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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _____________
Commission file number: 1-11156
NGC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3248415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 Louisiana, Suite 5800
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 507-6400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class: on which registered:
Common Stock, par value $.01 per share New York Stock Exchange
Series A Participating Preferred Stock ----
6.75% Debt Securities due 2005 ----
7.625% Senior Notes due 2026 ----
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
Yes X No
------ -----
The aggregate value of Common Stock held by non-affiliates of the registrant was
approximately $364,438,085 on March 25, 1998, (based on $14.8125 per share, the
last sale price of the Common Stock as reported on the New York Stock Exchange
Composite Tape on such date). 151,524,970 shares of the registrant's Common
Stock were outstanding as of March 25, 1998.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of Parts I, II and IV in the
Annual Report to Shareholders for the fiscal year ended December 31, 1997. As
to Part III (items 10, 11, 12 and 13), Notice and Proxy Statement for the 1998
Annual Meeting of Stockholders to be filed not later than 120 days after
December 31, 1997.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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NGC CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART I
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Page
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Item 1. Business.................................................................. 1
Item 1A Executive Officers........................................................ 12
Item 2. Properties................................................................ 14
Item 3. Legal Proceedings......................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders....................... 20
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. 20
Item 6. Selected Financial Data................................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 23
Item 8. Financial Statements and Supplementary Data............................... 35
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 35
PART III
Item 10. Directors and Executive Officers of the Registrant........................ 36
Item 11. Executive Compensation.................................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 36
Item 13. Certain Relationships and Related Transactions............................ 36
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 36
Signatures........................................................................... 42
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For definitions of certain terms used herein, see "Item 1. BUSINESS --
DEFINITIONS."
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PART I
Item 1. BUSINESS
THE COMPANY
GENERAL
NGC Corporation, ("NGC" or the "Company") is a leading North American
marketer of natural gas, natural gas liquids, electricity and crude oil and is
engaged in natural gas gathering, processing and transportation through direct
and indirect ownership and operation of natural gas processing plants,
fractionators, storage facilities and pipelines and engages in electric power
generation through direct and indirect ownership of cogeneration and other
electric power producing facilities. Acting in the role of a large-scale
aggregator, processor, marketer and reliable supplier of multiple energy
products and services, NGC has evolved into a reliable energy commodity and
service provider.
The Company is a holding company that conducts substantially all of its
business through its subsidiaries. From inception of operations in 1984 until
1990, Natural Gas Clearinghouse ("Clearinghouse") limited its activities
primarily to natural gas marketing. Starting in 1990, Clearinghouse began
expanding its core business operations through acquisitions and strategic
alliances with certain of its shareholders resulting in the formation of a
midstream energy asset business and establishing energy marketing operations in
both Canada and the United Kingdom. Effective March 1, 1995, Clearinghouse and
Trident NGL Holding, Inc. ("Holding"), a fully integrated natural gas liquids
company, merged and the combined entity was renamed NGC Corporation ("Trident
Combination"). On August 31, 1996, NGC completed a strategic combination with
Chevron U.S.A. Inc. and certain Chevron affiliates (collectively "Chevron")
whereby substantially all of Chevron's midstream assets were merged with NGC
("Chevron Combination"). In June 1997, NGC acquired Destec Energy, Inc.
("Destec"), a leading independent power producer. By virtue of the growth of
NGC's core businesses combined with the synergies derived from these
transactions, NGC has established itself as an industry leader providing
quality, competitively priced energy products and services to customers
primarily throughout North America and in the United Kingdom.
BG plc, Chevron and NOVA Corporation ("NOVA") each own approximately 26
percent of the outstanding common stock of NGC.
The principal executive office of the Company is located at 1000 Louisiana,
Suite 5800, Houston, Texas 77002, and the telephone number of that office is
(713) 507-6400. NGC and its affiliates maintain marketing and/or regional
offices in Atlanta, Georgia; Bogata, Columbia; Boston, Massachusetts; Calgary,
Alberta; Chicago, Illinois; Dallas, Texas; Englewood, Colorado; London, England;
Mexico City, Mexico; Midland, Texas; Oklahoma City, Oklahoma; Pleasanton,
California; Tampa, Florida; Tulsa, Oklahoma; and Washington D.C.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION
This Form 10-K contains various forward-looking statements and information
that are based on management's beliefs as well as assumptions made by and
information currently available to management. When used in this document, words
such as "anticipate", "estimate", "project", and "expect" are intended to
identify forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, projected or expected. Among the key risk factors that
may have a direct bearing on NGC's results of operations and financial condition
are: (i) competitive practices in the industries in which NGC competes, (ii)
fluctuations in energy commodity prices which have not been properly hedged or
which are inconsistent with NGC's open position in its energy marketing
activities, (iii) operational and systems risks, (iv) environmental liabilities
which are not covered by indemnity or insurance, and (v) the impact of current
and future laws and governmental regulations (particularly environmental
regulations) affecting the energy industry in general, and NGC's operations in
particular.
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DEFINITIONS
As used in this Form 10-K, the abbreviations listed below are defined as
follows:
Bbl 42 U.S. gallons, the basic unit for measuring crude oil and
natural gas condensate.
MBbls/d Volume of one thousand barrels per day.
MMBbls Volume of one million barrels.
MMcf/d Volume of one million cubic feet per day.
Bcf Volume of one billion cubic feet
Bcf/d Volume of one billion cubic feet per day.
Bpd Barrels per day.
LPG Liquid petroleum gas.
MW s Megawatts.
Spot The Henry Hub cash price posting for natural gas per the "Inside
FERC" publication.
NYMEX New York Mercantile Exchange.
BUSINESS
The Company reports operations under three primary business segments: the
natural gas and power marketing segment, the power generation segment and the
natural gas liquids, crude oil and gas transmission segment.
Natural Gas and Power Marketing
NGC's Natural Gas and Power Marketing business uses its knowledge of the
marketplace, considerable physical transmission, storage, processing and
distribution assets and a multi-commodity mindset to provide customers with
flexible, tailored solutions to meet their energy supply, asset management and
financial risk management needs. NGC's business strategy in this segment
includes expanding its relationships with existing local distribution companies
("LDCs") and industrial customers to broaden its customer base and role as a
wholesale energy supplier.
The Company's wholesale natural gas marketing activities consist of
contracting to purchase specific volumes of natural gas from suppliers at
various points of receipt to be supplied over a specific period of time;
aggregating natural gas supplies and arranging for the transportation of these
gas supplies through proprietary and third-party transmission systems;
negotiating the sale of specific volumes of natural gas over a specific period
of time to LDCs, utilities, power plants and other end-users; and matching
natural gas receipts and deliveries based on volumes required by customers.
During 1997, the Company announced the formation of three retail energy
alliances that will each provide energy services to industrial, commercial and
residential customers. NGC's goal is to build a network of regionally focused
alliance relationships that leverage the different strengths of each alliance
partner by combining NGC's buying power and large-scale wholesale energy supply
infrastructure with the ability of regional partners to assess and address local
conditions quickly and effectively. In determining alliance partner candidates,
NGC seeks partners having significant existing customer bases, strong regional
name recognition and similar infrastructures. Management believes the formation
of a series of alliances throughout North America will provide NGC with
accelerated market penetration and a potential platform for selling products and
services to a retail customer base at modest capital investment during a period
of evolving regulation and restructuring.
The Company is also a marketer of electricity and power products and
services in the United States through its wholly owned subsidiary Electric
Clearinghouse, Inc. ("ECI"). ECI provides its customers with a 24-hour-a-day
resource for the sale and purchase of power through access to wholesale markets
throughout North America. ECI helps customers remarket their fuel, optimize
generation assets and capacity utilization and maximize energy conversion and
tolling opportunities. In addition, ECI provides market aggregation and sales
assistance and offers risk-management services and strategies, which complement
its marketing activities.
Natural Gas Purchases. The Company purchases natural gas from a variety of
suppliers under contracts with varying terms and conditions intended to ensure a
stable supply of natural gas. When purchasing natural gas, the Company considers
price, location, liquids content, if applicable, and quantities available. In
1997, the Company
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purchased natural gas in every major producing basin in the United States and
Canada from over 900 suppliers, ranging from major producers to small
independent companies. Pursuant to ancillary agreements entered into as part of
the Chevron Combination, NGC has the obligation to purchase and the right to
market substantially all of the natural gas produced or controlled by Chevron in
the United States (except Alaska). The Chevron relationship provides the Company
with a significant stable supply of natural gas which, when combined with gas
supplies available from its network of other supply sources, allows it to
effectively manage gas supplies and reduces the risk of short-term supply
shortages during periods of peak demand.
Transportation. The Company arranges for transportation of the natural gas
it markets from the supplier receipt point to the delivery point requested by
the purchaser. The Company generally retains title to the natural gas from the
receipt point to the delivery point and obtains transportation on unaffiliated
pipelines. The Company believes that its understanding of the United States'
pipeline network, along with the scale and geographic reach of its gas marketing
efforts, are important to the Company's success as a gas marketer. These
factors, as well as its efficiency in utilizing the gas transportation network,
allow the Company to provide its suppliers with multiple outlets for their
natural gas and, in times of significant changes in demand or supply due to
weather or other factors, to route gas to areas of the United States where it is
most needed. The Company attempts to reduce transportation charges by taking
advantage of its broad array of transportation agreements and by negotiating
competitive discounts. The Company uses a variety of transportation arrangements
to move its customers' volumes, including short-term and long-term firm and
interruptible agreements with pipelines and brokered firm contracts with its
customers.
Natural Gas Sales. The Company sells natural gas under sales agreements
that have varying terms and conditions intended to match seasonal and other
changes in demand. The Company's wholesale customer base consists primarily of
gas and electric utilities and industrial and commercial end-users and marketers
of natural gas. In 1997, sales were made to approximately 1,100 customers
located throughout the contiguous United States and parts of Canada. For the
year ended December 31, 1997, the Company's North American operations sold an
aggregate average of 8.0 Bcf per day of natural gas.
Natural Gas Storage and Marketing Hubs. Natural gas storage capacity plays
an important role in the Company's ability to act as a full-service natural gas
marketer by allowing it to manage relatively constant gas supply volumes with
uneven demand levels. Through the use of its storage capabilities, the Company
offers peak delivery services to satisfy winter heating and summer electric-
generating demands. Storage inventories also provide performance security or
"backup" service to the Company's customers. The Company at various times leases
short-term and long-term firm and interruptible storage.
The Company also utilizes gas market area hubs to allow customers to
manage short-term prices and help solve imbalance and transportation problems.
These strategic market hubs, located where regional interstate pipelines
converge, are designed to bring buyers and sellers together over a broad
geographic area. Services offered by the hubs include wheeling, loaning, parking
and title transfer, which complement existing natural gas supply, transportation
and storage services, and contribute to a more efficient, reliable, cost-
effective marketplace. Wheeling refers to the simultaneous transfer of natural
gas from one pipeline to another, while loaning occurs when one party allows
another party to borrow natural gas. Parking services allow a customer to store
natural gas in a hub for future redelivery, while title transfer services allow
a customer to assign title to natural gas that is in storage.
Foreign Markets. During 1997, the Company restructured the ownership of
its joint ventures with NOVA to market natural gas in Canada and with British
Gas plc to market natural gas in the United Kingdom. As a result of these
restructurings, NGC is now pursuing energy marketing and midstream asset
businesses through wholly owned subsidiaries in Canada and in the United
Kingdom. Additionally, as part of the restructuring of operations in the United
Kingdom, NGC retained a twenty-five percent participating preferred stock
interest in Accord Energy Limited ("Accord"), a U.K.-based energy marketing
company.
Power Marketing. The Company formed ECI in February 1994 to pursue
electric power marketing opportunities created by the deregulation of the
domestic electric power industry. The U.S. electric industry is estimated to
produce approximately $200 billion in industry revenues annually, and is at
least double the U.S. natural gas business. As power becomes deregulated and
thus commoditized, its value relative to natural gas will continue to converge.
Complexity in the marketplace could be ever-increasing and management of
customer energy requirements will require a multi-commodity focus. NGC believes
that its ownership of strategically located generating assets will enable the
Company to expand its electric power marketing business. In 1997, NGC made sales
to approximately 180
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customers and sold 94.7 million megawatt hours of electricity as compared with
14.9 million megawatt hours sold during 1996.
POWER GENERATION
NGC's Destec subsidiary is in the business of developing, operating and
managing projects which produce electricity, thermal energy and synthetic gas.
NGC's business strategy in power generation focuses on being a low-cost producer
of electric power. Destec has interests in 16 partnerships, each formed to
build, own and operate electric power generating facilities, and owns/leases and
operates one cogeneration plant, one heat recovery plant and one coal
gasification facility. The combined gross capacity of these facilities is
approximately 2,839 megawatts of electricity and over 3.4 million pounds per
hour of steam. Destec continues to pursue expansion of its asset base by
acquiring, developing, constructing, managing and operating power generation
facilities.
The majority of the power generating facilities owned directly or
indirectly by Destec are cogeneration plants. A cogeneration plant utilizes
power production technology that results in the sequential generation of two or
more useful forms of energy (e.g., electricity and steam) from a single fuel
source (e.g., natural gas). Destec also owns an interest in a coal gasification
plant that produces synthetic gas, which serves as an alternative fuel in power
generation facilities.
Destec provides services to the partnerships in which it owns an interest
in the areas of project development, engineering, environmental affairs,
operating services and management and fuel supply services. Such management
services include: (i) engineering oversight of all conceptual planning,
feasibility studies, environmental studies and plant, engineering and
construction design; (ii) specialized and comprehensive operating, maintenance,
testing and start-up services; and (iii) asset management services that
coordinate project activities with, and maintain relationships among, all
project stakeholders, which include owners, customers, lenders, suppliers, and
operators. Various activities are performed with a goal of obtaining ongoing
profitability, including negotiating new contracts and/or amending existing
contracts, developing annual and long-term business plans and forecasts,
developing and implementing profit improvement opportunities, monitoring
regulatory, legislative, and environmental affairs, and providing various
accounting and financial services.
NATURAL GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION
The Company's natural gas liquids, crude oil and gas transmission segment
includes natural gas gathering and processing, fractionation, natural gas
liquids marketing, natural gas transmission and crude oil marketing and
transportation operations.
Natural Gas Gathering and Processing. The natural gas processing industry
is a major segment of the oil and gas industry, providing the necessary service
of refining raw natural gas into marketable pipeline quality natural gas and
natural gas liquids. The Company owns interests in 48 gas processing plants,
including 36 plants which it operates. The Company also operates natural gas
gathering pipeline systems, including certain assets held pending sale. These
assets are primarily located in the key producing areas of New Mexico, Texas,
Louisiana, Arkansas, Oklahoma and Kansas.
During the year ended December 31, 1997, the Company processed an average
of 2.8 Bcf per day of natural gas and produced an average of 136.2 thousand
barrels per day of natural gas liquids. As part of the Chevron Combination's
ancillary agreements, NGC acquired the right to process substantially all of
Chevron's processable natural gas in those geographic areas where it is
economically feasible for NGC to provide such service.
Fractionation. The natural gas liquids removed from the natural gas stream
at gas processing plants are generally in the form of a commingled stream of
liquid hydrocarbons (raw product). The commingled natural gas liquids are
separated at fractionation facilities into the component products of ethane,
propane, normal butane, isobutane and natural gasoline. At December 31, 1997,
the Company had ownership interests in two fractionation facilities, each
located in Mont Belvieu, Texas, plus significant fractionation capacity at the
VESCO facility located in Plaquemines Parish, Louisiana. During 1997, these
facilities fractionated an average of 252 gross barrels per day. The Company is
in the process of constructing a fourth facility in Lake Charles, Louisiana,
that is expected to be operational in the fourth quarter of 1998. Upon
completion of this construction project, NGC will have gross fractionation
capacity at these facilities of approximately 405 thousand barrels per day. In
addition, the Company maintains fractionation capability at several of its gas
processing facilities.
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NGL Marketing. The Company markets its own natural gas liquids production
and also purchases natural gas liquids from third parties for resale. Through
the Company's strategic network of pipeline connections, terminals, rail cars,
trucks, barges and storage facilities, the Company moves natural gas liquids
from producing regions in the Gulf Coast, West and Midwest to most major
domestic and international markets. The Company operates large-scale marine
terminals in Texas, Florida and Louisiana, which offer importers a variety of
methods for transporting products to the marketplace. In addition, NGC has
access to over 60 million barrels of underground liquids storage providing
customers with the ability to store, trade, buy and sell specification products.
In 1997, the Company significantly expanded utilization of such storage,
terminalling and shipping assets and services to support the growth of its
international deepwater LPG business. During 1997, the Company sold
approximately 414 thousand barrels per day of natural gas liquids to over 900
customers.
Transmission Operations. The Company's transportation assets are inter-
connected with the nation's gas liquids and natural gas pipeline systems. NGC
owns a 49 percent interest in a partnership which operates the West Texas LPG
Pipeline, a pipeline capable of delivering 160,000 barrels per day of liquids to
fractionation facilities at Mont Belvieu, Texas. In addition, the Company owns
and operates a 12-inch bi-directional pipeline, which can transport 50,000
barrels per day of liquids and finished products between major LPG Hubs, Lake
Charles, Louisiana and Mont Belvieu. The Company operates an extensive Houston-
area distribution system which provides market access to refiners and chemical
plants on the Houston Ship Channel. The Company operates an intrastate natural
gas pipeline system in south-central Kansas, which serves markets in the Wichita
area and provides access to markets in the Midwest and Mid-Continent areas
through interconnected intrastate and interstate pipelines. The Company also
operates the Ozark Gas Transmission Pipeline ("Ozark"), an interstate pipeline
system located in eastern Oklahoma and central Arkansas.
Crude Oil Marketing. The Company provides a full range of crude oil
marketing services to producers, and serves the North American refining
community as a regionally diversified supplier of crude oil. Through its
participation in major trading centers in the Mid-Continent, Rocky Mountain and
Gulf Coast areas, the Company has established itself as a dependable source of
competitively priced crude oil. During 1997, the Company sold approximately 168
thousand barrels per day of crude oil to over 150 customers.
INTERNATIONAL OPPORTUNITIES
NGC's strategic investors, BG plc, NOVA and Chevron, provide the Company
with international business opportunities through joint ventures or other means.
By combining NGC's multi-commodity energy trading expertise with these business
partners' international asset positions and understanding of local governments,
markets and customer needs, NGC intends to bring multi-commodity products and
services to new markets. As countries privatize or deregulate their energy
industries, NGC will work closely with its business partners to explore
opportunities that optimize value in selected overseas markets.
RISK MANAGEMENT ACTIVITIES
NGC utilizes certain types of fixed-price forward purchase and sales
contracts, futures and option contracts traded on the NYMEX and swaps and
options traded in the over-the-counter financial markets to manage and hedge its
fixed-price purchase and sales commitments, to provide fixed-price commitments
as a service to its customers and suppliers, to reduce its exposure to the
volatility of cash market prices and to protect its investment in storage
inventories. The Company may, at times, have a bias in the market, within
established guidelines, resulting from the management of its portfolio.
Additionally, NGC monitors its exposure to fluctuations in interest rates and
foreign currency exchange rates and may execute swaps, forward-exchange
contracts or other financial instruments to hedge and manage these exposures.
In addition to the risk associated with price or interest rate movements,
credit risk is also inherent in the Company's risk management activities. Credit
risk relates to the risk of loss resulting from the nonperformance of
contractual obligations by a counterparty. NGC maintains credit policies with
regard to its counterparties, which management believes minimize its overall
credit risk.
The commercial groups of NGC manage, on a portfolio basis, the resulting
market risks inherent in the transactions, subject to parameters established by
the NGC Board of Directors. Market risks are monitored by a risk control group
that operates separately from the commercial units that create or actively
manage these risk exposures
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to ensure compliance with NGC's risk management policies. Risk measurement is
also practiced against the NGC portfolios with stress testing and scenario
analysis.
STRATEGIC BUSINESS COMBINATIONS
The Destec Acquisition. NGC acquired Destec, an independent power
producer, for $1.26 billion in June 1997. Following the acquisition, NGC sold
certain international and non-strategic Destec assets for aggregate proceeds of
$735 million. NGC believes the acquisition of Destec's power generating assets
will result in significant benefits through the integration of Destec's
electricity and thermal energy marketing activities with NGC's existing power
marketing business, conducted through ECI, and the introduction of Destec's
customers to the variety of energy products and services provided by other NGC
businesses. NGC expects Destec's expertise in power technology and engineering
and experience in development, construction, management and operation of power
facilities to provide a platform for expansion of its power generating business
worldwide.
Chevron Combination. On August 31, 1996, NGC completed the Chevron
Combination pursuant to which substantially all of Chevron's midstream assets,
including substantially all of the assets comprising Warren Petroleum Company
and Chevron's Natural Gas Business Unit and an undivided interest in those
assets that constitute the West Texas LPG Pipeline, were combined into NGC. As a
result of the Chevron Combination, Chevron received approximately 38.6 million
shares of NGC common stock, approximately 7.8 million shares of NGC's Series A
Participating Preferred Stock and $128 million in cash, and NGC assumed
approximately $155 million of indebtedness.
In connection with the Chevron Combination, NGC and Chevron entered into
certain ancillary supply, sales and service agreements with respect to natural
gas, natural gas liquids and electricity. Pursuant to these ancillary
agreements, NGC has the obligation to purchase and the right to market
substantially all of the natural gas and natural gas liquids produced or
controlled by Chevron in the United States (except Alaska), to process
substantially all of Chevron's processable natural gas in those geographic areas
where it is economically feasible for NGC to provide such service, to supply
natural gas feedstocks to Chevron refineries and chemical plants in the United
States and to participate in existing and future opportunities to provide
electricity to Chevron's United States facilities as well as to purchase or
market excess electricity generated by those facilities.
Trident Combination. On March 14, 1995, NGC and Holding, a registrant on
the New York Stock Exchange, consummated the Trident Combination. Pursuant to
the terms of the Trident Combination, Holding, the legally surviving corporation
in the Combination, was renamed NGC Corporation. The Trident Combination
provided NGC with significant gas gathering, gas processing, fractionation and
other midstream assets.
RECENT DEVELOPMENTS
Restructuring of Liquids Business. During the fourth quarter of 1997, the
Company recognized a $275 million charge largely related to its plan to
restructure the Company's natural gas liquids business, including
rationalization and consolidation of assets acquired in both the Trident and
Chevron Combinations, the reorganization of personnel to improve operational
management of this segment and a reduction of employees involved in non-
strategic operations. Execution of this comprehensive plan began in 1997 and
will continue into 1998. Pursuant to this restructuring, the Company anticipates
recording an additional severance charge of approximately $10 million during the
first quarter of 1998.
Sale of Ozark. In January 1998, the Company announced an agreement to sell
the Ozark Gas Transmission System for $55 million, and expects to recognize an
estimated pre-tax gain of approximately $27 million related to the sale. Closing
of the transaction is expected in the third quarter of 1998, subject to certain
conditions, including FERC and other governmental approvals.
El Paso Capacity Commitment. For a two-year period beginning January 1,
1998, the Company contracted for 1.3 billion cubic feet per day of firm
transportation capacity to California on the El Paso Natural Gas pipeline
system. The arrangement has been implemented but is subject to regulatory
approval in a pending proceeding in which challenges have been filed. The firm
capacity provides NGC with the ability to serve an expanded California customer
base arising from the recent Chevron Combination and Destec acquisition, as well
as to take advantage of opportunities associated with the deregulation of the
electric power industry in California. Pursuant to this arrangement, NGC is
obligated to pay a minimum of $70 million of reservation charges over the two-
year term.
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New Power Project Commitments. In November 1997, the Company together with
NRG Energy, Inc. ("NRG"), was awarded the contract to acquire the El Segundo
Station, a 1,020 megawatt gas-fired power generating facility located in Los
Angeles, California. The El Segundo facility will be acquired by an entity owned
fifty percent by the Company and fifty percent by NRG. Additionally, in February
1998, NGC together with NRG, was awarded the contract to acquire a 560
megawatt gas-fired power facility located in Long Beach, California. The Long
Beach facility will also be acquired by an entity owned fifty percent by NGC and
fifty percent by NRG. The El Segundo facility is partially a merchant plant
while the Long Beach facility is solely a merchant plant. Both acquisitions are
expected to close in the second quarter of 1998. With respect to both these
acquisitions, NGC will be the lead party on fuel procurement, power marketing
and asset management, while NRG will be operator of the facilities.
Additionally, Destec and a partner were selected to build a 766 megawatt
independent power station near Townsville, in Queensland, Australia. The
Townsville project is expected to be partially operational in July 2001, and
fully operational by July 2003. Destec will own fifty percent of this project.
Venice Energy Services Company, L.L.C. ("VESCO"). The VESCO members have
entered into a definitive agreement with Koch Energy Services Company ("Koch")
pursuant to which Koch will contribute a cryogenic gas processing unit to VESCO
on behalf of NGC in exchange for approximately 10 percent of NGC's interest in
the limited liability company. The transaction, which is expected to close in
the second quarter of 1998, will reduce NGC's interest in VESCO to approximately
23 percent.
COMPETITION
All phases of the businesses in which NGC is engaged are highly
competitive. In connection with both domestic and foreign operations, the
Company encounters strong competition from companies of all sizes, having
varying levels of financial and personnel resources.
NGC competes in its gas marketing business with other natural gas
merchants, producers and pipelines for sales based on its ability to aggregate
competitively priced supplies from a variety of sources and locations and to
utilize transportation efficiently through third-party pipelines. With respect
to its marketing operations, NGC believes that customers will increasingly
scrutinize the financial condition of their suppliers to assure that contract
obligations will be met; suppliers and transporters will demand more stringent
credit terms to secure the performance of natural gas merchants; the increased
role of storage and other risk management tools will add to the financial costs
of doing business; the increasing availability of pricing information to
participants in the natural gas industry will continue to exert downward
pressure on per-unit profit margins in the industry; suppliers will have to be
multi-fuel marketers; and large competitors will create competition from
entities having significant liquidity and other resources. As a result, NGC
believes its financial condition and its access to capital markets will play an
increasing role in distinguishing the Company from many of its competitors.
Operationally, NGC believes its ability to remain a low-cost merchant and to
effectively combine value-added services, competitively priced supplies and
price risk management services will determine the level of success in its
natural gas marketing operations.
NGC's power marketing business is similar to its gas marketing business in
that it provides contract services to electric utilities, markets and supplies
electricity, and invests in power-related assets and joint ventures. As a
result, the competition issues incumbent upon the Company's gas marketing
operations similarly impact the Company's power marketing business. As with its
gas marketing operations, the Company believes it has the ability to establish
itself as a low cost and dependable merchant providing competitively priced
supplies and a variety of services which will differentiate NGC from the
competition.
The independent power generation industry has grown rapidly over the past
twenty years. The demand for power may be met by generation capacity based on
several competing technologies, such as gas-fired or coal-fired cogeneration and
power generating facilities fueled by alternative energy sources including hydro
power, synthetic fuels, solar, wind, wood, geothermal, waste heat, solid waste
and nuclear sources. The Company's Power Generation segment competes with other
non-utility generators, regulated utilities, unregulated subsidiaries of
regulated utilities and other energy service companies in the development and
operation of energy-producing projects. The trend towards deregulation in the
U.S. electric power industry has resulted in a highly competitive market for
acquisition or development of domestic power generating facilities. As the
nation's regulated utilities seek non-regulated investments and states move
toward retail electric competition, these trends can be expected to continue for
the foreseeable future.
7
<PAGE>
The Company's natural gas liquids, crude oil marketing and gas transmission
businesses face significant competition from a variety of competitors including
major integrated oil companies, major pipeline companies and their marketing
affiliates and national and local gas gatherers, processors, brokers, marketers
and distributors of varying sizes and experience. The principal areas of
competition include obtaining gas supplies for gathering and processing
operations, obtaining supplies of raw product for fractionation, the marketing
of natural gas liquids, crude oil, residue gas, helium, condensate and sulfur,
and the transportation of natural gas, natural gas liquids and crude oil.
Competition typically arises as a result of the location and operating
efficiency of facilities, the reliability of services and price and delivery
capabilities. The Company believes it has the infrastructure, long-term
marketing abilities, financial resources and management experience to enable it
to effectively compete.
REGULATION
General. The Company is subject to the laws, rules and regulations of the
countries in which it conducts its operations. The regulatory burden on the
energy industry increases its cost of doing business and, consequently, affects
its profitability. Inasmuch as these rules and regulations are frequently
amended or reinterpreted, the Company is unable to predict the future cost or
impact of complying with such regulations. These rules and regulations affect
the industry as a whole; therefore, the Company does not believe that it is
affected in a significantly different manner from its competitors.
The transportation and sale for resale of natural gas is subject to
regulation by the Federal Energy Regulatory Commission ("FERC") under the
Natural Gas Act of 1938, as amended ("NGA") and, to a lesser extent, the Natural
Gas Policy Act of 1978, as amended ("NGPA"). Interstate transportation and
storage services by natural gas companies, including interstate pipeline
companies, and the rates charged for such services, are regulated by the FERC.
Certain of the Company's pipeline activities and facilities are involved in
interstate transportation of natural gas, crude oil and natural gas liquids, and
are subject to these or other federal regulations.
Natural Gas Marketing. Commencing in 1985, the FERC promulgated a series
of orders and regulations adopting changes that significantly altered the
business of transporting and marketing natural gas by fostering competition. The
thrust of these regulations was to induce interstate pipeline companies to
provide nondiscriminatory transportation services to producers, distributors and
other shippers. The effect of the foregoing regulations has been the creation of
a more open access market for natural gas purchases and sales and the creation
of a business environment which has fostered the evolution of various
unregulated, privately negotiated natural gas sales, purchase and transportation
arrangements.
Regulation determined by the FERC relating to the sale for resale of
natural gas continues to evolve. While the ultimate impact of such
determinations on the Company's operations cannot be predicted with certainty,
the Company does not believe that the outcome of these matters will have a
material adverse effect on the Company's operations or competitiveness.
Gas Processing. The primary function of NGC's gas processing plants is the
extraction of natural gas liquids and the conditioning of natural gas for
marketing, and not natural gas transportation. The FERC has traditionally
maintained that a processing plant is not a facility for transportation or sale
for resale of natural gas in interstate commerce and therefore is not subject to
jurisdiction under the NGA. Even though the FERC has made no specific
declaration as to the jurisdictional status of the Company's gas processing
operations or facilities, NGC believes its gas processing plants are primarily
involved in removing natural gas liquids and therefore exempt from FERC
jurisdiction. Nonetheless, certain facilities downstream of processing plants
are being considered for use in transporting gas between pipelines, which may
invoke FERC's jurisdiction. Such jurisdiction should apply to the downstream
facility as a pipeline, however, and not to the plants themselves.
Gathering. The NGA exempts gas gathering facilities from the jurisdiction
of the FERC. Interstate transmission facilities, on the other hand, remain
subject to FERC jurisdiction. The FERC has historically distinguished between
these two types of facilities on a fact-specific basis. NGC believes its
gathering facilities and operations meet the current tests used by the FERC to
determine a nonjurisdictional gathering facility status. Some of the recent
cases applying these tests in a manner favorable to the determination of NGC's
nonjurisdictional status are still subject to rehearing and appeal. In addition,
the FERC's articulation and application of the tests used to distinguish between
jurisdictional pipelines and nonjurisdictional gathering facilities have varied
over time. While the Company believes current definitions create
nonjurisdictional status for NGC's gathering facilities, no assurance can be
given that such facilities will remain classified as gas gathering facilities
and the possibility exists that the rates,
8
<PAGE>
terms, and conditions of the services rendered by those facilities, and the
construction and operation of the facilities will be subject to regulation by
the FERC or by the various states in the absence of FERC regulation.
Market Hubs. The market hub for which Hub Services, Inc., a wholly owned
subsidiary of NGC, serves as hub administrator is a combined gas storage,
transportation and interchange facility. To the extent the market hub provides
services in intrastate commerce, the rates, terms and conditions of service are
regulated by the applicable state public utility commissions. To the extent the
market hub provides service in interstate commerce subject to the NGA or NGPA,
the FERC has overlapping regulatory authority with respect to rates, terms and
conditions of service.
Other Regulatory Issues. The Company's gas purchases and sales are
generally not regulated by the FERC; however, as a gas merchant, the Company
depends on the gas transportation and storage services offered by various
interstate and intrastate pipeline companies to enable the sale and delivery of
its gas supplies. Additionally, certain other pipeline activities and facilities
of the Company are involved in interstate and intrastate transportation and
storage services and are subject to various federal and state regulations which
generally regulate rates, terms and conditions of service.
Electricity Marketing Regulation. The Federal Power Act ("FPA") and rules
promulgated by the FERC regulate the transmission of electric power in
interstate commerce and sales for resale of that power. As a result, portions of
ECI's operations are under the jurisdiction of the FPA and FERC. In April 1996,
the FERC adopted rules (Order 888) to expand transmission service and access and
provide alternative methods of pricing for transmission services. Upon
promulgation of the final rule by the FERC (and the Public Utility Commission of
Texas for ERCOT), the interstate transmission grid in the continental United
States was opened to all qualified persons that seek transmission services to
wheel wholesale power. Utilities are required to provide transmission customers
non-discriminatory open access to their transmission grids with rates, terms,
and conditions comparable to that which the utility imposes on itself. Order
888 was upheld by the FERC in March 1997 and is subject to appeal. Second
generation implementation issues arising out of Order 888 abound. These include
issues relating to power pool structures and transmission pricing. These too
will likely find their way to the courts, and their outcome cannot be predicted.
Power Generation Regulation. Historically in the United States, regulated
and government-owned utilities have been the only significant producers of
electric power for sale to third parties. Pursuant to the enactment of the
federal Public Utility Regulatory Policies Act of 1978 ("PURPA"), companies
other than utilities were encouraged to enter the electric power business by
reducing regulatory constraints. In addition, PURPA and its implementing
regulations created unique opportunities for the development of cogeneration
facilities by requiring utilities to purchase electric power generated in
cogeneration plants meeting certain requirements (referred to as "Qualifying
Facilities"). As a result of PURPA, a significant market for electric power
produced by independent power producers developed in the United States. The
exemptions from extensive federal and state regulation afforded by PURPA to
Qualifying Facilities are important to NGC and its competitors. Many of the
projects that NGC currently owns meet the requirements under PURPA to be
Qualifying Facilities and are maintained on that basis.
In 1992, Congress enacted the Energy Policy Act of 1992 ("Energy Act"),
which amended the FPA and the Public Utility Holding Company Act of 1935
("PUHCA") to create new exemptions from PUHCA for independent power producers
selling electric energy at wholesale, to increase electricity transmission
access for independent power producers and to reduce the burdens of complying
with PUHCA's restrictions on corporate structures for owning or operating
generating or transmission facilities in the United States or abroad. The Energy
Act has enhanced the development of independent power projects and has further
accelerated the changes in the electric utility industry that were initiated by
PURPA.
Changes in PURPA, PUHCA and other related federal statutes may occur in the
next several years. The nature and impact of such changes on the Company's
projects, operations and contracts is unknown at this time. NGC actively
monitors these developments to determine such impacts as well as to evaluate new
business opportunities created by restructuring of the electric power industry.
Depending on the outcome of these legislative matters, changes in legislation
could have an adverse effect on current contract terms.
The enactment in 1978 of PURPA and the adoption of regulations thereunder
by the FERC and individual states provide incentives for the development of
small power production facilities and cogeneration facilities meeting certain
criteria. In order to be a Qualifying Facility, a cogeneration facility must (i)
produce not only electricity but also a certain quantity of thermal energy (such
as steam) which is used for a qualified purpose other than power generation,
(ii) meet
9
<PAGE>
certain energy operating and efficiency standards when oil or natural gas is
used as a fuel source and (iii) not be controlled or more than 50 percent owned
by an electric utility or electric utility holding company, or any combination
thereof. PURPA provides two primary benefits to Qualifying Facilities owned and
operated by non-utility generators. First, Qualifying Facilities under PURPA are
exempt from certain provisions of PUHCA, the FPA and, except under certain
limited circumstances, state laws respecting rate and financial regulation.
Second, PURPA requires that electric utilities purchase electricity generated by
Qualifying Facilities at a price equal to the purchasing utility's full "avoided
cost" and that the utility sell back-up power to the Qualifying Facility on a
non-discriminatory basis. The FERC regulations also permit Qualifying Facilities
and utilities to negotiate agreements for utility purchases of power at rates
other than the purchasing utility's avoided cost. If Congress amends PURPA, the
statutory requirement that an electric utility purchase electricity from a
Qualifying Facility at full avoided costs could be eliminated. Although current
legislative proposals specify the honoring of existing contracts, repeal of the
statutory purchase requirements of PURPA going forward could increase pressure
to renegotiate existing contracts. Any changes which result in lower contract
prices could have an adverse effect on the Company's operations and financial
position.
The Congress passed the Energy Act to promote further competition in the
development of new wholesale power generation sources. Through amendments to
PUHCA, the Energy Act encourages the development of independent power projects
which are certified by the FERC as exempt wholesale generators ("EWGs"). The
owners or operators of qualifying EWGs are exempt from the provisions of PUHCA.
The Energy Act also provides the FERC with extensive new authority to order
electric utilities to provide other electric utilities, Qualifying Facilities
and independent power projects with access to their transmission systems.
However, the Energy Act does preclude the FERC from ordering transmission
services to retail customers and prohibits "sham" wholesale energy transactions
which appear to provide wholesale service, but actually are providing service to
retail customers.
The FPA grants the FERC exclusive rate-making jurisdiction over wholesale
sales of electricity in interstate commerce. The FPA provides the FERC with
ongoing as well as initial jurisdiction, enabling the FERC to revoke or modify
previously approved rates. Such rates may be based on a cost-of-service approach
or on rates that are determined through competitive bidding or negotiation on a
market basis. Although Qualifying Facilities under PURPA are exempt from rate-
making and certain other provisions of the FPA, independent power projects and
certain power marketing activities are subject to the FPA and to the FERC's
rate-making jurisdiction. Utilities are not obligated to purchase power from
projects subject to regulation by the FERC under the FPA because they do not
meet the requirements of PURPA. However, because such projects would not be
bound by PURPA's thermal energy use requirement, they may have greater latitude
in site selection and facility size. All of the projects currently owned or
operated by NGC as Qualifying Facilities under PURPA are exempt from the FPA.
NGC's EWGs, Commonwealth Atlantic and Hartwell, are subject to the FPA and the
jurisdiction of the FERC. With approval from FERC, such entities, with certain
exceptions, are exempted from being required to sell cost-based rates and can
make all sales at market-based rates set through negotiations. Independent power
projects in which the Company has an interest have been granted market based
rate authority and comply with the FPA requirements governing approval of
wholesale rates and subsequent transfers of ownership interests in such
projects.
Development of projects in international markets creates exposure and
obligations to the national, provincial and local laws of each host country,
worldwide environmental standards and requirements imposed by multi-lateral
lending institutions. The principal regulatory consideration for international
projects is PUHCA, since it is broadly applicable to the ownership and operation
of power facilities (including generation and transmission facilities) both
inside and outside of the United States. For international projects, the
principal basis for exemption from PUHCA is by obtaining EWG status from the
FERC. EWG status is very beneficial for international projects because EWGs are
generally allowed to make retail sales in international markets. Another way to
obtain an exemption from PUHCA for foreign ownership and operation activities is
by filing a foreign utility company determination ("FUCO") with the Securities
and Exchange Commission. However, FUCO filings are less frequently used,
because unlike EWGs, no formal regulatory order is issued confirming the status
of a FUCO. The development of international power generation and transmission
projects also may entail other multi-national regulatory considerations arising
under United States law, including export/import controls, trade laws and other
similar legislation. NGC attempts to identify and manage those issues early in
the development process to ensure compliance with such laws and regulations.
State Regulatory Reforms. Legislation currently under review in various
states impacting gas and electricity marketing and power generation businesses
is most likely to impact NGC in the near term. However, other state regulatory
reforms impacting the Company's processing and gathering operations and other
businesses are proceeding. While the ultimate impact of such legislation on the
Company's businesses cannot be predicted with certainty, the Company does not
believe that the outcome of these matters will have a material adverse effect on
the Company's operations or competitiveness.
10
<PAGE>
ENVIRONMENTAL AND OTHER MATTERS
NGC's operations are subject to extensive federal, state and local
statutes, rules and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. Development of
projects in international markets creates exposure and obligations to the
national, provincial and local laws of each host country, including
environmental standards and requirements imposed by these governments.
Compliance with these statutes, rules and regulations requires capital and
operating expenditures including those related to monitoring, pollution control
equipment, emission fees and permitting at various operating facilities and
remediation obligations. Failure to comply with these statutes, rules and
regulations may result in the assessment of civil and even criminal penalties.
The Company's environmental expenditures have not been prohibitive in the past,
but are anticipated to increase in the future with the trend toward stricter
standards, greater regulation, more extensive permitting requirements and an
increase in the number and types of assets operated by the Company subject to
environmental regulation. No assurance can be given that future compliance with
these environmental statutes, rules and regulations will not have a material
adverse effect on the Company's operations or its financial condition.
The vast majority of federal environmental remediation provisions are
contained in the Superfund laws -- the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and the Superfund Amendments and
Reauthorization Act ("SARA") and in the corrective action provisions of the
Federal Resource Conservation and Recovery Act ("RCRA"). Typically, the U.S.
Environmental Protection Agency ("EPA") acts pursuant to Superfund legislation
to remediate facilities that are abandoned or inactive or whose owners are
insolvent; however, the legislation may be applied to sites still in operation.
Superfund law imposes liability, regardless of fault or the legality of the
original conduct, on certain classes of persons that contributed to the release
of a "hazardous substance" into the environment. These persons include the
current or previous owner and operator of a facility and companies that
disposed, or arranged for the disposal, of the hazardous substance found at a
facility. CERCLA also authorizes the EPA and, in certain instances, private
parties to take actions in response to threats to public health or the
environment and to seek recovery for the costs of cleaning up the hazardous
substances that have been released and for damages to natural resources from
such responsible party. Further, it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment. RCRA
provisions apply to facilities that have been used to manage or are currently
managing hazardous waste and which are either still in operation or have
recently been closed. As amended, RCRA requires facilities to remedy any
releases of hazardous wastes or hazardous waste constituents at waste treatment,
storage or disposal facilities.
In connection with discrete asset acquisitions and sales, NGC may obtain or
be required to provide indemnification against certain environmental
liabilities. These indemnities are typically limited in scope and time period.
To minimize its exposure for such liabilities, environmental audits of the
assets NGC wishes to acquire are made, either by NGC personnel, outside
environmental consultants, or a combination of the two. The Company has not
heretofore incurred any material environmental liabilities arising from its
acquisition or divestiture activities. The incurrence of a material
environmental liability, and/or the failure of an indemnitor to meet its
indemnification obligations with respect thereto, could have a material adverse
effect on NGC's operations and financial condition.
To the Company's knowledge, it is in substantial compliance with, and is
expected to continue to comply in all material respects with, applicable
environmental statutes, regulations, orders and rules. Further, to the best of
the Company's knowledge, there are no existing, pending or threatened actions,
suits, investigations, inquiries, proceedings or clean-up obligations by any
governmental authority or third party relating to any violations of any
environmental laws with respect to the Company's assets or pertaining to any
indemnification obligations with respect to properties previously owned or
operated by the Company which would have a material adverse effect on the
Company's operations and financial condition. NGC's aggregate expenditures for
compliance with laws and regulations related to the discharge of materials into
the environment or otherwise related to the protection of the environment
approximated $9.4 million in 1997. Total environmental expenditures for both
capital and operating maintenance and administrative costs are not expected to
exceed $15 million in 1998.
In addition to environmental regulatory issues, the design, construction,
operation and maintenance of the Company's pipeline facilities are subject to
the safety regulations established by the Secretary of the Department of
Transportation pursuant to the Natural Gas Pipeline Safety Act ("NGPSA"), or by
state regulations meeting the requirements of the NGPSA. The Company believes it
is currently in substantial compliance, and expects to continue to comply in all
material respects, with these rules and regulations.
11
<PAGE>
The Company's operations are subject to the requirements of the Federal
Occupational Safety and Health Act ("OSHA") and other comparable state statutes.
The OSHA hazard communication standard, the EPA community right-to-know
regulations under Title III of SARA and similar state statutes require that
information be organized and maintained about hazardous materials used or
produced in its operations. Certain of this information must be provided to
employees, state and local government authorities and citizens. The Company
believes it is currently in substantial compliance, and expects to continue to
comply in all material respects, with these rules and regulations.
OPERATIONAL RISKS AND INSURANCE
NGC is subject to all risks inherent in the various businesses in which it
operates. These risks include, but are not limited to, explosions, fires and
product spillage, which could result in damage to or destruction of operating
assets and other property, or could result in personal injury, loss of life or
pollution of the environment, as well as curtailment or suspension of operations
at the affected facility. NGC maintains general public liability, property and
business interruption insurance in amounts that it considers to be adequate for
such risks. Such insurance is subject to deductibles that the Company considers
reasonable and not excessive. The occurrence of a significant event not fully
insured or indemnified against, and/or the failure of a party to meet its
indemnification obligations, could materially and adversely affect NGC's
operations and financial condition. Moreover, no assurance can be given that NGC
will be able to maintain insurance in the future at rates it considers
reasonable.
During both 1997 and 1996, the Company designated two of its subsidiaries
to assist in the management of certain liabilities principally relating to
environmental, litigation and credit reserves. Together with the involvement of
third parties whose primary consideration will be based on the realization of
savings by the Company, the subsidiaries will attempt to find new ways to handle
these costs in a more efficient manner.
EMPLOYEES
The Company employs approximately 1,100 employees at its administrative
offices and approximately 1,472 employees at its operating facilities.
Approximately 120 employees at Company-operated facilities are subject to
collective bargaining agreements with the Oil, Chemical and Atomic Workers
International Union or the Metal Trades Council. Management considers relations
with both union and non-union employees to be satisfactory.
ITEM 1a. EXECUTIVE OFFICERS
Set forth below are the names and positions of the current executive
officers of the Company, together with their ages, position(s) and years of
service with the Company.
<TABLE>
<CAPTION>
Served with the
Name Age * Position(s) Company Since
- ---- ------ ----------- ---------------
<S> <C> <C> <C>
C. L. Watson 48 Chairman of the Board, Chief Executive Officer, 1985
and a Director of the Company
Thomas M. Matthews 54 President and Director of the Company 1996
Stephen W. Bergstrom 40 Senior Vice President and Advisory Director 1986
of the Company and President of Clearinghouse
John U. Clarke 45 Senior Vice President, Chief Financial Officer 1997
Stephen A. Furbacher 50 Senior Vice President of the Company and 1996
President of Warren Petroleum Limited
Partnership
Kenneth E. Randolph 41 Senior Vice President, General Counsel and 1984
Secretary of the Company
Dan W. Ryser 48 Senior Vice President of the Company and 1993
President of Destec Energy, Inc.
</TABLE>
- ----------
* As of April 1, 1998.
12
<PAGE>
The executive officers named above will serve in such capacities until the
next annual meeting of the Company's Board of Directors, or until their
respective successors have been duly elected and have been qualified, or until
their earlier death, resignation, disqualification or removal from office.
C. L. Watson serves as Chairman of the Board, Chief Executive Officer and a
Director of the Company. He also served as President of NGC from March 1995 to
December 1996. Mr. Watson served as Chairman and as a member of the
Clearinghouse Management Committee from May 1989 and through March 1995, and as
Chief Executive Officer and President of Clearinghouse from September 1985
through March 1995. Prior to his employment with Clearinghouse, Mr. Watson
served as Director of Gas Sales for the Western United States for Conoco Inc.
Mr. Watson also serves as a member of the Board of Directors of Baker Hughes
Incorporated.
Thomas M. Matthews joined the Company in December 1996 as President of NGC.
Prior to joining the Company, Mr. Matthews served as President and Chief
Executive Officer of Texaco Natural Gas from January 1996 through November 1996
and Vice President of Texaco, Inc. from November 1993 through November 1996.
Mr. Matthews also served as President of Texaco Refining and Marketing, Inc.
from December 1993 through December 1995. He joined Texaco U.S.A. as Vice
President-Gas in 1989. Prior to joining Texaco, Mr. Matthews spent eight years
with Tenneco as President of Tennessee Gas Pipeline Company and Executive Vice
President of Tenneco Gas and sixteen years with Exxon in various domestic and
international engineering, management and executive positions, having last
served as Vice President-Exxon Gas.
Stephen W. Bergstrom serves as Senior Vice President and as an advisory
director of the Company and as President of Clearinghouse. He served as
Executive Vice President of Clearinghouse and as a member of the Clearinghouse
Management Committee from May 1989 through March 1995. In addition, Mr.
Bergstrom served as Senior Vice President Gas Marketing and Supply of
Clearinghouse from May 1987 through May 1990 and as Vice President Gas Supply of
Clearinghouse from July 1986 through May 1987. Prior to his employment with the
Clearinghouse, Mr. Bergstrom served as Vice President Gas Supply of Enron Gas
Marketing, a subsidiary of Enron Corporation.
John U. Clarke joined the Company in April 1997 as Senior Vice President
and Chief Financial Officer and serves as the Company's principal financial
officer. Prior to joining NGC, Mr. Clarke was a managing director and co-head
of a specialty energy practice group with Simmons & Company International, an
investment banking firm for approximately one year. He previously had served as
President of Concept Capital Group, Inc., a financial advisory firm formed by
Mr. Clarke in May, 1995. Mr. Clarke was Executive Vice President and Chief
Financial and Administrative Officer with Cabot Oil & Gas Corporation from
August 1993 to February 1995, and worked for Transco Energy Company, from April
1981 to May 1993, last serving as Senior Vice President and Chief Financial
Officer. Mr. Clarke began his career with Tenneco Inc. in January 1978.
Stephen A. Furbacher serves as President of Warren Petroleum Limited
Partnership and Senior Vice President of NGC Corporation. Mr. Furbacher manages
the operations of NGC's natural gas gathering and processing, natural gas
liquids fractionation, storage, transportation and terminalling services. Prior
to joining the Company in September 1996, Mr. Furbacher served as President of
Warren Petroleum Company, a division of Chevron U.S.A. Inc.
Kenneth E. Randolph serves as Senior Vice President, General Counsel and
Secretary of the Company. He has served as Senior Vice President and General
Counsel of NGC (or its predecessor, Clearinghouse) since July 1987. In addition,
he served as a member of the Clearinghouse Management Committee from May 1989
through February 1994 and managed Clearinghouse's marketing operations in the
Western and Northwestern United States from July 1984 through July 1987. Prior
to his employment with the Company, Mr. Randolph was associated with the
Washington, D.C. office of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Dan W. Ryser serves as President of Destec Energy, Inc. and Senior Vice
President of NGC Corporation. Mr. Ryser manages the Company's power generation
business. Since joining NGC in 1993, Mr. Ryser has served the Company in
several capacities, including managing ECI's electricity marketing operations.
Prior to joining the Company in 1993, Mr. Ryser held various positions at Enron
Corp. including President of Enron Gas Processing Company, President of
Transwestern Pipeline Company, Executive Vice President of Enron Gas Marketing
and President of Houston Pipe Line Company.
13
<PAGE>
Item 2. PROPERTIES
All of the Company's operating assets are held through wholly owned
subsidiaries. The Company's operations are located throughout the contiguous
United States, western Canada and the United Kingdom. Current year activity
conducted in these areas is discussed under "Item 1. BUSINESS -- General."
Following is a description of such properties owned by the Company at December
31, 1997.
GATHERING SYSTEMS AND PROCESSING FACILITIES
NGC's natural gas processing services are provided at two types of gas
processing plants, referred to as field and straddle plants. Field plants
aggregate volumes from multiple producing wells into quantities that can be
economically processed to extract natural gas liquids and to remove water vapor,
solids and other contaminants. Straddle plants are situated on mainline natural
gas pipelines and allow operators to extract natural gas liquids from a natural
gas stream when the market value of natural gas liquids separated from the
natural gas stream is higher than the market value of the same unprocessed
natural gas. The following table provides certain information, including
operational data for the year ended December 31, 1997, concerning the gas
processing plants and gathering systems in which NGC owns an interest.
<TABLE>
<CAPTION>
Location Total Plant
-------------------- -------------------------
Practical 1997 Inlet NGL
Gas Processing Facilities % Owned County/Parish State Capacity (3) Throughput Production
------------------------------ ------- ------------- ----- ------------ ---------- -----------
(MMcf/d) (1) (Bpd) (2)
<S> <C> <C> <C> <C> <C> <C>
Operated Field Plants:
Arbuckle (14) 100.00 Murray OK 2 1.8 39.1
Binger (4) 100.00 Caddo OK 10 7.7 820.5
Breckenridge/Shackleford (4)(11) 100.00 Stephens & TX 30 17.2 2,708.2
Shackleford
Bridger Lake (9) 100.00 Summit UT 25 14.8 461.8
Canadian (4)(12) 100.00 Hemphill TX 25 23.6 2,253.4
Chico (4)(11) 100.00 Wise TX 100 63.2 9,624.5
East Texas (4)(11) 100.00 Gregg TX 34 28.0 4,251.9
Eunice (4)(11) 100.00 Lea NM 67 57.3 6,657.6
Eustace (4)(11) 100.00 Henderson TX 54 33.9 2,098.5
Fashing (12) 44.74 Atascosa TX 29 20.6 269.7
Haynesville I & II 100.00 Claiborne LA 85 66.7 3,317.5
Kellerville (4)(10)(11) 100.00 Wheeler TX 10 5.9 1,375.4
Leedey (4)(11) 100.00 Roger Mills OK 50 35.1 3,283.0
Lefors (4)(11) 100.00 Gray TX 12 7.3 1,966.2
Madill (4)(11) 100.00 Marshall OK 25 15.6 858.9
Moores Orchard (4)(12) 100.00 Fort Bend TX 7 4.0 123.4
Monahans/Worsham (4)(12) 100.00 Ward TX 31 25.6 2,665.6
Monument (4)(12) 100.00 Lea NM 80 65.5 7,187.2
New Hope 100.00 Franklin TX 30 15.4 902.0
Ringwood (4)(10)(15) 100.00 Major OK 62 52.3 3,698.4
Roberts Ranch (4)(11) 56.25 Midland TX 46 24.5 2,536.5
Rodman (4)(11) 100.00 Garfield OK 50 43.3 3,528.6
Sand Hills (4)(12) 100.00 Crane TX 200 176.3 13,577.3
Saunders/Vada/Bluitt (4)(10)(12) 100.00 Lea NM 44 34.0 5,129.4
Sherman (4)(12) 100.00 Grayson TX 33 16.4 733.1
Sligo 100.00 Bossier LA 40 36.0 658.5
Spivey (5)(6)(11) 3.87 Harper KS 3 0.2 29.5
Texarkana (4) 100.00 Miller AR 22 14.8 492.0
West Seminole (4)(11) 40.14 Gaines TX 5 9.3 592.4
Operated Straddle Plants:
Barracuda (8) 100.00 Cameron LA 190 149.8 3,872.5
Cheney (11) 100.00 Kingman KS 85 65.0 3,696.3
===============================================================================================================
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Location Total Plant
-------------------- -------------------------
Practical 1997 Inlet NGL
Gas Processing Facilities % Owned County/Parish State Capacity (3) Throughput Production
------------------------------ ------- ------------- ----- ------------ ---------- -----------
(MMcf/d) (1) (Bpd) (2)
<S> <C> <C> <C> <C> <C> <C>
Lowry (4)(11) 100.00 Cameron LA 265 173.6 4,495.5
Stingray (8) 100.00 Cameron LA 300 231.0 2,719.6
Yscloskey (6)(11)(13) 32.36 St. Bernard LA 566 430.3 7,610.4
Non-Operated Field Plants:
Diamond M (4) 3.98 Scurry TX 1 0.7 161.4
Dover Hennessey (4) 7.36 Kingfisher OK 6 2.7 275.7
Indian Basin (4)(12) 14.29 Eddy NM 30 29.9 1,358.8
Maysville (4)(11)(13) 44.00 Garvin OK 59 45.9 5,951.6
Snyder (7)(11) 3.25 Scurry TX 2 1.6 97.9
Non-Operated Straddle Plants:
Bluewater (12) 16.72 Acadia LA 122 66.5 1,316.2
Calumet (6)(11)(13) 21.91 St. Mary's LA 300 81.9 3,545.5
Iowa (12) 9.92 Jefferson LA 50 20.1 427.7
Davis
North Terrebone Robin (12) 0.83 Terrebone LA 10 13.2 249.8
Patterson (12) 1.09 St. Mary's LA 3 0.2 4.9
Sea Robin (12) 18.70 Vermillion LA 187 61.0 1,536.5
Toca (12) 8.86 St. Bernard LA 93 117.4 3,711.2
===================================================================================================================
</TABLE>
(1) Gross to the facility.
(2) Gross production, net to the Company's ownership interest.
(3) Capacity data is at practical recovery rates, net to NGC's interest.
(4) NGC owns the indicated percentage of an associated gas gathering system.
(5) NGC owns 2.19 percent of the associated gas gathering system.
(6) NGC ownership is adjustable and subject to periodic (usually annual)
redetermination.
(7) NGC owns the indicated percentage of the Snyder gas gathering system and
3.98 percent of the Diamond M gas gathering system which also supplies the
Snyder plant.
(8) This facility has no gathering lines.
(9) This facility consists of a 100 percent interest in a processing plant and
an NGL pipeline, a 100 percent interest in a crude oil pipeline and a 33.33
percent interest in reserves connected and dedicated to the plant. The
gathering system behind the processing plant gathers production from Utah
and Wyoming.
(10) The Enid, Kellerville, Vada and Bluitt facilities were closed during 1997
as part of NGC's program of asset rationalization and reorganization.
(11) These assets, or a portion thereof, were acquired in the Trident
Combination.
(12) These assets were acquired in the Chevron Combination.
(13) Additional interest in this facility was acquired as part of the Chevron
Combination.
(14) The Company's interest in this facility was disposed of in 1997.
(15) Includes the Enid, Oklahoma plant.
FRACTIONATION FACILITIES
The following table provides certain information concerning stand alone
fractionation facilities in which NGC owns an interest.
<TABLE>
<CAPTION>
Location Total Plant
---------------------- ------------------------
1997 Inlet
Fractionation Facilities (1) % Owned County/Parish State Capacity (2) Throughput
---------------------------- ------- ------------- ----- ------------ ----------
(MBbls/d)
<S> <C> <C> <C> <C> <C>
Mont Belvieu (3) 100.00 Chambers TX 205 158
Gulf Coast Fractionators (4) 38.75 Chambers TX 42 32
========================================================================================
</TABLE>
(1) Table does not include fractionation operations at VESCO or at other gas
processing facilities.
(2) Capacity data is at practical recovery rates.
(3) Interest in this facility was acquired as part of the Chevron Combination.
(4) Interest was acquired as part of the Trident Combination.
15
<PAGE>
A subsidiary of the Company is constructing a fractionation facility in
Lake Charles, Louisiana. The facility, which is expected to be operational in
the fourth quarter of 1998, will fractionate up to 55,000 barrels per day of
natural gas liquids principally from Gulf of Mexico natural gas production. The
new fractionator will extract ethane and propane for delivery to the Louisiana
market with the remaining commingled product shipped through the Company's 12"
bi-directional pipe line to Mont Belvieu, Texas, for further fractionation. The
facility will receive and ship product by pipeline, truck and barge and will
serve the petrochemical and refining industry in the Gulf Coast area.
STORAGE AND TERMINAL FACILITIES
The following table provides information concerning terminal and storage
facilities owned by the Company:
<TABLE>
<CAPTION>
Location
Storage and --------------------
Terminal Facilities % Owned County/Parish State Description
- -------------------- ------- ------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Hackberry Storage 100.00 Cameron LA NGL storage facility
Mont Belvieu Storage 100.00 Chambers TX NGL storage facility
Hattiesburg Storage 100.00 Washington MS NGL storage facility
Hackberry Terminal 100.00 Cameron LA Marine import/export
terminal
Mont Belvieu Terminal 100.00 Chambers TX Product terminal
facility
Galena Park Terminal 100.00 Harris TX LPG import/export
terminal
Calvert City Terminal 100.00 Marshall KY Product transport
terminal
Greenville Terminal 100.00 Washington MS Propane terminal
Hattiesburg Terminal 50.00 Forrest MS Propane terminal
Lampton-Love Terminal 100.00 Forrest MS Product transport
terminal
Pt. Everglades Terminal 100.00 Broward FL Marine propane
terminal
Tampa Terminal 100.00 Hillsborough FL Marine propane
terminal
Tyler Terminal 100.00 Smith TX Product terminal
Mont Belvieu 100.00 Chambers TX Offices and repair
Transport shop
Abilene Transport 100.00 Taylor TX Raw LPG transport
terminal
Bridgeport 100.00 Jack TX Raw LPG transport
Transport terminal
Gladewater 65.00 Gregg TX Raw LPG transport
Transport terminal
Grand Lakes Tank Farm 100.00 Cameron LA Condensate storage
</TABLE>
MARKETING HUBS
Through its wholly owned subsidiary Hub Services, Inc. ("HSI"), NGC
participated in the formation of Enerchange L.L.C. ("Enerchange") which, among
other things, owns and operates a natural gas market area hub. Marketing hubs
are transportation and interchange facilities located in the vicinity of an
interconnection of two or more interstate pipelines. Each hub takes deliveries
from a large number of suppliers and provides these suppliers with a wide
variety of markets in which to sell their gas. By providing access to a large
number of gas buyers and sellers, a hub improves the gas market by reducing
transaction costs of matching buyers and sellers of gas, enhances the
reliability of gas supply and provides buyers and sellers a wide range of gas
marketing services. Each marketing hub provides customers with "wheeling",
"loaning", "parking" and "title transfer" services. The following table provides
information with respect to the marketing hub in which NGC indirectly owns an
interest.
<TABLE>
<CAPTION>
Service
Facility Name HSI's Partner % Owned area Names of Connecting Pipelines
--------------- ------------- ------- ------- ----------------------------------
<S> <C> <C> <C> <C>
Chicago Hub NICOR Hub Services 76.61 Midwest ANR Pipeline Company, Midwestern
Gas Transmission Company, Northern
Natural Gas Company and Natural Gas
Pipeline Company of America
============================================================================================
</TABLE>
16
<PAGE>
NATURAL GAS, LIQUIDS AND CRUDE OIL PIPELINES
NGC owns interests in various interstate and intrastate pipelines and
gathering systems, the more significant of which include: (i) the Ozark Gas
Transmission System, a 266-mile interstate natural gas pipeline with design
capacity of 170 MMcf/d that transports gas from eastern Oklahoma to central
Arkansas, where the system interconnects with interstate pipelines that serve
Midwest and Northeast markets; (ii) an interstate liquids pipeline capable of
transporting 160,000 Bpd from its origin in eastern New Mexico to fractionation
facilities in Mont Belvieu, Texas; (iii) a 1,300-mile crude oil system which
gathers crude oil in 25 central and southern Oklahoma counties, accessing more
than half of the state's production, and serves the U.S. crude oil trading hub
in Cushing, Oklahoma and the Wynnewood, Oklahoma refinery; (iv) the Kansas Gas
Supply Corporation that owns and operates an approximate 1,200 mile regulated
intrastate gas pipeline system in south-central Kansas with capacity to
transport approximately 100 MMcf/d of natural gas; and (v) an extensive liquids
gathering system at the Lake Charles fractionation facility and a 12-inch
liquids pipeline that connects the Lake Charles area facilities with the Mont
Belvieu fractionation facilities. The following table identifies these and
other pipeline and gathering system assets in which NGC owns an interest:
<TABLE>
<CAPTION>
%
Pipeline Systems Owned 1997 Throughput (1) States Description
------------------------------ ------- -------------------- -------- -------------
<S> <C> <C> <C> <C>
Ozark Gas Transmission 100.00 131.4 OK/AR Interstate natural gas pipeline
System
West Texas LPG Pipeline 49.00 87.5 NM/TX Interstate LPG pipeline
Crude Oil Pipeline System 100.00 81.2 TX/OK Crude oil pipelines
Kansas Gas Supply 100.00 60.9 KS/OK Intrastate natural gas pipeline
Warren NGL Pipeline 100.00 20.9 TX/LA Liquids pipeline
Bridger Lake/Phantex Pipeline 100.00 0.4 UT/WY Interstate liquids pipeline
Pelican Pipeline 100.00 73.9 LA Gas gathering pipeline
Vermillion Pipeline 100.00 23.0 Gulf of Mexico Gas gathering pipeline
Western Gas Gathering 100.00 3.5 KS Gas gathering pipeline
Pawnee Rock 100.00 5.6 KS Gas gathering pipeline
Searcy 100.00 8.8 OK/AR Interstate natural gas pipeline
Seahawk 100.00 49.2 LA Intrastate natural gas pipeline
Warren Intrastate Gas Pipeline 100.00 4.0 TX Intrastate natural gas pipeline
Bradshaw Gathering 50.00 32.3 KS Gas gathering pipeline
Lake Boudreaux 100.00 1.3 LA Gas gathering pipeline
Grand Lake Liquids System 100.00 1.3 LA Intrastate liquids pipeline
==================================================================================================================
</TABLE>
(1) 1997 throughput is based on thousands of barrels per day for the liquids and
crude lines and million cubic feet per day for the gas gathering and
transportation lines.
In January 1998, the Company announced an agreement to sell the Ozark Gas
Transmission System for $55 million, resulting in an estimated pre-tax gain of
approximately $27 million. Closing of the transaction is expected in the third
quarter of 1998, subject to certain conditions, including FERC and other
governmental approvals.
POWER GENERATION FACILITIES
NGC has significant interests in nineteen power projects, the majority of
which are cogeneration facilities operated by NGC. Sixteen of these projects are
represented by varying interests owned in partnerships, each formed to build,
own and operate electric power generating facilities. The remaining projects
consist of one cogeneration plant, one heat recovery plant and one coal
gasification facility. The combined gross capacity of these facilities is
approximately 2,839 megawatts of electricity and over 3.4 million pounds per
hour of steam. The following table provides information concerning power
projects owned by the Company:
17
<PAGE>
<TABLE>
<CAPTION>
Gross
% Capacity
Power Generation Project Owned In MWs Location Primary Power Purchaser
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CoGen Power (1) 100.00 5 Port Arthur, TX Great Lakes Carbon Corporation
CoGen Lyondell (1) Lessee 590 Channelview, TX ARCO Chemical Company
Oyster Creek 50.00 424 Freeport, TX The Dow Chemical Company
Corona (1) 40.00 47 Corona, CA SOCAL Edison Company
Kern Front (1) 50.00 48 Kern County, CA Pacific Gas & Electric Company
High Sierra (1) 50.00 48 Kern County, CA Pacific Gas & Electric Company
Double "C" (1) 50.00 48 Kern County, CA Pacific Gas & Electric Company
San Joaquin (1) 25.00 48 Stockton, CA Pacific Gas & Electric Company
Chalk Cliff (1) 25.00 46 Kern County, CA Pacific Gas & Electric Company
Badger Creek (1) 50.00 46 Kern County, CA Pacific Gas & Electric Company
McKittrick (1) 50.00 46 McKittrick, CA Pacific Gas & Electric Company
Live Oak (1) 50.00 47 Kern County, CA Pacific Gas & Electric Company
Crockett 8-12.00 240 Crockett, CA Pacific Gas & Electric Company
Bear Mountain (1) 50.00 46 Bakersfield, CA Pacific Gas & Electric Company
Commonwealth Atlantic 50.00 340 Chesapeake, VI Virginia Electric & Power
Company
Black Mountain 50.00 85 Las Vegas, NV Nevada Power Company
Hartwell Energy 50.00 300 Hart County, GE Ogelthorpe Power Corporation
Michigan Power (1) 50.00 123 Ludington, MI Consumers Energy Company
Wabash (1)(2) Lessee 262 W. Terre Haute, IN PSI Energy, Inc.
=========================================================================================================
</TABLE>
(1) Facility operated by NGC.
(2) Steam and synthetic gas capacity is translated into equivalent megawatts.
The Company and NRG have been awarded contracts to acquire the El Segundo
Station, a 1,020 megawatt gas-fired power generating facility located in Los
Angeles, CA, and a 560 megawatt gas-fired power facility located in Long Beach,
CA. Both acquisitions are expected to close in the second quarter of 1998.
OTHER PROPERTY INVESTMENTS
Effective November 1, 1996, the Company and Chevron formed Venice Gas
Processing Company, a Texas limited partnership ("Partnership"). The Partnership
was formed for the purpose of owning and operating the Venice Complex, located
in Plaquemines Parish, Louisiana. The complex includes an extensive 810 Mmcf/d
gathering system that extends into the Gulf of Mexico, a one Bcf/d lean oil gas
processing plant, a 35,000 barrel per day fractionator, NGL storage facilities,
a marine terminal and acreage. In 1997, Venice reorganized as a limited
liability company changing its name to VESCO. In September 1997, the VESCO
members announced they had agreed to expand ownership in VESCO to include an
affiliate of Shell Midstream Enterprises, a subsidiary of Shell Oil Company
("Shell"), effective September 1, 1997, in exchange for Shell's commitment of
certain offshore reserves to VESCO. The transaction reduced NGC's interest in
VESCO from 37 percent to approximately 32 percent as of the effective date. The
VESCO members have entered into a definitive agreement with Koch pursuant to
which Koch will contribute a 300 Mmcf/d cryogenic gas processing unit to VESCO
on NGC's behalf in exchange for approximately 10 percent of NGC's interest in
the limited liability company. The transaction, which is expected to close in
the second quarter of 1998, will reduce NGC's interest in VESCO to approximately
23 percent. NGC operates the facility and has commercial responsibility for
product distribution and sales.
During 1997, the Company contributed the Waskom gas processing facility to
the Waskom Gas Processing Company ("Waskom"), a Texas limited partnership. NGC
owns a 33 percent interest in Waskom, operates the facility and has commercial
responsibility for product distribution and sales.
TITLE TO PROPERTIES
The Company believes it has satisfactory title to its properties in
accordance with standards generally accepted in the energy industry, subject to
such exceptions which, in the opinion of the Company, would not have a material
adverse effect on the use or value of said properties.
18
<PAGE>
The operating agreements for certain of the Company's natural gas
processing plants and fractionation facilities grant a preferential purchase
right to the plant owners in the event any owner desires to sell its interest.
Such agreements may also require the consent of a certain percentage of owners
before rights under such agreements can be transferred. The Company is subject,
as a plant owner under such agreements, to all such restrictions on transfer of
its interest. In addition, the Company has granted certain entities certain
rights of first refusal with respect to any future sale of certain assets.
Certain of the Company's power generation assets are subject to rights of first
refusal or consent requirements with the Company's partners or power purchasers
which restrict the transfer of interests in the facilities.
Substantially all of NGC's gathering and transmission lines are constructed
on rights-of-way granted by the apparent record owners of such property. In some
instances, land over which rights-of-way have been obtained may be subject to
prior liens that have not been subordinated to the right-of-way grants. Permits
have been obtained from public authorities to cross over or under, or to lay
facilities in or along, water courses, county roads, municipal streets and state
highways, and in some instances, such permits are revocable at the election of
the grantor. Permits have also been obtained from railroad companies to cross
over or under lands or rights-of-way, many of which are also revocable at the
grantor's election. Some such permits require annual or other periodic payments.
In a few minor cases, property was purchased in fee.
INDUSTRY SEGMENTS
Segment financial information is included in Note 15 of NGC's consolidated
financial statements contained elsewhere herein.
ITEM 3. LEGAL PROCEEDINGS
On April 17, 1997, Pacific Gas and Electric Company ("PG&E") filed a
lawsuit in the Superior Court of the State of California, City and County of San
Francisco, against Destec, Destec Holdings, Inc. ("Holdings"), Destec Operating
Company and San Joaquin CoGen, Inc., wholly owned direct and indirect
subsidiaries of the Company as well as against San Joaquin CoGen Limited ("San
Joaquin" or the "Partnership"), a limited partnership in which the Company has
an indirect twenty-five percent general partner ownership interest. In the
lawsuit, PG&E asserts claims and alleges unspecified damages for fraud,
negligent misrepresentation, unfair business practices, breach of contract and
breach of the implied covenant of good faith and fair dealing. PG&E alleges that
due to the insufficient use of steam by San Joaquin's steam host, the
Partnership did not qualify as a cogenerator pursuant to the California Public
Utilities Code ("CPUC") Section 218.5, and thus was not entitled under CPUC
Section 454.4 to the discount the Partnership received under gas transportation
agreements entered into between PG&E and San Joaquin in 1989, 1991, 1993 and
1995. All of PG&E's claims in this suit arise out of the Partnership's alleged
failure to comply with CPUC Section 218.5. The defendants filed a response to
the suit on May 15, 1997. The parties are actively engaged in discovery, and a
trial has been set by the Court for September 28, 1998. On October 20, 1997,
PG&E named Libbey-Owens-Ford, the Partnership's steam host, as an additional
defendant in the action. On February 23, 1998, PG&E served by mail its Second
Amended Complaint on all defendants. On March 30, 1998, the defendants filed
their response to PG&E's Second Amended Complaint, denying PG&E's allegations
and alleging certain counterclaims against PG&E. The Company's subsidiaries
intend to vigorously defend this action. In the opinion of management, the
ultimate resolution of this lawsuit will not have a material adverse effect on
the Company's financial position or results of operations.
On March 24, 1995, Southern California Gas Company ("SOCAL") filed a
lawsuit in the Superior Court of the State of California for the County of Los
Angeles, against Destec, Destec Holdings and Destec Gas Services, Inc., wholly-
owned direct and indirect subsidiaries of the Company (collectively, the "Destec
Defendants"), as well as against Chalk Cliff Limited and McKittrick Limited
(collectively, the "Partnerships"), limited partnerships in which the Company
has an indirect twenty-five percent general partner interest together with an
indirect 20 percent limited partner interest and an indirect fifty percent
limited partner interest, respectively. All general partners of the Partnerships
are also named defendants. The lawsuit alleges breach of contract against the
Partnerships and their respective general partners, and interference and
conspiracy to interfere with contracts against the Destec Defendants. The breach
of contract claims arise out of the "transport-or-pay" provisions of the gas
transportation service agreements between the Partnerships and SOCAL. SOCAL has
sought damages from the Partnerships for past damages and anticipatory breach
damages in an amount equal to approximately $31,000,000. On October 24, 1997,
the Court granted SOCAL's Motion for Summary Judgment relating to the breach of
contract causes of action against
19
<PAGE>
the Partnerships and their respective general partners, and requested that SOCAL
submit a proposed order consistent with that ruling for the Court's signature.
On November 21, 1997, the Partnerships filed for voluntary Chapter 11 bankruptcy
protection in the Eastern District of California. Normal business operations by
the Partnerships will continue throughout the course of these reorganization
proceedings. On January 12, 1998, the Court entered a Final Order that (a)
severs out the Partnerships due to their Chapter 11 bankruptcy filings, (b)
includes a finding of contract liability against the Destec Defendants, (c)
dismisses the tortious interference claims against the Destec Defendants, and
(d) assesses damages in an aggregate amount of approximately $31,000,000. The
liability of the Destec Defendants under the judgment will be limited to that
portion of the damage award not paid to SOCAL by the partnerships through the
Chapter 11 bankruptcy proceedings. On January 12, 1998, the Destec Defendants
filed their Notice of Appeal, and posted a security bond, with the Second
Appellate District in Los Angeles based on the lack of allegations made or
proven by SOCAL which support holding those entities liable in contract. On
March 11, 1998, the Partnerships and their respective general partners filed
Notices of Appeal with respect to those findings in the Court's January 12,
1998, Final Order that were adverse to those defendants. The appeal process is
anticipated to take approximately eighteen months.
The PG&E and SOCAL litigations represent pre-acquisition contingencies
acquired by NGC in the Destec acquisition. Resolution of these lawsuits could
impact the purchase price allocation contained in the accompanying balance sheet
as described in Note 2. In a related matter, Chalk Cliff and San Joaquin have
each guaranteed the obligations of the other partnership, represented by the
project financing loans used to construct the power generation facilities owned
by the respective partnerships. Chalk Cliff and San Joaquin believe there is
little incentive for their lenders to call on this cross-guarantee at this time.
In the opinion of management, the Company's financial position or results of
operations would not be materially adversely affected if the lenders chose to
exercise their option under the terms of such arrangements.
On March 6, 1998, NGC settled all outstanding issues arising under a gas
marketing contract between Apache Corporation and Clearinghouse. A previously
recognized contingency reserve was sufficient to offset the confidential cash
settlement.
The Company assumed liability for various claims and litigation in
connection with the Chevron Combination, the Trident Combination, the Destec
acquisition and in connection with the acquisition of certain gas processing and
gathering facilities from Mesa Operating Limited Partnership. NGC believes,
based on its review of these matters and consultation with outside legal
counsel, that the ultimate resolution of such items will not have a material
adverse effect on the Company's financial position or results of operations.
Further, the Company is subject to various legal proceedings and claims, which
arise in the normal course of business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not have a
material adverse effect on the financial position or results of operations of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's $0.01 par value common stock ("Common Stock") is listed and
traded on the New York Stock Exchange under the ticker symbol "NGL". The number
of stockholders of record of the Common Stock as of March 25, 1998, was 291.
The following table sets forth the high and low closing prices for
transactions involving the Company's Common Stock for each calendar quarter, as
reported on the New York Stock Exchange Composite Tape and related dividends
paid per common share during such periods.
20
<PAGE>
<TABLE>
<CAPTION>
High Low Dividend
---------- -------- --------
<S> <C> <C> <C>
1997:
Fourth Quarter $19.875 $16.000 $0.0125
Third Quarter 17.750 14.875 0.0125
Second Quarter 19.625 15.500 0.0125
First Quarter 24.000 15.375 0.0125
1996:
Fourth Quarter $24.750 $15.625 $0.0125
Third Quarter 17.000 14.250 0.0125
Second Quarter 16.125 12.250 0.0125
First Quarter 12.750 8.625 0.0125
===========================================================
</TABLE>
The holders of the Common Stock are entitled to receive dividends if, when
and as declared by the Board of Directors of the Company out of funds legally
available therefor. Consistent with the Board of Directors' intent to establish
a policy of declaring quarterly cash dividends, a cash dividend of $0.0125 per
share was declared and paid in each quarter since the effective date of the
Trident Combination. Beginning in the third quarter of 1996, the Company has
paid quarterly cash dividends on its Series A Participating Preferred Stock of
$0.0125 per share, or $0.05 per share on an annual basis.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information presented below was derived from, and is
qualified by reference to, the Consolidated Financial Statements of the Company,
including the Notes thereto, contained elsewhere herein. Please refer to the
Notes to Consolidated Financial Statements for information on transactions and
accounting classifications which have affected the comparability of the periods
presented below. The selected financial information should be read in
conjunction with the Consolidated Financial Statements and related Notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
($ in thousands, except per share data)
Statement of Operations Data (1)(3):
Revenues $13,378,380 $7,260,202 $3,665,946 $3,237,843 $2,790,977
Operating margin 385,294 369,500 194,660 99,126 91,850
General and administrative expenses 149,344 100,032 68,057 47,817 36,585
Depreciation and amortization expense 104,391 71,676 44,913 8,378 7,594
Asset impairment, abandonment and
other charges 275,000 --- --- --- ---
Net income (loss) (4) $ (102,485) $ 113,322 $ 92,705 $ 42,101 $ 45,997
Earnings (loss) per share (5) $(0.68) $0.83 $0.82 n/a n/a
Pro forma earnings per share (5) n/a n/a $0.40 $0.28 $0.30
Shares outstanding 150,653 136,099 113,176 97,804 97,804
Cash Flow Data:
Cash flows from operating activities $ 278,589 $ (30,954) $ 90,648 $ 17,170 $ 20,292
Cash flows from investment activities (510,735) (111,140) (310,623) (38,376) (7,911)
Cash flows from financing activities 204,984 176,037 221,022 18,959 (46,418)
Other Financial Data:
EBITDA (6) $ 291,899 $ 289,023 $ 142,538 $ 57,716 $ 57,553
Dividends or distributions to partners, net 7,925 6,740 9,253 14,041 14,118
Capital expenditures, acquisitions
and investments (7) 1,034,026 859,047 979,603 47,014 16,464
December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ----------- ----------- ---------- ----------
($ in thousands)
Balance Sheet Data (2):
Current assets $ 2,018,780 $1,936,721 $ 762,939 $ 445,782 $ 402,602
Current liabilities 1,753,094 1,548,987 705,674 404,144 375,662
Property and equipment, net 1,521,576 1,691,379 948,511 114,062 84,539
Total assets 4,516,903 4,186,810 1,875,252 645,471 512,534
Long-term debt 1,002,054 988,597 522,764 33,000 ---
Total equity 1,019,125 1,116,733 552,380 152,213 120,689
</TABLE>
(1) The Destec acquisition was accounted for as an acquisition of a business
in accordance with the purchase method of accounting and the results of
operations attributed to the acquired business are included in the
Company's financial statements and operating statistics effective July 1,
1997. The Chevron Combination was accounted for as an acquisition of
assets under the purchase method of accounting and the results of
operations attributed to the acquired assets are included in the Company's
financial statements and operating statistics effective September 1, 1996.
The Trident Combination was accounted for as an acquisition of a business
in accordance with the purchase method of accounting and the results of
operations attributed to the acquired business are included in the
Company's financial statements and operating statistics effective March 1,
1995.
22
<PAGE>
(2) The Destec acquisition and the Chevron and Trident Combinations were each
accounted for under the purchase method of accounting. Accordingly, the
purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as of the effective dates of
each transaction. The effective dates of the Destec acquisition, the
Chevron Combination and the Trident Combination were June 30, 1997,
September 1, 1996 and March 1, 1995, respectively.
(3) Results for the year ended December 31, 1994, include the effects of a
change to mark-to-market accounting for fixed-price natural gas
transactions.
(4) Net income (loss) does not include a provision for federal income taxes,
other than minimal amounts on the taxable income of Clearinghouse's
corporate subsidiaries, for the years ended December 31, 1994 and 1993,
respectively.
(5) Earnings (loss) per share are computed in accordance with provisions of
Statement of Financial Account Standard No. 128, "Earnings Per Share", for
each of the years ended December 31, 1997, 1996 and 1995, respectively.
Pro forma earnings per share for each of the years ended December 31,
1995, 1994 and 1993, respectively, are based on reported net income for
the period adjusted for the incremental statutory federal and state income
taxes that would have been provided had Clearinghouse been a taxpaying
entity prior to the Trident Combination. The pro forma earnings per share
computation for the year ended December 31, 1995, eliminates the effect of
a one-time $45.7 million income tax benefit associated with the Trident
Combination. The weighted average shares outstanding for the year ended
December 31, 1995, is based on the weighted average number of common
shares outstanding plus the common stock equivalents that would arise from
the exercise of outstanding options or warrants, when dilutive. Pro forma
weighted average shares outstanding of 97.8 million shares for the years
ended December 31, 1994 and 1993, respectively, give effect to the terms
of the Trident Combination and the common stock equivalent shares
outstanding as of the effective date of the Trident Combination assuming a
common stock market price of $12 in all periods.
(6) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is presented as a measure of the Company's ability to service its debt and
to make capital expenditures. It is not a measure of operating results and
is not presented in the Consolidated Financial Statements. The 1997 amount
includes the non-cash portion of items associated with the $275 million
impairment and abandonment charge.
(7) Includes value assigned the assets acquired in the Destec acquisition and
the Chevron and Trident Combinations, respectively. The 1997 amount is
before reduction for value received upon sale of Destec's foreign and non-
strategic assets of approximately $735 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Company Profile
NGC is a leading North American marketer of natural gas, natural gas
liquids, electricity and crude oil and is engaged in natural gas gathering,
processing and transportation through direct and indirect ownership and
operation of natural gas processing plants, fractionators, storage facilities
and pipelines and engages in electric power generation through direct and
indirect ownership of cogeneration and other electric power producing
facilities. Acting in the role of a large-scale aggregator, processor, marketer
and reliable supplier of multiple energy products and services, NGC has evolved
into a reliable energy commodity and service provider.
From inception of operations in 1984 until 1990, Clearinghouse limited its
activities primarily to natural gas marketing. Starting in 1990, Clearinghouse
began expanding its core business operations through acquisitions and strategic
alliances with certain of its shareholders resulting in the formation of a
midstream energy asset business and establishing energy marketing operations in
both Canada and the United Kingdom. Effective March 1, 1995, Clearinghouse and
Holding, a fully integrated natural gas liquids company, merged and the combined
entity was renamed NGC Corporation. On August 31, 1996, NGC completed a
strategic combination with Chevron whereby substantially all of Chevron's
midstream assets were merged with NGC. In June 1997, NGC acquired Destec, a
leading independent power producer. By virtue of the growth of NGC's core
businesses combined with the synergies derived from the aforementioned
transactions, NGC has established itself as an industry leader providing
quality, competitively priced energy products and services to customers
throughout North America and in the United Kingdom.
Recent Developments
During the fourth quarter of 1997, the Company recognized a $275 million
charge largely related to its plan to restructure the Company's natural gas
liquids business, including rationalization and consolidation of assets acquired
in both the Trident and Chevron Combinations, the reorganization of personnel to
improve operational management of this segment and a reduction of employees
involved in non-strategic operations. Execution of this comprehensive plan began
in 1997 and will continue into 1998. Pursuant to this restructuring, the Company
anticipates recording an additional severance charge of approximately $10
million during the first quarter of 1998. Management believes the planned
restructuring and reorganization steps will position the Company for improved
operating results and an enhanced competitive position for the future.
23
<PAGE>
For a two-year period beginning January 1, 1998, the Company contracted
for 1.3 billion cubic feet per day of firm transportation capacity to California
on the El Paso Natural Gas pipeline system. The arrangement has been implemented
but is subject to regulatory approval in a pending proceeding in which
challenges have been filed. The firm capacity provides NGC with the ability to
serve an expanded California customer base arising from the recent Chevron
Combination and Destec acquisition, as well as to take advantage of
opportunities associated with the deregulation of the electric power industry in
California. Pursuant to this arrangement, NGC is obligated to pay a minimum of
$70 million of reservation charges over the two-year term.
In January 1998, the Company announced an agreement to sell the Ozark Gas
Transmission System for $55 million, resulting in an estimated pre-tax gain of
approximately $27 million. Closing of the transaction is expected in the third
quarter of 1998, subject to certain conditions, including FERC and other
governmental approvals.
In November 1997, the Company together with NRG Energy, Inc. ("NRG"), was
awarded the contract to acquire the El Segundo Station, a 1,020 megawatt gas-
fired power generating facility located in Los Angeles, CA. The El Segundo
facility will be acquired by an entity owned fifty percent by the Company and
fifty percent by NRG. Additionally, in February 1998, NGC together with NRG,
was awarded the contract to acquire a 560 megawatt gas-fired power facility
located in Long Beach, CA. The Long Beach facility will also be acquired by an
entity owned fifty percent by NGC and fifty percent by NRG. The El Segundo
facility is partially a merchant plant while the Long Beach facility is a
merchant plant. NGC's estimated share of the acquisition cost for these two
facilities is $58.8 million. Both acquisitions are expected to close in the
second quarter of 1998. With respect to both these acquisitions, NGC will be
the lead party on fuel procurement, power marketing and asset management, while
NRG will be operator of the facilities. Additionally, Destec and a partner were
selected to build a 766 megawatt independent power station near Townsville, in
Queensland, Australia. The Townsville project is expected to be partially
operational in July 2001, and fully operational by July 2003. Destec will own
fifty percent of this project.
The VESCO members have entered into a definitive agreement with Koch
pursuant to which Koch will contribute a cryogenic gas processing unit to VESCO
on behalf of NGC in exchange for approximately 10 percent of NGC's interest in
the limited liability company. The transaction, which is expected to close in
the second quarter of 1998, will reduce NGC's interest in VESCO to approximately
23 percent.
Business Segments
NGC's operations are divided into three segments: the Natural Gas and
Electric Power Marketing Segment ("Marketing"), the Power Generation Segment
("Power Generation") and the Natural Gas Liquids, Crude Oil and Gas Transmission
Segment ("Liquids"). Marketing consists of subsidiaries engaged in the business
of: contracting to purchase specific volumes of natural gas from suppliers at
various points of receipt to be supplied over a specific period of time;
aggregating natural gas supplies and arranging for the transportation of these
gas supplies through proprietary and third-party transmission systems;
negotiating the sale of specific volumes of natural gas over a specific period
of time to local distribution companies, utilities, power plants and other end-
users; and matching natural gas receipts and deliveries based on volumes
required by customers throughout North America. Marketing also includes the
operations of ECI, a provider of electric power products and services in the
United States. Power Generation includes the operations of Destec, which
primarily consist of the development, operation and management of projects which
produce electricity, thermal energy and synthetic gas. Destec's operations also
include engineering, project development, operating, management and fuel supply
services provided to certain partnerships, which own power generation
facilities. Liquids consists of subsidiaries engaged in natural gas gathering
and processing, fractionation, natural gas liquids marketing, natural gas
transmission and crude oil marketing. Liquids also includes the operations of
NGC Global Energy, which includes marine transportation of natural gas liquids
and energy marketing in the United Kingdom.
IMPACT OF PRICE FLUCTUATIONS
Marketing's operating margin, exclusive of risk-management activities, is
relatively insensitive to commodity price fluctuations since most of this
segment's purchase and sales contracts do not contain fixed-price provisions.
Generally, the prices contained in these contracts are tied to a current spot or
index price and, therefore, adjust directionally with changes in overall market
conditions. Commodity price fluctuations can, however, have a significant impact
on the operating margin derived from the segment's risk-management activities.
NGC generally attempts to balance its fixed-price physical and financial
purchase and sales commitments in terms of contract
24
<PAGE>
volumes, and the timing of performance and delivery obligations. However, to the
extent a net open position exists, fluctuating market prices can impact NGC's
financial position or results of operations. The net open position is actively
managed, and the impact of a change in price on the Company's financial
condition at a point in time is not necessarily indicative of the impact of
price movements throughout the year. At December 31, 1997, a $0.25 increase in
the price of natural gas would have increased operating margin by approximately
$3.5 million, and a $0.25 decrease in the price of natural gas would have
decreased operating margin by approximately $2.2 million. The impact of the
$0.25 price movements referred to above are before application of market
reserves, which would likely reduce the after-tax earnings impact of these price
movements.
Fuel costs, principally natural gas, represent the primary variable cost
impacting margins at the Company's power generating facilities. Historically,
operating margins have been relatively insensitive to commodity price
fluctuations since most of this business's purchase and sales contracts contain
variable power sales contract features tied to a current spot or index natural
gas price allowing revenues to adjust directionally with changes in natural gas
prices.
Operating margins associated with Liquids' natural gas gathering,
processing and fractionation activities are very sensitive to changes in natural
gas liquids prices principally as a result of contractual terms under which
products are sold by these businesses. Based upon current operations, a one cent
movement in the annual average price of natural gas liquids would impact annual
operating margin by approximately $10 million. The operating margin in these
businesses is relatively insensitive to fluctuations in natural gas prices as a
result of the mitigating impact of fuel costs in the Company's fractionation
operations and residue gas sales in its gathering and processing activities.
Commodity price fluctuations also impact the operating margins derived from the
Liquids segment's natural gas liquids and crude oil marketing businesses. In
order to manage its exposure to price risks in these businesses, the Company,
from time to time, will enter into financial instrument contracts to hedge
purchase and sale commitments and inventories.
SEASONALITY
NGC's revenue and operating margin are subject to fluctuations during the
year primarily due to the impact certain seasonal factors have on sales volumes
and the prices of natural gas, electricity, natural gas liquids and crude oil.
Marketing's sales volumes and operating margin are typically higher in the
winter months than in the summer months, reflecting increased demand due to
greater heating requirements and, typically, higher natural gas prices. Liquids
is also subject to seasonal factors; however, such factors typically have a
greater impact on sales prices than on sales volumes. Natural gas liquids prices
typically increase during the winter season due to greater heating requirements.
The Company's wholesale propane business is seasonally weighted in terms of
volume and price consistent with the trend in Marketing's operations as a result
of greater demand for crop-drying and space-heating requirements in the fall and
winter months. The Company's electricity generating facilities generally
experience peak demand during the summer cooling season.
EFFECT OF INFLATION
Although NGC's operations are affected by general economic trends,
management does not believe inflation has had a material effect on the Company's
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business strategy has been to grow horizontally across all
sectors of the midstream energy business segment through strategic acquisitions
or construction of core operating facilities in order to capture the significant
synergies which management believes exist among these types of assets and NGC's
natural gas, electricity, and natural gas liquids marketing businesses. In
addition, the Company is extensively involved in risk management activities,
which complement its firm purchase and sales commitments, capacity,
transportation and other similar obligations.
NGC has historically relied upon operating cash flow and borrowings from a
combination of money market lines of credit, sales of commercial paper and
various long-term credit arrangements for its liquidity and capital resource
requirements. The following briefly describes the terms of these arrangements.
25
<PAGE>
Commercial Paper and Money Market Lines of Credit
NGC initiated a commercial paper program in the fourth quarter of 1997 for
amounts up to $600 million, supported by its existing bank Credit Agreement.
Also in the fourth quarter, the Company established several uncommitted money
market bank lines. The Company utilizes commercial paper proceeds and borrowings
under uncommitted money market bank lines for general corporate purposes,
including short-term working capital requirements. At December 31, 1997,
commercial paper outstanding totaled $229.5 million at a weighted average
interest rate of 6.8 percent. There were no amounts outstanding under the
uncommitted money market bank lines at year end.
Credit Agreement
NGC has a $550 million revolving Credit Agreement, which matures on March
14, 2000, providing for letters of credit and borrowings for working capital,
capital expenditures and general corporate purposes. The $550 million
commitment under the Credit Agreement reduces by $22.5 million each quarter
beginning in June 1998 and continuing through maturity. During 1997, the Credit
Agreement was amended to provide, among other things, for the establishment of a
new two-year $400 million term loan facility. Proceeds from the term loan
facility were used to consummate the Destec acquisition. At December 31, 1997,
letters of credit and borrowings under the Credit Agreement aggregated
approximately $130.9 million (which included $50 million under the term loan
facility). After consideration of the outstanding commercial paper, unused
borrowing capacity under the revolving credit facility approximated $240
million.
Senior Notes and Shelf Registration
In October 1996, NGC sold $175 million of 7.625% 30-year Senior Notes due
2026 ("Senior Debentures"). Interest on the Senior Debentures is payable
semiannually on April 15 and October 15 of each year. The Senior Debentures are
redeemable, at the option of the Company, in whole or in part from time to time,
at a formula based redemption price. On December 15, 1995, the Company sold $150
million of 6.75% Senior Notes due 2005 ("Senior Notes"). Interest on the Senior
Notes is payable semiannually on June 15 and December 15 of each year.
In February 1998, the Company completed an amendment to the Credit
Agreement and the filing of supplemental indentures to each of the Senior
Debentures and Senior Notes, the effect of which was to eliminate all clauses,
provisions and terms in such documents requiring certain wholly owned
subsidiaries of the Company to fully and unconditionally guarantee, on a joint
and several basis, the obligations of the Company under such credit agreement,
debentures and notes, respectively.
Letter of Credit Agreement
The Letter of Credit Agreement was a $300 million credit facility, which
provided for the issuance of letters of credit in support of the Company's
obligation to purchase substantially all of the natural gas produced or
controlled by Chevron in the United States (except Alaska). In January 1998, the
Company replaced the majority of its obligation under the Letter of Credit
Agreement with a surety bond, applied the remaining obligation under the Letter
of Credit Agreement to the letter of credit capacity under its Credit Agreement
and canceled this arrangement.
Chevron Note
As part of the Chevron Combination, NGC assumed approximately $155.4
million payable to Chevron upon demand on or after August 31, 1998 (the "Chevron
Note"). The Chevron Note bears interest at an effective rate of 6.4 percent per
annum payable semiannually in arrears each February and August. Should Chevron
choose not to demand payment of the Chevron Note then principal plus accrued
interest is payable in full on August 14, 2004. NGC has the right, at any time
on or after August 31, 1998, to prepay in whole or in part the principal and
accrued interest outstanding under the Chevron Note.
Warren NGL, Inc. ( Formerly Trident NGL, Inc.) Notes
At December 31, 1997, Warren had outstanding $105 million principal amount
of 10.25% Subordinated Notes due 2003 (interest payable semi-annually in arrears
each April and October) and $65 million principal amount of 14% Senior
Subordinated Notes due 2001 (interest payable semi-annually in arrears each
February and August).
26
<PAGE>
Unamortized premium balances associated with each of these notes are being
amortized using the interest method, resulting in effective interest rates of
8.4 percent and 8.3 percent per annum, respectively.
In February 1998, the Company delivered Notices of Redemption to the
holders of the Warren NGL, Inc. Notes. The Company's intent is to retire the
14% Senior Subordinated Notes on March 31, 1998, and the 10.25% Subordinated
Notes on April 15, 1998, pursuant to the redemption provisions contained in the
respective indentures. NGC will fund these redemptions through a combination of
cash on hand, borrowings under existing credit agreements and/or the issuance of
new debt securities. NGC will not incur a financial statement charge related to
these redemptions since the carrying values of the notes were adjusted at the
time of the Trident Combination so that they would equal the redemption prices
on the redemption dates.
Company Obligated Preferred Securities of a Subsidiary Trust
During May 1997, NGC Corporation Capital Trust I ("Trust") issued in a
private transaction $200 million aggregate liquidation amount of 8.316%
Subordinated Capital Income Securities ("Trust Securities") representing
preferred undivided beneficial interests in the assets of the Trust. The Trust
invested the proceeds from the issuance of the Trust Securities in an equivalent
amount of 8.316% Subordinated Debentures ("Subordinated Debentures") of the
Company. The sole assets of the Trust are the Subordinated Debentures. Proceeds
from issuance of the Securities were used to reduce amounts outstanding under
the Credit Agreement. During October 1997, the Trust completed an exchange offer
through which all of the outstanding Securities were exchanged by the holders
thereof for registered securities having substantially the same rights and
obligations.
Other Matters
Acquisition and Construction Projects. Included in the 1998 budget is
approximately $300 million committed to construction projects in progress,
identified asset acquisitions, maintenance capital projects, environmental
projects, technology infrastructure and software enhancements, contributions to
equity investments and certain discretionary capital investment funds. The
capital budget is subject to revision as unforeseen opportunities or
circumstances arise. Funds committed in 1998 to announced acquisitions and
significant construction projects and other capital investments are as follows:
<TABLE>
<CAPTION>
Estimated
Projected In Funding
Project In-Service Date Commitment
------- --------------- ----------
($ in thousands)
<S> <C> <C>
Lake Charles Fractionator Fourth Quarter 1998 $36,710
Venice Energy Services Company, L.L.C. Various during 1998 15,169
El Segundo Power Generating Facility Second Quarter 1998 43,875
Long Beach Power Generating Facility Second Quarter 1998 14,900
Maintenance Capital Various 23,103
Environmental Capital Projects Various 8,872
Information Technology Infrastructure and Software Various 58,440
</TABLE>
Dividend Requirements. Holders of the Company's Common Stock are entitled
to receive dividends if, when and as declared by the Board of Directors of the
Company out of funds legally available therefor. Currently, aggregate cash
dividends of $0.05 per share on the outstanding Common Stock are expected to be
declared by the Board of Directors and paid by the Company during 1998. The
Company also anticipates payment of dividends during 1998 on the outstanding
shares of its Series A Participating Preferred Stock of $0.05 per share on an
annual basis.
Stock Repurchase Plan. The Company has a stock repurchase program, approved
by the Board of Directors, that allows it to repurchase, from time to time, up
to 1.6 million shares of common stock in open market transactions. The timing
and number of shares ultimately repurchased will depend upon market conditions
and consideration of alternative investments. Pursuant to this program, the
Company has acquired 654,900 shares at a total cost of $10.5 million, or $16.04
per share on a weighted average cost basis, through December 31, 1997.
27
<PAGE>
Advance Payment For Future Deliveries. In October 1997, NGC received
$103.5 million from a gas purchaser as an advance payment for future natural gas
deliveries of 16,650 MMBtu per day over a ten-year period commencing November 1,
1997 ("Advance Agreement"). As a condition of the Advance Agreement, NGC entered
into a natural gas swap with a third party under which NGC became a fixed price
payor on identical volumes to those to be delivered under the Advance Agreement
at prices based on then current market rates. The payment will be classified as
an advance on the balance sheet and will be reduced ratably as gas is delivered
to the purchaser under the terms of the Advance Agreement. In addition, the
purchaser will pay a monthly fee to NGC associated with delivered volumes. The
Advance Agreement contains certain non-performance penalties that impact both
parties and as a condition precedent, NGC purchased a surety bond in support of
its obligations under the Advance Agreement.
Quantitative and Qualitative Market Risk Disclosures. The Company is
exposed to certain market risks inherent in the Company's financial instruments
which arise from transactions entered into in the normal course of business. The
Company routinely enters into financial instrument contracts to hedge purchase
and sale commitments and inventories in its natural gas, natural gas liquids,
crude oil, electricity and coal businesses in order to minimize the risk of
market fluctuations. NGC also monitors its exposure to fluctuations in interest
rates and foreign currency exchange rates and may execute swaps, forward-
exchange contracts or other financial instruments to hedge and manage these
exposures. The absolute notional contract amounts associated with commodity
risk-management, interest rate and forward exchange contracts, respectively,
were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996 1995
---------------------------
<S> <C> <C> <C>
Natural Gas (Trillion Cubic Feet) 2.558 1.535 0.881
Electricity (Megawatt Hours) 2.244 --- ---
Natural Gas Liquids (Million Barrels) 4.355 3.270 2.523
Crude Oil (Million Barrels) 14.920 2.034 0.232
Interest Rate Swaps (in thousands of US Dollars) $180,000 $ --- $ ---
Fixed Interest Rate Paid on Swaps 6.603 --- ---
U.K. Pound Sterling (in thousands of US Dollars) $ 74,638 $ --- $ ---
Average U.K. Pound Sterling Contract Rate (in US Dollars) $ 1.5948 $ --- $ ---
Canadian Dollar (in thousands of US Dollars) $ 37,041 $ --- $ ---
Average Canadian Dollar Contract Rate (in US Dollars) $ 0.7240 $ --- $ ---
====================================================================================
</TABLE>
Cash-flow requirements for these commodity risk-management, interest rate
and foreign exchange contracts were estimated based upon market prices in effect
at December 31, 1997. Cash-flow requirements were as follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Beyond
---------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Future estimated net inflows
based on year end
market prices/rates $9,155 $5,902 $4,085 $1,185 $ 806 $559
===================================================================================
</TABLE>
Further discussion of quantitative and qualitative aspects of these
exposures and the management thereof is contained in the accompanying notes to
the consolidated financial statements.
Year 2000 Issues. The Company is continuing its analysis of the "Year
2000" issue. The potential costs and uncertainties associated with this review
are dependent upon a number of factors, including legacy software and hardware
configurations and planned information technology infrastructure enhancements.
Results of the review conducted to date indicate that the Company will not be
burdened by a material event resulting from the Company's untimely resolution of
Year 2000 issues. Further, management does not currently believe the cost of
resolving such issues will be material to the Company's consolidated results of
operations or financial position.
Environmental Matters. NGC's operations are subject to extensive federal,
state and local statutes, rules and regulations governing the discharge of
materials into the environment or otherwise relating to environmental
28
<PAGE>
protection. Compliance with these statutes, rules and regulations requires
capital and operating expenditures including those related to monitoring and
permitting at various operating facilities and the cost of remediation
obligations. The Company's environmental expenditures have not been prohibitive
in the past, but are anticipated to increase in the future with the trend toward
stricter standards, greater regulation, more extensive permitting requirements
and an increase in the number of assets operated by the Company subject to
environmental regulation.
NGC's aggregate expenditures for compliance with laws and regulations
related to the discharge of materials into the environment or otherwise related
to the protection of the environment approximated $9.4 million in 1997. Total
environmental expenditures for both capital and operating maintenance and
administrative costs are not expected to exceed $15 million in 1998.
Conclusion
The Company continues to believe that it will be able to meet all foreseeable
cash requirements, including working capital, capital expenditures and debt
service, from operating cash flow supplemented by borrowings under its various
credit facilities, if required.
29
<PAGE>
RESULTS OF OPERATIONS
The following discussion of NGC's financial position, results of operations
and cash flows as of and for each of the years ended December 31, 1997, 1996 and
1995, respectively, is impacted by the strategic combinations previously
discussed. Both the continuity of operations and the resulting comparability of
results between periods is materially impacted as a result of the Destec
acquisition and both the Chevron and Trident Combinations (collectively
"Strategic Combinations"). The Strategic Combinations were each accounted for
under the purchase method of accounting and, accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values as of the effective dates of each transaction. The results
of operations and cash flows presented in the consolidated financial statements
contained elsewhere herein include the results of the acquired operations as of
the effective dates of each transaction. The following table reflects certain
operating and financial data for the Company's business segments and subsegments
for the years ended December 31, 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1997 1996 1995
---------------------------------
($ in thousands)
<S> <C> <C> <C>
Operating Margin (1)(2):
Natural Gas and Power Marketing Segment -
Natural Gas Marketing $ 99,375 $100,243 $ 64,685
Electric Power Marketing 4,526 3,379 (939)
-------- -------- --------
103,901 103,622 63,746
-------- -------- --------
Power Generation 18,987 --- ---
-------- -------- --------
Natural Gas Liquids, Crude Oil and Gas Transmission Segment -
Natural Gas Processing - Field Plants 159,609 122,754 48,856
Natural Gas Processing - Straddle Plants 30,098 42,198 26,934
Fractionation (8) 25,813 20,223 15,172
Natural Gas Liquids Marketing 22,639 48,355 21,706
Crude Oil Marketing 500 11,583 3,490
Natural Gas Gathering and Transmission 16,755 18,140 11,882
Other 102 1,300 2,874
-------- -------- --------
255,516 264,553 130,914
-------- -------- --------
Global:
LPG Sales 2,973 1,325 ---
Other 3,917 --- ---
-------- -------- --------
6,890 1,325 ---
-------- -------- --------
$385,294 $369,500 $194,660
======== ======== ========
Operating Statistics (1)(3):
Natural Gas Marketing (Bcf/d) -
U.S. Sales Volumes (4) 6.1 4.3 3.5
Canadian Sales Volumes (5) 1.9 n/a n/a
Electric Power Marketing - Million Megawatt Hours Sold 94.7 14.9 3.5
Power Generation (Million Megawatt Hours Generated) -
Gross 7.2 --- ---
Net 4.3 --- ---
Natural Gas Liquids Processed (MBbls/d - Gross) -
Field Plants 89.8 57.4 38.7
Straddle Plants 46.4 36.9 34.1
Fractionation - Barrels Received for Fractionation (MBbls/d)(8) 158.4 169.1 95.0
NGL Marketing - Sales Volumes (MBbls/d) 413.9 245.0 120.6
Natural Gas Gathering and Transmission (MMcf/d) 0.4 0.3 0.3
Crude Oil Marketing - Sales Volumes (MBbls/d) 168.3 106.0 60.9
Global Sales -
LPG Sales Volumes (MMBbls) (6) 33.5 1.7 ---
Gas Sales Volumes (Bcf/d) (7) 0.2 n/a n/a
=========================================================================================================
</TABLE>
30
<PAGE>
(1) The Destec acquisition was accounted for as an acquisition of a business
in accordance with the purchase method of accounting and the results of
operations attributed to the acquired business are included in the
Company's financial statements and operating statistics effective July 1,
1997. The Chevron Combination was accounted for as an acquisition of
assets under the purchase method of accounting and the results of
operations attributed to the acquired assets are included in the Company's
financial statements and operating statistics effective September 1, 1996.
The Trident Combination was accounted for as an acquisition of a business
in accordance with the purchase method of accounting and the results of
operations attributed to the acquired business are included in the
Company's financial statements and operating statistics effective March 1,
1995.
(2) Information excludes the Company's proportionate share of margin
associated with ventures accounted for under the equity method. In 1997,
the most significant operations included equity investments in Accord,
VESCO, Gulf Coast Fractionators ("GCF") and certain partnerships owning
power generating assets. In 1996 and 1995, significant equity investments
included the operations of Accord, Novagas Clearinghouse, Ltd. ("NCL") and
GCF, respectively.
(3) Information excludes the Company's proportionate share of operating
statistics associated with ventures accounted for under the equity method.
In 1997, the most significant operations included equity investments in
Accord, VESCO and GCF. In 1996 and 1995, significant equity investments
included the operations of Accord, NCL and GCF, respectively.
(4) Includes immaterial amounts of inter-company gas sales for all periods.
(5) Represents volumes sold by NGC Canada, Inc. for the period from April 1,
1997 through December 31, 1997. Volumes sold by NCL prior to the
reorganization are not comparable.
(6) Includes 5.8 MMBbls of inter-company sales for the year ended December 31,
1997. A material amount of volumes sold in 1996 are inter-company sales
volumes.
(7) Represents volumes sold by NGC UK Ltd. for the year ended December 31,
1997. Volumes sold by Accord prior to the reorganization are not
comparable.
(8) Effective January 1, 1997, the Company sold its interest in the Mont
Belvieu I fractionator. The Company had acquired this facility as part of
the Trident Combination.
THREE YEARS ENDED DECEMBER 31, 1997
For the year ended December 31, 1997, the Company realized a net loss of
$102.5 million, or $0.68 per share. This compares with net income of $113.3
million, or $0.83 per share, and $92.7 million, or $0.82 per share, in 1996 and
1995, respectively. The current period loss includes one-time charges totaling
$218.5 million, on an after-tax basis, which were principally associated with
the abandonment and impairment of certain operating and non-operating assets,
inventory obsolescence and lower-of-cost-or-market writedowns, reserves for
contingencies and other obligations, a charge for a hedging related loss and a
charge associated with a change in the method of accounting for certain business
process re-engineering and information technology transformation costs. The
comparability of results period to period was also impaired by one-time gains
totaling $7.3 million recognized during 1997, other charges of $2.5 million and
$1.1 million recognized in 1996 and 1995, respectively, and a $45.7 million
income tax benefit recognized in 1995 related to the Trident Combination.
Revenues in each of the three years in the period ended December 31, 1997,
totaled $13.4 billion, $7.3 billion and $3.7 billion, respectively.
A significant portion of the 1997 charges was taken during the fourth
quarter of 1997, reflecting the culmination of a year-long project intended to
restructure the Company's natural gas liquids business, including
rationalization and consolidation of assets acquired in the Strategic
Combinations and the pursuit of a joint venture partner in order to achieve
critical mass in the Company's crude oil marketing business. In addition, a
company-wide reorganization of reporting responsibilities and improvements in
business processes and computer information systems resulted in the
identification of other obsolete assets and a reduction of employees involved in
non-strategic operations. Pursuant to these restructuring efforts and in order
to comply with required accounting methodology, the Company anticipates
recording an additional severance charge of approximately $10 million during the
first quarter of 1998. Management believes the restructuring and reorganization
steps taken in 1997 and early 1998 have positioned the Company for improved
operating results and an enhanced competitive position for the future.
After consideration of the unusual items described above, NGC's normalized
net income for the year ended December 31, 1997, approximated $108.7 million, or
$0.65 per share, compared with normalized net income of $115.8 million, or $0.85
per share, in 1996, and $48.1 million, or $0.43 per share, in 1995. The lower
normalized results in 1997 compared to 1996 generally resulted from lower
margins reflecting a softening commodity price environment during 1997 as
compared with significant commodity price volatility throughout 1996 and higher
costs period to period resulting principally from the acquisitions and
restructurings completed during 1997 and 1996. The business expansion resulting
from the Strategic Combinations resulted in the significant revenue growth
during the three year period. Operating cash flows totaled $278.6 million for
the year ended December 31, 1997, compared with a use of cash from operations
during the 1996 period of $31.0 million and a source of cash of $90.6 million in
1995. Such relationship principally resulted from an advance payment for future
gas deliveries received in 1997, the increased size and scope of the required
investment in operating assets resulting from the Strategic Combinations and
improved working capital management in 1997.
31
<PAGE>
Consolidated operating margin for each of the three years in the period
ended December 31, 1997, totaled $385.3 million, $369.5 million and $194.7
million, respectively. For the year ended December 31, 1997, the Company
reported an operating loss of $143.4 million compared with operating income of
$197.8 million for the comparable 1996 period and $81.7 million in 1995. The
1997 operating loss includes a portion of the aforementioned charges totaling
$275 million, on a pre-tax basis, as well as higher depreciation and
amortization and general and administrative expenses as compared with both 1996
and 1995. The increase in depreciation and amortization expense results
principally from depreciable assets acquired in the Trident and Chevron
Combinations, which were effective March 1, 1995 and September 1, 1996,
respectively, and the Destec acquisition, which was effective July 1, 1997, as
well as the continued expansion of the Company's depreciable asset base through
other asset acquisitions and capital projects completed during the three year
period. The increase in general and administrative expenses period to period
principally reflects the incremental costs associated with the operations
acquired in the strategic acquisitions, the restructuring of the Company's
businesses in Canada and the United Kingdom, the expansion of ECI's operations,
the growth of Global Energy's operations and non-capitalizable consulting and
other costs related to several information system and process improvement
initiatives arising as a result of the Company's recent growth and
reorganization.
Incremental to NGC's consolidated operating income is the Company's equity
share in the earnings of its unconsolidated affiliates which contributed an
aggregate $59.0 million to 1997 pre-tax results compared to $28.1 million during
the comparable 1996 period and $21.1 million in 1995. The increase in equity
earnings over the three-year period generally reflects the addition of equity
investments as part of the strategic acquisitions and the impact of the
restructuring of the Company's investments in NCL and Accord during 1997. The
following table provides a summary of equity earnings by investment for the
comparable periods:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1997 1996 1995
------------------------------------------
($ in thousands)
<S> <C> <C> <C>
Accord (1) $25,885 $17,131 $11,826
Gulf Coast Fractionators 6,624 3,360 1,896
West Texas LPG Pipeline Limited Partnership 7,162 1,661 ---
Venice Energy Services Company, L.L.C. 8,052 2,429 ---
Destec equity investments (aggregate) 12,780 --- ---
NCL and other, net (1) (1,544) 3,494 7,338
$58,959 $28,075 $21,060
</TABLE>
(1) For a discussion of the Accord and NCL restructurings, refer to Note 2 of
the Consolidated Financial Statements.
Interest expense totaled $63.5 million for the year ended December 31,
1997, compared with $46.2 million and $32.4 million for the comparable 1996 and
1995 periods. The higher interest expense period to period is attributed to
higher average outstanding principal amounts resulting primarily from debt
assumed in and resulting from the Chevron Combination and the Destec
acquisition.
Other income and expenses, net totaled $7.9 million in 1997, principally
reflecting the aforementioned one-time gains. The net charge of $10.0 million
reported for the year ended December 31, 1996, includes a $4.0 million charge
associated with the Company's relocation to its new downtown headquarters, $0.7
million in minority interests in certain majority owned subsidiaries and other
miscellaneous non-recurring costs and expenses. Other income and expenses, net,
of $5.1 million reported for the year ended December 31, 1995, includes a $1.8
million pretax charge for tornado damage at a gas processing plant, $2.4 million
in minority interests in certain majority owned subsidiaries and other
miscellaneous non-recurring costs and expenses.
During the second quarter of 1997, the Company sold $200 million of 8.316%
Company Obligated Preferred Securities of a Subsidiary Trust ("Securities") and
the accumulated distributions attributable to these Securities are reported as
minority interest in income of a subsidiary in the consolidated statements of
operations. Accumulated distributions associated with these Securities totaled
$9.8 million for the year ended December 31, 1997.
The Company reported an income tax benefit of $62.2 million for the year
ended December 31, 1997, compared to an income tax provision of $56.3 million
and a benefit of $27.5 million in 1996 and 1995, respectively, reflecting
effective rates of (41) percent, 33 percent and (42) percent, respectively.
During the first quarter of 1995, the Company recognized a $45.7 million income
tax benefit in connection with the Trident Combination. The income tax
32
<PAGE>
benefit, which can be used to reduce NGC's future income tax liabilities, was a
result of the recognition of the excess tax basis held by certain Clearinghouse
partners. Other differences between the aforementioned effective rates and the
statutory rate of 35 percent result primarily from refunds received related to
foreign taxes paid on dividends received from Accord, permanent differences
attributable to amortization of certain intangibles, permanent differences
arising from the effect of certain foreign equity investments and state income
taxes. Additionally, the effective tax rate in 1995 was impacted by pre-
combination earnings of Clearinghouse that were predominantly taxed as
partnership income.
NATURAL GAS AND ELECTRIC POWER MARKETING
Marketing's operating margin for the year ended December 31, 1997, totaled
$103.9 million, consisting of $99.4 million related to gas marketing operations
and $4.5 million related to electric power marketing operations. These amounts
correspond to 1996 operating margins of $103.6 million, $100.2 million and $3.4
million, respectively. During 1995, the segment's operating margin totaled
$63.7 million.
Marketing's business strategy includes expansion of relationships with
existing LDCs and industrial customers as a means for expanding its customer
base. The segment continues to execute its strategy of not competing directly
with LDCs and will initiate additional retail programs through alliances with
strategic partners. In addition, the segment expects to continue to capitalize
off the synergies provided by the Destec acquisition in expanding sales efforts
to industrials and expanding its power generation asset base.
The level operating margin in 1997 as compared to 1996 attributed to the
gas marketing operations reflects higher sales volumes offset by lower unit
margins period to period. The lower margin in 1995 is a result of significantly
lower volumes. Total natural gas volumes sold in North America increased to 8.0
billion cubic feet per day in 1997 from 4.3 billion cubic feet per day during
1996 and 3.5 billion cubic feet per day in 1995, principally as a result of the
Chevron Combination and the inclusion of volumes sold by NGC Canada, Inc.
Average unit margins in North America approximated $0.04 per thousand cubic feet
during 1997, reflecting higher unit margins on volumes sold in the U.S. offset
by lower unit margins on volumes sold in Canada during the period. During the
comparable 1996 and 1995 periods, unit margins approximated $0.06 and $0.05 per
thousand cubic feet on volumes sold in the U.S. only. The lower 1997 unit
margins as compared to margins realized in 1996 and 1995 reflect the mild winter
weather during 1997 and the inclusion of lower unit margins derived from the
Company's Canadian operations.
ECI's 1997 operating margin increased $1.1 million over the same 1996
period principally as a result of increased volume offset by lower unit margins.
The lower unit margins resulted principally from a higher quantity of low-margin
trading volume in the 1997 period. Comparative sales volumes increased six times
period to period, as incremental volumes derived from the Destec acquisition
combined with the continued growth of ECI's operations resulted in sales volume
of 94.7 million megawatt hours during 1997 compared to 14.9 million megawatt
hours sold in 1996. ECI's operations in 1995 were immaterial to the segment's
operating margin.
POWER GENERATION
The Company's power generation operations, managed through Destec,
contributed $19.0 million of operating margin and $12.8 million of equity
earnings during 1997. Destec's ownership of power generating assets is
predominantly through varying interests held in partnerships that own and
operate power generation facilities. During the period, the power generating
assets in which Destec maintains an interest generated 7.2 million megawatt
hours of electricity (4.3 million megawatt hours, net to Destec's interest).
The business strategy employed by Destec is to be a low-cost producer of
electric power and Destec will actively pursue expansion of its position as a
developer, manager and operator of power generation facilities. NGC expects the
expertise of Destec's personnel, displayed through proven knowledge of power
technology and engineering and experience in development, construction and
operation of power facilities, to provide a platform for expansion of its power
generating business worldwide.
NATURAL GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION
Liquids reported a 1997 operating margin of $262.4 million, representing a
decrease of $3.5 million from the operating margin reported in the comparable
1996 period, and a $131.5 million increase over the segment's 1995 operating
margin. Generally, operating margins from businesses in this segment were
negatively impacted in 1997 by lower average commodity prices as compared with
commodity prices in the 1996 period. The 1997 operating results were negatively
impacted by high cost inventory purchased during the fourth quarter of 1996,
which was recognized in
33
<PAGE>
operating results during the first quarter of 1997 and culminated in a lower-of-
cost-or-market writedown of $12.3 million at March 31, 1997. Additionally,
included in the 1997 period are pre-tax charges related to a lower-of-cost-or-
market writedown of crude oil inventory of $2.7 million and a hedge-related loss
of $8.3 million.
Operationally, the segment's businesses reflect significantly improved
volumes period to period principally as a result of the Chevron Combination.
Aggregate natural gas liquids processing volumes averaged 136.2 thousand gross
barrels per day during the 1997 period as compared to 94.3 thousand gross
barrels per day in 1996. Throughput in the gathering systems supplying the
Company's field processing facilities increased 11 percent in 1997, partially
reflecting the improved operating results occurring as the segment executes its
aforementioned restructuring plan. Natural gas liquids marketing volumes
increased from 245.0 thousand barrels per day in the 1996 period to 413.9
thousand barrels per day in 1997 and crude oil sales volumes increased 62.3
thousand barrels per day period to period. As a result of the January 1, 1997,
sale of the Mont Belvieu fractionator, barrels received for fractionation
decreased period to period by 10.7 thousand barrels per day. Natural gas
gathering and transmission volumes increased slightly during the 1997 period.
Global LPG sales volumes totaled 33.5 million barrels during the 1997 period. A
comparison of the 1995 operating statistics with results in 1996 and 1997 are
inconsequential principally as a result of the Chevron Combination.
The segment's business strategy is predicated on being the low-cost
producer of energy products. The integration of the assets acquired in the
Chevron and Trident Combinations has resulted in improved capacity utilization
and enhanced operating performance. Further, management believes that the asset
rationalizations and restructuring occurring in the fourth quarter of 1997 and
into 1998 positions NGC's Liquids segment for improved operating results and an
enhanced competitive position for the future. The segment continues to actively
address other cost containment initiatives at existing facilities and will
pursue asset acquisitions and/or the construction of new assets when it is
considered economically and strategically appropriate in order to align its
operations with other commercial aspects of NGC's business. In addition, the
segment is actively pursuing acquisitions, strategic alliances, joint ventures
and construction projects in order to capitalize on new gas production in the
Gulf of Mexico.
Internationally, the Company, principally through its wholly owned
subsidiary NGC Global Energy, is pursuing economically viable near-term
strategic opportunities. The intent of the strategy is to expand the multi-
commodity concept in selected international locations and it is likely the
Company will leverage off foreign investments held by its major shareholders as
a means for initiating most of these near-term projects.
Operating Cash Flow
Cash flow from operating activities totaled $278.6 million during the year
ended December 31, 1997, an improvement of $309.6 million and $188.0 million
over the amounts reported in the 1996 and 1995 periods, respectively. The
improvement principally resulted from an advance payment for future gas
deliveries received in 1997, the increased size and scope of the required
investment in operating assets resulting from the strategic acquisitions and
improved working capital management in 1997. Changes in other working capital
accounts, which include prepayments, other current assets and accrued
liabilities, reflect expenditures or recognition of liabilities for insurance
costs, certain deposits, salaries, taxes other than on income, certain deferred
revenue accounts and other similar items. Fluctuations in these accounts, period
to period, reflect changes in the timing of payments or recognition of
liabilities and are not directly impacted by seasonal factors.
Capital Expenditures, Commitments and Dividend Requirements
Destec Acquisition. NGC acquired Destec on June 27, 1997, in a transaction
valued at $1.26 billion, or $21.65 per share of Destec common stock. Concurrent
with this acquisition, NGC sold Destec's international facilities and operations
to The AES Corporation for $439 million. In July and August 1997, the Company
sold Destec's interest in a partnership that owned a power generation facility
and certain oil, gas and lignite reserves, respectively, for aggregate proceeds
of $296 million. Proceeds from the sales of these non-strategic assets were used
to retire debt incurred in the acquisition. The Company is continuing to explore
other opportunities to monetize its investment in certain assets acquired from
Destec if, and when, it is determined that such divestitures are economically
and strategically appropriate.
34
<PAGE>
Capital Expenditures and Investing Activities. During the year ended
December 31, 1997, the Company spent a net $510.7 million, principally on the
Destec acquisition, the purchase of NCL's gas marketing operations and on
acquisitions of additional interests in gas processing facilities, pipelines and
other midstream assets. Expenditures were also made on capital improvements at
existing facilities and on capital additions at the Company's new headquarters.
The Company invested $27.7 million in its unconsolidated affiliates, principally
for amounts committed to VESCO. During the period, the Company divested itself
of the Mont Belvieu I fractionation facility pursuant to an agreement reached
with the Federal Trade Commission related to the Chevron Combination. Further,
NGC sold its 49.9 percent interest in NCL, as part of the restructuring of that
investment and consummated the aforementioned sales of certain non-strategic
Destec assets. Aggregate net proceeds from these dispositions, plus proceeds
from other immaterial dispositions, approximated $453 million.
During 1996, the Company spent a net $111 million in acquisition, capital
project and asset maintenance activities. These funds were expended principally
for maintenance of existing assets, the acquisition of processing plants,
gathering lines, pipelines and on discrete capital assets. In addition, during
1996, the Company completed the acquisitions of LPG Services Group, Inc., a
propane gas marketing and distribution company, and Wilmar Energy Marketing, a
Calgary based crude oil marketer. Investments in unconsolidated affiliates
included contributions of $18.6 million to VESCO. As reflected in the
accompanying notes to the consolidated financial statements, the Chevron
Combination was consummated principally through the assumption of debt and the
issuance of capital stock.
During 1995, the Company spent approximately $310 million in acquisition
and asset maintenance activities. The most significant component of cash used in
investing activities during the 1995 period related to the acquisition cost and
expenses associated with the Trident Combination. Approximately $166.9
million, exclusive of transaction related costs, was required to consummate the
tender offer related to the Trident Combination. These funds were provided by
British Gas, NOVA and Clearinghouse. Specifically, British Gas and NOVA each
contributed $67.5 million to their respective subsidiaries that participated in
the Trident Combination and Clearinghouse provided $31.9 million to fund the
balance. Clearinghouse funded the $31.9 million and certain other costs
associated with the Combination through a combination of cash on hand and $25.0
million in borrowings under its then existing credit agreement. In addition to
the Trident Combination, the Company spent an additional $145 million to acquire
other assets, the most significant of which were the Ozark Gas Transmission
System, the Kerr-McGee pipeline and Pan Alberta Gas, through a contribution to
NCL, as well as capital improvements at existing facilities and investments in
other unconsolidated affiliates.
Dividend Requirements and Stock Repurchases. NGC declares quarterly
dividends on its outstanding common stock at the discretion of its Board of
Directors. The holders of the Series A Preferred Stock are entitled to receive
dividends or distributions equal per share in amount and kind to any dividend or
distribution payable on shares of the Company's common stock, when and as the
same are declared by the Company's Board of Directors. Prior to the Trident
Combination, Clearinghouse made distributions primarily to enable
Clearinghouse's partners to pay tax liabilities incurred as a result of
Clearinghouse generated income which was taken into account by the Clearinghouse
partners in computing their personal income tax liabilities. During the years
ended December 31, 1997, 1996 and 1995, the Company paid approximately $7.9
million, $6.7 million and $9.3 million in cash dividends and distributions,
respectively.
In May 1997, the Board of Directors approved a stock repurchase program
that allows the Company to repurchase, from time to time, up to 1.6 million
shares of common stock in open market transactions. The timing and number of
shares ultimately repurchased will depend upon market conditions and
consideration of alternative investments. Pursuant to this program, the Company
has acquired 654,900 shares at a total cost of $10.5 million, or $16.04 per
share on a weighted average cost basis, through December 31, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedule of the Company
are set forth at pages F-1 through F-33 inclusive, found at the end of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
35
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information required by this Item 10 will be contained in
the definitive Proxy Statement of the Company for its 1998 Annual Meeting of
Stockholders (the "Proxy Statement") under the headings "Proposal 1 -- Election
of Directors" and "Executive Compensation -- Section 16(a) Beneficial Ownership
Reporting Compliance" and is incorporated herein by reference. The Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after December 31, 1998. Reference is also made to the information
appearing in Part I of this Annual Report on Form 10-K under the caption "Item
1A. Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be contained in the
Proxy Statement under the heading "Executive Compensation" and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding ownership of certain of the Company's outstanding
securities will be contained in the Proxy Statement under the heading "Principal
Stockholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding related party transactions will be contained in the
Proxy Statement under the headings "Principal Stockholders", "Proposal 1 --
Election of Directors" and "Executive Compensation -- Indebtedness of
Management" and "-- Certain Relationships and Related Transactions" and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 8-K
The following documents, which have been filed by the Company with the
Securities and Exchange Commission pursuant to the Securities and Exchange Act
of 1934, as amended, are by this reference incorporated in and made a part of
this statement:
a. Financial Statements -- Consolidated financial statements of the
Company and its subsidiaries are incorporated under Item 8. of this
Form 10-K.
b. Financial Statements -- Consolidated financial statements of the Company
and its subsidiaries are incorporated Under Item 8. of this Form 10-K.
c. Exhibits -- The following instruments and documents are included as
exhibits to this Form 10-K.
Exhibit
Number Description
------- -----------
2.1 - Combination Agreement and Plan of Merger, dated May, 22, 1996, by
and between NGC Corporation, Chevron U.S.A. Inc. and Midstream
Combination Corp.(1014)
2.2 - Amendment to Combination Agreement, dated as of August 29, 1996,
by and among NGC Corporation, Chevron U.S.A. Inc. and Midstream
Combination Corp.(811)
36
<PAGE>
2.3 - Agreement and Plan of Merger by and among Destec Energy, Inc.,
The Dow Chemical Company, NGC Corporation and NGC Acquisition
Corporation II dated as of February 17, 1997. (11)
2.4 - Asset Purchase Agreement by and between NGC Corporation and The AES
Corporation dated as of February 17, 1997. (11)
2.5 - First Amendment to Asset Purchase Agreement by and between NGC
Corporation and The AES Corporation dated June 29, 1997.(12)
2.6 - Asset Purchase Agreement between Destec Energy, Inc. and ECT EOCENE
Enterprises, Inc. dated July 1, 1997.(12)
3.1 - Restated Certificate of Incorporation of NGC Corporation. (11)
3.2 - Amended and Restated By-Laws of NGC Corporation. (11)
4.1 - Indenture, dated as of September 9, 1993, between Trident NGL, Inc.
and Ameritrust Texas National Association, as Trustee.(5)
4.25 - Note Purchase Agreement, dated as of August 30, 1991, by and among
Trident NGL, Inc. and the Purchasers named therein.(2)
4.36 - Indenture, dated as of April 15, 1993, between Trident NGL, Inc.
and The First National Bank of Boston, as Trustee.(3)
4.4 - Indenture, dated as of September 9, 1993, between Trident NGL, Inc.
and Ameritrust Texas National Association, as Trustee.(5)
4.5 - Warrant exercisable for 6,228 shares of Common Stock of NGC
Corporation registered in the name of J. Otis Winters.(4)
4.5a - Indenture, dated as of December 11, 1995, by and between NGC
Corporation, the Subsidiary Guarantors named therein and the First
National Bank of Chicago, as Trustee.(7)
4.6 - First Supplemental Indenture, dated as of August 31, 1996, by and
among NGC Corporation, the Subsidiary Guarantors named therein, and
The First National Bank of Chicago, as Trustee, supplementing and
amending the Indenture dated as of December 11, 1995. (8)
4.7 - Second Supplemental Indenture, dated as of October 11, 1996, by and
among NGC Corporation, the Subsidiary Guarantors named therein, and
The First National Bank of Chicago, as Trustee, supplementing and
amending the Indenture dated as of December 11, 1995. (8)
4.8 - Amended and Restated Credit Agreement dated as of June 27, 1997,
among NGC Corporation and The First National Bank of Chicago,
Individually and as Agent, The Chase Manhattan Bank and NationsBank
of Texas, N.A., Individually and as Co-Agents, and the Lenders
Named therein.(12)
+4.9 - First Amendment to Amended and Restated Credit Agreement dated
November 24, 1997, among NGC Corporation and The First National
Bank of Chigaco, Individually and as Agent, The Chase Manhattan
Bank and NationsBank of Texas, N.A., Individually and as Co-Agents
for the Lenders named therein.
+4.10 - Second Amendment to Amended and Restated Credit Agreement, dated as
of February 20, 1998, among NGC Corporation and The First National
Bank of Chicago, Individually and as Agent, The Chase Manhattan
Bank and NationsBank of Texas, N.A., Individually and as Co-Agents
for the Lenders named therein.
37
<PAGE>
4.11 - Subordinated Debenture Indenture between NGC Corporation and The
First National Bank of Chicago, as Debenture Trustee, dated as of
May 28, 1997. (13)Credit Agreement dated as of March 14, 1995,
among NGC Corporation and The First National Bank of Chicago,
individually and as agent, The Chase Manhattan Bank National
Association and Nations Bank of Texas N.A., individually and as co-
agent, and certain other lenders named therein.(9)
4.12 - Amended and Restated Declaration of Trust among NGC Corporation,
Wilmington Trust Company, as Property Trustee and Delaware Trustee,
and the Administrative Trustees named therein, dated as of May 28,
1997. (13)Indenture, dated as of December 11, 1995, between NGC
Corporation, the Subsidiary Guarantors named therein and The First
National Bank of Chicago, as Trustee.(8)
4.13 - Amended and Restated Declaration of Trust among NGC Corporation,
Wilmington Trust Company, as Property Trustee and Delaware Trustee,
and the Administrative Trustees named therein, dated as of May 28,
1997. (13)
4.14 - Common Securities Guarantee of NGC Corporation dated as of May 28,
1997. (13)
4.15 - Registration Rights Agreement, dated as of May 28, 1997, among NGC
Corporation, NGC Corporation Capital Trust I, Lehman Brothers,
Salomon Brothers Inc. and Smith Barney Inc. (13)
4.16 - Second Supplemental Indenture among NGC Corporation, Destec Energy,
Inc. and The First National Bank of Chicago, as Trustee, dated as
of June 30, 1997, supplementing and amending the Indenture dated as
of June 30, 1997. (14)
4.17 - Fourth Supplemental Indenture among NGC Corporation, Destec Energy,
Inc. and The First National Bank of Chicago, as Trustee, dated as
of June 30, 1997, supplementing and amending the Indenture dated as
of December 11, 1995. (14)
+4.18 - Fifth Supplemental Indenture among NGC Corporation, The Subsidiary
Guarantors named therein and The First National Bank of Chicago, as
Trustee, dated as of September 30, 1997, supplementing and amending
the Indenture dated as of December 11, 1995.
+4.19 - Sixth Supplemental Indenture among NGC Corporation, The Subsidiary
Guarantors named therein and The First National Bank of Chicago, as
Trustee, dated as of January 5, 1998, supplementing and amending
the Indenture dated as of December 11, 1995.
+4.20 - Seventh Supplemental Indenture among NGC Corporation, The
Subsidiary Guarantors named therein and The First National Bank of
Chicago, as Trustee, dated as of February 20, 1998, supplementing
and amending the Indenture dated as of December 11, 1995.
+4.21 - Indenture dated as of September 26, 1996, Restated as of March 23,
1998, to include amendments in the First through Fifth Supplemental
Indentures, between NGC Corporation and The First National Bank of
Chicago, as Trustee.
10.1 - Agreement of Sale and Purchase of Assets, dated as of May 5, 1991,
as amended on June 6, 1991 and August 30, 1991, by and between OXY
USA Inc. and Trident Energy, Inc.(1)
10.2 - Master Agreement on Gas Processing, dated as of May 5, 1991, by and
between OXY USA Inc. and Trident NGL, Inc.(1)
10.3 - NGC Corporation Amended and Restated 1991 Stock Option Plan.(11)
10.4 - Stock Purchase Agreement between Trident NGL Holding, Inc. and J.
Otis Winters.(5)
10.5 - NGC Corporation Amended and Restated Employee Equity Option
Plan.(67) (See Appendix III to the Proxy Statement/Prospectus).
10.6 - The Amended and Restated Natural Gas Clearinghouse Deferred
Compensation Plan, dated February 28, 1992.(6)
10.7 - Employment Agreement dated April 2, 1996 by and between NGC
Corporation and Stephen A. Furbacher.(9)
38
<PAGE>
10.8 - Employment Agreement, dated as of November 15, 1996, between Thomas
M. Matthews and NGC Corporation. (11)
+10.9 - Employment Agreement, dated as of April 30, 1997, between Charles
L. Watson and NGC Corporation.
+10.10 - Employment Agreement, dated as of May 8, 1997, between Stephen W.
Bergstrom and NGC Corporation.
+10.11 _ Employment Agreement, dated as of April 14, 1997, between John U.
Clarke and NGC Corporation.
+10.12 _ Employment Agreement, dated as of May 21, 1997, between Kenneth E.
Randolph and NGC Corporation.
10.13 - Lease Agreement entered into on June 12, 1996 between
Metropolitan Life Insurance Company and Metropolitan Tower Realty
Company, Inc., as landlord, and NGC Corporation, as tenant.(9)
10.14 - First Amendment to Lease Agreement entered into on June 12, 1996
between Metropolitan Life Insurance Company and Metropolitan Tower
Realty Company, Inc., as landlord, and NGC Corporation, as
tenant.(9)
10.15 - Contribution and Assumption Agreement, dated as of August 31, 1996,
among Chevron U.S.A. Inc., Chevron Pipe Line Company, Chevron
Chemical Company and Midstream Combination Corp.(8)
10.16 - Scope of Business Agreement, dated May 22, 1996 between Chevron
Corporation and NGC Corporation.(9)
10.17 - Stockholders Agreement dated, May 22, 1996, among BG Holdings,
Inc., NOVA Gas Services (U.S.) Inc. and Chevron U.S.A. Inc.(9)
10.18 - Registration Rights Agreement, dated as of August 31,1996, among
NGC Corporation, BG Holdings, Inc., NOVA Gas Services (U.S.) Inc.
and Chevron U.S.A. Inc.(8)
10.19 - Master Alliance Agreement, dated as of September 1, 1996, among
Chevron U.S.A. Inc., Chevron Chemical Company, Chevron Pipe Line
Company, and other Chevron U.S.A. Inc. affiliates, NGC Corporation,
Natural Gas Clearinghouse, Warren Petroleum Company, Limited
Partnership, Electric Clearinghouse, Inc. and other NGC Corporation
affiliates.(8)
*10.20 - Natural Gas Purchase and Sale Agreement, dated as of August 30,
1996, among Chevron U.S.A. Inc. and Natural Gas Clearinghouse.(8)
*10.21 - Master Natural Gas Processing Agreement, dated as of
September 1, 1996, among Chevron U.S.A. Inc. and Warren Petroleum
Company, Limited Partnership.(8)
*10.22 - Master Natural Gas Liquids Purchase Agreement, dated as of
September 1, 1996, among Warren Petroleum Company, Limited
Partnership and Chevron U.S.A. Inc.(8)
*10.23 - Gas Supply and Service Agreement, dated as of September 1, 1996,
among Chevron Products Company and Natural Gas Clearinghouse.(8)
10.24 - Master Power Service Agreement, dated as of May 16, 1996, among
Electric Clearinghouse, Inc. and Chevron U.S.A. Production
Company.(9)
39
<PAGE>
10.25 - Master Power Service Agreement, dated as of May 16, 1996, among
Electric Clearinghouse, Inc. and Chevron Chemical Company.(9)
10.26 - Master Power Service Agreement, dated as of May 16, 1996, among
Electric Clearinghouse, Inc. and Chevron Products Company.(9)
*10.27 - Feedstock Sale and Refinery Product Purchase Agreements, dated as
of September 1, 1996, among Chevron Products Company and Warren
Petroleum Company, Limited Partnership.(8)
*10.28 - Refinery Product Sale Agreement (Hawaii), dated as of September 1,
1996, among Warren Petroleum Company, Limited Partnership and
Chevron Products Company.(8)
*10.29 - Feedstock Sale and Refinery Product Master Services Agreement,
dated as of September 1, 1996, among Chevron Products Company and
Warren Petroleum Company, Limited Partnership.(8)
*10.30 - CCC Product Sale and Purchase Agreement dated as of September 1,
1996, among Warren Petroleum Company, Limited Partnership and
Chevron Chemical Company.(8)
*10.31 - CCC/WPC Services Agreement, dated as of September 1, 1996, among
Chevron Chemical Company and Warren Petroleum Company, Limited
Partnership.(8)
*10.32 - Operating Agreement, dated as of September 1, 1996, among Warren
Petroleum Company, Limited Partnership and Chevron Pipe Line
Company.(8)
10.33 - Galena Park Services Agreement, dated as of September 1, 1996,
among Chevron Products Company and Midstream Combination Corp.(8)
*10.34 - Venice Complex Operating Agreement, dated as of September 1, 1996,
among Chevron U.S.A. Inc. and Warren Petroleum Company, Limited
Partnership.(9)
*10.35 - Product Storage Lease and Terminal Access Agreement, dated as of
September 1, 1996, among Chevron U.S.A. Inc. and Warren Petroleum
Company, Limited Partnership.(9)
10.36 - Lone Star Swap Transaction Confirmation Term Sheet, dated as of
September 1, 1996, among Chevron U.S.A. Inc. and NGC
Corporation.(8)
*10.37 - West Texas LPG Pipeline Limited Partnership Agreement, dated as of
September 1, 1996, by and between Chevron Pipe Line Company, or an
affiliate thereof, and an affiliate of NGC Corporation.(8)
*10.38 - West Texas LPG Pipeline Operating Agreement, dated as of September
1, 1996, by and between Chevron Pipe Line Company, or an affiliate
thereof, and the West Texas LPG Pipeline Partnership.(8)
*10.39 - Time Charter, dated as of August 31, 1996, by and between Midstream
Barge Company, L.L.C. and Warren Petroleum Company, Limited
Partnership.(8)
*10.40 - Limited Liability Company Agreement of Midstream Barge Company,
L.L.C., dated as of August 31, 1996, by and between Chevron U.S.A.
Inc. and Warren Petroleum Company, Limited Partnership.(8)
+12.1 - Computation of Ratio of Earnings to Fixed Charges.
40
<PAGE>
+22.1 - Subsidiaries of the Registrant.
+23.1 - Consent of Arthur Andersen LLP.
+27.1 - Financial Data Schedule.
- ----------------
+ Filed herewith
* Exhibit omits certain information which the Company has filed separately
with the Commission pursuant to a confidential treatment request pursuant
to Rule 406 promulgated under the Securities Act of 1933, as amended.
(1) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL, Inc. on Form S-1, Registration No. 33-43871.
(2) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL, Inc. on Form S-1, Registration No. 33-46416.
(3) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 1993 of Trident NGL, Inc.,
Commission File No. 1-11156.
(4) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1993 of Trident NGL Holding,
Inc., Commission File No. 1-11156.
(5) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL Holding, Inc. on Form S-1, Registration No. 33-68842
(6) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL Holding, Inc. on Form S-4, Registration No. 33-88907.
(7) Incorporated by reference to the Registration Statement of NGC Corporation
on Form S-3, Registration No. 33-97368.
(8) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1996, of NGC Corporation,
Commission File No. 1-11156.
(9) Incorporated by reference to exhibits to the Registration Statement of
Midstream Combination Corp. on Form S-4, Registration No. 333-09419.
(10) Incorporated by reference to exhibits to the Current Report on Form 8-K of
NGC Corporation, dated May 22, 1996, Commission File No. 1-11156.
(11) Incorporated by reference to exhibits to the Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1996, of NGC Corporation, Commission
File No. 1-11156.
(12) Incorporated by reference to exhibits to the Current Report on Form 8-K of
NGC Corporation, Commission File No. 1-11156, dated June 27, 1997.
(13) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended June 30, 1997, Commission File No. 1-11156.
(14) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1997, Commission File
No. 1-11156
(b) Reports on Form 8-K of NGC Corporation.
None.
41
<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.
NGC CORPORATION
Date: March 30,1998 By: /s/ C. L. Watson
----------------------------------------
C. L. Watson, Chairman of the Board,
Chief Executive Officer and Director
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.
Date: March 30, 1998 By: /s/ C. L. Watson
----------------------------------------
C. L. Watson, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 30, 1998 By: /s/ John U. Clarke
-----------------------------------------
John U. Clarke, Senior Vice President
and Chief Financial Officer (Principal
Financial Officer)
Date: March 30, 1998 By: /s/ Bradley P. Farnsworth
-----------------------------------------
Bradley P. Farnsworth, Vice President
and Controller (Principal Accounting
Officer)
Date: March 30, 1998 By: /s/ Thomas M. Matthews
-----------------------------------------
Thomas M. Matthews, President and
Director
Date: March 30, 1998 By: /s/ Stephen J. Brandon
----------------------------------------
Stephen J. Brandon, Director
Date: March 30, 1998 By: /s/ Frank J. Chapman
----------------------------------------
Frank J. Chapman, Director
Date: March 30, 1998 By: /s/ P. Nicholas Woollacott
-----------------------------------------
P. Nicholas Woollacott, Director
Date: March 30, 1998 By: /s/ Jack S. Mustoe
----------------------------------------
Jack S. Mustoe, Director
42
<PAGE>
Date: March 30, 1998 By: /s/ Jeffrey M. Lipton
----------------------------------------
Jeffrey M. Lipton, Director
Date: March 30, 1998 By: /s/ Albert Terrance Poole
----------------------------------------
Albert Terence Poole, Director
Date: March 30, 1998 By: /s/ Darald W. Callahan
-----------------------------------------
Darald W. Callahan, Director
Date: March 30, 1998 By: /s/ Patricia A. Woertz
----------------------------------------
Patricia A. Woertz, Director
Date: March 30, 1998 By: /s/ Peter J. Robertson
----------------------------------------
Peter J. Robertson, Director
Date: March 30, 1998 By: /s/ Daniel L. Dienstbier
----------------------------------------
Daniel L. Dienstbier, Director
Date: March 30, 1998 By: /s/ J. Otis Winters
----------------------------------------
J. Otis Winters, Director
43
<PAGE>
NGC CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS PAGE
----
Report of Independent Public Accountants...................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.. F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995............................ F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995............................ F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995........ F-6
Notes to Consolidated Financial Statements.................... F-7
FINANCIAL STATEMENT SCHEDULE
Condensed Financial Statements of the Registrant.............. F-30
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of NGC Corporation:
We have audited the accompanying consolidated balance sheets of NGC
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1997, 1996 and 1995.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule 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 NGC Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1997, 1996 and
1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information included in Schedule I is
presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
March 20, 1998
F-2
<PAGE>
NGC CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 23,047 $ 50,209
Accounts receivable, net 1,536,451 1,373,560
Accounts receivable, affiliates 139,321 144,825
Inventories 136,485 257,005
Assets from risk management activities 127,929 98,433
Prepayments and other assets 55,547 12,689
---------- ----------
2,018,780 1,936,721
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 1,958,250 1,819,811
Less: accumulated depreciation (436,674) (128,432)
---------- ----------
1,521,576 1,691,379
---------- ----------
OTHER ASSETS
Investments in unconsolidated affiliates 470,477 181,688
Assets from risk management activities 111,341 171,528
Other assets 394,729 205,494
---------- ----------
$4,516,903 $4,186,810
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $1,404,736 $1,305,726
Accounts payable, affiliates 24,187 39,070
Accrued liabilities 192,159 117,777
Liabilities from risk management activities 132,012 86,414
--------- ----------
1,753,094 1,548,987
LONG-TERM DEBT 1,002,054 988,597
OTHER LIABILITIES
Liabilities from risk management activities 42,679 127,725
Deferred income taxes 254,059 328,280
Other long-term liabilities 245,892 76,488
---------- ----------
3,297,778 3,070,077
---------- ----------
COMPANY OBLIGATED PREFERRED SECURITIES OF SUBSIDIARY TRUST 200,000 ---
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 50,000,000 shares authorized:
8,000,000 shares designated as Series A Participating Preferred Stock,
7,815,363 shares issued and outstanding at December 31, 1997 and
1996, respectively 75,418 75,418
Common stock, $.01 par value, 400,000,000 shares authorized;
151,796,622 shares issued at December 31, 1997 and 149,846,503
shares issued and outstanding at December 31, 1996 1,518 1,498
Additional paid-in capital 919,720 896,432
Retained earnings 32,975 143,385
Less: treasury stock, at cost: 654,900 shares at December 31, 1997 (10,506) ---
---------- ----------
1,019,125 1,116,733
---------- ----------
$4,516,903 $4,186,810
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
NGC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Revenues $13,378,380 $7,260,202 $3,665,946
Cost of sales 12,993,086 6,890,702 3,471,286
----------- ---------- ----------
Operating margin 385,294 369,500 194,660
Depreciation and amortization 104,391 71,676 44,913
Impairment, abandonment and other charges 275,000 --- ---
General and administrative expenses 149,344 100,032 68,057
----------- ---------- ----------
Operating income (loss) (143,441) 197,792 81,690
Equity in earnings of unconsolidated affiliates 58,959 28,075 21,060
Other income 28,113 5,485 3,096
Relocation costs --- (4,000) ---
Interest expense (63,455) (46,202) (32,391)
Other expenses (20,230) (11,505) (8,221)
Minority interest in income of a subsidiary (9,841) --- ---
----------- ---------- ----------
Income (loss) before income taxes (149,895) 169,645 65,234
Income tax provision (benefit) (62,210) 56,323 (27,471)
----------- ---------- ----------
Net income (loss) from continuing operations before
cumulative effect of accounting change (87,685) 113,322 92,705
Cumulative effect of change in accounting
principle (net of income tax benefit of $7,913) (14,800) --- ---
----------- ---------- ----------
NET INCOME (LOSS) $ (102,485) $ 113,322 $ 92,705
=========== ========== ==========
Net Income Per Share: PRO FORMA
Income (loss) before income taxes $ (149,895) $ 169,645 $ 65,234
Income tax provision (benefit) (62,210) 56,323 20,438
----------- ---------- ----------
Net income (loss) from continuing operations before
cumulative effect of accounting change (87,685) 113,322 44,796
Cumulative effect of change in accounting
principle (net of income tax benefit of $7,913) (14,800) --- ---
Less: preferred stock dividends (391) (132) ---
----------- ---------- ----------
Net income (loss) applicable to common stockholders $ (102,876) $ 113,190 $ 44,796
=========== ========== ==========
Basic earnings (loss) per share $ (0.68) $ 0.99 $ 0.42
=========== ========== ==========
Diluted earnings per share $ n/a $ 0.83 $ 0.40
=========== ========== ==========
Basic shares outstanding 150,653 114,093 106,841
=========== ========== ==========
Diluted shares outstanding 167,009 136,099 113,176
=========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
NGC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (102,485) $ 113,322 $ 92,705
Items not affecting cash flows from operating activities:
Depreciation, amortization, impairment and abandonment 378,916 73,176 44,913
Equity in earnings of affiliates, net of cash distributions (4,073) (21,729) (9,169)
Risk management activities (8,757) (11,220) (2,951)
Deferred income taxes (86,424) 45,896 (28,281)
Amortization of bond premium (6,768) (4,892) (3,214)
Other 1,249 7,466 3,484
Change in assets and liabilities resulting from operating activities:
Accounts receivable (35,845) (954,418) (152,557)
Inventories 86,077 (116,353) (23,403)
Prepayments and other assets (20,686) 7,726 (16,518)
Accounts payable (22,601) 778,767 185,215
Accrued liabilities 14,064 47,148 11,611
Other, net 85,922 4,157 (11,187)
----------- ----------- -----------
Net cash provided by (used in) operating activities 278,589 (30,954) 90,648
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (220,003) (97,651) (128,871)
Investment in unconsolidated affiliates (27,708) (30,875) (15,457)
Business acquisitions, net of cash acquired (715,589) (714) (165,267)
Proceeds from asset sales 452,565 3,600 ---
Other, net --- 14,500 (1,028)
----------- ----------- -----------
Net cash used in investing activities (510,735) (111,140) (310,623)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 2,218,500 1,542,000 1,237,589
Repayments of long-term borrowings (2,198,275) (1,360,081) (1,143,039)
Proceeds from sale of capital stock, options and warrants 5,147 858 725
Issuance of company obligated preferred securities of a
subsidiary trust, net 198,043 --- ---
Capital contributions --- --- 135,000
Treasury stock acquisitions (10,506) --- ---
Dividends and other distributions, net (7,925) (6,740) (9,253)
----------- ----------- -----------
Net cash provided by financing activities 204,984 176,037 221,022
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (27,162) 33,943 1,047
Cash and cash equivalents, beginning of year 50,209 16,266 15,219
----------- ----------- -----------
Cash and cash equivalents, end of year $ 23,047 $ 50,209 $ 16,266
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
NGC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
NGC CORPORATION
------------------------------------------------------------------------------------------
SERIES A PREFERRED COMMON STOCK ADDITIONAL TREASURY STOCK
PARTNERSHIP ------------------- ------------------- PAID-IN RETAINED --------------------
CAPITAL SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
------------- -------- --------- ------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994 $ 152,213 --- $ --- --- $ --- $ --- $ --- --- $ ---
Net income 52,930 --- --- --- --- --- 39,775 --- ---
Capital contribution 135,000 --- --- --- --- --- --- --- ---
Partnership
distributions (5,227) --- --- --- --- --- --- --- ---
Options granted 323 --- --- --- --- 1,692 --- --- ---
Trident Combination (335,239) --- --- 109,886 1,098 510,918 --- --- ---
Dividends and other
distributions --- --- --- --- --- --- (4,285) --- ---
401(k) plan stock
issuances --- --- --- 199 3 1,873 --- --- ---
Stock options exercised --- --- --- 408 4 1,302 --- --- ---
----------- ------ -------- ------- ------ -------- --------- ------ -------
Balance at December 31,
1995 --- --- --- 110,493 1,105 515,785 35,490 --- ---
Chevron Combination --- 7,815 75,418 38,623 386 372,328 --- --- ---
Net income --- --- --- --- --- --- 113,322 --- ---
Options exercised --- --- --- 374 3 1,320 --- --- ---
Dividends and other
distributions --- --- --- --- --- --- (5,427) --- ---
401(k) plan and profit
sharing stock
issuances --- --- --- 309 4 4,175 --- --- ---
Options granted --- --- --- --- --- 2,824 --- --- ---
Other --- --- --- 48 --- --- --- --- ---
----------- ------ -------- ------- ------ -------- --------- ------ ------
Balance at December 31,
1996 --- 7,815 75,418 149,847 1,498 896,432 143,385 --- ---
Net loss --- --- --- --- --- --- (102,485) --- ---
Options exercised --- --- --- 1,541 15 11,577 --- --- ---
Dividends and other
distributions --- --- --- --- --- --- (7,925) --- ---
401(k) plan and profit
sharing stock
issuances --- --- --- 385 5 7,401 --- --- ---
Options granted --- --- --- --- --- 4,044
Treasury stock
acquisitions --- --- --- --- --- --- --- (655) (10,506)
Other --- --- --- 24 --- 266 --- --- ---
----------- ------ -------- ------- ------ -------- --------- ------ ------
Balance at December 31,
1997 $ --- 7,815 $75,418 151,797 $1,518 $919,720 $ 32,975 (655) $(10,506)
=========== ====== ======== ======= ====== ======== ========= ====== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
NGC Corporation ("NGC" or the "Company") is a holding company that
conducts substantially all of its business through its subsidiaries. The Company
is a leading aggregator, processor, transporter and marketer of energy products
and services in North America. NGC also markets natural gas and crude oil in the
United Kingdom and is an international transporter of natural gas liquids.
The accounting policies of NGC reflect industry practices and conform to
generally accepted accounting principles. The more significant of such
accounting policies are described below. The preparation of the consolidated
financial statements in conformity with generally accepted accounting principles
requires management to develop estimates and make assumptions that affect
reported financial position and results of operations and that impact the nature
and extent of disclosure, if any, of contingent assets and liabilities. Actual
results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of the Company and its majority-owned
subsidiaries after elimination of intercompany accounts and transactions.
Investments in affiliates in which the Company has a significant ownership
interest, generally 20 percent to 50 percent, are accounted for by the equity
method. Other investments are carried at cost. Certain reclassifications have
been made to prior-period amounts to conform with current period financial
statement classifications.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of all demand
deposits and funds invested in short-term investments with original maturities
of three months or less.
CONCENTRATION OF CREDIT RISK. NGC provides multiple energy commodity needs
principally to customers in the electric and gas distribution industries and to
entities engaged in industrial and petrochemical businesses. These industry
concentrations have the potential to impact the Company's overall exposure to
credit risk, either positively or negatively, in that the customer base may be
similarly affected by changes in economic, industry or other conditions.
Receivables are generally not collateralized; however, NGC believes the credit
risk posed by industry concentration is offset by the diversification and
creditworthiness of the Company's customer base.
INVENTORIES. Inventories consisting primarily of natural gas in storage of
$35.2 million and $30.6 million, natural gas liquids of $55.4 million and $194.5
million, and crude oil of $23.2 million and $16.6 million at December 31, 1997
and 1996, respectively, are valued at the lower of weighted average cost or
market. Materials and supplies inventory of $19.8 million and $12.1 million at
December 31, 1997 and 1996, respectively, is carried at the lower of cost or
market using the specific identification method.
RECOVERABLE PROJECT COSTS. The Company capitalizes certain project costs
incurred to procure equipment, to connect utility transmission lines, and other
similar costs related to construction activities, once management determines
that it is probable such costs are recoverable. If the necessary contracts are
not executed, and the capitalized costs are not considered recoverable through
other means, the related costs are charged to expense at that time.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment consisting
principally of gas gathering, processing, fractionation, terminaling and storage
facilities, natural gas transmission lines, pipelines, power generating
facilities and supporting infrastructure is recorded at cost. Expenditures for
major replacements and renewals are capitalized while expenditures for
maintenance, repairs and minor renewals to maintain facilities in operating
condition are expensed. Depreciation is provided using the straight-line method
over the estimated economic service lives of the assets, ranging from three to
30 years. Composite depreciation rates are applied to functional groups of
property having similar economic characteristics. Gains and losses are not
recognized for retirements of property, plant and equipment subject to composite
depreciation rates ("composite rate") until the asset group subject to the
composite rate is retired.
ENVIRONMENTAL COSTS. Environmental costs relating to current operations
are expensed or capitalized, as appropriate, depending on whether such costs
provide future economic benefit. Liabilities are recorded when
F-7
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
environmental assessment indicates that remedial efforts are probable and the
costs can be reasonably estimated. Measurement of liabilities is based on
currently enacted laws and regulations, existing technology and undiscounted,
site-specific costs. Environmental liabilities in connection with assets that
are sold or closed are realized upon such sale or closure, to the extent they
are probable, can be estimated and have not previously been reserved. In
assessing environmental liabilities, no offset is made for potential insurance
recoveries. Recognition of any joint and several liability is based upon the
Company's best estimate of its final pro rata share of such liability.
INTANGIBLE ASSETS. Intangible assets are generally amortized by the
straight-line method over an estimated useful life of up to 30 years.
REVENUE RECOGNITION. Revenues for product sales and gas processing and
marketing services are recognized when title passes to the customer or when the
service is performed. Fractionation and transportation revenues are recognized
based on volumes received in accordance with contractual terms. Revenues derived
from power generation, including electricity, steam and synthetic gas sales and
earned performance bonuses, are recognized upon output, product delivery or
satisfaction of specific targets, all as specified by contractual terms.
Revenues resulting from long-term engineering and project construction contracts
are recognized using the percentage-of-completion method. Fees derived from
engineering and construction contracts and development and other activities
received from joint ventures in which NGC holds an equity interest are deferred
to the extent of NGC's ownership interest and amortized on a straight-line basis
over appropriate periods, which vary according to the nature of the service
provided and the ventures' operations.
The Company accounts for its North American fixed-price natural gas
transactions using the mark-to-market method of accounting. Under such method,
all fixed-price natural gas contracts are recorded at fair value, net of future
servicing costs and reserves. Changes in the market value of these contracts are
recognized as gain or loss in the period of change. The resulting unrealized
gains and losses are recorded as assets and liabilities from risk management
activities. All other gas marketing activities are accounted for under the
accrual method of accounting.
The Company routinely enters into financial instrument contracts to hedge
purchase and sale commitments and inventories in its natural gas liquids, crude
oil, electricity and coal businesses in order to minimize the risk of market
fluctuations. NGC also monitors its exposure to fluctuations in interest rates
and foreign currency exchange rates and may execute swaps, forward-exchange
contracts or other financial instruments to manage these exposures. Gains and
losses from hedging transactions are recognized in income and are reflected as
cash flows from operating activities in the periods for which the underlying
commodity, interest rate or foreign currency transaction was hedged. If the
necessary correlation to the commodity, interest rate or foreign currency
transaction being hedged ceases to exist, the gain or loss associated with such
contract(s) is no longer deferred and is recognized in the period correlation is
lost.
INCOME TAXES. The Company files a consolidated United States federal
income tax return and, for financial reporting purposes, provides income taxes
for the difference in the tax and financial reporting bases of its assets and
liabilities in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Prior to March 1, 1995, the
effective date of the merger between Natural Gas Clearinghouse ("Clearinghouse")
and Trident NGL Holding, Inc. ("Holding") (the "Trident Combination"), the
operations of Clearinghouse, a Colorado partnership, were generally not subject
to corporate federal income tax and Clearinghouse's earnings were generally
allocated to and taken into account in computing the taxable income of its
partners.
EARNINGS PER SHARE. Basic earnings per share represents the amount of
earnings for the period available to each share of common stock outstanding
during the period. Diluted earnings per share represents the amount of earnings
for the period available to each share of common stock outstanding during the
period plus each share that would have been outstanding assuming the issuance of
common shares for all dilutive potential common shares outstanding during the
period. Differences between basic and diluted shares outstanding in all periods
are attributed to options outstanding and a warrant. For the year ended
December 31, 1997, Basic and Diluted earnings per share are the same as a result
of antidilution resulting from the net loss in that period.
F-8
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro forma net income used to compute pro forma earnings per share for the
year ended December 31, 1995, reflects incremental statutory federal and state
income tax provisions applied to Clearinghouse's partnership income for the
period prior to the effective date of the Trident Combination. The incremental
tax provision represents an estimate of the aggregate federal and state income
taxes that would have been provided had Clearinghouse been a taxpaying entity
during that accounting period.
FOREIGN CURRENCY TRANSLATIONS. For subsidiaries whose functional currency
is other than U.S. dollar, assets and liabilities are translated at year-end
rates of exchange and revenues and expenses are translated at average exchange
rates prevailing during the year.
NOTE 2 -- BUSINESS COMBINATIONS AND SIGNIFICANT RESTRUCTURINGS
THE DESTEC ACQUISITION. On June 27, 1997, NGC acquired Destec Energy, Inc.
("Destec"), an independent power producer, for $1.26 billion, or $21.65 per
share of Destec common stock. Concurrent with this acquisition, NGC sold
Destec's international facilities and operations to The AES Corporation for $439
million. NGC financed the transaction through cash on hand and advances on its
credit facilities provided by its existing commercial banks. The acquisition
related debt is to be retired from a combination of cash flows from operations,
sales of non-strategic domestic Destec assets, proceeds from issuance of new
corporate debt and proceeds from the issuance of preferred securities of a
subsidiary trust. During July and August 1997, the Company sold certain non-
strategic Destec assets for aggregate proceeds of $296 million. Such proceeds
were used to retire outstanding indebtedness.
The Destec acquisition was accounted for under the purchase method of
accounting. Accordingly, the purchase price of approximately $718 million,
inclusive of transaction costs and net of cash acquired, was allocated to the
Destec assets acquired and liabilities assumed based on their estimated fair
values as of June 30, 1997, the effective date of the acquisition for accounting
purposes. The purchase price allocation as presented herein is considered
preliminary and is dependent upon subsequent asset sales, if any, and the
ultimate resolution of certain pending legal and other contingencies existing at
the time of the acquisition. The results of operations of the acquired Destec
assets are consolidated with NGC's existing operations beginning July 1, 1997.
The following table reflects certain unaudited pro forma information for the
periods presented as if the Destec acquisition had occurred on January 1, 1996
(in thousands, except per share data):
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996
------------------------------
Pro forma revenues $13,498,207 $7,529,928
Pro forma net income (loss) (101,175) 125,962
Pro forma earnings (loss) per share (0.67) 0.93
RESTRUCTURING OF NOVAGAS CLEARINGHOUSE, LTD. In June 1997, the Company and
NOVA Corporation ("NOVA") completed the restructuring of the companies' Canadian
natural gas operations formerly executed through Novagas Clearinghouse, Ltd.,
Novagas Clearinghouse Limited Partnership and Novagas Clearinghouse Pipelines
Limited Partnership (collectively "NCL"), a joint venture between NGC and NOVA.
Pursuant to the agreements, NGC Canada Inc. ("NGCCI"), a wholly owned indirect
subsidiary of NGC, acquired NCL's natural gas marketing business, excluding the
natural gas aggregation business of Pan-Alberta Gas Ltd. ("Pan-Alberta"), from
NCL and sold its aggregate 49.9 percent interest in NCL to NOVA Gas
International ("NGI"), a subsidiary of NOVA. NOVA assumed full ownership of
NCL's gathering and processing business and the operations of Pan-Alberta. The
restructuring included amendments to or termination of various agreements
between NCL, NGC, NOVA and certain affiliates of both NGC and NOVA. NGC realized
a pretax gain on the sale of its interest in NCL of $7.8 million, which is
classified as other income in the accompanying consolidated statements of
operations for the year ended December 31, 1997. The acquisition by NGC of NCL's
marketing business was accounted for under the purchase method of accounting.
Accordingly, the purchase price of $4.0 million, inclusive of transaction costs,
was allocated to the assets acquired and liabilities assumed based on their
estimated fair values as of April 1, 1997, the effective date of
F-9
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the acquisition for accounting purposes. NGC and NOVA are pursuing separate
midstream asset businesses in Canada with NGC operating its Canadian marketing
and midstream asset businesses through NGCCI.
RESTRUCTURING OF ACCORD ENERGY LIMITED ("ACCORD"). In early 1997, British
Gas completed a restructuring whereby Centrica plc ("Centrica") was demerged
from British Gas and British Gas was renamed BG plc ("BG"). Centrica became the
Company's joint venture partner in Accord. BG holds the approximate 26 percent
stake in NGC's common stock formerly held by British Gas. On May 2, 1997,
Centrica and the Company completed a restructuring of Accord by converting
certain common stock interests in Accord to participating preferred stock
interests as of an effective date of January 1, 1997. Centrica and the Company
own 75 percent and 25 percent, respectively, of the outstanding participating
preferred stock shares of Accord. The participating preferred stock has (a) the
right to receive cumulative dividends on a priority basis to other corporate
distributions by Accord, and (b) limited voting rights. In addition, Centrica
has an option to purchase the Company's participating preferred stock interest
at any time after July 1, 2000, at a formula based price, as defined in the
agreement. As part of the reorganization, Centrica will operate Accord while NGC
obtained the right to market natural gas, gas liquids and crude oil in the
United Kingdom, which occurs through its wholly owned subsidiary NGC UK Limited
("NGC UK"). In addition, as part of the restructuring, NGC UK acquired Accord's
existing crude oil marketing business effective July 1, 1997. No gain or loss
was recognized as a result of this restructuring and NGC's investment in Accord
continues to be accounted for under the equity method.
THE CHEVRON COMBINATION. On August 31, 1996, NGC completed a strategic
combination (the "Chevron Combination") with Chevron U.S.A. Inc. and certain
Chevron affiliates ("Chevron") pursuant to which Chevron contributed
substantially all of its midstream assets (the "Contribution"), including
substantially all of the assets comprising Warren Petroleum Company and
Chevron's Natural Gas Business Unit and an undivided interest in those assets
that constitute the West Texas LPG Pipeline, into Midstream Combination Corp.
("Midstream"), a Delaware corporation formed for purposes of the transaction.
NGC was merged with and into Midstream immediately following the Contribution
and Midstream was renamed NGC Corporation. In exchange for the Contribution,
Chevron received approximately 38.6 million shares of NGC common stock and
approximately 7.8 million shares of NGC Series A Participating Preferred Stock
and NGC assumed approximately $283 million of indebtedness. Immediately
following closing of the Chevron Combination, NGC paid approximately $128
million to Chevron and funded such payment under its Credit Agreement. The
Chevron Combination was accounted for as an acquisition of assets under the
purchase method of accounting. The purchase price of approximately $740 million,
inclusive of assumed indebtedness and transaction costs, was allocated to the
assets acquired and liabilities assumed based on their estimated fair values as
of an effective date of September 1, 1996.
THE TRIDENT COMBINATION. On March 14, 1995, Clearinghouse consummated the
combination with Holding, a fully integrated natural gas liquids company. The
purchase price of approximately $350 million, excluding transaction costs and
liabilities assumed, was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as of March 1, 1995, the effective
date of the Trident Combination for accounting purposes. The Trident
Combination was accounted for under the purchase method of accounting and the
results of operations of Holding are included in the accompanying financial
statements effective March 1, 1995.
The following table reflects certain unaudited pro forma information for
the period presented as if the Trident Combination had occurred on January 1,
1995 (in thousands, except per share amounts):
YEAR ENDED
December 31,
1995
---------------------
Pro forma revenues $3,744,870
Pro forma net income 46,067
Pro forma diluted earnings per share 0.39
F-10
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 -- IMPAIRMENT, ABANDONMENT AND OTHER CHARGES
During the fourth quarter of 1997, the Company recognized a $275
million charge principally related to impairment of certain long-lived assets,
abandonment of certain operating assets and reserves for obsolescence,
contingencies and other obligations. The charge primarily resulted from the
completion of a plan of restructuring of the Company's natural gas liquids and
crude oil businesses, which includes rationalization and consolidation of assets
acquired in both the Trident and Chevron Combinations, and the pursuit of a
joint venture partner in order to achieve critical mass in its crude oil
marketing business. In addition, a company-wide reorganization of reporting
responsibilities and improvements in business processes and computer information
systems resulted in the identification during the fourth quarter of 1997 of
other obsolete assets and a reduction of employees involved in non-strategic
operations. The charge, which was substantially non-cash in nature, consisted of
the following (in thousands):
Abandonment of long-lived operating assets $154,984
Impairment of operating assets and intangibles 79,550
Inventory obsolescence reserve and write-off 10,340
Write-off of other obsolete assets 12,011
Contingency and other obligation reserves 16,750
Severance charge 1,365
--------
$275,000
========
The fair values of the assets impaired and to be abandoned were
determined using a discounted cash flow methodology. Management anticipates that
the abandoned assets will be disposed of during 1998 and the carrying value of
these assets in the accompanying balance sheet is at estimated realizable value.
Pursuant to these restructuring decisions and in order to comply with required
accounting methodology, the Company anticipates recording an additional
severance charge of approximately $10 million during the first quarter of 1998.
Also during the fourth quarter of 1997, the Company changed its method
for accounting for certain business process re-engineering and information
technology transformation costs pursuant to a consensus reached in November 1997
by the Financial Accounting Standards Board's Emerging Issues Task Force
("EITF"). The EITF concluded that all re-engineering costs, including those
incurred in connection with a software installation, should be expensed as
incurred. The Company had previously capitalized certain re-engineering costs
and was amortizing such costs over the estimated useful lives of the projects.
The cumulative effect of this change in accounting of $14.8 million, or $0.10
per share, represents the one-time charge for the aggregate unamortized re-
engineering costs previously capitalized.
Note 4 -- RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
NGC's operating results are impacted by commodity price, interest rate
and foreign exchange rate fluctuations. The Company routinely enters into
financial instrument contracts to hedge purchase and sale commitments and
inventories in its natural gas, natural gas liquids, crude oil, electricity and
coal businesses in order to minimize the risk of market fluctuations. The
Company may, at times, have a bias in the market, within established guidelines,
resulting from the management of its commodity portfolios. Further, as a result
of marketplace liquidity and other factors, the Company may, at times, be unable
to fully hedge its portfolio for certain market risks. NGC also monitors its
exposure to fluctuations in interest rates and foreign currency exchange rates
and may execute swaps, forward-exchange contracts or other financial instruments
to manage these exposures.
The Natural Gas and Electric Power Marketing segment's operating
margin, exclusive of risk-management activities, is relatively insensitive to
commodity price fluctuations since most of this segment's purchase and sales
contracts do not contain fixed-price provisions. The Power Generation segment is
relatively insensitive to commodity price fluctuations since most of this
business's purchase and sales contracts contain variable power sales contract
features tied to a current spot or index natural gas price allowing revenues to
adjust directionally with changes in natural gas prices. The Natural Gas
Liquids, Crude Oil and Gas Transmission segment is generally sensitive to
F-11
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
changes in commodity prices principally as a result of contractual terms under
which products are sold by these businesses. The segment's operating margin is
particularly sensitive to natural gas liquids prices. However, operating margin
in these businesses is relatively insensitive to fluctuations in natural gas
prices as a result of the mitigating impact of fuel costs in the Company's
fractionation operations and residue gas sales in its gathering and processing
activities.
The commercial groups of NGC manage, on a portfolio basis, the market risks
inherent in their transactions, subject to parameters established by the NGC
Board of Directors. Market risks are monitored by a risk control group that
operates separately from the commercial units that create or actively manage
these risk exposures to ensure compliance with NGC's risk management policies.
Risk measurement is also practiced against the NGC portfolios with stress
testing and scenario analysis.
ACCOUNTING FOR PRICE RISK MANAGEMENT ACTIVITIES -- NATURAL GAS. The
Company uses the mark-to-market method of accounting for its North American
fixed-price natural gas transactions. Under mark-to-market accounting, fixed-
price forwards, swaps, options, futures and other financial instruments with
third parties are reflected at market value, net of future servicing costs and
reserves, with resulting unrealized gains and losses recorded as assets and
liabilities from risk management activities in the consolidated balance sheets.
These assets and liabilities are affected by the actual timing of settlements
related to these contracts and current-period changes resulting primarily from
newly originated transactions and the impact of price movements. These changes
are recognized as revenues in the consolidated statements of operations in the
period in which the change occurs. Market prices used to value outstanding
financial instruments reflect management's consideration of, among other things,
closing exchange and over-the-counter quotations, the time value of money and
volatility factors underlying the commitments. These market prices are adjusted
to reflect the potential impact of liquidating NGC's position in an orderly
manner over a reasonable period of time under present market conditions.
MARKET RISK. NGC generally attempts to balance its fixed-price physical
and financial purchase and sales contracts in terms of contract volumes and the
timing of performance and delivery obligations. However, net open positions
often exist or are established due to the origination of new transactions and
the Company's assessment of, and response to, changing market conditions. NGC
will take advantage of its bias in the market when it believes, based upon
competitive information gained from its energy marketing activities, that future
price movements will be consistent with its net open position. To the extent a
net open position exists, NGC is exposed to the risk that fluctuating market
prices may adversely impact its financial position or results of operations. The
net open position is actively managed, and the impact of a change in price on
the Company's financial condition at a point in time is not necessarily
indicative of the impact of price movements throughout the year.
MARKET RESERVES. In connection with the market valuation of its fixed-
price contracts, the Company maintains certain reserves for a number of risks
and costs associated with these future commitments. Among others, these include
reserves for credit risks based on the financial condition of counterparties,
reserves for product location ("basis") differentials and consideration of the
time value of money for long-term contracts. Counterparties in its trading
portfolio consist principally of financial institutions, major oil and gas
companies and local distribution companies. The creditworthiness of these
counterparties may impact overall exposure to credit risk, either positively or
negatively; however, with regard to its counterparties NGC maintains credit
policies that management believes minimize overall credit risk. Determination of
the credit quality of its counterparties is based upon a number of factors,
including credit ratings, financial condition, project economics and collateral
requirements. When applicable, the Company employs standardized agreements that
allow for the netting of positive and negative exposures associated with a
single counterparty. Based on these policies, its current exposures and its
credit reserves, NGC does not anticipate a material adverse effect on its
financial position or results of operations as a result of counterparty
nonperformance. The following table displays the mark-to-market results of NGC's
natural gas fixed-price
F-12
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
transactions at December 31, 1997 (amounts are net of the advance payment and
related obligations for future natural gas deliveries discussed in Note 11):
<TABLE>
<CAPTION>
BELOW
INVESTMENT INVESTMENT
GRADE CREDIT GRADE CREDIT
QUALITY QUALITY TOTAL
------------------ ----------------- ---------------
($ IN THOUSANDS)
<S> <C> <C> <C>
Utilities and power generators $(4,157) $(11,174) $(15,331)
Financial institutions 7,279 86 7,365
Oil and gas producers 15,746 (7,771) 7,975
Industrial companies 10,028 1,690 11,718
Other 5,414 (797) 4,617
------- -------- --------
Value of fixed-price transactions before reserves $34,310 $(17,966) 16,344
======= ========
Reserves (8,911)
--------
Net fixed-price value $ 7,433
========
</TABLE>
At December 31, 1997, the term of NGC's natural gas portfolio extends to
2007, and the average remaining life of an individual transaction was 5 months.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The following disclosure of the
estimated fair value of financial instruments is made in accordance with the
requirements of SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments." The estimated fair-value amounts have been determined by the
Company using available market information and selected valuation methodologies.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. The use of different market assumptions or valuation
methodologies could have a material effect on the estimated fair-value amounts.
The carrying values of current assets and liabilities approximate fair
values due to the short-term maturities of these instruments. The carrying
amounts and fair values of the Company's other financial instruments were:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1997 1996
----------------------------------- --------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------------- ------------ ------------- --------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Credit Agreement $110,000 $110,000 $319,000 $319,000
6.75% Senior Notes, due 2005 150,000 152,000 150,000 148,000
7.625% Senior Notes, due 2026 175,000 188,000 175,000 180,000
Chevron Note 156,982 159,000 159,454 160,000
14% Senior Subordinated Notes, due 2001 70,063 71,000 73,405 75,000
10.25% Subordinated Notes, due 2003 110,234 111,000 111,733 114,000
Commercial Paper 229,500 229,500 --- ---
Preferred Securities of a Subsidiary Trust 200,000 223,000 --- ---
Interest rate risk-management contracts --- 3,470 --- ---
Foreign currency risk-management contracts 892 (375) --- ---
Commodity risk-management contracts (23,167) (25,047) --- 8,285
</TABLE>
The carrying amounts of the Credit Agreement and commercial paper in the
consolidated financial statements were assumed to approximate fair value. The
fair values of the Senior Notes, Senior Subordinated Notes, Subordinated Notes
and Preferred Securities of a Subsidiary Trust were based on quoted market
prices by financial institutions that actively trade these debt securities. The
fair value of the Chevron Note was determined by comparison to publicly traded
instruments having similar terms and conditions. The fair value of the Company's
cost basis
F-13
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
investments was not estimated as the investments were considered immaterial. The
fair value of interest rate, foreign currency and commodity risk-management
contracts were based upon the estimated consideration that would be received to
terminate those contracts in a gain position and the estimated cost that would
be incurred to terminate those contracts in a loss position. The interest rate
swap contracts, foreign currency forward exchange contracts and commodity swap
and option agreements extend for periods of up to 5, 3 and 9 years,
respectively. The absolute notional contract amounts associated with the
commodity risk-management, interest rate and forward exchange contracts,
respectively, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1997 1996 1995
------------------ -------------------- ------------------
<S> <C> <C> <C>
Natural Gas (Trillion Cubic Feet) 2.558 1.535 0.881
Electricity (Megawatt Hours) 2.244 --- ---
Natural Gas Liquids (Million Barrels) 4.355 3.270 2.523
Crude Oil (Million Barrels) 14.920 2.034 0.232
Interest Rate Swaps (in thousands of US Dollars) $180,000 $ --- $ ---
Fixed Interest Rate Paid on Swaps 6.603 --- ---
U.K. Pound Sterling (in thousands of US Dollars) $ 74,638 $ --- $ ---
Average U.K. Pound Sterling Contract Rate (in US Dollars) $ 1.5948 $ --- $ ---
Canadian Dollar (in thousands of US Dollars) $ 37,041 $ --- $ ---
Average Canadian Dollar Contract Rate (in US Dollars) $ 0.7240 $ --- $ ---
</TABLE>
Cash-flow requirements for these commodity risk-management, interest rate
and foreign exchange contracts were estimated based upon market prices in effect
at December 31, 1997. Cash-flow requirements were as follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Beyond
--------- --------- --------- -------- -------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Future estimated net inflows
based on year end
market prices/rates $9,155 $5,902 $4,085 $1,185 $ 806 $559
====== ====== ====== ====== ===== ====
</TABLE>
NOTE 5 -- CASH FLOW INFORMATION
Detail of supplemental disclosures of cash flow and non-cash investing
and financing information was:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995
---------------------- --------------------- -------------------
($ in thousands)
<S> <C> <C> <C>
Interest paid (net of amount capitalized) $ 60,323 $ 22,647 $ 32,909
========= ========= =========
Taxes paid (net of refunds) $ 8,043 $ 1,467 $ (150)
========= ========= =========
Detail of businesses acquired:
Current assets and other $ 547,505 $ 76,490 $ 87,416
Fair value of non-current assets 503,789 967,575 832,384
Liabilities assumed, including deferred taxes (268,092) (595,219) (572,680)
Capital stock issued and options exercised --- (448,132) (180,220)
Cash balance acquired (67,613) --- (1,633)
--------- --------- ---------
Cash paid, net of cash acquired $ 715,589 $ 714 $ 165,267
========= ========= =========
</TABLE>
In 1995, the Company recognized a one-time tax benefit of $45.7 million,
which occurred in conjunction with the Trident Combination. The deferred income
tax benefit, which can be used to reduce NGC's future income
F-14
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
tax liabilities, resulted from the recognition of the excess tax basis held by
certain Clearinghouse partners. Also in 1995, the Company assumed a liability of
$2.5 million related to the purchase of a crude oil pipeline.
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
Investments in property, plant and equipment by segment and sub-segment
consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996
---- ----
($ IN THOUSANDS)
<S> <C> <C>
Natural gas and power marketing $ 2,588 $ 204
Natural gas liquids, crude oil and gas transmission:
Natural gas processing 1,211,727 1,105,637
Fractionation 152,501 218,158
Liquids marketing 178,820 237,102
Natural gas gathering and transmission 275,116 213,609
Crude oil 44,977 21,220
Power generation 48,866 ---
Other 43,655 23,881
---------- ----------
1,958,250 1,819,811
Less: accumulated depreciation (436,674) (128,432)
---------- ----------
$1,521,576 $1,691,379
========== ==========
</TABLE>
Interest capitalized related to costs of projects in process of development
totaled $8.8 million, $1.2 million and $1.0 million for each of the three years
in the period ended December 31, 1997.
NOTE 7 -- UNCONSOLIDATED AFFILIATES
The equity method of accounting is used for investments in certain
partnerships and for investments in companies in which NGC has a voting interest
between 20 percent and 50 percent. Such investments include:
ACCORD ENERGY LIMITED. Accord was formed in 1994 to market energy
resources in the United Kingdom and Europe. Prior to 1997, NGC owned a 49
percent limited partner interest in Accord. In January 1997, such interest was
converted to a 25 percent participating preferred stock interest.
POWER GENERATION PARTNERSHIPS. As part of the Destec acquisition, NGC
acquired interests in sixteen partnerships, each formed to build, own and
operate cogeneration facilities. The Company's interests in these partnerships
range from eight to 50 percent. Each partnership interest is accounted for under
the equity method. Construction of the cogeneration facilities owned by each of
the partnerships was project financed and the obligations of the partnerships
are non-recourse to the Company. At December 31, 1997, the unamortized excess of
the Company's investment in these partnerships over its equity in the underlying
net assets of the affiliates approximated $165.1 million. This amount is being
amortized on the straight-line method over the estimated economic service lives
of the underlying assets.
GULF COAST FRACTIONATORS ("GCF"). GCF is a Texas limited partnership that
owns and operates a natural gas liquids fractionation facility located in Mont
Belvieu, Texas. NGC acquired its 38.75 percent limited partner interest in GCF
through the Trident Combination. At December 31, 1997, the unamortized excess of
the Company's investment in GCF over its equity in the underlying net assets of
the affiliate approximated $16.5 million. This amount is being amortized on the
straight-line method over the estimated economic service life of the GCF assets.
WEST TEXAS LPG PIPELINE PARTNERSHIP ("WEST TEXAS PARTNERSHIP"). The West
Texas Partnership, a Texas limited partnership, holds all of the assets
comprising the West Texas Pipeline, an interstate natural gas liquids pipeline.
NGC owns a 49 percent interest in the West Texas Partnership acquired as part of
the Chevron Combination. At December 31, 1997, the unamortized excess of the
Company's investment in the West Texas
F-15
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Partnership over its equity in the underlying net assets of the affiliate
approximated $45.2 million. This amount is being amortized on the straight-line
method over the estimated economic service life of the underlying assets.
Venice Energy Services Company, L.L.C. ("VESCO"). VESCO is a Delaware
limited liability company which owns and operates a natural gas processing,
extraction, fractionation and storage facility located in Plaquemines Parish,
Louisiana. NGC is operator of the facility and originally acquired a 37 percent
interest in Venice Gas Processing Company ("Venice") effective November 1, 1996.
In 1997, Venice reorganized as a limited liability company and, in September
1997, the VESCO members announced they had agreed to expand ownership in VESCO
to include an affiliate of Shell Midstream Enterprises, a subsidiary of Shell
Oil Company ("Shell"), effective September 1, 1997, in exchange for Shell's
commitment of certain offshore reserves to VESCO. The transaction reduced NGC's
interest in VESCO from 37 percent to approximately 32 percent, as of the
effective date. The VESCO members have entered into a definitive agreement with
Koch Energy Services Company ("Koch") pursuant to which Koch will contribute a
cryogenic gas processing unit to VESCO on NGC's behalf in exchange for
approximately 10 percent of NGC's interest in the limited liability company. The
transaction, which is expected to close in the second quarter of 1998, will
reduce NGC's interest in VESCO to approximately 23 percent. NGC operates the
facility and has commercial responsibility for product distribution and sales.
NICOR ENERGY, L.L.C. ("NICOR"). NICOR is a retail energy alliance formed
with NICOR Energy Management Services, a subsidiary of NICOR Inc., to provide
energy services to industrial, commercial and residential customers in the
midwest. NGC owns a 50 percent interest in this Delaware limited liability
company.
WASKOM GAS PROCESSING COMPANY ("WASKOM"). Waskom is a Texas general
partnership that owns and operates a natural gas processing, extraction and
fractionation facility located in Henderson County, Texas. NGC owns a 33.33
percent in Waskom. NGC operates the facility and has commercial responsibility
for product distribution and sales.
BARGE CO. Barge Co., a Delaware limited liability company, owns pressurized
LPG barges used in transporting LPGS principally in the Gulf of Mexico. NGC
owns a 25 percent interest in Barge Co. at December 31, 1997, the unamortized
excess of the Company's investment in Barge Co. over its equity in the
underlying net assets of the affiliate approximated $10.8 million. This amount
is being amortized on the straight-line method over the estimated economic
service lives of the underlying assets.
QUICKTRADE L.L.C. ("QUICKTRADE"). Quicktrade, a Delaware limited liability
company, was formed to develop, implement and operate an electronic trading
system. During 1997, the Company owned varying interests in Quicktrade and at
December 31, 1997, held a 65.5 percent interest. This limited liability company
is consolidated in the accompanying financial statements at December 31, 1997.
At December 31, 1996, the Company indirectly owned a 26 percent interest in
Quicktrade.
NOVAGAS CLEARINGHOUSE LTD. Pursuant to the April 1997 restructuring of NCL,
NGC sold its partnership interest to NGI, realizing a pretax gain of $7.8
million. Prior to the restructuring, NGC indirectly owned an aggregate 49.9
percent interest in the partnership.
Aggregate equity method investment at December 31, 1997, 1996 and 1995, was
$466.4 million, $177.8 million and $58.7 million, respectively. Dividends
received on these investments during each of the three years in the period ended
December 31, 1997, totaled $63.6 million, $7.3 million and $11.9 million,
respectively. Summarized aggregate financial information for these investments
and NGC's equity share thereof was:
F-16
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------- ------------------------------- ------------------------------
TOTAL EQUITY SHARE TOTAL EQUITY SHARE TOTAL EQUITY SHARE
------------------ ----------------- ----------------- ----------------- ----------- -----------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Current assets (1)(2) $ 283,787 $112,895 $ 93,949 $ 35,321 $ 14,922 $ 5,360
Non-current assets (1)(2) 1,830,106 736,667 324,210 122,882 102,898 37,609
Current liabilities (1)(2) 202,754 86,476 30,459 11,893 25,011 8,714
Non-current liabilities
(1)(2) 1,249,874 521,691 47,250 18,309 62,436 24,120
Operating margin (1)(2)(3) 209,877 86,154 37,296 14,500 14,293 5,539
Net income (1)(2)(3) 83,601 33,799 19,024 7,360 3,539 1,896
</TABLE>
1. The financial data for all periods presented is exclusive of amounts
attributable to the Company's investment in Accord as disclosure data was
unavailable for the current period. NGC's share of Accord earnings for each
of the three years in the period ended December 31, 1997, totaled $25.9
million, $18.0 million and $11.8 million, respectively.
2. The financial data for all periods presented is exclusive of amounts
attributable to the Company's investment in NCL as such information was not
comparable period-to-period, as a result of the NCL restructuring. NGC sold
its interest in NCL effective April 1, 1997. NGC's share of NCL's loss for
the three months ended March 31, 1997, totaled $892,000. NGC's share of NCL's
earnings for the years ended December 31, 1996 and 1995, totaled $3.6 million
and $7.3 million, respectively.
3. Equity earnings derived from investments acquired in the Destec acquisition
accrue to NGC commencing July 1, 1997.
The cost method of accounting is generally used to account for investment
in partnerships or companies in which NGC has a voting interest of less than 20
percent. At December 31, 1997, the Company had two cost basis investments:
Indeck North American Power Fund, L.P. and Indeck North American Power Partners,
L.P. (collectively "Indeck"). Indeck is engaged in the acquisition and operation
of electric power generating facilities. NGC's aggregate investment in these
entities totaled $4.0 million and $3.9 million at December 31, 1997 and 1996,
respectively, and NGC received an aggregate $0.5 million, $0.6 million and $0.5
million of dividends from Indeck during each of the three years in the period
ended December 31, 1997.
NOTE 8 -- LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
------------- ----------
($ IN THOUSANDS)
<S> <C> <C>
Commercial paper $ 229,500 $ ---
Money market lines of credit --- ---
Credit Agreement 110,000 319,000
6.75% Senior Notes, due 2005 150,000 150,000
7.625% Senior Notes, due 2026 175,000 175,000
Chevron Note 155,373 155,373
14% Senior Subordinated Notes, due 2001 65,000 65,000
10.25% Subordinated Notes, due 2003 105,000 105,000
Other, non-interest bearing 550 825
Unamortized premium 11,906 18,674
---------- --------
1,002,329 988,872
Less: long-term debt due within one year 275 275
---------- --------
$1,002,054 $988,597
========== ========
</TABLE>
COMMERCIAL PAPER AND MONEY MARKET LINES OF CREDIT. NGC initiated a
commercial paper program in the fourth quarter of 1997 for amounts up to $600
million, supported by its existing bank credit agreement. Also in the fourth
quarter, the Company established several uncommitted money market bank lines.
The Company utilizes commercial paper proceeds and borrowings under uncommitted
money market bank lines for general corporate purposes, including short-term
working capital requirements. At December 31, 1997, commercial paper outstanding
totaled $229.5
F-17
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
million, at a weighted average interest rate of 6.8 percent, and
no amounts were outstanding under the uncommitted money market bank lines. Such
borrowings were classified as long-term debt based upon availability under
committed credit facilities and management's intent to maintain these
obligations for longer than one year, subject to an overall reduction in
corporate debt levels.
CREDIT AGREEMENT. NGC has a $550 million revolving Credit Agreement,
which matures on March 14, 2000, providing for letters of credit and borrowings
for working capital, capital expenditures and general corporate purposes. The
$550 million commitment under the Credit Agreement reduces by $22.5 million each
quarter beginning in June 1998 and continuing through maturity. During 1997, the
Credit Agreement was amended to provide, among other things, for the
establishment of a new two-year $400 million term loan facility. Proceeds from
the term loan facility were used to consummate the Destec acquisition.
Generally, borrowings under the Credit Agreement bear interest at a Eurodollar
rate plus a margin that is determined based on the Company's unsecured senior
debt rating. At December 31, 1997, such margin was 0.3 percent and the average
interest rate applicable to borrowings under the Credit Agreement approximated
7.4 percent. The Credit Agreement contains certain financial covenants that
require the Company to meet specified financial position and performance tests.
At December 31, 1997, letters of credit and borrowings under the Credit
Agreement aggregated approximately $130.9 million (which included $50 million
under the term loan facility). After consideration of the outstanding commercial
paper, the unused borrowing capacity under the revolving credit facility
approximated $240 million.
6.75% SENIOR NOTES DUE 2005. On December 15, 1995, the Company sold $150
million of 6.75% Senior Notes due December 15, 2005 ("Senior Notes"). The Senior
Notes were issued at a price of 99.984 percent, which, after deducting
underwriting discounts and commissions, resulted in net proceeds to the Company
of approximately $149 million. Proceeds from the sale of the Senior Notes were
used to repay a portion of the outstanding indebtedness under the Credit
Agreement. Interest on the Notes is payable semiannually on June 15 and December
15 of each year. Upon issuance, the Senior Notes were priced based on the then
existing yield for 10-year U.S. Treasury Notes ("10-Year Base Treasury Rate")
plus a spread based principally on the Company's credit rating. Prior to
issuing the Senior Notes, the Company entered into two separate transactions
with two separate financial institutions, the effect of which was to lock in the
10-Year Base Treasury Rate at approximately 6.2 percent on the full $150 million
face value of the Senior Notes.
7.625% SENIOR NOTES DUE 2026. In October 1996, NGC sold $175 million of
7.625 percent 30-year Senior Debentures ("Senior Debentures"). The Senior
Debentures were issued at a price of 99.522 percent, which, after deducting
underwriting discounts and commissions, resulted in net proceeds to the Company
of approximately $173 million. The net proceeds from the sale of such Senior
Debentures were used to repay a portion of the outstanding indebtedness under
the Credit Agreement. Interest on the Notes is payable semiannually on April 15
and October 15 of each year. The Senior Debentures are redeemable, at the
option of the Company, in whole or in part from time to time, at a formula based
redemption price as defined in the associated indenture. Upon issuance, the
Senior Debentures were priced based on the then existing yield for 30-year U.S.
Treasury Notes ("30-Year Base Treasury Rate") plus a spread based principally on
the Company's credit rating. Prior to issuing the Senior Debentures, the
Company entered into a transaction, the effect of which was to lock in the 30-
Year Base Treasury Rate at approximately 7.0 percent on $150 million of the $175
million face value of the Senior Debentures.
In February 1998, the Company completed an amendment to the Credit
Agreement and the filing of supplemental indentures to each of the Senior
Debentures and Senior Notes, the effect of which was to eliminate all clauses,
provisions and terms in such documents requiring certain wholly owned
subsidiaries of the Company to fully and unconditionally guarantee, on a joint
and several basis, the obligations of the Company under such credit agreement,
debentures and notes, respectively.
CHEVRON NOTE. The Chevron Note of approximately $155.4 was acquired in the
Chevron Combination and is payable to Chevron upon demand on or after August 31,
1998. The Chevron Note bears interest at 7.95 percent per annum, payable
semiannually in arrears each February and August. An unamortized premium
balance of $1.6 million associated with the Chevron Note is being amortized
using the interest method, resulting in an effective interest rate of 6.4
percent per annum. There are no financial covenants associated with this
indebtedness. Should Chevron choose not to demand payment of the Chevron Note
then principal plus accrued interest is payable in full on
F-18
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 14, 2004. NGC has the right, at any time on or after August 31, 1998, to
prepay in whole or in part the principal and accrued interest outstanding under
the Chevron Note. The Chevron Note was classified as long-term debt at December
31, 1997, based upon availability under committed credit facilities and
management's current intent to call this note on August 31, 1998 and re-finance
the obligation on a long-term basis.
SUBORDINATED DEBT. At December 31, 1997, outstanding indebtedness included
$105 million principal amount of 10.25% Subordinated Notes due 2003 and $65
million principal amount of 14% Senior Subordinated Notes due 2001. Unamortized
premium balances associated with each of these notes are being amortized using
the interest method, resulting in effective interest rates of 8.4 percent and
8.3 percent per annum, respectively.
In February 1998, the Company delivered Notices of Redemption to the
holders of the Subordinated Notes and Senior Subordinated Notes. The Company's
intent is to retire the Senior Subordinated Notes on March 31, 1998, and the
Subordinated Notes on April 15, 1998, pursuant to the redemption provisions
contained in the respective indentures. NGC will fund these redemptions through
a combination of cash on hand, borrowings under existing credit agreements
and/or a public debt issuance. NGC will not incur a financial statement charge
related to these redemptions since the carrying values of the notes were
adjusted at the time of the Trident Combination so that they would equal the
redemption prices on the redemption dates.
LETTER OF CREDIT AGREEMENT. The Letter of Credit Agreement was a $300
million credit facility, which provided for the issuance of letters of credit in
support of the Company's obligation to purchase substantially all of the natural
gas produced or controlled by Chevron in the United States (except Alaska).
Immediately after year-end, the Company replaced the majority of its obligation
under the Letter of Credit Agreement with a surety bond, applied the remaining
obligation under the Letter of Credit Agreement to the letter of credit capacity
under its Credit Agreement and canceled this arrangement. Prior to termination
of this agreement, the Company incurred fees associated with the available
credit capacity and issued and outstanding letters of credit under the credit
facility, respectively. At December 31, 1997, letters of credit outstanding
under the Letter of Credit Agreement totaled $246.0 million.
Aggregate maturities of all long-term indebtedness are: 1998 - $0.3
million; 1999 - $59.5 million; 2000 - $442.5 million; 2001 - $0.0 million; 2002
and beyond - $500.0 million.
NOTE 9 -- INCOME TAXES
The Company is subject to U.S. federal, foreign and state income taxes on
its operations. Components of income tax expense (benefit) were:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1997 1996 1995
------------------- ----------------------- ------------------
($ in thousands)
<S> <C> <C> <C>
Current tax expense:
Domestic $ 13,230 $10,427 $ ---
Foreign 3,071 --- ---
Deferred tax expense (benefit):
Domestic (81,306) 45,510 (27,471)
Foreign 2,795 386 ---
-------- ------- --------
Income tax provision (benefit) $(62,210) $56,323 $(27,471)
======== ======= ========
</TABLE>
Included in the above table is a $45.7 million deferred tax benefit in 1995,
resulting from book and tax bases differences associated with the technical
termination of the Clearinghouse partnership resulting from the Trident
Combination. Components of earnings (loss) before income taxes were:
F-19
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995
---------------- -------------------- --------------
($ in thousands)
<S> <C> <C> <C>
Earnings (loss) before income taxes:
Domestic $(180,127) $150,705 $65,234
Foreign 30,232 18,940 ---
--------- -------- -------
$(149,895) $169,645 $65,234
========= ======== =======
</TABLE>
Deferred income taxes are provided for the temporary differences between
the tax basis of NGC's assets and liabilities and their reported financial
statement amounts. Significant components of deferred tax liabilities and assets
were:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
------------- -------------
($ IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Clearinghouse partnership basis differential $ 19,211 $ 9,700
Loss carryforward 76,885 78,456
Tax credits 23,162 13,627
Other 8,499 9,383
-------- --------
127,757 111,166
Valuation allowance --- ---
-------- --------
127,757 111,166
-------- --------
Deferred tax liabilities:
Items associated with capitalized costs 381,816 439,446
-------- --------
Net deferred tax liability $254,059 $328,280
======== ========
</TABLE>
Realization of the aggregate deferred tax asset is dependent on the Company's
ability to generate taxable earnings in the future. No valuation allowance has
been established at December 31, 1997 or 1996, as management believes the
aggregate deferred asset will be fully realized in the future.
Income tax provision (benefit) for the years ended December 31, 1997, 1996 and
1995, was equivalent to effective rates of (41) percent, 33 percent and (42)
percent, respectively. Differences between taxes computed at the U.S. federal
statutory rate and the Company's reported income tax provision (benefit) were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995
--------------------- ----------------------- -------------------
($ in thousands)
<S> <C> <C> <C>
Expected tax at U.S. statutory rate $(52,463) $59,376 $ 22,832
State taxes (3,676) 3,393 1,305
Foreign tax benefit (5,415) (6,621) (3,846)
Clearinghouse partnership basis differential --- --- (45,736)
Partnership income --- --- (2,174)
Other (656) 175 148
-------- ------- --------
Income tax provision (benefit) $(62,210) $56,323 $(27,471)
======== ======= ========
</TABLE>
At December 31, 1997, the Company had approximately $208 million of
regular tax net operating loss carryforwards. The net operating loss
carryforwards expire from 2006 through 2012. Certain provisions of the Internal
Revenue Code place an annual limitation on the Company's ability to utilize tax
carryforwards existing as of the date of the Combination. Management believes
such carryforwards will be fully realized prior to expiration.
F-20
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 -- COMPANY OBLIGATED PREFERRED SECURITIES OF A SUBSIDIARY TRUST
In May 1997, NGC Corporation Capital Trust I ("Trust") issued, in a private
transaction, $200 million aggregate liquidation amount of 8.316% Subordinated
Capital Income Securities ("Trust Securities") representing preferred undivided
beneficial interests in the assets of the Trust. The Trust invested the
proceeds from the issuance of the Trust Securities in an equivalent amount of
8.316% Subordinated Debentures ("Subordinated Debentures") of the Company. The
sole assets of the Trust are the Subordinated Debentures. The Trust Securities
are subject to mandatory redemption in whole but not in part on June 1, 2027,
upon payment of the Subordinated Debentures at maturity, or in whole but not in
part at any time, contemporaneously with the optional prepayment of the
Subordinated Debentures, as allowed by the associated indenture. The
Subordinated Debentures are redeemable, at the option of the Company, in whole
at any time or in part from time to time, at formula-based redemption prices, as
defined in the indenture. The Subordinated Debentures represent unsecured
obligations of the Company and rank subordinate and junior in right of payment
to all Senior Indebtedness to the extent and in the manner set forth in the
associated indenture. The Company has irrevocably and unconditionally
guaranteed, on a subordinated basis, payment for the benefit of the holders of
the Trust Securities the obligations of the Trust to the extent the Trust has
funds legally available for distribution to the holders of the Trust Securities,
as described in the indenture ("Guarantee"). Distributions on the Trust
Securities are payable each June 1 and December 1, coinciding with the interest
payment due dates on the Subordinated Debentures, and are classified in the
accompanying Statement of Operations as "minority interest in income of a
subsidiary." The periodic distributions accruing at an annual rate of 8.316
percent of the aggregate liquidation amount are recorded as minority interest in
income of a subsidiary in the Company's consolidated statement of operations. So
long as no Debenture Event of Default, as defined, has occurred and continues,
the Company has the right to defer the payment of interest on the Subordinated
Debentures for any Extension Period elected by the Company, which period cannot
extend beyond 10 consecutive semi-annual periods, end on a date other than an
Interest Payment Date or extend beyond the Stated Maturity Date. During October
1997, the Trust completed an exchange offer through which all of the outstanding
Trust Securities were exchanged by the holders thereof for registered securities
having substantially the same rights and obligations.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LITIGATION. On April 17, 1997, Pacific Gas and Electric Company ("PG&E")
filed a lawsuit in the Superior Court of the State of California, City and
County of San Francisco, against Destec, Destec Holdings, Inc. ("Holdings"),
Destec Operating Company and San Joaquin CoGen, Inc., wholly owned direct and
indirect subsidiaries of the Company as well as against San Joaquin CoGen
Limited ("San Joaquin" or the "Partnership"), a limited partnership in which the
Company has an indirect twenty-five percent general partner ownership interest.
In the lawsuit, PG&E asserts claims and alleges unspecified damages for fraud,
negligent misrepresentation, unfair business practices, breach of contract and
breach of the implied covenant of good faith and fair dealing. PG&E alleges that
due to the insufficient use of steam by San Joaquin's steam host, the
Partnership did not qualify as a cogenerator pursuant to the California Public
Utilities Code ("CPUC") Section 218.5, and thus was not entitled under CPUC
Section 454.4 to the discount the Partnership received under gas transportation
agreements entered into between PG&E and San Joaquin in 1989, 1991, 1993 and
1995. All of PG&E's claims in this suit arise out of the Partnership's alleged
failure to comply with CPUC Section 218.5. The defendants filed a response to
the suit on May 15, 1997. The parties are actively engaged in discovery, and a
trial has been set by the Court for September 28, 1998. On October 20, 1997,
PG&E named Libbey-Owens-Ford, the Partnership's steam host, as an additional
defendant in the action. On February 23, 1998, PG&E served by mail its Second
Amended Complaint on all defendants. On March 30, 1998, the defendants filed
their response to PG&E's Second Amended Complaint, denying PG&E's allegations
and alleging certain counterclaims against PG&E. The Company's subsidiaries
intend to vigorously defend this action. In the opinion of management, the
ultimate resolution of this lawsuit will not have a material adverse effect on
the Company's financial position or results of operations.
On March 24, 1995, Southern California Gas Company ("SOCAL") filed a
lawsuit in the Superior Court of the State of California for the County of Los
Angeles, against Destec, Destec Holdings and Destec Gas Services, Inc., wholly-
owned direct and indirect subsidiaries of the Company (collectively, the "Destec
Defendants"), as well as against Chalk Cliff Limited and McKittrick Limited
(collectively, the "Partnerships"), limited partnerships in which the Company
has an indirect twenty-five percent general partner interest together with an
indirect 20 percent
F-21
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
limited partner interest and an indirect fifty percent limited partner interest,
respectively. All general partners of the Partnerships are also named
defendants. The lawsuit alleges breach of contract against the Partnerships and
their respective general partners, and interference and conspiracy to interfere
with contracts against the Destec Defendants. The breach of contract claims
arise out of the "transport-or-pay" provisions of the gas transportation service
agreements between the Partnerships and SOCAL. SOCAL has sought damages from the
Partnerships for past damages and anticipatory breach damages in an amount equal
to approximately $31,000,000. On October 24, 1997, the Court granted SOCAL's
Motion for Summary Judgment relating to the breach of contract causes of action
against the Partnerships and their respective general partners, and requested
that SOCAL submit a proposed order consistent with that ruling for the Court's
signature. On November 21, 1997, the Partnerships filed for voluntary Chapter
11 bankruptcy protection in the Eastern District of California. Normal business
operations by the Partnerships will continue throughout the course of these
reorganization proceedings. On January 12, 1998, the Court entered a Final
Order that (a) severs out the Partnerships due to their Chapter 11 bankruptcy
filings, (b) includes a finding of contract liability against the Destec
Defendants, (c) dismisses the tortious interference claims against the Destec
Defendants, and (d) assesses damages in an aggregate amount of approximately
$31,000,000. The liability of the Destec Defendants under the judgment will be
limited to that portion of the damage award not paid to SOCAL by the
partnerships through the Chapter 11 bankruptcy proceedings. On January 12,
1998, the Destec Defendants filed their Notice of Appeal, and posted a security
bond, with the Second Appellate District in Los Angeles based on the lack of
allegations made or proven by SOCAL which support holding those entities liable
in contract. On March 11, 1998, the Partnerships and their respective general
partners filed Notices of Appeal with respect to those findings in the Court's
January 12, 1998, Final Order that were adverse to those defendants. The appeal
process is anticipated to take approximately eighteen months.
The PG&E and SOCAL litigations represent pre-acquisition contingencies
acquired by NGC in the Destec acquisition. Resolution of these lawsuits could
impact the purchase price allocation contained in the accompanying balance sheet
as described in Note 2. In a related matter, Chalk Cliff and San Joaquin have
each guaranteed the obligations of the other partnership, represented by the
project financing loans used to construct the power generation facilities owned
by the respective partnerships. Chalk Cliff and San Joaquin believe there is
little incentive for their lenders to call on this cross-guarantee at this time.
In the opinion of management, the Company's financial position or results of
operations would not be materially adversely affected if the lenders chose to
exercise their option under the terms of such arrangements.
In March 1998, NGC settled all outstanding issues arising under a gas
marketing contract between Apache Corporation and Clearinghouse. A previously
recognized contingency reserve was sufficient to offset the confidential cash
settlement.
The Company assumed liability for various claims and litigation in
connection with the Chevron Combination, the Trident Combination, the Destec
acquisition and in connection with the acquisition of certain gas processing and
gathering facilities from Mesa Operating Limited Partnership. NGC believes,
based on its review of these matters and consultation with outside legal
counsel, that the ultimate resolution of such items will not have a material
adverse effect on the Company's financial position or results of operations.
Further, the Company is subject to various legal proceedings and claims, which
arise in the normal course of business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not have a
material adverse affect on the financial position or results of operations of
the Company.
Changes in federal and state regulatory statutes will likely occur over the
foreseeable future that will impact the Company's businesses. The nature and
impact of such changes on the Company's projects, operations and contracts is
unknown at this time. NGC actively monitors these developments directly and
through industry trade groups to determine such impacts as well as to evaluate
new business opportunities created by restructuring of the electric power
industry. Depending on the outcome of these legislative matters, changes in
legislation could have an adverse effect on current operations or contract
terms.
COMMITMENTS. In October 1997, NGC received $103.5 million from a gas
purchaser as an advance payment for future natural gas deliveries of 16,650
MMBtu per day over a ten-year period commencing November 1, 1997 ("Advance
Agreement"). As a condition of the Advance Agreement, NGC entered into a
natural gas swap with a
F-22
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
third party under which NGC became a fixed-price payor on identical volumes to
those to be delivered under the Advance Agreement at prices based on then
current market rates. The payment will be classified as an advance on the
balance sheet and will be reduced ratably as gas is delivered to the purchaser
under the terms of the Advance Agreement. In addition, the purchaser will pay a
monthly fee to NGC associated with delivered volumes. The Advance Agreement
contains certain non-performance penalties that impact both parties and as a
condition precedent, NGC purchased a surety bond in support of its obligations
under the Advance Agreement.
For a two-year period beginning January 1, 1998, the Company contracted for
1.3 billion cubic feet per day of firm transportation capacity to California on
the El Paso Natural Gas pipeline system. The arrangement has been implemented
but is subject to regulatory approval in a pending proceeding in which
challenges have been filed. Pursuant to this arrangement, NGC is obligated to
pay a minimum of $70 million of reservation charges over the two-year term.
A wholly owned subsidiary of the Company leases certain power generating
assets under agreements that are classified as operating leases. These
agreements have aggregate future minimum lease payments of approximately $435
million at December 31, 1997.
Minimum commitments in connection with office space, equipment, reservation
charges under gas purchase and firm transportation contracts, power generating
and other leased assets were: 1998 - $127.2 million; 1999 - $108.5 million; 2000
- - $218.9 million; 2001 - $224.3 million; and 2002 and beyond - $87.0 million.
Rental payments made under the terms of these arrangements totaled $85.2 million
in 1997, $45.2 million in 1996 and $24.9 million in 1995.
NOTE 12 -- CAPITAL STOCK
The Company has authorized capital stock consisting of 450,000,000 shares,
of which 50,000,000 shares, par value $0.01 per share, are designated preferred
stock and 400,000,000 shares, par value $0.01 per share, are designated common
stock.
PREFERRED STOCK. The Company's preferred stock may be issued from time to
time in one or more series, the shares of each series to have such designations
and powers, preferences, rights, qualifications, limitations and restrictions
thereof as described in the Company's Certificate of Incorporation. In order to
provide for issuance of preferred shares pursuant to the terms of the Chevron
Combination, 8,000,000 shares of preferred stock were designated during 1996 as
NGC Series A Participating Preferred Stock ("Series A Preferred"), of which
7,815,363 shares were issued effective September 1, 1996.
Except as provided by law, the holders of the Series A Preferred have no
voting rights and such shares are not redeemable. At the holders option, each
share of the Series A Preferred may be converted, subject to certain adjustments
and certain defined conditions precedent, into one share of NGC common stock.
Such shares have certain preferences, as defined, in the event of liquidation or
dissolution of NGC over all stock having a junior ranking. Subject to certain
anti-dilutive adjustments, as defined, the holders of the Series A Preferred are
entitled to receive dividends or distributions equal per share in amount and
kind to any dividend or distribution payable on shares of the Company's common
stock, when and as the same are declared by the Company's Board of Directors out
of funds legally available therefor and paid to the holders of the Company's
common stock.
Beginning in the third quarter of 1996, the Company paid quarterly cash
dividends on the Series A Preferred of $0.0125 per share, or $0.05 per share on
an annual basis.
COMMON STOCK. At December 31, 1997, there were 151,796,622 shares of
common stock issued. NGC pays quarterly cash dividends on common stock of
$0.0125 per share, or $0.05 per share on an annual basis.
In May 1997, the Board of Directors approved a stock repurchase program
that allows the Company to repurchase, from time to time, up to 1.6 million
shares of common stock in open market transactions. The timing and number of
shares ultimately repurchased will depend upon market conditions and
consideration of alternative
F-23
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
investments. Pursuant to this program, the Company has acquired 654,900 shares
at a total cost of $10.5 million, or $16.04 per share on a weighted average cost
basis, through December 31, 1997.
STOCK WARRANTS. At December 31, 1997, the Company had warrants outstanding
that entitle the holder thereof to purchase an aggregate 6,228 shares of common
stock at an exercise price of $8.13 per share. The warrants expire in October
2003.
STOCK OPTIONS. Each option granted is valued at an option price which
ranges from $2.03 per share to the fair market value per share at date of grant.
The difference between the option price and the fair market value, if any, of
each option on the date of grant is recorded as compensation expense over a
vesting period. Options granted at prices below fair market do not become
exercisable until the fifth anniversary date of the grant, at which time they
become fully exercisable. Options granted at market value vest and become
exercisable ratably over a three-year period. The average exercise price of
vested options at December 31, 1997 was $4.43. Compensation expense related to
options granted totaled $4.0 million, $2.8 million and $1.6 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997, employee stock options aggregating 2.9 million shares
were exercisable at prices ranging from $2.03 to $18.75 per share. Employee
stock option grants made from 1993 to 1997 will become exercisable during 1998
and 1999, respectively, resulting in the potential exercise of approximately 7.7
million options during that two-year period, at exercise prices ranging from
$2.03 to $21.63. Other options currently granted under the Company's option
plans will fully vest periodically and become exercisable through the year 2000
at prices ranging from $2.03 to $21.63. Grants made under the Company's option
plans may be canceled under certain circumstances as provided in the plans.
While the Company cannot predict the timing or the number of shares which may be
issued upon the exercise of option grants by individual employees, the Company
is pursuing a variety of alternatives to help assure an orderly distribution of
shares which may become available to the market. Stock option transactions for
1997, 1996 and 1995 were (shares in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- ---------------------------- ----------------------------
SHARES OPTION PRICE SHARES OPTION PRICE SHARES OPTION PRICE
---------- ---------------- ---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 13,920 $2.03 - 18.75 12,615 $2.03 - $ 9.38 11,918 $2.03 - $ 8.44
Options arising from
Trident Combination --- --- --- --- 1,468 6.40 - 8.64
Granted 2,284 2.03 - 21.63 1,842 2.03 - 18.75 1,645 5.95 - 9.38
Exercised (1,469) 2.03 - 9.38 (737) 2.03 - 9.38 (1,452) 2.13 - 8.64
Canceled or expired (629) 2.03 - 18.75 (313) 2.03 - 9.38 (964) 2.13 - 5.95
Other, contingent share issuance (91) 2.03 - 5.66 513 2.03 - 8.13 --- ---
------ ------------- ------ -------------- ------ --------------
Outstanding at end of period 14,015 $2.03 - 21.63 13,920 $2.03 - $18.75 12,615 $ 2.03 - $9.38
====== ============= ====== ============== ====== ==============
Exercisable at end of period 2,861 $2.03 - 18.75 469 $2.03 - $9.38 272 $ 6.40 - $8.81
====== ============= ====== ============== ====== ==============
Weighted average fair value of
options granted during the period
at market $ 11.14 $ 15.30 $ 18.00
============= ============== ==============
Weighted average fair value of
options granted during the period
at below market $ 14.63 $ 21.38 $ 19.50
============= ============== ==============
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model, with the following weighted-
average assumptions used for grants in 1997, 1996 and 1995: dividends per year
of $0.05 per annum for all years; expected volatility of 42.0 percent, 43.3
percent and 43.3 percent, respectively; risk-free interest rate of 6.28 percent,
5.9 percent and 5.9 percent, respectively; and an expected life of 10 years for
all periods. The Company accounts for its stock option plan in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Had compensation cost been determined consistent with SFAS
F-24
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the
Company's net income (loss) and per share amounts would have approximated the
following pro forma amounts for the years ended December 31, 1997, 1996 and
1995, respectively.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995
--------------------------- ------------------------ ----------------------
LOSS DILUTED DILUTED
NET LOSS PER SHARE NET INCOME EPS NET INCOME EPS
------------ ------------- ------------- --------- -------------- -------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Pro forma amounts (a) $(108,007) $(0.72) $107,580 $0.79 $43,570 $0.39
========= ====== ======== ======= ========== =======
</TABLE>
(a) 1995 pro forma net income excludes the effect of one-time tax benefit with
the Trident Combination. of $45.7 million which occurred in conjunction
with the Trident Combination.
As allowed by the transitional disclosure requirements of SFAS No. 123,
the preceding pro forma net income and pro forma EPS amounts do not include the
impact, if any, of applying the accounting methodology of SFAS No. 123 to
options granted prior to January 1, 1995. As a result, the compensation cost
included in the pro forma net income amounts for each of the three years in the
period ended December 31, 1997, may not be indicative of amounts to be expected
in future periods.
NOTE 13 -- EMPLOYEE COMPENSATION, SAVINGS AND PENSION PLANS
CORPORATE INCENTIVE PLAN. NGC maintains a discretionary incentive plan to
provide employees competitive and meaningful rewards for reaching corporate and
individual objectives. Specific rewards are at the discretion of the
Compensation Committee of the Board of Directors ("Compensation Committee").
PROFIT SHARING/SAVINGS PLAN. The Company established the NGC Profit
Sharing/401(k) Savings Plan ("Plan"), which meets the requirements of Section
401(k) of the Internal Revenue Code, and is a defined contribution plan subject
to the provisions of the Employee Retirement Income Security Act of 1974. The
Plan and related trust fund are established and maintained for the exclusive
benefit of participating employees in the United States and certain expatriates.
Similar plans are available to other employees resident in foreign countries
subject to the laws of each country. All eligible employees may participate in
the plans and employee contributions are generally matched dollar-for-dollar for
the first 5 percent of compensation, subject to Company performance. Employees
vest in the Company's contributions over various periods. The Company also makes
profit sharing contributions to employees' accounts regardless of their
participation in the Profit Sharing/Savings Plans.
Matching contributions to the Plan and certain discretionary profit
sharing contributions are made in Company common stock, other contributions are
made in cash. During the years ended December 31, 1997, 1996 and 1995, NGC
recognized aggregate costs related to these employee compensation plans of $9.7
million, $5.3 million and $4.4 million, respectively.
PENSION PLAN. Prior to the Trident Combination, Holding had adopted a
noncontributory defined benefit pension plan and such plan remains in existence
at December 31, 1997. The Trident NGL, Inc. Retirement Plan ("Retirement Plan")
is a qualified plan under the Internal Revenue Service regulations, and all
full-time hourly employees of Holding were eligible for participation in the
Retirement Plan. Benefits are based on years of service and final average pay,
as defined in the Retirement Plan document. Contributions to the Retirement Plan
in 1997 and 1996 totaled $497,000 and $1.1 million, respectively, representing
the minimum amount required by federal law and regulation. The Retirement Plan's
funded status and amount recognized in NGC's balance sheet at December 31, 1997
and 1996, were:
F-25
<PAGE>
NCG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996
-------- -------------
($ in thousands)
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $5.6 million
in 1997 and $4.8 million in 1996 $ 6,043 $ 5,320
======= =======
Projected benefit obligation $ 9,378 $ 8,908
Plan assets (8,480) (6,031)
------- -------
Projected benefit obligation in excess of plan assets 898 2,877
Unrecognized net gain from past experience different from that assumed 5,025 3,090
------- -------
Pension liability $ 5,923 $ 5,967
======= =======
</TABLE>
Current year pension expense is based on measurements of the projected benefit
obligation and the market related value of the Retirement Plan assets as of the
end of the year. The projected benefit obligation at December 31, 1997, was
based on a discount rate of 7.75 percent and an average long-term rate of
compensation growth of 3.5 percent. The expected long-term rate of return on the
Retirement Plan assets was estimated at 8.0 percent.
The components of net pension expense for the Retirement Plan were:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------------
1997 1996
-------------------------------
($ IN THOUSANDS)
<S> <C> <C>
Service cost benefits earned during period $ 712 $ 660
Interest cost on projected benefit obligation 686 602
Expected return on plan assets (502) (376)
Amortization of unrecognized gain (115) (110)
----- -----
Net periodic pension cost $ 781 $ 776
===== =====
</TABLE>
Note 14 -- RELATED PARTY TRANSACTIONS
The Company is a leading North American marketer of natural gas, natural gas
liquids, crude oil and electric power. NGC is also engaged in natural gas
gathering, processing, fractionation and transportation and electric power
generating activities. The Company has operations in Canada and the United
Kingdom and transports liquid petroleum gas through its international deepwater
LPG business. The Company routinely transacts business directly or indirectly
with three of its significant shareholders, Chevron, NOVA and BG, each of which
owns approximately 26 percent of the outstanding shares of the Company's common
stock. Chevron holds all of the outstanding shares of the Series A Preferred.
Transactions between the Company and Chevron result principally from the
ancillary agreements entered into as part of the Chevron Combination.
Transactions between NGC, NOVA and BG result from purchases and sales of natural
gas, natural gas liquids and crude oil between subsidiaries of NGC and these
companies. It is management's opinion that these transactions are executed at
prevailing market rates. During the years ended December 31, 1997, 1996 and
1995, the Company recognized in its statement of operations aggregate sales to,
and aggregate costs from, these significant shareholders of $788.9 million and
$2.4 billion; $286.7 million and $1.1 billion; and $2.3 million and $152.6
million, respectively.
Effective June 1, 1995, NGC entered into a service agreement with NCL whereby
NGC Futures, Inc. ("NGCF"), a wholly owned subsidiary of NGC, provides NCL and
its affiliates natural gas marketing and risk management services. As a result,
NGC shared disproportionately in NCL's economic returns resulting from the
services provided. For the year ended December 31, 1995, NGC, in addition to its
share of equity in the earnings of NCL, recognized $6.8 million of pretax
earnings related to services rendered NCL by NGCF.
F-26
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 -- SEGMENT INFORMATION
Operating segment information for 1997, 1996 and 1995 is presented below.
<TABLE>
<CAPTION>
NATURAL GAS
NATURAL GAS AND LIQUIDS, CRUDE
ELECTRIC POWER POWER OIL AND GAS CORPORATE
MARKETING GENERATION TRANSMISSION AND ELIMINATION TOTAL
--------------- ------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
1997 Summary Data:
Unaffiliated revenues $8,586,130 $116,973 $4,675,277 $ --- $13,378,380
Intersegment revenues 114,524 --- 438,881 (553,405) ---
---------- -------- ---------- --------- -----------
Total revenues 8,700,654 116,973 5,114,158 (553,405) 13,378,380
---------- -------- ---------- --------- -----------
Operating margin 103,901 18,987 262,406 --- 385,294
Depreciation and
amortization 9,014 5,833 88,252 1,292
Equity in earnings of
unconsolidated affiliates (2,425) 12,780 48,604 ---
Identifiable assets 1,630,655 589,658 2,270,910 25,680 4,516,903
Capital expenditures (1) 31,813 780,897 186,828 5,121 1,004,659
</TABLE>
(1) Amounts include the value assigned assets acquired in the Destec
acquisition, before disposition of non-strategic assets acquired in the
transaction.
<TABLE>
<CAPTION>
NATURAL NATURAL
GAS AND GAS LIQUIDS,
ELECTRIC CRUDE OIL CORPORATE
POWER AND GAS AND
MARKETING TRANSMISSION ELIMINATION TOTAL
------------------ -------------------- -------------------- ------------------
($ in thousands)
<S> <C> <C> <C> <C>
1996 SUMMARY DATA:
Unaffiliated revenues $4,422,838 $2,837,353 $ 11 $7,260,202
Intersegment revenues 80,954 242,297 (323,251) ---
---------- ---------- --------- ----------
Total revenues 4,503,792 3,079,650 (323,240) 7,260,202
---------- ---------- --------- ----------
Operating margin 103,624 265,876 --- 369,500
Depreciation and
amortization 3,667 67,513 496 71,676
Equity in earnings of 28,075
unconsolidated affiliates 20,696 7,379 ---
Identifiable assets 1,512,923 2,656,509 17,378 4,186,810
Capital expenditures (1) 2,860 818,384 6,928 828,172
</TABLE>
(1) Amounts include the value assigned assets acquired in the Chevron
Combination.
F-27
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NATURAL NATURAL
GAS AND GAS LIQUIDS,
ELECTRIC CRUDE OIL CORPORATE
POWER AND GAS AND
MARKETING TRANSMISSION ELIMINATION TOTAL
------------------- -------------------- -------------------- -----------------
($ in thousands)
<S> <C> <C> <C> <C>
1995 SUMMARY DATA:
Unaffiliated revenues $2,423,136 $1,242,810 $ --- $3,665,946
Intersegment revenues 36,629 81,472 (118,101) ---
---------- ---------- --------- ----------
Total revenues 2,459,765 1,324,282 (118,101) 3,665,946
---------- ---------- --------- ----------
Operating margin 63,746 130,914 --- 194,660
Depreciation and
amortization 2,092 42,625 196 44,913
Equity in earnings of
unconsolidated affiliates 19,164 1,896 --- 21,060
Identifiable assets 663,440 1,197,702 14,110 1,875,252
Capital expenditures (1) 5,070 956,110 2,966 964,146
</TABLE>
(1) Amounts include the value assigned assets acquired in the Trident
Combination.
NOTE 16 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the Company's unaudited quarterly financial
information for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
1997 1997 1997 1997
------------------ ------------------ ------------------ ------------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues $3,272,080 $2,684,339 $3,657,456 $3,764,505
Operating margin 67,347 97,767 110,848 109,332
Income (loss) before income taxes 4,429 43,575 37,326 (235,225)
Net income (loss) (1) 4,614 32,128 25,028 (164,255)
Net income (loss) per share (2) 0.03 0.19 0.15 (1.09)
</TABLE>
F-28
<PAGE>
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
1996 1996 1996 1996
------------------- ------------------ ------------------ -----------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues $1,647,123 $1,163,151 $1,495,482 $2,954,446
Operating margin 90,082 51,995 82,311 145,112
Income before income taxes 46,621 17,224 31,854 73,946
Net income 30,328 13,838 21,452 47,704
Net income per share (2) 0.26 0.12 0.16 0.28
</TABLE>
_______________________
1. Fourth quarter results include the impairment, abandonment and other charges
of $275 million, on a pre-tax basis, and the $14.8 million effect of the
change in accounting principle.
2. Net income (loss) per share amounts have been restated to conform to the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share."
Note 17 -- SUBSEQUENT EVENTS
In January 1998, the Company announced an agreement to sell the Ozark Gas
Transmission System for $55 million, resulting in an estimated pre-tax gain of
approximately $27 million. Closing of the transaction is expected in the third
quarter of 1998, subject to certain conditions, including FERC and other
governmental approvals.
F-29
<PAGE>
Schedule I
NGC CORPORATION
CONDENSED BALANCE SHEETS OF REGISTRANT
(in thousands, except share data)
<TABLE>
December 31, December 31,
1997 1996
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 375 $ ---
Accounts receivable 32 108
Intercompany accounts receivable 177,479 337,876
Prepayments and other assets 4,992 2,793
---------- ----------
182,878 340,777
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 9,590 8,216
Less: accumulated depreciation (3,755) (2,193)
---------- ----------
5,835 6,023
---------- ----------
OTHER ASSETS
Investments in affiliates 1,483,092 1,219,027
Intercompany note receivable 160,000 237,000
Deferred taxes and other assets 77,366 13,262
---------- ----------
$1,909,171 $1,816,089
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Intercompany accounts payable $ 8,289 $ 16,295
Accrued liabilities 16,764 18,914
---------- ----------
25,053 35,209
LONG-TERM DEBT 664,500 644,000
OTHER LIABILITIES 493 20,147
---------- ----------
690,046 699,356
---------- ----------
COMPANY OBLIGATED PREFERRED SECURITIES OF SUBSIDIARY TRUST 200,000 ---
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 50,000,000 shares
authorized: 8,000,000 shares designated as Series A
Participating Preferred Stock, 7,815,363 shares issued and
outstanding at December 31, 1997 and 1996 75,418 75,418
Common stock, $0.01 par value, 400,000,000 shares
authorized: 151,796,622 shares issued at December 31, 1997,
and 149,846,503 shares issued and outstanding at December 31, 1996 1,518 1,498
Additional paid-in capital 919,720 896,432
Retained earnings 32,975 143,385
Less: treasury stock, at cost: 654,900 shares at December 31, 1997 (10,506) ---
---------- ----------
1,019,125 1,116,733
---------- ----------
$1,909,171 $1,816,089
========== ==========
</TABLE>
See Note to Registrant's Financial Statements.
F-30
<PAGE>
SCHEDULE I
NGC CORPORATION
STATEMENTS OF OPERATIONS OF THE REGISTRANT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE TEN MONTH PERIOD FROM INCEPTION (MARCH 1, 1995)
THROUGH DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Depreciation and amortization $ (1,292) $ (496) $ (196)
Impairment, abandonment and other charges (3,886) --- ---
General and administrative expenses --- --- ---
--------- -------- --------
Operating loss (5,178) (496) (196)
Equity in earnings of affiliates (115,108) 182,159 60,744
Intercompany interest and other income 16,928 17,968 13,570
Interest expense (35,949) (28,071) (18,152)
Minority interest in income of a subsidiary (9,841) --- ---
Other expenses (747) (1,915) (135)
--------- -------- --------
Income (loss) before income taxes (149,895) 169,645 55,831
Income tax provision (benefit) (62,210) 56,323 16,056
--------- -------- --------
Net income (loss) from continuing operations before
cumulative effect of change in accounting (87,685) 113,322 39,775
Cumulative effect of change in accounting principle
(net of income tax benefit of $7,913) (14,800) --- ---
--------- -------- --------
NET INCOME (LOSS) $(102,485) $113,322 $ 39,775
========= ======== ========
</TABLE>
See Note to Registrant's Financial Statements.
F-31
<PAGE>
Schedule I
NGC CORPORATION
STATEMENTS OF CASH FLOWS OF THE REGISTRANT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
TEN MONTH PERIOD FROM INCEPTION (MARCH 1, 1995) THROUGH DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (102,485) $ 113,322 $ 39,775
Items not affecting cash flows from operating activities:
Depreciation and amortization 9,631 1,996 196
Equity in earnings of affiliates, net of cash distributions 115,108 (182,159) (60,744)
Deferred taxes (86,424) 45,896 17,303
Other 12,344 7,466 1,475
Change in assets and liabilities resulting from operating activities:
Accounts receivable 76 (108) ---
Intercompany transactions 636,063 (298,592) (60,398)
Prepayments and other assets (2,749) 2,260 (5,053)
Accrued liabilities 1,529 8,487 2,427
Other, net 2,493 (1,193) 4,150
----------- ----------- ----------
Net cash used in operating activities 585,586 (302,625) (60,869)
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (5,121) (2,055) ---
Acquisitions (785,349) --- (166,900)
Other --- --- (1,333)
----------- ----------- ----------
Net cash used in investing activities (790,470) (2,055) (168,233)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 2,218,500 1,542,000 1,224,039
Repayments of long-term borrowings (2,198,000) (1,231,000) (891,039)
Intercompany advances --- --- (237,000)
Proceeds from sale of capital stock, options and warrants 203,190 858 725
Treasury stock acquisitions (10,506) --- ---
Capital contributions --- --- 135,000
Dividends and other distributions (7,925) (7,184) (2,617)
----------- ----------- ----------
Net cash provided by financing activities 205,259 304,674 229,108
----------- ----------- ----------
Net (decrease) increase in cash and cash equivalents 375 (6) 6
Cash and cash equivalents, beginning of period --- 6 ---
----------- ----------- ----------
Cash and cash equivalents, end of period $ 375 $ --- $ 6
=========== =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid (net of amount capitalized) $ 60,323 $ 22,341 $ 16,339
=========== =========== ==========
Taxes paid (net of refunds) $ 8,043 $ 1,444 $ ---
=========== =========== ==========
Cash dividends paid to parent by consolidated or
unconsolidated subsidiaries $ --- $ --- $ ---
=========== =========== ==========
</TABLE>
See Note to Registrant's Financial Statements.
F-32
<PAGE>
Schedule I
NGC CORPORATION
NOTE TO REGISTRANT'S FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
NGC Corporation ("NGC" or the "Company") is a holding company that
principally conducts all of its business through its subsidiaries. The Company
is the result of a strategic business combination ("Trident Combination")
between Natural Gas Clearinghouse and Trident NGL Holding, Inc. ("Holding"),
under which Holding was renamed NGC Corporation. Pursuant to the terms of the
Trident Combination, Holding was the legally surviving corporation and
Clearinghouse was considered the acquiring company for accounting purposes
resulting in a new historical cost basis for Holding beginning March 1, 1995,
the effective date of the Trident Combination. The accompanying condensed
Registrant Financial Statements were prepared pursuant to rules promulgated by
the Securities and Exchange Commission. In accordance with these rules, the
accompanying statements reflect the financial position, results of operations
and cash flows of NGC, the holding company of NGC Corporation, at December 31,
1997 and 1996, and for the years then ended, and for the ten month period from
the effective date of the Trident Combination through December 31, 1995,
respectively. These statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto of NGC Corporation
incorporated by reference into this Form 10-K.
F-33
<PAGE>
EXHIBIT 4.9
- --------------------------------------------------------------------------------
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
among
NGC CORPORATION,
as the Borrower,
and
THE FIRST NATIONAL BANK OF CHICAGO,
as the Agent for the Lenders,
and
THE CHASE MANHATTAN BANK
and
NATIONSBANK OF TEXAS, N.A.,
Individually and as Co-Agents for the Lenders,
and
THE LENDERS PARTY THERETO
Dated as of November 24, 1997
- --------------------------------------------------------------------------------
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
November 24, 1997, is among NGC Corporation, a Delaware corporation, as Borrower
(the "Borrower"), the Lenders parties thereto, The First National Bank of
Chicago, as Agent, and The Chase Manhattan Bank and NationsBank of Texas, N.A.,
as Co-Agents (the "Co-Agents"). Capitalized terms used herein, unless otherwise
defined, have the meanings assigned to them in the Credit Agreement. The
parties hereto agree as follows:
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Lenders, the Issuers, the Agent and the Co-
Agents have heretofore entered into a certain Amended and Restated Credit
Agreement, dated as of June 27, 1997 (herein called the "Credit Agreement"); and
WHEREAS, the Borrower, the Lenders, the Issuers, the Agent and the Co-
Agents now intend to amend the Credit Agreement in certain respects as
hereinafter provided;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Borrower, the Lenders, the Issuers, the Agent and the Co-
Agents hereby agree as follows:
SECTION 1. Amendment to Credit Agreement. (a) Section 2.8 of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"2.8 Optional Principal Payments. The Borrower may from time to time
pay, without penalty or premium (other than amounts payable as provided in
Section 3.4, if any, as a result of such prepayment being made other than
on the last day of a Eurodollar Interest Period with respect to any
Eurodollar Advance as provided in Section 3.4), all outstanding Advances,
or, in a minimum aggregate amount of $5,000,000 or any integral multiple of
$1,000,000 in excess thereof, any portion of the outstanding Advances upon
three Business Days' prior notice (or in the case of outstanding Advances
bearing interest at a Floating Rate, upon notice by 11:00 a.m. on the same
Business Day) to the Agent; provided that a Competitive Bid Advance which
the Borrower indicated was not prepayable in the related Competitive Bid
Quote Request may not be prepaid prior to such last day unless agreed by
the relevant Tranche A Lender."
(b) Section 2.9 of the Credit Agreement is hereby amended by (i) deleting
the time "10:00 a.m." in the eighth line thereof and by inserting the time
"11:00 a.m." in lieu thereof, (ii) by deleting the phrase "at least one Business
Day before" appearing immediately after the term "(Chicago time)"
<PAGE>
in the eighth line thereof and by inserting the word "on" in lieu thereof, and
(iii) by deleting the time "noon" in the second to last sentence thereof and
inserting the time "2:00 p.m." in lieu thereof.
(c) Section 2.10 of the Credit Agreement is hereby amended by deleting the
last sentence and inserting the following sentence in lieu thereof:
"The Borrower shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Tranche A
Advance, a Tranche B Advance or continuation of a Eurodollar Committed
Advance not later than 11:00 a.m. (Chicago time) on the date of the
requested conversion, in the case of a conversion into a Floating Rate
Advance, or not later than 11:00 a.m. (Chicago time) three Business Days
prior to the date of the requested conversion or continuation, in the case
of a conversion into or continuation of a Eurodollar Advance, in each case
specifying:
(i) the requested date which shall be a Business Day, of such
conversion or continuation;
(ii the aggregate amount, whether a Tranche A Advance or a Tranche B
Advance and Type of the Advance which is to be converted or continued; and
(ii the amount and Type(s) of Advance(s) into which such Advance is
to be converted or continued and, in the case of a conversion into or
continuation of a Eurodollar Committed Advance, the duration of the
Interest Period applicable thereto."
SECTION 2. This Amendment (or the portions thereof) shall be deemed to
be an amendment to the Credit Agreement, and the Credit Agreement, as amended
hereby, is hereby ratified, approved and confirmed in each and every respect.
All references to the Credit Agreement in any other document, instrument,
agreement or writing shall hereafter be deemed to refer to the Credit Agreement
as amended hereby.
SECTION 3. THIS AMENDMENT SHALL BE A CONTRACT GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF ILLINOIS.
SECTION 4. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument, and
any party hereto may execute this Amendment by signing one or more counterparts.
2
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders, the Issuers, the Agent and
the Co-Agents have executed this Agreement as of the date first above written.
NGC CORPORATION
By:
---------------------------------
Print Name:
Title:
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as agent
By:
---------------------------------
Print Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK
individually and as co-agent
By:
---------------------------------
Print Name:
Title:
<PAGE>
NATIONSBANK OF TEXAS, N.A.
individually and as co-agent
By:
---------------------------------
Print Name:
Title:
<PAGE>
ABN AMRO BANK, N.V.
By:
---------------------------------
Print Name:
Title:
By:
---------------------------------
Print Name:
Title:
<PAGE>
BANKBOSTON, N.A.
By:
---------------------------------
Print Name:
Title:
<PAGE>
BANK OF MONTREAL
By:
---------------------------------
Print Name:
Title:
<PAGE>
THE BANK OF NEW YORK
By:
---------------------------------
Print Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA
By:
---------------------------------
Print Name:
Title:
<PAGE>
BANK OF SCOTLAND
By:
---------------------------------
Print Name:
Title:
<PAGE>
THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY
By:
---------------------------------
Print Name:
Title:
<PAGE>
CHRISTIANIA BANK, NEW YORK BRANCH
By:
---------------------------------
Print Name:
Title:
By:
---------------------------------
Print Name:
Title:
<PAGE>
CIBC INC.
By:
---------------------------------
Print Name:
Title:
<PAGE>
CREDIT AGRICOLE INDOSUEZ
By:
---------------------------------
Print Name:
Title:
By:
---------------------------------
Print Name:
Title:
<PAGE>
CITIBANK, N.A.
By:
---------------------------------
Print Name:
Title:
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:
---------------------------------
Print Name:
Title:
<PAGE>
THE FUJI BANK, LIMITED,
HOUSTON AGENCY
By:
---------------------------------
Print Name:
Title:
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LTD.
By:
---------------------------------
Print Name:
Title:
<PAGE>
LTCB TRUST COMPANY
By:
---------------------------------
Print Name:
Title:
<PAGE>
MELLON BANK, N.A. (WEST)
By:
---------------------------------
Print Name:
Title:
<PAGE>
ROYAL BANK OF CANADA
By:
---------------------------------
Print Name:
Title:
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
---------------------------------
Print Name:
Title:
<PAGE>
SOUTHWEST BANK OF TEXAS, N.A.
By:
---------------------------------
Print Name:
Title:
<PAGE>
THE TORONTO-DOMINION BANK
By:
---------------------------------
Print Name:
Title:
<PAGE>
WESTDEUTSCHE LANDESBANK
By:
---------------------------------
Print Name:
Title:
By:
---------------------------------
Print Name:
Title:
<PAGE>
EXHIBIT 4.10
- --------------------------------------------------------------------------------
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
among
NGC CORPORATION,
as the Borrower,
and
THE FIRST NATIONAL BANK OF CHICAGO,
as the Agent for the Lenders,
and
THE CHASE MANHATTAN BANK
and
NATIONSBANK OF TEXAS, N.A.,
Individually and as Co-Agents for the Lenders,
and
THE LENDERS PARTY THERETO
Dated as of February 20, 1998
- --------------------------------------------------------------------------------
<PAGE>
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
February 20, 1998, is among NGC Corporation, a Delaware corporation, as Borrower
(the "Borrower"), the Lenders parties thereto, The First National Bank of
Chicago, as Agent, and The Chase Manhattan Bank and NationsBank of Texas, N.A.,
as Co-Agents (the "Co-Agents"). Capitalized terms used herein, unless otherwise
defined, have the meanings assigned to them in the Credit Agreement. The
parties hereto agree as follows:
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Lenders, the Issuers, the Agent and the Co-
Agents have heretofore entered into a certain Amended and Restated Credit
Agreement, dated as of June 27, 1997 as amended by that certain First Amendment
to Amended and Restated Credit Agreement, dated as of November 24, 1997 (herein,
as so amended, called the "Credit Agreement"); and
WHEREAS, the Borrower, the Lenders, the Issuers, the Agent and the Co-
Agents now intend to amend the Credit Agreement in certain respects as
hereinafter provided;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Borrower, the Lenders, the Issuers, the Agent and the Co-
Agents hereby agree as follows:
SECTION 1. Amendment of Credit Agreement
A. Amendment of Section 1.1.
(i) The term "Additional Guaranty", its definition and all references to
such term are hereby deleted in their entirety.
(ii) The term "Guarantor", its definition and all references to such term
are hereby deleted in their entirety.
(iii) The term "Guarantor Discontinuance Test", its definition and all
references to such term are hereby deleted in their entirety.
(iv) The term "Subsidiary Guaranty", its definition and all references to
such term are hereby deleted in their entirety.
<PAGE>
B. Amendment of Section 6.1.3. Section 6.1.3 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
[INTENTIONALLY OMITTED]
C. Amendment of Section 7.10. Section 7.10 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
[INTENTIONALLY OMITTED]
D. Amendment of Section 7.11. Section 7.11 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
[INTENTIONALLY OMITTED]
E. Amendment of Section 8.2 (v). Section 8.2 (v) is hereby amended and
restated in its entirety to read as follows:
[INTENTIONALLY OMITTED]
F. Amendment of Section 12.2.2. Section 12.2.2 is hereby amended by
deleting the words "any Guarantor of any such Loan or Letter of Credit or
releases" appearing in the penultimate line of Section 12.2.2.
G. Amendment of Exhibit "J-1". Exhibit "J-1" to the Credit Agreement
and all references to Exhibit "J-1" in the Credit Agreement are hereby deleted
in their entirety.
SECTION 2. The Borrower, the Administrative Agent and the Lenders each
acknowledge and agree that each of Natural Gas Clearinghouse's, NGC Oil Trading
and Transportation, Inc.'s, NGC Futures, Inc.'s, Electric Clearinghouse, Inc.'s,
Kansas Gas Supply Corporation's, NGC Great Britain, Ltd.'s, NGC Canada Inc.'s,
Warren Energy Resources, Limited Partnership's, Warren Gas Liquids, Inc.'s,
Warren Gas Marketing, Inc.'s, Warren Intrastate Gas Supply, Inc.'s, Warren NGL,
Inc.'s, Warren NGL Pipeline Company's, Warren Petroleum Company, Limited
Partnership's, WPC LP, Inc.'s, WTLPS, Inc.'s and Destec Energy, Inc.'s
Subsidiary Guaranties are hereby released and terminated.
SECTION 3. This Amendment (or the portions thereof) shall be deemed to be
an amendment to the Credit Agreement, and the Credit Agreement, as amended
hereby, is hereby ratified, approved and confirmed in each and every respect.
All references to the Credit Agreement in any other document, instrument,
agreement or writing shall hereafter be deemed to refer to the Credit Agreement
as amended hereby.
2
<PAGE>
SECTION 4. THIS AMENDMENT SHALL BE A CONTRACT GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF ILLINOIS.
SECTION 5. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument, and
any party hereto may execute this Amendment by signing one or more counterparts.
IN WITNESS WHEREOF, the Borrower, the Lenders, the Issuers, the Agent and
the Co-Agents have executed this Agreement as of the date first above written.
NGC CORPORATION
By:
----------------------------
Print Name:
Title:
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as agent
By:
--------------------------
Print Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK
individually and as co-agent
By:
--------------------------
Print Name:
Title:
<PAGE>
NATIONSBANK OF TEXAS, N.A.
individually and as co-agent
By:
--------------------------
Print Name:
Title:
<PAGE>
ABN AMRO BANK, N.V.
By:
--------------------------
Print Name:
Title:
By:
--------------------------
Print Name:
Title:
<PAGE>
BANKBOSTON, N.A.
By:
--------------------------
Print Name:
Title:
<PAGE>
BANK OF MONTREAL
By:
--------------------------
Print Name:
Title:
<PAGE>
THE BANK OF NEW YORK
By:
--------------------------
Print Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA
By:
--------------------------
Print Name:
Title:
<PAGE>
BANK OF SCOTLAND
By:
--------------------------
Print Name:
Title:
<PAGE>
THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY
By:
--------------------------
Print Name:
Title:
<PAGE>
CHRISTIANIA BANK, NEW YORK BRANCH
By:
--------------------------
Print Name:
Title:
By:
--------------------------
Print Name:
Title:
<PAGE>
CIBC INC.
By:
--------------------------
Print Name:
Title:
<PAGE>
CREDIT AGRICOLE INDOSUEZ
By:
--------------------------
Print Name:
Title:
By:
--------------------------
Print Name:
Title:
<PAGE>
CITIBANK, N.A.
By:
--------------------------
Print Name:
Title:
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:
--------------------------
Print Name:
Title:
<PAGE>
THE FUJI BANK, LIMITED,
HOUSTON AGENCY
By:
--------------------------
Print Name:
Title:
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LTD.
By:
--------------------------
Print Name:
Title:
<PAGE>
LTCB TRUST COMPANY
By:
--------------------------
Print Name:
Title:
<PAGE>
MELLON BANK, N.A. (WEST)
By:
--------------------------
Print Name:
Title:
<PAGE>
ROYAL BANK OF CANADA
By:
--------------------------
Print Name:
Title:
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
--------------------------
Print Name:
Title:
<PAGE>
SOUTHWEST BANK OF TEXAS, N.A.
By:
--------------------------
Print Name:
Title:
<PAGE>
THE TORONTO-DOMINION BANK
By:
--------------------------
Print Name:
Title:
<PAGE>
WESTDEUTSCHE LANDESBANK
By:
--------------------------
Print Name:
Title:
By:
--------------------------
Print Name:
Title:
<PAGE>
NGC CORPORATION,
THE SUBSIDIARY GUARANTORS
NAMED HEREIN
AND
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
_______________
FIFTH SUPPLEMENTAL INDENTURE
Dated as of September 30, 1997
________________
Supplementing and Amending the Indenture
dated as of
December 11, 1995
<PAGE>
THIS FIFTH SUPPLEMENTAL INDENTURE, dated as of September 30, 1997, is among
NGC Corporation, a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal office at
1000 Louisiana Street, Suite 5800, Houston, Texas 77002, the Subsidiary
Guarantors parties hereto (the "Subsidiary Guarantors") and The First National
Bank of Chicago, a national banking association, as Trustee (herein called the
"Trustee"). Any capitalized term used in this Third Supplemental Indenture and
not defined herein shall have the meaning specified in the Original Indenture
(as defined below).
RECITALS OF THE COMPANY
The Company and each of the Initial Subsidiary Guarantors heretofore have
made, executed and delivered to the Trustee an Indenture dated as of December
11, 1995 (the "Original Indenture") to provide for the issuance from time to
time of unsecured debentures, notes or other evidences of indebtedness of the
Company (herein called the "Securities"), to be issued in one or more series as
provided in the Original Indenture.
The Company's obligations under the Original Indenture and the Securities
are guaranteed by the Subsidiary Guarantors.
The Company has duly authorized and issued a series of $150,000,000
aggregate principal amount of its 6 3/4% Senior Notes due December 15, 2005 (the
"Notes") as Securities pursuant to the Original Indenture.
Pursuant to a First Supplemental Indenture dated as of August 31, 1996 (the
"First Supplemental Indenture"), (i) Warren Petroleum Company, Limited
Partnership, a Delaware limited partnership ("Warren Petroleum"), (ii) WPC LP,
Inc., a Delaware corporation ("WPC"), and (iii) WTLPS, Inc., a Delaware
corporation ("WTLPS"), each became an Additional Subsidiary Guarantor.
Pursuant to a Second Supplemental Indenture dated as of October 11, 1996
(the "Second Supplemental Indenture"), Electric Clearinghouse, Inc. ("ECI")
became an Additional Subsidiary Guarantor.
Pursuant to a Third Supplemental Indenture dated as of April 23, 1997 (the
"Third Supplemental Indenture"), (i) Warren Petroleum was reclassified as an
Initial Subsidiary Guarantor rather than an Additional Subsidiary Guarantor,
(ii) Warren Energy Resources, Limited Partnership, Warren Gas Marketing, Inc.,
Warren NGL Pipeline Company, Kansas Gas Supply Corporation, Warren Intrastate
Gas Supply, Inc., NGC Great Britain Ltd., NGC Canada, Inc. and NGC Futures, Inc.
were each reclassified as Additional Subsidiary Guarantors rather than Initial
Subsidiary Guarantors and (iii) NGC Storage, Inc., HUB Services, Inc. and NGC
Anadarko Gathering Systems, Inc. were permanently released as guarantors of the
Securities. In addition, the names of certain Subsidiary Guarantors were
changed in the Third Supplemental Indenture.
1
<PAGE>
Pursuant to a Fourth Supplemental Indenture dated as of June 30, 1997 (the
"Fourth Supplemental Indenture"), Destec Energy, Inc. ("Destec") became an
Additional Subsidiary Guarantor.
Section 901(11) of the Original Indenture provides that under certain
conditions, the Company, the Subsidiary Guarantors and the Trustee may, without
the consent of any Holders of Securities, from time to time and at any time,
enter into an indenture or indentures supplemental thereto, for the purpose of
releasing an Additional Subsidiary Guarantor from its Subsidiary Guarantee
pursuant to Section 1506 of the Original Indenture, as supplemented and amended.
The Original Indenture, as so supplemented and amended by the First
Supplemental Indenture, the Second Supplemental Indenture, the Third
Supplemental Indenture, the Fourth Supplemental Indenture, and this Fifth
Supplemental Indenture, being sometimes referred to herein as the "Indenture".
It is deemed necessary and desirable to supplement and amend the Original
Indenture in accordance with Section 901 of the Indenture to permanently release
NGC Futures, Inc.; Electric Clearinghouse, Inc.; Kansas Gas Supply Corporation;
NGC Great Britain Ltd.; NGC Canada, Inc.; Warren Gas Marketing, Inc.; Warren
Intrastate Gas Supply, Inc.; Warren NGL Pipeline Company; WPC LP, Inc.; and
WTLPS, Inc. as guarantors of the Securities.
The Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, stating that this Fifth Supplemental Indenture has been duly
authorized and executed by the Company and the Subsidiary Guarantors.
All things necessary to make this Fifth Supplemental Indenture and the
Original Indenture a valid agreement of the Company and each of the Subsidiary
Guarantors, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
(together with the related Subsidiary Guarantees) by the Holders thereof, it is
mutually agreed, for the equal and proportionate benefit of all Holders of the
Securities or of a series thereof (together with the related Subsidiary
Guarantees), as follows:
ARTICLE ONE
MODIFICATION OF THE INDENTURE
Section 1.1. Amendment to Section 205 of the Indenture. The signature
block containing the names of the Subsidiary Guarantors at the end of Section
205 is hereby amended in its entirety to read as follows:
2
<PAGE>
NATURAL GAS CLEARINGHOUSE
By: Clearinghouse Holdings, Inc., its general partner
WARREN NGL, INC.
WARREN ENERGY RESOURCES, LIMITED PARTNERSHIP
By: Warren Energy, Inc., its general partner
WARREN GAS LIQUIDS, INC.
NGC OIL TRADING AND TRANSPORTATION, INC.
WARREN PETROLEUM COMPANY, LIMITED PARTNERSHIP
By: Warren Petroleum GP, Inc., its general partner
DESTEC ENERGY, INC.
By _____________________________
ARTICLE TWO
ADDITIONAL REPRESENTATIONS
AND COVENANTS OF THE COMPANY
AND THE SUBSIDIARY GUARANTORS
SECTION 2.1 AUTHORITY OF THE COMPANY. The Company represents and warrants
that it is duly authorized by a resolution of the Board of Directors to execute
and deliver this Fifth Supplemental Indenture, and all corporate action on its
part required for the execution and delivery of this Fifth Supplemental
Indenture has been duly and effectively taken.
SECTION 2.2 AUTHORITY OF SUBSIDIARY GUARANTORS. Each of the Subsidiary
Guarantors represents and warrants that it is duly authorized by a resolution of
its respective Board of Directors to execute and deliver this Fifth Supplemental
Indenture, and all corporate action on the part of each required for the
execution and delivery of this Fifth Supplemental Indenture has been duly and
effectively taken.
SECTION 2.3 RECITALS AND STATEMENTS. The Company warrants that the
recitals of fact and statements contained in this Fifth Supplemental Indenture
are true and correct, and that the recitals of fact and statements contained in
all certificates and other documents furnished hereunder will be true and
correct.
ARTICLE THREE
CONCERNING THE TRUSTEE
SECTION 3.1 ACCEPTANCE OF TRUSTS. The Trustee accepts the trust hereunder
and agrees to perform the same, but only upon the terms and conditions set forth
in the Indenture, to all of which the Company, Subsidiary Guarantors and the
respective Holders of Securities at any time hereafter outstanding agree by
their acceptance thereof.
3
<PAGE>
SECTION 3.2 RESPONSIBILITY OF TRUSTEE FOR RECITALS, ETC. The recitals and
statements contained in this Fifth Supplemental Indenture shall be taken as the
recitals and statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Fifth Supplemental
Indenture, except that the Trustee is duly authorized to execute and deliver
this Fifth Supplemental Indenture.
ARTICLE FOUR
MISCELLANEOUS PROVISIONS
SECTION 4.1 RELATION TO THE INDENTURE. The provisions of this Fifth
Supplemental Indenture shall be deemed to be effective immediately upon the
execution and delivery hereof. This Fifth Supplemental Indenture and all the
terms and provisions herein contained shall form a part of the Indenture as
fully and with the same effect as if all such terms and provisions had been set
forth in the Original Indenture. The Original Indenture is hereby ratified and
confirmed and shall remain and continue in full force and effect in accordance
with the terms and provision thereof, as supplemented and amended by the First
Supplemental Indenture, the Second Supplemental Indenture, the Third
Supplemental Indenture, the Fourth Supplemental Indenture and this Fifth
Supplemental Indenture. The Original Indenture as so supplemented shall be
read, taken and construed together as one instrument.
SECTION 4.2 COUNTERPARTS OF FIFTH SUPPLEMENTAL INDENTURE. This Fifth
Supplemental Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
SECTION 4.3 GOVERNING LAW. This Fifth Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York,
without regard to principles of conflicts of laws.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental
Indenture to be duly executed, all as of the day and year first above written.
COMPANY
NGC CORPORATION
By:
Robert D. Doty, Jr.
Vice President and Treasurer
SUBSIDIARY GUARANTORS
NATURAL GAS CLEARINGHOUSE
By: Clearinghouse Holdings, Inc., its general
partner
WARREN NGL, INC.
WARREN ENERGY RESOURCES, LIMITED PARTNERSHIP
By: Warren Energy, Inc., its general partner
WARREN GAS LIQUIDS, INC.
NGC OIL TRADING AND TRANSPORTATION, INC.
WARREN PETROLEUM COMPANY, LIMITED PARTNERSHIP
By: Warren Petroleum G.P., Inc., its general
partner
DESTEC ENERGY, INC.
By: _____________________________
Robert D. Doty, Jr.
Vice President and Treasurer
5
<PAGE>
TRUSTEE
THE FIRST NATIONAL BANK OF CHICAGO
By
Name:
Title:
6
<PAGE>
EXHIBIT 4.19
- --------------------------------------------------------------------------------
NGC CORPORATION,
THE SUBSIDIARY GUARANTORS
NAMED HEREIN
AND
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
_______________
SIXTH SUPPLEMENTAL INDENTURE
Dated as of January 5, 1998
________________
Supplementing and Amending the Indenture
dated as of
December 11, 1995
<PAGE>
THIS SIXTH SUPPLEMENTAL INDENTURE, dated as of January 5, 1998, is among
NGC Corporation, a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal office at
1000 Louisiana Street, Suite 5800, Houston, Texas 77002, the Subsidiary
Guarantors parties hereto (the "Subsidiary Guarantors") and The First National
Bank of Chicago, a national banking association, as Trustee (herein called the
"Trustee"). Any capitalized term used in this Sixth Supplemental Indenture and
not defined herein shall have the meaning specified in the Original Indenture
(as defined below).
RECITALS OF THE COMPANY
The Company and each of the Initial Subsidiary Guarantors heretofore have
made, executed and delivered to the Trustee an Indenture dated as of December
11, 1995 (the "Original Indenture") to provide for the issuance from time to
time of unsecured debentures, notes or other evidences of indebtedness of the
Company (herein called the "Securities"), to be issued in one or more series as
provided in the Original Indenture.
The Company's obligations under the Original Indenture and the Securities
are guaranteed by the Subsidiary Guarantors.
The Company has duly authorized and issued a series of $150,000,000
aggregate principal amount of its 6 3/4% Senior Notes due December 15, 2005 (the
"Notes") as Securities pursuant to the Original Indenture.
Pursuant to a First Supplemental Indenture dated as of August 31, 1996 (the
"First Supplemental Indenture"), (i) Warren Petroleum Company, Limited
Partnership, a Delaware limited partnership ("Warren Petroleum"), (ii) WPC LP,
Inc., a Delaware corporation ("WPC"), and (iii) WTLPS, Inc., a Delaware
corporation ("WTLPS"), each became an Additional Subsidiary Guarantor.
Pursuant to a Second Supplemental Indenture dated as of October 11, 1996
(the "Second Supplemental Indenture"), Electric Clearinghouse, Inc. ("ECI")
became an Additional Subsidiary Guarantor.
Pursuant to a Third Supplemental Indenture dated as of April 23, 1997 (the
"Third Supplemental Indenture"), (i) Warren Petroleum was reclassified as an
Initial Subsidiary Guarantor rather than an Additional Subsidiary Guarantor,
(ii) Warren Energy Resources, Limited Partnership, Warren Gas Marketing, Inc.,
Warren NGL Pipeline Company, Kansas Gas Supply Corporation, Warren Intrastate
Gas Supply, Inc., NGC Great Britain Ltd., NGC Canada, Inc. and NGC Futures, Inc.
were each reclassified as Additional Subsidiary Guarantors rather than Initial
Subsidiary Guarantors and (iii) NGC Storage, Inc., HUB Services, Inc. and NGC
Anadarko Gathering Systems, Inc. were permanently released as Subsidiary
Guarantors of the Securities. In addition, the names of certain Subsidiary
Guarantors were changed in the Third Supplemental Indenture.
Pursuant to a Fourth Supplemental Indenture dated as of June 30, 1997 (the
"Fourth Supplemental Indenture"), Destec Energy, Inc. ("Destec") became an
Additional Subsidiary Guarantor.
1
<PAGE>
Pursuant to a Fifth Supplemental Indenture dated as of September 30, 1997
(the "Fifth Supplemental Indenture"), NGC Futures, Inc.; Electric Clearinghouse,
Inc.; Kansas Gas Supply Corporation; NGC Great Britain Ltd.; NGC Canada, Inc.;
Warren Gas Marketing, Inc.; Warren Intrastate Gas Supply, Inc.; Warren NGL
Pipeline Company; WPC LP, Inc.; and WTLPS, Inc. were permanently released as
Subsidiary Guarantors of the Securities.
Section 902 of the Original Indenture provides that under certain
conditions, the Company, the Subsidiary Guarantors and the Trustee, may, with
the consent of the Holders of a majority in principal amount of the Outstanding
Securities, by Act of said Holders, from time to time enter into an indenture
supplemental thereto, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Original Indenture or of
modifying in any manner the rights of the Holders of Securities.
It is deemed necessary and desirable to supplement and amend the Original
Indenture in accordance with Section 902 of the Original Indenture to (i)
reclassify all of the Initial Subsidiary Guarantors as Additional Subsidiary
Guarantors, (ii) delete all references and provisions relating to Initial
Subsidiary Guarantors and (iii) permit the deletion of all references and
provisions relating to Subsidiary Guarantees and Subsidiary Guarantors in the
event that all Additional Subsidiary Guarantors are permanently released under
the Indenture.
The approval of the substance of this Sixth Supplemental Indenture by the
Holders of at least a majority in principal amount of the Outstanding Notes has
been embodied in and evidenced by that certain Consent Letter relating to the
Consent Solicitation Statement dated December 4, 1997 issued by the Company
relating to the Notes.
The Original Indenture, as so supplemented and amended by the First
Supplemental Indenture, the Second Supplemental Indenture, the Third
Supplemental Indenture, the Fourth Supplemental Indenture, the Fifth
Supplemental Indenture and this Sixth Supplemental Indenture, being sometimes
referred to herein as the "Indenture".
The Company has delivered to the Trustee an Opinion of Counsel stating that
the execution by the Company and the Subsidiary Guarantors of this Sixth
Supplemental Indenture is authorized and permitted by the Indenture and that
this Sixth Supplemental Indenture has been duly authorized and executed by the
Company and the Subsidiary Guarantors.
All things necessary to make this Sixth Supplemental Indenture and the
Original Indenture a valid agreement of the Company and each of the Subsidiary
Guarantors, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
(together with the related Subsidiary Guarantees) by the Holders thereof, it is
mutually agreed, for the equal and proportionate benefit of all Holders of the
Securities or of a series thereof (together with the related Subsidiary
Guarantees), as follows:
2
<PAGE>
ARTICLE ONE
MODIFICATION OF THE INDENTURE
SECTION 1.1. AMENDMENTS TO SECTION 101 OF THE INDENTURE.
(a) The definition of "Additional Subsidiary Guarantors" is hereby amended
to read in its entirety as follows:
"Additional Subsidiary Guarantors" means (i) Clearinghouse,
Warren NGL, Warren Energy Resources, Warren Liquids, NGC Oil Trading,
Warren Petroleum and Destec and (ii) any Subsidiary (direct or
indirect) of the Company that delivers a Subsidiary Guarantee pursuant
to Section 1505 hereof, and each of their respective successors and
assigns.
(b) The definition of "Destec" is hereby added to Section 101 to read in
its entirety as follows:
"Destec" means Destec Energy, Inc., a Delaware corporation.
(c) The definition of "Initial Subsidiary Guarantors" is hereby deleted in
its entirety from Section 101 of the Indenture.
(d) The definition of "Subsidiary Guarantor" is hereby amended to read in
its entirety as follows:
"Subsidiary Guarantor" means each Additional Subsidiary
Guarantor, if any, but excluding any Subsidiary of the Company
released from its Subsidiary Guarantee pursuant to Section 805 or
Section 1505 (unless such Subsidiary becomes an Additional Subsidiary
Guarantor pursuant to Section 1505 subsequent to such release).
SECTION 1.2. AMENDMENTS TO SECTION 901 OF THE INDENTURE. A new clause
(13) is hereby added to Section 901 of the Indenture. The word "or" at the end
of clause (11) of Section 901 of the Indenture is hereby deleted. The period at
the end of clause (12) of Section 901 of the Indenture is hereby deleted and
replaced with a semi-colon and the word "or." The new clause (13) shall read in
its entirety as follows:
(13) to permanently remove any definitions, references,
provisions or sections relating to Subsidiary Guarantors or Subsidiary
Guarantees at any time that all Additional Subsidiary Guarantors are
or have been released pursuant to Section 1506 hereof.
3
<PAGE>
ARTICLE TWO
ADDITIONAL REPRESENTATIONS
AND COVENANTS OF THE COMPANY
AND THE SUBSIDIARY GUARANTORS
SECTION 2.1 AUTHORITY OF THE COMPANY. The Company represents and
warrants that it is duly authorized by a resolution of the Board of Directors to
execute and deliver this Sixth Supplemental Indenture, and all corporate action
on its part required for the execution and delivery of this Sixth Supplemental
Indenture has been duly and effectively taken.
SECTION 2.2 AUTHORITY OF SUBSIDIARY GUARANTORS. Each of the Subsidiary
Guarantors represents and warrants that it is duly authorized by a resolution of
its respective Board of Directors to execute and deliver this Sixth Supplemental
Indenture, and all corporate action on the part of each required for the
execution and delivery of this Sixth Supplemental Indenture has been duly and
effectively taken.
SECTION 2.3 RECITALS AND STATEMENTS. The Company warrants that the
recitals of fact and statements contained in this Sixth Supplemental Indenture
are true and correct, and that the recitals of fact and statements contained in
all certificates and other documents furnished hereunder will be true and
correct.
ARTICLE THREE
CONCERNING THE TRUSTEE
SECTION 3.1 ACCEPTANCE OF TRUSTS. The Trustee accepts the trust
hereunder and agrees to perform the same, but only upon the terms and conditions
set forth in the Indenture, to all of which the Company, the Subsidiary
Guarantors and the respective Holders of Securities at any time hereafter
outstanding agree by their acceptance thereof.
SECTION 3.2 RESPONSIBILITY OF TRUSTEE FOR RECITALS, ETC. The recitals
and statements contained in this Sixth Supplemental Indenture shall be taken as
the recitals and statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Sixth Supplemental
Indenture, except that the Trustee is duly authorized to execute and deliver
this Sixth Supplemental Indenture.
ARTICLE FOUR
MISCELLANEOUS PROVISIONS
SECTION 4.1 RELATION TO THE INDENTURE. The provisions of this Sixth
Supplemental Indenture shall become effective immediately upon the execution and
delivery hereof. This Sixth Supplemental Indenture and all the terms and
provisions herein contained shall form a part of the
4
<PAGE>
Indenture as fully and with the same effect as if all such terms and provisions
had been set forth in the Original Indenture. The Original Indenture is hereby
ratified and confirmed and shall remain and continue in full force and effect in
accordance with the terms and provision thereof, as supplemented and amended by
the First Supplemental Indenture, the Second Supplemental Indenture, the Third
Supplemental Indenture, the Fourth Supplemental Indenture, the Fifth
Supplemental Indenture and this Sixth Supplemental Indenture. The Original
Indenture as so supplemented shall be read, taken and construed together as one
instrument.
SECTION 4.2 COUNTERPARTS OF SIXTH SUPPLEMENTAL INDENTURE. This Sixth
Supplemental Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
SECTION 4.3 GOVERNING LAW. This Sixth Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York,
without regard to principles of conflicts of laws.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Supplemental
Indenture to be duly executed, all as of the day and year first above written.
COMPANY
NGC CORPORATION
By:
----------------------------------
Robert D. Doty, Jr.
Vice President and Treasurer
SUBSIDIARY GUARANTORS
NATURAL GAS CLEARINGHOUSE
By: Clearinghouse Holdings, Inc., its general partner
WARREN NGL, INC.
WARREN ENERGY RESOURCES, LIMITED PARTNERSHIP
By: Warren Energy, Inc., its general partner
WARREN GAS LIQUIDS, INC.
NGC OIL TRADING AND TRANSPORTATION, INC.
WARREN PETROLEUM COMPANY, LIMITED PARTNERSHIP
By: Warren Petroleum G.P., Inc., its general partner
DESTEC ENERGY, INC.
By:
-----------------------------------
Robert D. Doty, Jr.
Vice President and Treasurer
6
<PAGE>
TRUSTEE
THE FIRST NATIONAL BANK OF CHICAGO
By
--------------------------------
Name:
Title:
7
<PAGE>
Exhibit 4.20
______________________________________________________________________
NGC CORPORATION,
AND
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
_______________
SEVENTH SUPPLEMENTAL INDENTURE
Dated as of February 20, 1998
________________
Supplementing and Amending the Indenture
dated as of
December 11, 1995
______________________________________________________________________
<PAGE>
THIS SEVENTH SUPPLEMENTAL INDENTURE (the "Seventh Supplemental Indenture"),
dated as of February 20, 1998, is among NGC Corporation, a corporation duly
organized and existing under the laws of the State of Delaware (herein called
the "Company"), having its principal office at 1000 Louisiana Street, Suite
5800, Houston, Texas 77002, and The First National Bank of Chicago, a national
banking association, as Trustee (herein called the "Trustee"). Any capitalized
term used in this Seventh Supplemental Indenture and not defined herein shall
have the meaning specified in the Indenture (as defined below).
RECITALS OF THE COMPANY
The Company and each of the initial Subsidiary Guarantors heretofore have
made, executed and delivered to the Trustee an Indenture dated as of December
11, 1995 (the "Original Indenture") to provide for the issuance from time to
time of unsecured debentures, notes or other evidences of indebtedness of the
Company (herein called the "Securities"), to be issued in one or more series as
provided in the Original Indenture.
The Company's obligations under the Original Indenture and the Securities
have been guaranteed by the Subsidiary Guarantors.
The Company has duly authorized and issued a series of $150,000,000
aggregate principal amount of its 6 3/4% Senior Notes due December 15, 2005 as
Securities pursuant to the Original Indenture.
The Original Indenture, as supplemented and amended by the First
Supplemental Indenture dated as of August 31, 1996 (the "First Supplemental
Indenture"), the Second Supplemental Indenture dated as of October 11, 1996 (the
"Second Supplemental Indenture"), the Third Supplemental Indenture dated as of
April 23, 1997 (the "Third Supplemental Indenture"), the Fourth Supplemental
Indenture dated as of June 30, 1997 (the "Fourth Supplemental Indenture"), the
Fifth Supplemental Indenture dated as of September 30, 1997 (the "Fifth
Supplemental Indenture"), the Sixth Supplemental Indenture dated as of January
5, 1998 (the "Sixth Supplemental Indenture") and this Seventh Supplemental
Indenture, being sometimes referred to herein as the "Indenture".
Section 901(13) of the Indenture provides that under certain conditions the
Company and the Trustee may, without the consent of any Holders of Securities,
from time to time and at any time, enter into an indenture or indentures
supplemental thereto, for the purpose of permanently removing any definitions,
references, provisions or sections relating to Subsidiary Guarantors or
Subsidiary Guarantees at any time that all Additional Subsidiary Guarantors have
been released pursuant to Section 1506 of the Indenture.
The Company has determined that each of the Additional Subsidiary
Guarantors has satisfied the conditions to release set forth in Section 1506 of
the Indenture.
Therefor, the Company has deemed it necessary and desirable to supplement
and amend the Indenture in accordance with Section 901(13) of the Indenture to
(i) permanently release all of the Subsidiary Guarantors and (ii) permanently
delete all definitions, references, provisions and sections of the Indenture
relating to Subsidiary Guarantors and Subsidiary Guarantees.
1
<PAGE>
In addition, Section 901(9) of the Indenture provides that under certain
conditions the Company and the Trustee may, without the consent of any Holders
of Securities, from time to time and at any time, enter into an indenture or
indentures supplemental thereto, for the purpose, inter alia, of making certain
provisions with respect to matters arising under the Indenture; provided that
such action shall not adversely affect the interests of the Holders in any
material respect.
The Company has deemed it necessary and desirable to supplement and amend
the Indenture in accordance with Section 901(9) to amend the definition of
"Indenture" set forth in the Indenture to include restatements of the Indenture
that cumulate the terms of supplemental indentures entered into pursuant to the
Indenture.
The Company has delivered to the Trustee (i) an Opinion of Counsel stating
that the execution by the Company of this Seventh Supplemental Indenture is
authorized and permitted by the Indenture and that this Seventh Supplemental
Indenture has been duly authorized and executed by the Company and (ii) an
Officers' Certificate to the effect that each Additional Subsidiary Guarantor
has satisfied the conditions to release set forth in Section 1506 of the
Indenture.
All things necessary to make this Seventh Supplemental Indenture and the
Indenture a valid agreement of the Company, in accordance with its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Securities or of a series thereof, as follows:
ARTICLE ONE
MODIFICATION OF THE INDENTURE
SECTION 1.1. AMENDMENTS TO SECTION 101 OF THE INDENTURE.
(a) The following definitions are hereby deleted in their entirety from
Section 101 of the Indenture:
"Additional Subsidiary Guarantors"
"Adjusted Net Assets"
"Clearinghouse"
"Destec"
"ECI"
"HUB Services, Inc."
"Kansas Gas"
"NGC Anadarko Gathering Systems, Inc."
"NGC Canada"
"NGC Futures"
"NGC GB"
"NGC Oil Trading"
2
<PAGE>
"NGC Storage, Inc."
"Subsidiary Guarantee"
"Subsidiary Guarantor"
"Warren Energy Resources"
"Warren Liquids"
"Warren Marketing"
"Warren NGL"
"Warren Petroleum"
"Warren Pipeline"
"WIGS"
"WPC"
"WTLPS"
(b) The definition of "Indenture" is hereby amended to read in its entirety
as follows:
"Indenture" means this instrument as originally executed or as it
may from time to time be (i) supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof or (ii) restated to cumulate the terms of such
supplemental indentures, and shall include the terms of a particular
series of Securities established as contemplated by Section 301 and
the provisions of the Trust Indenture Act that are deemed to be a part
of and govern this instrument.
(c) The definition of "Officers' Certificate" is hereby amended by deleting
the phrase "or a Subsidiary Guarantor, as the case may be,".
(d) The definition of "Outstanding" is hereby amended by deleting the
phrase ", any Subsidiary Guarantor" in each place where it appears.
SECTION 1.2. AMENDMENTS TO SECTION 102 OF THE INDENTURE. The first
paragraph of Section 102 of the Indenture is hereby amended in its entirety to
read as follows:
"Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company
shall furnish to the Trustee such certificates and opinions as may be
required under the Trust Indenture Act. Each such certificate or
opinion shall be given in the form of an Officers' Certificate, if to
be given by an officer of the Company, or an Opinion of Counsel, if to
be given by counsel, and shall comply with the requirements of the
Trust Indenture Act and any other requirements set forth in this
Indenture."
SECTION 1.3. AMENDMENTS TO SECTION 110 OF THE INDENTURE. Section 110
of the Indenture is hereby amended in its entirety to read as follows:
3
<PAGE>
"All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not."
SECTION 1.4. AMENDMENTS TO SECTION 113 OF THE INDENTURE. Section 113
of the Indenture is hereby amended by deleting the phrase ", the Subsidiary
Guarantees".
SECTION 1.5. AMENDMENTS TO SECTION 201 OF THE INDENTURE. The first
paragraph of Section 201 of the Indenture is hereby amended by deleting the
phrase "(including the notations thereon relating to the Subsidiary Guarantees
contemplated by Section 205)". The third paragraph of Section 201 of the
Indenture is hereby amended in its entirety to read as follows:
"The definitive Securities and coupons, if any, shall be printed,
lithographed or engraved on steel engraved borders or may be produced
in any other manner, all as determined by the officers executing such
Securities as evidenced by their execution of such Securities or
coupons."
SECTION 1.6. AMENDMENTS TO SECTION 205 OF THE INDENTURE. Section 205
of the Indenture is hereby deleted in its entirety.
SECTION 1.7. AMENDMENTS TO SECTION 303 OF THE INDENTURE. The third
paragraph of Section 303 of the Indenture is hereby amended by deleting the
phrase "and having the notation of Subsidiary Guarantees thereon executed by the
Subsidiary Guarantors,". Clause (a) of Section 303 of the Indenture is hereby
amended by deleting the phrase ", including its requirements for notations
thereon relating to the Subsidiary Guarantees". Clause (c) of Section 303 of
the Indenture is hereby amended by deleting the phrase "and the Subsidiary
Guarantors".
SECTION 1.8. AMENDMENTS TO SECTION 304 OF THE INDENTURE. The first
paragraph and the second paragraph of Section 304 of the Indenture are hereby
amended by deleting the phrase "and having the notations of Subsidiary
Guarantees thereon" and by deleting the phrase "and notations of Subsidiary
Guarantees" in each place where such phrases appear. The fourth paragraph of
Section 304 of the Indenture is hereby amended by deleting the phrase
"(including the notations thereon relating to the Subsidiary Guarantees
contemplated by section 205)".
SECTION 1.9. AMENDMENTS TO SECTION 305 OF THE INDENTURE. The second
paragraph of Section 305 of the Indenture is hereby amended by deleting the
phrase ", each such Security having a notation of Subsidiary Guarantees
thereon". The third, fifth and sixth paragraphs of Section 305 of the Indenture
are hereby amended by deleting the phrase "(including the notations thereon
relating to the Subsidiary Guaranties contemplated by Section 205)" and the
phrase "(including the notations thereon relating to the Subsidiary Guarantees
contemplated by Section 205)". The seventh paragraph of Section 305 of the
Indenture is hereby amended (i) by deleting the phrase "and the Subsidiary
Guarantees noted thereon" and (ii) by deleting the phrase "and the Subsidiary
Guarantors, respectively,".
SECTION 1.10. AMENDMENTS TO SECTION 306 OF THE INDENTURE. The first
paragraph of Section 306 of the Indenture is hereby amended by deleting the
phrase "(including the notations
4
<PAGE>
thereon relating to the Subsidiary Guarantees contemplated by Section 205)". The
fifth paragraph of Section 306 of the Indenture is hereby amended by deleting
the phrase "and the respective Subsidiary Guarantors".
SECTION 1.11. AMENDMENTS TO SECTION 308 OF THE INDENTURE. The first
paragraph of Section 308 of the Indenture is hereby amended by deleting the
phrase ", the Subsidiary Guarantors" in each place where such phrase appears.
SECTION 1.12. AMENDMENTS TO SECTION 501 OF THE INDENTURE. Clause (4) of
Section 501 of the Indenture is hereby amended in its entirety to read as
follows:
"(4) INTENTIONALLY OMITTED;"
Clauses (5), (6) and (7) of Section 501 of the Indenture are hereby amended by
deleting the phrase "or any Subsidiary Guarantor" in each place where such
phrase appears.
SECTION 1.13. AMENDMENTS TO SECTION 502 OF THE INDENTURE. Clause (1) of
Section 502 of the Indenture is hereby amended by deleting the phrase "or any
Subsidiary Guarantor".
SECTION 1.14. AMENDMENTS TO SECTION 503 OF THE INDENTURE. Section 503
of the Indenture is hereby amended by deleting the phrase ", any Subsidiary
Guarantor" in each place where such phrase appears.
SECTION 1.15. AMENDMENTS TO SECTION 504 OF THE INDENTURE. The first
paragraph of Section 504 of the Indenture is hereby amended by deleting the
phrase "or the Subsidiary Guarantors" and by deleting the phrase "or any of the
Subsidiary Guarantors". The second paragraph of Section 504 of the Indenture is
hereby amended by deleting the phrase "or the Subsidiary Guarantees".
SECTION 1.16. AMENDMENTS TO SECTION 505 OF THE INDENTURE. Section 505
of the Indenture is hereby amended by deleting the phrase "or Subsidiary
Guarantees".
SECTION 1.17. AMENDMENTS TO SECTION 509 OF THE INDENTURE. Section 509
of the Indenture is hereby amended by deleting the phrase "the Subsidiary
Guarantors,".
SECTION 1.18. AMENDMENTS TO SECTION 514 OF THE INDENTURE. Section 514
of the Indenture is hereby amended by deleting the phrase "or the Subsidiary
Guarantors".
SECTION 1.19. AMENDMENTS TO SECTION 515 OF THE INDENTURE. Section 515
of the Indenture is hereby amended in its entirety to read as follows:
"The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner
whatsoever claim to take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of this Indenture;
and the Company (to the extent that it may lawfully do so)
5
<PAGE>
hereby expressly waives all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been
enacted."
SECTION 1.20. AMENDMENTS TO SECTION 604 OF THE INDENTURE. Section 604
of the Indenture is hereby amended (i) by deleting the phrase "and the notations
of Subsidiary Guarantees thereon", (ii) by deleting the phrase "or the
Subsidiary Guarantors, as the case may be" and (iii) by deleting the phrase
"(including the notation of Subsidiary Guarantees thereon)".
SECTION 1.20. AMENDMENTS TO SECTION 605 OF THE INDENTURE. Section 605
of the Indenture is hereby amended by deleting the phrase "or any Subsidiary
Guarantor" and by deleting the phrase "and the Subsidiary Guarantors".
SECTION 1.21. AMENDMENTS TO SECTION 606 OF THE INDENTURE. Section 606
of the Indenture is hereby amended by deleting the phrase "or any Subsidiary
Guarantor".
SECTION 1.22. AMENDMENTS TO SECTION 613 OF THE INDENTURE. Section 613
of the Indenture is hereby amended by deleting the phrase "or any Subsidiary
Guarantor" in each place where such phrase appears.
SECTION 1.23. AMENDMENTS TO SECTION 702 OF THE INDENTURE. Clause (c) of
Section 702 of the Indenture is hereby amended by deleting the phrase ", the
Subsidiary Guarantors" and by deleting the phrase "nor the Subsidiary
Guarantors".
SECTION 1.24. AMENDMENTS TO SECTION 704 OF THE INDENTURE. Section 704
of the Indenture is hereby amended by deleting the phrase "(and the Subsidiary
Guarantors, if applicable)".
SECTION 1.25. AMENDMENTS TO SECTION 803 OF THE INDENTURE. Section 803
of the Indenture is hereby deleted in its entirety.
SECTION 1.26. AMENDMENTS TO SECTION 804 OF THE INDENTURE. Section 804
of the Indenture is hereby deleted in its entirety.
SECTION 1.27. AMENDMENTS TO SECTION 805 OF THE INDENTURE. Section 805
of the Indenture is hereby deleted in its entirety.
SECTION 1.28. AMENDMENTS TO SECTION 901 OF THE INDENTURE. The first
paragraph of Section 901 of the Indenture is hereby amended by deleting the
phrase "the Subsidiary Guarantors, when authorized by a Board Resolution,".
Clause (1) of Section 901 of the Indenture is hereby amended in its entirety to
read as follows:
"(1) to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of the
Company herein and in the Securities pursuant to Article Eight; or".
6
<PAGE>
The phrase "; or" at the end of clause (9) of Section 901 of the Indenture is
hereby deleted and replaced with a period. Clauses (10), (11), (12) and (13) of
Section 901 of the Indenture are hereby deleted in their entirety.
SECTION 1.29. AMENDMENTS TO SECTION 902 OF THE INDENTURE. The first
paragraph of Section 902 of the Indenture is hereby amended by deleting the
phrase "the Subsidiary Guarantors, when authorized by Board Resolutions,".
SECTION 1.30. AMENDMENTS TO SECTION 906 OF THE INDENTURE. Section 906
of the Indenture is hereby amended by deleting the phrase "with the notations of
Subsidiary Guarantees thereon executed by the Subsidiary Guarantors,".
SECTION 1.31. AMENDMENTS TO SECTION 1002 OF THE INDENTURE. The first
paragraph of Section 1002 of the Indenture is hereby amended by deleting the
phrase "and each of the Subsidiary Guarantors". The second paragraph of Section
1002 of the Indenture is hereby amended (i) by deleting the phrase ", the
related Subsidiary Guarantees"in each place where such phrase appears, (ii) by
deleting the phrase "and the Subsidiary Guarantors", and (iii) by deleting the
phrase ", the Subsidiary Guarantees thereof".
SECTION 1.32. AMENDMENTS TO SECTION 1007 OF THE INDENTURE. Clause (b)
of Section 1007 of the Indenture is hereby amended by deleting the phrase "and
the Subsidiary Guarantors" and by deleting the phrase "or any Subsidiary
Guarantor".
SECTION 1.33. AMENDMENTS TO SECTION 1302 OF THE INDENTURE. Section 1302
of the Indenture is hereby amended by deleting the phrase "and the Subsidiary
Guarantors" and by deleting the phrase "and the Subsidiary Guarantors'
respective". In addition, the first sentence of Section 1302 is hereby amended
by deleting the phrase "their respective" and replacing such phrase with "its".
SECTION 1.34. AMENDMENTS TO SECTION 1303 OF THE INDENTURE. Section 1303
of the Indenture is hereby amended by deleting clause (ii) in its entirety and
by deleting the number "(iii)" and replacing it with the number "(ii)".
SECTION 1.35. AMENDMENTS TO SECTION 1306 OF THE INDENTURE. Section 1306
of the Indenture is hereby amended (i) by deleting the phrase "and the
Subsidiary Guarantors' respective", (ii) by deleting the phrase "(and the
related Subsidiary Guarantees)", (iii) by deleting the phrase "or any Subsidiary
Guarantor", and (iv) by deleting the phrase "or the Subsidiary Guarantor, as the
case may be".
SECTION 1.36. AMENDMENTS TO ARTICLE FIFTEEN OF THE INDENTURE. Article
Fifteen of the Indenture is hereby deleted in its entirety.
SECTION 1.37. AMENDMENTS TO SIGNATURE BLOCKS OF THE INDENTURE. The
signature blocks for each of the Subsidiary Guarantors are hereby deleted in
their entirety.
7
<PAGE>
SECTION 1.38. AMENDMENTS TO EXHIBIT B OF THE INDENTURE. The first
paragraph of Exhibit B to the Indenture is hereby amended by deleting the phrase
"the Subsidiary Guarantors named therein" and by inserting the following on the
sixth line after the word "hereof":
"as supplemented, amended or restated".
SECTION 1.39. AMENDMENTS TO RECITALS OF THE INDENTURE. The second
paragraph of the Recitals to the Original Indenture is hereby deleted in its
entirety. The fourth paragraph of the Recitals to the Original Indenture is
hereby amended by deleting the phrase "and each of the Initial Subsidiary
Guarantors,". The last paragraph of the Recitals to the Original Indenture is
hereby amended by deleting the phrase "(together with the related Subsidiary
Guarantees)" in each place where such phrase appears.
ARTICLE TWO
ADDITIONAL REPRESENTATIONS
AND COVENANTS OF THE COMPANY
SECTION 2.1 AUTHORITY OF THE COMPANY. The Company represents and
warrants that it is duly authorized by a resolution of the Board of Directors to
execute and deliver this Seventh Supplemental Indenture, and all corporate
action on its part required for the execution and delivery of this Seventh
Supplemental Indenture has been duly and effectively taken.
SECTION 2.2 RECITALS AND STATEMENTS. The Company warrants that the
recitals of fact and statements contained in this Seventh Supplemental Indenture
are true and correct, and that the recitals of fact and statements contained in
all certificates and other documents furnished hereunder will be true and
correct.
ARTICLE THREE
CONCERNING THE TRUSTEE
SECTION 3.1 ACCEPTANCE OF TRUSTS. The Trustee accepts the trust
hereunder and agrees to perform the same, but only upon the terms and conditions
set forth in the Indenture, to all of which the Company and the respective
Holders of Securities at any time hereafter outstanding agree by their
acceptance thereof.
SECTION 3.2 RESPONSIBILITY OF TRUSTEE FOR RECITALS, ETC. The recitals
and statements contained in this Seventh Supplemental Indenture shall be taken
as the recitals and statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Seventh Supplemental
Indenture, except that the Trustee is duly authorized to execute and deliver
this Seventh Supplemental Indenture.
8
<PAGE>
ARTICLE FOUR
MISCELLANEOUS PROVISIONS
SECTION 4.1 RELATION TO THE INDENTURE. The provisions of this Seventh
Supplemental Indenture shall become effective immediately upon the execution and
delivery hereof. This Seventh Supplemental Indenture and all the terms and
provisions herein contained shall form a part of the Indenture as fully and with
the same effect as if all such terms and provisions had been set forth in the
Original Indenture. The Original Indenture is hereby ratified and confirmed and
shall remain and continue in full force and effect in accordance with the terms
and provision thereof, as supplemented and amended by the First Supplemental
Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture,
the Fourth Supplemental Indenture, the Fifth Supplemental Indenture, the Sixth
Supplemental Indenture and this Seventh Supplemental Indenture. The Original
Indenture as so supplemented shall be read, taken and construed together as one
instrument.
SECTION 4.2 COUNTERPARTS OF SEVENTH SUPPLEMENTAL INDENTURE. This
Seventh Supplemental Indenture may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
SECTION 4.3 GOVERNING LAW. This Seventh Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York,
without regard to principles of conflicts of laws.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
Supplemental Indenture to be duly executed, all as of the day and year first
above written.
COMPANY
NGC CORPORATION
By:
-----------------------------
Robert D. Doty, Jr.
Vice President and Treasurer
S-1
<PAGE>
TRUSTEE
THE FIRST NATIONAL BANK OF CHICAGO
By:
--------------------------------
Name
Title:
S-2
<PAGE>
The provisions of this Seventh Supplemental Indenture
have been agreed to and acknowledged this
20th day of February, 1998 by:
NATURAL GAS CLEARINGHOUSE
By: Clearinghouse Holdings, Inc., its general partner
WARREN NGL, INC.
WARREN ENERGY RESOURCES, LIMITED PARTNERSHIP
By: Warren Energy, Inc., its general partner
WARREN GAS LIQUIDS, INC.
NGC OIL TRADING AND TRANSPORTATION, INC.
WARREN PETROLEUM COMPANY, LIMITED PARTNERSHIP
By: Warren Petroleum G.P., Inc., its general partner
DESTEC ENERGY, INC.
By: _____________________________
Robert D. Doty, Jr.
Vice President and Treasurer
S-3
<PAGE>
EXHIBIT 4.21
NGC CORPORATION,
AND
THE FIRST NATIONAL BANK OF CHICAGO
TRUSTEE
_______________
INDENTURE
_______________
DATED AS OF SEPTEMBER 26, 1996
RESTATED AS OF MARCH 23, 1998
TO INCLUDE AMENDMENTS IN THE FIRST THROUGH FIFTH SUPPLEMENTAL INDENTURES
<PAGE>
NGC CORPORATION
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939 AND
INDENTURE DATED AS OF SEPTEMBER 26, 1996, AS AMENDED AND RESTATED ON
MARCH 23, 1998
Trust Indenture
Act Section Indenture Section
----------------- -----------------
(S) 310(a)(1).................................. 609
(a)(2)...................................... 609
(a)(3)...................................... Not Applicable
(a)(4)...................................... Not Applicable
(a)(5)...................................... 609
(b)......................................... 608
(c)......................................... Not Applicable
610
(S) 311(a)..................................... 613
(b)......................................... 613
(c)......................................... Not Applicable
(S) 312(a)..................................... 701
702
(b)......................................... 702
(c)......................................... 702
(S) 313(a)..................................... 703
(b)......................................... 703
(c)......................................... 703
(d)......................................... 703
(S) 314(a)(1)-(3).............................. 704
(a)(4)...................................... 101
1004
(b)......................................... Not Applicable
(c)(1)...................................... 102
(c)(2)...................................... 102
(c)(3)...................................... Not Applicable
(d)......................................... Not Applicable
(e)......................................... 102
(S) 315(a)..................................... 601
(b)......................................... 602
(c)......................................... 601
(d)......................................... 601
(e)......................................... 514
(f)......................................... Not Applicable
(S) 316(a)..................................... 101
(a)(1)(A)................................... 502
512
(a)(1)(B)................................... 513
(a)(2)...................................... Not Applicable
(b)......................................... 508
(c)......................................... 104
(S) 317(a)(1).................................. 503
(a)(2)...................................... 504
(b)......................................... 1003
(S) 318(a)..................................... 108
- --------------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
RECITALS OF THE COMPANY......................................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION..................................... 1
SECTION 101. Definitions............................................................. 1
SECTION 102. Compliance Certificates and Opinions.................................... 7
SECTION 103. Form of Documents Delivered to Trustee.................................. 7
SECTION 104. Acts of Holders......................................................... 8
SECTION 105. Notices, Etc., to Trustee and Company................................... 9
SECTION 106. Notice to Holders of Securities; Waiver................................. 10
SECTION 107. Language of Notices, Etc................................................ 10
SECTION 108. Conflict with Trust Indenture Act....................................... 10
SECTION 109. Effect of Headings and Table of Contents................................ 11
SECTION 110. Successors and Assigns.................................................. 11
SECTION 111. Separability Clause..................................................... 11
SECTION 112. Benefits of Indenture................................................... 11
SECTION 113. Governing Law........................................................... 11
SECTION 114. Legal Holidays.......................................................... 11
ARTICLE TWO
SECURITY FORMS......................................................................... 11
SECTION 201. Forms Generally......................................................... 11
SECTION 202. Form of Trustee's Certificate of Authentication......................... 12
SECTION 203. Securities in Global Form............................................... 12
SECTION 204. Form of Legend for Book-Entry Securities................................ 13
ARTICLE THREE
THE SECURITIES......................................................................... 13
SECTION 301. Amount Unlimited; Issuable in Series.................................... 13
SECTION 302. Denominations........................................................... 15
SECTION 303. Execution, Authentication, Delivery and Dating.......................... 15
SECTION 304. Temporary Securities.................................................... 17
SECTION 305. Registration, Registration of Transfer and Exchange..................... 19
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities and Coupons............ 21
SECTION 307. Payment of Interest; Interest Rights Preserved.......................... 22
SECTION 308. Persons Deemed Owners................................................... 23
SECTION 309. Cancellation............................................................ 23
SECTION 310. Computation of Interest................................................. 24
ARTICLE FOUR
SATISFACTION AND DISCHARGE............................................................. 24
SECTION 401. Satisfaction and Discharge of Indenture................................. 24
SECTION 402. Application of Trust Money.............................................. 25
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ARTICLE FIVE
REMEDIES............................................................................... 25
SECTION 501. Events of Default....................................................... 25
SECTION 502. Acceleration of Maturity; Rescission and Annulment...................... 26
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee......... 27
SECTION 504. Trustee May File Proofs of Claim........................................ 28
SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Coupons.. 28
SECTION 506. Application of Money Collected.......................................... 28
SECTION 507. Limitation on Suits..................................................... 29
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. 30
SECTION 509. Restoration of Rights and Remedies...................................... 30
SECTION 510. Rights and Remedies Cumulative.......................................... 30
SECTION 511. Delay or Omission Not Waiver............................................ 30
SECTION 512. Control by Holders of Securities........................................ 30
SECTION 513. Waiver of Past Defaults................................................. 31
SECTION 514. Undertaking for Costs................................................... 31
SECTION 515. Waiver of Stay or Extension Laws........................................ 31
ARTICLE SIX
THE TRUSTEE............................................................................ 31
SECTION 601. Certain Duties and Responsibilities..................................... 31
SECTION 602. Notice of Defaults...................................................... 32
SECTION 603. Certain Rights of Trustee............................................... 32
SECTION 604. Not Responsible for Recitals or Issuance of Securities.................. 33
SECTION 605. May Hold Securities..................................................... 33
SECTION 606. Money Held in Trust..................................................... 33
SECTION 607. Compensation and Reimbursement.......................................... 33
SECTION 608. Disqualification; Conflicting Interests................................. 34
SECTION 609. Corporate Trustee Required; Eligibility................................. 34
SECTION 610. Resignation and Removal; Appointment of Successor....................... 34
SECTION 611. Acceptance of Appointment by Successor.................................. 35
SECTION 612. Merger, Conversion, Consolidation or Succession to Business............. 36
SECTION 613. Preferential Collection of Claims Against Company....................... 36
SECTION 614. Appointment of Authenticating Agent..................................... 36
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY...................................... 38
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders............... 38
SECTION 702. Preservation of Information; Communications to Holders.................. 38
SECTION 703. Reports by Trustee...................................................... 38
SECTION 704. Reports by Company...................................................... 39
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE................................... 39
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.................... 39
SECTION 802. Successor Substituted................................................... 39
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ARTICLE NINE
SUPPLEMENTAL INDENTURES................................................................ 40
SECTION 901. Supplemental Indentures without Consent of Holders...................... 40
SECTION 902. Supplemental Indentures with Consent of Holders......................... 41
SECTION 903. Execution of Supplemental Indentures.................................... 42
SECTION 904. Effect of Supplemental Indentures....................................... 42
SECTION 905. Conformity with Trust Indenture Act..................................... 42
SECTION 906. Reference in Securities to Supplemental Indentures...................... 42
ARTICLE TEN
COVENANTS.............................................................................. 42
SECTION 1001. Payment of Principal, Premium and Interest.............................. 42
SECTION 1002. Corporate Existence and Maintenance of Office or Agency................. 43
SECTION 1003. Money for Securities Payments to Be Held in Trust....................... 44
SECTION 1004. Additional Amounts...................................................... 45
SECTION 1005. Purchase of Securities by Company or Subsidiary......................... 45
SECTION 1006. Limitation on Liens..................................................... 45
SECTION 1007. Statement by Officer as to Default...................................... 46
SECTION 1008. Waiver of Certain Covenants............................................. 47
ARTICLE ELEVEN
REDEMPTION OF SECURITIES............................................................... 47
SECTION 1101. Applicability of Article................................................ 47
SECTION 1102. Election to Redeem; Notice to Trustee................................... 47
SECTION 1103. Selection of Securities to Be Redeemed.................................. 47
SECTION 1104. Notice of Redemption.................................................... 48
SECTION 1105. Deposit of Redemption Price............................................. 48
SECTION 1106. Securities Payable on Redemption Date................................... 49
SECTION 1107. Securities Redeemed in Part............................................. 49
ARTICLE TWELVE
SINKING FUNDS.......................................................................... 50
SECTION 1201. Applicability of Article................................................ 50
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities................... 50
SECTION 1203. Redemption of Securities for Sinking Fund............................... 50
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE..................................................... 50
SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance............ 50
SECTION 1302. Defeasance and Discharge................................................ 51
SECTION 1303. Covenant Defeasance..................................................... 51
SECTION 1304. Conditions to Defeasance or Covenant Defeasance......................... 51
SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust;
Other Miscellaneous Provisions.......................................... 53
SECTION 1306. Reinstatement........................................................... 53
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ARTICLE FOURTEEN
MEETINGS OF HOLDERS OF BEARER SECURITIES............................................... 53
SECTION 1401. Purposes for Which Meetings May Be Called............................... 53
SECTION 1402. Call, Notice and Place of Meetings...................................... 53
SECTION 1403. Persons Entitled to Vote at Meetings.................................... 54
SECTION 1404. Quorum; Action.......................................................... 54
SECTION 1405. Determination of Voting Rights; Conduct and Adjournment of Meetings..... 55
SECTION 1406. Counting Votes and Recording Action of Meetings......................... 55
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INDENTURE, originally made and entered into as of September 26, 1996, among
NGC Corporation, a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal office at
1000 Louisiana Street, Suite 5800, Houston, Texas 77002, and The First National
Bank of Chicago, a national banking association, as Trustee (herein called the
"Trustee"), as amended by the First Supplemental Indenture dated as of April 23,
1997 (the "First Supplemental Indenture"), the Second Supplemental Indenture
dated as of June 30, 1997 (the "Second Supplemental Indenture"), the Third
Supplemental Indenture dated as of September 30, 1997 (the "Third Supplemental
Indenture"), the Fourth Supplemental Indenture dated as of January 5, 1998(the
"Fourth Supplemental Indenture"), and the Fifth Supplemental Indenture dated as
of February 20, 1998 (the "Fifth Supplemental Indenture"), is hereby restated as
of March 23, 1998.
RECITALS OF THE COMPANY
The Company and the Trustee originally entered into this Indenture on
September 26, 1996. Thereafter, the Indenture was amended by the First
Supplemental Indenture, the Second Supplemental Indenture, the Third
Supplemental Indenture, the Fourth Supplemental Indenture and the Fifth
Supplemental Indenture. The Company wishes to restate the Indenture to cumulate
the amendments set forth in the First through Fifth Supplemental Indentures.
The Company has duly authorized the execution and delivery of this restated
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), to be issued in one or more series as in this Indenture provided.
This Indenture is subject to the provisions of the Trust Indenture Act of
1939, as amended, that are required to be part of this Indenture and shall, to
the extent applicable, be governed by such provisions.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Securities or of a series thereof, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States of America, and, except as otherwise herein
expressly provided, the term "generally accepted accounting principles"
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with respect to any computation required or permitted hereunder shall mean such
accounting principles as are generally accepted in the United States of America
at the date of this Indenture; and
(4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision, and the words "date of this
Indenture" and "date hereof" and other words of similar import refer to the
effective date of the original execution and delivery of this Indenture,
viz. September 26, 1996.
"Act," when used with respect to any Holder of a Security, has the meaning
specified in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities of one
or more series.
"Authorized Newspaper" means a newspaper, in the English language or in an
official language of the country of publication, customarily published on each
Business Day, whether or not published on Saturdays, Sundays or holidays, and of
general circulation in the place in connection with which the term is used or in
the financial community of such place. Where successive publications are
required to be made in Authorized Newspapers, the successive publications may be
made in the same or in different newspapers in the same city meeting the
foregoing requirements and in each case on any Business Day.
"Bearer Security" means any Security in the form established pursuant to
Section 201 which is payable to bearer, including, without limitation, a
Security in temporary or permanent global form.
"Board of Directors" means, with respect to the Company, either the board
of directors of the Company or any duly authorized committee of that board, and,
with respect to any Subsidiary of the Company, either the board of directors of
such Subsidiary or any duly authorized committee of that board or, if the
Subsidiary is not a corporation, the group of Persons having authority to manage
the Subsidiary or any duly authorized committee of that group.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company or a Subsidiary of the Company to have
been duly adopted by the Board of Directors of the Company or such Subsidiary,
as the case may be, and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Book-Entry Security" means a Security bearing the legend specified in
Section 204, evidencing all or part of a series of Securities, issued to the
Depository for such series or its nominee, and registered in the name of such
Depository or nominee. Book-Entry Securities shall not be deemed to be
Securities in global form for purposes of Sections 201 and 203 and Article Three
of this Indenture.
"Business Day," when used with respect to any Place of Payment or any other
particular location referred to in this Indenture or in the Securities, means
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment or other location are authorized
or obligated by law or executive order to close.
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"Certification Date" means with respect to Securities of any series (i), if
Bearer Securities of such series are not to be initially represented by a
temporary global Security, the date of delivery of the definitive Bearer
Security and (ii), if Bearer Securities of such series are initially represented
by a temporary global Security, the earlier of (A) the Exchange Date with
respect to Securities of such series and (B), if the first Interest Payment Date
with respect to Securities of such series is prior to such Exchange Date, such
Interest Payment Date.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, as amended,
or, if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Depositary" has the meaning specified in Section 304.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee in
Chicago, Illinois, at which at any particular time its corporate trust business
shall be administered.
The term "corporation" means a corporation, association, limited liability
company, joint-stock company, business trust or similar organization.
The term "coupon" means any interest coupon appertaining to a Bearer
Security.
"Defaulted Interest" has the meaning specified in Section 307.
"Depository" means, with respect to the Securities of any series issuable
or issued in whole or in part in the form of one or more Book-Entry Securities,
the clearing agency registered under the Securities Exchange Act of 1934, as
amended, specified for that purpose as contemplated by Section 301.
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
"Euro-clear" means the operator of the Euro-clear System.
"Event of Default" has the meaning specified in Section 501.
"Exchange Date" has the meaning specified in Section 304.
"Funded Indebtedness" means all outstanding indebtedness (including
indebtedness incurred under any revolving credit, letter of credit or working
capital facility) that matures by its terms, or that is renewable at the option
of any obligor thereon to a date, more than one year after the date on which
such indebtedness is originally incurred.
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"Holder," when used with respect to any Security, means in the case of a
Registered Security the Person in whose name the Security is registered in the
Security Register and in the case of a Bearer Security the bearer thereof and,
when used with respect to any coupon, means the bearer thereof.
"Indenture" means this instrument as originally executed or as it may from
time to time be (i) supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof or
(ii) restated to cumulate the terms of such supplemental indentures, and shall
include the terms of a particular series of Securities established as
contemplated by Section 301 and the provisions of the Trust Indenture Act that
are deemed to be a part of and govern this instrument.
The term "interest," when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, means interest
payable after Maturity.
"Interest Payment Date," when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Issue Date" means the Date on which Securities are originally issued under
this Indenture.
"Maturity," when used with respect to any Security, means the date on which
the principal of such Security or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Net Tangible Assets" means the total amount of assets appearing on a
consolidated balance sheet of the Company and its Subsidiaries less, without
duplication: (a) total current liabilities (excluding current maturities of
long-term debt and preferred stock); (b) all reserves for depreciation and other
asset valuation reserves but excluding reserves for deferred federal and state
income taxes; (c) all intangible assets such as goodwill, trademarks, trade
names, patents and unamortized debt discount and expense carried as an asset;
and (d) all appropriate adjustments on account of minority interests of other
Persons holding common stock in any Subsidiary.
"Officers' Certificate" means a certificate complying with the provisions
of Section 102 signed by the Chairman of the Board, the President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or counsel for the Company, and who shall be reasonably acceptable
to the Trustee.
"Original Issue Discount Security" means any Security which is issued at a
price lower than the principal amount payable upon the Stated Maturity thereof
and which provides for an amount less than the principal amount thereof to be
due and payable upon redemption thereof or upon a declaration of acceleration of
the Maturity thereof pursuant to Section 502.
"Outstanding," when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for
4
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the Holders of such Securities and any coupons appertaining thereto,
provided that, if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made; and
(iii) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or whether a
quorum is present at a meeting of Holders of Securities (a) the principal amount
of an Original Issue Discount Security that shall be deemed to be Outstanding
shall be the amount of the principal thereof that would be due and payable as of
the date of such determination upon acceleration of the Maturity thereof
pursuant to Section 502, (b) the principal amount of a Security denominated in a
foreign currency or currencies, including composite currencies, shall be the
Dollar equivalent, determined on the date of original issuance of such Security
in the manner provided as contemplated by Section 301, of the principal amount
(or, in the case of an Original Issue Discount Security, the Dollar equivalent
on the date of original issuance of such Security of the amount determined as
provided in (i) above) of such Security, and (c) Securities owned by the Company
or any other obligor upon the Securities or any Affiliate of the Company, or of
such other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, or
upon any such determination as to the presence of a quorum, only Securities
which the Trustee knows to be so owned shall be so disregarded. Securities so
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Securities and that the pledgee is not the
Company, or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or any premium or interest on any Securities on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, trust, unincorporated organization or government or
any agency or political subdivision thereof.
"Place of Payment," when used with respect to the Securities of any series,
means the place or places as specified in accordance with Section 301 where,
subject to the provisions of Section 1002, the principal of and any premium and
interest on the Securities of that series are payable.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security or a Security to which a
mutilated, destroyed, lost or stolen coupon appertains shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security or
the Security to which the mutilated, destroyed, lost or stolen coupon
appertains, as the case may be.
"Principal Property" means any natural gas, natural gas liquids or crude
oil pipeline, distribution system, gathering system, storage facility or
processing plant, except any such property that in the good faith opinion of the
Board of Directors of the Company is not of material importance to the business
conducted by the Company and its consolidated Subsidiaries taken as a whole.
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"Principal Subsidiary" means any Subsidiary of the Company which owns a
Principal Property.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registered Security" means any Security in the form established pursuant
to Section 201 which is registered in the Security Register.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Registered Securities of any series means the date specified for that
purpose as contemplated by Section 301.
"Responsible Officer," when used with respect to the Trustee, shall mean
any officer in the corporate trust department (or any successor group) of the
Trustee, including any Vice President, any Trust Officer, or any other officer
of the Trustee customarily performing functions similar to those performed by
the persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred at the Corporate Trust Office because of his
or her knowledge of and familiarity with the particular subject.
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest on the
Registered Securities of any series means a date fixed by the Trustee pursuant
to Section 307.
"Stated Maturity," when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security or a coupon representing such installment of interest as the
fixed date on which the principal of such Security or such installment of
principal or interest is due and payable.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which is owned, directly
or indirectly, by such Person or by one or more of its Subsidiaries, or by such
Person and one or more of its Subsidiaries, or (ii) any partnership or similar
business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned. For the purposes of this
definition, "securities having ordinary voting power" means securities or other
equity interests which ordinarily have voting power for the election of
directors, or persons having management power with respect to the Person,
whether at all times or only so long as no senior class of securities has such
voting power by reason of any contingency.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder, and if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this Indenture was executed, except as provided in Section
905; provided, however, that in the event the Trust
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Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means,
to the extent required by any such amendment, the Trust Indenture Act of 1939 as
so amended.
"United States" means the United States of America (including the States
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.
"United States Alien" means any Person who, for United States Federal
income tax purposes, is a foreign corporation, a non-resident alien individual,
a non-resident alien fiduciary of a foreign estate or trust, or a foreign
partnership one or more of the members of which is, for United States Federal
income tax purposes, a foreign corporation, a non-resident alien individual or a
non-resident alien fiduciary of a foreign estate or trust.
"U.S. Government Obligations" has the meaning specified in Section 1304.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of
an Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include
(1) a statement that each Person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such Person, such Person
has made such examination or investigation as is necessary to enable such
Person to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such Person,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
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Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing.
If Securities of a series are issuable as Bearer Securities, any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by Holders of such series may,
alternatively, be embodied in and evidenced by the record of Holders of
Securities of such series voting in favor thereof, either in person or by
proxies duly appointed in writing, at any meeting of Holders of Securities of
such series duly called and held in accordance with the provisions of Article
Fourteen, or a combination of such instruments and any such record. Except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments or record or both are delivered to the Trustee
and, where it is hereby expressly required, to the Company. Such instrument or
instruments and any such record (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments and so voting at any such meeting. Proof of
execution of any such instrument or of a writing appointing any such agent or
proxy or of the holding by any Person of a Security, shall be sufficient for any
purpose of this Indenture and (subject to Section 601) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section.
The record of any meeting of Holders of Securities shall be proved in the manner
provided in Section 1406.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is
by a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust Indenture
Act, fix any day as the record date for the purpose of determining the Holders
of Registered Securities of any series entitled to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action, or to
vote on any action, authorized or permitted to be given or taken by Holders of
Securities of such series. If not set by the Company prior to the first
solicitation of a Holder of Securities of such series made by any Person in
respect of any such action, or, in the case of any such vote, prior to such
vote, the record date for any such action or vote shall be the 30th day (or, if
later, the date of the most recent list of Holders required to be provided
pursuant to Section 701) prior to such first solicitation or vote, as the case
may be. With regard to any record date for action to be taken by the Holders of
one or more series of Securities, only the Holders of Securities
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of such series on such date (or their duly designated proxies) shall be entitled
to give or take, or vote on, the relevant action.
(d) The principal amount and serial numbers of Registered Securities held
by any Person, and the date of holding the same, shall be proved by the Security
Register.
(e) The principal amount and serial numbers of Bearer Securities held by
any Person, and the date of holding the same, may be proved by the production of
such Bearer Securities or by a certificate executed, as depositary, by any trust
company, bank, banker or other depositary, wherever situated, if such
certificate shall be deemed by the Trustee to be satisfactory, showing that at
the date therein mentioned such Person had on deposit with such depositary, or
exhibited to it, the Bearer Securities therein described; or such facts may be
proved by the certificate or affidavit of the Person holding such Bearer
Securities, if such certificate or affidavit is deemed by the Trustee to be
satisfactory. The Trustee and the Company may assume that such ownership of any
Bearer Security continues until (1) another certificate or affidavit bearing a
later date issued in respect of the same Bearer Security is produced, or (2)
such Bearer Security is produced to the Trustee by some other Person, or (3)
such Bearer Security is surrendered in exchange for a Registered Security, or
(4) such Bearer Security is no longer Outstanding. The principal amount and
serial numbers of Bearer Securities held by any Person, and the date of holding
the same, may also be proved in any other manner which the Trustee deems
sufficient.
(f) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security. Any Holder or subsequent Holder may revoke the request, demand,
authorization, direction, notice, consent, waiver or other Act as to his
Security or portion of his Security; provided, however, that such revocation
shall be effective only if the Trustee receives notice of such revocation before
the date the Act becomes effective.
(g) Without limiting the foregoing, a Holder entitled hereunder to give or
take any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any different part of such principal amount.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Department, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, to the attention of its Treasurer, or at
any other address previously furnished in writing to the Trustee by the
Company; and in the case of Bearer Securities, at the address of an office
or agency located outside the United States maintained by the Company in
accordance with Section 1002.
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SECTION 106. Notice to Holders of Securities; Waiver.
Except as otherwise expressly provided herein, where this Indenture
provides for notice to Holders of Securities of any event,
(1) such notice shall be sufficiently given to Holders of Registered
Securities if in writing and mailed, first-class postage prepaid, to each
Holder of a Registered Security affected by such event, at the address of
such Holder as it appears in the Security Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the
giving of such notice; and
(2) such notice shall be sufficiently given to Holders of Bearer
Securities if published in an Authorized Newspaper in The City of New York
and in such other city or cities as may be specified in such Securities on
a Business Day at least twice, the first such publication to be not earlier
than the earliest date, and not later than the latest date, prescribed for
the giving of such notice.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice to Holders of
Registered Securities by mail, then such notification as shall be made with the
approval of the Trustee shall constitute sufficient notice to such Holders for
every purpose hereunder. In any case where notice to Holders of Registered
Securities is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder of a Registered
Security shall affect the sufficiency of such notice with respect to other
Holders of Registered Securities or the sufficiency of any notice to Holders of
Bearer Securities given as provided herein.
In case by the reason of the suspension of publication of any Authorized
Newspaper or Authorized Newspapers or by reason of any other cause it shall be
impracticable to publish any notice to Holders of Bearer Securities as provided
above, then such notification to Holders of Bearer Securities as shall be given
with the approval of the Trustee shall constitute sufficient notice to such
Holders for every purpose hereunder. Neither the failure to give notice by
publication to Holders of Bearer Securities as provided above, nor any defect in
any notice so published, shall affect the sufficiency of any notice to Holders
of Registered Securities given as provided herein.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders of Securities shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
SECTION 107. Language of Notices, Etc.
Any request, demand, authorization, direction, notice, consent or waiver
required or permitted under this Indenture shall be in the English language,
except that any published notice may be in an official language of the country
of publication.
SECTION 108. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under the Trust Indenture Act to be a
part of and govern this Indenture or any other provision of this Indenture that
is required to be in this Indenture by the Trust Indenture Act, such required
provision shall control. If any provision of this Indenture modifies or
excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be.
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SECTION 109. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 110. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 111. Separability Clause.
In case any provision in this Indenture or the Securities or coupons shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 112. Benefits of Indenture.
Nothing in this Indenture or the Securities or coupons, express or implied,
shall give to any Person, other than the parties hereto, their successors
hereunder and the Holders of Securities and coupons, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 113. Governing Law.
This Indenture and the Securities and coupons shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws.
SECTION 114. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the Securities
or coupons other than a provision in the Securities of any series which
specifically states that such provision shall apply in lieu of this Section)
payment of interest or principal (and premium, if any) need not be made at such
Place of Payment on such date, but may be made on the next succeeding Business
Day at such Place of Payment with the same force and effect as if made on the
Interest Payment Date or Redemption Date, or at the Stated Maturity, provided
that no interest shall accrue on the amount so payable for the period from and
after such Interest Payment Date, Redemption Date or Stated Maturity, as the
case may be.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The Registered Securities, if any, of each series and the Bearer
Securities, if any, of each series and related coupons shall be in substantially
the form (including temporary or permanent global form) as shall be established
by or pursuant to a Board Resolution of the Company or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with law, or with the rules of any securities exchange or to conform to general
usage, all as may, consistently herewith, be determined by the officers
executing such Securities or coupons, as evidenced by their execution of the
Securities or coupons. If temporary Securities of any series are issued in
global form as permitted by Section 304, the form thereof
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shall be established as provided in the preceding sentence. A copy of the Board
Resolution of the Company establishing the forms of Securities or coupons of any
series (or any such temporary global Security) shall be certified by the
Secretary or an Assistant Secretary of the Company and delivered to the Trustee
at or prior to the delivery of the Company Order contemplated by Section 303 for
the authentication and delivery of such Securities (or any such temporary global
Security) or coupons.
Unless otherwise specified as contemplated by Section 301, Securities in
bearer form shall have interest coupons attached.
The definitive Securities and coupons, if any, shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers executing such Securities as
evidenced by their execution of such Securities or coupons.
SECTION 202. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially the
following form:
"This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By ___________________________
Authorized Officer."
SECTION 203. Securities in Global Form.
If Securities of a series are issuable in global form, as contemplated by
Section 301, then, notwithstanding clause (10) of Section 301 and the provisions
of Section 302, any such Security shall represent such of the Outstanding
Securities of such series as shall be specified therein and may provide that it
shall represent the aggregate amount of Outstanding Securities from time to time
endorsed thereon and that the aggregate amount of Outstanding Securities
represented thereby may be reduced to reflect exchanges. Any endorsement of a
Security in global form to reflect the amount, or any increase or decrease in
the amount, of Outstanding Securities represented thereby shall be made by the
Trustee in such manner and upon instructions given by such Person or Persons as
shall be specified therein or in the Company Order to be delivered to the
Trustee pursuant to Section 303 or Section 304. Subject to the provisions of
Section 303 and, if applicable, Section 304, the Trustee shall deliver and
redeliver any Security in permanent global form in the manner and upon
instructions given by the Person or Persons specified therein or in the
applicable Company Order. If a Company Order pursuant to Section 303 or 304 has
been, or simultaneously is, delivered, any instructions by the Company with
respect to endorsement or delivery or redelivery of a Security in global form
shall be in writing but need not comply with Section 102 and need not be
accompanied by an Opinion of Counsel.
The provisions of the last sentence of Section 303 shall apply to any
Security represented by a Security in global form if such Security was never
issued and sold by the Company and the Company delivers to the Trustee the
Security in global form together with written instructions (which need not
comply with Section 102 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 303.
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Notwithstanding the provisions of Sections 201 and 307, unless otherwise
specified as contemplated by Section 301, payment of principal of and any
premium and interest on any Security in permanent global form shall be made to
the Person or Persons specified therein.
SECTION 204. Form of Legend for Book-Entry Securities.
Any Book-Entry Security authenticated and delivered hereunder shall bear a
legend in substantially the following form:
"This Security is a Book-Entry Security within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Depository or a
nominee of a Depository. This Security is exchangeable for Securities
registered in the name of a Person other than the Depository or its nominee only
in the limited circumstances described in the Indenture, and no transfer of this
Security (other than a transfer of this Security as a whole by the Depository to
a nominee of the Depository or by a nominee of the Depository to the Depository
or another nominee of the Depository) may be registered except in such limited
circumstances."
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series, and each such series
shall rank equally and pari passu with each other series. There shall be
established in or pursuant to a Board Resolution of the Company and, subject to
Section 303, set forth, or determined in the manner provided, in an Officers'
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of any series:
(1) the title of the Securities of the series (which shall distinguish
the Securities of the series from all other Securities);
(2) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 304, 305, 306, 906 or 1107 and except for any
Securities which, pursuant to Section 303, are deemed never to have been
authenticated and delivered hereunder);
(3) whether Securities of the series are to be issuable as Registered
Securities, Bearer Securities or both, whether any Securities of the series
are to be issuable initially in temporary global form and whether any
Securities of the series are to be issuable in permanent global form, as
Book Entry Securities, or otherwise, with or without coupons and, if so,
whether beneficial owners of interests in any such permanent global
Security may exchange such interests for Securities of such series and of
like tenor of any authorized form and denomination and the circumstances
under which any such exchanges may occur, if other than in the manner
provided in Section 305;
(4) the Person to whom any interest on any Registered Security of the
series shall be payable, if other than the Person in whose name that
Security (or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest, the manner in
which, or the Person to whom, any interest on any Bearer Security of the
series shall be payable, if otherwise
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than upon presentation and surrender of the coupons appertaining thereto as
they severally mature and the extent to which, or the manner in which, any
interest payable on a temporary global Security on an Interest Payment Date
will be paid if other than in the manner provided in Section 304;
(5) the date or dates on which the principal of (and premium, if any,
on) the Securities of the series is payable or the method of determination
thereof;
(6) the rate or rates at which the Securities of the series shall bear
interest, if any, or the method by which such rate shall be determined, the
date or dates from which any such interest shall accrue, the Interest
Payment Dates on which any such interest shall be payable, the Regular
Record Date for any interest payable on any Registered Securities on any
Interest Payment Date and whether, and under what circumstances, additional
amounts with respect to such Securities shall be payable as set forth in
Section 1004;
(7) the place or places where, subject to the provisions of Section
1002, the principal of and any premium and interest on Securities of the
series shall be payable, any Registered Securities of the series may be
surrendered for registration of transfer, Securities of the series may be
surrendered for exchange and notices and demands to or upon the Company in
respect of the Securities of the series and this Indenture may be served;
(8) the right, if any, of the Company to redeem Securities of the
series, in whole or in part, at its option and the period or periods within
which, the price or prices at which and the terms and conditions upon which
Securities of the series may be so redeemed;
(9) the obligation, if any, of the Company to redeem, purchase, or
repay Securities of the series pursuant to any mandatory redemption,
sinking fund or analogous provisions or at the option of a Holder thereof
and the period or periods within which, the price or prices at which and
the terms and conditions upon which Securities of the series shall be
redeemed, purchased or repaid, in whole or in part, pursuant to such
obligation;
(10) the denominations in which any Registered Securities of the
series shall be issuable, if other than denominations of $1,000 and any
integral multiple thereof, and the denomination or denominations in which
any Bearer Securities of the series shall be issuable, if other than the
denomination of $5,000;
(11) the currency or currencies, including composite currencies, in
which payment of the principal of and any premium and interest on any
Securities of the series shall be payable if other than the currency of the
United States and the manner of determining the equivalent thereof in the
currency of the United States for purposes of the definition of
"Outstanding" in Section 101;
(12) if the amount of payments of principal of and any premium or
interest on any Securities of the series may be determined with reference
to an index, the manner in which such amounts shall be determined;
(13) if other than the principal amount thereof, the portion of the
principal amount of any Securities of the series which shall be payable
upon declaration of acceleration of the Maturity thereof pursuant to
Section 502;
(14) if the principal of and any premium or interest on the Securities
of the series are to be payable, at the election of the Company or a Holder
thereof, in a currency or currencies, including composite currencies, other
than that or those in which the Securities are stated to be payable, the
currency or currencies in which payment of the principal of and any premium
and interest on Securities
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of such series as to which such election is made shall be payable, and the
periods within which and the terms and conditions upon which such election
is to be made;
(15) whether the Securities of the series shall be issued upon
original issuance in whole or in part in the form of one or more Book-Entry
Securities and, in such case, (a) the Depository with respect to such Book-
Entry Security or Securities and (b) the circumstances under which any such
Book-Entry Security may be exchanged for Securities registered in the name
of, and any transfer of such Book-Entry Security may be registered to, a
Person other than such Depository or its nominee, if other than as set
forth in Section 305;
(16) if either or both of the provisions of Section 1302 or 1303 are
applicable to the Securities of such series and any additional means of
discharge pursuant to Section 1302 or 1303 and any additional conditions to
the provisions of Section 1302 or 1303;
(17) any other Events of Default or covenants with respect to the
Securities of such series; and
(18) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture except as permitted by
Section 901(5)).
All Securities of any one series and the coupons appertaining to any Bearer
Securities of such series shall be substantially identical except, in the case
of Registered Securities, as to denomination and except as may otherwise be
provided in or pursuant to the Board Resolution referred to above and (subject
to Section 303) set forth, or determined in the manner provided, in the
Officers' Certificate referred to above or in any such indenture supplemental
hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
SECTION 302. Denominations.
Unless otherwise provided as contemplated by Section 301 with respect to
any series of Securities, any Registered Securities of a series shall be
issuable in denominations of $1,000 and any integral multiple thereof and any
Bearer Securities of a series shall be issuable in the denomination of $5,000.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its President, its Treasurer or its Chief Financial Officer,
under its corporate seal reproduced thereon attested by its Secretary or one of
its Assistant Secretaries. The signature of any of these officers on the
Securities may be manual or facsimile. Coupons shall bear the facsimile
signature of the Treasurer or any Assistant Treasurer of the Company.
Securities and coupons bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities or coupons.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series, together with any
coupons appertaining thereto, executed by the Company to
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the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities; provided,
however, that, unless otherwise provided with respect to such series, in
connection with its original issuance, during the "restricted period" (as
defined in Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury
Regulations) (the "restricted period") no Bearer Security shall be mailed or
otherwise delivered to any location in the United States; and provided, further,
that, unless otherwise provided with respect to such series, a Bearer Security
may be delivered in connection with its original issuance only if the Person
entitled to receive such Bearer Security shall have furnished a certificate in
the form set forth in Exhibit A to this Indenture, dated no earlier than the
Certification Date. If any Security shall be represented by a permanent global
Bearer Security, then, for purposes of this Section and Section 304, the
notation of a beneficial owner's interest therein upon original issuance of such
Security or upon exchange of a portion of a temporary global Security shall be
deemed to be delivery in connection with its original issuance during the
restricted period of such beneficial owner's interest in such permanent global
Security. Except as permitted by Section 306, the Trustee shall not authenticate
and deliver any Bearer Security unless all appurtenant coupons for interest then
matured have been detached and cancelled.
In authenticating Securities, the Trustee shall be entitled to receive, and
(subject to Section 601) shall be fully protected in relying upon, an Opinion
of Counsel stating:
(a) that the forms of such Securities and coupons established by or
pursuant to a Board Resolution of the Company as contemplated by Section
201 have been established in conformity with the provisions of this
Indenture;
(b) if the terms of such Securities and any coupons have been
established by or pursuant to a Board Resolution of the Company as
permitted by Section 301, that such terms have been established in
conformity with the provisions of this Indenture; and
(c) that such Securities, together with any coupons appertaining
thereto, when authenticated and delivered by the Trustee and issued by the
Company in the manner and subject to any conditions specified in such
Opinion of Counsel, will constitute valid and legally binding obligations
of the Company enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization and other laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
Such Opinion of Counsel shall also cover such other matters as the Trustee may
reasonably request.
The Trustee shall not be required to authenticate such Securities the forms
or terms of which have been established by or pursuant to a Board Resolution of
the Company if the issue of such Securities pursuant to this Indenture will
affect the Trustee's own rights, duties or immunities under the Securities and
this Indenture or otherwise in a manner which is not reasonably acceptable to
the Trustee.
Notwithstanding the provisions of Section 301 and of the two preceding
paragraphs, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 301 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraphs at or prior to the time
of authentication of each Security of such series if such documents are
delivered at or prior to the authentication upon issuance of the first Security
of such series to be issued.
After the original issuance of the first Security of such series to be
issued, any separate request by the Company that the Trustee authenticate
Securities of such series for original issuance will be deemed to be a
certification by the Company (which, subject to Section 601, the Trustee shall
be fully protected in relying on)
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that it is in compliance with all conditions precedent provided for in this
Indenture relating to the authentication and delivery of such Securities.
Each Registered Security shall be dated the date of its authentication; and
each Bearer Security shall be dated as of the date of original issuance of the
first Security of such series to be issued.
No Security or coupon shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Security,
or the Security to which such coupon appertains, a certificate of authentication
substantially in the form provided for herein executed by the Trustee by manual
signature, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder. Notwithstanding the foregoing, if any Security shall have
been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 309 together with a written statement (which
need not comply with Section 102 and need not be accompanied by an Opinion of
Counsel) stating that such Security has never been issued and sold by the
Company, for all purposes of this Indenture such Security shall be deemed never
to have been authenticated and delivered hereunder and shall never be entitled
to the benefits of this Indenture.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued, in registered form or,
if authorized, in bearer form with one or more coupons or without coupons, and
with such appropriate insertions, omissions, substitutions and other variations
as the officers executing such Securities may determine, as evidenced by their
execution of such Securities. In the case of any series issuable as Bearer
Securities, such temporary Securities may be in global form. A temporary Bearer
Security shall be delivered only in compliance with the conditions set forth in
Section 303.
Except in the case of temporary Securities in global form (which shall be
exchanged in accordance with the provisions of the following paragraphs), if
temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable delay.
After the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company maintained pursuant to Section 1002 in a Place
of Payment for such series for the purpose of exchanges of Securities of such
series without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities of any series (accompanied by any unmatured coupons
appertaining thereto) the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like aggregate principal amount
of definitive Securities of the same series and of like tenor of authorized
denominations; provided, however, that no definitive Bearer Security shall be
issued in exchange for a temporary Registered Security.
If temporary Securities of any series are issued in global form, any such
temporary global Security shall, unless otherwise provided therein, be delivered
to the London office of a depositary or common depositary (the "Common
Depositary"), for the benefit of Euro-clear and CEDEL S.A., for credit to the
respective accounts of the beneficial owners of such Securities (or to such
other accounts as they may direct).
Without unnecessary delay but in any event not later than the date
specified in, or determined pursuant to the terms of, any such temporary global
Security of a series (the "Exchange Date"), the Company shall deliver to the
Trustee definitive Securities of that series in aggregate principal amount equal
to the principal amount of such temporary global Security, executed by the
Company. On or after the Exchange Date such temporary global Security shall be
surrendered by the Common Depositary to the Trustee, as the Company's
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agent for such purpose, to be exchanged, in whole or from time to time in part,
for definitive Securities of that series without charge and the Trustee shall
authenticate and deliver, in exchange for each portion of such temporary global
Security, a like aggregate principal amount of definitive Securities of the same
series of authorized denominations and of like tenor as the portion of such
temporary global Security to be exchanged; provided, however, that, unless
otherwise specified in such temporary global Security, upon such presentation by
the Common Depositary, such temporary global Security is accompanied by a
certificate dated the Exchange Date or a subsequent date and signed by Euro-
clear as to the portion of such temporary global Security held for its account
then to be exchanged and a certificate dated the Exchange Date or a subsequent
date and signed by CEDEL S.A. as to the portion of such temporary global
Security held for its account then to be exchanged, each in the form set forth
in Exhibit B to this Indenture. The definitive Securities to be delivered in
exchange for any such temporary global Security shall be in bearer form,
registered form, permanent global bearer form or permanent global registered
form, or any combination thereof, as specified as contemplated by Section 301,
and if any combination thereof is so specified, as requested by the beneficial
owner thereof; provided, however, that no definitive Bearer Security or
permanent global Security shall be delivered in exchange for a temporary Bearer
Security except in compliance with the conditions set forth in Section 303.
Unless otherwise specified in the temporary global Security, the interest
of a beneficial owner of Securities of a series in a temporary global Security
shall be exchanged on the Exchange Date for definitive Securities (and where the
form of the definitive Securities is not specified by the Holder for an interest
in a permanent global Security) of the same series and of like tenor unless, on
or prior to the Exchange Date, such beneficial owner has not delivered to Euro-
clear or CEDEL S.A., as the case may be, a certificate in the form set forth in
Exhibit A to this Indenture dated no earlier than the Certification Date,
copies of which certificate shall be available from the offices of Euro-clear
and CEDEL S.A., the Trustee, any Authenticating Agent appointed for such series
of Securities and each Paying Agent and after the Exchange Date, the interest of
a beneficial owner of Securities of a series in a temporary global Security
shall be exchanged for definitive Securities (and where the form of the
definitive Securities is not specified by the Holder for an interest in a
permanent global Security) of the same series and of like tenor following such
beneficial owner's delivery to Euro-clear or CEDEL S.A., as the case may be, of
a certificate in the form set forth in Exhibit A to this Indenture dated no
earlier than the Certification Date. Unless otherwise specified in such
temporary global Security, any exchange shall be made free of charge to the
beneficial owners of such temporary global Security, except that a Person
receiving definitive Securities must bear the cost of insurance, postage,
transportation and the like in the event that such Person does not take delivery
of such definitive Securities in person at the offices of Euro-clear or CEDEL
S.A. Definitive Securities in bearer form to be delivered in exchange for any
portion of a temporary global Security shall be delivered only outside the
United States.
Until exchanged in full as hereinabove provided, the temporary Securities
of any series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of the same series and of like tenor
authenticated and delivered hereunder, except that, unless otherwise specified
as contemplated by Section 301, interest payable on a temporary global Security
on an Interest Payment Date for Securities of such series shall be payable to
Euro-clear and CEDEL S.A. on such Interest Payment Date upon delivery by Euro-
clear and CEDEL S.A. to the Trustee of a certificate or certificates in the form
set forth in Exhibit B to this Indenture, for credit without further interest on
or after such Interest Payment Date to the respective accounts of the Persons
who are the beneficial owners of such temporary global Security on such Interest
Payment Date and who have each delivered to Euro-clear or CEDEL S.A., as the
case may be, a certificate in the form set forth in Exhibit A to this Indenture.
Any interest so received by Euro-clear and CEDEL S.A. and not paid as herein
provided shall be returned to the Trustee immediately prior to the expiration of
two years after such Interest Payment Date in order to be repaid to the Company
in accordance with Section 1003.
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SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at an office or agency to be maintained
by the Company in accordance with Section 1002 a register (being the combined
register of the Security Registrar and all transfer agents designated pursuant
to Section 1002 for the purpose of registration of transfer of Securities and
sometimes collectively referred to as the "Security Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of each series of Registered Securities and the
registration of transfers of such Registered Securities. The Company shall
serve initially as "Security Registrar" for the purpose of registering
Registered Securities and transfers of Registered Securities as herein provided.
Upon surrender for registration of transfer of any Registered Security of
any series at the office or agency of the Company maintained pursuant to Section
1002 for such purpose in a Place of Payment for such series, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Registered Securities of
the same series of any authorized denominations and of a like aggregate
principal amount and tenor.
At the option of the Holder, Registered Securities of any series may be
exchanged for other Registered Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor, upon surrender
of the Securities to be exchanged at any such office or agency. Whenever any
Securities are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive. Unless otherwise provided with respect to
any series of Securities, Bearer Securities may not be issued in exchange for
Registered Securities.
At the option of the Holder, Bearer Securities of any series may be
exchanged for Registered Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor, upon surrender
of the Bearer Securities to be exchanged at any such office or agency, with all
unmatured coupons and all matured coupons in default thereto appertaining. If
the Holder of a Bearer Security is unable to produce any such unmatured coupon
or coupons or matured coupon or coupons in default, such exchange may be
effected if the Bearer Securities are accompanied by payment in funds acceptable
to the Company in an amount equal to the face amount of such missing coupon or
coupons, or the surrender of such missing coupon or coupons may be waived by the
Company and the Trustee if there is furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If
thereafter the Holder of such Security shall surrender to any Paying Agent any
such missing coupon in respect of which such a payment shall have been made,
such Holder shall be entitled to receive the amount of such payment; provided,
however, that, except as otherwise provided in Section 1002, interest
represented by coupons shall be payable only upon presentation and surrender of
those coupons at an office or agency located outside the United States.
Notwithstanding the foregoing, in case a Bearer Security of any series is
surrendered at any such office or agency in exchange for a Registered Security
of the same series and like tenor after the close of business at such office or
agency on (i) any Regular Record Date and before the opening of business at such
office or agency on the relevant Interest Payment Date, or (ii) any Special
Record Date and before the opening of business at such office or agency on the
related proposed date for payment of Defaulted Interest, such Bearer Security
shall be surrendered without the coupon relating to such Interest Payment Date
or proposed date for payment, as the case may be, and interest or Defaulted
Interest, as the case may be, will not be payable on such Interest Payment Date
or proposed date for payment, as the case may be, in respect of the Registered
Security issued in exchange for such Bearer Security but will be payable only to
the Holder of such coupon when due in accordance with the provisions of this
Indenture.
Whenever any Securities are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Securities which
the Holder making the exchange is entitled to receive.
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Notwithstanding the foregoing, except as otherwise specified as
contemplated by Section 301, any permanent global Security shall be exchangeable
only as provided in this paragraph. If the beneficial owners of interests in a
permanent global Security are entitled to exchange such interests for Securities
of such series and of like tenor and principal amount of another authorized form
and denomination, as specified as contemplated by Section 301, then without
unnecessary delay but in any event not later than the earliest date on which
such interests may be so exchanged, the Company shall deliver to the Trustee
definitive Securities of that series in an aggregate principal amount equal to
the principal amount of such permanent global Security, executed by the Company.
On or after the earliest date on which such interests may be so exchanged, such
permanent global Security shall be surrendered from time to time in accordance
with instructions given to the Trustee and the Common Depositary (which
instructions shall be in writing but need not comply with Section 102 or be
accompanied by an Opinion of Counsel) by the Common Depositary or such other
depositary or Common Depositary as shall be specified in the Company Order with
respect thereto to the Trustee, as the Company's agent for such purpose, to be
exchanged, in whole or in part, for definitive Securities of the same series
without charge and the Trustee shall authenticate and deliver, in exchange for
each portion of such permanent global Security, a like aggregate principal
amount of definitive Securities of the same series of authorized denominations
and of like tenor as the portion of such permanent global Security to be
exchanged which, unless the Securities of the series are not issuable both as
Bearer Securities and as Registered Securities, as specified as contemplated by
Section 301, shall be in the form of Bearer Securities or Registered Securities,
or any combination thereof, as shall be specified by the beneficial owner
thereof; provided, however, that no such exchanges may occur during a period
beginning at the opening of business 15 days before any selection of Securities
of that series is to be redeemed and ending on the relevant Redemption Date; and
provided, further, that no Bearer Security delivered in exchange for a portion
of a permanent global Security shall be mailed or otherwise delivered to any
location in the United States. Promptly following any such exchange in part,
such permanent global Security shall be returned by the Trustee to the Common
Depositary or such other depositary or Common Depositary referred to above in
accordance with the instructions of the Company referred to above. If a
Registered Security is issued in exchange for any portion of a permanent global
Security after the close of business at the office or agency where such exchange
occurs on (i) any Regular Record Date and before the opening of business at such
office or agency on the relevant Interest Payment Date, or (ii) any Special
Record Date and before the opening of business at such office or agency on the
related proposed date for payment of Defaulted Interest, interest or Defaulted
Interest, as the case may be, will not be payable on such Interest Payment Date
or proposed date for payment, as the case may be, in respect of such Registered
Security, but will be payable on such Interest Payment Date or proposed date for
payment, as the case may be, only to the Person to whom interest in respect of
such portion of such permanent global Security is payable in accordance with
provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer or exchange shall (if so required by the Company or the Trustee or any
transfer agent) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar or any
transfer agent duly executed, by the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange Securities of any series during a period beginning at the opening of
business 15 days before any selection of Securities of that series to be
redeemed and ending at the close of business on (A) if Securities of the series
are issuable only as
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Registered Securities, the day of the mailing of the relevant notice of
redemption and (B) if Securities of the series are issuable as Bearer
Securities, the day of the first publication of the relevant notice of
redemption, or if Securities of the series are also issuable as Registered
Securities and there is no publication, the mailing of the relevant notice of
redemption, or (ii) to register the transfer of or exchange any Registered
Security so selected for redemption, in whole or in part, except the unredeemed
portion of any Registered Security being redeemed in part, or (iii) to exchange
any Bearer Security so selected for redemption except that such a Bearer
Security may be exchanged for a Registered Security of that series and like
tenor, provided that such Registered Security shall be simultaneously
surrendered for redemption.
Notwithstanding the foregoing and except as otherwise specified or
contemplated by Section 301, any Book-Entry Security shall be exchangeable
pursuant to this Section 305 or Sections 304, 906 and 1107 for Securities
registered in the name of, and a transfer of a Book-Entry Security of any series
may be registered to, any Person other than the Depository for such Security or
its nominee only if (i) such Depository notifies the Company that it is
unwilling or unable to continue as Depository for such Book-Entry Security or if
at any time such Depository ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, as amended, (ii) the Company executes and
delivers to the Trustee a Company Order that such Book-Entry Security shall be
so exchangeable and the transfer thereof so registrable or (iii) there shall
have occurred and be continuing an Event of Default, with respect to the
Securities of such series. Upon the occurrence in respect of any Book-Entry
Security of any series of any one or more of the conditions specified in clause
(i), (ii) or (iii) of the preceding sentence or such other conditions as may be
specified, such Book-Entry Security may be exchanged for Securities registered
in the names of, and the transfer of such Book-Entry Security may be registered
to, such Persons (including Persons other than the Depository with respect to
such series and its nominees) as such Depository shall direct. Notwithstanding
any other provision of this Indenture, any Security authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of, any Book-
Entry Security shall also be a Book-Entry Security and shall bear the legend
specified in Section 204 except for any Security authenticated and delivered in
exchange for, or upon registration of transfer of, a Book-Entry Security
pursuant to the preceding sentence.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities and Coupons.
If any mutilated Security or a Security with a mutilated coupon
appertaining thereto is surrendered to the Trustee, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a new
Security of the same series and of like tenor and principal amount and bearing a
number not contemporaneously outstanding, with coupons corresponding to the
coupons, if any, appertaining to the surrendered Security.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security or coupon
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security or coupon has been acquired by a
bona fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Security
or in exchange for the Security to which a destroyed, lost or stolen coupon
appertains (with all appurtenant coupons not destroyed, lost or stolen), a new
Security of the same series and of like tenor and principal amount and bearing a
number not contemporaneously outstanding, with coupons corresponding to the
coupons, if any, appertaining to such destroyed, lost or stolen Security or to
the Security to which such destroyed, lost or stolen coupon appertains.
In case any such mutilated, destroyed, lost or stolen Security or coupon
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security or coupon; provided,
however, that the principal of and any premium and interest on Bearer
Securities shall, except as otherwise provided in Section 1002, be payable only
at an office or agency located outside the United States.
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Upon the issuance of any new Security under this Section, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security of any series with its coupons, if any, issued pursuant
to this Section in lieu of any destroyed, lost or stolen Security or in exchange
for a Security to which a destroyed, lost or stolen coupon appertains, shall
constitute an original additional contractual obligation of the Company, whether
or not the destroyed, lost or stolen Security and its coupons, if any, or the
destroyed, lost or stolen coupon shall be at any time enforceable by anyone, and
any such new Security and coupons, if any, shall be entitled to all the benefits
of this Indenture equally and proportionately with any and all other Securities
of that series and their coupons, if any, duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities or coupons.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Unless otherwise provided as contemplated by Section 301 with respect to
any series of Securities, interest on any Registered Security which is payable,
and is punctually paid or duly provided for, on any Interest Payment Date shall
be paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest. Unless otherwise so provided, at the option of the Company,
payment of interest on any Registered Security may be made by check mailed on or
before the due date to the address of the Person entitled thereto as such
address shall appear in the Security Register.
Any interest on any Registered Security of any series which is payable, but
is not punctually paid or duly provided for, on any Interest Payment Date
(herein called "Defaulted Interest") shall forthwith cease to be payable to the
Holder on the relevant Regular Record Date by virtue of having been such Holder,
and such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Registered Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Registered Security of such series and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder of Registered Securities of such series at the address of
such Holder as it appears in the Security Register, not less than 10 days
prior to such Special Record Date. The Trustee may, in its discretion, in
the name and at the expense of the Company, cause a similar notice to be
published at least once in an Authorized Newspaper, provided such
publication shall not be a condition precedent to the establishment of such
Special Record Date. Notice of the proposed
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payment of such Defaulted Interest and the Special Record Date therefor
having been so mailed, such Defaulted Interest shall be paid to the Persons
in whose names the Registered Securities of such series (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Registered Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on which such
Securities may be then listed, and upon such notice as may be required by
such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this Clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 305, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Registered Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Registered Security is registered as the
owner of such Registered Security for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Sections 305 and 307) any
interest on such Registered Security and for all other purposes whatsoever,
whether or not such Security be overdue, and none of the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
Title to any Bearer Security and any coupons appertaining thereto shall
pass by delivery. The Company, the Trustee and any agent of the Company or the
Trustee may treat the bearer of any Bearer Security and the bearer of any coupon
as the owner of such Bearer Security or coupon for the purpose of receiving
payment thereof or on account thereof and for all other purposes whatsoever,
whether or not such Security or coupon be overdue, and neither the Company, the
Trustee nor any agent of the Company or the Trustee shall be affected by notice
to the contrary.
Notwithstanding the foregoing, with respect to any Book-Entry Security,
nothing herein shall prevent the Company, the Trustee, or any agent of the
Company or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by a Depository or impair, as between a
Depository and holders of beneficial interests in any Book-Entry Security, the
operation of customary practices governing the exercise of the rights of the
Depository (or its nominee) as Holder of such Book-Entry Security.
SECTION 309. Cancellation.
All Securities and coupons surrendered for payment, redemption,
registration of transfer or exchange or for credit against any sinking fund
payment shall, if surrendered to any Person other than the Trustee, be delivered
to the Trustee. All Registered Securities and matured coupons so delivered
shall be promptly cancelled by the Trustee. All Bearer Securities and
unmatured coupons so delivered shall be held by the Trustee and, upon
instruction by a Company Order, shall be cancelled or held for reissuance.
Bearer Securities and unmatured coupons held for reissuance may be reissued only
in replacement of mutilated, lost, stolen or destroyed Bearer Securities of the
same series and like tenor or the related coupons pursuant to Section 306. All
Bearer Securities and unmatured coupons held by the Trustee pending such
cancellation or reissuance shall be deemed to be delivered for all purposes of
this Indenture and the Securities. The Company may at any time deliver to the
Trustee for cancellation any Securities previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee (or to any other Person for delivery to the Trustee) for
cancellation any Securities previously authenticated hereunder which the Company
has not issued and sold, and all Securities so delivered shall be promptly
cancelled by the Trustee.
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No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Securities and coupons held by the Trustee
shall be disposed of in accordance with its customary practice.
SECTION 310. Computation of Interest.
Except as otherwise specified as contemplated by Section 301 for Securities
of any series, interest on the Securities of each series shall be computed on
the basis of a 360-day year of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
with respect to Securities of a Series (except as to any surviving rights of
registration of transfer or exchange of Securities herein expressly provided
for, and any right to receive additional amounts, as provided in Section 1004),
and the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to
Securities of a Series, when
(1) either
(A) all Securities of such Series theretofore authenticated and
delivered and all coupons, if any, appertaining thereto (other than (i)
coupons appertaining to Bearer Securities surrendered for exchange for
Registered Securities and maturing after such exchange, whose surrender is
not required or has been waived as provided in Section 305, (ii) Securities
and coupons which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 306, (iii) coupons appertaining to
Securities called for redemption and maturing after the relevant Redemption
Date, whose surrender has been waived as provided in Section 1106, and (iv)
Securities and coupons for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as provided
in Section 1003) have been delivered to the Trustee for cancellation; or
(B) with respect to all such Securities and, in the case of (i) or
(ii) below, any coupons appertaining thereto not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company;
and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust for the
purpose an amount sufficient to pay and discharge the entire indebtedness
on such Securities and coupons not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and any interest to the
date of such deposit (in the case of Securities which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be;
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(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to clause (1)(B) of this Section,
the obligations of the Company under Sections 306, 610(e) and 701 and the
obligations of the Trustee under Section 402 and the last paragraph of Section
1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities, the coupons
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and any premium and
interest for whose payment such money has been deposited.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein with respect to Securities of any
series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order, rule or
regulation of any administrative or governmental body), unless it is either
inapplicable to a particular series of Securities or it is specifically deleted
or modified in or pursuant to the terms of such series or in the form of
Security of such series:
(1) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default for
a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of a Security of that series; or
(4) INTENTIONALLY OMITTED;
(5) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a
default in whose performance or whose breach is elsewhere in this Section
specifically dealt with or which has expressly been included in this
Indenture solely for the benefit of series of Securities other than that
series), and continuance of such default or breach for a period of 90 days
after there has been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least
25% in
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principal amount of the Outstanding Securities of that series a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company as bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable Federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial
part of the property of the Company, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a
period of 90 consecutive days; or
(7) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or state bankruptcy,
insolvency, reorganization or other similar law or the commencement of any
bankruptcy or insolvency case or proceeding against the Company, or the
filing by the Company of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or state law, or the
consent by the Company to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Company or of any
substantial part of the property of the Company, or the making by the
Company of an assignment for the benefit of creditors, or the admission by
the Company in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by the Company in furtherance
of any such action; or
(8) any other Event of Default provided with respect to Securities of
that series.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series at the time
Outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of that series may declare the principal amount (or, if any of the Securities of
that series are Original Issue Discount Securities, such portion of the
principal amount of such Securities as may be specified in the terms thereof) of
all of the Securities of that series to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders), and
upon any such declaration such principal amount (or specified amount) shall
become immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on, and any additional amounts payable
as set forth in Section 1004 on, all Securities of that series and any
coupons appertaining thereto,
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(B) the principal of (and premium, if any, on) any Securities of
that series which have become due otherwise than by such declaration of
acceleration and any interest thereon at the rate or rates prescribed
therefor in such Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest, and any additional amounts payable as set
forth in Section 1004 on, at the rate or rates prescribed therefor in such
Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities and coupons, the whole amount then due and payable on
such Securities and coupons for principal and any premium and interest and, to
the extent that payment of such interest shall be legally enforceable, interest
on any overdue principal and premium and on any overdue interest, at the rate or
rates prescribed therefor in such Securities (or, in the case of Original Issue
Discount Securities, the Securities' yield to maturity) and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series and any
related coupons by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
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SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), or the property or the creditors of the Company,
the Trustee shall be entitled and empowered, by intervention in such proceeding
or otherwise, to take any and all actions authorized under the Trust Indenture
Act in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of Holders, vote for the election of a trustee
of bankruptcy or similar official and be a member of a creditors' or other
similar committee.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities or
Coupons.
All rights of action and claims under this Indenture or the Securities or
coupons may be prosecuted and enforced by the Trustee without the possession of
any of the Securities or coupons or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Securities and coupons in respect
of which such judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or any
premium or interest, upon presentation of the Securities or coupons, or both as
the case may be, and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607; and
SECOND: To the payment of the amounts then due and unpaid for
principal of and any premium and interest on the Securities and coupons in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities and coupons for principal and
any premium and interest, respectively.
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
In any case in which Securities are Outstanding that are denominated in
more than one currency and the Trustee is directed to make ratable payments
under this Section to Holders of such Securities, unless otherwise provided with
respect to any series of Securities, the Trustee shall calculate the amount of
such payments as follows: (i) as of the day the Trustee collects an amount under
this Article, the Trustee shall, as to each Holder of a Security to whom an
amount is due and payable under this Section that is denominated in
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a foreign currency, determine that amount in Dollars that would be obtained for
the amount owing such Holder, using the rate of exchange at which in accordance
with normal banking procedures the Trustee could purchase in The City of New
York Dollars with such amount owing; (ii) calculate the sum of all Dollar
amounts determined under (i) and add thereto any amounts due and payable in
Dollars; and (iii) using the individual amounts determined in (i) or any
individual amounts due and payable in Dollars, as the case may be, as a
numerator, and the sum calculated in (ii) as a denominator, calculate as to each
Holder of a Security to whom an amount is owed under this Section the fraction
of the amount collected under this Article payable to such Holder. Any expenses
incurred by the Trustee in actually converting amounts owing Holders of
Securities denominated in a currency other than that in which any amount is
collected under this Article shall be likewise (in accordance with this
paragraph) borne ratably by all Holders of Securities to whom amounts are
payable under this Section.
To the fullest extent allowed under applicable law, if for the purpose of
obtaining judgment against the Company in any court it is necessary to convert
the sum due in respect of the principal of, or premium, if any, or interest on,
the Securities of any series (the "Required Currency") into a currency in which
a judgment will be rendered (the "Judgment Currency"), the rate of exchange used
shall be the rate at which in accordance with normal banking procedures the
Trustee could purchase in The City of New York the Required Currency with the
Judgment Currency on the Business Day in the City of New York next preceding
that on which final judgment is given. Neither the Company nor the Trustee
shall be liable for any shortfall nor shall it benefit from any windfall in
payments to Holders of Securities under this Section caused by a change in
exchange rates between the time the amount of a judgment against the Company is
calculated as above and the time the Trustee converts the Judgment Currency into
the Required Currency to make payments under this Section to Holders of
Securities, but payment of such judgment shall discharge all amounts owed by the
Company on the claim or claims underlying such judgment.
SECTION 507. Limitation on Suits.
No Holder of any Security of any series or any related coupons shall have
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Securities of that
series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such
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Holders, or to obtain or to seek to obtain priority or preference over any other
of such Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all such
Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security or coupon shall have the right, which is absolute and unconditional, to
receive payment of the principal of and any premium and (subject to Sections 305
and 307) any interest on such Security or payment of such coupon on the Stated
Maturity or Maturities expressed in such Security or coupon (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder of a Security or coupon has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, the Trustee
and the Holders of Securities and coupons shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities or coupons in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders of Securities or coupons is intended to be exclusive
of any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security or
coupon to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders of Securities or coupons may
be exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders of Securities or coupons, as the case may be.
SECTION 512. Control by Holders of Securities.
The Holders of a majority in principal amount of the Outstanding Securities
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, with respect to the Securities of
such series, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture;
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; and
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(3) the Trustee shall not be obligated to take any action unduly
prejudicial to Holders not joining in such direction or involving the
Trustee in personal liability.
SECTION 513. Waiver of Past Defaults.
The Holders of a majority in principal amount of the Outstanding Securities
of any series may on behalf of the Holders of all the Securities of such series
waive any past default hereunder with respect to the Securities of such series
and its consequences, except a default
(1) in the payment of the principal of or any premium or interest on
any Security of such series, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim to
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by the
Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
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SECTION 602. Notice of Defaults.
If a default occurs hereunder with respect to Securities of any series, the
Trustee shall give the Holders of Securities of such series notice of such
default as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default of the character specified in Section
501(5) with respect to Securities of such series, no such notice to Holders
shall be given until at least 30 days after the occurrence thereof. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default with respect
to Securities of such series.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors of the Company shall be sufficiently
evidenced by a Board Resolution of the Company;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney; and
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
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SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities (except the Trustee's
certificates of authentication) and in any coupons shall be taken as the
statements of the Company and the Trustee or any Authenticating Agent assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities or
coupons. The Trustee or any Authenticating Agent shall not be accountable for
the use or application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and coupons and, subject
to Sections 608 and 613, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee and each predecessor Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to
its negligence or bad faith; and
(3) to indemnify the Trustee and each predecessor Trustee for, and to
hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on its part, arising out of or in connection with
the acceptance or administration of the trust or trusts hereunder,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
As security for the performance of the obligations of the Company under
this Section the Trustee shall have a lien prior to the Securities upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the benefit of the Holders of particular Securities.
Any expenses and compensation for any services rendered by the Trustee
after the occurrence of an Event of Default specified in clause (6) or (7) of
Section 501 shall constitute expenses and compensation for services of
administration under all applicable federal or state bankruptcy, insolvency,
reorganization or other similar laws.
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The provisions of this Section shall survive the termination of this
Indenture.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States,
any State thereof or the District of Columbia, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000, subject to supervision or examination by Federal or State
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article. No obligor upon any Security
issued under this Indenture or a person directly or indirectly controlling,
controlled by or under common control with such obligor shall serve as Trustee
under this Indenture.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
(c) The Trustee may be removed at any time with respect to the Securities
of any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Trustee and to the
Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder of a Security who has been
a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or a public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
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then, in any case, (i) the Company by a Board Resolution may remove the Trustee
with respect to all Securities, or (ii) subject to Section 514, any Holder of a
Security who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of the Trustee for any cause, with
respect to the Securities of one or more series, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with respect
to the Securities of that or those series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of one or more
or all series and that at any time there shall be only one Trustee with respect
to the Securities of any particular series) and shall comply with the applicable
requirements of Section 611. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee
with respect to the Securities of any series shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities of such
series delivered to the Company and the retiring Trustee, the successor Trustee
so appointed shall, forthwith upon its acceptance of such appointment in
accordance with the applicable requirements of Section 611, become the successor
Trustee with respect to the Securities of such series and to that extent
supersede the successor Trustee appointed by the Company. If no successor
Trustee with respect to the Securities of any series shall have been so
appointed by the Company or the Holders of Securities of such series and
accepted appointment in the manner required by Section 611, any Holder of a
Security who has been a bona fide Holder of a Security of such series for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee with respect to the Securities of such series. Such court may
thereupon, after such notice, if any, as it may deem proper, appoint a successor
Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series in the manner
provided in Section 106. Each notice shall include the name of the successor
Trustee with respect to the Securities of such series and the address of its
Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee, with like effect as
if originally named Trustee hereunder; but on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Any Trustee ceasing to act shall,
nevertheless, retain a prior lien upon all property or funds held or collected
by such Trustee to secure any amounts then due it pursuant to the provisions of
Section 607.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights,
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powers, trusts and duties of the retiring Trustee with respect to the Securities
of that or those series as to which the retiring Trustee is not retiring shall
continue to be vested in the retiring Trustee, and (3) shall add to or change
any of the provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more than one Trustee,
it being understood that nothing herein or in such supplemental indenture shall
constitute such Trustees as co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all rights, powers, trusts and duties of
the retiring Trustee with respect to the Securities of that or those series to
which the appointment of such successor Trustee relates; but, on request of the
Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
(c) Upon request of any successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in
paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may, by an instrument in writing, appoint an Authenticating
Agent or Agents with respect to one or more series of Securities which may be
authorized to act on behalf of the Trustee to authenticate Securities of such
series issued upon original issue or upon exchange, registration of transfer or
partial redemption thereof or pursuant to Section 306, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and shall at all times
be a corporation organized and doing business under the laws of the United
States, any State thereof or the District of Columbia (or, if Bearer Securities,
organized and doing business
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under the laws of the country in which the Bearer Securities are eligible),
authorized under such laws to act as Authenticating Agent, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or State authority (or, if Bearer Securities, an
authority of the country in which the Bearer Securities are eligible). If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of such Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or such Authenticating Agent.
An Authenticating Agent may, and if it shall cease to be eligible shall,
resign at any time by giving written notice thereof to the Trustee and to the
Company. The Trustee may at any time terminate the agency of an Authenticating
Agent by giving written notice thereof to such Authenticating Agent and to the
Company. Upon receiving such notice of resignation or upon such termination, or
in case at any time such Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, the Trustee may appoint a
successor Authenticating Agent which shall be acceptable to the Company and
shall mail written notice of such appointment by first-class mail, postage
prepaid, to all Holders of Registered Securities, if any, of the series with
respect to which such Authenticating Agent will serve, as their names and
addresses appear in the Security Register. Any successor Authenticating Agent
upon acceptance of its appointment hereunder shall become vested with all the
rights, powers, and duties of its predecessor hereunder, with like effect as if
originally named as an Authenticating Agent. No successor Authenticating Agent
shall be appointed unless eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payment, subject to the provisions
of Section 607.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have been endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
"This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO,
As Trustee
By: _______________________________
As Authenticating Agent
By: ________________________________
Authorized Officer"
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If all the Securities of a series may not be originally issued at one time,
and if the Company has an Affiliate eligible to be appointed as an
Authenticating Agent hereunder or the Trustee does not have an office capable of
authenticating Securities upon original issuance located in a Place of Payment
where the Company wishes to have Securities of such series authenticated upon
original issuance, the Trustee, if so requested by the Company in writing (which
writing need not comply with Section 102 and need not be accompanied by an
Opinion of Counsel), shall appoint in accordance with this Section an
Authenticating Agent (which, if so requested by the Company, shall be such
Affiliate of the Company) having an office in a Place of Payment designated by
the Company with respect to such series of Securities.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
With respect to each series of Securities, the Company will furnish or
cause to be furnished to the Trustee:
(a) semi-annually, not later than 15 days after a Regular Record Date, a
list, in such form as the Trustee may reasonably require, containing all the
information in the possession or control of the Company, or any of its Paying
Agents other than the Trustee, as to the names and addresses of the Holders of
Securities as of the immediately preceding Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701, and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of the Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities or coupons, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of any of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Section 702(b).
SECTION 703. Reports by Trustee.
(a) on or before July 15 in each year following the date hereof, the
Trustee shall transmit to Holders such reports concerning the Trustee and its
actions under this Indenture as may be required pursuant to the Trust Indenture
Act at the times and in the manner provided pursuant thereto.
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(b) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when any Securities are listed (or delisted) on any
stock exchange.
SECTION 704. Reports by Company.
In addition to the certificates delivered to the Trustee pursuant to
Section 1007, the Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any other Person, unless:
(1) the Person formed by such consolidation or into which the Company
is merged or the Person which acquires by conveyance or transfer, or which
leases, the properties and assets of the Company substantially as an
entirety shall be a corporation, partnership or trust, shall be organized
and validly existing under the laws of the United States, any state thereof
or the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal
of and any premium and interest (including all additional amounts, if any,
payable pursuant to Section 1004) on all the Securities and the performance
or observance of every other covenant of this Indenture on the part of the
Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and such supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety in accordance with Section
801, the successor Person formed by such consolidation or into which the Company
is merged or to which such conveyance, transfer or lease is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein, and thereafter, except in the case of a
lease, the
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predecessor Person shall be relieved of all obligations and covenants under this
Indenture and the Securities and coupons and may liquidate and dissolve.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders of Securities or coupons, the Company,
when authorized by a Board Resolution, and the Trustee, at any time and from
time to time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities pursuant to Article Eight; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities and any coupons appertaining
thereto (and if such covenants are to be for the benefit of less than all
series of Securities, stating that such covenants are expressly being
included solely for the benefit of such series), to convey, transfer,
assign, mortgage or pledge any property to or with the Trustee or otherwise
secure any series of the Securities or to surrender any right or power
herein conferred upon the Company; or
(3) to add any additional Events of Default with respect to all or any
series of the Securities (and, if such Event of Default is applicable to
less than all series of Securities, specifying the series to which such
Event of Default is applicable); or
(4) to add to or change any of the provisions of this Indenture to
provide that Bearer Securities may be registrable as to principal, to
change or eliminate any restrictions on the payment of principal of or any
premium or interest on Bearer Securities, to permit Bearer Securities to be
issued in exchange for Registered Securities, to permit Bearer Securities
to be issued in exchange for Bearer Securities of other authorized
denominations or to permit or facilitate the issuance of Securities in
uncertificated form, provided that any such action shall not adversely
affect the interests of the Holders of Securities of any series or any
related coupons in any material respect; or
(5) to add to, change or eliminate any of the provisions of this
Indenture in respect of one or more series of Securities, provided that any
such addition, change or elimination (A) shall neither (i) apply to any
Security of any series created prior to the execution of such supplemental
indenture and entitled to the benefit of such provision nor (ii) modify the
rights of the Holder of any such Security with respect to such provision or
(B) shall become effective only when there is no such Security Outstanding;
or
(6) to secure the Securities pursuant to the requirements of Section
1006 or otherwise; or
(7) to establish the form or terms of Securities of any series and any
related coupons as permitted by Sections 201 and 301; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the administration of
the trusts hereunder by more than one Trustee, pursuant to the requirements
of Section 611(b); or
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(9) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture which may be defective or
inconsistent with any other provision herein or in any supplemental
indenture, or to make any other provisions with respect to matters or
questions arising under this Indenture; provided, that such action shall
not adversely affect the interests of the Holders of Securities of any
series or any related coupons in any material respect.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of a majority in principal amount of the
Outstanding Securities of each series affected by such supplemental indenture,
by Act of said Holders delivered to the Company and the Trustee, the Company,
when authorized by Board Resolution, and the Trustee may enter into an indenture
or indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders of Securities of such
series and any related coupons under this Indenture; provided, however, that no
such supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any installment
of principal of or interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon
the redemption thereof, or change the Redemption Date thereof, or change
any obligation of the Company to pay additional amounts pursuant to Section
1004 (except as contemplated by Section 801(1) and permitted by Section
901(1)), or reduce the amount of the principal of an Original Issue
Discount Security that would be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 502 or change the
coin or currency in which any Security or any premium or interest thereon
is payable, or change any right of redemption, purchase or repayment by the
Company at the option of the Holder, or impair the right to institute suit
for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date),
or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or reduce the requirements of Section 1404 for quorum or voting,
or
(3) change any obligation of the Company to maintain an office or
agency in the places and for the purposes specified in Section 1002, or
(4) modify any of the provisions of this Section, Section 513 or
Section 1008 except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby; provided, however, that this clause shall not be deemed to require
the consent of any Holder of a Security or coupon with respect to changes
in the references to "the Trustee" and concomitant changes in this Section
and Section 1008 or the deletion of this provision, in accordance with the
requirements of Sections 611(b) and 901(8).
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
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It shall not be necessary for any Act of Holders of Securities under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
and of any coupons appertaining thereto shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company, and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series and of like tenor.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of and any premium
and interest on the Securities of that series in accordance with the terms of
the Securities, any coupons appertaining thereto and this Indenture. Unless
otherwise specified as contemplated by Section 301 with respect to any series of
Securities, any interest due on Bearer Securities on or before Maturity shall be
payable only upon presentation and surrender of the several coupons for such
interest installments as are evidenced thereby as they severally mature.
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SECTION 1002. Corporate Existence and Maintenance of Office or Agency.
Except as expressly permitted by this Indenture, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect the corporate existence of the Company.
If Securities of a series are issuable only as Registered Securities, the
Company will maintain in each Place of Payment for such series an office or
agency where Securities of that series may be presented or surrendered for
payment, where Securities of that series may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities of that series and this Indenture may be served. If
Securities of a series are issuable as Bearer Securities, the Company will
maintain (A) in the Borough of Manhattan, The City of New York, an office or
agency where any Registered Securities of that series may be presented or
surrendered for payment, where any Registered Securities of that series may be
surrendered for registration of transfer, where Securities of that series may be
surrendered for exchange, where notices and demands to or upon the Company in
respect of the Securities of that series and this Indenture may be served and
where Bearer Securities of that series and related coupons may be presented or
surrendered for payment in the circumstances described in the following
paragraph (and not otherwise), (B) subject to any laws or regulations applicable
thereto, in a Place of Payment for that series which is located outside the
United States, an office or agency where Securities of that series and related
coupons may be presented and surrendered for payment (including payment of any
additional amounts payable on Securities of that series pursuant to Section
1004); provided, however, that if the Securities of that series are listed on
The International Stock Exchange of the United Kingdom and the Republic of
Ireland Limited, the Luxembourg Stock Exchange or any other stock exchange
located outside the United States and such stock exchange shall so require, the
Company will maintain a Paying Agent for the Securities of that series in
London, Luxembourg or any other required city located outside the United States,
as the case may be, so long as the Securities of that series are listed on such
exchange, and (C) subject to any laws or regulations applicable thereto, in a
Place of Payment for that series which is located outside the United States an
office or agency where any Registered Securities of that series may be
surrendered for registration of transfer, where Securities of that series may be
surrendered for exchange and where notices and demands to or upon the Company in
respect of the Securities of that series, and this Indenture may be served. The
Company will give prompt written notice to the Trustee and prompt notices to the
Holders as provided in Section 106 of the location, and any change in the
location, of any such office or agency. If at any time the Company shall fail
to maintain any such required office or agency in respect of any series of
Securities or shall fail to furnish the Trustee with the address thereof, such
presentations and surrenders of Securities of that series may be made and
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, except that Bearer Securities of that series and the related coupons
may be presented and surrendered for payment (including payment of any
additional amounts payable on Bearer Securities of that series pursuant to
Section 1004) at any Paying Agent for such series located outside the United
States, and the Company hereby appoints the same as its agents to receive such
respective presentations, surrenders, notices and demands.
No payment of principal, premium or interest on Bearer Securities shall be
made at any office or agency of the Company in the United States or by check
mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, that, if
the Securities of a series are denominated and payable in Dollars, payment of
principal of and any premium and interest on any Bearer Security (including any
additional amounts payable on Securities of such series pursuant to Section
1004) shall be made at the office of the Company's Paying Agent in the Borough
of Manhattan, The City of New York, if (but only if) payment in Dollars of the
full amount of such principal, premium, interest or additional amounts, as the
case may be, at all offices or agencies outside the United States maintained for
the purpose by the Company in accordance with this Indenture is illegal or
effectively precluded by exchange controls or other similar restrictions.
The Company may also from time to time designate one or more other offices
or agencies where Securities of one or more series may be presented or
surrendered for any or all such purposes and may from
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time to time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in accordance with the requirements
set forth above for Securities of any series for such purposes. The Company will
give prompt written notice to the Trustee and the Holders of any such
designation or rescission and of any other change in the location of any such
other office or agency.
SECTION 1003. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities and any coupons appertaining thereto, it will, on or
before each due date of the principal of and any premium or interest on any of
the Securities of that series, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay the principal and any
premium or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure to so act.
Whenever the Company shall have one or more Paying Agents for any series of
Securities, it will, on or prior to each due date of the principal of and any
premium or interest on any Securities of that series, deposit with a Paying
Agent a sum sufficient to pay the principal and any premium or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of its action or
failure to so act.
The Company will cause each Paying Agent for any series of Securities
(other than the Company or the Trustee) to execute and deliver to the Trustee an
instrument in which such Paying Agent shall agree with the Trustee, subject to
the provisions of this Section, that such Paying Agent will (i) comply with the
provisions of the Trust Indenture Act applicable to it as a Paying Agent and
(ii) during the continuance of any default by the Company (or any other obligor
upon the Securities of that series) in the making of any payment in respect of
the Securities of that series, and upon the written request of the Trustee,
forthwith pay to the Trustee all sums held in trust by such Paying Agent for
payment in respect of the Securities of that series.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of and any premium or
interest on any Security of any series and remaining unclaimed for two years
after such principal and any premium or interest has become due and payable
shall be paid to the Company on Company Request (unless otherwise required by
mandatory provisions of applicable escheat or abandoned or unclaimed property
law), or (if then held by the Company) shall be discharged from such trust; and
the Holder of such Security or any coupon appertaining thereto shall (unless
otherwise required by mandatory provisions of applicable escheat or abandoned or
unclaimed property law) thereafter, as an unsecured general creditor, look only
to the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in an Authorized
Newspaper in each Place of Payment, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
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SECTION 1004. Additional Amounts.
If the Securities of a series provide for the payment of additional
amounts, the Company will pay to the Holder of any Security of such series or
any coupon appertaining thereto additional amounts as provided therein.
Whenever in this Indenture there is mentioned, in any context, the payment of
the principal of or any premium or interest on, or in respect of, any Security
of any series or payment of any related coupon or the net proceeds received on
the sale or exchange of any Security of any series, such mention shall be deemed
to include mention of the payment of additional amounts provided for in this
Section to the extent that, in such context, additional amounts are, were or
would be payable in respect thereof pursuant to the provisions of this Section
and express mention of the payment of additional amounts (if applicable) in any
provisions hereof shall not be construed as excluding additional amounts in
those provisions hereof where such express mention is not made.
If the Securities of a series provide for the payment of additional
amounts, at least 10 days prior to the first Interest Payment Date with respect
to that series of Securities (or if the Securities of that series will not bear
interest prior to Maturity, the first day on which a payment of principal and
any premium is made), and at least 10 days prior to each date of payment of
principal and any premium or interest if there has been any change with respect
to the matters set forth in the below-mentioned Officers' Certificate, the
Company will furnish the Trustee and the Company's principal Paying Agent or
Paying Agents, if other than the Trustee, with an Officers' Certificate
instructing the Trustee and such Paying Agent or Paying Agents whether such
payment of principal of and any premium or interest on the Securities of that
series shall be made to Holders of Securities of that series or any related
coupons who are United States Aliens without withholding for or on account of
any tax, assessment or other governmental charge described in the Securities of
that series. If any such withholding shall be required, then such Officers'
Certificate shall specify by country the amount, if any, required to be withheld
on such payments to such Holders of Securities or coupons and the Company will
pay to the Trustee or such Paying Agent the additional amounts required by this
Section. The Company covenants to indemnify the Trustee and any Paying Agent
for, and to hold them harmless against, any loss, liability or expense
reasonably incurred without negligence or bad faith on their part arising out of
or in connection with actions taken or omitted by any of them in reliance on any
Officers' Certificate furnished pursuant to this Section.
SECTION 1005. Purchase of Securities by Company or Subsidiary.
If and so long as the Securities of a series are listed on The
International Stock Exchange of the United Kingdom and the Republic of Ireland
Limited and such stock exchange shall so require, the Company will not, and will
not permit any of its Subsidiaries to, purchase any Securities of that series by
private treaty at a price (exclusive of expenses and accrued interest) which
exceeds 120% of the mean of the nominal quotations of the Securities of that
series as shown in The Stock Exchange Daily Official List for the last trading
day preceding the date of purchase.
SECTION 1006. Limitation on Liens.
(a) The Company will not, nor will it permit any Principal Subsidiary to,
issue, assume or guarantee any indebtedness for money borrowed (hereinafter in
this Article Ten referred to as "Debt"), if such Debt is secured by a mortgage,
pledge, security interest or lien (any mortgage, pledge, security interest or
lien being hereinafter in this Article Ten referred to as a "mortgage" or
"mortgages") upon any Principal Property of the Company or any Principal
Subsidiary or upon any shares of stock or other equity interest or indebtedness
of any Principal Subsidiary (whether such Principal Property, shares of stock or
other equity interest or indebtedness is now owned or hereafter acquired),
without in any such case effectively providing, concurrently with the issuance,
assumption or guarantee of such Debt, that the Securities (together with, if the
Company shall so determine, any other indebtedness of or guaranteed by the
Company or such Principal Subsidiary ranking equally with the Securities then
outstanding and existing or thereafter created) shall be secured equally and
ratably with (or prior to) such Debt; provided, however, that the foregoing
restriction shall not apply to:
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(1) mortgages on property acquired, constructed or improved by the
Company or any Principal Subsidiary after the date of this Indenture which
are created or assumed contemporaneously with, or within 180 days after,
such acquisition (or in the case of property constructed or improved, after
the completion and commencement of commercial operation of such property,
whichever is later) to secure or provide for the payment of any part of the
purchase price of such property or the cost of such construction or
improvement, it being understood that if a commitment for such a financing
is obtained prior to or within such 180-day period, the applicable mortgage
shall be deemed to be included in this clause (1) whether or not such
mortgage is created within such 180-day period; provided that in the case
of any such construction or improvement the mortgage shall not apply to any
property theretofore owned by the Company or any Principal Subsidiary,
other than any theretofore unimproved real property on which the property
so constructed, or the improvement, is located;
(2) mortgages on any property existing at the time of acquisition
thereof (including mortgages on any property acquired from a Person which
is consolidated with or merged with or into the Company or a Subsidiary of
the Company) and mortgages outstanding at the time any Person becomes a
Subsidiary of the Company that are not incurred in connection with such
entity becoming a Subsidiary of the Company;
(3) mortgages in favor of the Company or any Principal Subsidiary;
(4) mortgages in favor of the United States, any State, any foreign
country or any department, agency or instrumentality or political
subdivision of any such jurisdiction, to secure partial, progress, advance
or other payments pursuant to any contract or statute or to secure any
indebtedness incurred for the purpose of financing all or any part of the
purchase price or the cost of constructing or improving the property
subject to such mortgages, including, without limitation, mortgages to
secure Debt of the pollution control or industrial revenue bond type;
(5) mortgages on any Principal Property held, leased or used by the
Company or any Principal Subsidiary in connection with the exploration for,
development of, or production of (but not the gathering, processing,
transportation or marketing of) natural gas, oil or other minerals; and
(6) any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any mortgage referred to
in any of the foregoing clauses (1), (2), (3), (4) and (5); provided,
however, that the principal amount of Debt secured thereby shall not exceed
the principal amount of Debt so secured at the time of such extension,
renewal or replacement, and that such extension, renewal or replacement
shall be limited to all or a part of the property which secured the
mortgage so extended, renewed or replaced (plus improvements on such
property).
(b) Notwithstanding the provisions of subsection (a) of this Section 1006,
the Company and any Principal Subsidiary may issue, assume or guarantee secured
Debt, which would otherwise be subject to the foregoing restrictions, in an
aggregate amount which, together with all other such Debt does not exceed 15% of
Net Tangible Assets, as shown on a consolidated balance sheet, as of a date not
more than 90 days prior to the proposed transaction, prepared by the Company in
accordance with generally accepted accounting principles.
SECTION 1007. Statement by Officer as to Default.
(a) The Company shall deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, a brief
certificate from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of the Company's
compliance with all conditions and covenants under this Indenture. For purposes
of this Section 1007, such compliance shall
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be determined without regard to any period of grace or requirement of notice
under this Indenture. Such certificate shall comply with Section 314(a)(4) of
the Trust Indenture Act.
(b) The Company shall, so long as any of the Securities are outstanding,
deliver to the Trustee forthwith upon any Officer becoming aware of any Event of
Default or event which, after notice or lapse of time or both, would become an
Event of Default, an Officers' Certificate specifying such Event of Default or
event and what action the Company proposes to take with respect thereto.
SECTION 1008. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Section 1005, 1006 or Article Fifteen with
respect to the Securities of any series if before the time for such compliance
the Holders of a majority in principal amount of the Outstanding Securities of
such series shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such term, provision or condition,
but no such waiver shall extend to or affect such term, provision or condition
except to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article.
Securities of any series which are redeemable before their Stated Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified as contemplated by Section 301 for Securities of any series) in
accordance with this Article.
SECTION 1102. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. In the case of any redemption at the election of the
Company of less than all the Securities of any series, the Company shall, at
least 45 days prior to the Redemption Date fixed by the Company (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date, of the principal amount of Securities of such series to be
redeemed and, if applicable, of the tenor of the Securities of such series to be
redeemed. In the case of any redemption of Securities (i) prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities or elsewhere in this Indenture, or (ii) pursuant to an election of
the Company which is subject to a condition specified in the terms of such
Securities, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with such restriction or condition.
SECTION 1103. Selection of Securities to Be Redeemed.
If less than all the Securities of any series are to be redeemed (unless
all of the Securities of such series of a specified tenor are to be redeemed)
the particular Securities to be redeemed shall be selected not more than 45 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to the minimum authorized denomination for
Securities of that series or any integral multiple thereof) of the principal
amount of Registered Securities of such series of a denomination larger than the
minimum authorized denomination for Securities of that series or of the
principal amount of global Securities of such series. If less than all of the
Securities of such series and of
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a specified tenor are to be redeemed, the particular Securities to be redeemed
shall be selected not more than 45 days prior to the Redemption Date by the
Trustee, from the Outstanding Securities of such series and specified tenor not
previously called for redemption in accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any Securities selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1104. Notice of Redemption.
Notice of redemption shall be given in the manner provided in Section 106
to the Holders of Securities to be redeemed not less than 30 nor more than 60
days prior to the Redemption Date.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series are to
be redeemed, the identification (and, in the case of partial redemption of
any Securities, the principal amounts) of the particular Securities to be
redeemed, and that on and after the Redemption Date, upon surrender of the
Securities, new Securities of such series in principal amount equal to the
unredeemed part thereof will be issued,
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date,
(5) the place or places where such Securities, together in the case of
Bearer Securities with all coupons appertaining thereto, if any, maturing
after the Redemption Date, are to be surrendered for payment of the
Redemption Price, and
(6) that the redemption is for a sinking fund, if such is the case.
A notice of redemption published as contemplated by Section 106 need not
identify particular Registered Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1105. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date.
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SECTION 1106. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest and the coupons for such
interest appertaining to any Bearer Securities so to be redeemed, except to the
extent provided below, shall be void. Upon surrender of any such Security for
redemption in accordance with said notice, together with all coupons, if any,
appertaining thereto maturing after the Redemption Date, such Security shall be
paid by the Company at the Redemption Price, together with accrued interest to
the Redemption Date; provided, however, that installments of interest on Bearer
Securities whose Stated Maturity is on or prior to the Redemption Date shall be
payable only at an office or agency located outside the United States (except as
otherwise provided in Section 1002) and, unless otherwise specified as
contemplated by Section 301, only upon presentation and surrender of coupons for
such interest, and provided, further, that, unless otherwise specified as
contemplated by Section 301, installments of interest on Registered Securities
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 307.
If any Bearer Security surrendered for redemption shall not be accompanied
by all appurtenant coupons maturing after the Redemption Date, such Security may
be paid after deducting from the Redemption Price an amount equal to the face
amount of all such missing coupons, or the surrender of such missing coupon or
coupons may be waived by the Company and the Trustee if there be furnished to
them such security or indemnity as they may require to save each of them and any
Paying Agent harmless. If thereafter the Holder of such Security shall
surrender to the Trustee or any Paying Agent any such missing coupon in respect
of which a deduction shall have been made from the Redemption Price, such Holder
shall be entitled to receive the amount so deducted; provided, however, that
interest represented by coupons shall be payable only at an office or agency
located outside the United States (except as otherwise provided in Section 1002)
and, unless otherwise specified as contemplated by Section 301, only upon
presentation and surrender of those coupons.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor in the
Security or, in the case of Original Issue Discount Securities, the Securities'
yield to maturity.
SECTION 1107. Securities Redeemed in Part.
Any Registered Security which is to be redeemed only in part shall be
surrendered at a Place of Payment thereof (with, if the Company or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), and the Company shall execute, and
the Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Registered Security or Securities of the same
series and of like tenor, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
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ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of a series except as otherwise specified as
contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment," and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "optional sinking
fund payment." If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 1202. Each sinking fund payment shall be applied to the redemption
of Securities of any series as provided for by the terms of Securities of such
series.
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.
The Company (1) may deliver Outstanding Securities of a series (other than
any previously called for redemption), together in the case of any Bearer
Securities of such series with all unmatured coupons appertaining thereto, and
(2) may apply as a credit Securities of a series which have been redeemed either
at the election of the Company pursuant to the terms of such Securities or
through the application of permitted optional sinking fund payments pursuant to
the terms of such Securities, in each case in satisfaction of all or any part of
any sinking fund payment with respect to the Securities of such series required
to be made pursuant to the terms of such Securities as provided for by the terms
of such series; provided that such Securities have not been previously so
credited. Such Securities shall be received and credited for such purpose by
the Trustee at the Redemption Price specified in such Securities for redemption
through operation of the sinking fund and the amount of such sinking fund
payment shall be reduced accordingly.
SECTION 1203. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee a Company Order
specifying the amount of the next ensuing sinking fund payment for that series
pursuant to the terms of that series, the portion thereof, if any, which is to
be satisfied by payment of cash and the portion thereof, if any, which is to be
satisfied by delivering and crediting Securities of that series pursuant to
Section 1202 and will also deliver to the Trustee any Securities to be so
credited. Not less than 45 days before each such sinking fund payment date the
Trustee shall select the Securities to be redeemed upon such sinking fund
payment date in the manner specified in Section 1103 and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 1104. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 1106 and 1107.
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance.
The Company may at its option by Board Resolution, at any time, elect to
have either Section 1302 or Section 1303 applied to the Outstanding Securities
of any series upon compliance with the conditions set forth below in this
Article Thirteen.
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SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise of the option provided in Section 1301
applicable to this Section, the Company shall be deemed to have been discharged
from its obligations with respect to the Outstanding Securities of any series on
the date the conditions set forth below are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Securities of such series and to have satisfied all its other
obligations under the Securities of such series and this Indenture insofar as
the Securities of such series are concerned (and the Trustee, at the expense of
the Company, shall execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of the Securities of such series to
receive, solely from the trust fund described in Section 1304 and as more fully
set forth in such Section, payments in respect of the principal of and any
premium and interest on the Securities of such series when such payments are
due, (B) the Company's obligations with respect to such Securities under
Sections 304, 305, 306, 1002, 1003 and 1004, (C) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and (D) this Article Thirteen.
Subject to compliance with this Article Thirteen, the Company may exercise its
option under this Section 1302 notwithstanding the prior exercise of its option
under Section 1303.
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise of the option provided in Section 1301
applicable to this Section, (i) the Company shall be released from its
obligations with respect to the Securities of such series under Sections 801,
1005 and 1006 and (ii) the occurrence of an event specified in Sections 501(3)
or (5) shall not be deemed to be an Event of Default on and after the date the
conditions set forth below are satisfied (hereinafter, "covenant defeasance"),
but the remainder of this Indenture and such Securities shall be unaffected
thereby. For this purpose, such covenant defeasance means that the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Section or clause whether directly
or indirectly by reason of any reference elsewhere herein to any such Section or
clause or by reason of any reference in any such Section or clause to any other
provision herein or in any such Section or clause to any other provision herein
or in any other document, but the remainder of this Indenture and such
Securities shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section 1302
or Section 1303 to the then Outstanding Securities of any series:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 609 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of the Securities of such
series, (A) money in an amount, or (B) U.S. Government Obligations which
through the scheduled payment of principal and interest in respect thereof
in accordance with their terms will provide, not later than one day before
the due date of any payment, money in an amount, or (C) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied
by the Trustee (or other qualifying trustee) to pay and discharge, the
principal of (and premium, if any) and each installment of interest on the
Securities and any coupons pertaining thereto on the Stated Maturity of
such principal (and premium, if any) or installment of interest in
accordance with the terms of this Indenture and of the Securities of such
series. For this purpose, "U.S. Government Obligations" means securities
that are (x) direct obligations of the United States for the payment of
which its full faith and credit is pledged or (y)
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obligations of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act of
1933, as amended) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such
U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the
specific payment of principal of or interest on the U.S. Government
Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since the date of this Indenture there has
been a change in the applicable United States Federal income tax law, in
either case to the effect that, and based thereon such opinion shall
confirm that, the Holders of the Outstanding Securities of such series will
not recognize income, gain or loss for United States Federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to United States Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred.
(3) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Securities of such series will not recognize
gain or loss for United States Federal income tax purposes as a result of
such deposit and covenant defeasance and will be subject to United States
Federal income tax on the same amount, in the same manner and at the same
times as would have been the case if such deposit and covenant defeasance
had not occurred.
(4) No Event of Default or event which with notice or lapse of time or
both would become an Event of Default with respect to the Securities of
such series shall have occurred and be continuing on the date of such
deposit or, insofar as subsections 501(6) and (7) are concerned, at any
time during the period ending on the 121st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(5) Such defeasance or covenant defeasance shall not cause the Trustee
to have a conflicting interest within the meaning of the Trust Indenture
Act with respect to any securities of the Company.
(6) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement
or instrument to which the Company is a party or by which it is bound.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1302
or the covenant defeasance under Section 1303 (as the case may be) have
been complied with.
(8) Such defeasance or covenant defeasance shall not result in the
trust arising from such deposit constituting an investment company as
defined in the Investment Company Act of 1940, as amended, or such trust
shall be qualified under such Act or exempt from regulation thereunder.
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SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee -- collectively, for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Securities of such series shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities of such series and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of the Securities of such series, of all sums due and
to become due thereon in respect of principal (and premium, if any) and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
SECTION 1306. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 1302 or 1303 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities of such series shall be revived and reinstated as though no deposit
had occurred pursuant to this Article Thirteen until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1302 or 1303; provided, however, that if the Company makes any payment of
principal of or any premium or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of the Securities of such series to receive such payment from the
money held by the Trustee or the Paying Agent.
ARTICLE FOURTEEN
MEETINGS OF HOLDERS OF BEARER SECURITIES
SECTION 1401. Purposes for Which Meetings May Be Called.
If Securities of a series are issuable as Bearer Securities, a meeting of
Holders of Securities of such series may be called at any time and from time to
time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities of such
series.
SECTION 1402. Call, Notice and Place of Meetings.
(a) The Trustee may at any time call a meeting of Holders of Bearer
Securities of any series for any purpose specified in Section 1401, to be held
at such time and at such place in the Borough of Manhattan, The City of New
York, or in London or such other location as the Trustee shall determine.
Notice of every
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meeting of Holders of Bearer Securities of any series, setting forth the time
and the place of such meeting and in general terms the action proposed to be
taken at such meeting, shall be given, in the manner provided in Section 106,
not less than 21 nor more than 120 days prior to the date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution, or the
Holders of at least 10% in aggregate principal amount of the Outstanding Bearer
Securities of any series shall have requested the Trustee to call a meeting of
the Holders of Securities of such series for any purpose specified in Section
1401, by written request setting forth in reasonable detail the action proposed
to be taken at the meeting, and the Trustee shall not have made the first
publication of the notice of such meeting within 21 days after receipt of such
request or shall not thereafter proceed to cause the meeting to be held as
provided herein, then the Company or the Holders of Securities of such series in
the amount above specified, as the case may be, may determine the time and the
place in the Borough of Manhattan, The City of New York, or in London or such
other location as the Trustee shall determine for such meeting and may call such
meeting for such purposes by giving notice thereof as provided in subsection (a)
of this Section.
SECTION 1403. Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Bearer Securities a
Person shall (a) be a Holder of one or more Bearer Securities or (b) be a Person
appointed by an instrument in writing as proxy by a Holder of one or more Bearer
Securities. The only Persons who shall be entitled to be present or to speak at
any meeting of Holders of Bearer Securities shall be the Persons entitled to
vote at such meeting and their counsel and any representatives of the Trustee
and its counsel and any representatives of the Company and its counsel.
SECTION 1404. Quorum; Action.
The Persons entitled to vote a majority in aggregate principal amount of
the Outstanding Bearer Securities of a series shall constitute a quorum for a
meeting of Holders of Securities of such series. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of Holders of Securities of such series, be
dissolved. In any other case the meeting may be adjourned for a period of not
less than 10 days as determined by the chairman of the meeting prior to the
adjournment of such meeting. In the absence of a quorum at any such adjourned
meeting, such adjourned meeting may be further adjourned for a period of not
less than 10 days as determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting. Notice of the reconvening of any
adjourned meeting shall be given as provided in Section 1402(a), except that
such notice need be given only once not less than five days prior to the date on
which the meeting is scheduled to be reconvened. Notice of the reconvening of
an adjourned meeting shall state expressly the percentage, as provided above, of
the aggregate principal amount of the Outstanding Securities of such series
which shall constitute a quorum.
Except as limited by Section 512 or the proviso to the first paragraph of
Section 902, any resolution presented to a meeting (or adjourned meeting duly
reconvened at which a quorum is present as aforesaid) may be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
Outstanding Bearer Securities of that series; provided, however, that any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action which this Indenture expressly provides
may be made, given or taken by the Holders of a specified percentage, which is
less than a majority, in aggregate principal amount of the Outstanding Bearer
Securities of a series may be adopted at a meeting (or an adjourned meeting duly
reconvened and at which a quorum is present as aforesaid) by the affirmative
vote of the Holders of such specified percentage in principal amount of the
Outstanding Bearer Securities of that series.
To the extent consistent with the terms of this Indenture, any resolution
passed or decision taken at any meeting of Holders of Bearer Securities of any
series duly held in accordance with this Section shall be binding on all the
Holders of Securities of such series and the related coupons, whether or not
present or represented at the meeting.
54
<PAGE>
SECTION 1405. Determination of Voting Rights; Conduct and Adjournment of
Meetings.
(a) Notwithstanding any other provisions of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any meeting of
Holders of Bearer Securities of a series in regard to proof of the holding of
Securities of such series and of the appointment of proxies and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall deem appropriate.
Except as otherwise permitted or required by any such regulations, the holding
of Bearer Securities shall be proved in the manner specified in Section 104 and
the appointment of any proxy shall be proved in the manner specified in Section
104 or by having the signature of the Person executing the proxy witnessed or
guaranteed by any trust company, bank or banker authorized by Section 104 to
certify to the holding of Bearer Securities. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be presumed
valid and genuine without the proof specified in Section 104 or other proof.
(b) The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Holders of Bearer Securities as provided in Section 1402(b), in
which case the Company or the Holders of Bearer Securities of the series calling
the meeting, as the case may be, shall in like manner appoint a temporary
chairman. A permanent chairman and a permanent secretary of the meeting shall
be elected by vote of the Persons entitled to vote a majority in aggregate
principal amount of the Outstanding Securities of such series represented at the
meeting.
(c) At any meeting each Holder of a Security of such series or proxy shall
be entitled to one vote for each $1,000 principal amount of the Outstanding
Securities of such series held or represented by him; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Bearer Security
challenged as not Outstanding and ruled by the chairman of the meeting to be not
Outstanding. The chairman of the meeting shall have no right to vote, except as
a Holder of a Security of such series or proxy.
(d) Any meeting of Holders of Bearer Securities of any series duly called
pursuant to Section 1402 at which a quorum is present may be adjourned from time
to time by Persons entitled to vote a majority in principal amount of the
Outstanding Securities of such series represented at the meeting; and the
meeting may be held as so adjourned without further notice.
SECTION 1406. Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of Holders of Bearer
Securities of any series shall be by written ballots on which shall be
subscribed the signatures of the Holders of Securities of such series or of
their representatives by proxy and the principal amounts and serial numbers of
the Outstanding Securities of such series held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in duplicate of all votes cast at the meeting. A record, at least in
duplicate, of the proceedings of each meeting of Holders of Bearer Securities of
any series shall be prepared by the secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 1402 and, if
applicable, Section 1404. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
____________________________
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
55
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
COMPANY
NGC CORPORATION
By _____________________________
John U. Clarke
Senior Vice President
[Signature Page - 1]
<PAGE>
TRUSTEE
THE FIRST NATIONAL BANK OF CHICAGO
By _____________________________________
Name:
Title:
[Signature Page - 2]
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE TO BE GIVEN BY
BENEFICIAL OWNER OF
INTEREST IN A TEMPORARY GLOBAL SECURITY
NGC CORPORATION
[Title of Securities]
(the "Securities")
This is to certify that as of the date hereof, and except as set forth
below, the above-captioned Securities held by you for our account (i) are owned
by person(s) that are not citizens or residents of the United States, domestic
partnerships, domestic corporations or any estate or trust the income of which
is subject to United States Federal income taxation regardless of its source
("United States persons"), (ii) are owned by United States person(s) that are
(A) foreign branches of United States financial institutions (as defined in U.S.
Treasury Regulations Section 1.165-12(c)(1)(v)) ("financial institutions")
purchasing for their own account or for resale, or (B) United States person(s)
who acquired Securities through the foreign branches of the United States
financial institutions and who hold the Securities through such United States
financial institutions on the date hereof (and in either case (A) or (B), each
such United States financial institution hereby agrees, on its own behalf or
through its agent, to comply with the requirements of Section 165(j)(3)(A), (B)
or (C) of the Internal Revenue Code of 1986 as amended, and the regulations
thereunder), or (iii) are owned by United States or foreign financial
institution(s) for purposes of resale during the restricted period (as defined
in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and in addition if
the owner of the Securities is a United States or foreign financial institution
described in clause (iii) above (whether or not also described in clause (i) or
(ii)), this is to further certify that such financial institution has not
acquired the Securities for purposes of resale directly or indirectly to a
United States person or to a person within the United States or its possessions.
If the Securities are of the category contemplated in Section 230.903(c)(3)
of Regulation S under the Securities Act of 1933, as amended (the "Act"), then
this is also to certify that, except as set forth below, the Securities are
beneficially owned by (a) non-U.S. person(s) or (b) U.S. person(s) who purchased
the Securities in transactions which did not require registration under the Act.
As used herein, "United States" or "U.S." means the United States
(including the States and District of Columbia); and its "possessions" include
Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the
Northern Mariana Islands.
We undertake to advise you promptly by tested telex on or prior to the date
on which you intend to submit your certification relating to the Securities held
by you for our account in accordance with your Operating Procedures if any
applicable statement herein is not correct on such date, and in the absence of
any such notification it may be assumed that this certification applies as of
such date.
This certification excepts and does not relate to $________ of such
interest in the above Securities in respect of which we are not able to certify
and as to which we understand exchange and delivery of definitive Securities
(or, if relevant, exercise of any rights or collection of any interest) cannot
be made until we do so certify.
We understand that this certification is required in connection with
certain tax laws and, if applicable, certain securities laws of the United
States. In connection therewith, if administrative or legal proceedings are
A-1
<PAGE>
commenced or threatened in connection with which this certification is or would
be relevant, we irrevocably authorize you to produce this certification to any
interested party in such proceedings.
*Dated: ______________, 199__.
NAME OF PERSON MAKING CERTIFICATION
By: _____________________________________
_______________________________
* To be dated no earlier than the Certification Date.
A-2
<PAGE>
EXHIBIT B
FORM OF CERTIFICATION TO BE GIVEN BY THE
EURO-CLEAR OPERATOR OR CEDEL S.A.
NGC CORPORATION
[Title of Securities]
(the "Securities")
This is to certify that, based solely on certifications we have received in
writing, by tested telex or by electronic transmission from member organizations
appearing in our records as persons being entitled to a portion of the principal
amount set forth below (our "Member Organizations") substantially to the effect
set forth in the Indenture, dated as of September 26, 1996, among NGC
Corporation, and The First National Bank of Chicago as of the date hereof, as
supplemented, amended or restated, [ ] principal amount of the above-
captioned Securities (i) is owned by persons that are not citizens or residents
of the United States, domestic partnerships, domestic corporations or any estate
or trust the income of which is subject to United States Federal income taxation
regardless of its source ("United States persons"), (ii) is owned by United
States persons that are (A) foreign branches of United States financial
institutions (as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(v))
("financial institutions") purchasing for their own account or for resale, or
(B) United States persons who acquired the Securities through foreign branches
of United States financial institutions and who hold the Securities through such
United States financial institutions on the date hereof (and in either case (A)
or (B), each such United States financial institution has agreed, on its own
behalf or through its agent, that it will comply with the requirements of
Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder), or (iii) is owned by United States or
foreign financial institutions for purposes of resale during the restricted
period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)),
and to the further effect that the United States or foreign financial
institutions described in clause (iii) above (whether or not also described in
clause (i) or (ii)) have certified that they have not acquired the Securities
for purposes of resale directly or indirectly to a United States person or to a
person within the United States or its possessions.
If the Securities are of the category contemplated in Section 230.903(c)(3)
of Regulation S under the Securities Act of 1933, as amended, then this is also
to certify with respect to such principal amount of Securities set forth above
that, except as set forth below, we have received in writing, by tested telex or
by electronic transmission, from our Member Organizations entitled to a portion
of such principal amount, certifications with respect to such portion,
substantially to the effect set forth in the Indenture.
We further certify (i) that we are not making available herewith for
exchange (or, if relevant, exercise of any rights or collection of any interest)
any portion of the temporary global Security excepted in such certifications and
(ii) that as of the date hereof we have not received any notification from any
of our Member Organizations to the effect that the statements made by such
Member Organizations with respect to any portion of the part submitted herewith
for exchange (or, if relevant, exercise of any rights or collection of any
interest) are no longer true and cannot be relied upon as of the date hereof.
B-1
<PAGE>
We understand that this certification is required in connection with
certain tax laws and, if applicable, certain securities laws of the United
States. In connection therewith, if administrative or legal proceedings are
commenced or threatened in connection with which this certification is or would
be relevant, we irrevocably authorize you to produce this certification or a
copy hereof to any interested party in such proceedings.
Dated: _______________, 199__.
(dated the Exchange Date or the Interest
Payment Date)
[Morgan Guaranty Trust Company of New
York, as operator of the Euro-clear
System]
or
[CEDEL S.A.]
By: ____________________________________
B-2
<PAGE>
Exhibit 10.9
April 30, 1997
Mr. Charles Watson
11766 Quail Creek Drive
Houston, Texas 77070
Dear Chuck:
Subject to the ratification of this Agreement by the Compensation,
Corporate Governance and Human Resources Committee ("Compensation Committee") of
the Board of Directors of NGC Corporation, set forth below are the terms of your
employment by NGC Corporation (hereinafter referred to as "NGC" or the
"Company").
1. Title and Duties
Your title will be Chairman and Chief Executive Officer of the
Company. Your duties and responsibilities will be as described in the Company's
Bylaws and as delegated by the Board of Directors of the Company from time to
time during the Term of the Agreement, to the extent such duties and
responsibilities are consistent with your duties and responsibilities as of
January 31, 1997, or as otherwise agreed by you. On May 15, 2000, you may,
should you elect to do so, serve only as Chairman of the Company, and your
duties will be correspondingly adjusted in a manner consistent with the
Company's Bylaws and as mutually agreed by you and the Board of Directors of the
Company. You shall devote your full time, energy and skill to the performance
of your duties for NGC, and will exercise due diligence and reasonable care in
the performance of such duties. You shall at all times report directly to the
Board of Directors of the Company.
2. Term
(a) Unless earlier terminated as provided for herein, the term of this
Agreement will be for five years, beginning on May 15, 1997, and ending on May
14, 2002 (the "Term").
(b) If your employment with NGC is terminated by you due to your
voluntary resignation or by NGC for "cause", this Agreement shall terminate
immediately (except for the confidentiality, non-competition and non-
solicitation provisions of Paragraph 4, and the provisions of Paragraphs 5 and
6), and the Company shall have no further obligation to you except for the
payment of amounts due before the date of such termination and except that you
will be fully vested with regard to all stock options (irrespective of the date
of the grant of such options and irrespective of the vesting schedule otherwise
applicable to such options) previously granted to you in lieu of incentive
compensation payable in cash, to which you were otherwise entitled under the
Incentive Compensation Plan, as provided in Paragraph 3(b) below, and you
shall be permitted to retain such options for future exercise or sell such stock
received on exercise as though you had remained in the
<PAGE>
Mr. Charles Watson Page 2 April 30, 1997
employment of the Company until the end of the Term, and the Company shall take
such actions as permitted by applicable law to cause such vesting and option
retention. However, nothing in this Paragraph 2(b) shall require accelerated
vesting or accelerated exercisability of any other stock options that you may
have been granted. You further agree that the benefits which you have received
from the execution of this Agreement through the date of such termination
constitute sufficient consideration for your obligations pursuant to Paragraph
4, notwithstanding the fact that the Company has no further obligation to you
except for the payment of amounts due before the date of such termination and
except for you being full vested with regard to all stock options (irrespective
of the date of the grant of such options and irrespective of the vesting
schedule otherwise applicable to such options) previously granted to you in lieu
of incentive compensation payable in cash, to which you were otherwise entitled
under the Incentive Compensation Plan, as provided in Paragraph 3(b) below, and
you shall be permitted to retain such options for future exercise or sell such
stock received on exercise as though you had remained in the employment of the
Company until the end of the Term, and the Company shall take such actions as
are permitted by applicable law to cause such vesting and option retention. For
purposes of this Agreement, you may be terminated for "cause" by majority vote
of (excluding yourself) the Board of Directors of NGC as a result of (1) the
occurrence of one of the following: (i) serious misconduct, dishonesty or
disloyalty, directly related to the performance of duties for the Company, which
results from a willful act or omission or from gross negligence, and which is
materially or potentially materially injurious to the operations, financial
condition or business reputation of the Company or any significant subsidiary
thereof; (ii) your being convicted (or entering into a plea bargain admitting
criminal guilt) in any criminal proceeding that may have an adverse impact on
the Company's reputation and standing in the community; (iii) drug or alcohol
abuse, but only to the extent that such abuse has an obvious and material effect
on the Company's reputation and/or on the performance of your duties and
responsibilities under this Agreement; (iv) willful and continued failure to
perform your duties under this Agreement; or (v) any other material breach of
this Agreement by you, and (2) such event, conduct or condition that may result
in termination for cause is not cured within thirty days after written notice is
delivered to you from the Company. For these purposes, no act or failure to act
shall be considered "willful" unless it is done, or omitted to be done, in bad
faith without reasonable belief that the action or omission was in the best
interest of the Company. In the event corrective action is not satisfactorily
taken by you, in each case as determined by the Board, as described above, a
final written notice of termination shall be provided to you by the Company.
(c) If your employment is terminated during the Term of this Agreement
due to resignation following "constructive termination" (as defined below) or
for any other reason other than your voluntary resignation, death, disability,
or discharge for cause, this Agreement shall terminate immediately (except for
the confidentiality and non-solicitation provisions of Paragraph 4 and the
provisions of Paragraphs 5 and 6) and you shall receive:
(i) your Base Salary as described in Paragraph 3(a) through the
date of termination;
(ii) in lieu of further payments to you pursuant to Paragraph 3, the
Company shall pay you within thirty days of the date of your termination, a
lump sum
<PAGE>
Mr. Charles Watson Page 3 April 30, 1997
amount equal to the product of (A) the average annual Base Salary and
incentive compensation, whether payable in cash or stock options, you were
paid by the Company during the three calendar years preceding the calendar
year in which your employment terminated, multiplied by (B) 2.99;
(iii) a lump sum (without any present value discount) of all
deferred compensation payable to you pursuant to the Company's Deferred
Compensation Plan and Trust Agreement;
(iv) a lump sum amount equal to the present value, as determined
by the Board of Directors in its sole discretion, of the benefits you would
have received or accrued under the provisions (as in effect on the date of
termination) of the Company's employee benefit plans had your employment
continued for the Term of this Agreement, at the rate of compensation then
in effect on the date of termination (including specifically, but without
limitation, the benefits which you would have been entitled to receive
(directly or indirectly) pursuant to all Split Dollar Agreements between
the Company and you (or any irrevocable trust created by you), and the
Charitable Donation Plan approved by the Company's Compensation Committee
at its March 14, 1996 Meeting;
(v) full vesting in all stock options previously granted to you
(irrespective of the date of the grant of such stock options and
irrespective of the vesting schedule otherwise applicable to such stock
options); you shall be permitted to retain such options for future exercise
or sell such stock received on exercise as though you had remained in the
employment of the Company until the end of the Term, and the Company shall
take such actions as are permitted by applicable law to cause such vesting
and option retention;
(vi) additionally, the provisions of Paragraphs 3(f), 8(h) and
8(i) shall remain in effect as though this Agreement expired at the end of
its Term described in Paragraph 2(a), irrespective of its earlier
termination; and
(vii) a lump sum amount (without any present value discount) of
the benefits to be provided to you under Paragraph 3(i) of this Agreement,
such perquisites set forth on Schedule I attached hereto (other than the
vacations and holidays identified as number 4 and the use of the Company
aircraft identified as number 7 on Schedule I) and such other perquisites
(if any) being provided to you on the date of your termination, as if you
were still employed for the remainder of the Term of this Agreement, with
regard to those benefits to be provided to you during the Term of this
Agreement, and as if you had completed the Term of this Agreement, with
regard to those benefits to be provided to you upon completion of the Term
of this Agreement.
For purposes of this Agreement a "constructive termination" shall be
deemed to have occurred in the event that (i) your Base Salary as defined in
Paragraph 3(a), bonus compensation under Paragraph 3(b), option grants under
Paragraph 3(d) or other compensation as described in Paragraph 3(e) and 3(f) is
reduced; (ii) a significant diminution in your responsibilities, authority or
<PAGE>
Mr. Charles Watson Page 4 April 30, 1997
scope of duties is effected by the Board of Directors and such diminution is
made without your written consent (without regard to whether or not any change
is made to your title); (iii) the Company materially breaches this Agreement or
(iv) a change in control of the Company occurs. For purposes of this Agreement,
a "change in control of the Company" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule l3d-3
under the Exchange Act), directly or indirectly, of 50% or more of the total
voting stock of the Company; (b) the Company is merged with or into or
consolidated with another person and, immediately after giving effect to the
merger or consolidation, (A) less than 50% of the total voting power of the
outstanding voting stock of the surviving or resulting person is then
"beneficially owned" (within the meaning of Rule l3d-3 under the Exchange Act)
in the aggregate by (x) the stockholders of the Company immediately prior to
such merger or consolidation, or (y) if a record date has been set to determine
the stockholders of the Company entitled to vote with respect to such merger or
consolidation, the stockholders of the Company as of such record date and (B)
any "person" or "group" (as defined in Section 13(d)(3) or 14(d)(2) of the
Exchange Act) has become the direct or indirect "beneficial owner" (as defined
in Rule l3d-3 under the Exchange Act) of 50% or more of the voting power of the
voting stock of the surviving or resulting person; (c) the Company, either
individually or in conjunction with one or more of its subsidiaries, sells,
assigns, conveys, transfers, leases or otherwise disposes of, or the
subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of, all
or substantially all of the properties and assets of the Company and the
subsidiaries, taken as a whole (either in one transaction or a series of related
transactions), to any person (other than the Company or a wholly owned
subsidiary); (d) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by stockholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
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 Board of Directors of the Company then in office; or (e) the
liquidation or dissolution of the Company. Any resignation by you as a result of
assertion of a constructive termination shall be communicated by delivery to the
Board of Directors of the Company of thirty days' advance written notice of such
constructive termination and the grounds therefor, during which period the
Company shall be entitled to cure or remedy the matters set forth in such notice
to your reasonable satisfaction. Unless you withdraw such notice prior to the
expiration of such thirty day period, such resignation shall take effect upon
the expiration of thirty days from the date of the delivery of such notice. Any
other resignation by you shall be communicated by thirty days' advance written
notice.
(d) If you die, or become disabled and cannot perform your duties,
this Agreement shall terminate immediately and you (or your estate) shall be
entitled to the Base Salary (as defined in Paragraph 3 (a)) payable to you
hereunder for twelve months following the month in which you die or become
disabled, plus the amount of any guaranteed bonus as described in Paragraph 3(b)
guaranteed pursuant to Paragraph 3(b) for the year of death or disability,
prorated through the date of death or disability. For purposes of this
Agreement, you shall be disabled as of the first date on which you become
eligible to receive disability benefits under the Company's long-term disability
<PAGE>
Mr. Charles Watson Page 5 April 30, 1997
plan (or Social Security disability benefits at a time when the Company does
not maintain a long-term disability plan or such plan is not available to you).
In addition, you or your estate shall be entitled to the benefits of Paragraph 5
below, and the Company will maintain (i) for a period of twenty-four months from
the date of your death or disability, all health insurance that the Company was
maintaining for you and/or your estate and for your family as of the date of
your death or disability and (ii) at all times following the date of your death
or disability, all Directors and Officers Liability Insurance that the Company
was maintaining for you and/or your estate as of the date of your death or
disability. Finally, if your death or the date of your disability occurs on or
after May 15, 2000, then you or your estate (whichever situation is applicable)
shall be fully vested with regard to all stock options previously granted to you
(irrespective of the date of the grant of such stock options and irrespective of
the vesting schedule otherwise applicable to such options); however, if your
death or the date of your disability occurs before May 15, 2000, then you or
your estate will nevertheless be fully vested with regard to all stock options
(irrespective of the date of the grant of such options and irrespective of the
vesting schedule otherwise applicable to such options) previously granted to you
in lieu of incentive compensation payable in cash, to which you were otherwise
entitled under the Incentive Compensation Plan, as provided in Paragraph 3(b)
below; in either event, you or your estate shall be permitted to retain such
options for future exercise or sell such stock received on exercise as though
you had remained in the employment of the Company until the end of the Term, and
the Company shall take such actions as are permitted by applicable law to cause
such vesting and option retention.
3. Compensation
(a) Each year during the Term hereof, you will be paid a base salary
of $999,000 per annum ("Base Salary"), payable in accordance with the Company's
payroll guidelines. Increases may be made to your Base Salary at the discretion
of the Board of Directors, based upon your individual performance.
(b) You shall be a participant in the Company's Incentive Compensation
Plan. You shall receive a guaranteed Incentive Compensation Plan bonus of at
least $500,000 per annum during the five year Term, which guaranteed amount
shall be prorated for any calendar year during the Term hereof that is less than
twelve (12) full months. As part of NGC's incentive compensation program, you
will have the opportunity to earn up to 200% of your Base Salary, dependent upon
certain financial or performance objectives, determined in accordance with such
program, and by the Board. At your election, in lieu of paying you all or part
of such incentive compensation bonus, the Company will allow you to direct that
all or part of such incentive compensation shall be allocated by the Company to,
or expended directly for, charitable contributions of your selection and/or
payments of insurance premiums pursuant to any Split Dollar Agreement between
the Company and the Watson 1996 Family Trust (an irrevocable trust created on
March 22, 1996, by you and Kim R. Watson, as the Grantors, and David C. Feldman,
as the Trustee). To the extent any incentive compensation in excess of the
minimum guaranteed amount referenced above is payable under the Incentive
Compensation Plan in any year to you, at your election, in lieu of paying such
amount, the Company will provide you with stock options of equal value. "Equal
value", for such purpose, will be determined by an independent consultant
selected by the Board. You will be responsible for the
<PAGE>
Mr. Charles Watson Page 6 April 30, 1997
tax consequences to you of any such election. Notwithstanding anything in this
Paragraph 3(b) to the contrary, on and after May 15, 2000, should you elect to
serve solely as Chairman of the Company, you shall be entitled under the
Company's Incentive Compensation Plan to only the minimum guaranteed bonus
described in this Paragraph 3(b) for years in which you do not serve as Chief
Executive Officer, except as otherwise determined by the Company's Board of
Directors.
(c) You shall be designated as a participant in the NGC Corporation
Equity Option Plan (the "Option Plan"), the NGC Amended and Restated 1991 Stock
Option Plan (the "Stock Option Plan") and any other option or warrant plans
established by the Company, and shall be entitled to purchase shares of common
stock of the Company provided thereunder. At a minimum, each year (meaning for
each twelve (12) month period commencing with the most recent May 15 date)
during the Term of this Agreement, commencing May 15, 1997, you will receive
stock option grants, with an exercise price equal to market price on date of
grant, under the Stock Option Plan, with a five year projected value of
$1,500,000. You recognize that the projected value is subject to the future
market performance of the Company stock and that there is no guarantee that the
projected value of such options will achieve that actual value. "Projected
value" means that at the end of five years from date of grant, assuming increase
in market price of 15% per annum during the five years, the stock option may be
exercised to obtain stock having a market price of $1,500,000 in excess of the
exercise price. These options are subject to the vesting, forfeiture and other
terms and conditions of the Stock Option Plan, except as specifically provided
to the contrary in this Agreement.
(d) You will be entitled to participate in NGC's benefits programs for
senior management executives, including, without limitation, NGC's deferred
compensation plan for executives, and NGC's Alternative Benefits for Senior
Executives Plan.
(e) You shall be entitled to participate in, and shall be entitled to
receive all benefits available to a participant under, such other plans as the
Board in its discretion determines, which shall include, but not be limited to,
all Split Dollar Agreements between the Company and the Watson 1996 Family Trust
(an irrevocable trust created on March 22, 1996 by you and the Kim R. Watson, as
the Grantors, and David C. Feldman, as the Trustee), and the Charitable Donation
Plan approved by the Company's Compensation Committee at its March 14, 1996
meeting.
(f) During the Term of this Agreement, or until termination of this
Agreement if this Agreement terminates prior to expiration of the Term (except
as provided in Paragraph
<PAGE>
Mr. Charles Watson Page 7 April 30, 1997
2(c)(vi)), the Company will pay all premiums on a policy of insurance providing
term protection only and no cash values, with a death benefit payable upon your
death in the amount of $1,000,000. You shall at all times own the policy and
have the right to designate the beneficiary of any death proceeds. You will be
responsible for policy selection, coverage and effectiveness of the policy and
any income taxes arising in connection therewith; the Company's only obligation
being to pay such premiums.
(g) You shall be entitled to participate in such other plans and
receive such other perquisites as the Board of Directors of the Company in its
sole discretion determines. You shall also receive the perquisites set forth on
Schedule I attached hereto and by this reference incorporated herein.
(h) If you complete the Term of this Agreement prior to your
separation from employment for any reason, then in addition to being entitled to
all compensation, awards, grants or benefits made by the Company to you or
otherwise earned by you pursuant to this Agreement or any employee benefit plans
of which you are a participant, to the extent permitted by applicable law and
the terms of the applicable plan document, you will be fully vested with regard
to all stock options previously granted to you (irrespective of the date of the
grant of such stock options and irrespective of the vesting schedule otherwise
applicable to such stock options), including, but not limited to, such stock
options granted to you under the Option Plan and/or the Stock Option Plan. The
grant instruments awarding you such options shall be written consistently with
this Paragraph 3(h), to the extent permitted by applicable law. If you do not
complete the Term of this Agreement prior to your separation from employment due
to termination in accordance with Paragraph 2(c) or 2(d), then you shall also be
fully vested with regard to all stock options previously granted to you to the
extent provided in Paragraph 2(c) or 2(d); furthermore, if you do not complete
the Term of this Agreement prior to your separation from employment due to
termination other than in accordance with Paragraph 2(c) or 2(d), then you shall
only be fully vested with regard to all stock options (irrespective of the date
of the grant of such options and irrespective of the vesting schedule otherwise
applicable to such options) previously granted to you in lieu of incentive
compensation payable in cash, to which you were otherwise entitled under the
Incentive Compensation Plan, as provided in Paragraph 3(b) above; in either
event, you shall be entitled to retain such options for future exercise or sell
such stock received on exercise as though you had remained in the employment of
the Company until the end of the Term, and the Company shall take such actions
as are permitted by applicable law to cause such vesting and option retention.
(i) In the event that you remain continuously employed through May 15,
2002 or your separation from employment prior to completion of the Term of the
Agreement is due to termination pursuant to Paragraph 2(c), then the Company
shall provide to you at its expense for a period of five years thereafter an
office separately located from the offices of the Company that is comparable in
size and facilities to that provided by the Company during the Term of this
Agreement. The Company shall also pay for maintenance of such office space. You
shall also be entitled to equip the office with (and retain as your own
following completion of the five year period) the furniture, cabinets, pictures,
equipment and office furnishings (but not any intrinsically valuable art works
or collectibles) used by you in your office at the end of the Term or at the
time of
<PAGE>
Mr. Charles Watson Page 8 April 30, 1997
termination. You shall be responsible for the tax consequences to you of the
provisions of this Paragraph 3(i).
4. Confidentiality
You recognize and acknowledge that:
(a) You will have access to certain information concerning the Company
that is confidential and proprietary and constitutes valuable and unique
property of the Company. You agree that you will not at any time, either during
or after your employment, disclose to others, use, copy or permit to be copied,
except pursuant to your duties on behalf of the Company or its successors,
assigns or nominees, any secret or confidential information of the Company
(whether or not developed by you) without the prior written consent of the Board
of Directors of the Company. The term "secret or confidential information of
the Company" (sometimes referred to herein as "Confidential Information") shall
include, without limitation, the Company's plans, strategies, potential
acquisitions, costs, prices, systems for buying, selling, and/or trading energy
commodities, natural gas, natural gas liquids, crude oil, coal, and electricity,
client lists, pricing policies, financial information, the names of and
pertinent information regarding suppliers, computer programs, policy or
procedure manuals, training and recruiting procedures, accounting procedures,
the status and content of the Company's contracts with its suppliers or clients,
or servicing methods and techniques at any time used, developed, or investigated
by the Company, before or during your tenure of employment to the extent any of
the foregoing are (i) not generally available to the public and (ii) maintained
as confidential by the Company. You further agree to maintain in confidence any
confidential information of third parties received as a result of your
employment and duties with the Company.
(b) At the termination of your employment you will deliver to the
Company, as determined appropriate by the Company, all correspondence,
memoranda, notes, records, client lists, computer systems, programs, or other
documents and all copies thereof made, composed or received by you, solely or
jointly with others, and which are in your possession, custody, or control at
such date and which are related in any manner to the past, present, or
anticipated business of the Company.
(c) To protect and safeguard the Company's trade secrets and
Confidential Information and also the Company's goodwill with its suppliers and
clients, for a period of twenty-four months following the termination of your
employment for any reason other than pursuant to Paragraph 2(c) above, you will
not, within a 50 mile radius of any location where the Company had an office at
any time during the Term hereof or any location where a client or supplier of
the Company (which is a material client or supplier at any time during the Term
hereof) had an office at any time during the Term hereof, without the prior
written consent of the Board of Directors of the Company, directly or
indirectly, engage in or be interested in (as owner, partner, shareholder,
employee, director, agent, consultant or otherwise), any business which is a
competitor of the Company, as hereinafter defined. The preceding sentence shall
not apply, if your employment is terminated pursuant to Paragraph 2(c) above.
For purposes of this Agreement, a "competitor of the
<PAGE>
Mr. Charles Watson Page 9 April 30, 1997
Company" is any entity, including without limitation a corporation, sole
proprietorship, partnership, joint venture, syndicate, trust or any other form
of organization or a parent, subsidiary or division of any of the foregoing,
which, during such period or the immediately preceding fiscal year of such
entity, derived twenty percent (20%) or more of its gross revenues, or twenty
percent (20%) or more of its gross profits, or Fifty Million Dollars
($50,000,000) or more in gross revenues, from the unregulated marketing,
gathering, transportation or processing of natural gas or derivatives of natural
gas or other hydrocarbons or electricity. For purposes of this Paragraph and
notwithstanding anything to the contrary contained in the preceding sentence,
the following entities shall not be deemed to be competitors of the Company: (i)
a Local Distribution Company ("LDC") to the extent that any purchases or sales
by such LDC are only for consumption on its system; (ii) a natural gas producer
to the extent that such producer sells only its own production or production of
other working interest owners in wells in which it owns an interest; (iii) a
natural gas pipeline company in the jurisdictional aspects of its business,
i.e., other than a nonjurisdictional marketing affiliate or production affiliate
(except as to such production affiliate's own production as described in clause
(ii) of this Paragraph 4(c)). The terms of this Paragraph 4(c) shall not apply
to your present or future investments in the securities of companies listed on a
national securities exchange or traded on the over-the-counter market to the
extent such investments do not exceed five percent of the total outstanding
shares of any such company.
(d) For a period of twenty-four months after the expiration or
termination of your employment for whatever reason other than pursuant to
Paragraph 2(c) above or for a period of twelve months following the termination
of your employment pursuant to Paragraph 2(c) above, you shall not induce or
otherwise entice any employee of the Company to leave the Company, nor shall you
attempt to hire any of the Company's employees, provided that you shall always
have the right to induce or otherwise entice your personal secretary to leave
the Company to work for you.
(e) You agree that the foregoing restrictions contain reasonable
limitations as to the time, geographical area, and scope of activity to be
restrained and that these restrictions do not impose any greater restraint than
is necessary to protect the goodwill and other legitimate business interests of
the Company, including but not limited to the protection of Confidential
Information. You agree that, in the event of a breach or threatened breach by
you of any of the provisions of this Paragraph 4, the Company shall be entitled
to injunctive relief restraining and preventing you from any violation thereof,
as any such breach or threatened breach would cause irreparable injury to the
Company for which it would have no adequate remedy at law. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedies
available for any such breach or threatened breach, including the recovery of
damages from you. You also agree that the general public shall not be harmed by
enforcement of this Paragraph 4. Should any provision in this Paragraph 4 be
held unreasonably broad with respect to the restrictions as to time,
geographical area, or scope of activity to be restrained, any such restriction
shall be construed by limiting and reducing it to the extent necessary to render
it reasonable, and as so construed, such provision shall be enforced.
5. Indemnification
<PAGE>
Mr. Charles Watson Page 10 April 30, 1997
If, at any time during or after the Term of this Agreement, you are
made a party to, or are threatened to be made a party in, any civil, criminal or
administrative action, suit or proceeding by reason of the fact that you are or
were a director, officer, employee, or agent of the Company, or of any other
corporation or any partnership, joint venture, trust or other enterprise for
which you served as such at the request of the Company, then you shall be
indemnified by the Company against expenses actually and reasonably incurred by
you or imposed on you in connection with, or resulting from, the defense of such
action, suit or proceeding, or in connection with, or resulting from, any appeal
therein if you acted in good faith and in a manner you reasonably believed to be
in or not opposed to the best interest of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe your conduct
was unlawful, except with respect to matters as to which it is adjudged that you
are liable to the Company or to such other corporation, partnership, joint
venture, trust or other enterprise for gross negligence or willful misconduct in
the performance of your duties. As used herein, the term "expenses" shall
include all obligations actually and reasonably incurred by you for the payment
of money, including, without limitation, attorney's fees, judgments, awards,
fines, penalties and amounts paid in satisfaction of a judgment or in settlement
of any such action, suit or proceeding, except amounts paid to the Company or
such other corporation, partnership, joint venture, trust or other enterprise by
you.
6. Arbitration
Any controversy or claim arising out of or relating to this Agreement,
or any breach thereof, shall, except as provided in Paragraph 4, be adjudged
only by arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon such award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in the City of Houston, Texas, or such other place as may be agreed upon at the
time by the parties to the arbitration. Subject to the limitations set forth
below, the arbitrator(s) shall, in their award, allocate between the parties the
costs of arbitration, which shall include reasonable attorneys' fees of the
parties, as well as the arbitrators' fees and expenses, in such proportions as
the arbitrator(s) deem just; however, notwithstanding the above, in the event
you are the prevailing party, then the Company agrees to reimburse you for all
such costs of arbitration, including but not limited to attorneys' fees and
arbitrators' fees and expenses reasonably incurred by you; further provided,
however, notwithstanding the above, in the event the Company is the prevailing
party, then the total costs of arbitration, including but not limited to
attorneys' fees reasonably incurred by the Company and arbitrators' fees and
expenses, that may be allocated to you by the arbitrator(s) shall not in any
event exceed Twenty-Five Thousand Dollars ($25,000). Notwithstanding the
foregoing, you shall be entitled to seek specific performance in a court of
competent jurisdiction of your right to be paid your full compensation until
your separation from employment, during the pendency or dispute of any
controversy arising under or in connection with this Agreement.
<PAGE>
Mr. Charles Watson Page 11 April 30, 1997
7. Physical Examination
You agree, during each fiscal year of the Company, to undergo a
complete physical examination at Company expense, and you further agree that the
finding or diagnosis of a terminal illness or physical or mental condition that
will materially impair your ability to perform your duties and responsibilities
under this Agreement, which is the result of such examination, will be disclosed
to the Executive Committee of the Board. You agree to direct such disclosure to
the Executive Committee of the Board by an instrument in writing, if necessary,
but no disclosure shall be made to any other party without your written consent.
8. Other Provisions
(a) This Agreement will be governed by, construed and enforced in
accordance with the laws of the State of Texas, excluding any conflicts of law,
rule or principle that might otherwise refer to the substantive law of another
jurisdiction.
(b) Except as otherwise indicated, this Agreement is not assignable
without the written authorization of both parties; provided that the Company may
assign this Agreement to any entity to which the Company transfers substantially
all of its assets or to any entity which is a successor to the Company by
reorganization, incorporation, merger or similar business combination. In the
event of any such transfer or assignment by the Company, the rights and
privileges of the Board hereunder shall be vested in the Board of Directors or
other governing body of the transferee or successor entity, and the protection
afforded to the Company's affiliates hereunder shall extend to the affiliates of
such transferee or successor entity. However, notwithstanding anything to the
contrary contained herein, this Agreement will be binding upon any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, and the
Company will require any such successor by agreement, in form and substance
satisfactory to you, to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. In addition to your rights
above, if a change in control of the Company occurs as described in Paragraph
2(c) above, the failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on the
same terms as you would be entitled to hereunder if you resigned your employment
due to a constructive termination as described in Paragraph 2(c) above, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the date of termination. As used
in this Agreement, the "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Paragraph 8(b) or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law. This Agreement and all rights of the parties hereto shall inure to the
benefit of and be enforceable by the parties hereto, their assigns, personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devises and legatees.
<PAGE>
Mr. Charles Watson Page 12 April 30, 1997
(c) Except as otherwise provided herein, the provisions of Paragraphs
4, 5 and 6 of this Agreement shall survive the termination of this Agreement.
(d) This Agreement supersedes all previous employment agreements,
written or oral, between the Company and you. You hereby represent and warrant
to the Company that, as of January 31, 1997, you have been paid in full all
compensation currently payable or owing from the Company, except for amounts
owing to you under the Company's Deferred Compensation Plan and Trust Agreement
and/or any other employee benefit plans with respect to which benefits are not
yet currently payable to you. The Company represents and warrants that until
May 15, 1997, you will be paid in full all compensation currently payable or
owing from the Company under the provisions of that certain Employment Agreement
dated May 19, 1992 between you and Natural Gas Clearinghouse, the predecessor to
the Company (which provisions shall continue to apply until May 15, 1997, at
which time the provisions of this Agreement shall apply), except for amounts
owing to you under the Company's Deferred Compensation Plan and Trust Agreement
and/or any other employee benefit plans with respect to which benefits are not
yet currently payable to you. You further hereby represent and warrant that, if
the Company satisfies all of its obligations to you in accordance with the
preceding sentence, then as of May 15, 1997, you will have been paid in full all
compensation currently payable or owing from the Company, except for amounts
owing to you under the Company's Deferred Compensation Plan and Trust Agreement
and/or any other employee benefit plans with respect to which benefits are not
yet currently payable to you. This Agreement may be amended only by written
amendment duly executed by both parties hereto or their legal representatives
and authorized by action of the Board. Except as otherwise specifically
provided in this Agreement, no waiver by either party hereto of any breach by
the other party hereto of any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of a subsequent breach of
such condition or provision or a waiver of a similar or dissimilar provision or
condition at the same or at any prior or subsequent time.
(e) Any notice or other communication required or permitted pursuant
to the terms of this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States mail, first class,
postage prepaid and registered with return receipt requested, addressed to the
intended recipient at his or its address set forth below and, in the case of a
notice or other communication to the Company, directed to the attention of the
Board of Directors with a copy to the Secretary of the Company, or to such other
address as the intended recipient may have theretofore furnished to the sender
in writing in accordance herewith, except that until any notice of change of
address is received, notices shall be sent to the following addresses:
If to you: If to the Company
--------- -----------------
Charles Watson NGC Corporation
11766 Quail Creek Drive 1000 Louisiana, Suite 5800
Houston, Texas 77070 Houston, Texas 77002-5050
(f) If any one or more of the provisions or parts of a provision
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such
<PAGE>
Mr. Charles Watson Page 13 April 30, 1997
invalidity or unenforceability shall not affect any other provision or part of a
provision of this Agreement, but this Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision or part of a provision
had never been contained herein and such provisions or part thereof shall be
reformed so that it would be valid, legal and enforceable to the maximum extent
permitted by law.
(g) You shall not be required to mitigate damages (or the amount of
any compensation provided under this Agreement to be paid) following your
termination of employment, by seeking employment or otherwise.
(h) In the event that the Incentive Compensation Plan, the Deferred
Compensation Plan and Trust Agreement, the Option Plan or the Stock Option Plan
are amended to reduce, modify limit or restrict any of your accrued or vested
rights thereunder, no such amendment shall apply to you without your written
consent.
(i) The Company shall maintain during the Term of this Agreement and
for all times thereafter Directors and Officers Liability Insurance covering you
(or your estate, if you are deceased or incompetent), which provides coverage at
least as favorable to you (or your estate, if you are deceased or incompetent),
as coverage under the Company's policy in effect on December 31, 1996, and which
coverage shall be increased from time to time in such amounts as the Board may
determine to be appropriate in light of the Company's operations.
(j) The Company will not amend the provisions of its governing
documents which pertain to your indemnification in your capacity as an officer
and/or member of the Board of the Company except to substitute therefor
provisions which are more favorable to you, except as otherwise required by law
or the rules of any securities exchange or similar entity, or by applicable law.
<PAGE>
Mr. Charles Watson Page 14 April 30, 1997
If the foregoing reflects your understanding of the terms of your
employment with the Company, please execute each copy of this letter in the
space provided below.
NGC CORPORATION
By: /s/ Michael B. Barton
------------------------------
Its: Vice President-Human Resources
-----------------------
AGREED AND ACCEPTED this
30th day of April, 1997,
and effective as of May 15, 1997
/s/ Charles Watson
- ----------------------------------
Charles Watson
<PAGE>
Watson Employment Agreement - Schedule I
EXECUTIVE PERQUISITES
Except as provided below, as long as you remain in the employment of the Company
during the Term of this Agreement, you will be entitled to the following:
1. At your option, the use of an automobile of a type equivalent to that
presently provided by the Company for use by you, your spouse and members
of your immediate family, or a cash automobile allowance of $2,000 per
month.
2. Personal membership in the Petroleum Club in Houston, Texas and two (2)
other downtown Houston luncheon clubs of your choice, including dues and
all business-related expenses reimbursed. These memberships shall be
assigned to you in the event of termination of the Agreement for any
reason, and you shall pay dues from the date of termination but you shall
not be obligated to reimburse the Company for any amounts paid by the
Company prior to termination.
3. Personal country club membership in two (2) country clubs of your choice,
including dues and all business-related expenses reimbursed. These
memberships shall be assigned to you in the event of termination of the
Agreement for any reason, and you shall pay dues from the date of
termination but you shall not be obligated to reimburse the Company for any
amounts paid by the Company prior to termination. Notwithstanding
anything to the contrary in this Agreement or this Schedule, in no case
shall the Company be obligated to pay any amount of dues, fees or
reimbursement for or to any country club or luncheon club that, in the
determination of the Board, in its sole discretion, restricts membership or
the performance of services or the use of facilities on the basis of race,
religion, gender or national origin.
4. Vacations and holidays in accordance with the Company's policies in effect
from time to time for its senior executive officers, but not less than
eight (8) weeks of vacation during each fiscal year.
5. A benefit package including medical, hospital, dental, disability and life
insurance plans and coverage for you and your spouse and children at least
as favorable to you (and your spouse and children) as that provided to you
immediately prior to the commencement of the Term of this Agreement unless,
with respect to any particular plan or coverage, the continuation of such
existing plan or coverage would have material adverse financial or
regulatory consequences to the Company.
<PAGE>
6. Reimbursement of fees for financial planning and income tax preparation
(and reasonable accounting and legal fees associated therewith), which fees
shall not in the aggregate exceed One Hundred Thousand Dollars ($100,000).
7. Use of any aircraft owned or leased by the Company for Company business in
accordance with the policies adopted by the Board, which policy is subject
to the approval of the Board after May 15, 1997. You may also, in
accordance with such policies, which shall not be amended as they apply to
you without your prior consent, use any aircraft owned or leased by the
Company for your own personal business; provided, however, that (i) such
use does not adversely interfere with the use of such aircraft for Company
business, (ii) you shall maintain any records reasonably requested by the
Board, (iii) you shall compensate the company for such use at the Company's
actual after-tax costs for the use of such aircraft and (iv) such personal
use by you does not exceed fifty (50) hours of flight time usage of such
aircraft on a calendar year basis. You shall be responsible for paying any
income taxes attributable to taxable income arising from such aircraft use.
<PAGE>
EXHIBIT 10.10
May 8, 1997
Mr. Stephen Bergstrom
1715 Chestnut Grove
Kingwood, Texas 77345
Dear Steve:
Subject to the ratification of this Agreement by the Compensation,
Corporate Governance and Human Resources Committee ("Compensation Committee") of
the Board of Directors of NGC Corporation, set forth below are the terms of your
employment by NGC Corporation (hereinafter referred to as "NGC" or the
"Company").
1. Title and Duties
Your title shall be Senior Vice President of NGC Corporation and
President and Chief Operating Officer of Natural Gas Clearinghouse. You will at
all times report directly to the Company's Chief Executive Officer. You shall
devote your full time, energy and skill to the performance of your duties for
NGC, and will exercise due diligence and reasonable care in the performance of
such duties.
2. Term
(a) Unless earlier terminated as provided for herein, the term of this
Agreement will be for three years, beginning on May 15, 1997, and ending on May
14, 2000 (the "Term").
(b) If your employment with NGC is terminated by you due to your
voluntary resignation or by NGC for "cause", this Agreement shall terminate
immediately (except for the confidentiality, non-competition and non-
solicitation provisions of Paragraph 4 and the provisions of Paragraphs 5 and
6), and the Company shall have no further obligation to you except for the
payment of amounts due before the date of such termination and except that you
will be fully vested with regard to all stock options (irrespective of the date
of the grant of such options and irrespective of the vesting schedule otherwise
applicable to such options) previously granted to you in lieu of incentive
compensation payable in cash, to which you were otherwise entitled under the
Incentive Compensation Plan, as provided in Paragraph 3(b) below, and you shall
be permitted to retain such options for future exercise or sell such stock
received on exercise as though you had remained in the employment of the Company
until the end of the Term, and the Company shall take such actions as permitted
by applicable law to cause such vesting and option retention. However, nothing
in this Paragraph 2(b) shall require accelerated vesting or accelerated
exercisability of any other stock options that you may have been granted. You
further agree that the benefits which you have received from the execution of
this Agreement through the date of such termination constitute sufficient
<PAGE>
Mr. Stephen Bergstrom Page 2 May 8, 1997
consideration for your obligations pursuant to Paragraph 4, notwithstanding the
fact that the Company has no further obligation to you except for the payment of
amounts due before the date of such termination and except for you being fully
vested with regard to all stock options (irrespective of the date of the grant
of such options and irrespective of the vesting schedule otherwise applicable to
such options) previously granted to you in lieu of incentive compensation
payable in cash, to which you were otherwise entitled under the Incentive
Compensation Plan, as provided in Paragraph 3(b) below, and you shall be
permitted to retain such options for future exercise or sell such stock received
on exercise as though you had remained in the employment of the Company until
the end of the Term, and the Company shall take such actions as are permitted by
applicable law to cause such vesting and option retention. For purposes of this
Agreement, you may be terminated for "cause" by majority vote, excluding
yourself, of the Board of Directors of NGC as a result of (i) serious
misconduct, dishonesty or disloyalty, directly related to the performance of
duties for the Company, which results from a willful act or omission or from
gross negligence, and which is materially or potentially materially injurious to
the operations, financial condition or business reputation of the Company or any
significant subsidiary thereof; (ii) your being convicted (or entering into a
plea bargain admitting criminal guilt) in any criminal proceeding that may have
an adverse impact on the Company's reputation and standing in the community;
(iii) drug or alcohol abuse, but only to the extent that such abuse has an
obvious and material effect on the Company's reputation and/or on the
performance of your duties and responsibilities under this Agreement; (iv)
willful and continued failure to perform your duties under this Agreement; or
(v) any other material breach of this Agreement by you; and such event, conduct
or condition causing termination for cause is not cured within thirty days after
written notice is delivered to you from the Company. For these purposes, no act
or failure to act shall be considered "willful" unless it is done, or omitted to
be done, in bad faith without reasonable belief that the action or omission was
in the best interest of the Company. In the event corrective action is not
satisfactorily taken by you or cannot be satisfactorily taken by you, in each
case as determined by the Board, as described above, a final written notice of
termination shall be provided to you by the Company.
(c) If your employment is terminated during the Term of this Agreement
due to resignation following "constructive termination" (as defined below) or
for any other reason other than your voluntary resignation, death, disability,
or discharge for cause, this Agreement shall terminate immediately (except for
the confidentiality, non-competition and non-solicitation provisions of
Paragraph 4 and the provisions of Paragraphs 5 and 6) and you shall receive:
(i) your Base Salary as described in Paragraph 3(a) through the
date of termination;
(ii) in lieu of further payments to you pursuant to Paragraph 3,
the Company shall pay you within thirty days of the date of your
termination, a lump sum amount equal to the product of (A) the average
annual Base Salary and incentive compensation, whether payable in cash or
stock options, you were paid by the Company
<PAGE>
Mr. Stephen Bergstrom Page 3 May 8, 1997
during the three calendar years preceding the calendar year in which your
employment termination occurred, multiplied by (B) 2.99;
(iii) a lump sum of all (without any present value discount)
deferred compensation payable to you pursuant to the Company's Deferred
Compensation Plan and Trust Agreement;
(iv) a lump sum amount equal to the present value, as determined
by the Board of Directors in its sole discretion, of the benefits you would
have received or accrued under the provisions (as in effect on the date of
termination) of the Company's employee benefit plans had your employment
continued for the Term of this Agreement, at the rate of compensation then
in effect on the date of termination (including specifically, but without
limitation, the benefits which you would have been entitled to receive
(directly or indirectly) pursuant to all Split Dollar Agreements between
the Company and you (or any irrevocable trust created by you), and the
Charitable Donation Plan approved by the Company's Compensation Committee
at its March 14, 1996 Meeting;
(v) full vesting in all stock options previously granted to you
(irrespective of the date of the grant of such stock options and
irrespective of the vesting schedule otherwise applicable to such stock
options); you shall be permitted to retain such options for future exercise
or sell such stock received on exercise as though you had remained in the
employment of the Company until the end of the Term, and the Company shall
take such actions as are permitted by applicable law to cause such vesting
and option retention;
(vi) additionally, the provisions of Paragraphs 3(f), 7(h) and
7(i) shall remain in effect as though this Agreement expired at the end of
its Term described in Paragraph 2(a), irrespective of its earlier
termination; and
(vii) a lump sum amount (without any present value discount) of
such perquisites set forth on Schedule I attached hereto (other than the
vacations and holidays identified as number 3 and the use of the Company
aircraft identified as number 6 on Schedule I) and such other perquisites
(if any) being provided to you on the date of your termination, as if you
were still employed for the remainder of the Term of this Agreement, with
regard to those benefits to be provided to you during the Term of this
Agreement, and as if you had completed the Term of this Agreement, with
regard to those benefits to be provided to you upon completion of the Term
of this Agreement.
For purposes of this Agreement a "constructive termination" shall be
deemed to have occurred in the event that (i) your Base Salary as defined in
Paragraph 3(a), bonus compensation under Paragraph 3(b), option grants under
Paragraph 3(d) or other compensation as described in Paragraph 3(e) and 3(f) is
reduced; (ii) a significant diminution in your responsibilities, authority or
scope of duties is effected by the Board of Directors and such diminution is
made without your
<PAGE>
Mr. Stephen Bergstrom Page 4 May 8, 1997
written consent (without regard to whether or not any change is made to your
title); (iii) the Company materially breaches this Agreement; (iv) you cease to
directly report to the Chief Executive Officer of the Company; (v) you are
serving neither as a member of the Board of Directors of the Company nor in a
Board Advisory position for the Company, which Advisory role entitles you to
have all of the rights of a member of the Board of Directors of the Company with
the exception of the right to vote; or (vi) a change in control of the Company
occurs. For purposes of this Agreement, a "change in control of the Company"
means the occurrence of any of the following events: (a) any "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) is or becomes the "beneficial
owner" (as defined in Rule l3d-3 under the Exchange Act), directly or
indirectly, of more than 50% of the total voting stock of the Company; (b) the
Company is merged with or into or consolidated with another person and,
immediately after giving effect to the merger or consolidation, (A) less than
50% of the total voting power of the outstanding voting stock of the surviving
or resulting person is then "beneficially owned" (within the meaning of Rule
l3d-3 under the Exchange Act) in the aggregate by (x) the stockholders of the
Company immediately prior to such merger or consolidation, or (y) if a record
date has been set to determine the stockholders of the Company entitled to vote
with respect to such merger or consolidation, the stockholders of the Company as
of such record date and (B) any "person" or "group" (as defined in Section
13(d)(3) or 14(d)(2) of the Exchange Act) has become the direct or indirect
"beneficial owner" (as defined in Rule l3d-3 under the Exchange Act) of more
than 50% of the voting power of the voting stock of the surviving or resulting
person; (c) the Company, either individually or in conjunction with one or more
of its subsidiaries, sells, assigns, conveys, transfers, leases or otherwise
disposes of, or the subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of, all or substantially all of the properties and assets of
the Company and the subsidiaries, taken as a whole (either in one transaction or
a series of related transactions), to any person (other than the Company or a
wholly owned subsidiary); (d) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by stockholders of the
Company was approved by a vote of a majority of the directors then still in
office who were either 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 Board of Directors of the Company then in
office; or (e) the liquidation or dissolution of the Company. Any resignation by
you as a result of assertion of a constructive termination shall be communicated
by delivery to the Board of Directors of the Company of thirty days' advance
written notice of such constructive termination and the grounds therefor, during
which period the Company shall be entitled to cure or remedy the matters set
forth in such notice to your reasonable satisfaction. Unless you withdraw such
notice prior to the expiration of such thirty day period, such resignation shall
take effect upon the expiration of thirty days from the date of the delivery of
such notice. Any other resignation by you shall be communicated by thirty days'
advance written notice.
(d) If you die, or become disabled and cannot perform your duties,
this Agreement shall terminate immediately (except for the confidentiality, non-
competition and non-solicitation provisions of Paragraph 4 and the provisions of
Paragraphs 5 and 6) and you (or your estate) shall
<PAGE>
Mr. Stephen Bergstrom Page 5 May 8, 1997
be entitled to the Base Salary (as defined in Paragraph 3 (a)) payable to you
hereunder for twelve months following the month in which you die or become
disabled, plus the amount of any guaranteed bonus as described in Paragraph 3(b)
for the year of death or disability, prorated through the date of death or
disability. For purposes of this Agreement, you shall be disabled as of the
first date on which you become eligible to receive disability benefits under the
Company's long-term disability plan (or Social Security disability benefits at a
time when the Company does not maintain a long-term disability plan or such plan
is not available to you). In addition, you or your estate shall be entitled to
the benefits of Paragraph 5 below, and the Company will maintain (i) for a
period of twenty-four months from the date of your death or disability, all
health insurance that the Company was maintaining for you and/or your estate and
for your family as of the date of your death or disability and (ii) at all times
following the date of your death or disability, until such time that you and/or
your estate can no longer, due to expiration of all applicable statutes of
limitation, be subject to any civil, criminal or administrative action, suit or
proceeding by reason of the fact that you were a director or officer of the
Company, all Directors and Officers Liability Insurance that the Company was
maintaining for you and/or your estate as of the date of your death or
disability. Finally, if your death or the date of your disability occurs before
May 14, 2000, then you or your estate will nevertheless be fully vested with
regard to all stock options (irrespective of the date of the grant of such
options and irrespective of the vesting schedule otherwise applicable to such
options) previously granted to you in lieu of incentive compensation payable in
cash, to which you were otherwise entitled under the Incentive Compensation
Plan, as provided in Paragraph 3(b) below; in such event, you or your estate
shall be permitted to retain such options for future exercise or sell such stock
received on exercise as though you had remained in the employment of the Company
until the end of the Term, and the Company shall take such actions as are
permitted by applicable law to cause such vesting and option retention.
3. Compensation
(a) Each year during the Term hereof, you will be paid a base salary
of $600,000 per annum ("Base Salary"), payable in accordance with the Company's
payroll guidelines. Increases may be made to your Base Salary at the discretion
of the Board of Directors, based upon your individual performance.
(b) You shall be a participant in the Company's Incentive Compensation
Plan. You shall receive a guaranteed bonus of at least $350,000 per annum
during the three year Term, which guaranteed amount shall be prorated for any
calendar year during the Term hereof that is less than twelve (12) full months.
As part of NGC's incentive compensation program, you will have the opportunity
to earn up to 200% of your Base Salary, dependent upon certain financial or
performance objectives, determined in accordance with such program, and by the
Board. At your election, in lieu of paying you the minimum guaranteed
incentive compensation bonus annually, the Company will provide you annually
with stock options of equal value. "Equal value," for such purpose, will be
determined by an independent consultant selected by the Board.
<PAGE>
Mr. Stephen Bergstrom Page 6 May 8, 1997
(c) You shall be designated as a participant in the NGC Corporation
Equity Option Plan (the "Option Plan"), the NGC Amended and Restated 1991 Stock
Option Plan (the "Stock Option Plan") and any other option or warrant plans
established by the Company, and shall be entitled to purchase shares of common
stock of the Company provided thereunder. At a minimum, each year (meaning for
each twelve (12) month period commencing with the most recent May 15 date)
during the Term of this Agreement, commencing May 15, 1997, you will receive
stock option grants, with an exercise price equal to market price on date of
grant, under the Stock Option Plan, with a five year projected value of
$900,000. You recognize that the projected value is subject to the future
market performance of the Company stock and that there is no guarantee that the
projected value of such options will achieve that actual value. "Projected
value" means that at the end of five years from date of grant, assuming increase
in market price of 15% per annum during the five years, the stock option may be
exercised to obtain stock having a market price of $900,000 in excess of the
exercise price. These options are subject to the vesting, forfeiture and other
terms and conditions of the Stock Option Plan, except as specifically provided
to the contrary in this Agreement.
(d) You will be entitled to participate in NGC's benefits programs for
senior management executives, including, without limitation, NGC's deferred
compensation plan for executives, and NGC's Alternative Benefits for Senior
Executives Plan.
(e) You shall be entitled to participate in, and shall be entitled to
receive al benefits available to a participant under, such other plans as the
Board in its discretion determines, which shall include, but not be limited to,
all Split Dollar agreements between the Company and you (or any irrevocable
trust created by you), and the Charitable Donation Plan approved by the
Company's Compensation Committee at its March 14, 1996 meeting.
(f) During the Term of this Agreement, or until termination of this
Agreement if this Agreement terminates prior to expiration of the Term (except
as provided in Paragraph 2(c)(vi)), the Company will pay all premiums on a
policy of insurance providing term protection only and no cash values, with a
death benefit payable upon your death in the amount of $1,000,000. You shall at
all times own the policy and have the right to designate the beneficiary of any
death proceeds. You will be responsible for policy selection, coverage and
effectiveness of the policy and any income taxes arising in connection
therewith; the Company's only obligation being to pay such premiums.
(g) You shall be entitled to participate in such other plans and
receive such other perquisites as the Board of Directors of the Company in its
sole discretion determines. You shall also receive the perquisites set forth on
Schedule I attached hereto and by this reference incorporated herein.
(h) If you complete the Term of this Agreement prior to your
separation from employment for any reason, then, in addition to being entitled
to all compensation, awards, grants or benefits made by the Company to you or
otherwise earned by you pursuant to this Agreement or any employee benefit plans
of which you are a participant, to the extent permitted by applicable law
<PAGE>
Mr. Stephen Bergstrom Page 7 May 8, 1997
and the terms of the applicable plan document, you will be fully vested with
regard to all stock options previously granted to you (irrespective of the date
of the grant of such stock options and irrespective of the vesting schedule
otherwise applicable to such stock options), including, but not limited to, such
stock options granted to you under the Option Plan and/or the Stock Option Plan.
The grant instruments awarding you such options shall be written consistently
with this Paragraph 3(h), to the extent permitted by applicable law. If you do
not complete the Term of this Agreement prior to your separation from employment
due to termination in accordance with Paragraph 2(c) or 2(d), then you shall
also be fully vested with regard to all stock options previously granted to you
to the extent provided in Paragraph 2(c) or 2(d); furthermore, if you do not
complete the Term of this Agreement prior to your separation from employment due
to termination other than in accordance with Paragraph 2(c) or 2(d), then you
shall only be fully vested with regard to all stock options (irrespective of the
date of the grant of such options and irrespective of the vesting schedule
otherwise applicable to such options) previously granted to you in lieu of
incentive compensation payable in cash, to which you were otherwise entitled
under the Incentive Compensation Plan, as provided in Paragraph 3(b) above; in
either event, you shall be entitled to retain such options for future exercise
or sell such stock received on exercise as though you had remained in the
employment of the Company until the end of the Term, and the Company shall take
such actions as are permitted by applicable law to cause such vesting and option
retention.
4. Confidentiality
You recognize and acknowledge that:
(a) You will have access to certain information concerning the Company
that is confidential and proprietary and constitutes valuable and unique
property of the Company. You agree that you will not at any time, either during
or after your employment, disclose to others, use, copy or permit to be copied,
except pursuant to your duties on behalf of the Company or its successors,
assigns or nominees, any secret or confidential information of the Company
(whether or not developed by you) without the prior written consent of the Board
of Directors of the Company. The term "secret or confidential information of
the Company" (sometimes referred to herein as "Confidential Information") shall
include, without limitation, the Company's plans, strategies, potential
acquisitions, costs, prices, systems for buying, selling, and/or trading energy
commodities, natural gas, natural gas liquids, crude oil, coal, and electricity,
client lists, pricing policies, financial information, the names of and
pertinent information regarding suppliers, computer programs, policy or
procedure manuals, training and recruiting procedures, accounting procedures,
the status and content of the Company's contracts with its suppliers or clients,
or servicing methods and techniques at any time used, developed, or investigated
by the Company, before or during your tenure of employment to the extent any of
the foregoing are (i) not generally available to the public and (ii) maintained
as confidential by the Company. You further agree to maintain in confidence any
confidential information of third parties received as a result of your
employment and duties with the Company.
<PAGE>
Mr. Stephen Bergstrom Page 8 May 8, 1997
(b) At the termination of your employment you will deliver to the
Company, as determined appropriate by the Company, all correspondence,
memoranda, notes, records, client lists, computer systems, programs, or other
documents and all copies thereof made, composed or received by you, solely or
jointly with others, and which are in your possession, custody, or control at
such date and which are related in any manner to the past, present, or
anticipated business of the Company.
(c) To protect and safeguard the Company's trade secrets and
Confidential Information and also the Company's goodwill with its suppliers and
clients, for a period of twenty-four months following the termination of your
employment for any reason other than your voluntary resignation pursuant to
Paragraph 2(b) above or for a period of twelve months following the termination
of your employment due to your voluntary resignation pursuant to Paragraph 2(b)
above, you will not, within a 50 mile radius of any location where the Company
had an office at any time during the Term hereof or any location where a client
or supplier of the Company (which is a material client or supplier at any time
during the Term hereof) had an office at any time during the Term hereof,
without the prior written consent of the Board of Directors of the Company,
directly or indirectly, engage in or be interested in (as owner, partner,
shareholder, employee, director, agent, consultant or otherwise), any business
which is a competitor of the Company, as hereinafter defined. For purposes of
this Agreement, a "competitor of the Company" is any entity, including without
limitation a corporation, sole proprietorship, partnership, joint venture,
syndicate, trust or any other form of organization or a parent, subsidiary or
division of any of the foregoing, which, during such period or the immediately
preceding fiscal year of such entity, derived twenty percent (20%) or more of
its gross revenues, or twenty percent (20%) or more of its gross profits, or
Fifty Million Dollars ($50,000,000) or more in gross revenues, from the
unregulated marketing, gathering, transportation or processing of natural gas or
derivatives of natural gas or other hydrocarbons or electricity. For purposes
of this Paragraph and notwithstanding anything to the contrary contained in the
preceding sentence, the following entities shall not be deemed to be competitors
of the Company: (i) a Local Distribution Company ("LDC") to the extent that any
purchases or sales by such LDC are only for consumption on its system; (ii) a
natural gas producer to the extent that such producer sells only its own
production or production of other working interest owners in wells in which it
owns an interest; (iii) a natural gas pipeline company in the jurisdictional
aspects of its business, i.e., other than a nonjurisdictional marketing
affiliate or production affiliate (except as to such production affiliate's own
production as described in clause (ii) of this Paragraph 4(c)). The terms of
this Paragraph 4(c) shall not apply to your present or future investments in the
securities of companies listed on a national securities exchange or traded on
the over-the-counter market to the extent such investments do not exceed five
percent of the total outstanding shares of any such company.
(d) For a period of twenty-four months after the expiration or
termination of your employment for whatever reason, you shall not induce or
otherwise entice any employee of the Company to leave the Company, nor shall you
attempt to hire any of the Company's employees, provided that you shall always
have the right to induce or otherwise entice your personal secretary to leave
the Company to work for you.
<PAGE>
Mr. Stephen Bergstrom Page 9 May 8, 1997
(e) You agree that the foregoing restrictions contain reasonable
limitations as to the time, geographical area, and scope of activity to be
restrained and that these restrictions do not impose any greater restraint than
is necessary to protect the goodwill and other legitimate business interests of
the Company, including but not limited to the protection of Confidential
Information. You agree that, in the event of a breach or threatened breach by
you of any of the provisions of this Paragraph 4, the Company shall be entitled
to injunctive relief restraining and preventing you from any violation thereof,
as any such breach or threatened breach would cause irreparable injury to the
Company for which it would have no adequate remedy at law. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedies
available for any such breach or threatened breach, including the recovery of
damages from you. You also agree that the general public shall not be harmed by
enforcement of this Paragraph 4. Should any provision in this Paragraph 4 be
held unreasonably broad with respect to the restrictions as to time,
geographical area, or scope of activity to be restrained, any such restriction
shall be construed by limiting and reducing it to the extent necessary to render
it reasonable, and as so construed, such provision shall be enforced.
5. Indemnification
If, at any time during or after the Term of this Agreement, you are
made a party to, or are threatened to be made a party in, any civil, criminal or
administrative action, suit or proceeding by reason of the fact that you are or
were a director, officer, employee, or agent of the Company, or of any other
corporation or any partnership, joint venture, trust or other enterprise for
which you served as such at the request of the Company, then you shall be
indemnified by the Company against expenses actually and reasonably incurred by
you or imposed on you in connection with, or resulting from, the defense of such
action, suit or proceeding, or in connection with, or resulting from, any appeal
therein if you acted in good faith and in a manner you reasonably believed to be
in or not opposed to the best interest of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe your conduct
was unlawful, except with respect to matters as to which it is adjudged that you
are liable to the Company or to such other corporation, partnership, joint
venture, trust or other enterprise for gross negligence or willful misconduct in
the performance of your duties. As used herein, the term "expenses" shall
include all obligations actually and reasonably incurred by you for the payment
of money, including, without limitation, attorney's fees, judgments, awards,
fines, penalties and amounts paid in satisfaction of a judgment or in settlement
of any such action, suit or proceeding, except amounts paid to the Company or
such other corporation, partnership, joint venture, trust or other enterprise by
you.
6. Arbitration
Any controversy or claim arising out of or relating to this Agreement,
or any breach thereof, shall, except as provided in Paragraph 4, be adjudged
only by arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon such award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in the City of Houston, Texas, or such other place as may be agreed upon at the
time by the parties to
<PAGE>
Mr. Stephen Bergstrom Page 10 May 8, 1997
the arbitration. Subject to the limitations set forth below, the arbitrator(s)
shall, in their award, allocate between the parties the costs of arbitration,
which shall include reasonable attorneys' fees of the parties, as well as the
arbitrators' fees and expenses, in such proportions as the arbitrator(s) deem
just; however, notwithstanding the above, in the event you are the prevailing
party, then the Company agrees to reimburse you for all such costs of
arbitration, including but not limited to attorneys' fees and arbitrators' fees
and expenses reasonably incurred by you; further provided, however,
notwithstanding the above, in the event the Company is the prevailing party,
then the total costs of arbitration, including but not limited to attorneys'
fees reasonably incurred by the Company and arbitrators' fees and expenses, that
may be allocated to you by the arbitrator(s) shall not in any event exceed
Twenty-Five Thousand Dollars ($25,000). Notwithstanding the foregoing, you shall
be entitled to seek specific performance in a court of competent jurisdiction of
your right to be paid your full compensation until your separation from
employment, during the pendency or dispute of any controversy arising under or
in connection with this Agreement.
7. Other Provisions
(a) This Agreement will be governed by, construed and enforced in
accordance with the laws of the State of Texas, excluding any conflicts of law,
rule or principle that might otherwise refer to the substantive law of another
jurisdiction.
(b) Except as otherwise indicated, this Agreement is not assignable
without the written authorization of both parties; provided that the Company may
assign this Agreement to any entity to which the Company transfers substantially
all of its assets or to any entity which is a successor to the Company by
reorganization, incorporation, merger or similar business combination. In the
event of any such transfer or assignment by the Company, the rights and
privileges of the Board hereunder shall be vested in the Board of Directors or
other governing body of the transferee or successor entity, and the protection
afforded to the Company's affiliates hereunder shall extend to the affiliates of
such transferee or successor entity. However, notwithstanding anything to the
contrary contained herein, this Agreement will be binding upon any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, and the
Company will require any such successor by agreement, in form and substance
satisfactory to you, to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. In addition to your rights
above, if a change in control of the Company occurs as described in Paragraph
2(c) above, the failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on the
same terms as you would be entitled to hereunder if you resigned your employment
due to a constructive termination as described in Paragraph 2(c) above, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the date of termination. As used
in this Agreement, the "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Paragraph 7(b) or which otherwise
becomes bound by all the terms and
<PAGE>
Mr. Stephen Bergstrom Page 11 May 8, 1997
provisions of this Agreement by operation of law. This Agreement and all rights
of the parties hereto shall inure to the benefit of and be enforceable by the
parties hereto, their assigns, personal or legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees.
(c) Except as otherwise provided herein, the provisions of Paragraphs
4, 5 and 6 of this Agreement shall survive the termination of this Agreement.
(d) This Agreement supersedes all previous employment agreements,
written or oral, between the Company and you. You hereby represent and warrant
to the Company that, as of January 31, 1997, you have been paid in full all
compensation currently payable or owing from the Company, except for amounts
owing to you under the Company's Deferred Compensation Plan and Trust Agreement
and/or any other employee benefit plans with respect to which benefits are not
yet currently payable to you. The Company represents and warrants that until
May 15, 1997, you will be paid in full all compensation currently payable or
owing from the Company under the provisions of that certain Employment Agreement
dated May 19, 1992 between you and Natural Gas Clearinghouse, the predecessor to
the Company (which provisions shall continue to apply until May 15, 1997, at
which time the provisions of this Agreement shall apply), except for amounts
owing to you under the Company's Deferred Compensation Plan and Trust Agreement
and/or any other employee benefit plans with respect to which benefits are not
yet currently payable to you. You further hereby represent and warrant that, if
the Company satisfies all of its obligations to you in accordance with the
preceding sentence, then as of May 15, 1997, you will have been paid in full all
compensation currently payable or owing from the Company, except for amounts
owing to you under the Company's Deferred Compensation Plan and Trust Agreement
and/or any other employee benefit plans with respect to which benefits are not
yet currently payable to you. This Agreement may be amended only by written
amendment duly executed by both parties hereto or their legal representatives
and authorized by action of the Board. Except as otherwise specifically
provided in this Agreement, no waiver by either party hereto of any breach by
the other party hereto of any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of a subsequent breach of
such condition or provision or a waiver of a similar or dissimilar provision or
condition at the same or at any prior or subsequent time.
(e) Any notice or other communication required or permitted pursuant
to the terms of this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States mail, first class,
postage prepaid and registered with return receipt requested, addressed to the
intended recipient at his or its address set forth below and, in the case of a
notice or other communication to the Company, directed to the attention of the
Board of
<PAGE>
Mr. Stephen Bergstrom Page 12 May 8, 1997
Directors with a copy to the Secretary of the Company, or to such other address
as the intended recipient may have theretofore furnished to the sender in
writing in accordance herewith, except that until any notice of change of
address is received, notices shall be sent to the following addresses:
If to you: If to the Company
--------- -----------------
Stephen Bergstrom NGC Corporation
1715 Chestnut Grove 1000 Louisiana, Suite 5800
Kingwood, Texas 77345 Houston, Texas 77002-5050
(f) If any one or more of the provisions or parts of a provision
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity or unenforceability shall not
affect any other provision or part of a provision of this Agreement, but this
Agreement shall be reformed and construed as if such invalid or illegal or
unenforceable provision or part of a provision had never been contained herein
and such provisions or part thereof shall be reformed so that it would be valid,
legal and enforceable to the maximum extent permitted by law.
(g) You shall not be required to mitigate damages (or the amount of
any compensation provided under this Agreement to be paid) following your
termination of employment, by seeking employment or otherwise.
(h) In the event that the Incentive Compensation Plan, the Deferred
Compensation Plan and Trust Agreement, the Option Plan or the Stock Option Plan
are amended to reduce, modify limit or restrict any of your accrued or vested
rights thereunder, no such amendment shall apply to you without your written
consent.
(i) The Company, during the Term of this Agreement and for all times
thereafter, until such time that you and/or your estate can no longer, due to
expiration of all applicable statutes of limitation, be subject to any civil,
criminal or administrative action, suit or proceeding by reason of the fact that
you were a director or officer of the Company, shall maintain Directors and
Officers Liability Insurance covering you (or your estate, if you are deceased
or incompetent), which provides coverage at least as favorable to you (or your
estate, if you are deceased or incompetent), as coverage under the Company's
policy in effect on December 31, 1996, and which coverage shall be increased
from time to time in such amounts as the Board may determine to be appropriate
in light of the Company's operations.
(j) The Company will not amend the provisions of its governing
documents which pertain to your indemnification in your capacity as an officer
and/or member of the Board of the Company except to substitute therefor
provisions which are more favorable to you, except as otherwise required by law
or the rules of any securities exchange or similar entity, or by applicable law.
<PAGE>
Mr. Stephen Bergstrom Page 13 May 8, 1997
If the foregoing reflects your understanding of the terms of your
employment with the Company, please execute each copy of this letter in the
space provided below.
NGC CORPORATION
By: /s/ Michael B. Barton
------------------------------------
Its: Vice President-Human Resources
-----------------------------
AGREED AND ACCEPTED this
8th day of May, 1997,
and effective as of May 15, 1997
/s/ Stephen W. Bergstrom
- ----------------------------------
Stephen W. Bergstrom
<PAGE>
Bergstrom Employment Agreement - Schedule I
EXECUTIVE PERQUISITES
Except as provided below, as long as you remain in the employment of the Company
during the Term of this Agreement, you will be entitled to the following:
1. Personal country club membership in Kingwood Country Club, including dues
and all business-related expenses reimbursed. This membership shall be
assigned to you in the event of termination of the Agreement for any
reason, and you shall pay dues from the date of termination but you shall
not be obligated to reimburse the Company for any amounts paid by the
Company prior to termination. Notwithstanding anything to the contrary in
this Agreement or this Schedule, in no case shall the Company be obligated
to pay any amount of dues, fees or reimbursement for or to any country club
or luncheon club that, in the determination of the Board in its sole
discretion, restricts membership or the performance of services or the use
of facilities on the basis of race, religion, gender or national origin.
2. Personal membership in two (2) Houston luncheon clubs of your choice,
including dues and all business-related expenses reimbursed. These
memberships shall be assigned to you in the event of termination of the
Agreement for any reason, and you shall pay dues from the date of
termination but you will not be obligated to reimburse the Company for any
amounts paid by the Company prior to termination.
3. Vacations and holidays in accordance with the Company's policies in effect
from time to time for its senior executive officers, but not less than six
(6) weeks of vacation during each fiscal year.
4. A benefit package including medical, hospital, dental, disability and life
insurance plans and coverage for you and your spouse and children at least
as favorable to you (and your spouse and children) as that provided to you
immediately prior to the commencement of the Term of this Agreement unless,
with respect to any particular plan or coverage, the continuation of such
existing plan or coverage would have material adverse financial or
regulatory consequences to the Company.
5. Reimbursement of fees for annual medical physical examinations and for
financial planning and income tax preparation (and reasonable accounting
and legal fees associated therewith), which fees shall not in the aggregate
exceed Twenty-Five Thousand Dollars ($25,000) annually.
6. Use of any aircraft owned or leased by the Company for Company business in
accordance with the policies adopted by the Board, which policy is subject
to the approval of the Board after May 15, 1997. You may also, in
accordance with such policies, which shall not be amended as they apply to
you without your prior consent, use any aircraft owned or leased
<PAGE>
by the Company for your own personal business; provided, however, that (i)
such use does not adversely interfere with the use of such aircraft for
Company business, (ii) you shall maintain any records reasonably requested
by the Board, (iii) you shall compensate the Company for such use at the
Company's actual after-tax costs for the use of such aircraft, and (iv)
such personal use by you does not exceed twenty-five (25) hours of flight
time usage of such aircraft on a calendar year basis. You shall be
responsible for paying any income taxes attributable to taxable income
arising from such aircraft use.
<PAGE>
Exhibit 10.11
April 8, 1997
Mr. John U. Clarke
6540 Rutgers
Houston, Texas 77005
Dear John:
Subject to the ratification of this Agreement by the Compensation,
Corporate Governance and Human Resources Committee ("Compensation Committee") of
the Board of Directors of NGC Corporation, set forth below are the terms of your
employment by NGC Corporation (hereinafter referred to collectively as "NGC" or
the "Company").
1. TITLE AND DUTIES
Your title shall be Senior Vice President and Chief Financial Officer.
You will be responsible for the duties typical to such position and shall have
such other duties as may be delegated from time to time by your immediate
supervisor. You shall devote your full time, energy and skill to the performance
of your duties for NGC, and will exercise due diligence and reasonable care in
the performance of such duties. For the Term of this Agreement you shall report
to the Company's Chief Executive Officer and be a member of the Company's
Corporate Strategy and Policy Committee. In addition, you will be permitted to
continue as Director of Allwaste, Inc. and such other business, professional or
charitable affiliations with the prior written approval of the Company's Chief
Executive Officer.
2. TERM
(a) Unless earlier terminated as provided for herein, the Term of this
Agreement will be for five years, beginning no later than April 22, 1997.
(b) If your employment with NGC is terminated due to your voluntary
resignation or by the Company for "cause", this Agreement shall terminate
immediately (except for the confidentiality, non-competition and non-
solicitation provisions of Paragraph 4), and the Company shall have no further
obligation to you except for the payment of amounts due before the date of such
termination. You further agree that the benefits which you shall have received
<PAGE>
Mr. John U. Clarke
April 8, 1997
Page 2
from the execution of this Agreement through the date of such termination
constitute sufficient consideration for your obligations pursuant to Paragraph
4, notwithstanding the fact that the Company has no further obligation to you
except for the payment of amounts due before the date of such termination. For
purposes of this Agreement, you may be terminated for "cause" as a result of (i)
refusal to implement or adhere to policies or directives of the Board of
Directors of NGC; (ii) serious misconduct, dishonesty or disloyalty, directly
related to the performance of duties for the Company, which results from a
willful act or omission or from gross negligence, and which is materially or is
likely to be materially injurious to the operations, financial condition or
business reputation of the Company or any significant subsidiary thereof; (iii)
your being convicted (or entering into a plea bargain admitting criminal guilt)
in any criminal proceeding that may have an adverse impact on the Company's
reputation and standing in the community; (iv) drug or alcohol abuse; (v)
willful and continued failure to perform your duties under this Agreement; or
(vi) any other material breach of this Agreement by you that is not cured within
thirty days after written notice of such breach is delivered to you from the
Company. For these purposes, no act or failure to act shall be considered
"willful" unless it is done, or omitted to be done, in bad faith without
reasonable belief that the action or omission was in the best interest of the
Company.
(c) If your employment is terminated during the Term of this Agreement
due to resignation following "constructive termination" (as defined below) or
for any other reason other than your voluntary resignation, death, disability,
or discharge for cause, you shall receive a cash payment within 30 days of
termination of $5,000,000 less any compensation received prior to termination
and less the value of any already exercised or vested options exercisable,
provided however, that such payment shall not be greater than 2.99 times the sum
of your base salary plus guaranteed annual bonus at the time of your
termination. In addition, any employee stock options granted to you during the
term of your employment shall become fully vested as of the date of termination
and shall be exercisable for a period of one year thereafter. Also at your
option, you will receive medical and life insurance coverage for the remainder
of the Term at the same cost as provided to employees.
For purposes of this Agreement a "constructive termination" shall be
deemed to have occurred in the event that (i) your Base Salary as defined in
Paragraph 3(a), bonus compensation under Paragraph 3(b), option grants under
Paragraphs 3(c) and 3(d) or other compensation as described in Paragraphs 3(e),
<PAGE>
Mr. John U. Clarke
April 8, 1997
Page 3
3(f), 3(g) and 3(h) is reduced; (ii) a significant diminution in your
responsibilities, authority or scope of duties is effected by the Board of
Directors or as the result of the change in control of the Company, and such
diminution is made without your written consent (without regard to whether or
not any change is made to your title); or (iii) the Company materially breaches
this Agreement. For purposes of this Agreement, a "change in control of the
Company" means the occurrence of any of the following events: (a) any "person"
or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the
"beneficial owner" (as defined in Rule l3d-3 under the Exchange Act), directly
or indirectly, of more than 50% of the total voting stock of the Company; (b)
the Company is merged with or into or consolidated with another person and,
immediately after giving effect to the merger or consolidation, (A) less than
50% of the total voting power of the outstanding voting stock of the surviving
or resulting person is then "beneficially owned" (within the meaning of Rule
l3d-3 under the Exchange Act) in the aggregate by (x) the stockholders of the
Company immediately prior to such merger or consolidation, or (y) if a record
date has been set to determine the stockholders of the Company entitled to vote
with respect to such merger or consolidation, the stockholders of the Company as
of such record date and (B) any "person" or "group" (as defined in Section
13(d)(3) or 14(d)(2) of the Exchange Act) has become the direct or indirect
"beneficial owner" (as defined in Rule l3d-3 under the Exchange Act) of more
than 50% of the voting power of the voting stock of the surviving or resulting
person; (c) the Company, either individually or in conjunction with one or more
of its subsidiaries, sells, assigns, conveys, transfers, leases or otherwise
disposes of, or the subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of, all or substantially all of the properties and assets of
the Company and the subsidiaries, taken as a whole (either in one transaction or
a series of related transactions), to any person (other than the Company or a
wholly owned subsidiary); or (d) the liquidation or dissolution of the Company.
Any resignation by you as a result of assertion of a constructive termination
shall be communicated by delivery to the Board of Directors of the Company
thirty days' advance written notice of such constructive termination and the
grounds therefor, during which period the Company shall be entitled to cure or
remedy the matters set forth in such notice to your reasonable satisfaction.
Unless you withdraw such notice prior to the expiration of such thirty day
period, such resignation shall take effect upon the expiration of thirty days
from the date of the delivery of such notice. Any other resignation by you shall
be communicated by thirty days' advance written notice.
<PAGE>
Mr. John U. Clarke
April 8, 1997
Page 4
(d) If you die, or become disabled and cannot perform your duties, you
(or your estate) shall be entitled to the Base Salary (as defined in Paragraph 3
(a)) payable to you hereunder for three months following the month in which you
die or become disabled, plus the amount of any guaranteed bonus as described in
Paragraph 3(b) guaranteed pursuant to Paragraph 3(b) for the year of death or
disability, prorated through the date of death or disability. For purposes of
this Agreement, you shall be disabled as of the first date on which you become
eligible to receive disability benefits under the Company's long-term disability
plan (or Social Security disability benefits at a time when the Company does not
maintain a long-term disability plan or such plan is not available to you).
3. COMPENSATION
(a) Each year during the Term hereof, you will be paid a base salary
of $250,000 per annum ("Base Salary"), payable in accordance with the Company's
payroll guidelines. Increases may be made to your Base Salary at the discretion
of the Board of Directors based upon your individual performance.
(b) You shall be a participant in the Company's Incentive Compensation
Plan. You shall receive a guaranteed bonus of at least $100,000 per annum during
the five year Term with the first such payment to be made on or before March 31,
1998. As part of NGC's incentive compensation program, you will have the
opportunity to earn Additional Compensation, dependent upon NGC's financial
performance and other personal strategic objectives, determined in accordance
with such program.
(c) Upon your start date, you will receive an initial amount of
discounted stock options under NGC's Employee Equity Option Plan (EEOP) with an
immediate in-the-money value of $250,000. The options are subject to the
vesting, forfeiture and other terms and conditions of the EEOP. In addition, you
will receive a cash payment within 5 days of hire of $250,000 (the sign-on
bonus).
(d) Each year during the Term of this Agreement, commencing with the
date of hire and continuing thereafter in December of 1997, 1998, 1999 and 2000,
you will receive stock option grants, with an exercise price equal to market
price on date of grant, under the NGC Corporation Amended & Restated 1991 Stock
Option Plan, with a five year projected value of $250,000. You recognize that
the projected value is subject to the future market performance of the Company
<PAGE>
Mr. John U. Clarke
April 8, 1997
Page 5
stock and that there is no guarantee that the actual value of such options will
achieve that value. "Projected value" means that at the end of five years from
date of grant, assuming an increase in market price of 15% per annum during the
five years, the stock option may be exercised to obtain stock having a market
price of $250,000 over the exercise price. These options are subject to the
vesting, forfeiture and other terms and conditions of the NGC Corporation
Amended & Restated 1991 Stock Option Plan.
(e) In the event you remain employed by the Company at the end of the
Term of this Agreement, and if your total compensation (i.e. sign-on bonus, base
salary, incentive compensation, and the value at time of termination of any EEOP
and market options granted pursuant to Paragraphs 3(a), 3(b), 3(c) and 3(d))
during the Term of this Agreement is less than $5 million, then NGC will either
(i) make a cash payment to you for the difference or (ii) grant you additional
options which shall be fully vested with an in-the-money value equal to the
difference.
(f) You will be entitled to participate in NGC's benefits programs for
senior management executives, including, without limitation, NGC's deferred
compensation plan for executives, and NGC's Alternative Benefits for Senior
Executives Plan. Pursuant to the terms of NGC's vacation policy you will be
entitled to four weeks per year of paid vacation.
(g) The Company will pay an additional $5,000 per year on your behalf
to provide you with additional life insurance and disability coverage in excess
of the death benefit or disability coverage under NGC's standard executive
employee and benefit plans. You shall select such coverage and shall own the
insurance policies providing such coverage. You will be responsible for coverage
and effectiveness of the policies, the Company's only obligation being to pay
such amounts.
(h) You shall be entitled to participate in such other plans and
receive such other perquisites as the Board of Directors of the Company in its
sole discretion determines, including but not limited to reserved parking,
annual physical examination and federal income tax planning and return
preparation not to exceed $25,000 annually.
<PAGE>
Mr. John U. Clarke
April 8, 1997
Page 6
4. CONFIDENTIALITY
You recognize and acknowledge that:
(a) You will have access to certain information concerning the Company
that is confidential and proprietary and constitutes valuable and unique
property of the Company. You agree that you will not at any time, either during
or after your employment, disclose to others, use, copy or permit to be copied,
except pursuant to your duties on behalf of the Company or its successors,
assigns or nominees, any secret or confidential information of the Company
(whether or not developed by you) without the prior written consent of the Board
of Directors of the Company. The term "secret or confidential information of the
Company" (sometimes referred to herein as "Confidential Information") shall
include, without limitation, the Company's plans, strategies, potential
acquisitions, costs, prices, systems for buying, selling, and/or trading natural
gas, natural gas liquids, crude oil, coal, and electricity, client lists,
pricing policies, financial information, the names of and pertinent information
regarding suppliers, computer programs, policy or procedure manuals, training
and recruiting procedures, accounting procedures, the status and content of the
Company's contracts with its suppliers or clients, or servicing methods and
techniques at any time used, developed, or investigated by the Company, before
or during your tenure of employment to the extent any of the foregoing are (i)
not generally available to the public and (ii) maintained as confidential by the
Company. You further agree to maintain in confidence any confidential
information of third parties received as a result of your employment and duties
with the Company.
(b) At the termination of your employment you will deliver to the
Company, as determined appropriate by the Company, all correspondence,
memoranda, notes, records, client lists, computer systems, programs, or other
documents and all copies thereof made, composed or received by you, solely or
jointly with others, and which are in your possession, custody, or control at
such date and which are related in any manner to the past, present, or
anticipated business of the Company.
(c) To protect and safeguard the Company's trade secrets and
Confidential Information and also the Company's goodwill with its suppliers and
clients, for a period of twelve months following the termination of your
employment for any reason, you will not, within a 50 mile radius of any location
where the Company had an office at any time during the Term hereof or any
<PAGE>
Mr. John U. Clarke
April 8, 1997
Page 7
location where a client or supplier of the Company (which is a material client
or supplier at any time during the Term hereof) had an office at any time during
the Term hereof, without the prior written consent of the Board of Directors of
the Company, directly or indirectly, engage in or be interested in (as owner,
partner, shareholder, employee, director, agent, consultant or otherwise), any
business which is a competitor of the Company, as hereinafter defined. For
purposes of this Agreement, a "competitor of the Company" is any entity,
including without limitation a corporation, sole proprietorship, partnership,
joint venture, syndicate, trust or any other form of organization or a parent,
subsidiary or division of any of the foregoing, which, during such period or the
immediately preceding fiscal year of such entity, was engaged in the unregulated
marketing, gathering, transportation or processing of natural gas or derivatives
of natural gas or other hydrocarbons or electricity. For purposes of this
paragraph, the following entities shall not be deemed to be competitors of the
Company: (i) a Local Distribution Company ("LDC") to the extent that any
purchases or sales by such LDC are only for consumption on its system; (ii) a
natural gas producer to the extent that such producer sells only its own
production or production of other working interest owners in wells in which it
owns an interest; (iii) a natural gas pipeline company in the jurisdictional
aspects of its business, i.e., other than a nonjurisdictional marketing
affiliate or production affiliate (except as to such production affiliates own
production as described in clause (ii) of this Paragraph 4(c)). The terms of
this Paragraph 4(c) shall not apply to your present or future investments in the
securities of companies listed on a national securities exchange or traded on
the over-the-counter market to the extent such investments do not exceed one
percent (1%) of the total outstanding shares of such company.
(d) For a period of twenty-four months after the expiration or
termination of your employment for whatever reason, you shall not induce or
otherwise entice any employee of the Company to leave the Company, nor shall you
attempt to hire any of the Company's employees.
(e) You agree that the foregoing restrictions contain reasonable
limitations as to the time, geographical area, and scope of activity to be
restrained and that these restrictions do not impose any greater restraint than
is necessary to protect the goodwill and other legitimate business interests of
the Company, including but not limited to the protection of Confidential
Information. You also agree that the general public shall not be harmed by
enforcement of this Paragraph 4. Should any provision in this Paragraph 4 be
held unreasonably broad with respect to the restrictions as to time,
geographical area, or scope of activity to be restrained, any such restriction
shall be construed by limiting and
<PAGE>
Mr. John U. Clarke
April 8, 1997
Page 8
reducing it to the extent necessary to render it reasonable, and as so
construed, such provision shall be enforced.
5. INDEMNIFICATION
If, at any time during or after the Term of this Agreement, you are
made a party to, or are threatened to be made a party in, any civil, criminal or
administrative action, suit or proceeding by reason of the fact that you are or
were a director, officer, employee, or agent of the Company, or of any other
corporation or any partnership, joint venture, trust or other enterprise for
which you served as such at the request of the Company, then you shall be
indemnified by the Company against expenses actually and reasonably incurred by
you or imposed on you in connection with, or resulting from, the defense of such
action, suit or proceeding, or in connection with, or resulting from, any appeal
therein if you acted in good faith and in a manner you reasonably believed to be
in or not opposed to the best interest of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe your conduct
was unlawful, except with respect to matters as to which it is adjudged that you
are liable to the Company or to such other corporation, partnership, joint
venture, trust or other enterprise for gross negligence or willful misconduct in
the performance of your duties. As used herein, the term "expenses" shall
include all obligations actually and reasonably incurred by you for the payment
of money, including, without limitation, attorney's fees, judgments, awards,
fines, penalties and amounts paid in satisfaction of a judgment or in settlement
of any such action, suit or proceeding, except amounts paid to the Company or
such other corporation, partnership, joint venture, trust or other enterprise by
you.
6. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement,
or any breach thereof, shall, except as provided in Paragraph 4, be adjudged
only by arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon such award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in the City of Houston, Texas, or such other place as may be agreed upon at the
time by the parties to the arbitration. Subject to the limitations set forth
below, the arbitrator(s) shall, in their award, allocate between the parties the
costs of arbitration, which shall include reasonable attorneys' fees of the
parties, as well
<PAGE>
Mr. John U. Clarke
April 8, 1997
Page 9
as the arbitrators' fees and expenses, in such proportions as the arbitrator(s)
deem just; provided however, notwithstanding the above, in the event you are the
prevailing party, then the Company agrees to reimburse you for all such costs of
arbitration, including but not limited to attorneys' fees and arbitrators' fees
and expenses reasonably incurred by you; provided further, notwithstanding the
above, in the event the Company is the prevailing party, then the total costs of
arbitration, including but not limited to attorneys' fees reasonably incurred by
the Company and arbitrators' fees and expenses, that may be allocated to you by
the arbitrator(s) shall not in any event exceed Twenty-Five Thousand Dollars
($25,000). Notwithstanding the foregoing, you shall be entitled to seek specific
performance in a court of competent jurisdiction of your right to be paid your
full compensation until your separation from employment, during the pendency or
dispute of any controversy arising under or in connection with this Agreement.
7. OTHER PROVISIONS
(a) THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW,
RULE OR PRINCIPLE THAT MIGHT OTHERWISE REFER TO THE SUBSTANTIVE LAW OF ANOTHER
JURISDICTION.
(b) Except as otherwise indicated, this Agreement is not assignable
without the written authorization of both parties; provided that the Company may
assign this Agreement to any entity to which the Company transfers substantially
all of its assets or to any entity which is a successor to the Company by
reorganization, incorporation, merger or similar business combination.
(c) Except as otherwise provided herein, the provisions of Paragraphs
4, 5 and 6 of this Agreement shall survive the termination of this Agreement.
(d) This Agreement supersedes all previous employment agreements,
written or oral, between the Company and you. This Agreement may be amended only
by written amendment duly executed by both parties or their
<PAGE>
Mr. John U. Clarke
April 8, 1997
Page 10
legal representatives and authorized by action of the Board. Except as otherwise
specifically provided in this Agreement, no waiver by either party hereto of any
breach by the other party hereto of any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of a subsequent
breach of such condition or provision or a waiver of a similar or dissimilar
provision or condition at the same or at any prior or subsequent time.
(e) Any notice or other communication required or permitted pursuant
to the terms of this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States mail, first class,
postage prepaid and registered with return receipt requested, addressed to the
intended recipient at his or its address set forth below and, in the case of a
notice or other communication to the Company, directed to the attention of the
Board of Directors with a copy to the Secretary of the Company, or to such other
address as the intended recipient may have theretofore furnished to the sender
in writing in accordance herewith, except that until any notice of change of
address is received, notices shall be sent to the following addresses:
IF TO YOU: IF TO THE COMPANY:
John U. Clarke NGC Corporation
6540 Rutgers 1000 Louisiana, Suite 5800
Houston, TX 77005 Houston, TX 77002-5050
(f) If any one or more of the provisions or parts of a provision
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity or unenforceability shall not
affect any other provision or part of a provision of this Agreement, but this
Agreement shall be reformed and construed as if such invalid or illegal or
unenforceable provision or part of a provision had never been contained herein
and such provisions or part thereof shall be reformed so that it would be valid,
legal and enforceable to the maximum extent permitted by law.
(g) You shall not be required to mitigate damages (or the amount of
any compensation provided under this Agreement to be paid) following your
termination of employment, by seeking employment or otherwise.
<PAGE>
Mr. John U. Clarke
April 8, 1997
Page 11
If the foregoing reflects your understanding of the terms of your
employment with the Company, please execute each copy of this letter in the
space provided below.
NGC CORPORATION
By: /s/ C. L. Watson
----------------------------
C. L. Watson
AGREED AND ACCEPTED this
14th day of April, 1997, and
effective as of April 22, 1997
/s/ John U. Clarke
- ----------------------------
John U. Clarke
<PAGE>
Exhibit 10.12
January 1, 1997
Mr. Kenneth E. Randolph
9537 Bayou Brook
Houston, Texas 77063
Dear Ken:
Subject to the ratification of this Agreement by the Compensation,
Corporate Governance and Human Resources Committee ("Compensation Committee") of
the Board of Directors of NGC Corporation, set forth below are the terms of your
employment by NGC Corporation (hereinafter referred to collectively as "NGC" or
the "Company").
1. TITLE AND DUTIES
Your title shall be Senior Vice President and General Counsel. You
will be responsible for the management of the Company's Legal & Regulatory
Department and shall have such other duties as may be delegated from time to
time by your immediate supervisor. You will be located at NGC's headquarters in
Houston, Texas. You shall devote your full time, energy and skill to the
performance of your duties for NGC, and will exercise due diligence and
reasonable care in the performance of such duties.
2. TERM
(a) Unless earlier terminated as provided for herein, the term of this
Agreement will be for three years, beginning on January 1, 1997 (the "Term").
(b) If your employment with NGC is terminated due to your voluntary
resignation or by the Company for "cause", this Agreement shall terminate
immediately (except for the confidentiality, non-competition and non-
solicitation provisions of Paragraph 4 and the provisions of Paragraphs 5 and
6), and the Company shall have no further obligation to you except for the
payment of amounts due before the date of such termination. You further agree
that the benefits which you have received from the execution of this Agreement
through the date of such termination constitute sufficient consideration for
your obligations pursuant to Paragraph 4, notwithstanding the fact that the
Company has no further obligation to you except for the payment of amounts due
before the
<PAGE>
Mr. Kenneth E. Randolph
January 1, 1997
Page 2
date of such termination. For purposes of this Agreement, you may be terminated
for "cause" as a result of (i) refusal to implement or adhere to lawful policies
or directives of the Board of Directors of NGC; (ii) serious misconduct,
dishonesty or disloyalty, directly related to the performance of duties for the
Company, which results from a willful act or omission or from gross negligence,
and which is materially or is likely to be materially injurious to the
operations, financial condition or business reputation of the Company or any
significant subsidiary thereof; (iii) your being convicted (or entering into a
plea bargain admitting criminal guilt) in any criminal proceeding that may have
an adverse impact on the Company's reputation and standing in the community;
(iv) drug or alcohol abuse; (v) willful and continued failure to perform your
duties under this Agreement which is not cured within 10 days after written
notice of such failure is provided to you by NGC; or (vi) any other material
breach of this Agreement by you that is not cured within thirty days after
written notice of such breach is delivered to you from the Company. For these
purposes, no act or failure to act shall be considered "willful" unless it is
done, or omitted to be done, in bad faith without reasonable belief that the
action or omission was in the best interest of the Company.
(c) If your employment is terminated during the Term of this Agreement
due to resignation following "constructive termination" (as defined below) or
for any other reason other than your voluntary resignation, death, disability,
or discharge for cause, you shall receive as your sole compensation (i) your
Base Salary as described in Paragraph 3(a), guaranteed bonus as described in
Paragraph 3(b) and company medical and life insurance coverage for the remainder
of the Term, or for two years from the date of actual termination of employment,
whichever provides the longer period of payment and coverage, and (ii) any
employee stock options granted to you prior to or during the Term of this
Agreement shall become vested as of the date of resignation due to such
constructive termination or discharge not for cause, but only up to the
percentage that would have been vested had you remained in regular employment to
the end of the Term of this Agreement.
For purposes of this Agreement a "constructive termination" shall be
deemed to have occurred in the event that (i) your Base Salary as defined in
Paragraph 3(a), bonus compensation under Paragraph 3(b), option grants under
Paragraph 3(c) or other compensation as described in Paragraphs 3(d), 3(e) and
3(f) is reduced; (ii) a significant diminution in your responsibilities,
authority or scope of duties is effected by the Board of Directors or as the
result of the change in control of the Company, and such diminution is made
without your written consent (without regard to whether or not any change is
made to your title); or (iii)
<PAGE>
Mr. Kenneth E. Randolph
January 1, 1997
Page 3
the Company materially breaches this Agreement. For purposes of this Agreement,
a "change in control of the Company" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule l3d-3
under the Exchange Act), directly or indirectly, of more than 50% of the total
voting stock of the Company; (b) the Company is merged with or into or
consolidated with another person and, immediately after giving effect to the
merger or consolidation, (A) less than 50% of the total voting power of the
outstanding voting stock of the surviving or resulting person is then
"beneficially owned" (within the meaning of Rule l3d-3 under the Exchange Act)
in the aggregate by (x) the stockholders of the Company immediately prior to
such merger or consolidation, or (y) if a record date has been set to determine
the stockholders of the Company entitled to vote with respect to such merger or
consolidation, the stockholders of the Company as of such record date and (B)
any "person" or "group" (as defined in Section 13(d)(3) or 14(d)(2) of the
Exchange Act) has become the direct or indirect "beneficial owner" (as defined
in Rule l3d-3 under the Exchange Act) of more than 50% of the voting power of
the voting stock of the surviving or resulting person; (c) the Company, either
individually or in conjunction with one or more of its subsidiaries, sells,
assigns, conveys, transfers, leases or otherwise disposes of, or the
subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of, all
or substantially all of the properties and assets of the Company and the
subsidiaries, taken as a whole (either in one transaction or a series of related
transactions), to any person (other than the Company or a wholly owned
subsidiary); or (d) the liquidation or dissolution of the Company. Any
resignation by you as a result of assertion of a constructive termination shall
be communicated by delivery to the Board of Directors of the Company thirty
days' advance written notice of such constructive termination and the grounds
therefor, during which period the Company shall be entitled to cure or remedy
the matters set forth in such notice to your reasonable satisfaction. Unless you
withdraw such notice prior to the expiration of such thirty day period, such
resignation shall take effect upon the expiration of thirty days from the date
of the delivery of such notice. Any other resignation by you shall be
communicated by thirty days' advance written notice.
(d) If you die, or become disabled and cannot perform your duties, you
(or your estate) shall be entitled to the Base Salary (as defined in Paragraph 3
(a)) payable to you hereunder for three months following the month in which you
die or become disabled, plus the amount of any guaranteed bonus as described in
Paragraph 3(b) guaranteed pursuant to Paragraph 3(b) for the year of death or
disability, prorated through the date of death or disability. For purposes of
this
<PAGE>
Mr. Kenneth E. Randolph
January 1, 1997
Page 4
Agreement, you shall be disabled as of the first date on which you become
eligible to receive disability benefits under the Company's long-term disability
plan (or Social Security disability benefits at a time when the Company does not
maintain a long-term disability plan or such plan is not available to you).
3. COMPENSATION
(a) Each year during the Term hereof, you will be paid a base salary
of $250,000 per annum ("Base Salary"), payable in accordance with the Company's
payroll guidelines. Increases may be made to your Base Salary at the discretion
of the Board of Directors based upon your individual performance.
(b) You shall be a participant in the Company's Incentive Compensation
Plan. You shall receive a guaranteed bonus of at least $100,000 per annum during
the three year Term. Such guaranteed bonus shall be in addition to the payment
during the Term of this Agreement of any bonus which was granted to you prior to
the date of this Agreement. As part of NGC's incentive compensation program, you
will have the opportunity to earn Additional Compensation, dependent upon NGC's
financial performance and other personal strategic objectives, determined in
accordance with such program.
(c) Each year during the Term of this Agreement, commencing December
1, 1997 you will receive stock option grants, with an exercise price equal to
market price on date of grant, under the NGC Corporation Amended & Restated 1991
Stock Option Plan, with a present value of the five year projected gain of
$375,000 ("Projected Value"). You recognize that the Projected Value is subject
to the future market performance of the Company stock and that there is no
guarantee that the actual value of such options will achieve that value.
"Projected Value" means that at the end of five years from date of grant,
assuming an increase in market price of 15% per annum during the five years, the
stock option may be exercised to obtain stock having a market price with a
present value of $375,000 over the exercise price. These options are subject to
the vesting, forfeiture and other terms and conditions of the NGC Corporation
Amended & Restated 1991 Stock Option Plan.
(d) You will be entitled to participate in NGC's benefits programs for
senior management executives, including, without limitation, NGC's deferred
compensation plan for executives, and NGC's Alternative Benefits for Senior
Executives Plan. Pursuant to the terms of NGC's vacation policy you will be
entitled to four weeks per year of paid vacation.
<PAGE>
Mr. Kenneth E. Randolph
January 1, 1997
Page 5
(e) The Company will pay an additional $5,000 per year on your behalf
to provide you with additional life insurance and disability coverage in excess
of the death benefit or disability coverage under NGC's standard executive
employee and benefit plans. You shall select such coverage and shall own the
insurance policies providing such coverage. You will be responsible for coverage
and effectiveness of the policies, the Company's only obligation being to pay
such amounts.
(f) You shall be entitled to participate in such other plans and
receive such other perquisites as the Board of Directors of the Company in its
sole discretion determines, including but not limited to, reserved parking,
downtown luncheon club monthly dues, health club monthly dues, annual physical
examination, financial and/or federal income tax planning and return preparation
not to exceed $25,000 annually.
4. CONFIDENTIALITY
You recognize and acknowledge that:
<PAGE>
Mr. Kenneth E. Randolph
January 1, 1997
Page 6
(a) You will have access to certain information concerning the Company
that is confidential and proprietary and constitutes valuable and unique
property of the Company. You agree that you will not at any time, either during
or after your employment, disclose to others, use, copy or permit to be copied,
except pursuant to your duties on behalf of the Company or its successors,
assigns or nominees, any secret or confidential information of the Company
(whether or not developed by you) without the prior written consent of the Board
of Directors of the Company. The term "secret or confidential information of the
Company" (sometimes referred to herein as "Confidential Information") shall
include, without limitation, the Company's plans, strategies, potential
acquisitions, costs, prices, systems for buying, selling, and/or trading natural
gas, natural gas liquids, crude oil, coal, and electricity, client lists,
pricing policies, financial information, the names of and pertinent information
regarding suppliers, computer programs, policy or procedure manuals, training
and recruiting procedures, accounting procedures, the status and content of the
Company's contracts with its suppliers or clients, or servicing methods and
techniques at any time used, developed, or investigated by the Company, before
or during your tenure of employment to the extent any of the foregoing are (i)
not generally available to the public and (ii) maintained as confidential by the
Company. You further agree to maintain in confidence any confidential
information of third parties received as a result of your employment and duties
with the Company.
(b) At the termination of your employment you will deliver to the
Company, as determined appropriate by the Company, all correspondence,
memoranda, notes, records, client lists, computer systems, programs, or other
documents and all copies thereof made, composed or received by you, solely or
jointly with others, and which are in your possession, custody, or control at
such date and which are related in any manner to the past, present, or
anticipated business of the Company.
(c) To protect and safeguard the Company's trade secrets and
Confidential Information and also the Company's goodwill with its suppliers and
clients, for a period of twelve months following the termination of your
employment for any reason other than pursuant to Paragraph 2(c) above, you will
not, within a 50 mile radius of any location where the Company had an office at
any time during the Term hereof or any location where a client or supplier of
the Company (which is a material client or supplier at any time during the Term
hereof) had an office at any time during the Term hereof, without the prior
written consent of the Board of Directors of the Company, directly or
indirectly, engage in or be interested in (as owner, partner, shareholder,
employee, director, agent,
<PAGE>
Mr. Kenneth E. Randolph
January 1, 1997
Page 7
consultant or otherwise), any business which is a competitor of the Company, as
hereinafter defined. For purposes of this Agreement, a "competitor of the
Company" is any entity, including without limitation a corporation, sole
proprietorship, partnership, joint venture, syndicate, trust or any other form
of organization or a parent, subsidiary or division of any of the foregoing,
which, during such period or the immediately preceding fiscal year of such
entity, was engaged in the unregulated marketing, gathering, transportation or
processing of natural gas or derivatives of natural gas or other hydrocarbons or
electricity. For purposes of this paragraph, the following entities shall not be
deemed to be competitors of the Company: (i) a Local Distribution Company
("LDC") to the extent that any purchases or sales by such LDC are only for
consumption on its system; (ii) a natural gas producer to the extent that such
producer sells only its own production or production of other working interest
owners in wells in which it owns an interest; (iii) a natural gas pipeline
company in the jurisdictional aspects of its business, i.e., other than a
nonjurisdictional marketing affiliate or production affiliate (except as to such
production affiliates own production as described in clause (ii) of this
Paragraph 4(c)). The terms of this Paragraph 4(c) shall not apply to your
present or future investments in the securities of companies listed on a
national securities exchange or traded on the over-the-counter market to the
extent such investments do not exceed one percent (1%) of the total outstanding
shares of such company.
(d) For a period of twenty-four months after the expiration or
termination of your employment for whatever reason other than pursuant to
Paragraph 2(c) above or for a period of twelve months following the termination
of your employment pursuant to Paragraph 2(c) above, you shall not induce or
otherwise entice any employee of the Company to leave the Company, nor shall you
attempt to hire any of the Company's employees.
(e) You agree that the foregoing restrictions contain reasonable
limitations as to the time, geographical area, and scope of activity to be
restrained and that these restrictions do not impose any greater restraint than
is necessary to protect the goodwill and other legitimate business interests of
the Company, including but not limited to the protection of Confidential
Information. You also agree that the general public shall not be harmed by
enforcement of this Paragraph 4. Should any provision in this Paragraph 4 be
held unreasonably broad with respect to the restrictions as to time,
geographical area, or scope of activity to be restrained, any such restriction
shall be construed by limiting and reducing it to the extent necessary to render
it reasonable, and as so construed, such provision shall be enforced.
<PAGE>
Mr. Kenneth E. Randolph
January 1, 1997
Page 8
5. INDEMNIFICATION
If, at any time during or after the Term of this Agreement, you are
made a party to, or are threatened to be made a party in, any civil, criminal or
administrative action, suit or proceeding by reason of the fact that you are or
were a director, officer, employee, or agent of the Company, or of any other
corporation or any partnership, joint venture, trust or other enterprise for
which you served as such at the request of the Company, then you shall be
indemnified by the Company against expenses actually and reasonably incurred by
you or imposed on you in connection with, or resulting from, the defense of such
action, suit or proceeding, or in connection with, or resulting from, any appeal
therein if you acted in good faith and in a manner you reasonably believed to be
in or not opposed to the best interest of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe your conduct
was unlawful, except with respect to matters as to which it is adjudged that you
are liable to the Company or to such other corporation, partnership, joint
venture, trust or other enterprise for gross negligence or willful misconduct in
the performance of your duties. As used herein, the term "expenses" shall
include all obligations actually and reasonably incurred by you for the payment
of money, including, without limitation, attorney's fees, judgments, awards,
fines, penalties and amounts paid in satisfaction of a judgment or in settlement
of any such action, suit or proceeding, except amounts paid to the Company or
such other corporation, partnership, joint venture, trust or other enterprise by
you. The foregoing indemnification provisions shall be in addition to any other
rights to indemnification to which you may be entitled.
6. ARBITRATION
The parties hereto may attempt to resolve any dispute hereunder
informally via mediation or other means. Otherwise, any controversy or claim
arising out of or relating to this Agreement, or any breach thereof, shall,
except as provided in Paragraph 4, be adjusted only by arbitration in accordance
with the rules of the American Arbitration Association, and judgment upon such
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in the City of Houston, Texas, or such
other place as may be agreed upon at the time by the parties to the arbitration.
The arbitrator(s) shall, in their award, allocate between the parties the costs
of arbitration, which shall include reasonable attorneys' fees of the parties,
as well as the arbitrators' fees and expenses, in such proportions as the
arbitrator(s) deem just; provided however, notwithstanding the above, in the
event you are the prevailing party,
<PAGE>
Mr. Kenneth E. Randolph
January 1, 1997
Page 9
then the Company agrees to reimburse you for all such costs of arbitration,
including, but not limited to attorneys' fees and expenses reasonably incurred
by you; provided further, notwithstanding the above, in the event the Company is
the prevailing party, then the total costs of arbitration, including but not
limited to attorneys' fees reasonably incurred by the Company and arbitrators'
fees and expenses that may be allocated to you by the arbitrator(s) shall not in
any event exceed Twenty-Five Thousand Dollars ($25,000). Notwithstanding the
foregoing, you shall be entitled to seek specific performance in a court of
competent jurisdiction of your right to be paid your full compensation until
your separation from employment, during the pendency or dispute of any
controversy arising under or in connection with this Agreement.
7. OTHER PROVISIONS
(a) THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW,
RULE OR PRINCIPLE THAT MIGHT OTHERWISE REFER TO THE SUBSTANTIVE LAW OF ANOTHER
JURISDICTION.
(b) Except as otherwise indicated, this Agreement is not assignable
without the written authorization of both parties; provided that the Company may
assign this Agreement to any entity to which the Company transfers substantially
all of its assets or to any entity which is a successor to the Company by
reorganization, incorporation, merger or similar business combination.
(c) Except as otherwise provided herein, the provisions of Paragraphs
4, 5 and 6 of this Agreement shall survive the termination of this Agreement.
(d) This Agreement supersedes all previous employment agreements,
written or oral, between the Company and you. This Agreement may be amended only
by written amendment duly executed by both parties or their legal
representatives and authorized by action of the Board. Except as otherwise
specifically provided in this Agreement, no waiver by either party hereto of any
breach by the other party hereto of any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of a subsequent
breach of such condition or provision or a waiver of a similar or dissimilar
provision or condition at the same or at any prior or subsequent time.
<PAGE>
Mr. Kenneth E. Randolph
January 1, 1997
Page 10
(e) Any notice or other communication required or permitted pursuant
to the terms of this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States mail, first class,
postage prepaid and registered with return receipt requested, addressed to the
intended recipient at his or its address set forth below and, in the case of a
notice or other communication to the Company, directed to the attention of the
Board of Directors with a copy to the Secretary of the Company, or to such other
address as the intended recipient may have theretofore furnished to the sender
in writing in accordance herewith, except that until any notice of change of
address is received, notices shall be sent to the following addresses:
IF TO YOU: IF TO THE COMPANY:
Kenneth E. Randolph NGC Corporation
9537 Bayou Brook 1000 Louisiana, Suite 5800
Houston, TX 77063 Houston, TX 77002-5050
(f) If any one or more of the provisions or parts of a provision
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity or unenforceability shall not
affect any other provision or part of a provision of this Agreement, but this
Agreement shall be reformed and construed as if such invalid or illegal or
unenforceable provision or part of a provision had never been contained herein
and such provisions or part thereof shall be reformed so that it would be valid,
legal and enforceable to the maximum extent permitted by law.
(g) You shall not be required to mitigate damages (or the amount of
any compensation provided under this Agreement to be paid) following your
termination of employment, by seeking employment or otherwise.
<PAGE>
Mr. Kenneth E. Randolph
January 1, 1997
Page 11
If the foregoing reflects your understanding of the terms of your
employment with the Company, please execute each copy of this letter in the
space provided below.
NGC CORPORATION
By: /s/ C. L. Watson
--------------------------------
C. L. Watson
AGREED AND ACCEPTED this
21st day of May, 1997, and
effective as of January 1, 1997
/s/ Kenneth E. Randolph
- -----------------------------
Kenneth E. Randolph
<PAGE>
EXHIBIT 12.1
NGC CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES ($ IN 000'S)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Computation of Earnings:
Pre-tax income (loss) from continuing operations $(149,895) $169,645 $65,234 $44,105 $46,776
Undistributed income from equity investees 4,073 21,729 9,169 3,803 --
--------- -------- ------- ------- -------
Computed Earnings (Loss) (153,968) 147,916 56,065 40,302 46,776
--------- -------- ------- ------- -------
Fixed Charges:
Interest costs:
Expensed 63,455 46,202 34,475 1,114 642
Capitalized 8,800 1,200 1,028 -- --
Minority interest in income of a subsidiary 9,841 -- -- -- --
Amortization of financing costs 943 772 1,132 1,267 1,130
Amortization of Premium (6,768) (4,892) (3,216) -- --
Rental expense representative of interest factor 13,572 4,171 3,719 955 801
--------- -------- ------- ------- -------
Total Fixed Charges 89,843 47,453 37,138 3,336 2,573
--------- -------- ------- ------- -------
Earnings Before Income Taxes and Fixed Charges $ (72,925) $194,169 $92,175 $43,638 $49,349
========= ======== ======= ======= =======
Ratio of Earnings to Fixed Charges (a) 4.09 2.48 13.08 19.18
========= ======== ======= ======= =======
</TABLE>
(a) Earnings are inadequate to cover fixed charges for the year ended December
31, 1997, by approximately $72.9 million.
<PAGE>
Exhibit 22.1
NGC SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------
<S> <C>
701289 Alberta Ltd. Alberta
Accord Energy Limited England
Avoca Natural Gas Storage New York
BPC Gas Processors, L.L.C. Delaware
Bradshaw Gathering System Texas
Cedar Bayou Fractionators, L.P. Delaware
Clearinghouse Holdings, Inc. Delaware
Destec Energy, Inc. Delaware
Downstream Energy Ventures Co., L.L.C. Delaware
ECI Capital Corporation Texas
Electric Clearinghouse, Inc. Texas
Ellisburg Leidy N.E. Hub Company Pennsylvania
Enerchange, L.L.C. Delaware
Gulf Coast Fractionators Texas
GWE Marketing, Inc. Alberta
Hub Services, Inc. Delaware
Kansas Gas Supply Corporation Delaware
LPG Services Group, Inc. Missouri
Midstream Barge Company L.L.C. Delaware
Natural Gas Clearinghouse Colorado
Natural Gas Clearinghouse, Inc. Delaware
Natural Gas Clearinghouse of Argentina, Inc. Delaware
Natural Gas Clearinghouse of Mexico, Inc. Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OR
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------
<S> <C>
NFI, Inc. Texas
NGC Avoca, Inc. Delaware
NGC Canada Inc. Alberta
NGC Cayman Colombia, Ltd. Cayman Island
NGC Cayman Holdings, Ltd. Cayman Island
NGC Cayuta, Inc. Delaware
NGC Colombia, Inc. Delaware
NGC Colombia, S.A. Colombia
NGC Europe Limited England
NGC Global Energy, Inc. Delaware
NGC Global Liquids, Inc. Delaware
NGC GP Inc. Delaware
NGC Great Britain Limited England
NGC Holding Company, Inc. Delaware
NGC I.T., Inc. Delaware
NGC Mexico, S.A. de C.V. Mexico
NGC Oil Trading and Transportation, Inc. Texas
NGC Regulated Holdings, Inc. Delaware
NGC Storage, Inc. Delaware
NGC Steuben, Inc. Delaware
NGC Transportation, Inc. Delaware
NGC UK Limited England
NGCC Ltd. Alberta
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OR
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------
<S> <C>
NICOR Energy, L.L.C. Delaware
NIPC, Inc. Texas
NOTTI Gathering Company, Inc. Delaware
NOTTI Pipeline Company Delaware
Novagas Clearinghouse Core Ltd. Ontario
O'Keene Gas Gathering Company Oklahoma
Ozark Pipeline, Inc. Delaware
Phantex Pipeline Company Delaware
QuickTrade Canada Inc. Alberta
QuickTrade Canada, Limited Partnership Alberta
QuickTrade, L.L.C. Delaware
Tabbie Energy Ltd. Alberta
Tekas Pipeline, L.L.C. Delaware
Trinity River Intrastate Pipeline Company Texas
Venice Energy Services Company, L.L.C. Delaware
Venice Gathering System, L.L.C. Delaware
Warren Arkansas Gathering, Inc. Arkansas
Warren Energy, Inc. Texas
Warren Energy Resources, Limited Partnership Delaware
Warren Gas Liquids, Inc. Delaware
Warren Gas Marketing, Inc. Delaware
Warren Intrastate Gas Supply, Inc. Delaware
Warren NGL, Inc. Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OR
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------
<S> <C>
Warren NGL Pipeline Company Delaware
Warren Petroleum Company, Delaware
Limited Partnership
Warren Petroleum G.P., Inc. Delaware
Warren Transportation, Inc. Delaware
Waskom Gas Processing Company Texas
West Texas LPG Pipeline Limited Partnership Delaware
WPC LP, Inc. Delaware
WTLPS, Inc. Delaware
BCC CoGen, Inc. Texas
BBC Power, Inc. Delaware
Bear Claw CoGen, Inc. Delaware
Bear Mountain CoGen, Inc. Texas
Black Mountain CoGen, Inc. Delaware
Brea Canyon CoGen, Inc. Texas
CC CoGen, Inc. Texas
CC Cogeneration Company Delaware
CEC Prime, Inc. California
Central Florida DGE, Inc. Delaware
Chalk Cliff CoGen, Inc. Texas
Chesapeake Power, Inc. New York
CoGen Lyondell, Inc. Texas
CoGen Poso Creek, Inc. Texas
CoGen Power, Inc. Texas
Corona Energy Corporation California
Delta CoGen, Inc. Delaware
Destec Australian Investments, Inc. Delaware
Destec Australian Trustee, Ltd. Cayman Island
Destec do Brasil Ltda Brazil
Destec Brazil, Inc. Delaware
Destec Engineering, Inc. Texas
Destec Fuel Resources, Inc. Texas
Destec Gas Properties, Inc. Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OR
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------
<S> <C>
Destec Gas Services, Inc. Delaware
Destec Holdings, Inc. Delaware
Destec Latin America, Inc. Delaware
Destec Management Services, Inc. Texas
Destec North American Ventures, Inc. Delaware
Destec Operating Company Texas
Destec Parts and Technical Services, Inc. Texas
Destec Philippines Development, Inc. Delaware
Destec Power Services, Inc. Delaware
Destec Properties, Inc. Delaware
Destec South America Development, Inc. Delaware
Destec Ventures, Inc. Delaware
Destec-Crockett, Inc. Delaware
Double "C" CoGen, Inc. Texas
El Segundo, Inc. Delaware
El Segundo Power, LLC Delaware
Florida CoGen Development, Inc. Delaware
Gasification Services, Inc. Delaware
HEP CoGen, Inc. Texas
Hart County IPP, Inc. Delaware
Hartwell Independent Power Partners, Inc. Delaware
Hartwell Power Company Delaware
James River Energy Corp. Virginia
Kern Front CoGen, Inc. Texas
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OR
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------
<S> <C>
Live Oak CoGen, Inc. Texas
Long Beach Power, Inc. Delaware
Long Beach Generation LLC Delaware
Louisiana Gasification Technology, Inc. Delaware
Michigan CoGen, Inc. Delaware
Michigan Power Holdings, Inc. Delaware
Michigan Power, Inc. Delaware
Northway CoGen, Inc. Texas
OCG CoGen, Inc. Delaware
Oyster Creek CoGen, Inc. Delaware
Polk County CoGen, Inc. Delaware
Port Arthur CoGen, Inc. Delaware
SJC CoGen, Inc. Texas
San Joaquin CoGen, Inc. Texas
Sierra CoGen, Inc. Texas
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 20, 1998, included in this Form 10-K, into NGC Corporation's
previously filed registration statements on Form S-8 (File Nos. 33-75044,
33-96394 and 333-20773) and Form S-3 (File No. 333-12987).
ARTHUR ANDERSEN LLP
Houston, Texas
March 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 23,047 50,209
<SECURITIES> 0 0
<RECEIVABLES> 1,675,772 1,518,385
<ALLOWANCES> 0 0
<INVENTORY> 136,485 257,005
<CURRENT-ASSETS> 2,018,780 1,936,721
<PP&E> 1,958,250 1,819,811
<DEPRECIATION> (436,674) (128,432)
<TOTAL-ASSETS> 4,516,903 4,186,810
<CURRENT-LIABILITIES> (1,753,094) (1,548,987)
<BONDS> 0 0
(200,000) 0
(75,418) (75,418)
<COMMON> (1,518) (1,498)
<OTHER-SE> (942,189) (1,039,817)
<TOTAL-LIABILITY-AND-EQUITY> (4,516,903) (4,186,810)
<SALES> (13,378,380) (7,260,202)
<TOTAL-REVENUES> (13,378,380) (7,260,202)
<CGS> 12,993,086 6,890,702
<TOTAL-COSTS> 12,993,086 6,890,702
<OTHER-EXPENSES> 20,230 11,505
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 63,455 46,202
<INCOME-PRETAX> (149,895) 169,645
<INCOME-TAX> 62,210 (56,323)
<INCOME-CONTINUING> (87,685) 113,322
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> (14,800) 0
<NET-INCOME> (102,485) 113,322
<EPS-PRIMARY> (0.68) 0.99
<EPS-DILUTED> 0 0.83
</TABLE>
