customer; provided, however, that (i) Section 2 of Rate
Schedule FT "Applicability and Character of Service", (ii)
term, (iii) quantities, and (iv) points of receipt and
points of delivery shall not be subject to unilateral change
under this Article. Said rate schedule or superseding rate
schedule, and any revisions thereof which shall be filed and
made effective shall apply to and become a part of this
Agreement. The filing of such changes and revisions to any
applicable rate schedule shall be without prejudice to the
right of Customer to contest or oppose such filing and its
effectiveness.
C. Customer understands and agrees that the discounted
rate set forth above applies solely to the Primary Receipt
and Delivery Points provided for in this Agreement. Use of
Secondary Receipt and Delivery Points is subject to FT Rate
Schedule Section 6.2.C, or superseding rate schedule
section, regarding Customer's agreement to pay maximum FT
rates.
ARTICLE III
Term of Service
Subject to all the terms and conditions herein, the
term of service shall be effective as of November 1, 1997,
and shall continue in effect for a primary term of five (5)
years, and from year to year thereafter, until either party
terminates this Agreement by giving written notice to the
other at least twenty-four (24) months prior to the start of
the next service year, except, however, this Agreement shall
terminate immediately, without notice, if and when Pipeline
begins to transport gas for Customer on a firm basis to
and/or from the proposed Avoca Gas Storage Project in
Steuben County, New York.
ARTICLE IV
Points of Receipt and Delivery
The Primary Points of Receipt and Delivery and the
maximum quantities for each point for all gas that may be
received for Customer's account for Transportation by
Pipeline shall be as set forth on Exhibit A.
ARTICLE V
Regulatory Approval
Performance under this Agreement by Pipeline and
Customer shall be contingent upon Pipeline and Customer
receiving all necessary regulatory or other governmental
approvals upon terms satisfactory to each. Should Pipeline
and Customer be denied such approvals to provide or continue
the service contemplated herein or to construct and operate
any necessary facilities therefor upon the terms and
conditions requested in the application therefor, then
Pipeline's and Customer's obligations hereunder shall
terminate.
ARTICLE VI
Incorporation By Reference of Tariff Provisions
A. To the extent not inconsistent with the terms and
conditions of this Agreement, the following provisions of
Pipeline's effective FERC Gas Tariff, and any revisions
thereof that may be made effective hereafter are hereby made
applicable to and a part hereof by reference:
1. All of the provisions of Rate Schedule FT, or
any effective superseding rate schedule or otherwise
applicable rate schedule; and
2. All of the provisions of the General Terms and
Conditions, as they may be revised or superseded from time
to time.
ARTICLE VII
Miscellaneous
A. No change, modification or alteration of this
Agreement shall be or become effective until executed in
writing by the parties hereto; provided, however, that the
parties do not intend that this Article VII.A. requires a
further written agreement either prior to the making of any
request or filing permitted under Article II hereof or prior
to the effectiveness of such request or filing after
Commission approval, provided further, however, that nothing
in this Agreement shall be deemed to prejudice any position
the parties may take as to whether the request, filing or
revision permitted under Article II must be made under
Section 7 or Section 4 of the Natural Gas Act.
B. Any notice, request or demand provided for in this
Agreement, or any notice which either party may desire to
give the other, shall be in writing and sent to the
following addresses:
Pipeline: CNG Transmission Corporation
445 West Main Street
Clarksburg, West Virginia 26301
Attention: Vice President,
Marketing
and Customer
Service
Customer: PG Energy Inc.
One PEI Center
Wilkes-Barre, PA 18711-0601
Attention: Director of Gas Supply
or at such other address as either party shall designate by
formal written notice.
C. No presumptions shall operate in favor of or against
either party hereto as a result of any responsibility either
party may have had for drafting this Agreement.
D. The subject headings of the provisions of this
Agreement are inserted for the purpose of convenient
reference and are not intended to become a part of or to be
considered in any interpretation of such provisions.
IN WITNESS WHEREOF, the parties intending to be legally
bound, have caused this Agreement to be signed by their duly
authorized officials as of the day and year first written
above.
CNG TRANSMISSION CORPORATION
(Pipeline)
By: /s/ Georgia Carter
Georgia Carter
Its: Vice President, Marketing
PG ENERGY INC.
(Customer)
By: /s/ John F. Kell, Jr.
John F. Kell, Jr.
Its: Vice President, Financial Services
(Title)
EXHIBIT A
To the Transportation Service Agreement dated April 30, 1997
Between CNG Transmission Corporation and PG Energy Inc.
A. Quantities
1. The maximum quantities of gas which Pipeline shall
deliver and which Customer may tender shall be as follows:
a. A Maximum Daily Transportation Quantity ("MDTQ")
of 29,331 Dt for transportation on withdrawal from
the Seneca Lake Storage Field ("Seneca Lake").
b. A MDTQ of 15,000 Dt for transportation for
injections into Seneca Lake.
2. For billing purposes Customer's Reservation Charge
shall be based on the quantity set forth in Subparagraph 1.a
above.
B. Primary Points of Receipt and Delivery
1. The Primary Points of Receipt and the maximum
quantities for each point shall be as follows:
a. The interconnection of the facilities of Pipeline
and New York State Electric & Gas Corporation
("NYSEG") at the Yawger Road M&R Station in
Chemung County, New York, on withdrawal from
Seneca Lake at 29,331 Dt/d.
b. The interconnection of the facilities of Pipeline
and Transcontinental Gas Pipe Line Corporation
("Transco") in Clinton County, Pennsylvania, known
as the Leidy Interconnection, for injection into
Seneca Lake at 15,000 Dt/d.
2. The Primary Points of Delivery and the maximum
quantities for each point shall be as follows:
a. The interconnection of the facilities of Pipeline
and Transco in Clinton County, Pennsylvania, known
as the Leidy Interconnection, on withdrawal from
Seneca Lake at 29,331 Dt/d.
b. The interconnection of the facilities of Pipeline
and NYSEG at the Yawger Road M&R Station in
Chemung County, New York, for injection into
Seneca Lake at 15,000 Dt/d.
FIRM NATURAL GAS STORAGE SERVICE AGREEMENT
THIS NATURAL GAS STORAGE AGREEMENT dated as of April 15, 1997,
by and between New York State Electric & Gas Corporation ("NYSEG" or
"Owner") and PG Energy Inc. ("Customer"), (singularly, "Party," and
collectively, the "Parties").
W I T N E S S E T H
WHEREAS, Owner has received all necessary approvals necessary to
develop, construct, own and operate a Phase I and II of a bedded salt
subsurface natural gas storage facility in Watkins Glen, New York
(the "Storage Facility") along with other associated transmission
pipelines. Phase I was placed in service in July 1996. Phase II was
placed in service in December 1996. Dewatering of the Storage
Facility for Phase I service is underway. Phases I and II are
expected to have a capability to inject 40,000 dekatherms ("Dth") per
day over a twenty (20) day period and to withdraw 80,000 Dth per day
over a ten (10) day period; and
WHEREAS, Owner plans to develop, construct, own and operate a
Phase III of a subsurface natural gas storage facility and associated
transmission pipelines at the Storage Facility in Watkins Glen, New
York (the "Phase III Storage Facility" or "Phase III") which will
have an incremental injection capability of 32,500 Dth per day over a
twenty (20) day period and will have an incremental withdrawal
capability of 65,000 Dth per day over a ten (10) day period; and
WHEREAS, prior to committing to the expenditures necessary to
develop, construct, own and operate the Phase III Storage Facility,
Owner requires certain firm and binding commitments from parties that
have expressed an interest in utilizing the capacity for Phase III of
the Storage Facility at certain minimum prices; and
WHEREAS, Customer is at this time willing to commit to use the
Phase III Storage Facility and associated services upon its
completion on terms and conditions set forth in this Agreement, as
provided below; and
WHEREAS, Customer desires to purchase firm storage service to
enable it to meet the requirements of its various customers; and
WHEREAS, Owner is willing to provide services to Customer in
accordance with the terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants hereinafter contained, Owner and Customer agree as
follows:
PART I
DEFINITIONS AND PRE-OPERATIONAL ACTIVITIES
Section 1
DEFINITIONS
1.1 "Agreement" means this Firm Natural Gas Storage Agreement
(including all Exhibits identified in the Schedule of Exhibits
attached hereto) as it may be amended and supplemented from time to
time.
1.2 "Approved" or "Approval" means approved by or approval of
Owner unless otherwise stated.
1.3 "Authorized Overrun Quantities" means quantities of Gas
which Owner agrees to inject or withdraw for Customer, in excess of
Customer's Maximum Daily Injection or Withdrawal Quantity, as
established pursuant to Section 4.3.
1.4 "Base Gas" means the gas required in the storage reservoir
necessary to provide the pressure to cycle the working storage
volumes.
1.5 "Commencement Date" shall mean November 1, 1997, in the
event a Notice of Readiness is given by Owner to Customer on or
before September 1, 1997. In the event the Notice of Readiness is
given after September 1, 1997, but before February 1, 1998, the
Commencement Date shall be April 1, 1998.
1.6 "Contract Year" means (i) for the initial year of
operations, the period beginning on the Commencement Date and
continuing through March 31, (ii) for each successive year of
operations, a one-year period from April 1 of one year through March
31 of the following year, For the first and last Contract Year, if
less than 365 Days, any calculation in this Agreement determined by
reference to a Contract Year shall be adjusted by multiplication of
the appropriate figure by a fraction the numerator of which shall by
the number of Days in that Contract Year and the denominator of which
shall be 365.
1.7 "Day" shall mean a period of twenty-four (24) consecutive
hours, beginning and ending at 9:00 AM (Central Clock Time),
including Saturdays, Sundays and holidays, except that in the event
that an obligation falls due on a Saturday, Sunday or a Federal
Banking holiday, the obligation shall be due on the next business
day.
1.8 "Facility" means the structure and facilities to be
designed and constructed by owner for purposes of providing the
Services contemplated by this Agreement, including any Phase I or
Phase II facilities that are necessary to the operations of Phase
III.
1.9 "FERC" shall mean Federal Energy Regulatory Commission or
any federal commission, agency or other governmental body or bodies
succeeding to the powers of such commission.
1.10 "Force Majeure" means an event of Force Majeure as
specified in Section 13.
1.11 "Fuel Retention" means the amount of Customer's Gas
tendered for injection which is retained by Owner as reimbursement
for compressor fuel used in the provision of service provided in
conjunction with the Agreement, as set forth in the Agreement.
1.12 "Gas" means natural Gas of a quality at least equal to the
quality specified in Section 7.
1.13 "Governmental Approvals" means all authorizations,
consents, exemptions, permits, certificates and approvals from any
federal, state, municipal, local or other bodies in the United States
having jurisdiction or potential jurisdiction in relation to the
construction and operation of the Facility or the performance of the
obligations contemplated by this Agreement.
1.14 "Maximum Daily Injection Quantity" means the maximum
quantity of Gas which Customer is entitled to inject into the
Facility on any Day, plus Fuel Retention.
1.15 "Maximum Daily Withdrawal Quantity" means the maximum
quantity of Gas which Customer is entitled to withdraw on any Day.
1.16 "Maximum Storage Capacity" means the maximum quantity of
Gas which Customer is entitled to store at the Facility at any given
time.
1.17 "Month" means a period beginning at 9:00 AM Central Clock
Time on the first Day of the calendar month and ending at 9:00 AM
Central Clock Time on the first day of the following Month.
1.18 "Notice of Readiness" shall be defined for purposes of this
Agreement as the notice to be issued by Owner specifying that the
Facility will be ready to provide service under this Agreement on the
Commencement Date.
1.19 "Owner" means New York State Electric & Gas Corporation.
1.20 "Point(s) of Delivery" means the point(s) where Customer
shall inject Gas into the Facility or withdraw Gas from the Facility,
as specified in Exhibit "B".
1.21 "Point(s) of Redelivery" means the point(s) where Owner
shall provide Gas withdrawn from the Facility to Customer, as
specified in Exhibit "B".
1.22 "Price Terms" means the prices attached as Exhibit "A", as
Exhibit "A" may be adjusted from time to time in accordance with this
Agreement, which sets forth the payment obligations of Customer for
the Services provided pursuant to this Agreement.
1.23 "Project" means the Seneca Lake Storage Project, pursuant
to which Governmental Approvals will be secured, contracts will be
entered, the Facility will be constructed, Gas will be injected and
withdrawn for Customers' accounts, and related tasks will be
accomplished.
1.24 "Services" means the injection, storage and withdrawal of
Gas, and any ancillary activities, to be performed by Owner for
Customer pursuant to this Agreement.
1.25 "Site" means the parcel of land located at Watkins Glen,
New York, under or through which Services are to be provided pursuant
to this Agreement.
1.26 "Term" means the period of time specified in Section 17.1.
1.27 "Transporter" means any upstream or downstream third party
which provide services required to effectuate delivery/redelivery of
Gas to/from Owner's Facilities, as set forth in Exhibit "B".
1.28 "Working Gas" means all Gas that Customer has in storage
that is not Base Gas.
Additional terms indicated by capitalization and utilized in
this Agreement shall have the meaning ascribed to them where first
utilized.
Section 2
PRE-OPERATIONAL ACTIVITIES
2.1 Approvals. This Agreement and the respective obligations
of the Parties hereunder are subject to all valid laws, orders, rules
and regulations of duly constituted authorities having jurisdication
("Applicable Law").
a. Owner's Required Approvals and Conditions
(i) Receipt by Owner of all approvals required to develop,
install, own and operate the Phase III Storage Facility and to
effecuate the proposed storage services including, without
limitation, all necessary approvals from federal, state, local or
municipal agencies or other governmental authorities having
jurisdiction. It is expressly understood that such approvals shall
be in a form and substance reasonably satisfactory to Owner,
including, without limitation, the jurisdictional status of the Phase
III Storage Facility (and the ratemaking treatment of its rate and
charges) by such agencies or governmental authorities. Owner shall
have no obligation to accept any regulatory
approval(s) where such approval(s) are not in a form and substance
that are reasonably satisfactory to Owner, in its sole discretion.
In the event all such approvals are not granted in form and substance
reasonably satisfactory to Owner on or before August 31, either Party
may terminate this Agreement after August 31, 1997. After August 31,
1997, a Party's right to terminate the Agreement due to failure to
receive all such approvals before August 31, 1997, shall cease at the
time such approvals are received and accepted by Owner.
Notwithstanding the other provisions of this Agreement, in the event
any regulatory body at any time issues an order requiring Owner to
charge a rate less than the rate agreed to by the parties, Owner may
terminate this Agreement on ten (10) days prior written notice to
Customer; provided, however, that prior to the resale of the Maximum
Daily Withdrawal Quantity hereunder or any portion thereof to a thrid
party, Customer shall have the right to retain such capacity by
agreeing to enter into a service agreement upon substantially similar
terms and conditions as Owner is willing to enter into with such
third party.
(ii) Owner shall have the right to terminate this Agreement
prior to February 1, 1998, provided that Ower has not given the
Notice of Readiness, if Owner, in its sole discretion, determines not
to proceed with Phase III of the Storage Facility on the basis that
Phase III of the Storage Facility is or will be uneconomical for any
reason. If Owner terminates this Agreement under this subparagraph,
Owner shall not provide any Phase III service to any third party(s)
unless the economics of the Project have changed subsequent to the
termination date. In the event Owner provides Phase III service to
any third party(s) prior to April 1, 1999, Customer shall have the
right to reinstate the service provided for in this Agreement by
reexecuting this Precedent Agreement and/or the Firm Storage Service
Agreement.
(iii) In the event Owner elects to hold an open season
for Phase III capacity, such open season shall not include the Phase
III capacity contracted for by Customer pursuant to this Agreement.
Until such time as a final order has been issued by the involved
regulatory body that is no longer appealable to that regulatory body,
Owner shall make filings before the involved regulatory body to
vigorously oppose any proposal or requirement (whether by a
regulatory body, its Staff or any third party) that seeks to require
Owner to conduct an open season that includes the Phase III capacity
contracted for by Customer pursuant to this Agreement. In the event
FERC or any other regulatory body which has general jurisdiction over
Owner requires Owner to conduct an open season that makes available
the Phase III capacity contracted for by Customer pursuant to this
Agreement, Owner or Customer may terminate this Agreement upon
written notice to the other Party. Customer may participate in such
open season with the same rights as any other party and if Customer
elects to do so and Customer's bid is successful, the Parties shall
negotiate a new precedent agreement incorporating the price terms and
quantities contained in Customer's successful bid.
(iv) In the event the operational capabilities of Phases I,
II and III are insufficient on any given day(s) to supply the
requirements of all of the Phase I, II and III customers, then
current Phase I and II customers shall receive priority, up to 80,000
dekatherms, over other customers.
(v) Customer agrees it will not directly or indirectly
object in any forum to the prices agreed to herein.
(vi) Customer agrees that, subject to the provisions of
Section 3.3, Customer shall begin to pay the demand charges and other
applicable charges as set forth in Exhibit "B" beginning on the
Commencement Date.
(b) Customer's Required Approvals and Conditions
(i) If any of the regulatory approvals granted to Owner
pursuant to Section 2 materially and adversely affect the service
that is contemplated to be provided to Customer herunder, Customer
shall have the right to terminate this Agreement within thirty (30)
days of the grant of any such approval.
PART TWO - SERVICES
Section 3
STORAGE SERVICES
3.1 Firm Storage. Specific volumetric commitments, price
commitments, the injection and withdrawal fee, Maximum Daily
Withdrawal Quantity ("MDWQ"), Maximum Daily Injection Quantity
("MDIQ") Working Gas and Base Gas Requirements, Fuel Retention and
Authorized Injection and Withdrawal Overrun Fees are set forth and
attached hereto at Exhibit "A" to this Agreement, subject to the
provisions of the FERC approved Operating Statement or other
applicable Rate Schedules.
3.2 Term. The term of the Firm Storage Service Agreement shall
commence on the date of execution of the Firm Storage Service
Agremeent and shall terminate on March 31, 2002. If on or before
September 1, 1997, Owner cannot in good faith issue the Notice of
Readiness for the full Maximum Daily Withdrawal Quantity set forth in
Exhibit "A", Owner shall either (1) state in the Notice of Readiness
the level of service Owner can in good faith provide on and after
November, 1997; or (2) not issue the Notice of Readiness, in Owner's
sole discretion. If Owner elects to provide the Notice of Readiness
for a reduced level of service, Customer shall within ten (10)
business days notify Owner whether Customer agrees to accept such
reduced service for the period from November 1, 1997, to March 31,
1998. If Customer accepts such reduced service, the maximum daily
withdrawal quantity set forth in the Notice of Readiness shall be
provided by Owner between November 1, 1997, and March 31, 1998,
subject to the terms of this Agreement. If Customer does not accept
such reduced service, then the Notice of Readiness will be deemed not
to have been given and Customer shall have no obligation to accept
service prior to April 1, 1998. If Owner receives a Bona Fide Offer,
as defined below, Owner may terminate the Firm Storage Service
Agreement effective on March 31, 2000, or on March 31, 2001, by
giving Customer seven (7) months prior written notice; provided,
however, that Owner may not so terminate if Customer elects to match
the Bona Fide Offer in writing within fifteen (15) days of the date
that Owner informs Customer of the Bona Fide Offer. The term "Bona
Fide Offer" as used in this section shall mean an offer or more than
one offer which either individually, or taken together, yield a
higher net present value for the remaing term and contain
substantially similar terms and conditions as contained in the Firm
Storage Service Agreement. In no circumstance shall a Bona Fide
Offer include any offer for capacity made by an entity in which Onwer
holds a controlling interest.
3.3 Payment Schedule. Customer shall pay Owner for services
provided pursuant to this Agreement in accordance with the provisions
of Section 8 of the FERC approved Operating Statement or other
applicable Rate Schedules.
3.4 Partial Service.
(a) Except as otherwise provided in Section 3.4(b) of this
Agreement, Customer shall pay a reservation charge applied only to
the actual maximum daily withdrawal quantities that Owner is
operationally capable of providing. "Operationally capable" shall
mean the level of service that Owner is capable of providing in
Owner's sole discretion. In the event Owner provides Customer with
less than the Maximum Daily Withdrawal Quantity set forth in Exhibit
"A", consistent with this Agreement, the Maximum Daily Injection
Quantity, Base Gas Requirement and Maximum Working Gas Storage
Capacity set forth in Exhibit "A" shall be in the same proportion as
they are currently set forth in Exhibit "A". If Owner, at any time
after April 1, 1998, provides Customer with less than seventy percent
(70%) of the Maximum Daily Withdrawal Quantity, Customer may
terminate this Agreement and/or the Firm Storage Service Agreement
except in the case when the provision of less than seventy percent
(70%) of the Maximum Daily Withdrawal Quantity is the result of a
force majeure event(s), in which case Customer may terminate the
Agreement if the force majeure extends for a period of greater than
ninety (90) consecutive days and except in the cases where the
provision of less than seventy (70%) percent of the Maximum Daily
Withdrawal Quantity is either (1) the result of planned or routine
maintenance; or (2) compliance with applicable regulatory
requirements as set forth in the Operating Statement.
(b) Beginning on April 1, 1998, if Owner is not
operationally capable of providing the Maximum Daily Withdrawal
Quantity as set forth in Exhibit "A", and Customer does not exercise
its right to terminate pursuant to section 3.4(a) above, then Owner
and Customer will use their best efforts to increase service to
Customer up to the Maximum Daily Withdrawal Quantity set forth in
Exhibit "A". Owner may provide Customer with a written notice ten
(10) days prior to the first day of any month during the period May,
1998 through November, 1998, setting forth the additional capacity
that can be made operationally available, and such increased quantity
shall become the new maximum daily withdrawal quantity to which
Customer is thereafter entitled effective on the first day of the
subsequent month. Customer's demand charges shall be calculated
based on the level of service provided until such time as the full
Maximum Daily Withdrawal Quantity is provided.
3.5 Cavern Dewatering and Initial Year Contingencies.
(a) Customer and Owner have agreed to a schedule according
to which Customer shall tender and Owner shall accept injections of
Base Gas and Working Gas which shall be applicable to this Agreement
prior to the Commencement Date.
(b) Subject to the provisions of subparagraph (c) below,
if on or before November 1, 1997, Owner gives notice to reduce the
Maximum Daily Withdrawal Quantity, the monthly reservation charge
will be calculated from the Reduced Maximum Daily Withdrawal
Quantity. However, if the injection shortfall is the result of
Customer's failure to tender gas for injection pursuant to the
schedule mutually agreed upon by Customer and Owner, the Maximum
Daily Withdrawal Quantity used for billing purposes will be the
maximum daily withdrawal quantity that Owner would have made
operationally available if Customer had injected gas pursuant to the
schedule, not to exceed the Maximum Daily Withdrawal Quantity set
forth in Exhibit "A"; provided, however, that if Customer's failure
to tender gas for injection is in whole or in part due to force
majeure causes beyond Customer's control, then for purposes of
calculating the monthly reservation charge the Maximum Daily
Withdrawal Quantity shall be reduced pursuant to Owner's notice.
(c) If Customer tenders and Owner accepts additional gas
for injection after November 1, 1997, and as a result of these
additional injections Owner is able to increase the previously
Reduced Maximum Daily Withdrawal Quantity, Owner shall notify
Customer of the new Reduced Maximum Daily Withdrawal Quantity and
payments shall thereafter be based upon the new Reduced Maximum Daily
Withdrawal Quantity.
(d) In the event the Notice of Readiness is not issued on
or before February 1, 1998, Customer may terminate this Agreement.
Section 4
INJECTIONS AND WITHDRAWALS
4.1 Injections. Customer hereby reserves and Owner hereby
agrees to provide facilities and capacity to support the injection of
Gas owned by Customer into the Facility on each Day in an amount up
to Customer's Maximum Daily Injection Quantity, so long as injection
of such quantities cause Customer to exceed its Maximum Storage
Capacity.
4.2 Withdrawals. Customer hereby reserves and Owner hereby
agrees to provide facilities and capacity to support the withdrawal
of Gas owned by Customer from the Facility on each Day in an amount
up to Customer's Maximum Daily Withdrawal Quantity, so long as
withdrawal of such quantities does not cause Customer to incur a
negative Working Gas Balance.
4.3 Authorized Overrun Quantities. If, within the sole
discretion of Owner, operating conditions permit and Customer will
neither exceed its Maximum Storage Capacity nor incur a negative
Working Gas balance, Owner may authorize Customer to inject or
withdraw quantities in excess of Customer's Maximum Daily Injection
and Withdrawal quantities. The charge for such Authorized Injection
and Withdrawal Overrun Service is set forth in Exhibit "A".
Section 5
SCHEDULING
5.1 Points of Delivery and Points of Redelivery. Owner and
Customer shall designate as Exhibit "B", attached hereto and made a
part hereof, a list of the currently available Points of Delivery and
Points of Redelivery.
5.2 Customer Scheduling of Transportation. Customer shall by
solely responsible for making all arrangements and paying for the
transportation of the Gas to the Point of Delivery for injection into
the Facility, and for making all arrangements and paying for the
transportation of Gas from the Point of Delivery for Gas for
withdrawal from the Facility. Owner shall have no obligation to
inject Gas for Customer, or to withdraw Gas for Customer, unless and
to the extent that Transporter confirms the transport of equivalent
quantities, as the case may be.
5.3 Scheduling of Storage Volumes and Intra-Day Changes in
Nominations. Owner and Customer agree that the obligations of Owner
and Customer for scheduling and changing nominations hereunder and
responsibility for any penalties, imbalance or other charges
associated with non-compliance with each of the party's respective
obligations shall be in accordance with the provisions of Section 6
of the FERC approved Operating Statement or other applicable Rate
Schedules.
PART III
GAS PRESSURE, QUALITY AND MEASUREMENT
Section 6
PRESSURE
Owner and Customer agree that the obligations of Owner and
Customer as to the pressure of Gas injected and withdrawn from NYSEG
shall be in accordance with the provisions of Section 7 of the FERC
approved Operating Statement or other applicable Rate Schedules or
tariffs that may be in place and applicable.
Section 7
QUALITY
Owner and Customer agree that the obligations of Owner and
Customer as to the quality of the Gas injected and withdrawn from
NYSEG shall be governed by Section 7 of the FERC approved Operating
Statement or other applicable Rate Schedules.
Section 8
MEASUREMENT
Owner and Customer agree that the obligations of Owner and
Customer as to the measuring of Gas shall be governed by the
provisions of Section 7 of the FERC approved Operating Statement or
other applicable Rate Schedules.
PART IV
Section 9
BILLING AND PAYMENT
Owner and Customer agree that the obligations of Owner and
Customer as to billing and payment shall be governed by the
provisions of Section 8 of the FERC approved Operating Statement or
other applicable Rate Schedules.
Section 10
TAXES
Customer agrees to reimburse Owner within fifteen (15) Days of
invoice for all taxes attributable to the injection, storage or
withdrawal of Customer's Gas, or payments made by Owner pursuant to
this Agreement.
PART V
MISCELLANEOUS
Section 11
BASE GAS
11.1 Customer Shall Provide Base Gas. The amount of Customer's
Base Gas contribution shall be as set forth in Exhibit "A". Customer
shall retain title to such base gas at all times and shall be
entitled to withdraw such contribution of Base Gas upon the
expiration of Customer's contract term in the event such contract is
not extended or renewed.
11.2 Customer Withdrawal of Base Gas. Customer shall be
required to withdraw all of its Base Gas within sixty (60) days of
the end of the Contract Year when Customer's contract expires or
terminates, unless otherwise as mutually agreed by the parties.
Customer shall be entitled to withdraw up to its MDWQ to the extent
it is operationally feasible for Owner to allow Customer to do so,
provided, further, however, that withdrawals of Base Gas shall be
interruptible by Owner. To the extent of any such interruptions, the
sixty (60) day withdrawal period shall be extended for a like period.
All Base Gas not withdrawn during the required withdrawal period
shall be forfeited to Owner.
Section 12
RATE SCHEDULES AND GENERAL TERMS AND CONDITIONS
This Agreement and all terms and provisions contained or
incorporated herein are subject to the provisions of Owner's
applicable FERC-approved Operating Statement or other applicable
Schedules or tariffs that may be in place and applicable from FERC or
other duly constituted authorities having jurisdiction, and as the
same may be legally amended or superseded, which Operating Statements
and other applicable schedules or tariffs are by this reference made
a part hereof.
Section 13
FORCE MAJEURE
Owner and Customer agree that force majeure shall be defined in
accordance with the provisions of Section 10 of the FERC approved
Operating Statement or, in the absence of such schedule, based upon
other applicable Rate Schedules.
Section 14
POSSESSION, TITLE, RISK OF LOSS AND WARRANTY
14.1 Possession, Title and Risk of Loss. Owner and Customer
agree that the obligations of Owner and Customer as to possession,
title and risk of loss shall be governed by the provisions of Section
11 of the FERC approved Operating Statement or other applicable Rate
Schedules
14.2 Warranty. Owner and Customer agree that the obligations of
Owner and Customer as to warranty of title to Gas shall be governed
by the provisions of the FERC approved Operating Statement or based
upon other applicable Rate Schedules or tariffs that may be in place
and applicable.
Section 15
CREDITWORTHINESS
15.1 Owners Obligations Contingent on Creditworthiness. Owner
shall have the right from time to time to request such credit
documentation as may be appropriate in its commercially reasonable
discretion. Further, in the event there is a material adverse change
in Customer's or any Guarantor's financial status, Owner may request
such additional credit documentation or security or guarantee of
payment as may be required by Owner in its commercially reasonable
discretion. If Customer does not provide such credit documentation
or security or guarantee of payment within thirty (30) days of
Owner's request, Owner may terminate this Agreement, without any
further liability to Customer whatsoever. At such time as a FERC-
approved Operating Statement is in place and effective, Customer's or
its assigns' satisfaction of the creditworthiness provisions shall be
as set forth in Owner's FERC-approved Operating Statement.
15.2 Non-Discriminatory Treatment. All of Owner's
creditworthiness review standards and requirements shall be imposed
on a non-discriminatory basis. Security shall no longer be required
where Owner deems that security is no longer needed or when the
Customer is no longer receiving Services from Owner.
Section 16
DEFAULT
16.1 Termination for Default. If (i) either Party shall fail in
any material respect to comply with, observe, perform or shall
default in any material respect upon any obligation under this
Agreement, except due to causes excused by Force Majeure or
attributable to the other's wrongful act or failure to act, and such
failure materially and adversely affects the ability of either Party
to deliver or accept Gas and (ii) after written notice thereof from
the Party claiming a right to terminate this Agreement, such failure
shall continue for a period of thirty (30) Days, then the Party
claiming the right to terminate may, by notice in writing, terminate
this Agreement as of the date of the notice of termination; provided,
however, that if such failure cannot be reasonably cured within such
thirty (30) Days, the Party claimed to be in default shall be
entitled to such further time as shall reasonably be required to
effect such cure, provided that such Party commences within such
thirty (30) Days substantial efforts to effect such cure and at all
times thereafter proceeds diligently to complete such cure.
16.2 Other Rights Preserved. The availability or exercise of
the right to terminate this Agreement pursuant to this Section shall
not serve to diminish or effect the right of the Parties to seek
damages or specific performance, for breach of this Agreement, as
provided in Section 16.1 hereof.
16.3 Non-Performance/Liquidation. The occurrence at any time with
respect to either party of any of the following events constitutes an
event of default hereunder and the non-defaulting party shall be
entitled to suspend its performance hereunder and/or liquidate and
terminate this Agreement in the event of such default:
(a) the failure by a party to make, when due, any payment under
this Agreement if the failure is not remedied within five Business
Days after receipt of a notice of such failure from the other party;
(b) a party:
(i) is generally not paying its debts as they become due;
(ii) files, or consents by answers or otherwise to the
filing against it of, any petition or case seeking relief
under any federal, state or foreign bankruptcy or
insolvency (collectively "Bankruptcy Laws"),
(iii) makes a general assignment for the benefit of its
creditors,
(iv) applies for or consents to the appointment of a
custodian, receiver, trustee, conservator, or other officer
with similar powers ("Custodian")
(v) takes corporate action for the purpose of any of the
foregoing;
(c) a court or governmental authority, agency, instrumentally
or official of competent jurisdiction enters or issues an order
or decree with respect to a party:
(i) appointing a Custodian;
(ii) constituting an order for relief under, or approving
a petition or case for relief or reorganization of any
other petition or case to take advantage of, any Bankruptcy
Laws, or
(iii) ordering its dissolution, winding-up or
liquidation;
(d) a petition or case for any purpose specified in the
Paragraph directly above is filed against a party and is not
dismissed within thirty (30) days;
(e) a party fails to perform, observe or comply with any other
material term, covenant or provision contained in this Agreement
and the failure continues for thirty (30) days after receipt of a
notice of such failure from the other party.
Section 17
LEGAL RELATIONS
17.1 Entire Agreement. This Agreement, including all Exhibits
hereto, contains the entire understanding of the Parties with respect
to the subject matter hereof, and supersedes all prior agreements and
commitments with respect thereto. Neither Party has relied upon any
representation expressed or implied not contained in this Agreement.
There are no oral understandings or other terms or conditions.
17.2 Applicable Law. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of New
York, exclusive of conflicts of laws provisions.
17.3 Agreement Subject to Law and Regulatory Orders. This
Agreement is subject to all valid laws orders, rules and regulations
of all governmental authorities having jurisdiction.
17.4 Amendments. No change, amendment or modification of this
Agreement shall be valid or binding upon the Parties unless such
change, amendment or modification shall be in writing and duly
executed by the Parties. The Operating Statement, when approved by
FERC, shall become part of the Agreement. FERC-approved changes to
the Operating Statement covering these services shall also become
part of the Agreement.
17.5 Captions. The captions and subheadings contained in this
Agreement are for convenience and reference only and in no way
define, describe, extend or limit the scope or intent of this
Agreement or the intent of any provision contained herein.
17.6 Notice. Any notice, demand, offer or other written
instrument required or permitted to be given pursuant to this
Agreement, except for those provisions in owner's Operating Statement
requiring otherwise, shall be in writing signed by the Party giving
such notice and shall be hand-delivered or sent by registered letter,
overnight courier provided a receipt signed by the addressee is
obtained, or telexed to the other Party. Unless otherwise
specifically provided in this Agreement, any written notice or other
communication shall be sufficiently given or shall be deemed given on
the third business day following the date on which the same is mailed
by registered or certified mail, postage prepaid, addressed:
(a) if delivered to Owner:
New York State Electric & Gas Corporation
4500 Vestal Parkway East, P.O. Box 3607
Binghamton, New York 13902-3607
Attn: Senior Vice President, Gas Business Unit
(b) if delivered to Customer:
PG Energy Inc.
One PEI Center
Wilkes Barre, PA 18711-0601
Attn: Director of Gas Supply
Each Party shall have the right to change the place to which
notice shall be sent or delivered by similar notice or like manner to
the other Party. The effective date of notice issued pursuant to
this Agreement shall be the earlier of the date of addressees receipt
of such notice or the third business day following the date on which
the same is mailed by registered or certified mail, postage prepaid.
17.7 Severability. The invalidity of one or more phrases,
sentences clauses, or Articles contained in this Agreement shall not
affect the validity of the remaining portion of the Agreement so long
as the material purposes of this Agreement can be determined and
effectuated. In the event that one or more phrases, sentences,
clauses, or Articles is held to be invalid and such invalidity
affects the remaining portion of the Agreement to alter its material
purposes, the parties shall negotiate in good faith to amend this
Agreement to have the same force and effect as if such phrase,
sentence clause, or Section were not invalid.
17.8 Assignment. This Agreement shall be binding upon, shall
inure to the benefit of, and may be performed by, the successors and
assigns of the parties, except that no assignment, pledge, or other
transfer of this Agreement shall operate to release the assignor,
pledgor, or transferor from any of its obligations under this
Agreement unless consent to the release is given in writing by the
other Party, with such consent not to be unreasonably withheld, or
such transfer is incident to a merger or consolidation with, or
transfer of all or substantially all of the assets of the transferor
to another person or business entity which shall, as part of such
succession, assume all the obligations of the transferor under this
Agreement.
17.9 No Waiver. The failure of any party to enforce any of the
provisions of this Agreement or to require compliance with any of its
terms, at any time during the pendency of this Agreement, shall in no
way affect the validity of this Agreement, or any part hereof, and
shall not be deemed a waiver of the right of such Party thereafter to
enforce any provision of this Agreement.
17.10 Exhibits. All exhibits referenced in this Agreement
shall be incorporated into this Agreement by such reference and shall
be deemed to be an integral part of this Agreement.
17.11 Liability of Owner and Customer. In the event of a
breach of this agreement by one Party, the other Party shall be
entitled to the remedies available at law or in equity, provided in
no event shall Owner or Customer be liable to the other for exemplary
or punitive damages.
17.13 Valid Termination. In the event Owner or Customer
validly terminate this Agreement pursuant to its terms, the
terminating Party shall not thereafter have any further liability or
further obligation to the other Party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives effective as of the
date first written above.
ATTEST: NEW YORK STATE ELECTRIC & GAS CORPORATION
/s/ Anthony Ricca
Manager - Market Development By: /s/ Michael German
Michael German
Title: Senior Vice President
ATTEST: PG ENERGY INC.
/s/ Thomas J. Ward
Secretary By: /s/ John F. Kell, Jr.
John F. Kell, Jr.
Title: Vice President, Financial Services
Exhibit "A"
PRICE TERMS, BASE GAS CONTRIBUTION AND
WORKING GAS REQUIREMENT
1. Price of Services. For each of the services to be provided
hereunder, Customer agrees to pay and shall pay the following charge:
(a) Monthly Demand Charge. Customer agrees to pay and shall
pay the following charge to Owner:
$4.00 per month per Dth x the Maximum Daily Withdrawal Quantity
The Monthly Demand Charge is calculated on a per unit of
deliverability basis.
(b) Maximum Daily Withdrawal Quantity. 30,000
Dth/d
(c) Maximum Daily Injection Quantity. 15,000
Dth/d
(d) Base Gas per Agreement. 186,000
Dth
(e) Maximum Working Gas Storage Capacity. 300,000
Dth
(f) Commodity Injection Charge. For each Dth injected and
stored for Customer's account, Customer agrees to pay and shall pay
the following charge:
$.01/Dth
An injection fee shall not be payable on Base Gas but shall be
payable on all other gas injected.
(g) Commodity Withdrawal Charge. For each Dth of Gas withdrawn
from Customer's account, Customer agrees to pay and shall pay the
following charge:
$. 0l/Dth
(h) Authorized Injection and Withdrawal Overrun Charge. For
Authorized Injection and Withdrawal Overrun Service rendered by Owner
to Customer pursuant to Section 4.3, Customer agrees to pay and shall
pay the following charge (in addition to the otherwise applicable
injection and withdrawal charges specified in Articles sections l(b)
and (c) of this Exhibit):
$.13 /Dth
2. Fuel Retention. The amount of Customer's Gas tendered for
injection which is returned by Owner as reimbursement for
compressor fuel used in the provision of service provided in
conjunction with this Agreement. Customer agrees that Fuel
Retention shall be as follows:
One and one half percent (1.5%) of the quantities tendered
for injection by Customer to Owner in kind at time of
injection. Fuel Retention shall be assessed on all volumes
tendered for injection.
Exhibit "B"
DELIVERY AND REDELIVERY POINT
CNG Transmission Corporation Yawger Road Metering and Regulator
Station in Big Flats, New York
F:\rate\doc\legaI\pgenrgy.wp
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TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT is dated as of August 14, 1997, and
is made by and among PG Energy Inc., a Pennsylvania corporation
(the "Borrower"), the Banks (as hereinafter defined) and PNC Bank,
National Association, in its capacity as agent for the Banks under
this Agreement (hereinafter referred to in such capacity as the
"Agent").
WITNESSETH:
WHEREAS, the Borrower has requested the Banks to make term
loans to the Borrower in an aggregate principal amount of Twenty-
Five Million Dollars ($25,000,000); and
WHEREAS, the Banks are willing to provide such term loans upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending
to be legally bound hereby, covenant and agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
<- tabs set here I.1Certain Definitions. In addition to words and
terms defined elsewhere in this Agreement, the following words and
terms shall have the following meanings, respectively, unless the
context hereof clearly requires otherwise:
Affiliate as to any person shall mean any other person
which directly or indirectly controls, is controlled by, or is
under common control with such person. Control, as used herein,
shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by
contract or otherwise, including the power to elect a majority of
the directors or trustees of a corporation or trust, as the case
may be.
Agent shall mean PNC Bank, National Association, a
national banking association, and its successors and assigns as
permitted hereunder.
Agent's Fee shall have the meaning assigned to that
term in Section 9.15 hereof.
Agreement shall mean this Term Loan Agreement as the
same may be supplemented or amended from time to time including all
schedules and exhibits hereto.
Assignment and Assumption Agreement shall mean an
Assignment and Assumption Agreement by and among the Borrower, a
Purchasing Bank, the Transferor Bank and the Agent substantially in
the form of Exhibit "D" hereto.
Authorized Officer shall mean those persons designated
by written notice to the Agent from the Borrower, authorized to
execute notices, reports and other documents required hereunder.
The Borrower may amend such list of persons from time to time by
giving written notice of such amendment to the Agent.
Banks shall mean the financial institutions named on
Schedule 1.1(a) hereto and their respective successors and assigns
as permitted hereunder, each of which is referred to herein as a
Bank.
Base Rate shall mean the greater of (i) the interest
rate per annum announced from time to time by the Agent at its
Principal Office as its then prime rate, which rate may not be the
lowest rate then being charged commercial borrowers by the Agent,
or (ii) the Federal Funds Effective Rate plus fifty (50) basis
points (1/2 of 1%) per annum.
Base Rate Option shall have the meaning assigned to
that term in Section 3.1(b)(i) of the Agreement.
Benefit Arrangement shall mean at any time an "employee
benefit plan", within the meaning of Section 3(3) of ERISA, which
is neither a Plan nor a Multiemployer Plan and which is maintained,
sponsored or otherwise contributed to, by any member of the ERISA
Group.
Borrower shall mean PG Energy Inc., a corporation
organized and existing under the laws of the Commonwealth of
Pennsylvania.
Borrowing Tranche shall mean (i) Term Loans to which a
Euro-Rate Option applies by reason of the selection of, conversion
to or renewal of such Interest Rate Option on the same day and
having the same Interest Period, and (ii) Term Loans to which the
Base Rate Option applies by reason of the selection of or
conversion to such Interest Rate Option.
Business Day shall mean (i) with respect to matters
relating to the Euro-Rate Option, a day on which banks in the
London interbank market are dealing in U.S. Dollar deposits and on
which commercial banks are open for domestic and international
business in Wilkes-Barre, Pennsylvania, and (ii) with respect to
any other matter, a day on which commercial banks are open for
business in Wilkes-Barre, Pennsylvania.
Capital Stock shall mean any and all shares, interests,
participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests
in a Person (other than a corporation) and any and all warrants or
options to purchase any of the foregoing.
Capitalization shall mean the sum of Net Worth plus
Total Debt.
Cash Equivalents shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States
Government or any agency or instrumentality thereof having
maturities of not more than ninety (90) days from the date of
acquisition, (ii) time deposits and certificates of deposit with
maturities of not more than ninety (90) days from the date of
acquisition of any of the Banks or any domestic commercial bank
having capital and surplus in excess of Five Hundred Million
Dollars ($500,000,000), (iii) repurchase obligations with a term of
not more than thirty (30) days for underlying securities of the
types described in clauses (i) and (ii) entered into with any bank
meeting the qualifications specified in clause (ii) above, and (iv)
commercial paper maturing in one hundred eighty (180) days or less
rated not lower than A-1 by S&P or P-1 by Moody's on the date of
acquisition.
Closing Date shall mean the Business Day on which all
of the conditions set forth in Section 6.1 hereof shall have been
satisfied or waived in writing by the Agent, which shall be August
14, 1997 or such other date as the parties may agree. The closing
shall take place at 11:00 A.M., local time, on the Closing Date at
the offices of the Agent, 11 West Market Street, Wilkes-Barre,
Pennsylvania, or at such other time and place as the parties agree.
Common Stock shall mean the common stock, no par value,
of the Borrower.
Dollar, Dollars, U.S. Dollars and the symbol $ shall
mean lawful money of the United States of America.
EBIT shall mean for any period the sum of the amounts
for such period of (i) net income of the Borrower before
extraordinary items, results of discontinued operations, and
dividends on Preferred Stock and (ii) income taxes of the Borrower
and Interest Expense, all as determined in accordance with GAAP.
Eligible Assignee means any of the following which has
been approved by the Borrower and the Agent, which approval shall
not be unreasonably withheld, it being understood that such
approval may be withheld if Borrower or Agent reasonably believes
that an assignment or sale of participations under Section 10.11
may result in a Prohibited Transaction (provided, however, that
approval by the Borrower shall not be required if an Event of
Default shall have occurred and be continuing): (i) a commercial
bank organized under the laws of the United States, or any State
thereof; (ii) a savings and loan association or savings bank
organized under the laws of the United States, or any State
thereof; (iii) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such
country, provided that such bank is acting through a branch or
agency located in the United States; (iv) a commercial finance
company or finance subsidiary of a corporation organized under the
laws of the United States or any State thereof; and (v) an
insurance company organized under the laws of the United States or
any State thereof.
Environmental Complaint shall mean any written
complaint setting forth a cause of action for personal or property
damage or equitable relief, or any order, notice of violation or
citation issued pursuant to any Environmental Laws by an Official
Body or arising out of, or issued pursuant to, any Environmental
Laws or any Environmental Conditions.
Environmental Conditions shall mean any conditions of
the environment, including, without limitation, the work place, the
ocean, natural resources (including flora or fauna), soil, surface
water, ground water, any actual or potential drinking water supply
sources, substrata or the ambient air, relating to or arising out
of, or caused by the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping,
emptying, discharging, injecting, escaping, leaching, disposal,
dumping, threatened release or other management or mismanagement of
Regulated Substances resulting from the use of, or operations on,
the Property.
Environmental Laws shall mean all federal, state and
local laws and regulations, including permits, orders, judgments,
consent decrees issued, or entered into, pursuant thereto, relating
to pollution or protection of human health or the environment or
employee safety in the work place.
ERISA shall mean the Employee Retirement Income
Security Act of 1974, as the same may be amended or supplemented
from time to time, and any successor statute of similar import, and
the rules and regulations thereunder, as from time to time in
effect.
ERISA Group shall mean, at any time, the Borrower and
all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control and
all other entities which, together with the Borrower, are treated
as a single employer under Section 414 of the Internal Revenue
Code.
Euro-Rate shall mean, with respect to any Term Loans to
which the Euro-Rate Option applies for any Euro-Rate Interest
Period, the interest rate per annum determined by the Agent by
dividing (the resulting quotient rounded upward to the nearest
1/100 of 1% per annum) (i) the rate of interest determined by the
Agent in accordance with its usual procedures (which determination
shall be conclusive absent manifest error) to be the average of the
rates of interest per annum for deposits in U.S. Dollars offered by
banks in the London interbank market to major money center banks at
approximately 11:00 A.M. London time two (2) Business Days prior to
the first day of each Euro-Rate Interest Period for delivery on the
first Business Day of such Euro-Rate Interest Period in amounts
comparable to the then outstanding aggregate principal amount of
the Term Loans and having maturities comparable to such Euro-Rate
Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate
Reserve Percentage. The Euro-Rate may also be expressed by the
following formula:
[average of rates offered to ]
Euro-Rate = [major money center banks ]
[in the London interbank market ]
[as determined by Agent ]
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate
Option outstanding on the effective date of any change in the Euro-
Rate Reserve Percentage as of such effective date. The Agent shall
give prompt notice to the Borrower of the Euro-Rate as determined
or adjusted in accordance herewith, which determination shall be
conclusive absent manifest error.
Euro-Rate Interest Period shall have the meaning
assigned to that term in Section 3.2 hereof.
Euro-Rate Option shall have the meaning assigned to
that term in Section 3.1(b)(ii) hereof.
Euro-Rate Reserve Percentage shall mean for any day the
percentage (expressed as a decimal rounded upward to the nearest
1/100 of 1%) as determined by the Agent in accordance with its
usual procedures (which determination shall be conclusive absent
manifest error) which is in effect on such day as prescribed by the
Board of Governors of the Federal Reserve System (or any successor)
for determining the reserve requirements (including, without
limitation, supplemental, marginal and emergency reserve
requirements) for the Agent with respect to eurocurrency funding
(currently referred to as "Eurocurrency Liabilities").
Event of Default shall mean any of the Events of
Default described in Section 8.1 hereof.
Federal Funds Effective Rate shall mean for any day the
rate per annum (based on a year of three hundred sixty [360] days
and actual days elapsed and rounded upward to the nearest 1/100 of
1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates
on overnight Federal funds transactions arranged by Federal funds
brokers on the previous trading day, as computed and announced by
such Federal Reserve Bank (or any successor) in substantially the
same manner as such Federal Reserve Bank computes and announces the
weighted average it refers to as the "Federal Funds Effective Rate"
as of the date of this Agreement; provided, if such Federal Reserve
Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal
Funds Effective Rate for the last day of which such rate was
announced.
First Mortgage Indenture shall mean the Indenture of
Mortgage and Deed of Trust dated March 15, 1946 from Scranton
Spring Brook Water Service Company (a predecessor to the Borrower)
to First Trust of New York, National Association, as Trustee, as
supplemented or amended from time to time.
Funding Date shall mean the Business Day on which the
Term Loans are made hereunder, which shall be designated by the
Borrower by written notice to the Agent at least one (1) Business
Day in advance (subject to Section 6.2(f) hereof), and which shall
be no later than thirty (30) days after the Closing Date, or such
later date as may be otherwise agreed by the Agent and the
Borrower.
GAAP shall mean generally accepted accounting
principles as are in effect from time to time, subject to the
provisions of Section 1.3 hereof, and applied on a consistent basis
(except for changes in application in which the Borrower's
independent certified public accountants concur) both as to
classification of items and amounts.
Guaranty or Guarantee means any obligation, direct or
indirect, by which a Person undertakes to guaranty, assume or
remain liable for the payment of another Person's obligations,
including but not limited to (i) endorsements of negotiable
instruments, (ii) discounts with recourse, (iii) agreements to pay
upon a second Person's failure to pay, (iv) agreements to maintain
the capital, working capital solvency or general financial
condition of a second Person and (v) agreements for the purchase or
other acquisition of products, materials, supplies or services, if
in any case payment therefor is to be made regardless of the non-
delivery of such products, materials or supplies or the non-
furnishing of such services.
Historical Statements shall have the meaning assigned
to that term in Section 5.1(i)(A) hereof.
Indebtedness shall mean as to any Person at any time,
any and all indebtedness, obligations or liabilities (whether
matured or unmatured, liquidated or unliquidated, direct or
indirect, absolute or contingent, or joint or several) of such
Person for or in respect of: (i) borrowed money, (ii) amounts
raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under
any letter of credit, currency swap agreement, interest rate swap,
cap, collar or floor agreement or other interest rate management
device, (iv) any other transaction (including without limitation
forward sale or purchase agreements, capitalized leases and
conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such Person to finance its
operations or capital requirements (but not including trade
payables and accrued expenses incurred in the ordinary course of
business which are not represented by a promissory note or other
evidence of indebtedness and which are not more than thirty (30)
days past due), or (v) any Guaranty of Indebtedness for borrowed
money.
Interest Expense shall mean for any period, the
aggregate amount of interest expense of the Borrower during such
period, including without limitation interest with respect to all
long-term and short-term Indebtedness of the Borrower, imputed
interest expense, other interest and amortization of debt expense,
all as determined in accordance with GAAP.
Interest Payment Date shall mean each date specified
for the payment of interest in Section 4.2 hereof.
Interest Rate Election shall have the meaning assigned
to that term in Section 3.1(c) hereof.
Interest Rate Option shall mean the Euro-Rate Option or
the Base Rate Option.
Internal Revenue Code shall mean the Internal Revenue
Code of 1986, as the same may be amended or supplemented from time
to time, and any successor statute of similar import, and the rules
and regulations thereunder, as from time to time in effect.
Labor Contracts shall have the meaning assigned to that
term in Section 5.1(r).
Law shall mean any law (including common law),
constitution, statute, treaty, regulation, rule, ordinance,
opinion, release, ruling, order, injunction, writ, decree or award
of any Official Body.
Lien shall mean any mortgage, deed of trust, pledge,
lien, security interest, charge or other encumbrance or security
arrangement of any nature whatsoever, whether voluntarily or
involuntarily given, including but not limited to, any conditional
sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security
and any filed financing statement or other notice of any of the
foregoing (whether or not a lien or other encumbrance is created or
exists at the time of the filing).
Loan Documents shall mean this Agreement and the Notes,
as the same may be supplemented or amended from time to time in
accordance herewith or therewith, and Loan Document shall mean any
of the Loan Documents.
Material Adverse Change shall mean any set of
circumstances or events which (a) has or is reasonably likely to
have any material adverse effect whatsoever upon the validity or
enforceability of this Agreement or any other Loan Document, (b) is
or is reasonably likely to be material and adverse to the business,
properties, assets, financial condition or results of operations of
the Borrower, (c) impairs materially or is reasonably likely to
impair materially the ability of the Borrower to duly and
punctually pay or perform its obligations under the Loan Documents,
or (d) impairs materially or is reasonably likely to impair
materially the ability of the Agent or any of the Banks, to the
extent permitted, to enforce their legal remedies pursuant to this
Agreement or any other Loan Document.
Moody's shall mean Moody's Investors Service, Inc., a
corporation organized and existing under the laws of the State of
Delaware, its successors and assigns, and, if such corporation
shall be dissolved or liquidated or shall no longer perform the
functions of a securities rating agency, "Moody's" shall be deemed
to refer to any other nationally recognized securities rating
agency designated by the Agent, with the approval of the Borrower,
by notice to the Banks and the Borrower.
Multiemployer Plan shall mean any employee benefit plan
which is a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA and to which the Borrower or any member of the
ERISA Group is then making or accruing an obligation to make
contributions or, within the preceding five plan years, has made or
had an obligation to make such contributions.
Multiple Employer Plans shall mean a Plan which has two
or more contributing sponsors (including the Borrower or any member
of the ERISA Group) at least two of whom are not under common
control, as such a plan is described in Sections 4063 and 4064 of
ERISA.
Net Worth means as of any date of determination, the
aggregate on such date of all amounts classified on the balance
sheet of the Borrower prepared in accordance with GAAP as in effect
on such date as (i) Common Shareholder's Investment, and (ii)
Preferred Stock of the Borrower.
Notes shall mean collectively all of, and Note shall
mean separately any of, the promissory notes of the Borrower
substantially in the form of Exhibit "A" hereto evidencing the Term
Loans together with all amendments, extensions, renewals,
replacements, refinancings or refundings thereof in whole or in
part.
Official Body shall mean any national, federal, state,
local or other government or political subdivision or any agency,
authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic.
PBGC shall mean the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of ERISA
or any successor.
PEI means Pennsylvania Enterprises, Inc., a corporation
organized and existing under the laws of the Commonwealth of
Pennsylvania.
Permitted Liens shall mean:
(i) Liens for taxes,
assessments, or similar charges, incurred
in the ordinary course of business and
which are not yet due and payable, or if
due and payable, (aa) are being contested
in good faith and by appropriate and lawful
proceedings diligently conducted and (bb)
for which such reserves or other
appropriate provisions, if any, as shall be
required by GAAP shall have been made and
(cc) which shall be paid in accordance with
the terms of any final judgments or orders
relating thereto within thirty (30) days
after the entry of such judgments or
orders;
(ii) Pledges or
deposits (including liens, security
interests and mortgages securing letters of
credit issued for the account of Borrower)
made in the ordinary course of business to
secure payment of workmen's compensation,
or to participate in any fund in connection
with workmen's compensation, unemployment
insurance, old-age pensions or other social
security programs or to secure liability to
insurance carriers under insurance or self-
insurance agreements or arrangement;
(iii) Liens of
mechanics, materialmen, warehousemen,
carriers, or other like Liens, securing
obligations incurred in the ordinary course
of business that are not yet due and
payable and Liens of landlords securing
obligations to pay lease payments that are
not yet due and payable or in default, or
if such Liens are due and payable, (aa) are
being contested in good faith and by
appropriate and lawful proceedings
diligently conducted and (bb) for which
such reserves or other appropriate
provisions, if any, as required by GAAP
shall have been made and (cc) which shall
be paid in accordance with the terms of any
final judgments or orders relating thereto
within thirty (30) days after the entry of
such judgments or orders;
(iv) Pledges or
deposits made in the ordinary course of
business to secure performance of bids,
tenders, contracts (other than for the
repayment of borrowed money) or leases, not
in excess of the aggregate amounts due
thereunder, or to secure statutory
obligations, or surety, appeal, indemnity,
performance or other similar bonds required
in the ordinary course of business;
(v) (aa) Encumbrances
consisting of zoning restrictions,
easements, rights-of-way, or other
restrictions on the use of real property,
(bb) defects in title to real property, and
(cc) Liens, encumbrances and title defects
affecting real property not known by
Borrower and not discoverable by a search
of the public records, none of which
materially impairs the use of such
property;
(vi) Liens, security
interests and mortgages in favor of the
Agent for the benefit of the Banks;
(vii) Liens in existence on
the Closing Date listed on Schedule 1.1(b);
(viii) Liens
created under the First Mortgage Indenture,
as such instrument may be supplemented or
amended from time to time;
(ix) Liens on assets
of corporations which are merged into or
acquired by the Borrower or a Subsidiary of
the Borrower after the date of this
Agreement; provided that (A) such Liens
existed at the time of such merger or
acquisition and were not created in
anticipation thereof, (B) no such Lien is
spread to cover any property or assets of
the Borrower or any Subsidiary of the
Borrower and (C) the principal amount of
Indebtedness secured thereby is not
increased from the amount outstanding
immediately prior to such merger or
acquisition;
(x) Liens upon real
and/or tangible personal property acquired
by purchase, construction or otherwise by
the Borrower or any of its Subsidiaries,
each of which Liens either (A) existed on
such property before the time of its
acquisition and was not created in
anticipation thereof or (B) was created
solely for the purpose of securing long-
term Indebtedness (or construction loans
not constituting long-term Indebtedness)
representing or incurred to finance,
refinance or refund, the cost (including
the cost of construction) of the respective
property; provided that no such Lien shall
extend to or cover any property of the
Borrower or any Subsidiary of the Borrower
other than the respective property so
acquired and improvements thereon;
(xi) Liens created by
or resulting from any litigation or legal
proceedings which are currently being
contested in good faith by appropriate and
lawful proceedings diligently conducted and
for which such reserves or other
appropriate provisions, if any, as shall be
required by GAAP shall have been made and
Liens arising out of judgments or orders
for the payment of money which do not
constitute an Event of Default hereunder;
(xii) Leases or
subleases not otherwise prohibited by this
Agreement; and
(xiii) Liens on the assets of
the Borrower and its Subsidiaries (not
otherwise permitted hereunder) which secure
obligations not exceeding five percent (5%)
of the Net Worth of the Borrower under GAAP
(measured on the last day of the most
recently completed fiscal quarter).
Person or person shall mean any individual,
corporation, partnership, association, joint-stock company, trust,
unincorporated organization, joint venture, government or political
subdivision or agency thereof, or any other entity.
Plan shall mean at any time an employee pension benefit
plan (including a Multiple Employer Plan but not a Multiemployer
Plan) which is covered by Title IV of ERISA or is subject to the
minimum funding standards under Section 412 of the Internal Revenue
Code and either (i) is maintained by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any
time within the preceding five years been maintained by any entity
which was at such time a member of the ERISA Group for employees of
any entity which was at such time a member of the ERISA Group.
PNC Bank shall mean PNC Bank, National Association, a
national banking association, and its successors and assigns.
Potential Event of Default shall mean any event or
condition which with notice, passage of time or a determination by
the Agent or the Required Banks, or any combination of the
foregoing, would constitute an Event of Default.
Preferred Stock shall mean the preferred stock, par
value $100 per share, of the Borrower, from time to time
outstanding (regardless of class or series).
Principal Office shall mean the principal commercial
banking office of the Agent in Wilkes-Barre, Pennsylvania.
Prohibited Transaction shall mean any prohibited
transaction as defined in Section 4975 of the Internal Revenue Code
or Section 406 of ERISA for which neither a statutory, an
individual nor a class exemption has been issued by the United
States Department of Labor.
Property shall mean all real property, both owned and
leased, of the Borrower.
Purchasing Bank shall mean a Bank which becomes a party
to this Agreement by executing an Assignment and Assumption
Agreement.
Ratable Share shall mean the proportion that a Bank's
Term Loan bears to the Term Loans of all of the Banks,
respectively, in the aggregate.
Register has the meaning specified in Section 10.11(d).
Regulated Substances shall mean any substance, the
generation, manufacture, processing, distribution, treatment,
storage, disposal, transport, recycling, reclamation, use, reuse or
other management or mismanagement of which is regulated by the
Environmental Laws.
Regulation U shall mean Regulation U, T, G or X as
promulgated by the Board of Governors of the Federal Reserve
System, as amended from time to time.
Reportable Event means a reportable event described in
Section 4043(b) of ERISA and regulations thereunder with respect to
a Plan or Multiemployer Plan other than those events as to which
the thirty (30) day notice period is waived under subsections .13,
.14, .15 (with respect to a partial termination), .16, .18, .19 or
.20 of PBGC Reg. 2615.
Required Banks shall mean two or more Banks whose Term
Loans outstanding aggregate at least 51% of the total principal
amount of the Term Loans outstanding hereunder.
Restricted Payment shall have the meaning assigned to
that term in Section 7.2(e) hereof.
SEC Reports shall have the meaning assigned to that
term in Section 5.1(g) hereof.
S&P shall mean Standard & Poors Corporation, a
corporation organized and existing under the laws of the State of
New York, its successors and assigns, and, if such corporation
shall be dissolved or liquidated or shall no longer perform the
functions of a securities rating agency, "S&P" shall be deemed to
refer to any other nationally recognized securities rating agency
designated by the Agent, with the approval of the Borrower, by
notice to the Banks and the Borrower.
Shares shall have the meaning assigned to that term in
Section 5.1(b) hereof.
Subsidiary of any person at any time shall mean (i) any
corporation or trust of which 50% or more (by number of shares or
number of votes) of the outstanding Capital Stock or shares of
beneficial interest normally entitled to vote for the election of
one or more directors or trustees (regardless of any contingency
which does or may suspend or dilute the voting rights) is at such
time owned directly or indirectly by such person or one or more of
such person's Subsidiaries, or any partnership of which such person
is a general partner or of which 50% or more of the partnership
interests is at the time directly or indirectly owned by such
person or one or more of such person's Subsidiaries, and (ii) any
corporation, trust, partnership or other entity which is controlled
or capable of being controlled by such person or one or more of
such person's Subsidiaries.
Term Loan Commitment shall mean as to any Bank at any
time, the amount set forth opposite its name on Schedule 1.1(a)
hereto in the column labeled "Amount of Term Loan Commitment," and
thereafter on Schedule I to the most recent Assignment and
Assumption Agreement.
Term Loans shall mean collectively all of, and Term
Loan shall mean separately any of, the Term Loans made by the Banks
or one of the Banks to the Borrower pursuant to Section 2.1 hereof.
Total Debt shall mean as of any date of determination,
all Indebtedness of the Borrower as of such date determined in
accordance with GAAP.
Transferor Bank shall mean the selling Bank pursuant to
an Assignment and Assumption Agreement.
Transfer Effective Notice shall have the meaning
ascribed to it in the applicable Assumption and Assignment
Agreement.
Utility Act shall mean the Public Utility Holding
Company Act of 1935, as amended or supplemented from time to time,
and any successor statute of similar import, as from time to time
in effect.
I.2 Construction. Unless the context of this Agreement
otherwise clearly requires, references to the plural include the
singular, the singular the plural and the part the whole, "or" has
the inclusive meaning represented by the phrase "and/or," and
"including" has the meaning represented by the phrase "including
without limitation." References in this Agreement to
"determination" of or by the Agent or the Banks shall be deemed to
include good faith estimates by the Agent or the Banks (in the case
of quantitative determinations) and good faith beliefs by the Agent
or the Banks (in the case of qualitative determinations). Whenever
the Agent or the Banks are granted the right herein to act in its
or their sole discretion or to grant or withhold consent such right
shall be exercised in good faith. The words "hereof," "herein,"
"hereunder" and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this
Agreement. The section and other headings contained in this
Agreement are for reference purposes only and shall not control or
affect the construction of this Agreement or the interpretation
thereof in any respect. Section, schedule and exhibit references
are to this Agreement unless otherwise specified.
I.3 Accounting Principles. Except as otherwise provided in
this Agreement, all computations and determinations as to
accounting or financial matters and all financial statements to be
delivered pursuant to this Agreement shall be made and prepared in
accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the
meanings ascribed to such terms by GAAP.
ARTICLE II
TERM LOANS
II.1 Term Loans. Subject to the terms and conditions hereof
and relying upon the representations and warranties herein set
forth, each of the Banks severally agrees to make a term loan on
the Funding Date (the "Term Loan" of such Bank) to the Borrower in
the principal amount set forth opposite its name on Schedule
1.1(a). The obligations of each Bank hereunder are several. The
failure of any Bank to perform its obligations hereunder shall not
affect the obligations of the Borrower, or any other Bank, to any
other party nor shall the Borrower, or any other Bank, be liable
for the failure of such Bank to perform its obligations hereunder.
II.2 Use of Proceeds. The Borrower shall use the entire
proceeds of the Term Loans for the purpose of repaying existing
indebtedness of the Borrower.
II.3 Notes. The obligation of the Borrower to repay the
Term Loan made to it by each Bank, together with interest thereon,
shall be evidenced by a promissory note of the Borrower dated the
Funding Date in substantially the form attached hereto as Exhibit
"A", payable to the order of each Bank in a principal amount equal
to the Term Loan of such Bank.
II.4 Taxes. Each Bank that is not created or incorporated
under the laws of the United States of America or a state thereof
agrees that it will deliver to the Borrower and the Agent (i) two
duly completed copies of United States Internal Revenue Service
Form 1001 or 4224 or successor applicable form, as the case may be
(assuming that it is entitled to do so), and (ii) two duly
completed copies of Internal Revenue Service Form W-8 or W-9 or
successor applicable form. Each such Bank also agrees to deliver
to the Borrower and the Agent two further copies of the said Form
1001 or 4224 and Form W-8 or W-9, or successor applicable forms or
other manner of certification, as the case may be, on or before the
date that any such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower, and such extensions or
renewals thereof as may reasonably be requested by the Borrower or
the Agent, unless in any such case an event (including, without
limitation, any change in treaty, law or regulation) has occurred
prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form
with respect to it and such Bank so advises the Borrower and the
Agent. Such Bank shall certify (i) in the case of Form 1001 or
4224, that it is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal
income taxes (assuming that it is entitled to do so) and (ii) in
the case of Form W-8 or W-9, that it is entitled to an exemption
from United States backup withholding tax.
ARTICLE III
INTEREST RATES
III.1 Interest Rate Options
(a) Selection of Interest Rate Options. The Borrower
shall pay interest in respect of the outstanding unpaid principal
amount of the Term Loans as selected by it from the Base Rate
Option or Euro-Rate Option set forth in Section 3.1(b) below
applicable to the Term Loans; it being understood that, subject to
the provisions of this Agreement, the Borrower may select different
Interest Rate Options and different Euro-Rate Interest Periods to
apply simultaneously to the Term Loans comprising different
Borrowing Tranches and may convert to or renew one or more Interest
Rate Options with respect to all or any portion of the Term Loans
comprising any Borrowing Tranche; provided that there shall not be
at any one time outstanding more than three (3) Borrowing Tranches
in the aggregate for all Term Loans outstanding. If at any time
the designated rate applicable to any Term Loan made by any Bank
exceeds such Bank's highest lawful rate, the rate of interest on
such Bank's Term Loan shall be limited to such Bank's highest
lawful rate.
(b) Term Loan Interest Rate Options. The Borrower
shall have the right to select from the following Interest Rate
Options applicable to the Term Loans:
(i) Base Rate
Option: A fluctuating rate per annum
(computed on the basis of a year of
three hundred sixty-five [365] or
three hundred sixty-six [366] days, as
the case may be, and actual days
elapsed) equal to the Base Rate, such
interest rate to change automatically
from time to time effective as of the
effective date of each change in the
Base Rate; or
(ii) Euro-Rate
Option: A rate per annum (computed on
the basis of a year of three hundred
sixty (360) days and actual days
elapsed) equal to the sum of (A) the
Euro-Rate, plus (B) (I) 60 basis
points for any day on which the long-
term senior secured debt of the
Borrower is rated (x) BBB- or lower by
S&P or (y) Baa3 or lower by Moody's,
(II) 42.5 basis points for any day on
which the long-term senior secured
debt of the Borrower is rated (x) BBB
by S&P or (y) Baa2 by Moody's, (III)
32.5 basis points for any day on which
the long-term senior secured debt of
the Borrower is rated BBB+ by S&P or
(y) Baa1 by Moody's, and (iv) 25 basis
points for any day on which the long-
term senior secured debt is rated (x)
A- by S&P or (y) A3 by Moody's; if the
Borrower's long-term senior debt
rating by S&P and Moody's are covered
by different subsections set forth
above, the interest rate under the
Euro-Rate Option shall be based upon
the lower number of basis points set
forth in such subsections (for
example, if the S&P rating is BBB and
the Moody's rating is Baa3, the
interest rate shall be equal to the
Euro-Rate plus 42.5 basis points)
(c) Rate Quotations. The Borrower may call the Agent
on or before the date on which the Borrower's election of a Euro-
Rate Option (the "Interest Rate Election") is to be delivered to
the Agent in order to receive an indication of the rates then in
effect, but it is acknowledged that such projection shall not be
binding on the Agent or the Banks nor affect the rate of interest
which thereafter is actually in effect when the election is made.
III.2 Euro-Rate Interest Periods. At any time when the
Borrower shall select or renew a Euro-Rate Option, the Borrower
shall notify the Agent thereof at least three (3) Business Days
prior to the effective date of such Euro-Rate Option, by delivering
an Interest Rate Election to the Agent. The Interest Rate Election
shall specify an interest period during which such Euro-Rate Option
shall apply for all Term Loans (the "Euro-Rate Interest Period"),
such period to be one (1), two (2), three (3) or six (6) months,
provided that:
(a) any Euro-Rate Interest Period which would
otherwise end on a date which is not a Business Day shall be
extended to the next succeeding Business Day unless such Business
Day falls in the next calendar month, in which case such Euro-Rate
Interest Period shall end on the next preceding Business Day;
(b) any Euro-Rate Interest Period which begins on the
last day of a calendar month for which there is no numerically
corresponding day in the subsequent calendar month during which
such Euro-Rate Interest Period is to end shall end on the last
Business Day of such subsequent month;
(c) the Borrower shall not select, convert to or renew
a Euro-Rate Interest Period for any part of the Term Loans that
would end after the maturity date of the Term Loans;
(d) in the case of the renewal of a Euro-Rate Option
at the end of a Euro-Rate Interest Period, the first day of the new
Euro-Rate Interest Period shall be the last day of the preceding
Euro-Rate Interest Period, without duplication in the payment of
interest for such day.
III.3 Interest After Default; Interest on Overdue Amount.
(a) Upon the occurrence of an Event of Default and
during any period in which an Event of Default exists (i) the
principal amount of all of the Term Loans to which the Base Rate
Option is applicable, whether or not the same have become due and
payable by maturity, acceleration, declaration or otherwise, shall
bear interest at a rate per annum which shall be two hundred (200)
basis points (2%) per annum above the rate otherwise in effect
under the Base Rate Option, such interest rate to change
automatically from time to time, effective as of the effective date
of each change in the Base Rate and (ii) the principal amount of
all or any part of the Term Loans to which the Euro-Rate Option is
applicable, whether or not the same have become due and payable by
maturity, acceleration, declaration or otherwise, shall bear
interest, until the end of the then current Euro-Rate Interest
Period, at a rate per annum which shall be two hundred (200) basis
points (2%) per annum above the rate otherwise in effect under the
Euro-Rate Option. At the end of the then current Euro-Rate
Interest Period, such part of the Term Loans bearing interest at
the Euro-Rate Option shall automatically be converted to the Base
Rate Option, and thereafter the interest rate shall be calculated
in accordance with clause (i) of this Section 3.3(a).
(b) If the Borrower fails to make any payment of
interest on the Term Loans when due, the Borrower shall, to the
extent permitted by applicable law, pay interest on the amount of
such overdue payment at a rate of interest equal to the Base Rate
for the first three (3) days following the due date and thereafter
at a rate of interest equal to the Base Rate plus two hundred (200)
basis points (2%); such interest shall be calculated from and
including the due date of such payment to but excluding the date of
payment of such amount in full, payable on demand.
(c) If the Borrower fails to make any payment of fees,
costs, expenses or indemnities when due under this Agreement, the
Borrower shall, to the extent permitted by applicable law, pay
interest on the amount of such overdue payment at a rate of
interest equal to the Base Rate plus two hundred (200) basis points
(2%); such interest shall be calculated from and including the
fourth (4th) day following the due date of such payment to but
excluding the date of payment of such amount in full, payable on
demand.
III.4 Euro-Rate Unascertainable.
(a) If on any date on which a Euro-Rate would
otherwise be determined, the Agent shall have determined (which
determination shall be conclusive absent manifest error) that:
(i) adequate and
reasonable means do not exist for
ascertaining such Euro-Rate, or
(ii) a
contingency has occurred which
materially and adversely affects the
London interbank market relating to
the Euro-Rate, or
(b) if at any time any Bank shall have determined
(which determination shall be conclusive absent manifest error)
that:
(i) the
maintenance of any Term Loan to which
a Euro-Rate Option applies has been
made impracticable or unlawful by
compliance by such Bank in good faith
with any Law or any interpretation or
application thereof by any Official
Body or with any request or directive
of any such Official Body (whether or
not having the force of Law), or
(ii) such Euro-
Rate Option will not adequately and
fairly reflect the cost to such Bank
of the establishment or maintenance of
any such Term Loan, or
(iii) after
making all reasonable efforts that
deposits of the relevant amount in
Dollars for the relevant Euro-Rate
Interest Period for a Term Loan to
which a Euro-Rate Option applies are
not available to such Bank at the
effective cost of funding a proposed
Euro-Rate loan, in the London
interbank market,
then, in the case of any event specified in subsection (a) above,
the Agent shall promptly so notify the Banks and the Borrower
thereof and in the case of an event specified in subsection (b)
above, such Bank shall promptly so notify the Agent and endorse a
certificate to such notice as to the specific circumstances of such
notice and the Agent shall promptly send copies of such notice and
certificate to the other Banks and the Borrower. Upon such date as
shall be specified in such notice (which shall not be earlier than
the date such notice is given) the obligation of (A) the Banks in
the case of such notice given by the Agent or (B) such Bank in the
case of such notice given by such Bank to allow the Borrower to
continue the Euro-Rate Option shall be suspended until the Agent
shall have later notified the Borrower or such Bank shall have
later notified the Agent, of the Agent's or such Bank's, as the
case may be, determination (which determination shall be conclusive
absent manifest error) that the circumstances giving rise to such
previous determination no longer exist. If at any time the Agent
makes a determination under subsection (a) or (b) of this Section
3.4 and the Borrower has previously notified the Agent of its
selection of a Euro-Rate Option and such Euro-Rate Option has not
yet gone into effect, such notification shall be deemed to provide
for selection of, conversion to or renewal of the Base Rate Option
otherwise available with respect to such Term Loans. If any Bank
notifies the Agent of a determination under subsection (b) of this
Section 3.4, the Borrower shall, subject to the Borrower's
indemnification obligations under Section 4.6(b), as to any Term
Loan of the Bank to which a Euro-Rate Option applies, on the date
specified in such notice either convert such Term Loan or prepay
such Term Loan in accordance with Section 4.5(A) hereof. Absent
due notice from the Borrower of conversion or prepayment such Term
Loan shall automatically be converted to the Base Rate Option
otherwise available with respect to such Term Loan upon such
specified date.
III.5 Failure to Select Euro-Rate Option. The Borrower shall
be deemed to have selected the Base Rate Option for any interest
period of the Term Loans during which the Euro-Rate Option shall
not apply under Section 3.2. If an Event of Default shall occur
and be continuing, the Borrower may not select or renew the Euro-
Rate Option.
ARTICLE IV
PAYMENTS
IV.1 Principal Payment Date. The outstanding unpaid
principal amount of the Term Loans shall be due and payable in full
on August 14, 2002.
IV.2 Interest Payment Dates. Interest on Term Loans to
which the Base Rate Option applies shall be due and payable in
arrears on the first Business Day of each January, April, July and
October after the date hereof and on maturity or upon acceleration
of the Notes. Interest on Term Loans to which a Euro-Rate Option
applies shall be due and payable (a) as to any such Term Loan
having an Euro-Rate Interest Period of three (3) months or less,
the last day of such Euro-Rate Interest Period, (b) as to any such
Term Loan having an Interest Period longer than three (3) months,
the day which is (i) three (3) months after the first day of such
Euro-Rate Interest Period and (ii) the last day of such Euro-Rate
Interest Period, and (c) if the payment of the Notes is
accelerated, the date of the acceleration of the Notes. After the
maturity of the Term Loans, whether by acceleration or otherwise,
interest on the Term Loans shall be payable on demand.
IV.3 Payments. All payments and prepayments to be made in
respect of principal, interest, Agent's Fee or other fees or
amounts due from the Borrower hereunder shall be payable prior to
11:00 A.M. (Wilkes-Barre, PA time) on the date when due without
presentment, demand, protest or notice of any kind, all of which
are hereby expressly waived by the Borrower, and without setoff,
counterclaim or other deduction of any nature, and an action
therefor shall immediately accrue. Such payments shall be made to
the Agent at the Principal Office for the ratable accounts of the
Banks with respect to the Term Loans in Dollars and in immediately
available funds, and the Agent shall promptly distribute such
amounts to the Banks in immediately available funds, provided that
in the event payments are received by 11:00 A.M. (Wilkes-Barre, PA
time) by the Agent with respect to the Term Loans and such payments
are not distributed to the Banks on the same day received by the
Agent, the Agent shall pay the Banks the Federal Funds Effective
Rate with respect to the amount of such payments for each day held
by the Agent and not distributed to the Banks. The Agent's and each
Bank's statement of account, ledger or other relevant record shall,
in the absence of manifest error, be conclusive as the statement of
the amount of principal of and interest on the Term Loans and other
amounts owing under this Agreement and shall be deemed an "account
stated."
IV.4 Pro Rata Treatment of Banks. Each selection of,
conversion to or renewal of any Interest Rate Option and each
payment or prepayment by the Borrower with respect to principal,
interest or other fees or amounts due from the Borrower hereunder
to the Banks with respect to the Term Loans, shall (except as
provided in Section 3.4(b), 4.5(A)(b) or 4.6(a) hereof) be made in
proportion to the Term Loans outstanding from each Bank.
IV.5 (A) Voluntary Prepayments.
(a) The Borrower shall have the right at its option
from time to time to prepay the Term Loans in whole or part without
premium or penalty (provided, however, that a premium or penalty
will be payable to the extent provided in subsection (b) below or
in Section 4.6 hereof ):
(i) at any time
with respect to any Term Loan to which
the Base Rate Option applies,
(ii) on the last
day of the applicable Euro-Rate
Interest Period with respect to Term
Loans to which a Euro-Rate Option
applies,
(iii) on the
date specified in a notice by any
Bank pursuant to Section 3.4(b) hereof
with respect to any Term Loan to which
a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the Term Loans,
it shall provide a prepayment notice to the Agent at least one (1)
Business Day prior to the date of prepayment of Term Loans setting
forth the following information:
(y) the date, which shall be a
Business Day, on which the proposed
prepayment is to be made; and
(z) the total principal amount
of such prepayment, which shall not be
less than One Hundred Thousand Dollars
($100,000).
All prepayment notices shall be irrevocable. The principal amount
of the Term Loans for which a prepayment notice is given, together
with interest on such principal amount except with respect to Term
Loans to which the Base Rate Option applies, shall be due and
payable on the date specified in such prepayment notice as the date
on which the proposed prepayment is to be made.
(b) In the event any Bank (i) gives notice under
Section 3.4(b) or Section 4.6(a) hereof, or (ii) does not approve
any action as to which consent of the Required Banks is requested
by the Borrower and obtained hereunder, the Borrower shall have the
right, upon seven (7) days' written notice to the Agent, to prepay
the Term Loans of such Bank in whole together with all interest
accrued thereon, within ninety (90) days after (y) receipt of such
Bank's notice under Section 3.4(b) or 4.6(a), or (z) the date of
obtaining the consent which such Bank has not approved, as
applicable, provided the Borrower shall also pay to such Bank at
the time of such prepayment any amounts required under Section 4.6.
(B) Mandatory Prepayments. Within five (5) days after
the occurrence of either of the following events, the Borrower
shall notify the Agent and the Banks in writing of such occurrence.
Upon request of the Required Banks made within thirty (30) days
after the Agent receives the notice to be provided pursuant to the
preceding sentence, the Borrower shall, within thirty (30) days
after receipt of the request of the Required Banks, prepay the Term
Loans, together with all interest thereon, and fees due, in full,
without premium or penalty (provided, however, that a premium or
penalty will be payable to the extent provided in Section 4.6
hereof):
(i) any person
or group of persons (within the
meaning of Sections 13(a) or 14(a) of
the Securities Exchange Act of 1934,
as amended) shall have acquired
beneficial ownership of (within the
meaning of Rule 13d-3 promulgated by
the Securities and Exchange Commission
under said Act) twenty percent (20%)
or more of the shares of stock of PEI
whose holders are entitled under
ordinary circumstances to vote for the
election of directors of Borrower
(irrespective of whether, at the time,
stock of any other class or classes
shall have or might have voting power
by reason of the happening of any
contingency); or
(ii) during any
period of twelve (12) consecutive
months, individuals who at the
beginning of such period constituted
the PEI board of directors (together
with any new directors whose election
by the PEI board of directors or whose
nomination for election by PEI's
shareholders was approved by a vote of
at least two-thirds of the directors
then still in office who either were
directors at the beginning of such
period or whose election or nomination
for election was previously so
approved) cease for any reason to
constitute a majority of the directors
then in office.
The Borrower shall notify the Agent in writing at least one (1)
Business Day prior to the date (which shall be a Business Day) on
which the prepayment will be made.
IV.6 Additional Compensation in Certain Circumstances.
(a) Increased Costs or Reduced Return Resulting From
Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc. If,
after the date hereof, any Law, guideline or interpretation or any
change in any Law, guideline or interpretation or application
thereof by any Official Body charged with the interpretation or
administration thereof or compliance with any request or directive
(whether or not having the force of law) of any central bank or
other Official Body:
(i) subjects any
Bank to any tax or changes the basis
of taxation with respect to this
Agreement, the Notes, the Term Loans
or payments by the Borrower of
principal, interest, fees, or other
amounts due from the Borrower
hereunder or under the Notes (except
for franchise taxes and taxes on the
overall net income of such Bank),
(ii) imposes,
modifies or deems applicable any
reserve, special deposit or similar
requirement (excluding any reserve
requirement included in any applicable
Euro-Rate Reserve Percentage) against
credits or commitments to extend
credit extended by, or assets (funded
or contingent) of, deposits with or
for the account of, or other
acquisitions of funds by, any Bank, or
(iii)
imposes, modifies or deems applicable
any capital adequacy or similar
requirement (A) against assets (funded
or contingent) of, or letters of
credit, other credits or commitments
to extend credit extended by, any
Bank, or (B) otherwise applicable to
the obligations of any Bank under this
Agreement,
and the result of any of the foregoing is to increase the cost to,
reduce the income receivable by, or impose any expense (including
loss of margin) upon any Bank with respect to this Agreement, the
Notes or the making, maintenance or funding of any part of the Term
Loans (or, in the case of any capital adequacy or similar
requirement, to have the effect of reducing the rate of return on
any Bank's capital, taking into consideration such Bank's customary
policies with respect to capital adequacy) by an amount which such
Bank deems to be material, such Bank shall from time to time notify
the Borrower and the Agent of the amount determined in good faith
(using any averaging and attribution methods employed in good
faith) by such Bank (which determination shall be conclusive absent
manifest error) to be necessary to compensate such Bank for such
increase in cost, reduction of income or additional expense. Such
notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the
Borrower to such Bank ten (10) Business Days after such notice is
given.
(b) Indemnity. In addition to the compensation
required by subsection (a) of this Section 4.6, the Borrower shall
indemnify each Bank against all liabilities, losses or expenses
(including loss of margin, any loss or expense incurred in
liquidating or employing deposits from third parties and any loss
or expense incurred in connection with funds acquired by a Bank to
fund or maintain Term Loans subject to the Euro-Rate Option) which
such Bank sustains or incurs as a consequence of any
(i) payment,
prepayment or conversion of any Term
Loan to which the Euro-Rate Option
applies on a day other than the last
day of the corresponding Euro-Rate
Interest Period (whether or not such
payment or prepayment is mandatory,
voluntary or automatic and whether or
not such payment or prepayment is then
due),
(ii) attempt by
the Borrower to revoke (expressly, by
later inconsistent notices or
otherwise) in whole or part any notice
relating to prepayments under Section
4.5, or
(iii) default
by the Borrower in the payment of any
principal of, or interest on, any Term
Loan when due (whether by acceleration
or otherwise).
If any Bank sustains or incurs any such loss or expense
it shall from time to time notify the Borrower of the amount
determined in good faith by such Bank (which determination shall be
conclusive absent manifest error and may include such assumptions,
allocations of costs and expenses and averaging or attribution
methods as such Bank shall deem reasonable) to be necessary to
indemnify such Bank for such loss or expense. Such notice shall
set forth in reasonable detail the basis for such determination.
Such amount shall be due and payable by the Borrower to such Bank
within ten (10) Business Days after such notice is given.
IV.7 Loan Accounts. Each Bank shall open and maintain on
its books a loan account in the Borrower's name with respect to
Term Loans made, repayments, prepayments, the computation and
payment of interest, fees and other amounts due and sums paid to
such Bank hereunder. Such loan account shall be conclusive and
binding on the Borrower as to the amount at any time due to such
Bank from the Borrower, except in the case of manifest error. Each
Bank shall make available at the request of the Borrower on no more
frequently than a calendar quarterly basis a copy of each such loan
account. The failure of any Bank to maintain such loan account
shall not impair any of the obligations of the Borrower under the
Loan Documents.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
V.1 Representations and Warranties. The Borrower
represents and warrants to the Agent and each of the Banks as
follows:
(a) Organization and Qualification. The Borrower is a
corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania; the Borrower
has the lawful power to own or lease its properties and to engage
in the business it presently conducts or proposes to conduct; and
the Borrower is duly licensed or qualified and in good standing in
all other jurisdictions where the property owned or leased by it or
the nature of the business transacted by it or both makes such
licensing or qualification necessary (except for jurisdictions in
which such failure to be so licensed or qualified is not reasonably
likely to result in a Material Adverse Change).
(b) Capitalization and Ownership. As of the Closing
Date, the authorized Capital Stock of the Borrower consists of ten
million (10,000,000) shares of Common Stock of which three million
three hundred fourteen thousand one hundred fifty-five (3,314,155)
shares are issued and outstanding, and nine hundred ninety-seven
thousand and five hundred (997,500) shares of Preferred Stock of
which one hundred seventy-two thousand three hundred eighty-six
(172,386) shares are issued and outstanding (the foregoing issued
and outstanding Capital Stock of the Borrower is referred to herein
collectively as the "Shares"). PEI owns all of the issued and
outstanding Common Stock of the Borrower and such stock is not
pledged to any other Person. All of the Shares have been validly
issued and are fully paid and nonassessable. There are no options,
warrants or other rights outstanding to purchase any shares of
Common Stock.
(c) Subsidiaries. None of the Subsidiaries of
Borrower is a "significant subsidiary" as such term is defined in
Rule 1-02(v) of Regulation S-X promulgated by the Securities and
Exchange Commission.
(d) Power and Authority. The Borrower has full
corporate power and corporate authority to enter into, execute,
deliver and carry out this Agreement and the other Loan Documents
to which it is a party, to incur the Indebtedness contemplated by
the Loan Documents and to perform its obligations under the Loan
Documents to which it is a party and all such actions have been
duly authorized by all necessary corporate proceedings on its part.
(e) Validity and Binding Effect. This Agreement has
been and each other Loan Document, when duly executed and delivered
by the Borrower, will have been duly and validly executed and
delivered by the Borrower. This Agreement and each of the other
Loan Documents delivered by the Borrower pursuant to the provisions
hereof will constitute legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their
respective terms, except to the extent that enforceability of any
of the foregoing Loan Documents may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights generally or
limiting the right of specific performance and by general equitable
principles.
(f) No Conflict. Neither the execution and delivery
of this Agreement or the other Loan Documents by the Borrower nor
the consummation of the transactions herein or therein contemplated
or compliance with the terms and provisions hereof or thereof by
Borrower will conflict with, constitute a default under or result
in any breach of (i) the terms and conditions of the articles of
incorporation, by-laws or other organizational documents of the
Borrower or (ii) any Law or any material agreement or instrument or
order, writ, judgment, injunction or decree to which the Borrower
is a party or by which it is bound or to which it is subject, or
result in the creation or enforcement of any Lien, charge or
encumbrance whatsoever upon any property (now or hereafter
acquired) of the Borrower.
(g) Litigation. Except as set forth on Schedule
5.1(g) and except as disclosed in Borrower's or PEI's Form 10-K for
the fiscal year ended December 31, 1996, or Form 10-Q for the
quarter ended June 30, 1997 (such reports are collectively referred
to herein as "SEC Reports"), submitted to the Securities and
Exchange Commission, there are no actions, suits, proceedings or
investigations pending or, to the knowledge of the Borrower,
threatened against PEI, the Borrower or any of their respective
Subsidiaries at law or equity before any Official Body which
individually or in the aggregate is reasonably likely to result in
any Material Adverse Change. Neither PEI, the Borrower nor any of
their respective Subsidiaries is in violation of any order, writ,
injunction or any decree of any Official Body which is reasonably
likely to result in any Material Adverse Change, except as
disclosed in the SEC Reports or on Schedule 5.1(g).
(h) Title to Properties. The Borrower and each of its
Subsidiaries have good title to, or a valid leasehold interest in,
all their respective real and tangible personal property, except to
the extent the failure to have such title or leasehold interests is
not reasonably likely, individually or in the aggregate, to result
in a Material Adverse Change, and none of such property is subject
to any Liens except Permitted Liens.
(i) Financial Statements.
(A) Historical Statements. The Borrower has
delivered to the Agent copies of (x) the audited consolidated year-
end financial statements of PEI and its Subsidiaries and (y) the
audited year-end financial statements of the Borrower for and as of
the end of the fiscal year ended December 31, 1996 (the "Historical
Statements"). The Historical Statements were compiled from the
books and records maintained by PEI's and Borrower's management,
present fairly in all material respects (x) the consolidated
financial condition of PEI and its Subsidiaries and (y) the
financial condition of the Borrower as of their date and the
results of operations for the fiscal period then ended and have
been prepared in accordance with GAAP consistently applied.
(B) Absence of any Material Adverse Change.
Since June 30, 1997, no Material Adverse Change has occurred,
except as disclosed in the SEC Reports.
(j) Margin Stock. Neither the Borrower nor any
Subsidiary of Borrower engages or intends to engage principally, or
as one of its important activities, in the business of extending
credit for the purpose, immediately, incidentally or ultimately, of
purchasing or carrying margin stock (within the meaning of
Regulation U). No part of the proceeds of any Term Loan has been
or will be used, immediately, incidentally or ultimately, to
purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock or to
refund Indebtedness originally incurred for such purpose, or for
any purpose which entails a violation of or which is inconsistent
with the provisions of the regulations of the Board of Governors of
the Federal Reserve System. Neither the Borrower nor any of its
Subsidiaries holds or intends to hold margin stock in such amounts
that more than 25% of the reasonable value of the assets of the
Borrower or any of its Subsidiaries are or will be represented by
margin stock.
(k) Taxes. All federal, state, local and other tax
returns required to have been filed with respect to PEI, the
Borrower or any Subsidiary of Borrower have been filed and payment
or adequate provision has been made for the payment of all taxes,
fees, assessments and other governmental charges which have or may
become due pursuant to said returns or to assessments received
except to the extent that such taxes, fees, assessments and other
charges are being contested in good faith by appropriate
proceedings diligently conducted and for which such reserves or
other appropriate provisions, if any, as shall be required by GAAP
shall have been made. There are no agreements or waivers extending
the statutory period of limitations applicable to any consolidated
federal income tax return of PEI for any period.
(l) Consents and Approvals. No consent, approval,
exemption, order or authorization of, or a registration or filing
with any Official Body or any other person is required to be
obtained or made by PEI or Borrower under any Law or any agreement
in connection with the execution, delivery and carrying out of this
Agreement and the other Loan Documents by the Borrower, except as
listed on Schedule 5.1(l) attached hereto, all of which shall have
been obtained or made on or prior to the Closing Date, and except
ordinary disclosures in filings required to be made by PEI or the
Borrower pursuant to the disclosure requirements of the Securities
Act of 1933 and the Securities Exchange Act of 1934, none of which
disclosures is required to be made prior to the execution and
delivery of this Agreement and the other Loan Documents.
(m) No Event of Default; Compliance with Instruments.
No event has occurred and is continuing and no condition exists or
will exist after giving effect to the borrowings to be made on the
Funding Date under the Loan Documents which constitutes an Event of
Default or Potential Event of Default. Neither the Borrower nor
any of its Subsidiaries is in violation of (i) any term of its
articles of incorporation, by-laws, or other organizational
documents or (ii) any material agreement or instrument to which it
is a party or by which it or any of its properties may be subject
or bound, where such violation would constitute a Material Adverse
Change; all such material agreements and instruments are valid,
binding and enforceable upon the Borrower or any of its
Subsidiaries and, to the Borrower's knowledge, upon each of the
other parties thereto, in accordance with their respective terms,
except where the failure to be valid, binding and enforceable would
not constitute a Material Adverse Change, and there is no default
thereunder by Borrower or any of its Subsidiaries and, to the
Borrower's knowledge, by any other party thereto, except where any
such default would not constitute a Material Adverse Change.
(n) Insurance. There are in full force and effect for
the benefit of the Borrower and each of its Subsidiaries insurance
policies and bonds providing adequate coverage from (to the
knowledge of Borrower) reputable and financially sound insurers in
amounts sufficient to insure the assets and risks of the Borrower
and its Subsidiaries in accordance with prudent business practice
in the industry of the Borrower and its Subsidiaries. No notice
has been given or claim made and to the knowledge of Borrower, no
grounds exist, to cancel or void any of such policies or bonds or
to reduce the coverage provided thereby, except where such
cancellation or reduction in coverage would not constitute a
Material Adverse Change.
(o) Compliance with Laws. Except as disclosed in the
SEC Reports, the Borrower and each of its Subsidiaries is in
compliance in all material respects with all applicable Laws (other
than Environmental Laws which are specifically addressed in
subsection (s)) in all jurisdictions in which the Borrower or any
of its Subsidiaries is doing business except where the failure to
do so would not constitute a Material Adverse Change.
(p) Investment Companies; Other Regulations. The
Borrower is not an "investment company" registered or required to
be registered under the Investment Company Act of 1940 or under the
"control" of an "investment company" as such terms are defined in
the Investment Company Act of 1940 and shall not become such an
"investment company" or under such "control." PEI, the Borrower
and their respective Subsidiaries are exempt from the requirements
of the Utility Act and the rules thereunder, other than the
requirements of Section 9(a)(2) thereof.
(q) Plans and Benefit Arrangements. Except as set
forth on Schedule 5.1(q) hereto or as described in the SEC Reports:
(i) The Borrower and each member of the ERISA
Group are in compliance in all material respects with any
applicable provisions of ERISA with respect to all Benefit
Arrangements, Plans and Multiemployer Plans. There has been no
Prohibited Transaction with respect to any Benefit Arrangement or
any Plan or, to the knowledge of the Borrower, with respect to any
Multiemployer Plan or Multiple Employer Plan, which could result in
any material liability of the Borrower or any other member of the
ERISA Group. The Borrower and all members of the ERISA Group have
made when due any and all payments required to be made under any
agreement relating to a Multiemployer Plan or a Multiple Employer
Plan or any Law pertaining thereto. With respect to each Plan and,
to the knowledge of Borrower, each Multiemployer Plan, the Borrower
and each member of the ERISA Group (i) have fulfilled in all
material respects their obligations under the minimum funding
standards of ERISA, (ii) have not incurred any liability to the
PBGC (other than for premiums not yet due) and (iii) have not had
asserted against them any penalty for failure to fulfill the
minimum funding requirements of ERISA.
(ii) To the knowledge of the Borrower,
each Multiemployer Plan and Multiple Employer Plan is able to pay
benefits thereunder when due.
(iii) Neither the Borrower nor any other
member of the ERISA Group has instituted or intends to institute
proceedings to terminate any Plan.
(iv) No event requiring notice to the PBGC
under Section 302(f)(4)(A) of ERISA has occurred or is reasonably
expected to occur with respect to any Plan, and no amendment with
respect to which security is required under Section 307 of ERISA
has been made or is reasonably expected to be made to any Plan.
(v) The aggregate actuarial present value of
all benefit liabilities (whether or not vested) under each Plan,
determined on a termination basis, as of the date of the most
recent actuarial report for such Plan, does not exceed the
aggregate fair market value of the assets of such Plan.
(vi) Neither the Borrower nor any other
member of the ERISA Group has incurred or reasonably expects to
incur any material withdrawal liability under ERISA to any
Multiemployer Plan or Multiple Employer Plan. Neither the Borrower
nor any other member of the ERISA Group has been notified by any
Multiemployer Plan or Multiple Employer Plan that such
Multiemployer Plan or Multiple Employer Plan has been terminated
within the meaning of Title IV of ERISA and, to the knowledge of
the Borrower, no Multiemployer Plan or Multiple Employer Plan is
expected to be reorganized or terminated, within the meaning of
Title IV of ERISA.
(vii) To the extent that any Benefit
Arrangement is insured, the Borrower and all members of the ERISA
Group have paid when due all contributions and premiums required to
be paid under each Benefit Arrangement for all periods through and
including the Closing Date. To the extent that any Benefit
Arrangement is funded other than with insurance, the Borrower and
all members of the ERISA Group have made when due all
contributions, to the extent required by applicable Law or the
terms of such Benefit Arrangement to be paid for all periods
through and including the Closing Date.
(r) Employment Matters. The Borrower and each of its
Subsidiaries are in compliance with all employee benefit plans,
employment agreements, collective bargaining agreements and labor
contracts (the "Labor Contracts") and all applicable federal, state
and local labor and employment Laws including, but not limited to,
those related to equal employment opportunity and affirmative
action, labor relations, minimum wage, overtime, child labor,
medical insurance continuation, worker adjustment and relocation
notices, immigration controls and worker and unemployment
compensation, except where the failure to comply would not
constitute a Material Adverse Change. There are no outstanding
grievances, arbitration awards or appeals therefrom arising out of
the Labor Contracts or current strikes, picketing, handbilling or
other work stoppages or slowdowns at facilities of the Borrower or
any of its Subsidiaries which in any case would constitute a
Material Adverse Change.
(s) Environmental Matters. Except as disclosed on
Schedule 5.1(s) hereto or as described in the SEC Reports:
(i) Neither the Borrower nor any of its
Subsidiaries has received any Environmental Complaint from any
Official Body or private person alleging that the Borrower or any
of its Subsidiaries or any prior or subsequent owner of the
Property is a potentially responsible party under the Comprehensive
Environmental Response, Cleanup and Liability Act, 42 U.S.C.
9601, et seq., which Environmental Complaint is reasonably expected
to result in any Material Adverse Change. There are no pending or,
to the Borrower's knowledge, threatened Environmental Complaints
relating to the Borrower, any Subsidiary of the Borrower or, to the
Borrower's knowledge, without any inquiry, any prior or subsequent
owner of the Property pertaining to, or arising out of, any
Environmental Conditions, which Environmental Complaints are
reasonably expected to result in any Material Adverse Change.
(ii) Except for conditions, violations or
failures which individually and in the aggregate are not reasonably
likely to result in a Material Adverse Change, there are no
circumstances at, on or under the Property that constitute a breach
of or non-compliance with any of the Environmental Laws, and there
are no past or present Environmental Conditions at, on or under the
Property or, to the Borrower's knowledge, without any inquiry at,
on or under adjacent property, that prevent compliance with the
Environmental Laws at the Property.
(iii) Neither the Property nor any
structures, improvements, equipment, fixtures, activities or
facilities thereon or thereunder contain or use Regulated
Substances except in compliance with Environmental Laws, other than
such containment or use which individually and in the aggregate is
not reasonably likely to result in any Material Adverse Change.
There are no processes, facilities, operations, equipment or any
other activities at, on or under the Property, or, to the
Borrower's knowledge, without any inquiry, at, on or under adjacent
property, that currently result in the release of Regulated
Substances on to the Property in violation of the Environmental
Laws, except to the extent that such releases are not likely to
result in a Material Adverse Change.
(iv) There are no underground storage
tanks, or underground piping associated with such tanks, used for
the management of Regulated Substances at, on or under the Property
that are not in compliance with all Environmental Laws, other than
those with respect to which the failure to comply with
Environmental Laws is not reasonably likely, either individually or
in the aggregate, to result in a Material Adverse Change, and there
are no abandoned underground storage tanks or underground piping
associated with such tanks, previously used for the management of
Regulated Substances at, on or under the Property that have not
been either abandoned in place, or removed, in accordance with the
Environmental Laws, other than those with respect to which the
failure to comply with Environmental Laws is not reasonably likely,
either individually or in the aggregate, to result in a Material
Adverse Change.
(v) The Borrower and each of its Subsidiaries
have all material permits, licenses, authorizations and approvals
necessary under the Environmental Laws for the conduct of the
business of the Borrower and each of its Subsidiaries as presently
conducted, other than those with respect to which the failure to
comply with Environmental Laws is not reasonably likely, either
individually or in the aggregate, to result in a Material Adverse
Change. The Borrower and each of its Subsidiaries have, to the
Borrower's knowledge, submitted all material notices, reports and
other filings required by the Environmental Laws to be submitted to
an Official Body which pertain to past and current operations on
the Property.
(vi) Except for violations which
individually and in the aggregate are not likely to result in a
Material Adverse Change, all past and present on-site generation,
storage, processing, treatment, recycling, reclamation or disposal
of Regulated Substances at, on, or under the Property and all off-
site transportation, storage, processing, treatment, recycling,
reclamation or disposal of Regulated Substances has been done in
accordance with the Environmental Laws.
(t) Senior Debt Status. The obligations of the
Borrower under this Agreement and the Notes rank at least pari
passu in priority of payment with all other Indebtedness of the
Borrower except Indebtedness of the Borrower to the extent secured
by Permitted Liens. There is no Lien upon or with respect to any
of the properties or income of the Borrower which secures
Indebtedness or other obligations of any person except for
Permitted Liens.
ARTICLE VI
CONDITIONS OF LENDING
The obligation of each Bank to make a Term Loan hereunder on
the Funding Date is subject to the performance by the Borrower of
its obligations to be performed hereunder at or prior to the making
of any such Term Loan and to the satisfaction of the following
further conditions:
VI.1 Closing Conditions. On the Closing Date:
(a) The representations and warranties of the Borrower
contained in Article V hereof shall be true and accurate in all
material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made
on and as of such Closing Date (except representations and
warranties which relate solely to an earlier date or time, which
representations and warranties shall be true and correct in all
material respects on and as of the specific date or times referred
to therein), and the Borrower shall have performed and complied in
all material respects with all covenants and conditions hereof; no
Event of Default or Potential Event of Default under this Agreement
shall have occurred and be continuing or shall exist; and there
shall be delivered to the Agent for the benefit of each Bank a
certificate of the Borrower, dated the Closing Date and signed by
the Chief Executive Officer and President or Chief Financial
Officer of the Borrower, to each such effect;
(b) There shall be delivered to the Agent for the
benefit of each Bank a certificate dated the Closing Date and
signed by the Secretary or an Assistant Secretary of the Borrower,
certifying as appropriate as to:
(i) all corporate action taken by the Borrower
in connection with this Agreement and the other Loan Documents;
(ii) the names of the officer or officers
authorized to sign this Agreement and the other Loan Documents and
the true signatures of such officer or officers and the identities
of the Authorized Officers permitted to act on behalf of the
Borrower for purposes of this Agreement and the true signatures of
such officers, on which the Agent and each Bank may conclusively
rely; and
(iii) copies of its organizational
documents, including its articles of incorporation as in effect on
the Closing Date together with a certificate from the Secretary of
State of the Commonwealth of Pennsylvania as to the continued
existence and good standing of the Borrower as well as a copy of
its bylaws.
(c) This Agreement and each other Loan Document shall
have been duly executed and delivered by the Borrower to the Agent
for the benefit of the Banks.
(d) There shall be delivered to the Agent for the
benefit of each Bank a written opinion of Hughes Hubbard & Reed,
L.L.P., special counsel for the Borrower and Jeffery H. Sunday,
House Counsel of the Borrower (both of whom may rely on the
opinions of each other and such other counsel as may be acceptable
to the Agent), dated the Closing Date and in form and substance
satisfactory to the Agent and its counsel as to the matters set
forth in Exhibit "B-1" and Exhibit "B-2" hereto.
(e) All legal details and proceedings in connection
with the transactions contemplated by the Agreement and the other
Loan Documents shall be in form and substance reasonably
satisfactory to the Agent and counsel for the Agent, and the Agent
shall have received all such other counterpart originals or
certified or other copies of such documents and proceedings in
connection with such transactions, in form and substance reasonably
satisfactory to the Agent and said counsel, as the Agent or said
counsel may reasonably request.
(f) The Borrower shall pay or cause to be paid to the
Agent for itself and for the account of the Banks to the extent not
previously paid all fees, costs and expenses for which the Agent
and the Banks are entitled to be reimbursed.
(g) All material consents required to effectuate the
transactions contemplated hereby as set forth on Schedule 5.1(l)
shall have been obtained.
(h) The making of the Term Loans shall not contravene
any Law applicable to the Borrower or any of the Banks.
(i) No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to
enjoin, restrain or prohibit, or to obtain damages in respect of
this Agreement or the consummation of the transactions contemplated
hereby or which, in the Agent's sole discretion, would make it
inadvisable to consummate the transactions contemplated by this
Agreement or any of the other Loan Documents.
VI.2 Funding Conditions. On the Funding Date:
(a) All of the conditions set forth in Section 6.1
hereof shall have been satisfied or waived in writing by the Agent.
(b) The representations and warranties of the Borrower
contained in Article V hereof shall be true and accurate in all
material respects on and as of the Funding Date with the same
effect as though such representations and warranties had been made
on and as of such Funding Date (except representations and
warranties which relate solely to an earlier date or time, which
representations and warranties shall be true and correct in all
material respects on and as of the specific date or times referred
to therein), and the Borrower shall have performed and complied in
all material respects with all covenants and conditions hereof; no
Event of Default or Potential Event of Default under this Agreement
shall have occurred and be continuing or shall exist; and there
shall be delivered to the Agent for the benefit of each Bank a
certificate of the Borrower, dated the Funding Date and signed by
the Chief Executive Officer and President or Chief Financial
Officer of the Borrower, to each such effect;
(c) The Notes shall have been duly executed and
delivered by the Borrower to the Agent for the benefit of the
Banks.
(d) The making of the Term Loans shall not contravene
any Law applicable to the Borrower or any of the Banks.
(e) No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to
enjoin, restrain or prohibit, or to obtain damages in respect of
this Agreement or the consummation of the transactions contemplated
hereby or which, in the Agent's sole discretion, would make it
inadvisable to consummate the transactions contemplated by this
Agreement or any of the other Loan Documents.
(f) The Borrower shall have delivered to the Agent an
Interest Rate Election specifying the Euro-Rate Option in
accordance with Section 3.2 hereof at least three (3) Business Days
prior to the Funding Date.
ARTICLE VII
COVENANTS
VII.1 Affirmative Covenants. The Borrower covenants and
agrees that until payment in full of the Term Loans and interest
thereon, the Borrower shall comply at all times with the following
affirmative covenants:
(a) Preservation of Existence, etc. The Borrower
shall maintain its corporate existence and license or qualification
and good standing in the Commonwealth of Pennsylvania and in each
other jurisdiction in which its ownership or lease of property or
the nature of its business makes such license or qualifications
necessary (except for such other jurisdictions in which such
failure to be so licensed or qualified could not reasonably be
expected to result in a Material Adverse Change).
(b) Payment of Taxes. The Borrower shall duly pay and
discharge, and shall cause each of its Subsidiaries to pay and
discharge, all taxes to which it is subject or which are asserted
against it, promptly as and when the same shall become due and
payable, prior to the date on which penalties attach thereto,
except to the extent that such taxes are being contested in good
faith and by appropriate and lawful proceedings diligently
conducted and for which such reserve (including reserves for any
additional amounts which would be payable as a result of the
failure to discharge any such taxes) or other appropriate
provisions, if any, as shall be required by GAAP shall have been
made.
(c) Maintenance of Insurance. The Borrower shall
insure its properties and assets against loss or damage by fire and
such other insurable hazards as such assets are commonly insured
(including fire, extended coverage, property damage, worker's
compensation and public liability) and against other risks
(including errors and omissions) in such amounts as similar
properties and assets are insured by prudent companies in similar
circumstances carrying on similar businesses, and with reputable
and financially sound insurers, including self-insurance to the
extent customary. At the request of the Agent, the Borrower shall
deliver (x) on the Closing Date and annually thereafter an original
certificate of insurance signed by the Borrower's independent
insurance broker describing and certifying as to the existence of
the insurance required to be maintained by this Agreement and the
other Loan Documents and (y) from time to time a summary schedule
indicating all insurance then in force with respect to the Borrower
and its Subsidiaries.
(d) Maintenance of Properties and Leases. The
Borrower shall maintain in good repair, working order and condition
(ordinary wear and tear excepted) in accordance with the general
practice of other businesses of similar character and size, all of
those properties useful or necessary to its business, and from time
to time, the Borrower will make or cause to be made all appropriate
repairs, renewals or replacements thereof.
(e) Maintenance of Patents, Trademarks, etc. The
Borrower shall maintain in full force and effect all franchises,
permits and other authorizations necessary for the ownership and
operation of its properties and business if the failure so to
maintain the same would constitute a Material Adverse Change.
(f) Visitation Rights. The Borrower shall permit any
of the officers or authorized employees or representatives of the
Agent or any of the Banks to visit and inspect any of its
properties and to examine and make excerpts from its books and
records and discuss its business affairs, finances and accounts
with its officers in connection with the transactions contemplated
by the Loan Documents, all in such detail and at such times and as
often as any of the Banks may reasonably request, provided that
each Bank shall provide the Borrower and the Agent with reasonable
notice prior to any visit or inspection.
(g) Keeping of Records and Books of Account. The
Borrower shall maintain and keep, and shall cause each of its
Subsidiaries to maintain and keep, proper books of record and
account which enable the Borrower and each of its Subsidiaries to
issue financial statements in accordance with GAAP and as otherwise
required by applicable Laws of any Official Body having
jurisdiction over the Borrower or any of its Subsidiaries, and in
which true and correct entries shall be made in all material
respects of all its dealings and business and financial affairs.
(h) Plans and Benefit Arrangements. The Borrower
shall comply, and shall cause each member of the ERISA Group to
comply, with ERISA, the Internal Revenue Code and other applicable
Laws applicable to Plans and Benefit Arrangements except where such
failure, alone or in conjunction with any other failure, would not
result in a Material Adverse Change. Without limiting the
generality of the foregoing, the Borrower shall cause all of its
Plans and all Plans maintained by any member of the ERISA Group to
be funded in accordance with the minimum funding requirements of
ERISA and shall make, and cause each member of the ERISA Group to
make, in a timely manner, all contributions due to Plans, Benefit
Arrangements and Multiemployer Plans.
(i) Compliance with Laws. The Borrower shall comply
with all applicable Laws, provided that it shall not be deemed to
be a violation of this Section 7.1(i) if any failure to comply with
any Law would not result in fines, penalties, other similar
liabilities or injunctive relief which in the aggregate would
constitute a Material Adverse Change.
(j) Use of Proceeds. The Borrower will use the
proceeds of the Term Loans only for lawful purposes in accordance
with Section 2.2 hereof as applicable and such uses shall not
contravene any applicable Law or any other provision hereof.
(k) Environmental Laws. (i) The Borrower shall
comply in all material respects with all Environmental Laws and
shall obtain and comply, and shall cause each of its Subsidiaries
to obtain and comply, in all material respects with and maintain
any and all licenses, approvals, registrations or permits required
by Environmental Laws;
(ii) The Borrower shall conduct and
complete, and shall cause each of its Subsidiaries to conduct and
complete, in all material respects all investigations, studies,
sampling and testing, and all remedial, removal and other actions
required under Environmental Laws and promptly comply in all
material respects with all lawful orders and directives of all
Official Bodies respecting Environmental Laws, except to the extent
that the same are being contested in good faith by appropriate and
lawful proceedings diligently conducted and for which such reserves
or other appropriate provisions, if any, required by GAAP shall
have been made; and
(iii) The Borrower shall defend, indemnify
and hold harmless the Agent and the Banks, and their respective
employees, agents, officers and directors, from and against any
claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way
relating to the violation of or noncompliance with any
Environmental Laws applicable to the real property owned or
operated by the Borrower or any of its Subsidiaries, or any orders,
requirements or demands of any Official Bodies related thereto,
including, without limitation, reasonable attorney's and
consultant's fees, investigation and laboratory fees, court costs
and litigation expenses, except to the extent that any of the
foregoing arise out of the gross negligence or willful misconduct
of the party seeking indemnification therefor.
(l) Utility Act. The Borrower shall maintain, and
cause PEI to maintain, their respective exemptions from the
requirements of the Utility Act and the rules thereunder, other
than the requirements of Section 9(a)(2) thereof.
(m) Senior Debt Status. The obligations of the
Borrower under this Agreement and the Notes will rank at least pari
passu in priority of payment with all other Indebtedness of the
Borrower except Indebtedness of the Borrower to the extent secured
by Permitted Liens.
VII.2 Negative Covenants. The Borrower covenants and agrees
that until payment in full of the Term Loans and interest thereon,
the Borrower shall comply with the following negative covenants:
(a) Indebtedness. The Borrower shall not, and shall
not permit any Subsidiary of the Borrower to, at any time create,
incur, assume or suffer to exist any Indebtedness, except:
(i) Indebtedness
under the Loan Documents;
(ii) Existing
Indebtedness as set forth on Schedule
7.2(a) hereto (including any
extensions or renewals thereof
provided there is no increase in the
amount thereof or other significant
change in the terms thereof unless
otherwise specified on Schedule
7.2(a));
(iii)
Indebtedness of a Subsidiary of the
Borrower to the Borrower or to a
wholly owned Subsidiary of the
Borrower; and
(iv) Additional
Indebtedness of the Borrower and its
Subsidiaries, provided that the
incurrence of or continued existence
of such additional Indebtedness shall
not cause the Borrower to violate
Section 7.2(p).
(b) Liens. The Borrower shall not, and shall not
permit any Subsidiary of Borrower to, at any time create, incur,
assume or suffer to exist any Lien on any of its property or
assets, tangible or intangible, now owned or hereafter acquired, or
agree or become liable to do so, except Permitted Liens.
(c) Guaranties. Other than Guaranties of an
obligation or liability of a Subsidiary, the Borrower shall not,
and shall not permit any Subsidiary of Borrower to, at any time,
directly or indirectly, become or be liable in respect of any
Guaranty, or assume, guarantee, become surety for, endorse or
otherwise agree, become or remain directly or contingently liable
upon or with respect to any obligation or liability of any other
person.
(d) Loans, Acquisitions and Investments. The Borrower
shall not, and shall not permit any Subsidiary of Borrower to, at
any time make any loan or advance to, or purchase or otherwise
acquire any stock, bonds, notes or securities of, or any
partnership interest (whether general or limited) in, or assets of,
or any other investment or interest in, or make any capital
contribution to, any other person, or agree to or become liable to
do any of the foregoing, except:
(i) trade credit extended on usual and
customary terms in the ordinary course of business;
(ii) loans and advances to employees to
meet expenses incurred by such employees in the ordinary course of
business;
(iii) Cash Equivalents;
(iv) investments and capital contributions
by the Borrower in and to, and advances by the Borrower to, its
Subsidiaries and investments and capital contributions by such
Subsidiaries in and to, and advances by such Subsidiaries to, the
Borrower and in and to other Subsidiaries of the Borrower in an
aggregate amount not to exceed Five Million Dollars ($5,000,000);
and
(v) other investments and capital contributions
(not covered by Section 7.2(d)(iv) above) and acquisitions that do
not, in the aggregate, exceed Five Million Dollars ($5,000,000) in
any twelve (12) month period.
(e) Dividends and Related Distributions. The Borrower
shall not, and shall not permit any Subsidiary of the Borrower to,
declare or pay any dividend (other than dividends payable solely in
Common Stock and dividends payable by any wholly-owned Subsidiary
of the Borrower to the Borrower or to another wholly-owned
Subsidiary of the Borrower) on, or make any payment on account of,
or set apart assets for a sinking or other analogous fund for, the
purchase, redemption, retirement or other acquisition of, any
shares of any class of Capital Stock of the Borrower or any
warrants or options to purchase any such Capital Stock, whether now
or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property
or in obligations of the Borrower or any Subsidiary of Borrower
(such declarations, payments, setting apart, purchases,
redemptions, defeasances, retirements, acquisitions and
distributions being herein called "Restricted Payments), except
that, so long as no Potential Event of Default or Event of Default
has occurred, is continuing or will result from the payment of a
Restricted Payment, the Borrower may during any fiscal year make
Restricted Payments as follows: the Borrower may (a) declare, and
pay within ninety (90) days of the date of declaration, dividends
on Common Stock, (b) declare, and pay within ninety (90) days of
the date of declaration, dividends on Preferred Stock and (c)
redeem Preferred Stock in accordance with the Borrower's Restated
Articles of Incorporation, as amended; provided, however, that
nothing contained in this Section 7.2(e) shall prohibit the
Borrower from making any Restricted Payments to the holders of its
9% Cumulative Preferred Stock pursuant to the Borrower's Restated
Articles of Incorporation, as amended, except to the extent that
such payments would be prohibited by the Borrower's Restated
Articles of Incorporation, as amended.
(f) Liquidations, Mergers and Consolidations. The
Borrower shall not, and shall not permit any Subsidiary of Borrower
to, dissolve, liquidate or wind-up its affairs, or become a party
to any merger or consolidation, or sell, lease, transfer, or
otherwise dispose of all of its assets, provided that:
(i) any wholly-owned Subsidiary of Borrower may
consolidate or merge into the Borrower or another direct or
indirect wholly-owned Subsidiary of Borrower; and
(ii) any wholly-owned Subsidiary of
Borrower may sell, lease, transfer or otherwise dispose of any or
all of its assets (upon voluntary liquidation or otherwise) to the
Borrower or another direct or indirect wholly-owned Subsidiary of
Borrower.
(g) Dispositions of Assets or Subsidiaries. Excluding
the payment of cash as consideration for assets purchased by, or
services rendered to, the Borrower or any Subsidiary of the
Borrower, the Borrower shall not, and shall not permit any
Subsidiary of Borrower to, sell, convey, assign, lease, or
otherwise transfer or dispose of, voluntarily or involuntarily, any
of its properties or assets, tangible or intangible (including but
not limited to sale, assignment, discount or other disposition of
accounts, contract rights, chattel paper, equipment or general
intangibles with or without recourse or of Capital Stock [other
than Capital Stock issued by the Borrower], shared or beneficial
interests or partnership interests), except:
(i) any sale, transfer or lease of assets in
the ordinary course of business which are no longer necessary or
required in the conduct of the Borrower's business;
(ii) any sale, transfer or lease of assets
by any wholly owned Subsidiary of the Borrower to the Borrower or
any other wholly owned Subsidiary of Borrower;
(iii) any sale, transfer or lease of assets
in the ordinary course of business which are replaced by substitute
assets acquired or leased;
(iv) sales of assets set forth on Schedule
7.2(g) hereof;
(v) the sale or other disposition of any other
property in the ordinary course of business, provided that (other
than inventory) the aggregate book value of all assets so sold or
disposed of pursuant to this Section 7.2(g) in any period of twelve
(12) consecutive months shall not exceed five percent (5%) of the
total assets of the Borrower as at the beginning of such twelve-
month period; or
(vi) any sale, transfer or lease of
assets, other than those specifically excepted pursuant to clauses
(i) through (v) above, which is approved by the Required Banks.
(h) Affiliate Transactions. The Borrower shall not,
and shall not permit any of its Subsidiaries to, enter into or
carry out any material transaction, other than transactions entered
into between the Borrower and any of its Subsidiaries, or between
any Subsidiaries (including, without limitation, purchasing
property or services or selling property or services), with an
Affiliate unless such transaction is not otherwise prohibited by
this Agreement, is entered into in the ordinary course of business
upon fair and reasonable arm's-length terms and conditions which
are fully disclosed to the Agent and is in accordance with all
applicable Law.
(i) Subsidiaries, Partnerships and Joint Ventures.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, own or create any Subsidiaries other than those
listed in Schedule 7.2(i) and those which are not "significant
subsidiaries" as such term is defined in Rule 1.02(v) of Regulation
S-X promulgated by the Securities and Exchange Commission, without
the consent of the Required Banks, such consent not to be
unreasonably withheld. The Borrower shall not become or agree to
become a general or limited partner in any general or limited
partnership or a joint venturer in any joint venture, without the
consent of the Required Banks, such consent not to be unreasonably
withheld.
(j) Continuation of or Change in Business. The
Borrower and its Subsidiaries shall not engage in any business
other than the operation of a public utility company for the
delivery of natural gas to residential, commercial and governmental
establishments in the northeastern Pennsylvania area, substantially
as conducted and operated by the Borrower and its Subsidiaries
during the present fiscal year, and the Borrower shall not permit
any material change in such business.
(k) Plans and Benefit Arrangements. The Borrower
shall not, and shall not permit any member of the ERISA Group to:
(i) fail to satisfy the minimum funding
requirements of ERISA and the Internal Revenue Code with respect to
any Plan;
(ii) request a minimum funding waiver from
the Internal Revenue Service with respect to any Plan;
(iii) engage in a Prohibited Transaction
with any Plan, Benefit Arrangement or Multiemployer Plan which,
alone or in conjunction with any other circumstances or set of
circumstances resulting in liability under ERISA, would constitute
a Material Adverse Change;
(iv) permit the aggregate actuarial
present value of all benefit liabilities (whether or not vested)
under each Plan determined on a termination basis, as disclosed in
the most recent actuarial report completed with respect to such
Plan, to exceed the fair market value of the assets of such Plan as
of any actuarial valuation date;
(v) fail to make when due any contribution to
any Multiemployer Plan that the Borrower or any member of the ERISA
Group may be required to make under any agreement relating to such
Multiemployer Plan, or any Law pertaining thereto;
(vi) withdraw (completely or partially)
from any Multiemployer Plan or be deemed under Section 4062(e) of
ERISA to withdraw from any Multiple Employer Plan, where any such
withdrawal is likely to result in a material liability of the
Borrower or any member of the ERISA Group;
(vii) terminate, or institute proceedings
to terminate, any Plan, where such termination is likely to result
in a material liability to the Borrower or any member of the ERISA
Group;
(viii) make any amendment to any Plan with
respect to which security is required under Section 307 of ERISA;
or
(ix) fail to give any and all notices and
make all disclosures and governmental filings required under ERISA
or the Internal Revenue Code, where such failure is likely to
result in a Material Adverse Change.
(l) Fiscal Year. The Borrower shall not, and shall
not permit any of its Subsidiaries to, change its fiscal year from
the twelve (12) month period beginning January 1 and ending
December 31.
(m) Issuance of Stock. The Borrower shall not permit
any Subsidiary of Borrower to issue any additional shares of
Capital Stock other than to Borrower and to other wholly-owned
Subsidiaries of Borrower.
(n) Changes in Organizational Documents. The Borrower
shall not, and shall not permit any Subsidiary of Borrower to,
amend in any respect its articles of incorporation (except to
increase the number of authorized shares of its Capital Stock or
authorize the issuance of additional Preferred Stock and/or to file
statements affecting class or series) without providing at least
ten (10) calendar days' prior written notice to the Agent and the
Banks.
(o) Minimum Interest Coverage Ratio. As of the last
day of each fiscal quarter, the ratio of (i) EBIT for the four
fiscal quarters ending on such date, to (ii) Interest Expense for
such four fiscal quarters, shall not be less than 2.00:1.00.
(p) Maximum Leverage Ratio. At no time shall Total
Debt exceed sixty percent (60%) of Capitalization.
VII.3 Reporting Requirements. The Borrower covenants and
agrees that until payment in full of the Term Loans and interest
thereon, the Borrower will maintain, and will cause PEI to
maintain, a system of accounting established and administered in
accordance with GAAP, and will set aside on its books all such
proper reserves as shall be required by GAAP. Further, the Borrower
will:
(i) deliver to the Agent within forty-five (45)
days after the end of each of the first three quarterly fiscal
periods in each fiscal year of the Borrower and PEI, (A) balance
sheets as at the end of such period for the Borrower and for PEI on
a consolidated basis, (B) statements of income for such period for
the Borrower and for PEI on a consolidated basis and, in the case
of the second and third quarterly periods, for the period from the
beginning of the current fiscal year to the end of such quarterly
period, (C) statements of cash flow for such period for the
Borrower and for PEI on a consolidated basis and, in the case of
the second and third quarterly periods, for the period from the
beginning of the current fiscal year to the end of such quarterly
period, and (D) statements of retained earnings for such period for
the Borrower and for PEI on a consolidated basis and, in the case
of the second and third quarterly periods, for the period from the
beginning of the current fiscal year to the end of such quarterly
period, each setting forth, in comparative form, corresponding
figures for the corresponding period in the immediately preceding
fiscal year and all prepared in reasonable detail and certified,
subject to changes resulting from year-end adjustments, by the
Chief Financial Officer of the Borrower and PEI to have been
prepared in accordance with GAAP;
(ii) deliver to the Agent within ninety
(90) days after the end of each fiscal year of the Borrower and
PEI, (A) balance sheets as at the end of such year for the Borrower
and for PEI on a consolidated basis, (B) statements of income for
such year for the Borrower and for PEI on a consolidated basis, (C)
statements of cash flow for such year for the Borrower and for PEI
on a consolidated basis, and (D) statements of retained earnings
for such year for the Borrower and for PEI on a consolidated basis,
each setting forth, in comparative form, corresponding figures for
the immediately preceding fiscal year and all prepared in
reasonable detail and certified without limitation as to scope by
independent certified public accountants acceptable to the Required
Banks, together with a report of such independent certified public
accountants which report shall state that such financial statements
present fairly in all material aspects the financial position of
the Borrower and PEI and its Subsidiaries as at the dates indicated
and the results of their operations and their cash flow for the
periods indicated in conformity with GAAP and that the examination
by such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing
standards;
(iii) deliver to the Agent, together with
each delivery of financial statements pursuant to items (i) and
(ii) above, a Compliance Certificate substantially in the form of
Exhibit "C" hereto, properly completed, (A) stating that the signer
has reviewed the terms of this Agreement and of the Notes and has
made, or caused to be made under his supervision, a review of the
transactions and condition of the Borrower and of PEI and its
Subsidiaries during the accounting period covered by such financial
statements and that such review has not disclosed the existence
during such accounting period, and that the signer does not have
knowledge of the existence, as at the date of such Compliance
Certificate, of any condition or event which constitutes an Event
of Default or a Potential Event of Default, or, if any such
condition or event existed or exists, specifying the nature and
period of existence thereof and what action the Borrower has taken
or is taking or proposes to take with respect thereto, and (B)
demonstrating in reasonable detail compliance as at the end of such
accounting period with the restrictions contained in Sections
7.2(o) and 7.2(p) hereof;
(iv) upon request of the Agent, deliver to
the Agent as soon as it becomes available, but in no event later
than March 31 of each fiscal year of the Borrower, a capital budget
and operating budget of the Borrower and its Subsidiaries for such
fiscal year and financial projections of the Borrower and its
Subsidiaries for a one (1) year period beginning with such fiscal
year;
(v) promptly give written notice to the Agent
of the happening of any event which constitutes an Event of Default
hereunder or a Potential Event of Default hereunder, but in no
event shall any such notice be given later than five (5) days after
the occurrence of any of the foregoing events;
(vi) promptly give written notice to the
Agent of any pending or threatened claim, litigation or threat of
litigation which arises between the Borrower or any of its
Subsidiaries and any other party or parties (including without
limitation an Official Body) which claim, litigation or threat of
litigation is reasonably likely to cause a Material Adverse Change
to the financial condition or operations of the Borrower, any such
notice to be given not later than five (5) days after the Borrower
becomes aware of the occurrence of any such claim, litigation or
threat of litigation;
(vii) promptly deliver to the Agent (but in
no event later than thirty (30) days after PEI or Borrower
receives, submits or sends them) copies of (A) all management
letters and other reports submitted to PEI or the Borrower by
independent certified public accountants in connection with an
annual or interim audit of the books of the Borrower, or of PEI or
any of its Subsidiaries made by such accountants, (B) all reports,
notices and proxy statements sent by PEI or the Borrower to their
respective shareholders and (C) all regular and periodic reports
and definitive proxy materials including but not limited to Forms
10-K, 10-Q and 8-K filed by PEI or the Borrower with any securities
exchange or the Securities and Exchange Commission or its successor
in interest;
(viii) copies of any final order in any
proceeding to which the Borrower or any of its Subsidiaries is a
party issued by any Official Body which is reasonably likely to
result in a Material Adverse Change; and, upon the request of the
Agent, a summary description of any rate filing made by Borrower or
any of its Subsidiaries with any Official Body and a copy of all
final orders of such body relating thereto; and
(ix) such other reports and information as
the Agent or any Bank may from time to time reasonably request.
In complying with the terms of this Section 7.3, the Borrower shall
deliver to the Agent sufficient copies of each document required to
be delivered hereunder to enable the Agent to deliver at least one
(1) copy of each such document to each Bank.
VII.4 Notices Regarding Plans and Benefit Arrangements.
Borrower shall deliver to Agent:
(a) Promptly upon becoming aware of the occurrence
thereof, notice (including the nature of the event and, when known,
any action taken or threatened by the Internal Revenue Service or
the PBGC with respect thereto) of:
(i) any Reportable Event with respect to the
Borrower or any member of the ERISA Group,
(ii) any Prohibited Transaction which
could subject the Borrower or any member of the ERISA Group to a
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax
imposed by Section 4975 of the Internal Revenue Code in connection
with any Plan, Benefit Arrangement or any trust created thereunder,
if such tax and/or penalty is reasonably likely to result in a
Material Adverse Change,
(iii) any assertion of material withdrawal
liability with respect to any Multiemployer Plan,
(iv) any partial or complete withdrawal
from a Multiemployer Plan by the Borrower or any member of the
ERISA Group under Title IV of ERISA (or assertion thereof), where
such withdrawal is likely to result in material withdrawal
liability,
(v) any cessation of operations (by the
Borrower or any member of the ERISA Group) at a facility in the
circumstances described in Section 4062(e) of ERISA,
(vi) withdrawal by the Borrower or any
member of the ERISA Group from a Multiple Employer Plan,
(vii) a failure by the Borrower or any
member of the ERISA Group to make a payment to a Plan required to
avoid imposition of a lien under Section 302(f) of ERISA,
(viii) the adoption of an amendment to a
Plan requiring the provision of security to such Plan pursuant to
Section 307 of ERISA, or
(ix) any change in the actuarial
assumptions or funding methods used for any Plan, where the effect
of such change is to materially increase or materially reduce the
unfunded benefit liability or obligation to make periodic
contributions.
(b) Promptly after receipt thereof, copies of (i) all
notices received by the Borrower or any member of the ERISA Group
of the PBGC's intent to terminate any Plan administered or
maintained by the Borrower or any member of the ERISA Group, or to
have a trustee appointed to administer any such Plan; and (ii) at
the request of the Agent or any Bank each annual report (IRS Form
5500 series) and all accompanying schedules, the most recent
actuarial reports, the most recent financial information concerning
the financial status of each Plan administered or maintained by the
Borrower or any member of the ERISA Group, and schedules showing
the amounts contributed to each such Plan by or on behalf of the
Borrower or any member of the ERISA Group in which any of their
personnel participate or from which such personnel may derive a
benefit, and each Schedule B (Actuarial Information) to the annual
report filed by the Borrower or any member of the ERISA Group with
the Internal Revenue Service with respect to each such Plan.
(c) Promptly upon the filing thereof, copies of any
PBGC Form 200, 500, 600 or 601, or any successor form filed with
the PBGC in connection with the termination of any Plan.
ARTICLE VIII
DEFAULT
VIII.1 Events of Default. An Event of Default shall mean the
occurrence or existence of any one or more of the following events
or conditions (whatever the reason therefor and whether voluntary,
involuntary or effected by operation of Law):
(a) (i) The Borrower shall fail to pay any
principal of any Term Loan (including mandatory prepayments or
payment due at maturity) when due; or (ii) the Borrower shall fail
to pay any interest on any Term Loan or any other amount owing
hereunder or under the other Loan Documents after such interest or
other amount becomes due in accordance with the terms hereof or
thereof and such failure shall continue for a period of three (3)
days;
(b) Any representation or warranty made at any time by
the Borrower herein or by the Borrower in any other Loan Document,
or in any certificate, other instrument or statement furnished
pursuant to the provisions hereof or thereof, shall prove to have
been false or misleading in any material respect as of the time it
was made or furnished;
(c) The Borrower shall default in the observance or
performance of any covenant contained in Section 7.2 hereof;
(d) The Borrower shall default in the observance or
performance of any other covenant, condition or provision hereof,
or of any other Loan Document and such default shall continue
unremedied for a period of twenty (20) Business Days after any
officer of the Borrower becomes aware of the occurrence thereof;
(e) A default or event of default shall occur at any
time under the terms of any other agreements involving borrowed
money or the extension of credit or any other Indebtedness now
existing or hereinafter incurred, including but not limited to
Existing Indebtedness as set forth on Schedule 7.2(a) under which
the Borrower or any of its Subsidiaries may be obligated as
borrower or guarantor (i) in excess of Five Hundred Thousand
Dollars ($500,000) in the aggregate, and such breach, default or
event of default consists of the failure to pay (beyond any period
of grace permitted with respect thereto, whether waived or not) any
Indebtedness when due (whether at stated maturity, by acceleration
or otherwise) or if such breach or default causes the acceleration
of any such Indebtedness or the termination of any commitment to
lend or (ii) in excess of Ten Million Dollars ($10,000,000) in the
aggregate, and such breach or default permits the acceleration of
any Indebtedness or the termination of any commitment to lend;
(f) Any final judgments or orders for the payment of
money in excess of One Million Dollars ($1,000,000) in the
aggregate shall be entered against the Borrower or any of its
Subsidiaries by a court having jurisdiction in the premises which
judgment is not paid, discharged, vacated, bonded or stayed pending
appeal within a period of thirty (30) days from the date of entry;
(g) Any of the Loan Documents shall cease to be legal,
valid and binding agreements enforceable against the Borrower in
accordance with the respective terms thereof or shall in any way be
terminated (except in accordance with its terms) or become
ineffective or inoperative in any material respect or shall in any
way cease to give or provide in any material respect the respective
rights, titles, interests, remedies, powers or privileges intended
to be created thereby;
(h) A notice of lien or assessment in excess of One
Million Dollars ($1,000,000) in the aggregate is filed of record
with respect to all or any part of the assets of the Borrower or
any of its Subsidiaries by the United States, or any department,
agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, including, without
limitation, the PBGC, or if any taxes or debts owing at any time or
times hereafter to any one of these becomes payable and the same is
not paid within thirty (30) days after the same becomes payable, or
if such notice is filed or such payment is not so made, unless the
Borrower (aa) contests such lien, assessment, tax or debt in good
faith by appropriate and lawful proceedings diligently conducted
and (bb) establishes such reserves or other appropriate provisions,
if any, as shall be required by GAAP and (cc) pays such lien,
assessment, tax or debt in accordance with the terms of any final
judgments or orders relating thereto within thirty (30) days after
the entry of such judgments or orders;
(i) The Borrower or PEI ceases to be solvent or admits
in writing its inability to pay its debts as they mature;
(j) Any of the following occurs: (i) any Reportable
Event, which constitutes grounds for the termination of any Plan by
the PBGC or the appointment of a trustee to administer or liquidate
any Plan, shall have occurred and be continuing; (ii) proceedings
shall have been instituted or other action taken to terminate any
Plan, or a termination notice shall have been filed with respect to
any Plan; (iii) a trustee shall be appointed under Section 4042 of
ERISA to administer or liquidate any Plan; (iv) the PBGC shall give
notice of its intent to institute proceedings to terminate any Plan
or Plans or to appoint a trustee to administer or liquidate any
Plan and, in the case of the occurrence of (i), (ii), (iii) or (iv)
of this Section 8.1(j) above, the amount of Borrower's liability is
likely to exceed five percent (5%) of its Net Worth; (v) the
Borrower or any member of the ERISA Group shall fail to make any
contributions when due to a Plan or a Multiemployer Plan; (vi) the
Borrower or any member of the ERISA Group shall make any amendment
to a Plan with respect to which security is required under Section
307 of ERISA; (vii) the Borrower or any member of the ERISA Group
shall withdraw completely or partially from a Multiemployer Plan;
(viii) the Borrower or any member of the ERISA Group shall withdraw
(or shall be treated under Section 4062(e) of ERISA as having
withdrawn) from a Multiple Employer Plan; or (ix) any applicable
Law is adopted, changed or interpreted by any Official Body with
respect to or otherwise affecting one or more Plans, Multiemployer
Plans or Benefit Arrangements and, with respect to any of the
events specified in (v), (vi), (vii), (viii) or (ix), any such
occurrence would be reasonably likely to materially and adversely
affect the total enterprise represented by the Borrower and the
other members of the ERISA Group;
(k) The Borrower ceases to conduct its businesses as
contemplated, or the Borrower is enjoined, restrained or in any way
prevented by court order from conducting all or any material part
of its business and such injunction, restraint or other preventive
order is not dismissed or stayed within thirty (30) days after the
entry thereof;
(l) A proceeding shall have been instituted in a court
having jurisdiction in the premises seeking a decree or order for
relief in respect of the Borrower or PEI in an involuntary case
under any applicable bankruptcy, insolvency, reorganization or
other similar law now or hereafter in effect, or a receiver,
liquidator, assignee, custodian, trustee, sequestrator, conservator
(or similar official) of the Borrower or PEI for any substantial
part of its property, or for the winding-up or liquidation of its
affairs, and such proceeding shall remain undismissed or unstayed
and in effect for a period of thirty (30) consecutive days or such
court shall enter a decree or order granting any of the relief
sought in such proceeding; or
(m) The Borrower or PEI shall commence a voluntary
case under any applicable bankruptcy, insolvency, reorganization or
other similar law now or hereafter in effect, shall consent to the
entry of an order for relief in an involuntary case under any such
law, or shall consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator,
conservator (or other similar official) of itself or for any
substantial part of its property or shall make a general assignment
for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any action in furtherance
of any of the foregoing.
VIII.2 Consequences of Event of Default.
(a) If an Event of Default specified under subsections
(a) through (k) of Section 8.1 hereof shall occur and be
continuing, with the consent of the Required Banks, the Agent may,
and upon the request of the Required Banks, the Agent shall by
written notice to the Borrower, declare the unpaid principal amount
of the Notes then outstanding and all interest accrued thereon, any
unpaid fees and all other Indebtedness of the Borrower to the Banks
hereunder and thereunder to be forthwith due and payable, and the
same shall thereupon become and be immediately due and payable to
the Agent for the benefit of each Bank without presentment, demand,
protest or any other notice of any kind, all of which are hereby
expressly waived; and
(b) If an Event of Default specified under subsections
(l) or (m) of Section 8.1 hereof shall occur, the unpaid principal
amount of the Notes then outstanding and all interest accrued
thereon, any unpaid fees and all other Indebtedness of the Borrower
to the Banks hereunder and thereunder shall be immediately due and
payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived; and
(c) If an Event of Default shall occur and be
continuing, any Bank to whom any obligation is owed by the Borrower
hereunder or under any other Loan Document or any participant of
such Bank which has agreed in writing to be bound by the provisions
of Section 10.11 hereof and any branch, subsidiary or affiliate of
such Bank or participant anywhere in the world shall have the
right, in addition to all other rights and remedies available to
it, without notice to the Borrower, to set-off against and apply to
the then unpaid balance of all the Term Loans and all other
obligations of the Borrower hereunder or under any other Loan
Document any debt owing to, and any other funds held in any manner
for the account of, the Borrower by such Bank or participant or by
such branch, subsidiary or affiliate, including, without
limitation, all funds in all deposit accounts (whether time or
demand, general or special, provisionally credited or finally
credited, or otherwise) now or hereafter maintained by the Borrower
for its own account (but not including funds held in custodian or
trust accounts) with such Bank or participant or such branch,
subsidiary or affiliate. Such right shall exist whether or not any
Bank or the Agent shall have made any demand under this Agreement
or any other Loan Document, whether or not such debt owing to or
funds held for the account of the Borrower is or are matured or
unmatured and regardless of the existence or adequacy of any other
security, right or remedy available to any Bank or the Agent; and
(d) If an Event of Default shall occur and be
continuing, and whether or not the Agent shall have accelerated the
maturity of the Term Loans of the Borrower pursuant to any of the
foregoing provisions of this Section 8.2, the Agent or any Bank, if
owed any amount with respect to the Notes, may, after obtaining the
consent of the Required Banks, proceed to protect and enforce its
rights by suit in equity, action at law and/or other appropriate
proceeding, whether for the specific performance of any covenant or
agreement contained in this Agreement or the Notes, including as
permitted by applicable Law the obtaining of the appointment of a
receiver, and, if such amount shall have become due, by declaration
or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of the Agent or such Bank; and
(e) In addition to all of the rights and remedies
contained in this Agreement or in any of the other Loan Documents,
the Agent and the Banks shall have all of the rights and remedies
of a creditor under applicable Law, all of which rights and
remedies shall be cumulative and non-exclusive, to the extent
permitted by Law. The Agent may, and upon the request of the
Required Banks shall, exercise all post-default rights granted to
the Agent and the Banks under the Loan Documents or applicable Law.
ARTICLE IX
AGENT
IX.1 Appointment. Each Bank hereby irrevocably designates,
appoints and authorizes PNC Bank to act as Agent for such Bank
under this Agreement and the other Loan Documents. Each Bank hereby
irrevocably authorizes, and each holder of any Note by the
acceptance of a Note shall be deemed irrevocably to authorize, the
Agent to take such action on its behalf under the provisions of
this Agreement and the other Loan Documents and any other
instruments and agreements referred to herein and therein, and to
exercise such powers and to perform such duties hereunder and
thereunder, as are specifically delegated to or required of the
Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. PNC Bank agrees to act as the Agent
on behalf of the Banks to the extent provided in this Agreement.
IX.2 Delegation of Duties. The Agent may perform any of its
duties hereunder by or through agents or employees (provided such
delegation does not constitute a relinquishment of its duties as
Agent hereunder) and, subject to Sections 9.5 and 9.6 hereof, shall
be entitled to engage and pay for the advice or services of any
attorneys, accountants or other experts concerning all matters
pertaining to its duties hereunder and to rely upon any advice so
obtained.
IX.3 Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and no implied covenants,
functions, responsibilities, duties, obligations, or liabilities
shall be read into this Agreement or otherwise exist. The duties
of the Agent shall be mechanical and administrative in nature; the
Agent shall not have by reason of this Agreement a fiduciary or
trust relationship in respect of any Bank; and nothing in this
Agreement, expressed or implied, is intended to or shall be so
construed as to impose upon the Agent any obligations in respect of
this Agreement except as expressly set forth herein. Each Bank
expressly acknowledges: (i) that the Agent has not made any
representations or warranties to it and that no act by the Agent
hereafter taken, including any review of the affairs of the
Borrower, shall be deemed to constitute any representation or
warranty by the Agent to any Bank; (ii) that it has made and will
continue to make, without reliance upon the Agent, its own
independent investigation of the financial condition and affairs
and its own appraisal of the credit worthiness of the Borrower in
connection with this Agreement and the making and continuance of
the Term Loans hereunder; and (iii) except as expressly provided
herein, that the Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Bank with any
credit or other information with respect thereto, whether coming
into its possession before the making of any Term Loan or at any
time or times thereafter.
IX.4 Actions in Discretion of Agent; Instructions from the
Banks. The Agent agrees, upon the written request of the Required
Banks, to take or refrain from taking any action of the type
specified as being within the Agent's rights, powers or discretion
herein, provided that the Agent shall not be required to take any
action which exposes the Agent to personal liability or which is
contrary to this Agreement or any other Loan Document or applicable
Law. In the absence of a request by the Required Banks, the Agent
shall have authority, in its sole discretion, to take or not to
take any such action, unless this Agreement specifically requires
the consent of the Required Banks or all of the Banks. Any action
taken or failure to act pursuant to such instructions or discretion
shall be binding on the Banks, subject to Section 9.6 hereof.
Subject to the provisions of Section 9.6, no Bank shall have any
right of action whatsoever against the Agent as a result of the
Agent acting or refraining from acting hereunder in accordance with
the instructions of the Required Banks, or in the absence of such
instructions, in the absolute discretion of the Agent.
IX.5 Reimbursement and Indemnification of Agent by the
Borrower. The Borrower unconditionally agrees upon demand to pay
or reimburse the Agent and save the Agent harmless against (a)
liability for the payment of all reasonable out-of-pocket costs,
expenses and disbursements, including but not limited to reasonable
fees and expenses of counsel, appraisers and environmental
consultants, incurred by the Agent (provided, however, that with
respect only to the fees and expenses of appraisers and
environmental consultants, the Borrower's agreement to pay and
reimburse and save harmless shall relate to such fees and expenses
incurred after the occurrence of an Event of Default) (i) in
connection with the development, negotiation, preparation,
printing, execution, administration, syndication, interpretation
and performance of this Agreement and the other Loan Documents,
(ii) relating to any requested amendments, waivers or consents
pursuant to the provisions hereof, (iii) in connection with the
enforcement of this Agreement or any other Loan Document or
collection of amounts due hereunder or thereunder or the proof and
allowability of any claim arising under this Agreement or any other
Loan Document, whether in bankruptcy or receivership proceedings or
otherwise, and (iv) in any workout, restructuring or in connection
with the protection, preservation, exercise or enforcement of any
of the terms hereof or of any rights hereunder or under any other
Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, and (b) all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Agent, in
its capacity as such, in any way relating to or arising out of this
Agreement or any other Loan Documents or any action taken or
omitted by the Agent hereunder or thereunder, provided that the
Borrower shall not be liable for any portion of the liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of an indemnitee if the same
results from an indemnitee's gross negligence or willful
misconduct, or if the Borrower was not given notice of the subject
claim and the opportunity to participate in the defense thereof, at
its expense, or if the same results from a compromise or settlement
agreement entered into without the consent of the Borrower. Except
to the extent covered by the preceding sentence, the Borrower shall
not be liable to the Agent for consequential or punitive damages
resulting from any breach of contract, tort or other wrong in
connection with the negotiation, documentation, administration or
collection of the Term Loans or any of the Loan Documents. In
addition, the Borrower agrees upon demand to reimburse and pay all
reasonable out-of-pocket expenses of the Agent's regular employees
and agents engaged after the occurrence of an Event of Default to
perform audits of the Borrower's books, records and business
properties.
IX.6 Exculpatory Provisions. Neither the Agent nor any of
its directors, officers, employees, agents, attorneys or affiliates
shall (a) be liable to any Bank for any action taken or omitted to
be taken by it or them hereunder, or in connection herewith
including without limitation pursuant to any Loan Document, unless
caused by its or their own gross negligence or willful misconduct,
(b) be responsible in any manner to any of the Banks for the
effectiveness, enforceability, genuineness, validity or the due
execution of this Agreement or any other Loan Documents or for any
recital, representation, warranty, document, certificate, report or
statement herein or made or furnished under or in connection with
this Agreement or any other Loan Documents, or (c) be under any
obligation to any of the Banks to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or
conditions hereof or thereof on the part of the Borrower, or the
financial condition of the Borrower, or the existence or possible
existence of any Event of Default or Potential Event of Default.
Neither the Agent nor any Bank nor any of their respective
directors, officers, employees, agents, attorneys or affiliates
shall be liable to the Borrower for consequential or punitive
damages resulting from any breach of contract, tort or other wrong
in connection with the negotiation, documentation, administration
or collection of the Term Loans or any of the Loan Documents.
IX.7 Reimbursement and Indemnification of Agent by Banks.
Each Bank agrees to reimburse and indemnify the Agent (to the
extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so) in proportion to its Ratable
Share from and against all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Agent, in its capacity as
such, in any way relating to or arising out of this Agreement or
any other Loan Documents or any action taken or omitted by the
Agent hereunder or thereunder, provided that no Bank shall be
liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of an indemnitee (a) if the same results from such
indemnitee's gross negligence or willful misconduct, or (b) if such
Bank was not given notice of the subject claim and the opportunity
to participate in the defense thereof, at its expense, or (c) if
the same results from a compromise and settlement agreement entered
into without the consent of such Bank. In addition, each Bank
agrees promptly upon demand to reimburse the Agent (to the extent
not reimbursed by the Borrower and without limiting the obligation
of the Borrower to do so) in proportion to its Ratable Share for
all amounts due and payable by the Borrower to the Agent in
connection with the Agent's audit of the Borrower's books, records
and business properties.
IX.8 Reliance by Agent. The Agent shall be entitled to rely
upon any writing, telegram, facsimile, telex or teletype message,
resolution, notice, consent, certificate, letter, cablegram,
statement, order or other document or conversation by telephone or
otherwise believed by it to be genuine and correct and to have been
signed, sent or made by the proper person or persons, and upon the
advice and opinions of counsel and other professional advisers
selected by the Agent. The Agent shall be fully justified in
failing or refusing to take any action hereunder unless it shall
first be indemnified to its satisfaction by the Banks against any
and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.
IX.9 Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Potential Event
of Default or Event of Default unless the Agent has received
written notice from a Bank or the Borrower referring to this
Agreement, describing such Potential Event of Default or Event of
Default and stating that such notice is a "notice of default";
promptly upon receipt of any such notice, the Agent shall send a
copy thereof to each Bank.
IX.10 Notices. The Agent shall send to each Bank a copy of
all notices received from the Borrower pursuant to the provisions
of this Agreement or the other Loan Documents (including all
documents received by the Agent pursuant to Section 7.3 of this
Agreement) promptly upon receipt thereof.
IX.11 Banks in Their Individual Capacities. With respect to
the Term Loan made by it, the Agent shall have the same rights and
powers hereunder as any other Bank and may exercise the same as
though it were not the Agent, and the term "Banks" shall, unless
the context otherwise indicates, include the Agent in its
individual capacity. PNC Bank and its affiliates and each of the
Banks and their respective affiliates may, without liability to
account, except as prohibited herein, make loans to, accept
deposits from, discount drafts for, act as trustee under indentures
of, and generally engage in any kind of banking or trust business
with, the Borrower and its affiliates, and in the case of the
Agent, as though it were not acting as Agent hereunder and in the
case of each Bank, as though such Bank were not a Bank hereunder.
IX.12 Holders of Notes. The Agent may deem and treat any
payee of any Note as the owner thereof for all purposes hereof
unless and until written notice of the assignment or transfer
thereof shall have been filed with the Agent. Any request,
authority or consent of any person who at the time of making such
request or giving such authority or consent is the holder of any
Note shall be conclusive and binding on any subsequent holder,
transferee or assignee of such Note or of any Note or Notes issued
in exchange therefor.
IX.13 Equalization of Banks. The Banks and the holders of
any participations in any Notes agree among themselves that, with
respect to all amounts received by any Bank or any such holder
which may be applied to any obligation hereunder or under any Note
or under any such participation, whether received by voluntary
payment, by realization upon security, if any, by the exercise of
the right of set-off or banker's lien, by counterclaim or by any
other non-pro rata source, notwithstanding any right of any Bank or
holder of any participation in any Note to apply such amounts to
any other obligation, all such amounts shall be applied first to
all obligations of Borrower under this Agreement and the other Loan
Documents and equitable adjustment will be made in the manner
stated in the following sentence so that, in effect, all such
excess amounts will be shared ratably among the Banks and such
holders in proportion to their interests in payments under the
Notes, except as otherwise provided in Sections 3.4(b), 4.5(A)(b)
or 4.6(a) hereof. The Banks or any such holder receiving any such
amount shall purchase for cash from each of the other Banks an
interest in such Bank's Term Loan in such amount as shall result in
a ratable participation by the Banks and each such holder in the
aggregate unpaid amount under the Notes, provided that if all or
any portion of such excess amount is thereafter recovered from the
Bank or the holder making such purchase, such purchase shall be
rescinded and the purchase price restored to the extent of such
recovery, together with interest or other amounts, if any, required
by law (including court order) to be paid by the Bank or the holder
making such purchase.
IX.14 Successor Agent. The Agent may resign as Agent upon
not less than thirty (30) days' prior written notice to the
Borrower and the Banks. If the Agent shall resign under this
Agreement, then either (a) the Required Banks shall appoint a
successor agent for the Banks, or (b) if a successor agent shall
not be so appointed and approved within the thirty (30) day period
following the Agent's notice to the Banks of its resignation, then
the Agent shall appoint, with the consent of the Borrower, such
consent not to be unreasonably withheld, a successor agent who
shall serve as Agent until such time as the Required Banks appoint
a successor agent. Upon an appointment pursuant to either clause
(a) or (b) above, such successor agent shall succeed to the rights,
powers and duties of the Agent and the term "Agent" shall mean such
successor agent, effective upon its appointment, and the former
Agent's rights, powers and duties as Agent shall be terminated
without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement. After the
resignation of any Agent hereunder, the provisions of this Article
IX shall inure to the benefit of such former Agent and such former
Agent shall not by reason of such resignation be deemed to be
released from liability for any actions taken or not taken by it
while it was an Agent under this Agreement.
IX.15 Agent's Fee. The Borrower shall pay an Agent's Fee in
accordance with the letter dated May 14, 1997 among the Borrower,
PNC Capital Markets, Inc. and the Agent.
IX.16 Calculations. In the absence of gross negligence or
willful misconduct, the Agent shall not be liable for any error in
computing the amount payable to any Bank whether in respect of the
Term Loans, fees or any other amounts due to the Banks under this
Agreement. In the event an error in computing any amount payable
to any Bank is made, the Agent, the Borrower and each affected Bank
shall, forthwith upon discovery of such error, make such
adjustments as shall be required to correct such error, and any
compensation therefor will be calculated at the Federal Funds
Effective Rate.
IX.17 Beneficiaries. Except as expressly provided herein,
the provisions of this Article IX are solely for the benefit of the
Agent and the Banks, and the Borrower shall not have any rights to
rely on or enforce any of the provisions hereof. In performing its
functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of
agency or trust with or for the Borrower.
ARTICLE X
MISCELLANEOUS
X.1 Modifications Amendments or Waivers. With the written
consent of the Required Banks, the Agent, acting on behalf of all
the Banks, and the Borrower may from time to time enter into
written agreements amending or changing any provision of this
Agreement or any other Loan Document or the rights of the Banks or
the Borrower hereunder or thereunder, or may grant written waivers
or consents to a departure from the due performance of the
obligations of the Borrower hereunder or thereunder. Any such
agreement, waiver or consent made with such written consent shall
be effective to bind all the Banks; provided, that, without the
written consent of all the Banks (including in the case of
subsection 10.1(b), all institutions which are participants under
Section 10.11(f) hereof), no such agreement, waiver or consent may
be made which will:
(a) Reduce the amount of any fees payable to any Bank
hereunder, or amend or waive Sections 4.4, 9.6, 9.13 and 10.11(a),
or Article VI, hereof;
(b) Whether or not any Term Loans are outstanding,
extend the time for payment of principal or interest of any Term
Loan, or reduce the principal amount of or the rate of interest
borne by any Term Loan, or otherwise affect the terms of payment of
the principal of or interest of any Term Loan; or
(c) Amend this Section 10.1, change the definition of
Required Banks, or change any requirement providing for the Banks
or the Required Banks to authorize the taking of any action
hereunder.
X.2 No Implied Waivers; Cumulative Remedies; Writing
Required. No course of dealing and no delay or failure of the
Agent or any Bank in exercising any right, power, remedy or
privilege under this Agreement or any other Loan Document shall
affect any other or future exercise thereof or operate as a waiver
thereof; nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right,
power, remedy or privilege preclude any further exercise thereof or
of any other right, power, remedy or privilege. The rights and
remedies of the Agent and the Banks under this Agreement and any
other Loan Documents are cumulative and not exclusive of any rights
or remedies which they would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of any
Bank of any breach or default under this Agreement or any such
waiver of any provision or condition of this Agreement must be in
writing and shall be effective only to the extent specifically set
forth in such writing.
X.3 Reimbursement and Indemnification of Agent and Banks by
the Borrower; Taxes. The Borrower agrees unconditionally upon
demand to pay or reimburse to each Bank and to save such Bank
harmless against (i) liability for the payment of all reasonable
out-of-pocket costs, expenses and disbursements (including
reasonable fees and expenses of counsel for each Bank except with
respect to (a) and (b) below and subject to this Section 10.3),
incurred by such Bank (a) in connection with the administration and
interpretation of this Agreement and the other Loan Documents, (b)
relating to any amendments, waivers or consents pursuant to the
provisions hereof, (c) in connection with the enforcement of this
Agreement or any other Loan Document, or collection of amounts due
hereunder or thereunder or the proof and allowability of any claim
arising under this Agreement or any other Loan Document, whether in
bankruptcy or receivership proceedings or otherwise, and (d) in any
workout, restructuring or in connection with the protection,
preservation, exercise or enforcement of any of the terms hereof or
of any rights hereunder or under any other Loan Document or in
connection with any foreclosure, collection or bankruptcy
proceedings, or (ii) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against such Bank, in its capacity as
such, in any way relating to or arising out of this Agreement or
any other Loan Documents or any action taken or omitted by such
Bank hereunder or thereunder, provided that the Borrower shall not
be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (a) if the same results from such Bank's gross
negligence or willful misconduct, or (b) if the Borrower was not
given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense, or (c) if the
same results from a compromise or settlement agreement entered into
by such Bank without the consent of the Borrower or (d) if the same
results from legal proceedings commenced by any Bank against any
other Bank. Except to the extent covered by the preceding
sentence, the Borrower shall not be liable to any Bank for
consequential or punitive damages resulting from any breach of
contract, tort or other wrong in connection with the negotiation,
documentation, administration or collection of the Term Loans or
any of the Loan Documents. The Banks will attempt to minimize the
fees and expenses of legal counsel for the Banks which are subject
to reimbursement by the Borrower hereunder by using one (1) law
firm to represent the Banks and the Agent, absent any conflict of
interest. The Borrower agrees unconditionally to pay all stamp,
document, transfer, recording or filing taxes or fees and similar
impositions now or hereafter determined by the Agent or any Bank to
be payable in connection with this Agreement or any other Loan
Document, and the Borrower agrees unconditionally to save the Agent
and the Banks harmless from and against any and all present or
future claims, liabilities or losses with respect to or resulting
from any omission to pay or delay in paying any such taxes, fees or
impositions.
X.4 Holidays. Whenever any payment or action to be made or
taken hereunder shall be stated to be due on a day which is not a
Business Day, such payment or action shall be made or taken on the
next following Business Day, and such extension of time shall be
included in computing interest or fees, if any, in connection with
such payment or action.
X.5 Funding by Branch, Subsidiary or Affiliate.
(a) Notional Funding. Each Bank shall have the right
from time to time, without notice to the Borrower, to deem any
branch, subsidiary or affiliate (which for the purposes of this
Section 10.5 shall mean any corporation or association which is
directly or indirectly controlled by or is under direct or indirect
common control with any corporation or association which directly
or indirectly controls such Bank) of such Bank to have made,
maintained or funded any Term Loan, provided that immediately
following (on the assumption that a payment were then due from the
Borrower to such other office) and as a result of such change the
Borrower would not be under any greater financial obligation
pursuant to Section 4.5 hereof than it would have been in the
absence of such change. Notional funding offices may be selected
by each Bank without regard to the Bank's actual methods of making,
maintaining or funding the Term Loans or any sources of funding
actually used by or available to such Bank.
(b) Actual Funding. Each Bank shall have the right
from time to time to make or maintain any Term Loan by arranging
for a branch, subsidiary or affiliate of such Bank to make or
maintain such Term Loan subject to the last sentence of this
Section 10.5(b). If any Bank causes a branch, subsidiary or
affiliate to make or maintain any part of the Term Loans hereunder,
all terms and conditions of this Agreement shall, except where the
context clearly requires otherwise, be applicable to such part of
the Term Loans to the same extent as if such Term Loans were made
or maintained by such Bank but in no event shall any Bank's use of
such a branch, subsidiary or affiliate to make or maintain any part
of the Term Loans hereunder cause such Bank or such branch,
subsidiary or affiliate to incur any cost or expenses payable by
the Borrower hereunder or require the Borrower to pay any other
compensation to any Bank (including, without limitation, any
expenses incurred or payable pursuant to Section 4.5 hereof) which
would otherwise not be incurred.
X.6 Notices. All notices, requests, demands, directions
and other communications (collectively "notices") given to or made
upon any party hereto under the provisions of this Agreement shall
be by telephone or in writing (including facsimile communication)
unless otherwise expressly permitted hereunder and shall be
delivered or sent by facsimile to the respective parties at the
addresses and numbers set forth under their respective names on the
signature pages hereof or in accordance with any subsequent
unrevoked written direction from any party to the others. All
notices shall, except as otherwise expressly herein provided, be
effective (a) in the case of facsimile, when received, except if
received other than during normal business hours, in which case on
the next Business Day, (b) in the case of hand-delivered notice,
when hand delivered, (c) in the case of telephone, when telephoned,
provided, however, that in order to be effective, telephonic
notices must be confirmed in writing no later than the next
Business Day by facsimile, (d) if given by mail, four (4) days
after such communication is deposited in the mails with first class
postage prepaid, return receipt requested, and (e) if given by any
other means (including by air courier), when delivered; provided,
that notices to the Agent shall not be effective until received.
Any Bank giving any notice to the Borrower shall simultaneously
send a copy thereof to the Agent, and the Agent shall promptly
notify the other Banks of the receipt by it of any such notice.
X.7 Severability. The provisions of this Agreement are
intended to be severable. If any provision of this Agreement shall
be held invalid or unenforceable in whole or in part in any
jurisdiction such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability
without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
X.8 Governing Law. This Agreement shall be deemed to be a
contract under the laws of the Commonwealth of Pennsylvania and for
all purposes shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania
without regard to its conflict of laws principles.
X.9 Prior Understanding. This Agreement supersedes all
prior understandings and agreements, whether written or oral,
between the parties hereto and thereto relating to the transactions
provided for herein and therein, including, but not limited to, any
prior confidentiality agreements and commitment letters.
X.10 Duration; Survival. All representations and warranties
of the Borrower contained herein or made in connection herewith
shall survive the making of Term Loans and shall not be waived by
the execution and delivery of this Agreement, any investigation by
the Agent or the Banks, the making of Term Loans, or payment in
full of the Term Loans. All covenants and agreements of the
Borrower contained in Section 7.1, 7.2 and 7.3 herein shall
continue in full force and effect from and after the date hereof
until payment in full of the Term Loans. All covenants and
agreements of the Borrower contained herein relating to the payment
of principal, interest, premiums, additional compensation or
expenses and indemnification, including those set forth in the
Notes, Article IV and Section 9.5, 9.7 and 10.3 hereof, shall
survive payment in full of the Term Loans.
X.11 Successors and Assigns. (a) This Agreement shall
be binding upon and shall inure to the benefit of the Banks, the
Agent, the Borrower and their respective successors and permitted
assigns, except that the Borrower may not assign or transfer any of
its rights and obligations hereunder or any interest herein.
(b) Each Bank may assign to one or more banks or other
entities all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its
Term Loan owing to it and the Note held by it); provided, however,
that (i) except in the case of an assignment to an existing Bank or
an Affiliate of an existing Bank or a successor by merger to an
existing Bank, the amount of the Term Loan Commitment of the
Transferor Bank being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Assumption
Agreement with respect to such assignment) shall in no event be
less than Five Million Dollars ($5,000,000), (ii) each such
assignment shall be to an Eligible Assignee or to an existing Bank
or a successor by merger to an existing Bank or to an Affiliate of
an existing Bank or a successor by merger to an existing Bank or
the assignor, (iii) such assignment shall not result in a
Prohibited Transaction, and (iv) the parties to each such
assignment shall execute and deliver to the Agent, for its
acceptance and recording in the Register, an Assignment and
Assumption Agreement, together with any Note subject to such
assignment and, a processing and recordation fee of Three Thousand
Dollars ($3,000). Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each
Assignment and Assumption Agreement, which effective date shall be
the second Business Day following the Transfer Effective Notice,
(x) the Purchasing Bank shall be a party hereto and, to the extent
that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Assumption Agreement, have the
rights and obligations of a Bank under the Loan Documents and (y)
the Transferor Bank shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such
Assignment and Assumption Agreement, relinquish its rights and be
released from its obligations under the Loan Documents (and, in the
case of an Assignment and Assumption Agreement covering all or the
remaining portion of a Transferor Bank's rights and obligations
under the Loan Documents, such Transferor Bank shall cease to be a
party thereto.)
Notwithstanding the foregoing, nothing herein shall
prohibit any Bank from pledging or assigning any Note to any
Federal Reserve Bank in accordance with Law.
(c) By executing and delivering an Assignment and
Assumption Agreement, the Transferor Bank and the Purchasing Bank
thereunder confirm to and agree with each other and the other
parties hereto as follows: (i) other than as provided in such
Assignment and Assumption Agreement, such Transferor Bank makes no
representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or
in connection with the Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the
Loan Documents or any other instrument or document furnished
pursuant thereto; (ii) such Transferor Bank makes no representation
or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or
observance by the Borrower of any of its obligations under the Loan
Documents or any instrument or document furnished pursuant hereto;
(iii) such Purchasing Bank confirms that it has received a copy of
the Loan Documents, together with copies of the documents and
information as it has deemed appropriate to make its own credit
analysis and decisions to enter into such Assignment and Assumption
Agreement; (iv) such Purchasing Bank will, independently and
without reliance upon the Agent, such Transferor Bank or any other
Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement; (v) such
Purchasing Bank confirms that it is an Eligible Assignee, an
existing Bank or a successor by merger to an existing Bank or is an
Affiliate of an existing Bank or a successor by merger to an
existing Bank or the assignor; (vi) such Purchasing Bank appoints
and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under the Loan Documents as are
delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; and (vii) such
Purchasing Bank agrees that it will perform in accordance with
their terms all of the obligations which by the terms of the Loan
Documents are required to be performed by it as a Bank.
(d) The Agent shall maintain at its address referred
to in Section 10.6 a copy of each Assignment and Assumption
Agreement delivered to and accepted by it and a register for the
recordation of the names and addresses of the Banks and the
principal amount of the Term Loans owing to, each Bank from time to
time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and
the Borrower, the Agent and the Banks may treat each Person whose
name is recorded in the Register as a Bank hereunder for all
purposes of the Loan Documents. The Register shall be available
for inspection by the Borrower or any Bank at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Assumption
Agreement executed by a Transferor Bank and an assignee
representing that it is an Eligible Assignee or is an existing Bank
or a successor by merger to an existing Bank or an Affiliate of an
existing Bank or a successor by merger to an existing Bank or is an
Affiliate of such Transferor Bank, together with the Note subject
to such assignment, the Agent shall, if such Assignment and
Assumption Agreement has been completed and is in substantially the
form of Exhibit "D" hereto and is permitted under this Agreement,
(i) accept such Assignment and Assumption Agreement, (ii) record
the information contained therein in the Register and (iii) give
prompt notice thereof to the Borrower. Within five (5) Business
Days after its receipt of such notice, the Borrower, at the
Transferor Bank's expense, shall execute and deliver to the Agent
in exchange for the surrendered Note a new Note to the order of
such assignee in an amount equal to the Term Loan assumed by it
pursuant to such Assignment and Assumption Agreement and, if the
Transferor Bank has retained a Term Loan hereunder, a new Note to
the order of the Transferor Bank in an amount equal to the Term
Loan retained by it hereunder. Such new Note or Notes shall be in
an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note, shall be dated the Funding Date
and shall otherwise be in substantially the form of Exhibit "A".
There shall be no loss of interest on the surrendered Note. All
Notes executed and issued upon any transfer of Notes shall be
legal, valid and binding obligations of the Borrower, evidencing
the same debt, and entitled to the same security and benefits under
this Agreement as the Notes surrendered for such transfer or
exchange.
(f) Each Bank may sell participations to one or more
banks or to other entities in or to all or a portion of its rights
and obligations under this Agreement; provided, however, that (i)
such Bank's obligations under this Agreement (including, without
limitation, its Term Loan to the Borrower hereunder) shall remain
unchanged, (ii) such sale of participations shall not result in a
Prohibited Transaction, (iii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iv) such Bank shall remain the holder of such Note
for all purposes of this Agreement, and (v) the Borrower, the Agent
and the other Banks shall continue to deal solely and directly with
such Bank in connection with such Bank's rights and obligations
under this Agreement.
(g) Any Bank may, in connection with an assignment or
participation or proposed assignment or participation pursuant to
this Section 10.11, disclose to the assignee or participant or
proposed assignee or participant, any information relating to the
Borrower furnished to such Bank by or on behalf of the Borrower;
provided that, prior to any disclosure, the assignee or participant
or proposed assignee or participant shall agree to preserve the
confidentiality of any confidential information relating to the
Borrower received by it from such Bank as provided in Section 10.12
hereof.
X.12 Confidentiality. The Agent and the Banks each agree to
keep confidential all information obtained from the Borrower which
is nonpublic and confidential or proprietary in nature (including
any information the Borrower specifically designates as
confidential), except as provided below, and to use such
information only in connection with their respective capacities
under this Agreement and for the purposes contemplated hereby. The
Agent and the Banks shall be permitted to disclose such information
(i) to outside legal counsel, accountants and other professional
advisors who need to know such information in connection with the
administration and enforcement of this Agreement, subject to
agreement of such persons to maintain the confidentiality, (ii) to
assignees and participants and proposed assignees and participants
as contemplated by Section 10.11, (iii) to the extent requested by
any bank regulatory authority or, with notice to the Borrower, as
otherwise required by applicable law or by any subpoena or similar
legal process, or in connection with any investigation or
proceeding arising out of the transactions contemplated by this
Agreement, (iv) if it becomes publicly available other than as a
result of a breach of this Agreement or becomes available from a
source not subject to confidentiality restrictions, or (v) the
Borrower shall have consented to such disclosure.
X.13 Counterparts. This Agreement may be executed by
different parties hereto on any number of separate counterparts,
each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one
and the same instrument.
X.14 Agent's or Bank's Consent. Whenever the Agent's or any
Bank's consent is required to be obtained under this Agreement or
any of the other Loan Documents as a condition to any action,
inaction, condition or event, the Agent and each Bank shall be
authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of
additional collateral, the payment of money or any other matter.
X.15 Exceptions. The representations, warranties and
covenants contained herein shall be independent of each other and
no exception to any representation, warranty or covenant shall be
deemed to be an exception to any other representation, warranty or
covenant contained herein unless expressly provided herein or in
any Schedule, nor shall any such exceptions be deemed to permit any
action or omission that would be in contravention of applicable
law.
X.16 Consent to Forum; Waiver of Jury Trial. The Borrower
hereby irrevocably consents to the non-exclusive jurisdiction of
the Court of Common Pleas of Luzerne County, Pennsylvania and the
United States District Court for the Middle District of
Pennsylvania as to any and all matters arising out of or relating
to this Agreement or the other Loan Documents or the transactions
contemplated hereby or thereby, and waives personal service of any
and all process upon it and consents that all such service of
process may be made by certified or registered mail directed to the
Borrower at the address provided for in Section 10.6 hereof, or may
be made as otherwise provided under the laws of the Commonwealth of
Pennsylvania. The Borrower waives any objection to jurisdiction
and venue of any action instituted against it as provided above, or
based upon forum non conveniens, and agrees not to assert any
defense or claim based on lack of jurisdiction or venue, or forum
non conveniens.
THE BORROWER, THE AGENT AND THE BANKS HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT TO THE FULL EXTENT PERMITTED BY LAW.
This Section is a material aspect of this Agreement and the
Borrower acknowledges that the Banks would not extend credit to the
Borrower hereunder if the consents and waivers set forth in this
Section 10.16 were not a part of this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed this Agreement as of the
day and year first above written.
ATTEST: (SEAL) PG ENERGY INC.
By:/s/ Richard N. Marshall By: /s/John F. Kell, Jr.
Name: Richard N. Marshall Name: John F. Kell, Jr.
Title: Treasurer and Title: Vice President,
Assistant Secretary Financial Services
Address for Notices:
PG Energy Inc.
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Telecopier No. (717) 829-8652
Attention: Michael J. McLaughlin
Telephone No. (717) 829-8919
PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
By: /s/Robert G. Mills
Name: Robert G. Mills
Title: Vice President
Address for Notices:
PNC Bank, National Association
11 West Market Street, 3rd Floor
Wilkes-Barre, PA 18701
Telecopier No. (717) 831-2831
Attention: Robert G. Mills
Telephone No. (717) 831-2833
FIRST UNION NATIONAL BANK
By:/s/ Michael Kolosowsky
Name: Michael Kolosowsky
Title: Vice President
Address for Notices:
First Union National Bank
One First Union Center, 5th Floor
301 S. College Street
Charlotte, NC 28288-0735
Telecopier No. (704) 383-6670
Attention: Mr. Brian D. Tate
Telephone No. (704) 383-0510
MELLON BANK, N.A.
By:/s/W.Frank McGrane
Name: W.Frank McGrane
Title: Vice President
Address for Notices:
Mellon Bank, N.A.
Northeastern Region
Middle Market Department
8 West Market Street
Wilkes-Barre, PA 18711
Telecopier No. (717) 826-2978
Attention: W. Frank McGrane
Telephone No. (717) 826-5374
CORESTATES BANK, N.A.
By: /s/Thomas V. Amico
Name: Thomas V. Amico
Title: Vice President
Address for Notices:
CoreStates Bank, N.A.
1 South Main Street
P.O. Box 560
Pittston, PA 18640-0560
Telecopier No. (717) 655-3663
Attention: Thomas V. Amico
Telephone No. (717) 655-5987
SCHEDULE 1.1(a)
TERM LOAN AMOUNT OF BANKS
BANK AMOUNT
OF TERM LOAN PERCENTAGE
[CAPTION]
[S] [C] [C]
PNC Bank, National Association $ 10,000,000 40%
First Union National Bank 5,000,000 20%
Mellon Bank, N.A. 5,000,000 20%
CoreStates Bank, N.A. 5,000,000 20%
$25,000,000 100%
SCHEDULE 1.1(b)
PERMITTED LIENS
1. Liens existing pursuant to the Indenture of Mortgage and Deed
of Trust dated as of March 15, 1946, from the Borrower
(formerly Scranton-Spring Brook Water Service Company) to
First Trust of New York, National Association, as supplemented
by thirty supplemental indentures.
SCHEDULE 5.1(g)
LITIGATION
None
SCHEDULE 5.1(l)
CONSENTS AND APPROVALS
1. Securities Certificate adopted and entered on July 10, 1997,
by the Pennsylvania Public Utility Commission.
SCHEDULE 5.1(q)
EMPLOYEE BENEFIT PLAN DISCLOSURES
None
SCHEDULE 5.1(s)
ENVIRONMENTAL DISCLOSURES
None
SCHEDULE 7.2(a)
EXISTING INDEBTEDNESS
1. Indebtedness under the Indenture of Mortgage and Deed of Trust
dated as of March 15, 1946, from the Borrower (formerly
Scranton-Spring Brook Water Service Company) to First Trust of
New York, National Association, as supplemented by thirty
supplemental indentures aggregating $55,000,000 as of August
14, 1997.
2. Indebtedness under Promissory Notes dated April 8, 1997,
issued by the Borrower in favor of Mellon Bank, N.A., in the
amount of $_______ as of August 14, 1997.
3. Indebtedness under a Promissory Note dated May 30, 1996, as
amended, issued by the Borrower in favor of PNC Bank, National
Association, in the amount of $_______ as of August 14, 1997.
4. Indebtedness under a Promissory Note dated March 25, 1997,
issued by the Borrower in favor of First Union National Bank,
National Association, in the amount of $______ as of August
14, 1997.
5. Indebtedness under a Promissory Note dated July 3, 1997,
issued by the Borrower in favor of CoreSTates Bank, N.A. in
the amount of $_______ as of August 14, 1997.
6. Indebtedness under a Promissory Note dated May 28, 1997,
issued by the Borrower in favor of Fleet Bank in the amount of
$_______ as of August 14, 1997.
7. Indebtedness under a Promissory Note dated June 24, 1997,
issued by the Borrower in favor of First Heritage Bank in the
amount of $1,500,000 as of August 14, 1997.
8. Indebtedness under a Promissory Note dated August 1, 1997,
issued by the Borrower in favor of Penn Security Bank & Trust
Company in the amount of $1,000,000 as of August 14, 1997.
9. Indebtedness under a Promissory Note dated February 14, 1997,
issued by Honesdale Gas Company, a Subsidiary of the Borrower,
in favor of Wayne Bank in the amount of $25,000 as of August
14, 1997.
SCHEDULE 7.2(g)
ASSET SALES
None
SCHEDULE 7.2(i)
SUBSIDIARIES
1. Honesdale Gas Company
2. Penn Gas Development Co.
EXHIBIT "A"
TERM LOAN NOTE
$ Wilkes-Barre, Pennsylvania
______________, 1997
This Term Loan Note (the "Note") is executed and delivered under
and pursuant to the terms of that certain Term Loan Agreement dated
August 14, 1997 (together with all extensions, renewals,
amendments, substitutions or replacements, the "Agreement") by and
among PG ENERGY INC., a Pennsylvania corporation (the "Borrower"),
the banks parties thereto (the "Banks") and PNC BANK, NATIONAL
ASSOCIATION, as agent for the Banks (the "Agent").
FOR VALUE RECEIVED, the Borrower hereby promises to pay to the
order of (the "Bank"), at the office of the
Agent at its address set forth in the Agreement, on August 14,
2002, the principal sum of MILLION
DOLLARS ($ ).
Interest on the unpaid principal balance hereof shall be due and
payable and calculated in accordance with the terms of the
Agreement. The interest rate will be adjusted, when necessary and
if appropriate, in accordance with the terms of the Agreement.
Interest payments shall be made at the office of the Agent set
forth in the Agreement.
This Note is one of the Notes referred to in the Agreement. All of
the terms, conditions, covenants, representations and warranties of
the Agreement are incorporated herein by reference as if the same
were fully set forth herein including but not limited to the
provisions thereof relating to the repayment of, prepayment of, and
the acceleration of the maturity of, the indebtedness evidenced by
this Note. All terms used herein as defined terms which are not
defined herein but are defined in the Agreement shall have the
respective meanings herein as are given them in the Agreement.
Upon the occurrence of any Event of Default specified in the
Agreement, the principal hereof and accrued interest hereon may
become forthwith due and payable, all as provided in the Agreement.
In the event of a conflict between the terms of this Note and any
other agreement, the terms of this Note shall control.
Demand, presentation, protest, notice of dishonor and notice of
default are hereby waived.
This Note may be assigned by the Bank (or any other permitted
holder hereof), in whole or in part, at any time and from time to
time, to any person ("Permitted Assignee") in accordance with the
terms and provisions of the Agreement. This Note shall be binding
upon the successors and assigns of the Borrower and shall inure to
the benefit of the successors and the Permitted Assignees of the
Bank.
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Pennsylvania
without regard to the principles thereof regarding conflict of
laws.
THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURT OF COMMON PLEAS OF LUZERNE COUNTY,
PENNSYLVANIA AND THE UNITED STATES DISTRICT COURT FOR THE MIDDLE
DISTRICT OF PENNSYLVANIA AS TO ANY AND ALL MATTERS ARISING OUT OF
OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY,
AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED
OR REGISTERED MAIL DIRECTED TO THE BORROWER AT ITS ADDRESS PROVIDED
FOR IN SECTION 10.6 OF THE AGREEMENT, OR MAY BE MADE AS OTHERWISE
PROVIDED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. THE
BORROWER WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY
ACTION INSTITUTED AGAINST IT AS PROVIDED ABOVE, OR BASED ON FORUM
NON CONVENIENS, AND AGREES NOT TO ASSERT ANY DEFENSE OR CLAIM BASED
ON LACK OF JURISDICTION OR VENUE, OR FORUM NON CONVENIENS.
WITNESS the due execution hereof on the date first above written
with intent to be legally bound hereby, and with the further
intention that this Term Loan Note shall constitute a sealed
instrument.
ATTEST: (SEAL) PG ENERGY INC.
By: By:
Name: Name:
Title: Title:
By:
Name:
Title:
EXHIBIT "B-1"
Opinion of House Counsel of the Borrower
August 14, 1997
PNC Bank, National Association
as Agent for the Banks
(as defined below)
[address]
Ladies and Gentlemen:
I am House Counsel of PG Energy Inc., a Pennsylvania
corporation (the "Borrower"). This opinion is being delivered to
you in connection with the execution and delivery of the Term Loan
Agreement dated as of August 14, 1997 (the "Term Loan Agreement")
among the Borrower, the banks parties thereto (the "Banks") and PNC
Bank, National Association, as agent for the Banks (the "Agent")
and the execution and delivery of the Notes issued pursuant
thereto.
This opinion is delivered to you pursuant to Section 6.1(d) of
the Term Loan Agreement. All capitalized terms used herein and not
otherwise defined herein have the respective meanings ascribed to
them in the Term Loan Agreement.
In connection with the transactions contemplated by the Term
Loan Agreement, Hughes Hubbard & Reed L.L.P. has acted as special
corporate counsel for the Borrower. As House Counsel of the
Borrower I have made such investigations of law, have examined the
Term Loan Agreement and Notes, and certificates of public officials
and of the Borrower, and have examined corporate documents and
records of the Borrower and have made such examinations and
inquiries as I have deemed necessary or appropriate in connection
with this opinion hereinafter set forth. In rendering this opinion,
I have also relied upon certificates of Official Bodies and, have
assumed the genuineness of signatures of all persons (other than
officers of the Borrower) signing any documents, the authenticity
of all documents submitted to me as originals and the conformity to
original documents of all documents submitted to me as certified,
conformed or photostatic copies.
In rendering this opinion, I have assumed that (x) the
Term Loan Agreement has been duly authorized, executed and
delivered by each Bank and the Agent and (y) the Term Loan
Agreement constitutes the valid and binding obligation of each Bank
and the Agent enforceable against them in accordance with its
terms.
The opinions expressed herein are subject to the following
qualifications:
(i) the enforceability of the Term Loan Agreement
and the Notes is subject to the effect of bankruptcy,
insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights of creditors
generally;
(ii) the enforceability of the Term Loan Agreement
and the Notes is subject to the effect of general
principles of equity (regardless of whether enforcement
is considered in proceedings at law or in equity) and to
the discretion of the court before which any proceeding
therefor may be brought (including without limitation the
discretion of a court to grant or limit the right of
specific performance);
(iii) the provisions of the Term Loan Agreement
that permit any Person to take action or make
determinations, or to benefit from indemnities or similar
undertakings, may be subject to requirements that such
action be taken or such determinations be made, or that
any action or inaction by such Person that may give rise
to a request for payment under such an indemnity or
similar undertaking be taken or not taken, on a
reasonable basis and in good faith;
(iv) the indemnities in the Term Loan Agreement
may be unenforceable or limited based upon public policy
considerations or applicable law;
(v) under certain circumstances the requirement
that the provisions of the Term Loan Agreement and the
Notes may be modified or waived only in writing or only
in a specific instance may be unenforceable to the extent
that an oral agreement has been effected or a course of
dealing has occurred modifying such provisions;
(vi) a court may modify or limit contractual
awards of attorneys' fees; and
(vii) the use of the phrase (a) "to my knowledge"
is intended to be limited to my actual knowledge as House
Counsel of the Borrower and (b) "after due inquiry" is
intended to be limited to a review of the subject matter
of the opinions so qualified with appropriate officers of
Borrower and a review of such documents or agreements as
may have been identified by such officers as being
necessary to be reviewed in connection with the subject
matter of such opinions.
Based upon the foregoing, I am of the opinion that:
1. The Borrower is duly organized and is validly existing as
a corporation in good standing under the laws of the Commonwealth
of Pennsylvania, with the corporate power and corporate authority
under the laws of such Commonwealth, to own and operate its
property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged or proposes
to conduct. Except as disclosed in Borrower's or Pennsylvania
Enterprises, Inc.'s (PEI) Form 10-K for the fiscal year ended
December 31, 1996 or Form 10-Q for the quarter ended June 30, 1997
submitted to the Securities and Exchange Commission, to my
knowledge, after due inquiry, is in compliance with all
requirements of the Pennsylvania Public Utility Code, except to the
extent that the failure to comply therewith would not, in the
aggregate, result in a Material Adverse Change.
2. The Borrower has the corporate power and corporate
authority, and the legal right, to make, deliver and perform the
Term Loan Agreement and the Notes and to borrow thereunder and has
taken all necessary corporate action to authorize the borrowings on
the terms and conditions of the Term Loan Agreement and the Notes
and to authorize the execution, delivery and performance of the
Term Loan Agreement and the Notes. Other than the consent of the
Pennsylvania Public Utility Commission, which has been obtained, no
consent or authorization of, filing with or other act by or in
respect of, any Official Body of the Commonwealth of Pennsylvania,
is required by the Borrower in connection with the borrowings or
transactions under the Term Loan Agreement or with the execution,
delivery and performance by the Borrower of the Term Loan Agreement
or the Notes or with the validity or enforceability of the Term
Loan Agreement or the Notes as to or against the Borrower.
3. The Borrower's authorized capital stock consists of
10,000,000 shares of common stock, no par value ("Common Stock"),
of which 3,314,155 shares are issued and outstanding on the date
hereof, and 997,500 shares of preferred stock, $100.00 par value
("Preferred Stock"), of which 172,386 shares are issued and
outstanding. PEI is the record and beneficial owner of all of the
issued and outstanding shares of Common Stock of Borrower, and to
my knowledge, after due inquiry, holds such Common Stock free and
clear of any Lien. All the issued and outstanding shares of
capital stock of the Borrower and PEI are authorized, validly
issued, free of any preemptive rights and, to my knowledge, are
fully paid and nonassessable. There are no options, warrants or
other rights outstanding to purchase any shares of Borrower's
Common Stock.
4. The Term Loan Agreement and each Note has been duly
executed and delivered on behalf of the Borrower. The Term Loan
Agreement and each Note constitutes a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in
accordance with its terms.
5. The obligations of the Borrower under the Term Loan
Agreement and the Notes rank at least pari passu in priority of
payment with all other Indebtedness of the Borrower except
Indebtedness of the Borrower to the extent secured by Permitted
Liens.
6. The execution, delivery and performance by the Borrower
of the Term Loan Agreement and the Notes, the borrowings
thereunder, the use of the proceeds thereof and the other
transactions contemplated by the Term Loan Agreement and the Notes
(i) will not violate, or conflict with (with or without the giving
of notice or the lapse of time, or both), (x) the Articles of
Incorporation, the by-laws or the other organizational documents,
if any, of the Borrower, (y) any law or administrative regulation
of the Commonwealth of Pennsylvania applicable to the Borrower, or
any order, writ, judgment, injunction or decree to which the
Borrower is a party or by which it is bound or to which it is
subject or (z) any material mortgage, deed of trust, lease,
indenture, instrument, note or evidence of indebtedness or other
agreement binding upon the Borrower and (ii) will not result in, or
require, the creation or imposition of any Lien on any of its
properties or revenues pursuant to any such law or administrative
regulation or any such mortgage, deed of trust, lease, indenture,
instrument, note or evidence of indebtedness or other agreement.
7. Except as disclosed in Borrower's or PEI's Form 10-K for
the fiscal year ended December 31, 1996, or Form 10-Q for the
quarter ended June 30, 1997, submitted to the Securities and
Exchange Commission, to my knowledge, after due inquiry, there are
no judgments outstanding against or actions, suits, proceedings or
investigations pending or threatened against the Borrower or PEI or
any of their respective Subsidiaries at law or equity before any
Official Body which individually or in the aggregate is reasonably
likely to result in any Material Adverse Change. To my knowledge,
after due inquiry, neither the Borrower, PEI nor any of their
respective Subsidiaries is in violation of any order, writ,
injunction or any decree of any Official Body which is reasonably
likely to result in any Material Adverse Change. There is no
action, proceeding, investigation or contested claim pending or to
my knowledge threatened, which questions the validity of the Term
Loan Agreement or the Notes or any transactions contemplated
thereby.
8. The Borrower is not subject to regulation under any State
statute or regulation which limits its ability to incur
Indebtedness.
9. The Borrower has no Subsidiaries at the date hereof other
than as listed in Schedule 7.2(i) to the Term Loan Agreement.
10. The interest rate and other charges provided for in the
Term Loan Agreement and each Note do not violate the usury or other
laws of the Commonwealth of Pennsylvania relating to the maximum
rate of interest or other charges that may be charged, paid or
collected.
I am admitted to practice law in the Commonwealth of
Pennsylvania and do not express any opinion herein concerning the
law of any jurisdiction except the Commonwealth of Pennsylvania.
All of the opinions expressed herein are rendered as of the date
hereof. I assume no obligation to update such opinions to reflect
any facts or circumstances that may hereafter come to my attention
or any changes in the law that may hereafter occur.
This letter is furnished by me solely in connection with the
Term Loan Agreement for your benefit and the benefit of each Bank a
party to the Term Loan Agreement and may not be relied upon for any
other purpose, or furnished to, used by, circulated to, quoted to
or referred to by, any other person without my prior written
consent in each instance.
Very truly yours,
EXHIBIT "B-2"
Opinion of Hughes Hubbard & Reed
August 14, 1997
PNC Bank, National Association,
as Agent for the Banks
(as defined below)
[address]
Ladies and Gentlemen:
We have acted as special counsel to PG Energy Inc., a
Pennsylvania corporation (the "Borrower"), in connection with the
execution and delivery of the Term Loan Agreement, dated as of
August 14, 1997 (the "Loan Agreement"), among the Borrower, the
Banks parties thereto (the "Banks") and PNC Bank, National
Association, as agent for the Banks (the "Agent") and the execution
and delivery of the Notes pursuant thereto.
This Opinion Letter is being furnished to you at the
request of the Borrower pursuant to Section 6.1(d) of the Loan
Agreement. All capitalized terms used herein and not otherwise
defined herein have the respective meanings ascribed to them in the
Loan Agreement or the Accord (see below).
This Opinion Letter is governed by, and shall be
interpreted in accordance with, the Legal Opinion Accord (the
"Accord") of the ABA Section of Business Law (1991). As a
consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and
this Opinion Letter should be read in conjunction therewith.
The law covered by the opinion set forth below is limited
to the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Public Utility Holding Company Act of 1935, as amended
(the "PUHCA"), the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the rules and regulations under such
statutes.
In rendering the opinion set forth below, we also have
examined such certificates of public officials, corporate records
and documents and other instruments, and have made such other
investigations, as we have deemed necessary in connection with the
opinion hereinafter set forth. As to certain issues of fact
material to such opinion, we have relied upon certificates of
officers of the Borrower and upon the representations of the
Borrower contained in Section 5.1 of the Loan Agreement.
Based upon the foregoing, we are of the opinion that:
1. The Borrower is not an "investment company" or a
company "controlled" by an "investment company," within the meaning
of the Investment Company Act. The Borrower and PEI are presently
exempt, pursuant to Section 3(a) of the PUHCA, from the
requirements of the PUHCA and the rules and regulations thereunder,
other than the requirements of Section 9(a)(2) thereof.
2. No consent or authorization of, filing with or other
act by or in respect of, any Official Body is required to be
obtained or made by the Borrower or PEI under the Securities Act or
the Exchange Act of 1934 in connection with the execution, delivery
and performance by the Borrower of the Loan Agreement and the
Notes, other than ordinary disclosures in filings required to be
made by the Borrower or PEI pursuant to the disclosure requirements
of the Act and the Exchange Act, none of which disclosures are
required to be made prior to the execution and delivery of the Loan
Agreement and the Notes.
In rendering the opinion contained in the last sentence
of paragraph 1, we have assumed that (i) no Person directly or
indirectly owns, controls or holds with power to vote ten percent
(10%) or more of the voting securities (as defined in the PUHCA) of
the Borrower, except PEI, and (ii) no Person directly or indirectly
owns, controls or holds with power to vote ten percent (10%) or
more of the voting securities (as defined in the PUHCA) of PEI.
The opinion expressed herein are furnished by us in
connection with the Loan Agreement solely for your benefit and for
the benefit of each of the Banks and may not be relied upon for any
other purpose, or furnished to, used by, circulated to, quoted to
or referred to, by any other person without our prior written
consent in each instance.
Very truly yours,
Hughes Hubbard & Reed
EXHIBIT "C"
COMPLIANCE CERTIFICATE
This Compliance Certificate is delivered pursuant to
Section 7.3(iii) of the Term Loan Agreement dated as of August 14,
1997 (the "Term Loan Agreement"), by and among PG Energy Inc., the
Banks named therein or made parties thereto and PNC Bank, National
Association as the Agent.
1. The undersigned hereby certifies that the
undersigned has reviewed the terms of the Term Loan Agreement and
the Notes and has made, or caused to be made under his supervision,
a review of the transactions and condition of the Borrower and of
Pennsylvania Enterprises, Inc. and its Subsidiaries during the
accounting period covered by the financial statements being
delivered to the Banks along with this Compliance Certificate and:
[(a) Such review has not disclosed the existence
during such accounting period, and the undersigned does not have
knowledge of the existence as of the date hereof, of any condition
or event which constitutes an Event of Default or a Potential Event
of Default [except as set forth in paragraph (b) hereof].]
[(b) The nature of the condition(s) or event(s)
which constitute an Event(s) of Default or Potential Event(s) of
Default is(are) as follows:]
[Existing condition(s) or event(s) to be described]
[(c) The Borrower [is taking] [is planning to take]
the following action with respect to the condition(s) or event(s)
set forth in paragraph (b) above]:
2. The calculations of the financial covenants set for
in Sections 7.2 (o) and 7.2(p) for the accounting period ended
, 199__ are set forth below:
(a) Minimum Interest Coverage
(b) Maximum Leverage Ratio
3. All terms used herein as defined terms which are not
defined herein but are defined in the Term Loan Agreement shall
have the meanings ascribed to them in the Term Loan Agreement.
PG ENERGY INC.
By:
Date: (Name and title of Authorized
Officer of Borrower)
EXHIBIT "D"
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated __________,
199__, among _________________________ (the "Transferor Bank"),
each financial institution executing this Assignment and Assumption
Agreement (each, a "Purchasing Bank"), PG Energy Inc., a
Pennsylvania corporation (the "Borrower")' and PNC Bank, National
Association, as agent for the Banks under the Agreement described
below (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, this Assignment and Assumption Agreement is
being executed and delivered in accordance with Section 10.11 of
that certain Term Loan Agreement dated as of August 14, 1997, among
the Borrower, the Transferor Bank, certain other Banks parties
thereto and the Agent (as from time to time amended, supplemented
or otherwise modified in accordance with the terms thereof, the
"Agreement");
WHEREAS, the Purchasing Bank wishes to become a Bank
party to the Agreement; and
WHEREAS, the Transferor Bank is selling and assigning to
each Purchasing Bank, rights, obligations and commitments under the
Agreement;
NOW, THEREFORE, the parties hereto hereby agree as
follows:
1. Upon receipt by the Agent of ten counterparts of
this Assignment and Assumption Agreement to each of which is
attached a fully completed Schedule I, and each of which has been
executed by the Transferor Bank, each Purchasing Bank, the Borrower
and the Agent, the Agent will transmit to the Borrower, the
Transferor Bank and each Purchasing Bank a Transfer Effective
Notice, substantially in the form of Schedule II to this Assignment
and Assumption Agreement (a "Transfer Effective Notice"). Such
Transfer Effective Notice shall set forth, inter alia, the date on
which the transfer effected by this Assignment and Assumption
Agreement shall become effective (the "Transfer Effective Date"),
which date shall be the second Business Day following the date of
such Transfer Effective Notice. From and after the Transfer
Effective Date, each Purchasing Bank shall be a Bank party to the
Agreement for all purposes thereof.
2. At or before 12:00 Noon, local time of the
Transferor Bank on the Transfer Effective Date, the Purchasing Bank
shall pay to the Transferor Bank, in immediately available funds,
an amount equal to the purchase price, as agreed between the
Transferor Bank and such Purchasing Bank (the "Purchase Price") of
the portion being purchased by such Purchasing Bank (such
Purchasing Bank's "Purchased Percentage") of the outstanding Term
Loans and other amounts owing to the Transferor Bank under the
Agreement and the Note. Effective upon receipt by the Transferor
Bank of the Purchase Price from a Purchasing Bank, the Transferor
Bank hereby irrevocably sells, assigns and transfers to such
Purchasing Bank, without recourse, representation or warranty, and
each Purchasing Bank hereby irrevocably purchases, takes and
assumes from the Transferor Bank, such Purchasing Bank's Purchased
Percentage of the presently outstanding Term Loans and other
amounts owing to the Transferor Bank under the Agreement and the
Note together with all instruments, documents and collateral
security pertaining thereto.
3. The Transferor Bank has made arrangements with each
Purchasing Bank with respect to (i) the portion, if any, to be
paid, and the date or dates for payment, by the Transferor Bank to
such Purchasing Bank of any fees heretofore received by the
Transferor Bank pursuant to the Agreement prior to the Transfer
Effective Date and (ii) the portion, if any, to be paid, and the
date or dates for payment, by such Purchasing Bank to the
Transferor Bank of fees or interest received by such Purchasing
Bank pursuant to the Agreement from and after the Transfer
Effective Date.
4. (a) All principal payments that would otherwise be
payable from and after the Transfer Effective Date to or for the
account of the Transferor Bank pursuant to the Agreement and the
Note shall, instead, be payable to or for the account of the
Transferor Bank and the Purchasing Banks, as the case may be, in
accordance with their respective interests as reflected in this
Assignment and Assumption Agreement.
(b) All interest, fees and other amounts that would
otherwise accrue for the account of the Transferor Bank from and
after the Transfer Effective Date pursuant to the Agreement and the
Note shall, instead, accrue for the account of, and be payable to,
the Transferor Bank and the Purchasing Banks, as the case may be,
in accordance with their respective interests as reflected in this
Assignment and Assumption Agreement (unless otherwise modified as
provided in paragraph 3 above). In the event that any amount of
interest, fees or other amounts accruing prior to the Transfer
Effective Date was included in the Purchase Price paid by any
Purchasing Bank, the Transferor Bank and each Purchasing Bank will
make appropriate arrangements for payment by the Transferor Bank to
such Purchasing Bank of such amount upon receipt thereof from the
Borrower.
5. On or prior to the Transfer Effective Date, the
Transferor Bank will deliver to the Agent its Note. On or prior to
the Transfer Effective Date, the Borrower will deliver to the Agent
a Note for each Purchasing Bank and the Transferor Bank, in each
case in principal amounts reflecting, in accordance with the
Agreement, the amounts of their respective Term Loans (as adjusted
pursuant to this Assignment and Assumption Agreement), whereupon
the Agent shall return to the Borrower the Note delivered by the
Transferor to the Agent, which Note shall be marked "Canceled by
Substitution". Each such new Note shall be dated the Funding Date
and there shall be no loss of interest on the surrendered Note.
Promptly after the Transfer Effective Date, the Agent will send to
each of the Transferor Bank and the Purchasing Bank its new Note.
All Notes executed and issued, upon any transfer of Notes shall be
legal, valid and binding obligations of the Borrower, evidencing
the same debt, and entitled to the same security and benefits under
the Agreement as the Notes surrendered for such transfer or
exchange.
6. Concurrently with the execution and delivery hereof,
the Transferor Bank will provide to each Purchasing Bank conformed
copies of all documents delivered to the Transferor Bank on the
Closing Date in satisfaction of the conditions precedent set forth
in the Agreement.
7. Each of the parties to this Assignment and
Assumption Agreement agrees that at any time and from time to time
upon the written request of any other party, it will execute and
deliver such further documents and do such further acts and things
as such other party may reasonably request in order to effect the
purposes of this Assignment and Assumption Agreement.
8. Each of the Transferor Bank and the Purchasing Bank
represents and warrants to the other that (i) it has full power and
legal right to execute and deliver this Assignment and Assumption
Agreement and to perform the provisions of this Assignment and
Assumption Agreement, (ii) the execution, delivery and performance
of this Assignment and Assumption Agreement have been authorized by
all necessary corporate action and (iii) this Assignment and
Assumption Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
9. By executing and delivering this Assignment and
Assumption Agreement, the Transferor Bank and the Purchasing Bank
confirm to and agree with each other and the Agent and the Banks as
follows: (i) other than the representation and warranty that it is
the legal and beneficial owner of the interest being assigned
hereby free and clear of any adverse claim, the Transferor Bank
makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made
in or in connection with the Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the
Agreement, the Note or any other instrument or document furnished
pursuant thereto; (ii) the Transferor Bank makes no representation
or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or
observance by the Borrower of any of its obligations under the
Agreement, the Note or any other instrument, document or
certificate furnished pursuant hereto; (iii) the Purchasing Bank
confirms that it has received a copy of the Agreement, together
with copies of the financial statements referred to in Section
5.1(i)(A) of the Agreement, the financial statements delivered
pursuant to Sections 7.3(i) and 7.3(ii) of the Agreement, if any,
and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter
into this Assignment and Assumption Agreement; (iv) the Purchasing
Bank will, independently and without reliance upon the Agent, the
Transferor Bank or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under
the Agreement; (v) each Purchasing Bank appoints and authorizes the
Agent to take such action as agent on behalf of the Purchasing Bank
and to exercise such powers under the Agreement as are delegated to
the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto, all in accordance with Article IX of
the Agreement; and (vi) each Purchasing Bank agrees that it will
perform all of its respective obligations as set forth in the
Agreement to be performed by each as a Bank.
10. Schedule I hereto sets forth the revised Term Loan
Amounts and Term Loan Percentages of the Transferor Bank and the
Purchasing Bank as well as administrative information with respect
to each other Bank.
11. This Assignment and Assumption Agreement shall be
governed by, and construed in accordance with, the laws of the
Commonwealth of Pennsylvania. All terms used herein as defined
terms which are not defined herein but are defined in the Agreement
shall have the meaning ascribed to them in the Agreement, unless
the context clearly indicates otherwise. All section references
herein are to the Agreement, unless otherwise specified.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Assumption Agreement to be executed by their
respective duly authorized officers on the date set forth above.
,
as Transferor Bank
By:
Name:
Title:
PG ENERGY INC.
as Borrower
By:
Name:
Title:
as a Purchasing Bank
By:
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By:
Name:
Title:
SCHEDULE I TO ASSIGNMENT AND ASSUMPTION AGREEMENT
LIST OF OFFICES, ADDRESSES FOR NOTICES AND LOAN AMOUNTS
[Transferor Bank] Revised Term
Loan Amount: $
Revised Term
Loan Percentage: %
[Purchasing Bank] New Term
Loan Amount: $
New Term
Loan Percentage: %
Address for Notices:
Attention:
Telephone: (___) ___-______
Telecopier: (___) ___-______
SCHEDULE II TO ASSIGNMENT AND ASSUMPTION AGREEMENT
[Form of Transfer Effective Notice]
To: PG Energy Inc., as Transferor Bank
and , as Purchasing Bank
The undersigned, as Agent under the Term Loan Agreement, dated as
of August 14, 1997, among PG Energy Inc., as Borrower, the Banks
parties thereto, and PNC Bank, National Association, as Agent,
acknowledges receipt of ten executed counterparts of a completed
Assignment and Assumption Agreement, as described in Schedule I
hereto. Terms defined in such Assignment and Assumption Agreement
are used herein as therein defined.
1. Pursuant to such Assignment and Assumption Agreement, you
are advised that the Transfer Effective Date will be [Insert second
Business Day following date of Transfer Effective Notice.]
2. Pursuant to such Assignment and Assumption Agreement, the
Transferor Bank is required to deliver to the Agent on or before
the Transfer Effective Date its Note.
3. Pursuant to such Assignment and Assumption Agreement, the
Borrower is required to deliver to the Agent on or before the
Transfer Effective Date the following Notes, each dated the Funding
Date:
(a) Note in the face principal amount of $
made payable to [Transferor Bank];
(b) Note in the face principal amount of $
made payable to [Purchasing Bank];
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By:
Title:
ACCEPTED FOR RECORDATION
IN REGISTER:
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By:
Title:
IDENTIFICATION OF APPLICABLE ASSIGNMENT AND
ASSUMPTION AGREEMENT
(1) Assignment and Assumption Agreement dated as of ____________,
199__, by and among PG Energy Inc., as Borrower,
, as the Transferor Bank, , as the
Purchasing Bank, and PNC Bank, National Association, as Agent.
<-- Codes
<-- advance code $25,000,000 TERM LOANS
TERM LOAN AGREEMENT
by and among
PG ENERGY INC.
and
THE BANKS PARTIES HERETO
and
PNC BANK, NATIONAL ASSOCIATION, as Agent
Dated as of August 14, 1997
<-- Codes
TABLE OF CONTENTS
PAGE
ARTICLE I
CERTAIN DEFINITIONS 1
1.1 Certain Definitions 1
1.2 Construction 14
1.3 Accounting Principles 14
ARTICLE II
TERM LOANS 14
2.1 Term Loans 14
2.2 Use of Proceeds 14
2.3 Notes 15
2.4 Taxes. 15
ARTICLE III
INTEREST RATES 15
3.1 Interest Rate Options 15
(a) Selection of
Interest Rate Options 15
(b) Term Loan
Interest Rate Options 16
(c) Rate Quotations.
16
3.2 Euro-Rate Interest Periods 17
3.3 Interest After Default; Interest on Overdue Amount 17
3.4 Euro-Rate Unascertainable 18
3.5 Failure to Select Euro-Rate Option 19
ARTICLE IV
PAYMENTS 20
4.1 Principal Payment Date 20
4.2 Interest Payment Dates 20
4.3 Payments 20
4.4 Pro Rata Treatment of Banks 21
4.5(A) Voluntary Prepayments 21
(B) Mandatory
Prepayments 22
4.6 Additional Compensation in Certain Circumstances 23
(a) Increased Costs
or Reduced Return Resulting From Taxes, Reserves, Capital
Adequacy Requirements, Expenses, Etc 23
(b) Indemnity 24
4.7 Loan Accounts 25
ARTICLE V
REPRESENTATIONS AND WARRANTIES 25
5.1 Representations and Warranties 25
(a) Organization and
Qualification 25
(b) Capitalization
and Ownership 25
(c) Subsidiaries
25
(d) Power and
Authority 26
(e) Validity and
Binding Effect 26
(f) No Conflict
26
(g) Litigation
26
(h) Title to
Properties 26
(i) Financial
Statements 27
(j) Margin Stock
27
(k) Taxes 27
(l) Consents and
Approvals 28
(m) No Event of
Default; Compliance with Instruments 28
(n) Insurance 28
(o) Compliance with
Laws 28
(p) Investment
Companies; Other Regulations 29
(q) Plans and
Benefit Arrangements 29
(r) Employment
Matters 30
(s) Environmental
Matters 30
(t) Senior Debt
Status 32
ARTICLE VI
CONDITIONS OF LENDING 32
6.1 Closing Conditions 32
6.2 Funding Conditions 34
ARTICLE VII
COVENANTS 35
7.1 Affirmative Covenants 35
(a) Preservation of
Existence, etc. 35
(b) Payment of
Taxes. 35
(c) Maintenance of
Insurance 35
(d) Maintenance of
Properties and Leases 35
(e) Maintenance of
Patents, Trademarks, etc. 36
(f) Visitation
Rights 36
(g) Keeping of
Records and Books of Account 36
(h) Plans and
Benefit Arrangements 36
(i) Compliance with
Laws 36
(j) Use of Proceeds
36
(k) Environmental
Laws 37
(l) Utility Act
37
(m) Senior Debt
Status 37
7.2 Negative Covenants 37
(a) Indebtedness
37
(b) Liens 38
(c) Guaranties
38
(d) Loans,
Acquisitions and Investments 38
(e) Dividends and
Related Distributions 39
(f) Liquidations,
Mergers and Consolidations 39
(g) Dispositions of
Assets or Subsidiaries 40
(h) Affiliate
Transactions 40
(i) Subsidiaries,
Partnerships and Joint Ventures 41
(j) Continuation of
or Change in Business 41
(k) Plans and
Benefit Arrangements 41
(l) Fiscal Year
42
(m) Issuance of
Stock 42
(n) Changes in
Organizational Documents 42
(o) Minimum Interest
Coverage Ratio 42
(p) Maximum Leverage
Ratio 42
7.3 Reporting Requirements 42
7.4 Notices Regarding Plans and Benefit Arrangements 45
ARTICLE VIII
DEFAULT 46
8.1 Events of Default 46
8.2 Consequences of Event of Default 49
ARTICLE IX
AGENT 50
9.1 Appointment 50
9.2 Delegation of Duties 50
9.3 Nature of Duties; Independent Credit Investigation 51
9.4Actions in Discretion of Agent; Instructions from the Banks 51
9.5Reimbursement and Indemnification of Agent by the Borrower 52
9.6 Exculpatory Provisions 52
9.7 Reimbursement and Indemnification of Agent by Banks 53
9.8 Reliance by Agent 53
9.9 Notice of Default 54
9.10 Notices 54
9.11 Banks in Their Individual Capacities 54
9.12 Holders of Notes 54
9.13 Equalization of Banks 54
9.14 Successor Agent 55
9.15 Agent's Fee 55
9.16 Calculations 55
9.17 Beneficiaries 56
ARTICLE X
MISCELLANEOUS 56
10.1 Modifications Amendments or Waivers 56
10.2No Implied Waivers; Cumulative Remedies; Writing Required 56
10.3Reimbursement and Indemnification of Agent and Banks by the
Borrower; axes 57
10.4 Holidays 58
10.5 Funding by Branch, Subsidiary or Affiliate 58
(a) Notional Funding
58
(b) Actual Funding
58
10.6 Notices 59
10.7 Severability 59
10.8 Governing Law 59
10.9 Prior Understanding 59
10.10 Duration; Survival 59
10.11 Successors and Assigns 60
10.12 Confidentiality 62
10.13 Counterparts 63
10.14 Agent's or Bank's Consent 63
10.15 Exceptions 63
10.16 Consent to Forum; Waiver of Jury Trial 63
SCHEDULE 1.1(a)
TERM LOAN AMOUNT OF BANKS 68
SCHEDULE 1.1(b)
PERMITTED LIENS 69
SCHEDULE 5.1(l)
CONSENTS AND APPROVALS 71
SCHEDULE 5.1(q)
EMPLOYEE BENEFIT PLAN DISCLOSURES 72
SCHEDULE 5.1(s)
ENVIRONMENTAL DISCLOSURES 73
SCHEDULE 7.2(a)
EXISTING INDEBTEDNESS 74
SCHEDULE 7.2(g)
ASSET SALES 75
SCHEDULE 7.2(i)
SUBSIDIARIES 76
EXHIBIT "A"
TERM LOAN NOTE 1
EXHIBIT "B-1"
Opinion of House Counsel of the Borrower 1
EXHIBIT "B-2"
Opinion of Hughes Hubbard & Reed 1
EXHIBIT "C"
COMPLIANCE CERTIFICATE 1
EXHIBIT "D"
ASSIGNMENT AND ASSUMPTION AGREEMENT 1
SCHEDULE I TO ASSIGNMENT AND ASSUMPTION AGREEMENT
LIST OF OFFICES, ADDRESSES FOR NOTICES AND LOAN AMOUNTS 1
SCHEDULE II TO ASSIGNMENT AND ASSUMPTION AGREEMENT
[Form of Transfer Effective Notice] 1
Contract # 2.1106
SERVICE AGREEMENT
between
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
and
PG ENERGY INC.
Dated July 10, 1997
SERVICE AGREEMENT
THIS AGREEMENT entered into this 10th day of July,
1997, by and between TRANSCONTINENTAL GAS PIPE LINE
CORPORATION, a Delaware corporation, hereinafter referred to
as "Seller", first party, and PG ENERGY INC., hereinafter
referred to as "Buyer", second party,
W I T N E S S E T H
WHEREAS, Seller owns and operates an interstate gas
pipeline system; and
WHEREAS, Buyer submitted a request for firm
transportation service to be made available through an
expansion of its transmission facilities, referred to as the
"1997 Pocono Expansion Project";
WHEREAS, Seller and PG Energy Inc. ("PG Energy") are
parties to a Precedent Agreement, dated March 31, 1997
providing for firm transportation service of up to a
Transportation Contract Quantity of 33,500 dt per day
through Seller's pipeline system under Rate Schedule FT; and
WHEREAS, Seller will provide firm transportation
service hereunder to Buyer pursuant to Seller's blanket
certificate authorization and Rate Schedule FT for the
33,500 dt per day Transportation Contract Quantity pursuant
to the terms and conditions of this agreement.
NOW, THEREFORE, Seller and Buyer agree as follows:
ARTICLE I
GAS TRANSPORTATION SERVICE
1. Subject to the terms and provisions of this
agreement and of Seller's Rate Schedule FT, Buyer agrees to
deliver or cause to be delivered to Seller gas for
transportation and Seller agrees to receive, transport and
redeliver natural gas to Buyer or for the account of Buyer,
on a firm basis, up to a Transportation Contract Quantity
("TCQ") of 33,500 dt per day.
2. Transportation service rendered hereunder shall not
be subject to curtailment or interruption except as provided
in Section 11 of the General Terms and Conditions of
Seller's FERC Gas Tariff.
ARTICLE II
POINT OF RECEIPT
Buyer shall deliver or cause to be delivered gas at the
point of receipt hereunder at a pressure sufficient to allow
the gas to enter Seller's pipeline system at the varying
pressures that may exist in such system from time to time;
provided, however, the pressure of the gas delivered or
caused to be delivered by Buyer shall not exceed the maximum
operating pressure of Seller's pipeline system at such point
of receipt. In the event the maximum operating pressure of
Seller's pipeline system, at the point of receipt hereunder,
is from time to time increased or decreased, then the
maximum allowable pressure of the gas delivered or caused to
be delivered by Buyer to Seller at the point of receipt
shall be correspondingly increased or decreased upon written
notification of Seller to Buyer. The point of receipt for
natural gas received for transportation pursuant to this
agreement shall be:
See Exhibit A, attached hereto for point of receipt.
ARTICLE III
POINT OF DELIVERY
Seller shall redeliver to Buyer or for the account of
Buyer the gas transported hereunder at the following point
of delivery and at a pressure of:
See Exhibit B, attached hereto, for point of delivery
and pressure.
ARTICLE IV
TERM OF AGREEMENT
This agreement shall be effective as of the later of
November 1, 1997 or the date that the facilities of Seller
necessary to commence service of all or part of Buyer's TCQ
hereunder are ready for service and shall remain in force
and effect until 10:00 a.m. Eastern Standard Time November
1, 2017 and thereafter until terminated by Seller or Buyer
upon at least one hundred eighty days (180) written notice;
provided, however, this agreement shall terminate
immediately and, subject to the receipt of necessary
authorizations, if any, Seller may discontinue service
hereunder if (a) Buyer, in Seller's reasonable judgment
fails to demonstrate credit worthiness, and (b) Buyer fails
to provide adequate security in accordance with Section 32
of the General Terms and Conditions of Seller's Volume No. 1
Tariff.
ARTICLE V
RATE SCHEDULE AND PRICE
1. Buyer shall pay Seller for natural gas delivered to
Buyer hereunder in accordance with Seller's Rate Schedule FT
and the applicable provisions of the General Terms and
Conditions of Seller's FERC Gas Tariff as filed with the
Federal Energy Regulatory Commission, and as the same may be
legally amended or superseded from time to time. Such Rate
Schedule and General Terms and Conditions are by this
reference made a part hereof. In the event Buyer and Seller
mutually agree to a negotiated rate and specified term for
service hereunder, provisions governing such negotiated rate
(including surcharges) and term shall be set forth on
Exhibit C to the service agreement.
2. Seller and Buyer agree that the quantity of gas that
Buyer delivers or causes to be delivered to Seller shall
include the quantity of gas retained by Seller for
applicable compressor fuel, line loss make-up (and injection
fuel under Seller's Rate Schedule GSS, if applicable) in
providing the transportation service hereunder, which
quantity may be changed from time to time and which will be
specified in the currently effective Sheet No. 44 of Volume
No. 1 of this Tariff which relates to service under this
agreement and which is incorporated herein.
3. In addition to the applicable charges for firm
transportation service pursuant to Section 3 of Seller's
Rate Schedule FT, Buyer shall reimburse Seller for any and
all filing fees incurred as a result of Buyer's request for
service under Seller's Rate Schedule FT, to the extent such
fees are imposed upon Seller by the Federal Energy
Regulatory Commission or any successor governmental
authority having jurisdiction.
ARTICLE VI
MISCELLANEOUS
1. This Agreement supersedes and cancels as of the
effective date hereof the following contract(s) between the
parties hereto: None.
2. No waiver by either party of any one or more
defaults by the other in the performance of any provisions
of this agreement shall operate or be construed as a waiver
of any future default or defaults, whether of a like or
different character.
3. The interpretation and performance of this agreement
shall be in accordance with the laws of the State of Texas,
without recourse to the law governing conflict of laws, and
to all present and future valid laws with respect to the
subject matter, including present and future orders, rules
and regulations of duly constituted authorities.
4. This agreement shall be binding upon, and inure to
the benefit of the parties hereto and their respective
successors and assigns.
5. Notices to either party shall be in writing and
shall be considered as duly delivered when mailed to the
other party at the following address:
(a) If to Seller:
Transcontinental Gas Pipe Line Corporation
P.O. Box 1396
Houston, Texas, 77251
Attention: Director, Customer Services
(b) If to Buyer:
PG Energy Inc.
One PEI Center
Wilkes-Barre, PA 18711-0601
Attention: Director, Gas Supply
Such addresses may be changed from time to time by mailing
appropriate notice thereof to the other party by certified
or registered mail.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be signed by their respective officers or
representatives thereunto duly authorized.
TRANSCONTINENTAL GAS PIPE LINE
CORPORATION (Seller)
By: /s/ Frank J. Ferazzi
Frank J. Ferazzi
Vice President
Customer Service
PG ENERGY INC. (Buyer)
By: /s/ John F. Kell, Jr.
John F. Kell, Jr.
Vice President, Financial
Services
Exhibit A
ATTACHED AND MADE PART OF THAT SERVICE AGREEMENT BY AND
BETWEEN TRANSCONTINENTAL GAS PIPE LINE CORPORATION, AS
SELLER, AND PG ENERGY INC., AS BUYER, DATED July 10, 1997
Point of Receipt
The point of interconnection between Seller and CNG
Transmission Corporation near the Leidy Storage Field,
Clinton County, Pennsylvania.
Exhibit B
ATTACHED AND MADE PART OF THAT SERVICE AGREEMENT BY AND
BETWEEN TRANSCONTINENTAL GAS PIPE LINE CORPORATION, AS
SELLER, AND PG ENERGY INC., AS BUYER, DATED July 10, 1997
Point of Delivery
The point of interconnection between Seller's Leidy Line and
Buyer's facilities at the Shickshinny Meter Station near
Salem Township, Luzerne County, Pennsylvania.
Pressure
Pressures existing from time to time in Seller's system at
the point of delivery.
Exhibit C
ATTACHED AND MADE PART OF THAT SERVICE AGREEMENT BY AND
BETWEEN TRANSCONTINENTAL GAS PIPE LINE CORPORATION, AS
SELLER, AND PG ENERGY INC., AS BUYER, DATED July 10, 1997
Specification of Negotiated Rate and Term
None.
<TABLE> <S> <C>
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THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, STATEMENTS OF INCOME AND CASH FLOW, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
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<CIK> 0000077242
<NAME> PG ENERGY INC.
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