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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7513
TRANSCO ENERGY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 74-1758039
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2800 POST OAK BLVD.
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
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Registrant's telephone number,
including area code
(713) 439-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, Par Value $0.50 Per Share New York Stock Exchange
Pacific Stock Exchange
Cumulative Convertible Preferred Stock, New York Stock Exchange
Without Par Value -- Stated Value
$50 Per Share, $4.75 Series
</TABLE>
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 Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in a definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the Common Stock, par value $0.50 per share,
held by non-affiliates of Registrant as of March 3, 1995 was approximately
$253,884,893. For the purposes of the determination of the above stated amount
only, all directors and executive officers of the Registrant are presumed to be
affiliates.
The number of shares of Common Stock, par value $0.50 per share,
outstanding as of March 3, 1995 was 40,753,757.
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PART I
ITEM 1. BUSINESS.
GENERAL
Transco Energy Company is engaged primarily in the natural gas pipeline
(Pipelines) and the natural gas marketing (Gas Marketing) businesses. Transco
also has investments in coal mining and marketing operations (Coal), natural gas
liquids processing, natural gas gathering and a nonoperating interest in a
coalbed methane project in Alabama.
As used herein the terms "Transco" or the "Company" refer to Transco Energy
Company together with its wholly-owned subsidiaries unless the context otherwise
requires.
The number of full-time employees of Transco at December 31, 1994 was
4,542.
MERGER WITH THE WILLIAMS COMPANIES, INC.
On December 12, 1994, Transco entered into an Agreement and Plan of Merger
(Merger Agreement), which was amended on February 17, 1995, with The Williams
Companies, Inc., a Delaware corporation (Williams), and WC Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Williams (Sub), pursuant
to which Williams agreed to commence a cash tender offer (Offer) to acquire up
to 24.6 million shares of Common Stock of the Company, par value $0.50 per share
(Common Stock), together with attached common stock purchase rights, or
approximately 60% of the outstanding shares of Common Stock, at a price of
$17.50 per share and common stock purchase right, net to the seller in cash. On
December 16, 1994, Williams commenced the Offer. The Offer expired at midnight
on January 17, 1995, with approximately 86.7% of the outstanding shares of
Common Stock having been tendered pursuant to the Offer and not withdrawn.
On January 18, 1995, all conditions to the Offer having been deemed
satisfied, Williams accepted for payment 24.6 million shares of Common Stock
validly tendered and not withdrawn pursuant to the Offer. As required by the
Merger Agreement, shortly before Williams' acceptance for payment of the Common
Stock pursuant to the Offer, the Company redeemed the common stock purchase
rights for $0.05 per right. Pursuant to the terms of the Merger Agreement and
the Offer, all rights to the proceeds of such redemption with respect to the
Common Stock and associated common stock purchase rights accepted for payment
pursuant to the Offer were assigned to Williams.
The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, at the effective time of the merger (Effective Time), Sub
will be merged with and into the Company in accordance with the General
Corporation Law of the State of Delaware (Merger). As a result of the Merger,
the separate corporate existence of Sub will cease and the Company will continue
as the surviving corporation. The Effective Time is expected to occur in April
1995.
At the Effective Time, each share of Common Stock that is issued and
outstanding immediately prior to the Effective Time (other than shares held in
the treasury of the Company, shares owned by Williams or any direct or indirect
wholly-owned subsidiary of Williams, or dissenting shares) will be converted
into the right to receive 0.625 of a share of Williams common stock and 0.3125
attached Williams preferred stock purchase rights.
In addition, at the Effective Time, each issued and outstanding share of
the Company's $3.50 Series Cumulative Convertible Preferred Stock will be
converted into the right to receive one share of Williams' $3.50 Series
Cumulative Convertible Preferred Stock.
Pursuant to the Merger Agreement, the Company shall call and hold a meeting
of its stockholders (Stockholders' Meeting) for the purpose of considering and
taking action on the Merger Agreement and the transactions contemplated thereby.
The Merger Agreement requires the Company, through its Board of Directors, to
recommend to its stockholders approval of the Merger and related matters;
provided, however, that nothing contained in the Merger Agreement will require
the Board of Directors to take any action or
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refrain from taking any action which it determines in good faith with the advice
of counsel could reasonably be expected to result in a breach of its fiduciary
duties under applicable law. Williams has agreed to cause all shares of Common
Stock acquired by it pursuant to the Offer to be represented at the
Stockholders' Meeting and to be voted in favor of approval and adoption of the
Merger Agreement and the Merger. Since Williams holds a majority of the shares
of Common Stock outstanding on the record date for establishing holders of
shares entitled to vote at the Stockholders' Meeting, Williams has sufficient
voting power to approve the Merger, even if no other stockholder of the Company
votes in favor of it.
On January 25, 1995, as contemplated by the Merger Agreement, Keith E.
Bailey, Chairman, Chief Executive Officer and President of Williams, and John C.
Bumgarner Jr., Senior Vice President for Corporate Development and Planning of
Williams, were elected to the Transco Board of Directors.
RECAPITALIZATION PLAN
Williams has stated that Transco or Williams or both, through their
respective subsidiaries, will promptly expand both regulated and non-regulated
activities in the geographical areas served by Transco's pipeline subsidiaries
and Williams' existing systems. Williams has stated that during 1995 it will
make capital expenditures of approximately $200 million with respect to certain
Transco regulated businesses and approximately $200 million for expansion by
Transco into non-regulated activities.
In connection with these plans, in January 1995 the Boards of Directors of
Transco and Williams approved a proposed recapitalization plan for Transco under
which Williams will advance or contribute to Transco up to an estimated $950
million to execute the proposed plan. In addition, according to Williams,
Williams intends to cause Transco, as promptly as practicable following the
Merger and subject to receipt of any necessary consents, to declare and pay as
dividends to Williams all of Transco's interests in its principal operating
subsidiaries, Transcontinental Gas Pipe Line Corporation (TGPL), Texas Gas
Transmission Corporation (Texas Gas) and Transco Gas Marketing Company (TGMC)
(the dividends collectively, the Operating Company Dividends). After giving
effect to the Operating Company Dividends, substantially all of Transco's
remaining assets will be in non-regulated activities. Certain of such assets are
non-core assets which Williams has stated it intends to dispose of during 1995.
The recapitalization plan is expected, when taken together with the Operating
Company Dividends, to provide Williams with somewhat greater ratemaking
flexibility afforded by a stand-alone capital structure for the natural gas
pipeline subsidiaries.
The following actions were completed in January and February 1995 in
connection with the recapitalization plan:
-- Termination of Transco's Amended Bank Credit Facility dated December 31,
1993, replacing it with a Credit Agreement (Credit Agreement) dated as
of January 23, 1995 among Williams, Transco and Transco Coal Company
(TCC), and a Credit Agreement (Williams Credit Agreement) dated as of
February 23, 1995 among Williams and certain of its subsidiaries, TGPL,
Texas Gas and Citibank N.A., as agent and the Banks named therein;
-- Termination of the program to sell monthly trade receivables of TGPL and
Texas Gas, replacing it with the Williams Credit Agreement with the
expectation that at some future time Williams will enter into a new
receivables program;
-- Termination of Transco's interest rate swaps that had effectively
converted $450 million of fixed-rate debt into floating-rate debt;
-- Termination of Transco's Reimbursement Facility dated December 31, 1993,
replacing it with letters of credit obtained pursuant to a Standby
Letter of Credit Facility between First Interstate Bank of California
and Williams;
-- Tender offer by Transco to acquire any or all of its $300 million of
outstanding 11 1/4% Notes due 1999 (Notes), pursuant to which Transco
acquired approximately $284 million, or 94.7%, of the Notes. Prior to
the initiation of the tender offer, holders of a majority in principal
amount of the Notes agreed (i) to waive certain provisions of the
Indenture dated as of July 1, 1992 (Indenture) under which the
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Notes were issued that restricted the disposition of certain of
Transco's assets, and (ii) to amend the Indenture to eliminate certain
restrictive covenants in the Indenture with regard to the incurrence of
new debt and Transco's ability to make restricted payments, including
dividends;
-- Call for redemption by Transco of all of its existing $4.75 Series
Cumulative Convertible Preferred Stock at $50.475 per share plus accrued
dividends, to be effective March 20, 1995; and
-- Call for redemption of all of the outstanding preferred stock of TGPL at
$100.00 per share plus accrued dividends, to be effective March 23,
1995.
The recapitalization plan may include the defeasance of the remainder of
the 11 1/4% Notes not tendered to the Company and the potential repurchase or
retirement of certain other debt of Transco and its subsidiaries.
In addition, in February 1995, Standard & Poor's Corporation and Moody's
Investors Service upgraded Transco's debt securities from B+ and Ba3 to BBB- and
Baa2, respectively, Transco's preferred stock from B- and B2 to BB+ and Baa3,
respectively, TGPL's debt securities from BB and Ba2 to BBB and Baa1,
respectively, TGPL's preferred stock from BB- and B1 to BBB- and Baa2,
respectively, and Texas Gas' debt securities from BB and Ba2 to BBB and Baa1,
respectively. These upgrades should provide Transco, TGPL and Texas Gas with
greater access to capital markets. A security rating is not a recommendation to
buy, sell or hold securities; it may be subject to revision or withdrawal at any
time by the assigning rating organization. Each rating should be evaluated
independently of any other rating.
Set forth below is a description of the principal business segments of
Transco prior to the Effective Time of the Merger. Williams has stated that it
intends to reorganize Transco and certain of its subsidiaries after the
consummation of the Merger. For financial information regarding the major
industry segments, see "Item 8. Financial Statements and Supplementary
Data -- Schedule of Segment Information."
PIPELINES
The Company's pipeline business is conducted through TGPL and Texas Gas.
These companies, which are regulated by the Federal Energy Regulatory Commission
(FERC), principally transport natural gas from the Gulf of Mexico and the Gulf
Coast regions to markets in the eastern half of the United States through their
respective 10,500 and 6,050 mile interstate pipeline systems.
Prior to 1984, interstate pipelines, including TGPL and Texas Gas, served
primarily as merchants of natural gas, purchasing gas under long-term contracts
with numerous producers in production areas and transporting and reselling gas
to local utilities in market areas under long-term sales agreements. Such
service was known as "bundled" service. Regulatory policies under the Natural
Gas Act of 1938 (NGA), relating to both pipeline rates and conditions of
service, stressed security of gas supplies and service, and the recovery by
pipelines of their prudently incurred costs of providing that service.
However, commencing in 1984, the FERC issued a series of orders which have
resulted in a major restructuring of the natural gas transmission industry and
its business practices. With Order 380, issued in 1984, the FERC freed pipeline
customers from their contractual obligations to purchase certain minimum levels
of gas from their pipeline suppliers. With implementation of "open access"
transportation rules contained in FERC Orders 436 and 500, the FERC afforded
pipeline customers the opportunity to purchase gas from others and have it
transported by the pipelines to the customers.
Faced with these changing conditions, increased competition and declining
bundled sales, TGPL and Texas Gas altered the manner in which they had
traditionally conducted their businesses and began to transport a larger
percentage of gas for customers that purchased such gas from others. In 1988,
TGPL and Texas Gas accepted certificates to become permanent open-access
pipeline systems under FERC Orders 436 and 500.
On April 8, 1992, the FERC issued Order 636 which made further fundamental
changes in the way natural gas pipelines conduct their businesses. The FERC's
stated purpose of Order 636 was to improve the competitive structure of the
natural gas pipeline industry by, among other things, unbundling a pipeline's
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merchant role from its transportation services; ensuring "equality" of
transportation services including equal access to all sources of gas; providing
"no-notice" firm transportation services that are equal in quality to bundled
sales service; establishing a capacity release program; and changing rate design
methodology from modified fixed-variable (MFV) to straight fixed-variable (SFV),
unless the pipeline and its customers agree to, and the FERC approves, a
different form of rate design methodology. Effective November 1, 1993, both TGPL
and Texas Gas implemented their Order 636 restructuring plans. For a complete
discussion of Order 636, see "Item 8. Financial Statements and Supplementary
Data -- Notes to Consolidated Financial Statements -- B. Regulatory
Matters -- Order 636."
As a result of the Order 636 requirement that a pipeline unbundle its
merchant role from its transportation services, Transco determined to implement
a plan to consolidate its gas marketing businesses under the common management
of TGMC. In January 1993, TGMC, through an agency agreement, began to manage all
jurisdictional merchant sales of TGPL. In November 1993, TGMC, through an agency
agreement, began to manage all jurisdictional sales of Texas Gas, except for the
sales of gas purchased by Texas Gas under certain contracts with pricing
provisions that are not variable market based which is being resold by Texas Gas
at monthly auction pursuant to Order 636. See "Gas Marketing."
MARKETS
TGPL's principal markets encompass eleven Southeast and Atlantic seaboard
states, and include the New York City and Philadelphia metropolitan areas. TGPL
has working storage capacity in five underground storage fields, located on or
near its pipeline system and/or market areas, and operates three of these
storage fields. The certificated storage capacity of TGPL and its customers is
approximately 233 Bcf*. This storage permits TGPL's customers to inject gas into
storage during the summer and off-peak periods for delivery during peak winter
periods.
Texas Gas' direct market area encompasses eight states in the South and
Midwest, and includes the Memphis, Louisville, Cincinnati, Dayton, and
Indianapolis metropolitan areas. Texas Gas also has indirect market access to
Northeast markets through interconnections with Columbia Gas Transmission
Corporation (Columbia), CNG Transmission Corporation and Texas Eastern
Transmission Corporation (Texas Eastern). Texas Gas owns and operates ten
underground storage reservoirs in or near its market area, with certificated
storage capacity of Texas Gas of approximately 176.7 Bcf. This storage permits
Texas Gas' customers to inject gas into storage during the summer and off-peak
periods for delivery during peak winter periods.
TGPL and Texas Gas' total system deliveries for the years 1994, 1993 and
1992 are shown below. Sales as shown below include only bundled sales. See "Gas
Marketing."
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YEARS ENDED DECEMBER 31,
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1994 1993 1992
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TGPL SYSTEM DELIVERIES (Bcf):
Market-area deliveries
Long-haul transportation............. 777.3 56% 823.9 60% 821.8 59%
Market-area transportation........... 437.9 31 374.4 27 379.8 27
------- --- ------- --- ------- ---
Total market-area
deliveries................. 1,215.2 87 1,198.3 87 1,201.6 86
Production-area transportation......... 178.7 13 171.2 13 199.3 14
------- --- ------- --- ------- ---
Total system deliveries................ 1,393.9 100% 1,369.5 100% 1,400.9 100%
====== === ====== === ====== ===
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* As used in this report, the term "Mcf" means thousand cubic feet, the term
"MMcf" means million cubic feet, the term "Bcf" means billion cubic feet, the
term "Tcf" means trillion cubic feet, the term "MMcf/d" means million cubic
feet per day, the term "MMBtu" means million British Thermal Units and the
term "MMGals" means million gallons.
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TGPL's facilities are divided into seven rate zones. Four are located in
the production area and three are located in the market area. Long-haul
transportation is gas that is received in one of the production-area zones and
delivered in a market-area zone. Market-area transportation is gas that is both
received and delivered within market-area zones. Production-area transportation
is gas that is both received and delivered within production-area zones.
As shown in the table above, TGPL's total market-area deliveries for 1994
were 16.9 Bcf higher than 1993. The increased deliveries, primarily firm
transportation volumes, are higher than the same period in 1993 mainly due to
the colder-than-normal weather in the market area during January and February
1994, coupled with higher firm throughput during the summer period due to
implementation of capacity release programs pursuant to Order 636. The
production-area deliveries for 1994 increased 7.5 Bcf, or 4%, when compared to
1993 due to TGPL's decreased rates resulting from the elimination of the
producer settlement surcharge which expired on May 31, 1993. As a result of a
SFV rate design and the interruptible transportation revenue crediting
requirement, these increases in system deliveries had no significant impact on
operating income; however, these increases show the strength of the TGPL
franchise.
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YEARS ENDED DECEMBER 31,
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1994 1993 1992
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TEXAS GAS SYSTEM DELIVERIES (Bcf):
Sales................................. -- -- 51.5 7% 80.4 11%
Long-haul transportation.............. 602.9 77% 519.6 67 402.2 55
----- --- ----- --- ----- ---
Total mainline deliveries........ 602.9 77 571.1 74 482.6 66
Short-haul transportation............. 183.1 23 204.0 26 244.2 34
----- --- ----- --- ----- ---
Total system deliveries.......... 786.0 100% 775.1 100% 726.8 100%
===== === ===== === ===== ===
</TABLE>
Texas Gas' facilities are divided into five rate zones. Prior to the
adoption of Order 636 on November 1, 1993, receipts and deliveries were made in
the northern four rate zones to service sales and long-haul transportation
markets. Receipts and deliveries in the remaining zone were made to service
sales and short-haul transportation markets in southern Louisiana. Effective
with the adoption of Order 636 on November 1, 1993, receipts and deliveries are
made in the northern four rate zones to service long-haul transportation
markets. Receipts and deliveries in the remaining zone are made to serve
short-haul transportation markets in southern Louisiana. All sales are made
prior to entering Texas Gas' pipeline system and therefore do not constitute
system deliveries.
As shown in the table above, Texas Gas' total mainline deliveries for the
year ended December 31, 1994 increased 31.8 Bcf, or 5.6%, as compared to the
year ended December 31, 1993, primarily as a result of increased throughput in
connection with restructured services resulting from the implementation of Order
636 and increased service to other interstate natural gas pipelines. While
presently not adding significantly to Texas Gas' operating income, this increase
shows the strength of Texas Gas' franchise.
PIPELINE PROJECTS
Liberty Pipeline Company
In 1992, Liberty Pipeline Company (Liberty), a partnership of interstate
pipelines and local distribution companies, filed for FERC approval to construct
and operate a natural gas pipeline to provide 500 MMcf/d in firm transportation
service to the greater New York City metropolitan area. The partnership
presently is comprised of subsidiaries of Transco and two other interstate
pipelines and subsidiaries of two TGPL customers in New York.
On August 1, 1994, Liberty asked the FERC to postpone indefinitely its
review of the project. The decision followed the withdrawal of two key shippers
from the project. The partners reaffirmed their belief that an additional
delivery point to the New York facilities system, as proposed by Liberty, would
be necessary in the future and advised the FERC that the Liberty partners would
continue to pursue that goal. On August 12, 1994, the FERC dismissed, without
prejudice, the applications of Liberty and other upstream pipeline
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companies for authority to build the pipeline and other related facilities. As a
result of the indefinite delay of the project, Transco recorded a $4.2 million
pretax charge to establish a reserve for its investment in the partnership.
At the time Liberty ceased development of its project, TGPL also suspended
development of its associated Liberty Upstream Expansion. That project
contemplated 115 MMcf/d of firm transportation capacity from Leidy, Pennsylvania
interconnects to the Liberty Pipeline, near South Amboy, New Jersey. The total
investment in the Liberty Upstream project is $3.6 million, of which $0.6
million was incurred during 1994. TGPL believes these expenditures will have
value to future projects.
Southeast Expansion Projects
In November 1993, TGPL filed for FERC approval of its Southeast Expansion
Projects to provide additional firm transportation capacity to growing
southeastern markets in Alabama, Georgia, South and North Carolina and Virginia.
The Southeast Expansion Projects will provide a total of 200 MMcf/d of firm
transportation capacity to TGPL's southeast customers by the 1996-1997 winter
heating season. The new firm transportation capacity will extend from TGPL's
Mobile Bay lateral interconnect near Butler, Alabama, to delivery points
upstream of TGPL's Compressor Station 165, near Chatham, Virginia. The expansion
projects will include approximately 25 miles of pipeline replacement and looping
and the installation of additional compression totaling approximately 70,000
horsepower. TGPL's FERC applications estimated the cost of the expansion to be
$125 million which will be recovered through incremental rates based on the SFV
rate design methodology.
By orders issued May 27, 1994 and December 21, 1994, the FERC authorized
the 1994 Southeast Expansion Project (SE94) and the 1995/1996 Southeast
Expansion Project (SE95/96), respectively. SE94 was completed and placed into
service in November 1994, and provides 35 MMcf/d incremental firm transportation
capacity. SE95/96 will be constructed in two phases: Phase I will add 115 MMcf/d
of incremental firm capacity for the 1995-1996 winter heating season, and Phase
II will add the remaining 50 MMcf/d for the 1996-1997 winter heating season.
TGPL invested $19.7 million in these projects in 1994 and expects to invest
approximately $69 million in these projects in 1995.
Eminence Storage Field Expansion Project
During 1994, TGPL completed the second phase of its Eminence storage field
expansion project, expanding the working capacity from 9 Bcf to 12 Bcf and
increasing the withdrawal rate from 1.3 Bcf/d to 1.5 Bcf/d. The expansion of the
salt-dome structure, located at TGPL's Compressor Station 77, near Seminary,
Mississippi, will give TGPL additional flexibility to meet the load balancing
and emergency gas supply demands of its customers. High deliverability from
storage helps assure pipelines, such as TGPL, of gas availability for their
customers during adverse weather conditions.
TGPL plans further expansion of the storage field in 1995, increasing the
working capacity of the storage field to 15 Bcf.
Mobile Bay Lateral Expansion Project
In September 1993, the FERC issued an order authorizing the joint ownership
and expansion of TGPL's Mobile Bay lateral with Florida Gas Transmission Company
(Florida Gas). The lateral transports gas from the prolific Mobile Bay gas
supply basin to the TGPL mainline, near Butler, Alabama. Construction of the
compressor station authorized as part of the expansion was completed in November
1994 and the station was placed into service in December 1994. It is anticipated
that the remaining expansion facilities will be placed into service in March
1995.
When the expansion is fully placed into service, the capacity of the Mobile
Bay lateral will be increased from 462 MMcf/d to 829 MMcf/d. The expansion will
increase the TGPL portion of pipeline capacity by approximately 60 MMcf/d to 520
MMcf/d.
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The cost of the expansion project has been funded entirely by Florida Gas,
and TGPL estimates it will receive approximately $13 million from Florida Gas
for the sale of a partial interest in the lateral.
In June 1994, TGPL completed the tie-in of Exxon's treatment plant to the
Mobile Bay lateral, adding approximately 350 MMcf/d of production
deliverability.
Both of these expansion projects will not only enhance TGPL's overall
access to gas supply, but will also provide additional gas supply for the
Southeast Expansion Projects.
West Tennessee Pipeline Expansion
In January 1994, Texas Gas received approval from the FERC to expand its
Jackson-Ripley pipeline system located in northwest Tennessee to provide 4.6
MMcf/d of additional firm deliveries to three West Tennessee customers and to
construct additional pipeline looping providing system security on that part of
Texas Gas' system. Construction was completed and facilities were placed into
service in April 1994. Total cost for this system expansion was $4.0 million.
REGULATORY MATTERS
TGPL and Texas Gas' transportation rates are established through the FERC
ratemaking process. Key determinants in the ratemaking process are (i) volume
throughput assumptions, (ii) costs of providing service and (iii) allowed rate
of return, including the equity component of a pipeline's capital structure.
Rate design and the allocation of costs between the demand and commodity rates
also impact profitability.
For a discussion of regulatory matters, see "Item 8. Financial Statements
and Supplementary Data -- Notes to Consolidated Financial Statements -- B.
Regulatory Matters."
COMPETITION
General
Competition for gas transportation has intensified in recent years due to
customer access to other pipelines, rate competitiveness among pipelines and
customers' desire to have more than one supplier. The FERC's stated purpose of
Order 636 is to improve the competitive structure of the natural gas pipeline
industry. TGPL and Texas Gas implemented Order 636 on November 1, 1993. Future
utilization of pipeline capacity will depend on competition from other pipelines
and alternative fuels, the general level of natural gas demand and weather
conditions.
TGPL
TGPL and its primary market-area competitors (Texas Eastern Transmission
Corporation (Texas Eastern), Columbia Gas Transmission Corporation (Columbia),
Southern Natural Gas Company, Tennessee Gas Pipeline Company (Tennessee) and
Iroquois Gas Transmission System (Iroquois)) implemented Order 636 on their
respective systems during the period June 1993 to November 1993. TGPL and its
major competitors all employ SFV rate design for firm transportation as mandated
by Order 636. However, TGPL has expressed to the FERC concerns that inconsistent
treatment under Order 636 of TGPL and its competitor pipelines with regard to
rate design and cost allocation issues in TGPL's production area may result in
rates which could make TGPL less competitive, both in terms of production-area
and long-haul transportation rates. A hearing before a FERC administrative law
judge (ALJ) dealing with, among other things, TGPL's production-area rate
design, concluded in June 1994 and the parties submitted briefs to the ALJ in
August and September 1994. The decision of the ALJ, when issued, will be subject
to review by the FERC. TGPL is unable at this time to fully assess the long-term
competitive effect and resulting financial impact on TGPL of having to maintain
its current production-area rate design which is different than that of its
competitors.
TGPL does not expect to incur Gas Supply Realignment (GSR) costs associated
with its firm sales service. TGPL's non-GSR transition costs are anticipated to
be insignificant; therefore, TGPL believes the demand charges to recover these
costs will not make its rates noncompetitive in its markets. See "Item 8.
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Financial Statements and Supplementary Data -- Notes to Consolidated Financial
Statements -- B. Regulatory Matters -- Order 636."
Although a significant portion of TGPL's firm customers have relatively
secure residential and commercial end-users, virtually all of TGPL's local
distribution customers (LDCs) have some price-sensitive end-users that could
switch to alternate fuels. Approximately one-third of TGPL's customer deliveries
are at risk to such fuel switching; however, a recent survey of TGPL's largest
customers suggests that end-users will pay a premium to burn natural gas and
that LDCs will aggressively price their system transportation to stay
competitive in alternate-fuel markets.
Texas Gas
Texas Gas and its primary market-area competitors (ANR Pipeline Company,
Panhandle Eastern Pipe Line Company, Trunkline Gas Company, Texas Eastern,
Columbia, Tennessee and Midwestern Gas Transmission Company) implemented Order
636 on their respective systems during the period May 1993 to November 1993.
Texas Gas and its major competitors all employ SFV rate design for firm
transportation as mandated by Order 636.
Texas Gas' analysis of Order 636 indicates that Texas Gas' transition
costs, which are not expected to exceed approximately $90 million, are primarily
related to GSR contract termination costs, GSR pricing differential costs
incurred pursuant to the auction process as discussed above and unrecovered gas
purchase costs. Texas Gas believes that under Order 636, with SFV rates, its
rate structure will remain competitive and surcharges for recovery of its total
transition costs will not make its rates noncompetitive in its market as
competitor pipelines are believed to have transition costs also to be recovered
in their rates. See "Item 8. Financial Statements and Supplementary
Data -- Notes to Consolidated Financial Statements -- B. Regulatory
Matters -- Order 636."
The end-use markets of several of Texas Gas' customers have the ability to
switch to alternate fuels. To date, however, such losses from fuel switching
have not been significant.
GAS MARKETING
Prior to 1993, TGPL and Texas Gas were responsible for all jurisdictional
gas sales to their pipeline customers and Transco Energy Marketing Company
(TEMCO) and TXG Gas Marketing Company (TXG Marketing) were responsible for all
non-jurisdictional gas sales. In January 1993, Transco began to implement a plan
to consolidate its gas marketing businesses under the common management of TGMC
to more closely coordinate gas marketing operations to improve efficiencies,
reduce costs and improve profitability. In January 1993, TGMC, through an agency
agreement, began to manage all jurisdictional merchant sales of TGPL. In
November 1993, TGMC, through an agency agreement, began to manage all
jurisdictional merchant sales of Texas Gas, except for the sales of gas
purchased by Texas Gas under certain contracts with pricing provisions that are
not variable market based which is being resold by Texas Gas at a monthly
auction pursuant to Order 636. See "Item 8. Financial Statements and
Supplementary Data -- Notes to Consolidated Financial Statements -- B.
Regulatory Matters -- Order 636." TGMC also manages all non-jurisdictional sales
that are offered by TEMCO and TXG Marketing. TEMCO buys, arranges transportation
for, and sells natural gas, primarily in the eastern and midwestern United
States and Gulf Coast region. TXG Marketing markets natural gas, primarily to
customers in the midwestern United States.
TGMC is also engaged, through its subsidiaries, Transco Liquids Company
(TLC) and TXG Energy Services Company (TXG Energy), in the purchase and
processing of natural gas, the sale of natural gas liquids and the separation,
terminalling and storage of condensate. TLC owns interests in two natural gas
processing facilities. TLC owns a 50% joint ownership interest in the Cameron
Meadows Complex, a gas processing facility located in southwestern Louisiana,
with a capacity to extract natural gas liquids from an inlet gas stream of
approximately 400 MMcf/d. TLC also has a 50% partnership interest in the Bee
County Plant, a 60 MMcf/d cryogenic extraction facility located in south Texas.
TLC also processes natural gas at third-party owned facilities. In addition to
its processing business, TLC owns and operates the Crystal Beach
8
<PAGE> 10
Separation Facility and the HI-BOL Pipeline. In the fourth quarter of 1994, TLC
recorded pretax charges totaling $14.2 million to establish reserves for
investments in the Crystal Beach Separation Facility and HI-BOL Pipeline.
The following table sets forth the Gas Marketing sales volumes during 1994,
1993 and 1992.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
SALES VOLUMES 1994 1993 1992
------------------------------------------------------------ ----- ----- -----
<S> <C> <C> <C>
Gas sales (Bcf)
Long-term................................................. 389.2 352.7 148.6
Short-term................................................ 264.6 208.7 192.2
----- ----- -----
Total gas sales................................... 653.8 561.4 340.8
===== ===== =====
Liquids sales (million gallons)............................. 94.4 130.6 234.9
===== ===== =====
</TABLE>
Gas sales volumes in 1994 were higher than 1993, primarily due to greater
spot sales, higher demand as a result of colder weather during the first quarter
of 1994 and the inclusion of Texas Gas' merchant sales service volumes of 28.3
Bcf in 1994 compared to 6.9 Bcf in 1993. Gas sales volumes in 1993 were higher
than 1992 primarily due to inclusion of TGPL's merchant sales service volumes of
234.5 Bcf. TGPL's merchant sales service volumes included in Pipelines' 1992
results were 221.1 Bcf. Liquids sales volumes decreased due to continued
processing curtailments beginning in May 1993 and the discontinuation of naphtha
processing in August 1992 due to product-price economics, which are largely
dictated by crude oil prices.
Gas Marketing's profitability is determined by volumes and margins, both of
which are heavily influenced by gas demand, alternate fuels, competition and
commodity price volatility. Moreover, the costs associated with maintaining Gas
Marketing's long-term supply portfolio must be recovered in premiums paid by
customers pursuant to long-term contracts in order to avoid a loss on such sales
to the spot market. In addition, Gas Marketing is a party to firm transportation
contracts with third parties in which monthly demand charges are paid for
pipeline capacity in order to transport Canadian gas to markets in the United
States. During 1994, Gas Marketing did not recover approximately $8 million of
the cost of firm transportation capacity under those contracts. Gas Marketing's
current annual commitment for such firm transportation capacity is approximately
$56 million under contracts that substantially expire in 2002. To the extent Gas
Marketing is unable to find business alternatives for potentially underutilized
transportation capacity or receive sales prices at or near its cost, Gas
Marketing's results of operations could be negatively impacted. However, Gas
Marketing believes that the aggregate cost of the firm transportation capacity
will be recovered and, therefore, will not have a material adverse effect on
Transco's financial position, results of operations or net cash flows. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity -- Other Capital Requirements and
Contingencies -- Long-term gas purchase contracts."
Gas Marketing is a party to various derivative financial instruments that
are used to manage price volatility in its natural gas and natural gas liquids
marketing activities. See "Item 8. Financial Statements and Supplementary
Data -- Notes to Consolidated Financial Statements -- M. Commitments and
Contingencies."
COMPETITION
Changes in the natural gas industry over the past several years have
substantially increased competition for gas sales. TGMC's competitors include
other natural gas marketers and producers.
9
<PAGE> 11
COAL
TCC is engaged in the surface and deep mining, preparation and marketing of
various grades of bituminous steam coal. In addition, TCC purchases minimal
amounts of coal from independent producers for resale to customers. Williams has
identified the coal mining and marketing business as a non-core asset it intends
to dispose of during 1995.
As used herein, the term TCC refers to Transco Coal Company, together with
its wholly-owned subsidiaries, unless the context otherwise requires.
SALES AND MARKETING
TCC, through its subsidiaries, owns and currently operates 5 deep mines and
5 surface mines in eastern Kentucky and Tennessee. TCC sells coal, both under
long-term supply agreements and in the spot market, to electric utilities and
industrial customers located primarily in the southeastern United States. Sales
in 1994 totaled 8.2 million tons, compared to 1993 sales of 8.9 million tons.
Generally under TCC's major sales agreements, contract duration may be
extended at the option of the utility, quantities may be decreased or increased
within specified ranges at the option of the utility, quantities may be
decreased by a force majeure event causing a utility to decrease power
production, prices may be renegotiated in certain cases and other adjustments
may occur under certain conditions. TCC's long-term contracts contain provisions
for adjustments to the base price of coal in response to variations in quality
and changes in economic indices. All of TCC's contracts contain quality
specifications relating to moisture, ash, sulfur content and heating value
(Btu). Premiums are generally paid per Btu value above the guaranteed contract
minimum.
COMPETITION
The sale of coal is highly competitive. TCC must compete with other coal
producers in negotiating coal sales contracts and spot sales. The primary
factors in competition for contract and spot sales are price, quantity and the
quality of coal reserves, production costs and the availability of economical
transportation. In addition, the level of economic activity, energy conservation
and the cost of complying with various environmental regulations directly affect
the demand for coal. Steam grade coal competes with other fuels such as nuclear,
oil and natural gas.
TCC's competition includes the Kentucky operations of Cyprus Amax Minerals
Company, Arch Mineral Corporation, Sun Coal Company and Ashland Coal, Inc.,
although any coal operation with the ability to provide at competitive prices
the quantity and quality of coal needed by TCC's current customers could impact
TCC's future sales.
RESERVES
All of TCC's coal reserves are held under coal leases in Kentucky and
Tennessee. The coal reserves controlled by TCC are primarily leased from
independent landowners. Terms of these leases vary considerably; however, the
majority of these leases contain provisions allowing TCC to mine such properties
until the mineable and merchantable coal thereunder is exhausted, provided that
certain minimum production levels are maintained and royalty payments are made.
10
<PAGE> 12
The following table sets forth TCC's estimates of its coal reserves in
Kentucky and Tennessee as of December 31, 1994. It should be noted that the
amounts reported are estimates only, based on geological observations and
assumptions, and no assurance can be given that the amounts presented will
ultimately be recovered.
<TABLE>
<CAPTION>
(THOUSAND TONS)(1)(2)
---------------------
<S> <C>
In-Place Reserves.................................................. 317,900
=================
Recoverable Reserves............................................... 238,827
=================
</TABLE>
---------------
(1) The coal deposits which constitute TCC's coal reserves may extend beyond the
seams used in the reserve computations, although the extent of such deposits
and the degree to which such deposits may be mineable cannot be determined
without further exploration.
(2) The estimated reserves stated herein were determined by TCC's experience in
mining the present reserves and data compiled from maps and tests within
TCC's present reserves. Such reserves do not represent the amount of coal
that will ultimately be mined, processed and shipped to customers.
Constantly changing factors which affect mining of the reserves include:
loss from extraction processes, loss from preparation and cleaning
processes, marketability, present and future government laws and
regulations, and changes in mining technology.
OTHER INVESTMENTS
GAS GATHERING
Transco Gas Gathering Company (TGGC) owns non-jurisdictional and intrastate
gas gathering lines located offshore and onshore Texas, as well as the Magnolia
Pipeline in Alabama. In total, TGGC owns or has an interest in more than 500
miles of pipeline, and most of the gathering lines connect to TGPL. These
systems have a combined capacity of approximately 800 MMcf/d.
In the fourth quarter of 1994, TGGC recorded pretax charges totaling $3.5
million to establish reserves for investments in certain gas gathering lines. At
year-end 1994, TGGC's net investment in wholly-owned and joint venture gas
gathering lines, excluding the Magnolia Pipeline, totaled $97 million.
At December 31, 1994, TGGC's investment in the Magnolia Pipeline totaled
$67 million. The ultimate recovery of TGGC's investment in the Magnolia Pipeline
is dependent on transportation of gas produced in the Black Warrior Basin,
including production from the properties transferred to TECO Coalbed Methane,
Inc. (TECO), a subsidiary of TECO Energy, Inc. (see "Coalbed Methane" below), as
well as transportation of gas from other sources.
Williams has identified certain gas gathering lines, including Magnolia
Pipeline, as non-core assets it intends to dispose of during 1995.
COALBED METHANE
In 1989 Transco began investing in certain coalbed methane properties in
the Black Warrior Basin in Alabama. The coalbed methane project has not
performed up to the original expectations and encountered costs that were higher
than originally anticipated. In December 1994, Transco recorded a non-cash,
pretax charge of $45.0 million to reduce the book value of its nonoperating
interest in the coalbed methane properties. At December 31, 1994, Transco's
remaining investment in its nonoperating interest in the coalbed methane
properties totaled $86 million. Williams has identified Transco's interest in
this project as a non-core asset it intends to dispose of during 1995.
For a discussion of the Company's nonoperating interest in coalbed methane
properties, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Other Capital Requirements and
Contingencies -- Investment in Nonoperating Interest in Coalbed Methane
Properties"
11
<PAGE> 13
and "Item 8. Financial Statements and Supplementary Data -- Notes to
Consolidated Financial Statements -- L. Investment in Nonoperating Interest in
Coalbed Methane Properties."
OFFICE BUILDING
TGPL has a 20-year lease agreement for 1,005,478 square feet at its
headquarters building in Houston which expires in 2004. The lease is with
Transco Tower Limited, a partnership in which Transco had an indirect 12.5%
interest until December 1994. Effective December 29, 1994, Transco sold its
interest and received a final cash distribution of $0.4 million in connection
with the sale. For information concerning lease commitments, see "Item 8.
Financial Statements and Supplementary Data -- Notes to Consolidated Financial
Statements -- M. Commitments and Contingencies."
REGULATION
INTERSTATE GAS PIPELINE OPERATIONS
TGPL and Texas Gas are subject to regulation by the FERC as "natural gas
companies" under the NGA. The NGA grants to the FERC authority over the
construction and operation of pipeline and related facilities utilized in the
transportation and sale of natural gas in interstate commerce, including the
extension, enlargement and abandonment of such facilities. The FERC requires the
filing of appropriate applications by natural gas companies showing that the
extension, enlargement or abandonment of any facilities, as the case may be, is
or will be required by a certificate of public convenience and necessity. TGPL
and Texas Gas hold certificates of public convenience and necessity issued by
the FERC authorizing them to construct and operate all pipelines, facilities and
properties now in operation for which certificates are required.
The NGA also grants to the FERC authority to regulate rates, charges and
terms of service for natural gas transported in interstate commerce or sold by a
natural gas company in interstate commerce for resale, and to regulate
curtailments of sales to customers. The FERC has authorized TGPL and Texas Gas
to charge natural gas sales rates that are market-based. As necessary, TGPL and
Texas Gas file with the FERC changes in their respective transportation and
storage rates and charges designed to allow them to recover fully their costs of
providing service to their interstate systems' customers, including reasonable
rates of return. Regulation of gas curtailment priorities and the importation of
gas are, under the Department of Energy Reorganization Act of 1977, vested in
the Secretary of Energy.
TGPL and Texas Gas also are subject to regulation by the Department of
Transportation under the Natural Gas Pipeline Safety Act of 1968 with respect to
safety requirements in the design, construction, operation and maintenance of
their interstate gas transmission facilities.
COAL OPERATIONS
The coal mining industry is subject to a number of federal, state and local
statutes and regulations relating to health and safety standards and protection
of the environment. These laws require procedures for obtaining mining permits
and posting bonds, subject mining operations to compliance inspections, impose
land reclamation responsibilities and control the discharge of water from mines
and related facilities. Failure to comply with these laws may result in closure
of mines, bond forfeitures and permit revocation, and other civil and criminal
fines and penalties.
The Surface Mining Control and Reclamation Act of 1977, as amended, and the
regulations promulgated thereunder by the Federal Office of Surface Mining
Reclamation and the enforcement thereof by the Department of the Interior,
established mining and reclamation standards for all aspects of surface mining
as well as certain aspects of underground mining. TCC's operations are also
subject to the federal Clean Air Act, as amended, and the federal Water
Pollution Control Act, as amended, and similar state laws which regulate the
discharge of materials into the environment. While it is not possible to
quantify the costs of compliance with these statutes, the costs have been and
are expected to be significant. TCC believes that its operations are in
substantial compliance with the foregoing legislation.
12
<PAGE> 14
TCC is liable under federal legislation for the payment of benefits to coal
miners with pneumoconiosis (black lung). The Black Lung Benefits Revenue Act of
1977 and the Black Lung Benefits Reform Act of 1977 (1977 Act) expanded the
benefits for black lung disease and levied a tax on production of $0.50 per ton
on underground mined coal and $0.25 per ton on surface mined coal, but not to
exceed 2% of the sales price. Since the enactment date, this tax has increased
twice. Effective April 1, 1986, the rates are $1.10 per ton for underground
mined coal and $0.55 per ton for surface mined coal, but, not to exceed 4.4% of
the sales price. In addition, the Black Lung Benefits and Revenue Amendments Act
of 1981 (1981 Act) provides that certain claims which had previously been
assigned to coal operators will be transferred to the Black Lung Disability
Trust Fund. Further, the 1981 Act tightened standards set by the 1977 Act for
establishing and maintaining eligibility for benefits. In addition to
contributing to the federal black lung program, TCC has established a reserve of
approximately $6.2 million to cover future black lung payments.
With regard to quality of coal, important criteria include Btu, and sulfur
and ash content. Many customers are required by environmental and other
considerations to restrict their consumption of high sulfur content coal,
although certain amounts of sulfur may be required by certain other users. TCC
is able to meet current sulfur content requirements under existing sales
agreements.
ENVIRONMENTAL
Transco and certain of its subsidiaries are subject to extensive federal,
state and local environmental laws and regulations which affect Transco's
operations related to the construction and operation of pipeline facilities, oil
and gas exploration, development and production and coal mining. See "Item 8.
Financial Statements and Supplementary Data -- Notes to Consolidated Financial
Statements -- D. Environmental Matters."
ITEM 2. PROPERTIES.
See "Item 1. Business."
ITEM 3. LEGAL PROCEEDINGS.
See "Item 8. Financial Statements and Supplementary Data -- Notes to
Consolidated Financial Statements -- C. Legal Proceedings."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
13
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Transco common stock is traded on the New York Stock Exchange and the
Pacific Stock Exchange. The range of New York Stock Exchange composite trading
prices and dividends paid during 1994 and 1993 by quarters were as follows:
<TABLE>
<CAPTION>
PRICE RANGE
----------------------------- DIVIDENDS
HIGH LOW LAST PAID
----- ----- ----- ---------
<S> <C> <C> <C> <C>
1994
1st Quarter............................. $16 7/8 $14 1/8 $14 7/8 $0.15
2nd Quarter............................. 16 1/2 14 16 1/4 0.15
3rd Quarter............................. 16 1/4 14 1/2 15 0.15
4th Quarter............................. 16 7/8 11 3/4 16 5/8 0.15
1993
1st Quarter............................. $17 $13 $15 1/4 $0.15
2nd Quarter............................. 16 7/8 13 7/8 16 3/4 0.15
3rd Quarter............................. 17 7/8 15 3/4 17 0.15
4th Quarter............................. 18 13 7/8 14 1/8 0.15
</TABLE>
The approximate number of holders of Transco common stock was 32,000 as of March
3, 1995. The approximate number of record holders as of the same date was
13,200. For a discussion of restrictions on the payment of dividends, see "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8. Financial Statements and Supplementary Data -- Notes to
Consolidated Financial Statements."
14
<PAGE> 16
FINANCIAL DATA INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ITEM 6. Selected Financial Data..................................................... 16
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 17
Introduction........................................................... 17
Capital Resources and Liquidity........................................ 18
Financings........................................................ 18
Capitalization and Cash Flows..................................... 19
Future Capital Expenditures....................................... 21
Other Capital Requirements and Contingencies...................... 23
Conclusion........................................................ 27
Results of Operations.................................................. 27
Consolidated...................................................... 27
Pipelines......................................................... 29
Gas Marketing..................................................... 36
Coal.............................................................. 38
Gas Gathering..................................................... 39
Discontinued Operations -- Power Generation....................... 39
Equity in Earnings of Unconsolidated Affiliates................... 39
ITEM 8. Financial Statements and Supplementary Data................................. 41
Report of Independent Public Accountants............................... 41
Management Responsibility for Financial Statements..................... 42
Financial Statements and Notes
Consolidated Balance Sheet........................................ 43
Consolidated Statement of Operations.............................. 45
Consolidated Statement of Cash Flows.............................. 46
Consolidated Statement of Common Stockholders' Equity............. 47
Schedule of Segment Information................................... 48
Notes to Consolidated Financial Statements........................ 51
Schedule I -- Condensed Statement of Operations....................... 90
Condensed Balance Sheet................................. 91
Condensed Statement of Cash Flows....................... 92
Schedule II -- Valuation and Qualifying Accounts and Reserves.......... 93
</TABLE>
15
<PAGE> 17
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
(The Selected Financial Data should be read in conjunction with Item 7,
Management's Discussion and Analysis of Financial Condition and Results
of Operations, and Item 8, Financial Statements and Supplementary Data.)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(EXPRESSED IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating Revenues................. $2,816,218 $2,921,926 $2,692,339 $2,714,827 $3,057,506
========== ========== ========== ========== ==========
Income (Loss) from Continuing
Operations(1).................... $ 5,883 (2) $ (35,415)(3) $ (51,993)(4) $ (162,703)(5) $ 40,122(6)
========== ========== ========== ========== ==========
Common Stock Equity in Net Income
(Loss)(1)........................ $ (17,021)(2) $ (28,983)(3) $ (75,074)(4) $ (193,143)(5) $ 15,438(6)
========== ========== ========== ========== ==========
Primary Earnings (Loss) Per Share
of Common Stock and Common Stock
Equivalents:
Continuing Operations(1)....... $ (0.42)(2) $ (1.54)(3) $ (2.43)(4) $ (6.42)(5) $ 0.49(6)
Discontinued Operations(1)..... -- 0.80 0.08 (0.16) 0.04
---------- ---------- ---------- ---------- ---------
$ (0.42)(2) $ (0.74)(3) $ (2.35)(4) $ (6.58)(5) $ 0.53(6)
========== ========== ========== ========== ==========
Total Assets....................... $3,773,106 $4,065,042 $4,258,563 $4,609,195 $4,548,873
========== ========== ========== ========== ==========
Short-term Debt and Current
Maturities of Long-term Debt..... $ 177,102 $ 159,479 $ 188,787 $ 398,014 $ 461,828
========== ========== ========== ========== ==========
Capitalization:
Long-term debt, less current
maturities..................... $1,785,575 $1,786,571 $1,819,915 $1,721,758 $1,446,533
Preferred stock of
subsidiaries -- redeemable,
net............................ 49,375 75,191 101,006 105,968 111,280
Convertible preferred stock --
redeemable, net................ -- -- 117,740 117,740 117,740
Convertible preferred stock --
non-redeemable, net............ 265,322 265,418 143,995 143,995 143,995
Common stockholders' equity...... 361,551 391,283 429,939 386,795 600,487
---------- --------- --------- ---------- ----------
Total capitalization...... $2,461,823 $2,518,463 $2,612,595 $2,476,256 $2,420,035
========== ========== ========== ========== ==========
Cash Dividends Declared Per Common
Share............................ $ 0.60 $ 0.60 $ 0.60 $ 1.17 $ 1.36
========== ========== ========== ========== ==========
</TABLE>
---------------
(1) In 1993, Transco sold the common stock of Transco Energy Ventures Company
(TEVCO), Transco's power generation subsidiary, to National Power America,
Inc., a subsidiary of National Power PLC, received cash proceeds of $150
million and recorded an after-tax gain on the sale of $31.6 million, or
$0.81 per share. As a result of the sale, the Power Generation segment has
been classified as discontinued operations in Transco's Consolidated
Statement of Operations. Operating results for 1992, 1991 and 1990 have been
restated to reflect the Power Generation segment as discontinued operations.
(2) Includes after-tax charges totaling $63.8 million, or $1.57 per share,
applicable to a provision for asset impairments, capitalized costs in excess
of ceiling limitation, a provision for a regulatory issue and litigation
settlements. See Notes B, C, J and K of Notes to Consolidated Financial
Statements.
(3) Includes after-tax charges totaling $92.8 million, or $2.37 per share,
applicable to capitalized costs in excess of ceiling limitation, a
litigation settlement, write-off of a note receivable, losses on asset sales
and a federal income tax rate increase. See Notes C, I, J and K of Notes to
Consolidated Financial Statements.
(4) Includes net after-tax charges totaling $86.7 million, or $2.72 per share,
applicable to capitalized costs in excess of ceiling limitation, losses on
asset sales and a provision for a producer settlement, partially offset by a
gain on the final liquidating distribution from Transco Exploration
Partners. See Notes C, J and L of Notes to Consolidated Financial
Statements.
(5) Includes net after-tax charges totaling $213.4 million, or $7.27 per share,
applicable to provisions for asset impairments, restructuring costs and
producer settlements, legal and regulatory issues, partially offset by
benefits of the resolution of rate issues.
(6) Includes net after-tax charges totaling $26.8 million, or $0.92 per share,
applicable to a provision for producer settlements, legal and regulatory
issues, partially offset by benefits of the resolution of rate issues.
16
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (This discussion should be read in conjunction with Item
6, Selected Financial Data, and Item 8, Financial Statements and
Supplementary Data.)
INTRODUCTION
On December 12, 1994, Transco entered into the Merger Agreement with
Williams and Sub, which was amended on February 17, 1995, pursuant to which
Williams agreed to commence the Offer to acquire up to 24.6 million shares of
Common Stock of the Company, together with attached common stock purchase
rights, or approximately 60% of the outstanding shares of Common Stock, at a
price of $17.50 per share and common stock purchase right, net to the seller in
cash. On December 16, 1994, Williams commenced the Offer. The Offer expired at
midnight on January 17, 1995, with approximately 86.7% of the outstanding shares
of Common Stock having been tendered pursuant to the Offer and not withdrawn.
On January 18, 1995, all conditions to the Offer having been deemed
satisfied, Williams accepted for payment 24.6 million shares of Common Stock
validly tendered and not withdrawn pursuant to the Offer. As required by the
Merger Agreement, shortly before Williams' acceptance for payment of the Common
Stock pursuant to the Offer, the Company redeemed the common stock purchase
rights for $0.05 per right. Pursuant to the terms of the Merger Agreement and
the Offer, all rights to the proceeds of such redemption, with respect to the
Common Stock and associated common stock purchase rights accepted for payment
pursuant to the Offer, were assigned to Williams.
The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, at the Effective Time, Sub will be merged with and into the
Company. As a result of the Merger, the separate corporate existence of Sub will
cease and the Company will continue as the surviving corporation. The Effective
Time is expected to occur in April 1995.
At the Effective Time, each share of Common Stock that is issued and
outstanding immediately prior to the Effective Time (other than shares held in
the treasury of the Company, shares owned by Williams or any direct or indirect
wholly-owned subsidiary of Williams, or dissenting shares) will be converted
into the right to receive 0.625 of a share of Williams common stock and 0.3125
attached Williams preferred stock purchase rights.
In addition, at the Effective Time, each issued and outstanding share of
the Company's $3.50 Series Cumulative Convertible Preferred Stock will be
converted into the right to receive one share of Williams' $3.50 Series
Cumulative Convertible Preferred Stock.
On January 25, 1995, as contemplated by the Merger Agreement, Keith E.
Bailey, Chairman, Chief Executive Officer and President of Williams, and John C.
Bumgarner, Jr., Senior Vice President for Corporate Development and Planning of
Williams, were elected to the Transco Board of Directors.
Williams has stated that Transco or Williams or both, through their
respective subsidiaries, will promptly expand both regulated and non-regulated
activities in the geographical areas served by Transco's pipeline subsidiaries
and Williams' existing systems. Williams has stated that during 1995 it will
make capital expenditures of approximately $200 million with respect to certain
Transco regulated businesses and approximately $200 million for expansion by
Transco into non-regulated activities.
In connection with these plans, in January 1995 the Boards of Directors of
Transco and Williams approved a proposed recapitalization plan for Transco under
which Williams will advance or contribute to Transco up to an estimated $950
million to execute the proposed plan. In addition, according to Williams,
Williams intends to cause Transco, as promptly as practicable following the
Merger and subject to receipt of any necessary consents, to declare and pay as
dividends to Williams the Operating Company Dividends. After giving effect to
the Operating Company Dividends, substantially all of Transco's remaining assets
will be in non-regulated activities. Certain of such assets are non-core assets
which Williams has stated it intends to dispose of during 1995.
17
<PAGE> 19
CAPITAL RESOURCES AND LIQUIDITY
FINANCINGS
Prior to the completion of the Offer, Transco funded its capital
requirements, including its working capital requirements, with cash flows from
operating activities, including the sale of trade receivables, and the
utilization of funds previously invested in short-term investments at December
31, 1993, supplemented, when required, with borrowings under the $450 million
working capital line of Transco's Amended Bank Credit Facility. At December 31,
1994, the Company had short-term debt of $27 million under the working capital
line.
After the completion of the Offer, Transco began funding its capital
requirements through advances from Williams. In that regard, in January 1995,
short-term debt of $36 million was repaid with funds advanced to Transco by
Williams.
In connection with the Merger, in January 1995, the Boards of Directors of
Transco and Williams approved a proposed recapitalization plan for Transco under
which Williams will advance or contribute to Transco up to an estimated $950
million to execute the proposed plan.
The following actions were completed in January and February 1995 in
connection with the recapitalization plan:
-- Termination of Transco's Amended Bank Credit Facility dated December 31,
1993, replacing it with the Credit Agreement and the Williams Credit
Agreement;
-- Termination of the program to sell monthly trade receivables of TGPL and
Texas Gas, replacing it with the Williams Credit Agreement with the
expectation that at some future time Williams will enter into a new
receivables program;
-- Termination of Transco's interest rate swaps that had effectively
converted $450 million of fixed-rate debt into floating-rate debt;
-- Termination of Transco's Reimbursement Facility dated December 31, 1993,
replacing it with letters of credit obtained pursuant to a Standby
Letter of Credit Facility between First Interstate Bank of California
and Williams;
-- Tender offer by Transco to acquire any or all of its $300 million of
outstanding 11 1/4% Notes due 1999, pursuant to which Transco acquired
approximately $284 million, or 94.7%, of such Notes. Prior to the
initiation of the tender offer, holders of a majority in principal
amount of such Notes agreed (i) to waive certain provisions of the
Indenture under which the Notes were issued that restricted the
disposition of certain of Transco's assets, and (ii) to amend the
Indenture to eliminate certain restrictive covenants in the Indenture
with regard to the incurrence of new debt and Transco's ability to make
restricted payments, including dividends;
-- Call for redemption by Transco of all of its existing $4.75 Series
Cumulative Convertible Preferred Stock at $50.475 per share plus accrued
dividends, to be effective March 20, 1995; and
-- Call for redemption of all of the outstanding preferred stock of TGPL at
$100.00 per share plus accrued dividends, to be effective March 23,
1995.
The recapitalization plan may include the defeasance of the remainder of
the 11 1/4% Notes not tendered to the Company and the potential repurchase or
retirement of certain other debt of Transco and its subsidiaries.
In addition, in February 1995, Standard & Poor's Corporation and Moody's
Investors Service upgraded Transco's debt securities from B+ and Ba3 to BBB- and
Baa2, respectively, Transco's preferred stock from B- and B2 to BB+ and Baa3,
respectively, TGPL's debt securities from BB and Ba2 to BBB and Baa1,
respectively, TGPL's preferred stock from BB- and B1 to BBB- and Baa2,
respectively, and Texas Gas' debt securities from BB and Ba2 to BBB and Baa1,
respectively. These upgrades should provide Transco, TGPL
18
<PAGE> 20
and Texas Gas with greater access to capital markets. A security rating is not a
recommendation to buy, sell or hold securities; it may be subject to revision or
withdrawal at any time by the assigning rating organization. Each rating should
be evaluated independently of any other rating.
The recapitalization plan is expected, when taken together with the
Operating Company Dividends, to provide Williams with somewhat greater
ratemaking flexibility afforded by a stand alone capital structure for the
natural gas pipeline subsidiaries.
On April 11, 1994, Texas Gas issued $150 million of 8 5/8% Notes due April
1, 2004. The 8 5/8% Notes are not redeemable prior to maturity and are general
unsecured obligations of Texas Gas. Proceeds from the issuance were used to
redeem Texas Gas' outstanding 10% Debentures on April 29, 1994.
CAPITALIZATION AND CASH FLOWS
As shown in the following table, at December 31, 1994, the percentage of
total debt to total invested capital was 74.4% compared to 72.7% at December 31,
1993. Although total debt increased slightly by $17 million from December 31,
1993, the charges in 1994, including the writedown of the Company's investment
in the nonoperating interest in the coalbed methane properties, the provision
for asset impairments, the provision for TGPL's regulatory issue and the
settlement of litigation, as discussed in Notes L, K, B and C, respectively, of
the Notes to Consolidated Financial Statements included in Item 8 hereof, were
the primary reason for the increase in the percentage of total debt to total
invested capital.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Common Stockholders' Equity........................ $ 361.5 $ 391.3 $ 429.9
Preferred Stock.................................... 314.7 340.6 362.7
Long-term Debt, less Current Maturities............ 1,785.6 1,786.6 1,819.9
-------- -------- --------
Total Capitalization............................... 2,461.8 2,518.5 2,612.5
Short-term Debt and Current Maturities of Long-term
Debt............................................ 177.1 159.5 188.8
-------- -------- --------
Total Invested Capital............................. $2,638.9 $2,678.0 $2,801.3
======= ======= =======
Long-term Debt, less Current Maturities as a
Percentage of Total Capitalization.............. 72.5% 70.9% 69.7%
Common Stockholders' Equity as a Percentage of
Total Capitalization............................ 14.7% 15.5% 16.5%
Total Debt as a Percentage of Total Invested
Capital......................................... 74.4% 72.7% 71.7%
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows Provided By Operating Activities.......... $ 126.5 $ 276.2 $ 15.7
======= ======= =======
</TABLE>
Consolidated net cash flows provided by operating activities during 1994
were $150 million lower than for 1993. The net decrease was primarily due to:
-- Cash payments of $165 million in 1994 due to rate refunds made by
TGPL under its RP92-137 general rate case and Texas Gas under its
RP93-106 general rate case;
-- Cash payments of $18 million in 1994 by Texas Gas to its former
sales customers in resolution of Order 528 flow-through
proceedings;
-- Higher cash payments of $49 million in 1994 due to the amount and
timing of collections of receivables and disbursements for
payables; and
-- Higher cash receipts of $77 million in 1993 for collection of
revenues subject to refund,
19
<PAGE> 21
Offset by:
-- Cash payments of $36 million in 1993 due to rate refunds made by
Texas Gas under its RP90-104 general rate case;
-- No cash payments made in 1994 for non-recoverable producer
settlements compared to $34 million in 1993;
-- Cash receipts of $21 million in 1994 compared to cash payments of
$12 million in 1993 related to gas and liquids inventory; and
-- Return of a collateralized deposit of $21 million in 1994 that was
no longer needed due to the utilization of a reimbursement facility
that provided Transco with standby letters of credit.
Consolidated net cash flows provided by operating activities during 1993
were $261 million greater than for 1992. The net increase was primarily due to:
-- Higher cash receipts of $109 million in 1993 from collection of
revenues subject to refund;
-- Cash payments of $102 million in 1992 due to rate refunds made by
TGPL under its RP90-8 general rate case;
-- Lower cash payments of $18 million in 1993 for non-recoverable
producer settlements; and
-- Cash payments of $74 million in 1992 made in connection with TGPL's
Transition Cost Proceeding,
Offset by:
-- Cash payments of $36 million in 1993 due to rate refunds made by
Texas Gas under its RP90-104 general rate case; and
-- Higher cash payments of $23 million in 1993 due to the amount and
timing of collections of receivables and disbursements for
payables.
<TABLE>
<CAPTION>
1994 1993 1992
----- ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows Used In Financing Activities.................... $65.3 $162.3 $76.4
===== ====== =====
</TABLE>
Consolidated net cash flows used in financing activities for the year ended
December 31, 1994, included cash outflows for dividends of $54 million on common
and preferred stock, the retirement of $27 million of preferred stock and the
refinancing in April of Texas Gas' $150 million of 10% Debentures, partially
offset by cash inflows from Texas Gas' issuance of $150 million of 8 5/8% Notes
and the increase in short-term debt of $27 million.
Consolidated net cash flows used in financing activities for the year ended
December 31, 1993, included cash outflows for the redemption of the 9.25%
Preferred Stock for $133 million, primarily with the net proceeds from the sale
of the $3.50 Series Preferred Stock of $121 million, cash outflows for the
retirement of $26 million of TGPL preferred stock and $63 million of long-term
debt by Transco, TGPL and TCC and dividends of $59 million on common and
preferred stock.
The consolidated net cash flows used in financing activities for the year
ended December 31, 1992, included cash inflows of $300 million from the sale of
Transco's 11 1/4% Notes, offset by cash outflows of $103 million for the
retirement of other long-term debt by TGPL and TCC and $320 million for the
retirement of short-term debt. Also included were dividends of $55 million on
common and preferred stock.
<TABLE>
<CAPTION>
1994 1993 1992
------- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows Provided By (Used In) Investing Activities..... $(192.3) $37.1 $43.4
======= ===== =====
</TABLE>
20
<PAGE> 22
For the year ended December 31, 1994, consolidated net cash flows used in
investing activities primarily included cash outflows for capital expenditures
for property, plant and equipment and investment in unconsolidated affiliates of
$201 million, as shown in the following table. Also contributing to the net cash
outflow was the acquisition of Tren-Fuels, Inc. for $13 million, which was
partially offset by the collection of the net worth adjustment of $8 million in
connection with the sale of TEVCO as discussed in Note J of the Notes to
Consolidated Financial Statements.
For the year ended December 31, 1993, consolidated net cash flows from
investing activities included net proceeds from the sales of assets of $145
million and the transfer of Transco's interest in the coalbed methane properties
for $16 million and the recovery of producer settlement costs of $34 million by
TGPL and Texas Gas. Cash outflows included expenditures for property, plant and
equipment and investments in unconsolidated affiliates of $173 million, as shown
in the table below.
For the year ended December 31, 1992, consolidated net cash flows from
investing activities included net proceeds from the sales of assets of $144
million, the receipt of the final liquidating distribution from Transco
Exploration Partners, Ltd. (TXP) of $62 million and TGPL's and Texas Gas'
recovery of producer settlement costs of $69 million. Cash outflows included
capital expenditures for property, plant and equipment and investments in
unconsolidated affiliates of $178 million, as shown in the table below, and
deposits of $45 million for future equity contributions to be made by TEVCO in
connection with certain cogeneration projects.
<TABLE>
<CAPTION>
BUDGET ACTUAL
CAPITAL EXPENDITURES AND INVESTMENTS IN UNCONSOLIDATED ------ ----------------------------
AFFILIATES 1995 1994 1993 1992
-------------------------------------------------------- ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Pipelines
TGPL
Market-Area Projects............................... $ 68.8 $ 20.4 $ 13.1 $ 54.6
Supply-Area Projects............................... 9.0* 13.7 27.3 16.1
Maintenance of Existing Facilities and Other
Projects......................................... 132.4 109.3 69.8 45.0
Texas Gas
Market-Area Projects............................... 2.4 4.9 6.5 19.8
Maintenance of Existing Facilities and Other
Projects......................................... 36.8 37.6 26.5 18.4
Other................................................. -- 0.9 2.4 1.7
------ ------ ------ ------
Total Pipelines............................... 249.4* 186.8 145.6 155.6
Gas Marketing........................................... 2.3 0.9 1.5 2.1
Coal.................................................... 12.7 12.9 14.7 9.0
Gas Gathering........................................... 0.5 0.1 0.3 0.3
Oil and Gas
Conventional.......................................... -- -- -- 4.9
Coalbed Methane....................................... -- -- 7.9 15.5
Power Generation........................................ -- -- 8.9 8.1
Other................................................... -- 0.1 -- --
Intersegment Eliminations (TGPL Expenditures)........... -- -- (5.6) (17.1)
------ ------ ------ ------
Total Capital Expenditures and Investments in
Unconsolidated Affiliates................... $264.9* $200.8 $173.3 $178.4
====== ====== ====== ======
</TABLE>
---------------
* Excludes $13.1 million that TGPL is budgeted to receive from Florida Gas for
the sale of a partial interest in the Mobile Bay lateral.
FUTURE CAPITAL EXPENDITURES
As shown in the table above, the Company has budgeted $265 million (before
application of the Mobile Bay lateral proceeds) for 1995 capital expenditures
and investment in affiliates, of which approximately 94% is
21
<PAGE> 23
planned for its pipeline business. This budget reflects Transco's plans for
capital spending without consideration of the potential effects of Transco's
merger with Williams and, therefore, is subject to revision after the merger is
consummated. Williams has advised Transco that during 1995 it will fund capital
expenditures of approximately $400 million for Transco's businesses.
Liberty Pipeline Company
In 1992, Liberty, a partnership of interstate pipelines and local
distribution companies, filed for FERC approval to construct and operate a
natural gas pipeline to provide 500 MMcf/d in firm transportation service to the
greater New York City metropolitan area. The partnership presently is comprised
of subsidiaries of Transco and two other interstate pipelines and subsidiaries
of two TGPL customers in New York.
On August 1, 1994, Liberty asked the FERC to postpone indefinitely its
review of the project. The decision followed the withdrawal of two key shippers
from the project. The partners reaffirmed their belief that an additional
delivery point to the New York facilities system, as proposed by Liberty, would
be necessary in the future and advised the FERC that the Liberty partners would
continue to pursue that goal. On August 12, 1994, the FERC dismissed, without
prejudice, the applications of Liberty and other upstream pipeline companies for
authority to build the pipeline and other related facilities. As a result of the
indefinite delay of the project, in the fourth quarter of 1994, Transco recorded
a $4.2 million pretax charge to establish a reserve for its investment in the
Liberty Pipeline partnership.
At the time Liberty ceased development of its project, TGPL also suspended
development of its associated Liberty Upstream Expansion. That project
contemplated 115 MMcf/d of firm transportation capacity from Leidy, Pennsylvania
interconnects to the Liberty Pipeline, near South Amboy, New Jersey. The total
investment in the Liberty Upstream project is $3.6 million, of which $0.6
million was incurred during 1994. TGPL believes these expenditures will have
value to future projects.
Southeast Expansion Projects
In November 1993, TGPL filed for FERC approval of its Southeast Expansion
Projects to provide additional firm transportation capacity to growing
southeastern markets in Alabama, Georgia, South and North Carolina and Virginia.
The Southeast Expansion Projects will provide a total of 200 MMcf/d of firm
transportation capacity to TGPL's southeast customers by the 1996-1997 winter
heating season. The new firm transportation capacity will extend from TGPL's
Mobile Bay lateral interconnect, near Butler, Alabama, to delivery points
upstream of TGPL's Compressor Station 165, near Chatham, Virginia. The expansion
projects will include approximately 25 miles of pipeline replacement and looping
and the installation of additional compression totaling approximately 70,000
horsepower. TGPL's FERC applications estimated the cost of the expansion to be
$125 million which will be recovered through incremental rates based on the SFV
rate design methodology.
By orders issued May 27, 1994 and December 21, 1994, the FERC authorized
the 1994 Southeast Expansion Project (SE94) and the 1995/1996 Southeast
Expansion Project (SE95/96), respectively. SE94 was completed and placed into
service in the fourth quarter of 1994, and provides 35 MMcf/d of incremental
firm transportation capacity. SE95/96 will be constructed in two phases: Phase I
will add 115 MMcf/d of incremental firm capacity for the 1995-1996 winter
heating season, and Phase II will add the remaining 50 MMcf/d for the 1996-1997
winter heating season.
TGPL invested $19.7 million in these projects in 1994 and expects to invest
approximately $69 million in these projects in 1995.
Eminence Storage Field Expansion Project
During 1994, TGPL completed the second phase of its Eminence storage field
expansion project, expanding the working capacity from 9 Bcf to 12 Bcf and
increasing the withdrawal rate from 1.3 Bcf/d to 1.5 Bcf/d. The expansion of the
salt-dome structure, located at TGPL's Compressor Station 77, near Seminary,
Mississippi, will give TGPL additional flexibility to meet the load balancing
and emergency gas
22
<PAGE> 24
supply demands of its customers. High deliverability from storage helps assure
pipelines, such as TGPL, of gas availability for their customers during adverse
weather conditions.
TGPL plans further expansion of the storage field in 1995, increasing the
working capacity of the storage field to 15 Bcf. TGPL expects to invest
approximately $9 million in this project in 1995.
Mobile Bay Lateral Expansion Project
In September 1993, the FERC issued an order authorizing the joint ownership
and expansion of TGPL's Mobile Bay lateral with Florida Gas. The lateral
transports gas from the prolific Mobile Bay gas supply basin to the TGPL
mainline, near Butler, Alabama. Construction of the compressor station
authorized as part of the expansion was completed in November 1994 and the
station was placed into service in December 1994. It is anticipated that the
remaining expansion facilities will be placed into service in March 1995.
When the expansion is fully placed into service, the capacity of the Mobile
Bay lateral will be increased from 462 MMcf/d to 829 MMcf/d. The expansion will
increase the TGPL portion of pipeline capacity by approximately 60 MMcf/d to 520
MMcf/d.
The cost of the expansion project has been funded entirely by Florida Gas,
and TGPL estimates it will receive approximately $13 million from Florida Gas
for the sale of a partial interest in the lateral.
In June 1994, TGPL completed the tie-in of Exxon's treatment plant to the
Mobile Bay lateral, adding approximately 350 MMcf/d of production
deliverability.
Both of these expansion projects will not only enhance TGPL's overall
access to gas supply, but will also provide additional gas supply for the
Southeast Expansion Projects.
OTHER CAPITAL REQUIREMENTS AND CONTINGENCIES
Investment in Nonoperating Interest in Coalbed Methane Properties
As discussed in Note L of the Notes to Consolidated Financial Statements,
at December 31, 1994, Transco's nonoperating interest in the coalbed methane
properties totaled $86 million (after the effects of the $45 million charge in
1994, a $70 million charge in 1993 and the $15.5 million of cash proceeds
received from TECO in 1993).
Transco has been advised by TECO that TECO's plans for the coalbed methane
properties transferred from Magnolia continue to include the completion of
shallow zones in an area with 74 producing wells because TECO believes that such
development provides the best immediate opportunity for increases in production
and favorable economic results from the required investment. Through December
31, 1994, TECO had made completions in shallow zones in 19 wells, 18 of which
have been judged successful. During 1995, TECO expects to make shallow zone
completions in 22 additional wells that currently have completions in the deeper
zones.
In another area, as of December 31, 1994, 145 wells had been drilled, of
which 75 wells had been completed with 65 wells producing and 10 wells capable
of production, but shut in by TECO pending further evaluation. Although no
comprehensive evaluation plan has been completed, in 1994 TECO began completing
those wells that appear to provide the best opportunity for increased
production. These wells may include nonproducing wells that have not been
completed previously and/or producing wells with shallow zones that have not
been completed in those zones. There are a number of shallow zones in this area
that have not been completed. During 1994, three wells were completed and TECO
estimates that 8 wells will be completed during 1995 if the wells continue to be
successful. TECO will evaluate the results of the initial completions and
continue the program based on those results. TECO has completed its engineering
and geological evaluation of this area and is currently evaluating the wide
range of costs that would be necessary to bring additional wells on production.
23
<PAGE> 25
In a third area, which is essentially an unevaluated area, there are 249
wells, none of which are producing. The evaluation of this area has been TECO's
lowest priority. TECO is considering all possible alternatives for this area
including the sale of leases.
The ultimate recovery of Transco's remaining investment depends on
production from the properties and future gas prices. The Company cannot predict
at this time the ultimate results of TECO's operations or the amounts of
reserves that may ultimately be recoverable. If future development operations do
not result in establishing sufficient reserves to recover the Company's
remaining coalbed methane investment, or if other factors cause the valuation of
the Company's investment to diminish, additional reductions in the book value
would be required in future periods through non-cash charges to earnings.
Williams has identified Transco's interest in this project as a non-core
asset it intends to dispose of during 1995.
Investment in Magnolia Pipeline
At December 31, 1994, Transco's investment in the Magnolia Pipeline totaled
$67 million. The ultimate recovery of Transco's investment in the Magnolia
Pipeline is dependent on transportation of gas produced in the Black Warrior
Basin, including production from the properties transferred to TECO, as well as
transportation of gas from other sources.
Order 636 Transition Costs
As discussed in Note B of the Notes to Consolidated Financial Statements,
TGPL and Texas Gas implemented Order 636 services effective November 1, 1993.
Texas Gas' transition costs under Order 636, which are primarily related to
GSR contract termination costs, GSR pricing differential costs incurred pursuant
to Texas Gas' monthly auction proceeds and unrecovered purchased gas costs, are
not currently expected to exceed approximately $90 million. TGPL does not expect
to incur GSR costs associated with its firm sales service. TGPL's non-GSR
transition costs are anticipated to be insignificant. Order 636 provides that
pipelines should be allowed the opportunity to recover all prudently incurred
transition costs. Texas Gas and TGPL expect that any transition costs incurred
should be recovered from their customers, subject only to the costs and other
risks associated with the difference between the time such costs are incurred
and the time when those costs may be recovered from customers.
Transco does not believe that Order 636 transition costs to be incurred by
Texas Gas and TGPL will have a material adverse effect on its financial position
or results of operations.
Rate and Regulatory Refunds
TGPL
As discussed in Note B of the Notes to Consolidated Financial Statements,
TGPL received a FERC order accepting an Offer of Settlement (the Settlement) in
connection with its general rate case (Docket No. RP92-137) on November 4, 1993.
Through January 31, 1995, TGPL made partial refunds of approximately $150
million, including interest, under the Settlement. An additional refund of
approximately $24 million, including interest, is expected to be made during the
first quarter of 1995. TGPL had previously provided a reserve for these refunds.
As discussed in Note B of the Notes to Consolidated Financial Statements,
on February 13, 1995, the FERC issued an order rejecting the settlement with
Columbia and requiring TGPL to refund to Columbia within 30 days approximately
$7 million of Order 94-A costs collected from Columbia. On March 9, 1995, TGPL
filed with the FERC a request for extension of time to make the refund. On March
13, 1995, the FERC granted an extension of time for making the refund, to and
including 30 days after FERC action on requests for rehearing. On March 15,
1995, TGPL filed for rehearing of the FERC's February 13 order. Also on March
15, 1995 Columbia filed for rehearing of the February 13 order asking that the
FERC require that TGPL pay interest on the refund of the Order No. 94-A amounts.
TGPL has provided a reserve of
24
<PAGE> 26
approximately $7 million which it believes is adequate to provide for any
amounts which it may ultimately be required to refund.
Texas Gas
As discussed in Note B of the Notes to Consolidated Financial Statements,
under Order 94-A, on October 18, 1994, the FERC issued its "Order Denying
Rehearing" which affirmed its January 12, 1994 order. On November 17, 1994,
Texas Gas made $4.3 million in refunds and filed for and received a stay of the
order's requirement to make the remaining $9.2 million of refunds by November
17, 1994. Texas Gas continues to believe that it is entitled to full recovery of
these FERC-ordered costs and has filed a court appeal. On January 17, 1995,
Texas Gas filed a joint motion with Columbia, the party due the remaining
refunds, to extend the time for making refunds until the court rules. Texas Gas,
however, believes that its reserve of $5.4 million, plus interest, is adequate
to provide for any costs that it may ultimately be required to absorb.
Regulatory and Legal Proceedings
As discussed in Notes B and C of the Notes to Consolidated Financial
Statements, Transco, TGPL, Texas Gas and other Transco subsidiaries are involved
in several pending regulatory and legal proceedings. Because of the complexities
of the issues involved in these proceedings, Transco cannot predict the actual
timing of resolution or the ultimate amounts which might have to be refunded or
paid in connection with the resolution of these pending regulatory and legal
proceedings.
Although no assurances can be given, Transco does not believe that the
ultimate resolution of these pending regulatory and legal proceedings will have
a material adverse effect on its financial position, results of operations or
net cash flows.
Long-term Gas Purchase and Transportation Contracts
As discussed in Note M of the Notes to Consolidated Financial Statements,
certain of Transco's subsidiaries have long-term gas purchase contracts
containing take-or-pay provisions and prices which are not variable market
based. Future changes in market conditions affecting the volumes of gas sold and
prices of natural gas may expose the Company to financial risks pursuant to
these contracts.
TGPL
Following is a summary of TGPL's estimated purchase commitments for the
next five years and cumulative thereafter under gas purchase contracts that
contain either fixed prices or variable prices that are at a significant premium
to the estimated market price.
<TABLE>
<CAPTION>
TOTAL DOLLAR
COMMITMENT
ESTIMATED PURCHASE COMMITMENTS(1) -------------
----------------------------------------------------------------- (IN MILLIONS)
<S> <C>
1995............................................................. $77.2
1996............................................................. 35.5
1997............................................................. 34.8
1998............................................................. 6.9
1999............................................................. 6.3
Cumulative thereafter............................................ 19.5
</TABLE>
---------------
(1) The declines in estimated purchase commitments over future periods reflect
contract expirations and, to a lesser extent, estimated deliverability
declines. There are inherent risks in estimating gas reserves and gas
deliverability. To the extent actual reserves and actual deliverability are
different than those estimated in determining future purchase obligations or
to the extent additional reserves are added under contracts or as a result
of future drilling, TGPL's future purchase obligations could be increased or
decreased from the amounts shown above. The total dollar commitment in the
table reflects gross dollar amounts to be paid under the gas purchase
contracts. The market price is based on an estimate of future market prices
issued by Petroleum Industry Research Associates, Inc.
25
<PAGE> 27
TGPL's supply purchase contracts are structured in a variety of ways. While
many contracts still contain minimum purchase volume provisions, others
stipulate the availability of gas for purchase but contain no minimum purchase
requirements. Currently, approximately 82% of TGPL's portfolio is variable
priced relative to the spot market which results in a price that is competitive
in the natural gas market. Approximately 17% of TGPL's portfolio is fixed priced
or variable priced with a significant premium which can result in a price that
is not competitive in the natural gas market. Less than 1% of the portfolio is
tied to the fuel oil market.
Pursuant to a settlement that TGPL has with all its customers, TGPL has in
place a Gas Inventory Charge (GIC) which, although no assurances can be given,
TGPL believes will be adequate to enable full recovery of its above-spot-market
gas costs. Through an agency agreement with TGPL, TGMC has assumed management of
TGPL's merchant sales service and, as TGPL's agent, is at risk for any
above-spot-market gas costs it may incur in excess of the amounts recovered
under the GIC.
Texas Gas
During 1993, as part of Texas Gas' restructuring under Order 636, Texas Gas
engaged in negotiations with suppliers which resulted in the successful
termination of approximately 90% of Texas Gas' deliverability under its gas
purchase contracts with pricing provisions that are not variable market based.
Gas purchased under its remaining contracts with pricing provisions that are not
variable market based is being resold at a monthly auction pursuant to Order
636. Texas Gas continues to pay to the supplier the actual contract price and is
entitled to file for full recovery of the difference between the contract price
and the amount received for sales at auction as GSR costs under Order 636.
Through December 31, 1994, Texas Gas had paid a total of $46.4 million for
GSR costs, primarily as a result of the contract terminations. During 1994,
Texas Gas made four quarterly filings to recover $37.8 million of GSR costs,
plus interest pursuant to the transition cost recovery provisions of Order 636
and Texas Gas' FERC-approved Gas Tariff. This amount represents 90% of the total
GSR costs paid through August 1994 that are expected to be recovered via demand
surcharges to Texas Gas' firm transportation rates. Texas Gas continues to make
quarterly filings to allow recovery of 90% of its GSR costs as such costs are
paid. The remaining 10% of GSR costs is expected to be recovered from
interruptible transportation service. On December 29, 1994, as revised on
February 13, 1995, Texas Gas made a filing to reflect that, for the ten months
ended August 31, 1994, Texas Gas allocated to and recovered from interruptible
transportation service $4.2 million of GSR costs, pursuant to its FERC-approved
Gas Tariff. Pursuant to Order 636, Texas Gas may file to recover 100% of these
costs as GSR costs.
Transco Energy Marketing Company
At December 31, 1994, TEMCO had no minimum purchase commitments under
long-term gas purchase contracts with pricing provisions that were not variable
market based or at a significant premium to market prices.
TEMCO has entered into sales agreements with customers that provide for
above-spot-market gas sales prices and expects such sales agreements will be
adequate to permit TEMCO to recover its gas purchase costs. However, because
certain of its gas purchase contracts contain floor price provisions, a spot
market price environment of approximately $1.50 per MMbtu or less may expose
TEMCO to financial risks of not fully recovering its gas costs.
In addition, TEMCO is a party to firm transportation contracts in which
monthly demand charges are paid for pipeline capacity in order to transport
Canadian gas to markets in the United States. During 1994, TEMCO did not recover
approximately $8 million of the cost of firm transportation capacity under those
contracts. TEMCO's current annual commitment for firm transportation capacity is
approximately $56 million under contracts that substantially expire in 2002. To
the extent TEMCO is unable to find business alternatives for potentially
underutilized transportation capacity or receive sales prices at or near its
cost, Gas Marketing's results of operations could be negatively impacted.
However, TEMCO believes that the aggregate cost of the firm transportation
capacity will be recovered and, therefore, will not have a material adverse
effect
26
<PAGE> 28
on Transco's financial position, results of operations or net cash flows (see
Results of Operations -- Gas Marketing).
Consolidated
Transco does not believe that the financial risk associated with long-term
gas purchase contracts will have a material adverse effect on the Company's
consolidated financial position, results of operations or net cash flows.
Environmental Matters
As discussed in Note D of the Notes to Consolidated Financial Statements,
Transco and certain of its subsidiaries are subject to extensive federal, state
and local environmental laws and regulations which affect Transco's operations
related to the construction and operation of pipeline facilities and coal
mining.
TGPL and Texas Gas consider environmental assessment and remediation costs
and costs associated with compliance with environmental standards to be
recoverable through rates, since they are prudent costs incurred in the ordinary
course of business. To date, TGPL and Texas Gas have been permitted recovery of
environmental costs incurred and it is their intent to continue seeking recovery
of such costs, as incurred, through rate filings.
CONCLUSION
Although no assurances can be given, the Company currently believes that
the aggregate of cash flows from operating activities, supplemented, when
necessary, by advances or capital contributions from Williams, will provide
sufficient liquidity to meet its capital requirements.
RESULTS OF OPERATIONS
CONSOLIDATED
The table below shows the consolidated results of operations for the
periods presented, the effects of certain selected items that have impacted
those results and references to discussions of those selected items in the Notes
to Consolidated Financial Statements.
<TABLE>
<CAPTION>
1994 1993 1992
---------------- ---------------- ----------------
PER PER PER
AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Net Income Before Selected Items.... $46.8 $ 1.15 $32.3 $ 0.82 $ 9.0 $ 0.29
Provision for asset impairments (Notes C and
K)........................................... (26.6) (0.66) -- -- -- --
Coal litigation settlement (Note C)............ (2.6) (0.06) -- -- -- --
Royalty claims settlement (Note C)............. (1.6) (0.04) -- -- -- --
Capitalized costs in excess of ceiling
limitation (Notes J and L)................... (29.3) (0.72) (45.5) (1.16) (23.2) (0.73)
Provision for producer settlements, legal and
regulatory issues (Notes B and C)............ (3.7) (0.09) -- -- (19.5) (0.61)
Gain on sale of TEVCO (Note J)................. -- -- 31.6 0.81 -- --
Corpus Christi settlement (Note C)............. -- -- (32.7) (0.84) -- --
Write-off of note receivable (Note K).......... -- -- (12.5) (0.32) -- --
Losses on sales of assets, net (Note J)........ -- -- (0.5) (0.01) (55.7) (1.74)
Federal tax rate increase (Note I)............. -- -- (1.6) (0.04) -- --
Income (loss) from operations of discontinued
segment (Note J)............................. -- -- (0.1) -- 2.6 0.08
Gain on final liquidating distribution from TXP
(Note J)..................................... -- -- -- -- 11.7 0.36
------ ------ ------ ------ ------ ------
Consolidated Net Loss............................ $(17.0) $(0.42) $(29.0) $(0.74) $(75.1) $(2.35)
====== ====== ======= ====== ====== ======
</TABLE>
27
<PAGE> 29
1994 COMPARED TO 1993
Excluding the net income impact of the selected items in 1994 and 1993
shown above, Transco's consolidated results for 1994 were $14.5 million ($0.33
per share) higher than for 1993, primarily as a result of improved financial
results of $17.7 million from Pipelines, Gas Marketing and Gas Gathering and
lower preferred dividends of $2.1 million on transco's convertible preferred
stock, offset in part by higher net interest expense of $8.0 million (after-tax)
incurred by transco. In addition, the net loss from Transco's coalbed methane
investment was reduced by $2.7 million due to the transfer of the Company's
operating interest in that project to TECO Energy, Inc. in July 1993. Excluding
the pretax impact of the selected items in 1994 and 1993, consolidated operating
income for 1994 was $15.7 million higher than operating income for 1993,
primarily due to the improved results of $18.8 million from Gas Marketing and
Gas Gathering and a lower operating loss of $5.3 million from Transco's coalbed
methane investment, partially offset by lower operating income of $6.6 million
from Pipelines and Coal.
As shown in the table below, pretax consolidated net interest expense for
1994 was $5 million higher than in 1993, primarily due to higher interest rates
and less capitalized interest in 1994.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Consolidated interest expense relating to:
Long-term debt......................................... $180.4 $179.3 $180.4
Short-term debt........................................ 2.6 1.6 11.2
Transition Cost proceeding............................. -- -- 0.8
Rate refunds........................................... 6.3 5.1 5.2
Other.................................................. 1.7 4.3 7.9
------ ------ ------
Total interest expense......................... 191.0 190.3 205.5
Interest income.......................................... (7.3) (8.6) (9.9)
Capitalized interest..................................... (1.0) (4.0) (4.7)
------ ------ ------
Consolidated net interest expense........................ $182.7 $177.7 $190.9
====== ====== ======
</TABLE>
1993 COMPARED TO 1992
Excluding the net income impact of the selected items in 1993 and 1992
shown above, Transco's consolidated results for 1993 were $23.3 million ($0.53
per share) higher than the results for 1992, primarily as a result of continued
growth in earnings of $16.9 million from Pipelines, and improved financial
results of $10.6 million from Coal, partially offset by higher net interest
expense of $4.1 million (after-tax) incurred by Transco and greater losses of
$1.7 million from Gas Gathering. Excluding the pretax effects of the selected
items shown above for 1993 and 1992, consolidated operating income for 1993 was
$36.8 million higher than that of 1992. This increase was primarily the result
of higher operating income of $22.2 million from Pipelines, improved operating
results of $13.8 million from Coal and Gas Marketing and a lower operating loss
of $2.5 million from Transco's coalbed methane investment, partially offset by
an increased operating loss of $2.1 million from Gas Gathering.
Each segment's results of operations are discussed in more detail below and
comparative selected financial information by segment is presented elsewhere in
this report.
28
<PAGE> 30
PIPELINES
The table below shows the results of operations of Pipelines by company for
the years 1994, 1993 and 1992.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
TGPL..................................................... $104.8 $ 86.9 $ 64.9
Texas Gas................................................ 32.5 39.1 40.9
Other Companies.......................................... (2.8) (0.3) (5.5)
------ ------ ------
Total Pipelines.......................................... $134.5 $125.7 $100.3
====== ====== ======
</TABLE>
The net loss in 1994 from Other Companies was primarily the result of a
charge to establish a reserve for Transco's investment in the Liberty Pipeline
partnership (see Capital Resources and Liquidity -- Future Capital
Expenditures). The net loss in 1992 from Other Companies was primarily the
result of the sale of Transco's interest in the High Island Offshore System, the
U-T Offshore System and Green Canyon Pipeline Company (see Note J of the Notes
to Consolidated Financial Statements).
The table below shows the results of operations of Pipelines for the years
1994, 1993 and 1992 and the effects of certain selected items that have impacted
those results.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Pipelines Net Income Before Selected Items............... $140.9 $138.4 $121.5
Provision for asset impairments........................ (2.7) -- --
Provision for producer settlements, legal and
regulatory issues................................... (3.7) -- (19.5)
TGPL write-off of note receivable...................... -- (12.5) --
Other selected items................................... -- (0.2) (1.7)
------ ------ ------
Pipelines Net Income..................................... $134.5 $125.7 $100.3
====== ====== ======
</TABLE>
The two major operating companies in this segment, TGPL and Texas Gas,
provide substantially all of the segment's revenues, operating income and net
income. Effective January 1, 1993 for TGPL and November 1, 1993 for Texas Gas,
substantially all sales revenues and the related costs, including gas costs,
applicable to TGPL and Texas Gas' jurisdictional merchant sales service are
reported by Transco in Gas Marketing. The financial performance of TGPL
(excluding its 1993 and 1994 merchant sales service) and Texas Gas (excluding
its 1994 variable-market-based sales service) is discussed below.
1994 COMPARED TO 1993
TGPL
Net and Operating Income
TGPL's net income for 1994 was $17.9 million higher than 1993. Selected
items affecting the results for 1994 include a reserve for a refund of certain
FERC Order 94 production-related costs and selected items affecting the results
for 1993 include a write-off of a note receivable from TGPL's prior sale of an
interest in a gas field and related gas processing plant. Excluding the net
income impact of the selected items shown in the table above, TGPL's net income
was higher by $8.1 million, due primarily to higher net revenues of $18.6
million (net of the related cost of sales and transportation) and lower
dividends on preferred stock of $2.2 million, partly offset by higher operation
and maintenance expenses of $14.3 million. Operating income for 1994 was $224.5
million ($230.5 million excluding the selected item), compared to operating
income of $204.4 million ($224.5 million excluding the selected item) for 1993.
This $6.0 million increase, excluding the selected items, was primarily due to
higher net revenues of $18.6 million, partly offset by higher operation and
maintenance expenses of $14.3 million.
29
<PAGE> 31
The acquisition of Transco by Williams will be accounted for using the
purchase method of accounting. Accordingly, upon completion of the Merger, the
purchase price will be allocated to the net assets acquired, including the net
assets of TGPL. Current FERC policy does not permit TGPL to recover through its
rates amounts in excess of the original cost of its regulated facilities. As a
result, absent any offsetting effects of the acquisition, future amortization of
purchase price amounts allocated to TGPL in excess of the current book value of
TGPL's net assets could cause TGPL's operating income in 1995 to be lower than
1994.
Operating Revenues
TGPL's operating revenues decreased $9 million to $908 million for 1994,
when compared to 1993. However, several transactions had no effect on TGPL's
operating or net income variances when compared with the prior year since they
were offset by corresponding variances in the cost of sales and transportation.
The revenue variances not affecting operating or net income include a decrease
of $29 million due to lower transportation rates resulting from the elimination
of the producer settlement surcharge which expired on May 31, 1993, and a
decrease in non-merchant sales revenues of $27 million related to TGPL's
cash-out program for the settlement of current month transportation imbalances
and the sale in 1993 of storage gas purchased for and sold to TGPL's customers,
partly offset by an increase in non-merchant sales revenues of $22 million
related to the cash settlement of historical transportation imbalances.
Excluding these transactions, transportation revenues increased $20 million
reflecting an increase of $10 million due to increased throughput on the Mobile
Bay lateral as a result of the change from interruptible transportation to firm
transportation combined with additional demand revenues of $7 million from
Phases I and II of the Eminence storage field expansion project. Other revenues
increased $4 million, primarily due to higher transportation of liquid and
liquefiable hydrocarbons.
Operating Costs and Expenses
Excluding the pretax effects of the selected items in 1994 and 1993 and the
cost of sales and transportation of $189 million for 1994 and $216 million for
1993, TGPL's operating expenses increased approximately $13 million over 1993.
The increase for the year was primarily due to higher costs for platform rental
space ($4 million) and labor ($6 million), partly offset by lower costs for
postretirement benefits other than pensions ($3 million).
System Deliveries
As shown in the table below, TGPL's total market-area deliveries for 1994
were 16.9 Bcf higher than 1993. The increased deliveries, primarily firm
transportation volumes, are higher than the same period in 1993 mainly due to
the colder-than-normal weather in the market area during January and February
1994, coupled with higher firm throughput during the summer period due to
implementation of capacity release programs pursuant to Order 636. The
production-area deliveries for 1994 increased 7.5 Bcf, or 4%, when compared to
1993 due to TGPL's decreased rates resulting from the elimination of the
producer settlement surcharge which expired on May 31, 1993. As a result of a
SFV rate design and the interruptible transportation revenue crediting
requirement, these increases in system deliveries had no significant impact on
operating income; however, these increases show the strength of the TGPL
franchise.
<TABLE>
<CAPTION>
TGPL SYSTEM DELIVERIES (BCF) 1994 1993 1992
-------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Market-area deliveries:
Long-haul transportation.............................. 777.3 823.9 821.8
Market-area transportation............................ 437.9 374.4 379.8
------- ------- -------
Total market-area deliveries.......................... 1,215.2 1,198.3 1,201.6
Production-area transportation.......................... 178.7 171.2 199.3
------- ------- -------
Total system deliveries................................. 1,393.9 1,369.5 1,400.9
======= ======= =======
</TABLE>
30
<PAGE> 32
TGPL's facilities are divided into seven rate zones. Four are located in
the production area and three are located in the market area. Long-haul
transportation is gas that is received in one of the production-area zones and
delivered in a market-area zone. Market-area transportation is gas that is both
received and delivered within market-area zones. Production-area transportation
is gas that is both received and delivered within production-area zones.
Rates
TGPL has expressed to the FERC concerns that inconsistent treatment under
Order 636 of TGPL and its competitor pipelines with regard to rate design and
cost allocation issues in the production area may result in rates which could
make TGPL less competitive, both in terms of production-area and long-haul
transportation. A hearing before a FERC ALJ, dealing with, among other things,
TGPL's production-area rate design, concluded in June 1994 and the parties
submitted briefs to the ALJ in August and September 1994. The decision of the
ALJ, when issued, will be subject to review by the FERC. TGPL is unable at this
time to fully assess the competitive effect and resulting financial impact on
TGPL of having to maintain its current production-area rate design which is
different than that of its competitors.
On September 17, 1992, the FERC issued a decision addressing the single
issue of the appropriate rate of return in Docket No. RP92-137. The FERC, using
a hypothetical capital structure based on the average capital structure of a
group of seven publicly-traded companies with pipeline subsidiaries, determined
TGPL's appropriate after-tax rate of return on equity to be 14.45%. The FERC did
not determine TGPL's cost of debt and preferred stock, suggesting that this
issue should be the subject of further proceedings in the context of the general
rate case. Consequently, TGPL's current settlement rates reflect an after-tax
rate of return on equity of 14.45% but, consistent with the FERC order, the
rates continue to reflect the cost of debt and preferred stock originally filed
in the general rate case. The issue of the appropriate rate of return for TGPL
was appealed to the United States Court of Appeals for the D.C. Circuit (D.C.
Circuit Court). TGPL appealed, seeking to increase the rate of return, and
certain other parties appealed, seeking to lower the rate of return. On December
23, 1994, the D.C. Circuit Court issued an opinion remanding to the FERC the
FERC's September 17, 1992 order. The D.C. Circuit Court determined that the FERC
had failed to explain adequately its decisions to use a hypothetical capital
structure for TGPL, to select a rate of return on equity at the top range of
reasonableness, and to use as a proxy group to develop TGPL's hypothetical
capital structure a group of publicly-traded parent companies with pipeline
subsidiaries rather than a group of regulated pipelines. Accordingly, the D.C.
Circuit Court remanded the order to the FERC for further consideration. Although
no assurances can be given, TGPL believes the final outcome of this issue will
not have a material adverse effect on TGPL's financial position or results of
operations.
On October 26, 1994, the FERC issued a notice of a request for initiation
of a complaint proceeding in TGPL's Order 636 restructuring docket, stating that
Fina Natural Gas Company (Fina) has filed a complaint requesting that the FERC
initiate a proceeding under section 5 of the NGA to investigate the
functionalization of TGPL's production-area facilities. Fina asserts that some
of TGPL's production-area facilities have been misfunctionalized as
transmission, and that under recent gathering orders, those facilities should
properly be functionalized as gathering facilities. On November 28, 1994, TGPL
filed an answer in response to the notice. In that answer, TGPL requested that
the FERC defer action on Fina's complaint until June 1, 1995. TGPL advised the
FERC that, in light of the FERC's evolving policies on gathering and
production-area rate design, TGPL is evaluating which, if any, of its Gulf Coast
gathering facilities could be spun down into a nonjurisdictional subsidiary.
TGPL stated that it anticipates that it will complete that evaluation on or
before June 1, 1995, at which point TGPL will either submit a proposal to the
FERC or will notify the FERC of its intentions. If the FERC elects to initiate a
proceeding, any change in classification of the function of plant facilities
between transmission and gathering would be prospective only. Although no
assurances can be given, TGPL does not believe the final outcome of this issue
will have a material adverse effect on TGPL's financial position or results of
operations.
The issue of the allocation of certain costs to TGPL's merchant sales
service, among others, was referred to the hearing in Docket No. RP92-137 by the
FERC orders approving TGPL's implementation of Order 636. In the ALJ's initial
decision on October 20, 1994, the ALJ determined that there is no genuine issue
of
31
<PAGE> 33
material fact warranting a trial-type hearing on the issue and directed TGPL to
remove from its gathering function approximately $5.6 million of indirect costs
and to reassign this amount to its merchant sales service. On November 21, 1994,
TGPL filed a brief on exceptions with the FERC, seeking to reverse the ALJ's
decision. On December 12, 1994, certain parties, including the FERC's staff,
filed briefs opposing TGPL's exceptions. In late February 1995, the FERC issued
an order affirming the ALJ's October 20, 1994 decision and directing TGPL to
file, within 15 days after the FERC's final order on the initial decision, to
remove from its gathering function a total of $5.6 million of indirect costs and
to reassign that amount to its merchant service. Any changes in TGPL's rates or
services resulting from this issue would have a prospective effect only.
Although no assurances can be given, Transco believes that the final resolution
of this cost allocation issue will not have a material adverse effect on its
financial position or results of operations.
For a complete discussion of TGPL's regulatory matters, including rates,
see Note B of the Notes to the Consolidated Financial Statements.
Texas Gas
Net and Operating Income
Texas Gas' net income for the year ended December 31, 1994 was $6.6 million
lower than the year ended December 31, 1993. The decrease in net income was
primarily due to lower interruptible transportation revenues and a lower stated
pretax rate of return under Texas Gas' recently settled rate case, partially
offset by lower operating costs and expenses. Operating income was $10 million
lower for 1994 than for 1993 for the same reasons as net income.
The acquisition of Transco by Williams will be accounted for using the
purchase method of accounting. Accordingly, upon completion of the merger, the
purchase price will be allocated to the net assets acquired, including the net
assets of Texas Gas. Current FERC policy does not permit Texas Gas to recover
through its rates amounts in excess of the original cost of its regulated
facilities. As a result, absent any offsetting effects of the acquisition,
future amortization of purchase price amounts allocated to Texas Gas in excess
of the current book value of Texas Gas' net assets could cause Texas Gas'
operating income in 1995 to be lower than 1994.
Operating Revenues
Operating revenues decreased $138 million as a result of $215 million of
lower gas sales revenues, partially offset by $77 million of higher gas
transportation revenues. The lower gas sales revenues were due to the
implementation of Order 636, which ended Texas Gas' bundled sales service, and
the subsequent realignment of Texas Gas' variable-market-based sales service
under TGMC effective November 1, 1993. In 1994, the only sales administered by
Texas Gas were from volumes purchased from a limited number of contracts with
pricing provisions that are not variable market based which are auctioned each
month to the highest bidder pursuant to Order 636. The increase in gas
transportation revenues was primarily the result of the conversion of customers'
firm sales service to firm transportation service due to the implementation of
Order 636. Operating revenues were also lower due to the lower stated rate of
return included in the October 21, 1994 final settlement of Texas Gas' general
rate case, Docket No. RP93-106. Although long-haul transportation volumes
increased, the decrease in average commodity transportation rates, which
resulted from the implementation of Order 636, SFV rate design and reduced
interruptible transportation revenues, more than offset the effect on
transportation revenues of the higher transportation volumes.
Operating Costs and Expenses
Costs of gas sold decreased $126 million from the prior year, primarily due
to the realignment of Texas Gas' variable-market-based sales service under TGMC
effective November 1, 1993. Operation and maintenance expenses for 1994 were $2
million higher than 1993 due primarily to a third quarter 1993 adjustment for
income taxes refundable to customers as a result of an increase in federal
income tax rates. Administrative and general expenses decreased $5 million,
primarily due to a $4 million adjustment in 1994 of a provision for
uncollectible accounts, which included the effects of the settlement of certain
customer bankruptcy
32
<PAGE> 34
proceedings, that had been recorded in 1993, partially offset by higher costs of
$4 million for postretirement benefits other than pensions, which are included
in rates. Depreciation and amortization expense increased $3 million, primarily
due to an increased depreciation base and higher stated depreciation rates
included in the October 21, 1994 final settlement of Texas Gas' general rate
case, Docket No. RP93-106.
System Deliveries
As shown in the table below, Texas Gas' total mainline deliveries for the
year ended December 31, 1994 increased 31.8 Bcf, or 5.6%, as compared to the
year ended December 31, 1993, primarily as a result of increased throughput in
connection with restructured services resulting from the implementation of Order
636 and increased service to other interstate natural gas pipelines. While
presently not adding significantly to Texas Gas' operating income, this increase
shows the strength of Texas Gas' franchise.
<TABLE>
<CAPTION>
TEXAS GAS SYSTEM DELIVERIES (BCF) 1994 1993 1992
------------------------------------------------------------ ----- ----- -----
<S> <C> <C> <C>
Sales....................................................... -- 51.5 80.4
Long-haul transportation.................................... 602.9 519.6 402.2
----- ----- -----
Total mainline deliveries................................. 602.9 571.1 482.6
Short-haul transportation................................... 183.1 204.0 244.2
----- ----- -----
Total system deliveries..................................... 786.0 775.1 726.8
===== ===== =====
</TABLE>
Texas Gas' facilities are divided into five rate zones. Prior to the
adoption of Order 636 on November 1, 1993, receipts and deliveries were made in
the northern four rate zones to service sales and long-haul transportation
markets. Receipts and deliveries in the remaining zone were made to serve sales
and short-haul transportation markets in southern Louisiana. Effective with the
adoption of Order 636 on November 1, 1993, receipts and deliveries are made in
the northern four rate zones to service long-haul transportation markets.
Receipts and deliveries in the remaining zone are made to service short-haul
transportation markets in southern Louisiana. All sales are made prior to
entering Texas Gas' pipeline system and therefore do not constitute system
deliveries.
Rates
On November 1, 1993, Texas Gas implemented Order 636 which required
pipelines to "unbundle" services and offer transportation and storage services
separately from the sale of gas. As a result, Texas Gas' gas sales result
primarily from requirements to meet its remaining gas purchase commitments.
Texas Gas' monthly gas purchases under contracts with pricing provisions that
are not variable market based are sold at auction with any underrecovery of such
costs deferred as a regulatory asset for future recovery as transition costs.
All other gas purchase and sales commitments are being managed by Texas Gas'
marketing affiliate, TGMC, as agent for Texas Gas. Texas Gas' gas sales
currently have no impact on its results of operations.
Texas Gas' implementation of Order 636 included a change in its rate design
method from MFV to SFV. Under the MFV method, all fixed costs, with the
exception of equity return and income taxes, were included in the demand
component of the charge to customers; the equity return and income tax
components of cost of service were included as part of the volumetric charge to
customers. Under the SFV method, all fixed costs, including equity return and
income taxes, are included in the demand charge to customers. Accordingly, under
SFV, overall throughput has a less significant impact on Texas Gas' results of
operations.
There are various factors which may affect Texas Gas' actual operating
results, including, but not limited to, competition from other pipelines, its
rate design structure, cost management and, to a lesser extent, fluctuations in
its throughput which may result from a number of factors, including weather.
Texas Gas' interim operating results are impacted by customers' ability to
reserve firm transportation levels on a seasonal basis; which, combined with SFV
rate design, results in lower operating income in the second and third quarters
than in the first and fourth quarters. While the use of SFV rate design limits
Texas Gas' opportunity to earn incremental revenues through increased
throughput, it also minimizes Texas Gas' fluctuations in
33
<PAGE> 35
revenue due to variations in throughput. Texas Gas believes that under Order
636, with SFV rates and transition cost recovery, its rate structure will remain
competitive.
1993 COMPARED TO 1992
TGPL
TGPL's net income for 1993 was $22.0 million higher than 1992. However,
excluding the net income impact of the selected items related to TGPL shown in
the table above, TGPL's positive net income variance for 1993 compared to 1992
was $16.0 million. This increase was primarily due to cost control programs that
resulted in maintaining operating expenses at levels provided in the new general
rate case effective September 1, 1992, revenues of $14.2 million, net of related
transportation expense, from new pipeline projects placed in service in 1993,
lower interest expense of $10.3 million and higher allowance for funds used
during construction of $5.1 million. Excluding the pretax effects of the
selected items shown above, TGPL's positive operating income variance of $15.8
million was primarily due to the cost control programs and new pipeline projects
discussed above.
TGPL's operating revenues decreased $340 million to $917 million in 1993
when compared to 1992, due primarily to the realignment of TGPL's gas sales
under TGMC upon approval by the FERC in January 1993, as discussed above, offset
in part by higher revenues of $40 million from Phase II of the TGPL/Texas
Gas/CNG project placed in service in 1993 and increased revenues related to
certain increased costs as provided by TGPL's rate filings. TGPL sales revenues
for 1992 were $522 million. Effective September 1, 1992, TGPL placed new rates
into effect, subject to refund, under its general rate case, Docket No.
RP92-137. The rates for firm transportation service are based on a SFV rate
design, under which all fixed costs allocated to firm transportation service,
including return on equity and taxes, are included in a demand charge to
customers. All variable costs are recovered through commodity rates. The
pre-September 1, 1992 revenues were collected on rates under Docket No. RP90-8,
which were based on the MFV rate design. Under the MFV rate design, all fixed
costs, with the exception of equity return and income taxes, were included in
the demand charge to customers and the equity return and income tax component
were included as part of the volumetric charge to customers. The new rates in
RP92-137 are also based on a different mix and level of volumes than the RP90-8
rates.
Excluding the pretax effects of TGPL's selected items in the table above
and the cost of sales and transportation of $219 million in 1993 and $604
million in 1992, TGPL's operating expenses for 1993 were approximately $29
million higher when compared to 1992. This increase in operating expenses for
the year was primarily a result of the adoption, effective January 1, 1993, of
the accrual basis of accounting for postretirement benefits other than pensions
($16 million) and higher depreciation ($5 million). However, these increases in
operating expenses were fully recovered through increases in revenues in the new
rates previously discussed. TGPL's other operating expenses were controlled to
levels contained in its new general rate case effective September 1, 1992.
Texas Gas
Excluding the $4.4 million after-tax gain on the sale of its subsidiary in
1992, Texas Gas' net income for the year ended December 31, 1993 was $2.6
million higher than for the year ended December 31, 1992. The increase in net
income was primarily due to higher gas transportation revenues of $48 million
partially offset by lower net gas sales revenues of $24 million and increased
operating costs and expenses of $16 million. Each of these factors is discussed
below. Operating income was $7.1 million higher for the year ended December 31,
1993 than for the year ended December 31, 1992 for the same reasons that
resulted in higher net income.
Total operating revenues decreased $19 million primarily as a result of $66
million lower gas sales revenues, partly offset by $48 million higher gas
transportation revenues. Gas sales revenues decreased, primarily as a result of
the conversion of customers' firm sales service to firm transportation service
due to the implementation of Order 636 and $26 million of lower revenue from
decreased commodity volumes. The increase in gas transportation revenues was
primarily due to higher firm transportation demand revenues of
34
<PAGE> 36
$47 million, primarily as a result of the conversion of customers' sales
service, and $22 million of higher revenues from higher long-haul transportation
volumes.
Cost of gas sold decreased $42 million from the prior year. This decrease
was primarily due to implementation of Order 636 and the resultant decrease in
gas sales volumes. Texas Gas' administrative and general expenses increased $16
million. This increase was primarily due to higher labor and employee benefits
costs of $6 million and a $5 million provision for uncollectible accounts, which
includes $2 million in claims filed under customer bankruptcy proceedings.
COMPETITION
Competition for gas transportation has intensified in recent years due to
customer access to other pipelines, rate competitiveness among pipelines and
customers' desire to have more than one supplier. The FERC's stated purpose of
Order 636 is to improve the competitive structure of the natural gas pipeline
industry. TGPL and Texas Gas implemented Order 636 on November 1, 1993.
TGPL
TGPL and its primary market-area competitors (Texas Eastern, Columbia,
Southern Natural Gas Company, Tennessee and Iroquois) implemented Order 636 on
their respective systems during the period June 1993 to November 1993. TGPL and
its major competitors all employ SFV rate design for firm transportation as
mandated by Order 636. However, TGPL has expressed to the FERC concerns that
inconsistent treatment under Order 636 of TGPL and its competitor pipelines with
regard to rate design and cost allocation issues in TGPL's production area may
result in rates which could make TGPL less competitive, both in terms of
production-area and long-haul transportation. A hearing before a FERC ALJ,
dealing with, among other things, TGPL's production-area rate design, concluded
in June 1994 and the parties submitted briefs to the ALJ in August and September
1994. The decision of the ALJ, when issued, will be subject to review by the
FERC. TGPL is unable at this time to fully assess the long-term competitive
effect and resulting financial impact on TGPL of having to maintain its current
production-area rate design which is different than that of its competitors.
TGPL does not expect to incur GSR costs associated with its firm sales
service. TGPL's non-GSR transition costs are anticipated to be insignificant;
therefore, TGPL believes the demand charges to recover these costs will not make
its rates noncompetitive in its markets.
Although a significant portion of TGPL's firm customers have relatively
secure residential and commercial end-users, virtually all of TGPL's local LDCs
have some price-sensitive end-users that could switch to alternate fuels.
Approximately one-third of TGPL's customer deliveries are at risk to such fuel
switching; however, a recent survey of TGPL's largest customers suggests that
end-users will pay a premium to burn natural gas and that LDCs will aggressively
price their system transportation to stay competitive in alternate-fuel markets.
Texas Gas
Texas Gas and its primary market area competitors (ANR Pipeline Company,
Panhandle Eastern Pipe Line Company, Trunkline Gas Company, Texas Eastern,
Columbia, Tennessee and Midwestern Gas Transmission Company) implemented Order
636 on their respective systems during the period May 1993 to November 1993.
Texas Gas and its major competitors all employ SFV rate design for firm
transportation as mandated by Order 636.
Future utilization of Texas Gas' pipeline capacity will depend on
competition from other pipelines and alternative fuels, the general level of
natural gas demand and weather conditions. Texas Gas believes that under Order
636, with SFV rates, its rate structure will remain competitive and surcharges
for recovery of its total transition costs will not make its rates
noncompetitive in its market as competitor pipelines are believed to have
transition costs also to be recovered in their rates.
35
<PAGE> 37
The end-use markets of several of Texas Gas' customers have the ability to
switch to alternate fuels. To date, however, such losses from fuel switching
have not been significant.
GAS MARKETING
TGMC, through agency agreements with TGPL and Texas Gas, has assumed
management of substantially all of TGPL and Texas Gas' jurisdictional merchant
sales service. Accordingly, effective January 1, 1993, and November 1, 1993,
substantially all merchant sales service for TGPL and Texas Gas, respectively,
is being reported in Gas Marketing.
The tables below show the results of operations and sales volumes for Gas
Marketing for the years 1994, 1993 and 1992.
<TABLE>
<CAPTION>
NET INCOME (LOSS) 1994 1993 1992
----------------------------------------------------------- ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Natural gas marketing...................................... $ 5.8 $(3.2) $(8.0)
Natural gas liquids marketing.............................. (10.5) (4.1) 1.3
------ ----- -----
Total Gas Marketing.............................. $ (4.7) $(7.3) $(6.7)
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
SALES VOLUMES 1994 1993 1992
------------------------------------------------------------ ----- ----- -----
<S> <C> <C> <C>
Gas sales (Bcf)
Long-term................................................. 389.2 352.7 148.6
Short-term................................................ 264.6 208.7 192.2
----- ----- -----
Total gas sales................................... 653.8 561.4 340.8
===== ===== =====
Liquids sales (million gallons)............................. 94.4 130.6 234.9
===== ===== =====
</TABLE>
Gas sales volumes in 1994 were higher than 1993 due to an increase in spot
sales of 55.9 Bcf primarily as a result of colder weather during the first
quarter of 1994 and the inclusion of Texas Gas' merchant sales service volumes
of 28.3 Bcf in 1994 compared to 6.9 Bcf in 1993. Gas sales volumes in 1993 were
higher than 1992 primarily due to inclusion of TGPL's merchant sales service
volumes of 234.5 Bcf. TGPL's merchant sales service volumes included in
Pipelines' 1992 results were 221.1 Bcf. Liquids sales volumes decreased due to
continued processing curtailments beginning in May 1993 and the discontinuation
of naphtha processing in August 1992 due to product-price economics, which are
largely dictated by crude oil prices.
The table below shows the results of operations of Gas Marketing for the
years 1994, 1993 and 1992 and the effects of certain selected items that have
impacted those results.
<TABLE>
<CAPTION>
1994 1993 1992
------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Gas Marketing Net Income (Loss) Before Selected Items...... $ 7.2 $(5.2) $(5.9)
Provision for asset impairments.......................... (11.9) -- --
Corpus Christi settlement................................ -- (2.0) --
Loss on sales of assets.................................. -- -- (0.8)
Federal tax rate increase................................ -- (0.1) --
------ ----- -----
Gas Marketing Net Loss..................................... $ (4.7) $(7.3) $(6.7)
====== ===== =====
</TABLE>
1994 COMPARED TO 1993
Net and Operating Income
Gas Marketing reported a net loss of $4.7 million for 1994 compared to a
net loss of $7.3 million for 1993. The 1994 selected items shown in the table
above include a reserve for asset impairments applicable to certain gas and
liquids facilities and the 1993 selected items include a reserve to restructure
a gas sales contract as a part of the settlement with Corpus Christi Gathering,
Inc. and certain affiliates (Corpus Christi). Excluding
36
<PAGE> 38
the effects of the selected items, Gas Marketing's results improved to a net
income of $7.2 million for 1994 from a net loss of $5.2 million for 1993.
Excluding the pretax effects of the selected items, Gas Marketing's operating
income in 1994 was $7.7 million compared to an operating loss of $7.8 million in
1993. As discussed below, the improvement in 1994 over 1993, excluding the
selected items, was due to improved results from natural gas marketing
operations.
Gas Marketing is a party to various futures contracts, options and
commodity price swap agreements used to manage price volatility in its natural
gas and natural gas liquids marketing activities. See Note M of the Notes to
Consolidated Financial Statements for a discussion of these financial
instruments.
Natural gas marketing
Excluding a charge in 1994 of $4.2 million pretax to provide a reserve for
asset impairments applicable to certain gas processing facilities and a charge
in 1993 of $3.0 million pretax to establish a reserve to restructure a gas sales
contract as a part of the settlement with Corpus Christi, operating income for
1994 from natural gas marketing increased $13.2 million over 1993. The increase
was primarily due to a 92.4 Bcf increase in gas sales volumes and the positive
effects of restructuring, in 1993, certain long-term gas purchase contracts with
prices formerly at a premium to market prices. In addition, the 1993 results
include a charge of $3.8 million to reflect the revaluation of gas
transportation and exchange imbalances to current market prices.
While results for 1994 reflect the substantial progress made in 1993 to
restructure certain long-term gas purchase contracts with prices at a premium to
market prices and to find alternatives for underutilized firm transportation
capacity, additional progress needs to be made toward permanent utilization of
Gas Marketing's firm transportation capacity. During 1994, Gas Marketing did not
recover approximately $8 million of the cost of firm transportation capacity
under those contracts. Gas Marketing's current annual commitment for such firm
transportation capacity is approximately $56 million under contracts that
substantially expire in 2002. To the extent Gas Marketing is unable to make
further progress toward permanent utilization of the firm transportation
capacity, Gas Marketing's results of operations could be negatively impacted.
However, Gas Marketing believes that the aggregate cost of the firm
transportation capacity will be recovered and, therefore, will not have a
material adverse effect on Transco's financial position, results of operations
or net cash flows.
Natural gas liquids marketing
Excluding a charge in 1994 of $14.2 million pretax to provide a reserve for
asset impairments applicable to a liquids pipeline and separation plant,
operating income from natural gas liquids marketing increased $2.2 million in
1994 over 1993, primarily due to lower administrative and general expenses.
Operating Revenues
Gas Marketing's operating revenues increased to $1,542 million in 1994 from
$1,448 million in 1993, due to increased gas sales of $64 million in 1994 and
the inclusion of increased Texas Gas' merchant sales service revenues of $45
million in 1994, partially offset by a $15 million decrease in natural gas
liquids revenues.
Operating Costs and Expenses
Gas Marketing's costs of sales and transportation increased to $1,507
million in 1994 from $1,427 million in 1993 due to higher costs for gas sales
and transportation of $50 million and the inclusion of increased Texas Gas'
merchant sales service costs of $45 million, partially offset by costs of
natural gas liquids sold of $15 million in Gas Marketing in 1994. Excluding the
selected items, Gas Marketing's other operating expenses decreased slightly in
1994 as compared to 1993 due primarily to reduced operation and maintenance
costs of $2.3 million associated with TGPL's sales service, partially offset by
a $1.2 million increase in administrative and general expenses.
37
<PAGE> 39
1993 COMPARED TO 1992
Gas Marketing operations reported a net loss in 1993 of $7.3 million,
compared to a net loss of $6.7 million in 1992. Excluding the effects of
selected items shown on the table above, Gas Marketing recorded a net loss of
$5.2 million for 1993 compared to a net loss of $5.9 million for 1992. Excluding
the pretax effect of the selected items, Gas Marketing recorded an operating
loss of $7.8 million in 1993, compared to an operating loss of $11.1 million in
1992. The improvement in 1993 over 1992, excluding the effect of the selected
items, is due to improved results from natural gas marketing, partially offset
by a decline in results from natural gas liquids marketing.
Excluding the pretax effect of the selected item, the operating loss from
natural gas marketing was $9.0 million less for 1993 as compared to 1992,
primarily due to the inclusion of $16.0 million from TGPL's sales service in
1993, partially offset by a charge of $3.8 million to reflect the revaluation of
gas transportation and exchange imbalances to current market value and the
underutilization of firm transportation capacity on pipeline systems that
adopted the SFV rate design.
Operating income from natural gas liquids marketing declined $5.6 million
in 1993 as compared to 1992, primarily due to the lower natural gas liquids
(NGL) sales margins of $8.8 million partially offset by higher natural gas
liquids processing margins of $2.2 million. The NGL margins decreased primarily
due to higher gas prices combined with lower product prices. Beginning in May
1993, processing was curtailed for economic reasons due to the high cost of
natural gas in relation to NGL sales prices. In addition, natural gas liquids
marketing results were affected by the reduction of the carrying value of
inventories to reflect the decline in market prices of such inventories. Lower
equity in earnings of affiliates was also attributable to reduced gas processing
levels due to the higher cost of natural gas in relation to product prices and
higher operating costs.
Gas Marketing's operating revenues increased to $1,448 million in 1993 from
$800 million in 1992. The higher revenues were due to the inclusion of TGPL's
sales service revenues of $604 million in Gas Marketing in 1993, the inclusion
of Texas Gas' sales service revenues of $21 million in Gas Marketing for
November and December 1993 and higher prices for natural gas sales, partly
offset by lower NGL prices and volumes.
Excluding the costs of sales and transportation of $1,427 million in 1993
and $791 million in 1992 and the selected items, Gas Marketing's operating
expenses in 1993 of $28 million increased from $20 million in 1992 primarily due
to the administrative and operating costs related to TGPL's and Texas Gas' sales
service included in 1993.
COMPETITION
Changes in the natural gas industry over the past several years have
substantially increased competition for gas sales. TGMC's competitors include
other natural gas marketers and producers.
COAL
1994 COMPARED TO 1993
Coal reported net income of $4.5 million for 1994, compared to net income
of $5.6 million for 1993. Results for 1994 included a $2.6 million after-tax
charge for a litigation settlement resulting from an adverse court decision
against Leeco, Inc., a subsidiary of Transco Coal Company, as discussed in Note
C of the Notes to Consolidated Financial Statements. Results for 1993 included a
$0.5 million after-tax loss on the sale of a coal loading and storage facility
and $1.1 million in additional income tax expense due to the corporate federal
income tax rate increase. Excluding these selected items, the segment reported
net income of $7.1 million and $7.2 million for 1994 and 1993, respectively.
Coal's net income for 1994 compared to 1993 included lower operating income or
$3.0 million partly offset by lower interest expense of $1.8 million. Excluding
the litigation settlement, Coal's operating income decreased from $7.0 million
in 1993 to $4.0 million in 1994, $2.6 million due to a lower operating margin,
resulting from a slightly higher average operating cost in 1994 and favorable
price adjustments in a long-term sales contract in 1993, and $0.4 million due to
lower sales volumes of 8.2 million tons in 1994 compared to 8.9 million tons in
1993.
38
<PAGE> 40
1993 COMPARED TO 1992
Coal reported net income of $5.6 million for 1993, compared to a net loss
of $3.4 million for 1992. Excluding an after-tax loss on the sale of a coal
loading and storage facility and a charge for additional income tax expense due
to the corporate federal income tax rate increase, Coal reported net income of
$7.2 million for 1993. The 1993 results reflect a $9.2 million improvement in
Coal's operating margin, due to a lower average operating cost and favorable
price adjustments in a long-term sales contract, lower administrative and
general expenses of $1.4 million and lower interest expense of $2.4 million as a
result of lower debt when compared to 1992. Total sales volumes decreased
slightly to 8.9 million tons in 1993 from 9.0 million tons in 1992. Coal's
operating income improved to $7.0 million for 1993 from an operating loss of
$3.5 million in 1992 due to the same reasons as the net income variances
described above, excluding interest expense.
GAS GATHERING
1994 COMPARED TO 1993
Gas Gathering's net loss for 1994 was $8.3 million compared to $39.5
million in 1993. Excluding a $3.5 million pretax, $2.3 million after-tax, charge
in 1994 to provide a reserve for impairment of certain gas gathering assets and
a $47.3 million pretax, $30.7 million after-tax, charge in 1993 related to an
agreement with Corpus Christi to resolve litigation and acquire Corpus Christi's
interest in jointly owned gas gathering and intrastate pipeline assets, Gas
Gathering recorded a net loss of $6.0 million for 1994 and a net loss of $8.8
million for 1993. The lower net loss resulted from decreased interruptible
transportation expense of $4.1 million charged by other pipelines and a $2.6
million increase in equity in earnings of unconsolidated affiliates.
1993 COMPARED TO 1992
Gas Gathering's net loss for 1993 was $39.5 million compared to a $23.4
million net loss for 1992. Excluding the aforementioned Corpus Christi
settlement and a $16.3 million after-tax charge for losses on sales of assets in
1992, Gas Gathering recorded a net loss of $8.8 million for 1993 and a $7.1
million net loss for 1992. The increased loss was due primarily to reduced
transportation revenues of $3.4 million, as a result of lower volumes in 1993
due to the sale of certain facilities in 1992, and lower equity in earnings of
unconsolidated affiliates of $2.1 million, partially offset by lower
administrative and general expenses of $1.3 million and lower depreciation of
$1.6 million.
DISCONTINUED OPERATIONS -- POWER GENERATION
Net income from discontinued operations was $31.5 million in 1993 compared
to $2.6 million in 1992. As discussed in Note J of the Notes to Consolidated
Financial Statements, in 1993, Transco sold TEVCO, Transco's power generation
subsidiary, received $150 million in cash and recorded a gain on the sale of
$50.5 million pretax ($31.6 million after-tax). Accordingly, Power Generation
was classified as discontinued operations in the accompanying Consolidated
Statement of Operations. Net income from discontinued operations in 1992
primarily resulted from the receipt of a development fee on the Hartwell
project, a 300-megawatt cogeneration facility in Hart County, Georgia in which
TEVCO has a 50% ownership, income from the assignment of certain power
generation projects and fuel partnerships to a third party and equity in
earnings from investments in certain cogeneration partnerships.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
As of December 31, 1994, Transco had investments consisting of a 50% or
less ownership interest in various companies that are constructing and operating
natural gas gathering and processing facilities, liquids separation facilities,
intrastate pipelines located onshore and offshore Texas and Louisiana and the
Liberty Pipeline in the states of New York and New Jersey, and providing
compressed natural gas vehicle fueling services in the states of California,
Arizona, Nevada and Texas. In December 1994, Transco sold an indirect 12.5%
interest it held in its headquarters building through its investment in the Post
Oak/Alabama Partnership. As discussed in Note C of the Notes to Consolidated
Financial Statements, Transco settled
39
<PAGE> 41
litigation with Corpus Christi in 1993 on terms whereby Transco acquired Corpus
Christi's 50% interest in the Corpus Christi General Partnerships. Also, as
discussed in Note J of the Notes to Consolidated Financial Statements, Transco
sold its investment in 1992 in the High Island Offshore System and the U-T
Offshore System.
Equity in earnings of unconsolidated affiliates was $3.4 million in 1994
compared to $0.2 million in 1993 and $5.4 million in 1992. The improved results
for 1994 compared to 1993 were primarily due to $2.3 million of losses in 1993
associated with Transco's 50% interest in the Corpus Christi General
Partnerships prior to the acquisition by Transco of Corpus Christi's 50%
interest discussed above and $0.6 million higher earnings in 1994 from the Post
Oak/Alabama Partnership. The lower results for 1993 compared to 1992 were
primarily due to a $1.7 million greater loss due to reduced gas processing
levels at the Cameron Meadows Processing Plant, a $1.2 million greater loss
associated with the Corpus Christi General Partnerships and a reduction of $1.6
million in earnings due to Transco's sale of its interest in the High Island
Offshore System and the U-T Offshore System. See Note K of the Notes to
Consolidated Financial Statements for an additional discussion of Transco's
investment in unconsolidated affiliates.
40
<PAGE> 42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
Transco Energy Company:
We have audited the accompanying consolidated balance sheet of Transco
Energy Company (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of operations, cash flows and
common stockholders' equity for each of the three years in the period ended
December 31, 1994. These financial statements and the schedules referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Transco
Energy Company and subsidiaries as of December 31, 1994 and 1993, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial statement
schedules listed in the index to Part IV, Item 14 are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not a
required part of the basic consolidated financial statements. These financial
statement schedules have been subjected to the auditing procedures applied in
our audits of the basic consolidated financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 20, 1995
41
<PAGE> 43
MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements have been prepared by management in
conformity with generally accepted accounting principles. Management is
responsible for the fairness and reliability of the financial statements and
other financial data included in this report. In the preparation of the
financial statements, it is necessary to make informed estimates and judgments
of the effects of certain events and transactions based on currently available
information.
Transco maintains accounting and other controls that management believes
provide reasonable assurance that financial records are reliable, assets are
safeguarded, and that transactions are properly recorded in accordance with
management's authorizations. However, limitations exist in any system of
internal control based upon the recognition that the cost of the system should
not exceed benefits derived.
Transco's independent auditors, Arthur Andersen LLP, are engaged to audit
the financial statements and to express an opinion thereon. Their audit is
conducted in accordance with generally accepted auditing standards to enable
them to report that the financial statements present fairly, in all material
respects, the financial position, results of operations and cash flows of the
Company in conformity with generally accepted accounting principles.
The Audit Committee of the Board of Directors, composed of three directors
who are not employees of Transco, meets regularly with the independent auditors
and management. The independent auditors have full and free access to the Audit
Committee and meet with them, with and without management being present, to
discuss the results of their audits and the quality of financial reporting.
42
<PAGE> 44
TRANSCO ENERGY COMPANY
CONSOLIDATED BALANCE SHEET
(NOTES A AND M)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
---------- ----------
<S> <C> <C>
(THOUSANDS OF DOLLARS)
Current Assets:
Cash and temporary cash investments.................................... $ 32,343 $ 163,488
Deposits............................................................... 12,276 34,133
Receivables --
Trade, net (Notes A and E)........................................... 146,776 195,306
Other................................................................ 16,038 22,747
Transportation and exchange gas receivable............................. 108,905 50,635
Gas supply realignment costs recoverable from customers (Note B)....... 26,710 19,231
Inventories --
Gas in storage, at LIFO.............................................. 25,117 37,095
Coal, at average cost................................................ 7,261 7,388
Materials, supplies and other, at average cost....................... 66,652 74,067
Deferred income tax benefits (Note I).................................. 36,413 21,330
Other.................................................................. 70,880 41,301
---------- ----------
Total current assets............................................ 549,371 666,721
---------- ----------
Investments, at cost plus equity in undistributed earnings (Note K)...... 21,505 29,446
---------- ----------
Property, Plant and Equipment, at cost:
Natural gas transmission plant -- jurisdictional....................... 5,214,320 5,058,546
Less -- Accumulated depreciation and amortization.................... 2,795,650 2,653,534
---------- ----------
Natural gas transmission plant -- jurisdictional, net............. 2,418,670 2,405,012
---------- ----------
Natural gas gathering and liquids separation and fractionation plant... 212,974 213,114
Less -- Accumulated depreciation and amortization.................... 35,036 11,412
---------- ----------
Natural gas gathering and liquids separation and fractionation
plant, net........................................................ 177,938 201,702
---------- ----------
Coal properties........................................................ 413,951 409,695
Less -- Accumulated depreciation, depletion and amortization......... 152,686 138,280
---------- ----------
Coal properties, net.............................................. 261,265 271,415
---------- ----------
Other property, plant and equipment.................................... 10,646 5,280
Less -- Accumulated depreciation and amortization.................... 4,921 3,217
---------- ----------
Other property, plant and equipment, net.......................... 5,725 2,063
---------- ----------
Total property, plant and equipment, net........................ 2,863,598 2,880,192
---------- ----------
Other Assets:
Nonoperating interest in coalbed methane properties, net (Note L)...... 86,334 131,287
Notes receivable (Note K).............................................. 13,000 14,929
Transportation and exchange gas receivable............................. -- 92,960
Other.................................................................. 239,298 249,507
---------- ----------
Total other assets.............................................. 338,632 488,683
---------- ----------
$3,773,106 $4,065,042
=========== ===========
</TABLE>
The accompanying notes and schedule of segment information are an
integral part of these consolidated financial statements.
43
<PAGE> 45
TRANSCO ENERGY COMPANY
CONSOLIDATED BALANCE SHEET
(NOTES A AND M)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Current Liabilities:
Short-term debt (Note E).................................................... $ 27,000 $ --
Current maturities of long-term debt (Note E)............................... 150,102 159,479
Payables --
Trade..................................................................... 206,325 284,469
Other..................................................................... 82,053 88,123
Transportation and exchange gas payable..................................... 52,765 16,258
Accrued liabilities --
Accrued federal income taxes.............................................. 19,219 --
Other taxes............................................................... 27,605 28,517
Interest.................................................................. 51,491 46,139
Employee benefits (Note H)................................................ 67,204 64,388
Other..................................................................... 47,191 75,077
Reserve for producer settlements, legal and regulatory issues (Notes B and
C)........................................................................ 17,724 7,583
Reserve for rate refunds (Note B)........................................... 68,863 161,991
Other....................................................................... 42,219 52,542
--------- ---------
Total current liabilities............................................ 859,761 984,566
--------- ---------
Long-Term Debt, less current maturities (Note E).............................. 1,785,575 1,786,571
--------- ---------
Other Liabilities and Deferred Credits:
Income taxes (Note I)....................................................... 285,438 284,130
Income taxes refundable to customers........................................ 14,150 26,364
Transportation and exchange gas payable..................................... -- 64,976
Accrued pension cost (Note H)............................................... 12,496 31,958
Other....................................................................... 139,438 154,585
--------- ---------
Total other liabilities and deferred credits......................... 451,522 562,013
--------- ---------
Commitments and Contingencies (Notes B, C, D and E)
Preferred Stock of Subsidiary -- redeemable (Note F).......................... 49,744 75,743
Less -- Issue expense....................................................... 369 552
--------- ---------
49,375 75,191
--------- ---------
Convertible Preferred Stock -- non-redeemable (Note F)........................ 273,995 273,995
Less -- Issue expense....................................................... 8,673 8,577
--------- ---------
265,322 265,418
--------- ---------
Common Stockholders' Equity:
Common stock $0.50 par value: authorized 150,000,000 shares; issued and
outstanding 41,431,419 and 41,386,861 shares in 1994 and 1993,
respectively (Note G)..................................................... 20,716 20,693
Premium on capital stock and other paid-in capital.......................... 507,448 511,797
Retained earnings (deficit)................................................. (156,921) (115,447)
--------- ---------
371,243 417,043
Less -- Treasury stock, at cost, 514,444 and 15,156 shares in 1994 and 1993,
respectively.............................................................. 7,695 207
Common stock held by Tran$tock, 524,045 shares in 1993, (Note H) --
Deferred compensation................................................... -- 14,395
Receivable from Tran$tock............................................... -- 9,383
Restricted stock, 87,689 and 91,964 shares in 1994 and 1993, respectively
(Note G) --
Deferred compensation................................................... 1,997 1,775
--------- ---------
Total common stockholders' equity.................................... 361,551 391,283
--------- ---------
$3,773,106 $4,065,042
========== ==========
</TABLE>
The accompanying notes and schedule of segment information are an
integral part of these consolidated financial statements.
44
<PAGE> 46
TRANSCO ENERGY COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(NOTE A)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
---------- ---------- ----------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Operating Revenues:
Natural gas sales........................................................ $1,508,677 $1,660,203 $1,513,888
Natural gas transportation............................................... 900,755 826,201 703,390
Natural gas storage...................................................... 148,290 146,416 137,292
Coal sales............................................................... 215,089 234,618 234,471
Other sales.............................................................. 43,407 54,488 103,298
---------- ---------- ----------
Total operating revenues.......................................... 2,816,218 2,921,926 2,692,339
---------- ---------- ----------
Operating Costs and Expenses:
Cost of natural gas sales................................................ 1,365,048 1,439,150 1,258,994
Cost of natural gas transportation....................................... 208,755 233,591 206,038
Cost of coal sales....................................................... 182,099 195,312 202,352
Cost of other sales...................................................... 24,532 40,398 81,349
Operation and maintenance................................................ 249,913 239,561 249,317
Administrative and general............................................... 247,844 248,765 205,219
Depreciation, depletion and amortization................................. 192,303 187,337 192,498
Taxes -- other than income taxes......................................... 49,852 51,136 46,713
Capitalized costs in excess of ceiling limitation (Notes J and L)........ 45,000 70,000 35,200
Provision for asset impairments (Notes C and K).......................... 41,055 -- --
Provision for producer settlements, legal and regulatory issues (Notes B
and C)................................................................. 6,000 -- 31,000
Corpus Christi settlement (Note C)....................................... -- 50,269 --
Write-off of note receivable (Note K).................................... -- 20,125 --
---------- ---------- ----------
Total operating costs and expenses................................ 2,612,401 2,775,644 2,508,680
---------- ---------- ----------
Operating Income........................................................... 203,817 146,282 183,659
---------- ---------- ----------
Other (Income) and Other Deductions:
Interest expense......................................................... 191,066 190,281 205,514
Interest income.......................................................... (7,346) (8,602) (9,883)
Capitalized interest and allowance for funds used during construction.... (4,940) (7,259) (7,966)
Dividends on preferred stock of subsidiary............................... 5,944 8,107 8,654
Equity in earnings of unconsolidated affiliates (Note K)................. (3,415) (235) (5,427)
Losses on sales of assets (Note J)....................................... -- 924 84,406
Gain on final liquidating distribution from TXP (Note J)................. -- -- (17,666)
Miscellaneous other (income) and deductions, net......................... 15,047 16,562 5,955
---------- ---------- ----------
Total other (income) and other deductions......................... 196,356 199,778 263,587
---------- ---------- ----------
Income (Loss) from Continuing Operations Before Income Taxes............... 7,461 (53,496) (79,928)
Provision for (Benefit of) Income Taxes (Note I)........................... 1,578 (18,081) (27,935)
---------- ---------- ----------
Income (Loss) from Continuing Operations................................... 5,883 (35,415) (51,993)
---------- ---------- ----------
Income (Loss) from Operations of Discontinued Segment, Net of Income
Taxes.................................................................... -- (93) 2,649
Gain on Sale of Discontinued Segment, Net of Income Taxes.................. -- 31,572 --
---------- ---------- ----------
Net Income from Discontinued Operations (Note J)........................... -- 31,479 2,649
---------- ---------- ----------
Net Income (Loss).......................................................... 5,883 (3,936) (49,344)
Dividends on Convertible Preferred Stock................................... 22,904 25,047 25,730
---------- ---------- ----------
Common Stock Equity in Net Income (Loss)................................... $ (17,021) $ (28,983) $ (75,074)
=========== =========== ===========
Primary Earnings (Loss) Per Share of Common Stock and
Common Stock Equivalents:
Continuing Operations.................................................... $ (0.42) $ (1.54) $ (2.43)
Discontinued Operations.................................................. -- 0.80 0.08
---------- ---------- ----------
$ (0.42) $ (0.74) $ (2.35)
=========== =========== ===========
Average Shares of Common Stock and Common Stock Equivalents Outstanding.... 40,634 39,202 31,946
=========== =========== ===========
Shares of Common Stock Outstanding......................................... 40,917 41,372 40,297
=========== =========== ===========
</TABLE>
The accompanying notes and schedule of segment information are an
integral part of these consolidated financial statements.
45
<PAGE> 47
TRANSCO ENERGY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(NOTE A)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
-------- --------- ---------
<S> <C> <C> <C>
(THOUSANDS OF DOLLARS)
Cash flows from operating activities:
Net income (loss)............................................................. $ 5,883 $ (3,936) $ (49,344)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation, depletion and amortization.................................... 211,132 205,497 210,710
Deferred income taxes (Note I).............................................. (25,305) (30,478) (13,966)
Allowance for equity funds used during construction......................... (3,909) (3,262) (3,185)
Equity in earnings of unconsolidated affiliates (Note K).................... (3,415) (3,607) (7,688)
Dividends and distributions from unconsolidated affiliates.................. 4,952 7,748 9,746
Tran$tock compensation expense (Note H)..................................... 2,825 2,768 2,727
Capitalized costs in excess of ceiling limitation (Notes J and L)........... 45,000 70,000 35,200
Provision for asset impairments (Notes C and K)............................. 41,055 -- --
Provision for producer settlements, legal and regulatory issues (Notes B and
C)........................................................................ 6,000 -- 31,000
Corpus Christi settlement (Note C).......................................... -- 50,269 --
Write-off of note receivable (Note K)....................................... -- 20,125 --
Losses (gains) on sales of assets (Note J).................................. -- (49,556) 84,406
Gain on final liquidating distribution from TXP (Note J).................... -- -- (17,666)
Transition Cost refund...................................................... -- -- (74,104)
Nonrecoverable producer settlements (Note B)................................ -- (33,514) (51,160)
Changes in operating assets and liabilities:
Deposits.................................................................. 21,857 (6,479) (26,374)
Receivables............................................................... 33,418 212 27,610
Transportation and exchange gas receivable................................ 34,689 67,174 (40,087)
Inventories............................................................... 21,315 (12,055) (18,829)
Payables.................................................................. (88,590) (6,781) (11,263)
Transportation and exchange gas payable................................... (28,469) (63,782) 14,020
Accrued liabilities....................................................... (64,819) (24,236) (34,812)
Reserve for rate refunds.................................................. (47,383) 108,863 (45,556)
Other, net................................................................ (39,712) (18,744) (5,661)
-------- --------- ---------
Net cash provided by operating activities................................. 126,524 276,226 15,724
-------- --------- ---------
Cash flows from financing activities (Notes E, F and G):
Additions to long-term debt................................................... 150,000 -- 675,000
Retirement of long-term debt and capital lease obligations.................... (159,479) (63,787) (483,714)
Sale of preferred stock, net of issue expense................................. (95) 121,423 --
Retirement of preferred stock................................................. (27,139) (158,656) (5,032)
Net increase (decrease) in short-term debt.................................... 27,000 -- (320,000)
Sale of common stock, net of issue expense.................................... -- 218 111,573
Dividends on common stock..................................................... (24,634) (24,374) (20,112)
Dividends on preferred stock.................................................. (29,152) (34,310) (34,433)
Other, net.................................................................... (1,836) (2,848) 310
-------- --------- ---------
Net cash used in financing activities..................................... (65,335) (162,334) (76,408)
-------- --------- ---------
Cash flows from investing activities:
Property, plant and equipment and investment in unconsolidated affiliates..... (200,783) (173,270) (178,434)
Final liquidating distribution from TXP (Note J).............................. -- -- 61,639
Recoverable producer settlements (Note B)..................................... -- (5,743) --
Recovery of producer settlements (Note B)..................................... 1,123 34,242 69,291
Net proceeds from sales of assets (Note J).................................... 9,282 144,874 143,704
Notes receivable (Note K)..................................................... (48) (1,905) (20,114)
Repayment of notes receivable (Note K)........................................ 1,929 1,982 1,398
Acquisition of companies...................................................... (12,500) -- --
Equity contribution deposits.................................................. -- -- (44,724)
Other, net.................................................................... 8,663 36,888 10,600
-------- --------- ---------
Net cash provided by (used in) investing activities....................... (192,334) 37,068 43,360
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents.......................... (131,145) 150,960 (17,324)
Cash and cash equivalents at beginning of period.............................. 163,488 12,528 29,852
-------- --------- ---------
Cash and cash equivalents at end of period.................................... $ 32,343 $ 163,488 $ 12,528
======== ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized)...................................... $184,499 $ 191,131 $ 226,751
Income taxes, net......................................................... 8,498 19,253 10,588
</TABLE>
The accompanying notes and schedule of segment information are an
integral part of these consolidated financial statements.
46
<PAGE> 48
TRANSCO ENERGY COMPANY
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1993 1992
------------------- ------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ --------- ------ -------- ------ --------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
Balance at beginning of period............................ 41,387 $ 20,693 40,330 $ 20,165 30,730 $ 15,365
Corpus Christi settlement............................... -- -- 1,000 500 -- --
Public equity offering.................................. -- -- -- -- 8,050 4,025
Challenger litigation settlement........................ -- -- -- -- 1,500 750
Exercise of stock options............................... -- -- 18 9 -- --
Issued under restricted stock plan...................... 44 23 39 19 50 25
------ --------- ------ --------- ------ --------
Balance at end of period.................................. 41,431 20,716 41,387 20,693 40,330 20,165
====== --------- ====== --------- ====== --------
Premium on Capital Stock and Other Paid-In Capital:
Balance at beginning of period............................ 511,797 522,739 414,339
Corpus Christi settlement............................... -- 17,375 --
Redemption of 9.25% preferred stock..................... (1,140) (16,371) --
Public equity offering.................................. -- 5 107,548
Challenger litigation settlement........................ 7,108 -- 14,250
Tran$tock market value adjustment....................... (11,570) (12,057) (11,902)
Restricted stock market value adjustment................ -- 57 (2,951)
Exercise of stock options and stock appreciation
rights................................................ -- 204 --
Loss on reacquired preferred stock of subsidiary, net... (183) (183) (70)
Issued under restricted stock plan...................... 771 28 1,525
Other................................................... 665 -- --
--------- --------- --------
Balance at end of period.................................. 507,448 511,797 522,739
--------- --------- --------
Retained Earnings (Deficit):
Balance at beginning of period............................ (115,447) (62,471) 32,125
Net income (loss)....................................... 5,883 (3,936) (49,344)
Dividends on common stock at $0.60, $0.60 and $0.60 per
share, respectively................................... (24,453) (23,993) (19,522)
Dividends on convertible preferred stock at required
amounts............................................... (22,904) (25,047) (25,730)
--------- --------- --------
Balance at end of period.................................. (156,921) (115,447) (62,471)
--------- --------- --------
Less Treasury Stock:
Balance at beginning of period............................ 15 207 33 955 29 996
Forfeitures from restricted stock plan.................. 12 177 36 510 41 572
Issued under restricted stock plan...................... (28) (403) (43) (1,079) (37) (612)
Issued under stock option plan.......................... (15) (219) (22) (336) -- --
Challenger litigation settlement........................ 482 7,108 -- -- -- --
Other purchases and sales............................... 48 825 11 157 -- (1)
------ --------- ------ --------- ------ --------
Balance at end of period.................................. 514 7,695 15 207 33 955
====== --------- ====== --------- ====== --------
Less Common Stock Held by Tran$tock:
Deferred compensation
Balance at beginning of period.......................... 317 14,395 644 29,220 967 43,884
Compensation expense.................................. (317) (2,825) (327) (2,768) (323) (2,762)
Market value adjustment............................... -- (11,570) -- (12,057) -- (11,902)
------ --------- ------ --------- ------ --------
Balance at end of period................................ -- -- 317 14,395 644 29,220
====== --------- ====== --------- ====== --------
Receivable from Tran$tock
Balance at beginning of period.......................... 207 9,383 402 18,224 585 26,554
Repayment............................................. (207) (9,383) (195) (8,841) (183) (8,330)
------ --------- ------ --------- ------ --------
Balance at end of period................................ -- -- 207 9,383 402 18,224
====== --------- ====== --------- ====== --------
Less Restricted Stock:
Deferred compensation
Balance at beginning of period.......................... 92 1,775 105 2,095 103 3,600
Awarded, earned or forfeited, net..................... 19 1,539 (3) 938 35 2,328
Compensation expense and market value adjustment...... (23) (1,317) (10) (1,258) (33) (3,833)
------ --------- ------ --------- ------ --------
Balance at end of period................................ 88 1,997 92 1,775 105 2,095
====== --------- ====== --------- ====== --------
Total Common Stockholders' Equity........................... $ 361,551 $ 391,283 $429,939
========= ========= ========
</TABLE>
The accompanying notes and schedule of segment information are an
integral part of these consolidated financial statements.
47
<PAGE> 49
TRANSCO ENERGY COMPANY
SCHEDULE OF SEGMENT INFORMATION
(NOTE A)
<TABLE>
<CAPTION>
GAS GAS
DESCRIPTION PIPELINES MARKETING COAL GATHERING OTHER ELIMINATIONS CONSOLIDATED
---------------------------------------- ---------- ---------- -------- --------- -------- ------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Revenues:
Unaffiliated companies.............. $1,135,378 $1,434,171 $215,089 $ 7,442 $ 24,138 $ -- $2,816,218
Affiliated companies................ 45,285 107,837 -- 173 66 (153,361) --
---------- ---------- -------- --------- -------- ------------ ------------
Total revenues.................. 1,180,663 1,542,008 215,089 7,615 24,204 (153,361) 2,816,218
---------- ---------- -------- --------- -------- ------------ ------------
Operating Costs and Expenses:
Cost of sales and transportation.... 218,123 1,507,331 182,099 1,186 25,056 (153,361) 1,780,434
Depreciation, depletion and
amortization...................... 162,569 1,589 23,845 3,911 389 -- 192,303
Provision for asset impairments..... 4,202 18,394 -- 3,520 14,939 -- 41,055
Capitalized costs in excess of
ceiling limitation................ -- -- -- -- 45,000 -- 45,000
Provision for producer settlements,
legal and regulatory issues....... 6,000 -- -- -- -- -- 6,000
Other operating costs and
expenses.......................... 496,251 25,431 9,092 4,244 12,591 -- 547,609
---------- ---------- -------- --------- -------- ------------ ------------
Total operating costs and
expenses...................... 887,145 1,552,745 215,036 12,861 97,975 (153,361) 2,612,401
---------- ---------- -------- --------- -------- ------------ ------------
Operating Income (Loss)............... $ 293,518 $ (10,737) $ 53 $ (5,246) $(73,771) $ -- $ 203,817
========= ========= ======== ========= ======== =========== ===========
Equity in Earnings (Loss) of
Unconsolidated Affiliates........... $ 296 $ (646) $ -- $ 414 $ 3,351 $ -- $ 3,415
========= ========= ======== ========= ======== =========== ===========
Assets:
Identifiable assets at year-end..... $3,009,389 $ 132,880 $299,363 $161,599 $156,968 $ -- $3,760,199
========= ========= ======== ========= ======== ===========
Equity in net assets of
unconsolidated affiliates......... $ 2,903 $ 11,296 $ -- $ 5,730 $ 1,576 $ -- 21,505
---------- ---------- -------- --------- -------- ------------
Other corporate assets.............. (8,598)
------------
Total Assets.................... $3,773,106
===========
Capital Expenditures and Investment in
Unconsolidated Affiliates........... $ 186,806 $ 910 $ 12,946 $ 37 $ 84 $ -- $ 200,783
========= ========= ======== ========= ======== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this schedule.
48
<PAGE> 50
TRANSCO ENERGY COMPANY
SCHEDULE OF SEGMENT INFORMATION -- (CONTINUED)
(NOTE A)
<TABLE>
<CAPTION>
GAS GAS
DESCRIPTION PIPELINES MARKETING COAL GATHERING OTHER ELIMINATIONS CONSOLIDATED
----------- --------- --------- -------- --------- -------- ------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1993:
Revenues:
Unaffiliated companies................ $1,281,191 $1,388,262 $234,618 $ 6,910 $ 10,945 $ -- $2,921,926
Affiliated companies.................. 47,620 59,353 -- 117 2,693 (109,783) --
---------- --------- -------- -------- -------- ---------- ----------
Total revenues.................... 1,328,811 1,447,615 234,618 7,027 13,638 (109,783) 2,921,926
---------- --------- -------- -------- -------- ---------- ----------
Operating Costs and Expenses:
Cost of sales and transportation...... 378,421 1,427,267 195,312 5,255 10,549 (108,353) 1,908,451
Depreciation, depletion and
amortization........................ 158,524 1,177 23,377 2,945 1,314 -- 187,337
Corpus Christi settlement............. -- 3,000 -- 47,269 -- -- 50,269
Write-off of note receivable.......... 20,125 -- -- -- -- -- 20,125
Capitalized costs in excess of ceiling
limitation.......................... -- -- -- -- 70,000 -- 70,000
Other operating costs and expenses.... 484,595 26,941 8,949 3,875 16,614 (1,512) 539,462
---------- --------- -------- -------- -------- ---------- ----------
Total operating costs and
expenses........................ 1,041,665 1,458,385 227,638 59,344 98,477 (109,865) 2,775,644
---------- --------- -------- -------- -------- ---------- ----------
Operating Income (Loss)................. $ 287,146 $ (10,770) $ 6,980 $(52,317) $(84,839) $ 82 $ 146,282
========== ========= ======== ========= ======== ========== ==========
Equity in Earnings (Loss) of
Unconsolidated Affiliates............. $ 320 $ (884) $ -- $ (2,219) $ 3,018 $ -- $ 235
========== ========= ======== ========= ======== ========== ==========
Assets:
Identifiable assets at year-end....... $3,030,484 $ 156,854 $310,452 $174,704 $196,690 $ -- $3,869,184
========== ========= ======== ========= ======== ==========
Equity in net assets of unconsolidated
affiliates.......................... $ 6,360 $ 16,347 $ -- $ 6,541 $ 198 $ -- 29,446
========== ========= ======== ========= ======== ==========
Other corporate assets................ 166,412
----------
Total Assets...................... $4,065,042
==========
Capital Expenditures and Investment in
Unconsolidated Affiliates............. $ 139,975 $ 1,509 $ 14,650 $ 282 $ 16,854 $ -- $ 173,270
========== ========= ======== ========= ======== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this schedule.
49
<PAGE> 51
TRANSCO ENERGY COMPANY
SCHEDULE OF SEGMENT INFORMATION -- (CONTINUED)
(NOTE A)
<TABLE>
<CAPTION>
GAS GAS
DESCRIPTION PIPELINES MARKETING COAL GATHERING OTHER ELIMINATIONS CONSOLIDATED
------------------------------------------ --------- --------- -------- --------- -------- ------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1992:
Revenues:
Unaffiliated companies................ $1,655,787 $790,950 $234,471 $ 9,689 $ 1,442 $ -- $2,692,339
Affiliated companies.................. 47,084 9,335 -- 1,139 8,954 (66,512) --
---------- -------- -------- -------- -------- ---------- -----------
Total revenues.................... 1,702,871 800,285 234,471 10,828 10,396 (66,512) 2,692,339
---------- -------- -------- -------- -------- ---------- -----------
Operating Costs and Expenses:
Cost of sales and transportation...... 818,310 791,044 202,352 3,532 8 (66,513) 1,748,733
Depreciation, depletion and
amortization........................ 152,996 1,771 25,310 4,540 7,881 -- 192,498
Capitalized costs in excess of ceiling
limitation.......................... -- -- -- -- 35,200 -- 35,200
Provision for producer settlements,
legal and regulatory issues......... 31,000 -- -- -- -- -- 31,000
Other operating costs and expenses.... 446,435 18,603 10,297 5,732 20,372 (190) 501,249
---------- -------- -------- -------- -------- ---------- -----------
Total operating costs and
expenses........................ 1,448,741 811,418 237,959 13,804 63,461 (66,703) 2,508,680
---------- -------- -------- -------- -------- ---------- -----------
Operating Income (Loss)................. $ 254,130 $(11,133) $ (3,488) $ (2,976) $(53,065) $ 191 $ 183,659
========== ======== ======== ======== ======== ========== ==========
Equity in Earnings (Loss) of
Unconsolidated Affiliates............. $ 1,667 $ 930 $ -- $ (124) $ 2,954 $ -- $ 5,427
========== ======== ======== ======== ======== ========== ==========
Assets:
Identifiable assets at year-end....... $3,165,239 $164,485 $316,483 $148,050 $351,928 $ -- $4,146,185
========== ======== ======== ======== ======== ==========
Equity in net assets of unconsolidated
affiliates.......................... $ 6,722 $ 15,345 $ -- $ 47,095 $ 12,467 $ -- 81,629
========== ======== ======== ======== ======== ==========
Other corporate assets................ 30,749
-----------
Total Assets...................... $4,258,563
==========
Capital Expenditures and Investment in
Unconsolidated Affiliates............. $ 138,496 $ 2,150 $ 8,982 $ 318 $ 28,488 $ -- $ 178,434
========== ======== ======== ======== ======== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this schedule.
50
<PAGE> 52
TRANSCO ENERGY COMPANY
INDEX TO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
A. Summary of Significant Accounting Policies........................................ 52
B. Regulatory Matters................................................................ 55
C. Legal Proceedings................................................................. 60
D. Environmental Matters............................................................. 64
E. Financing......................................................................... 67
F. Preferred Stock................................................................... 70
G. Common Stock...................................................................... 71
H. Employee Benefit Plans............................................................ 73
I. Income Taxes...................................................................... 78
J. Discontinued Operations and Sales of Assets....................................... 79
K. Investment in Unconsolidated Affiliates and Notes Receivable...................... 80
L. Investment in Nonoperating Interest in Coalbed Methane Properties................. 82
M. Commitments and Contingencies..................................................... 83
N. Fair Value of Financial Instruments............................................... 87
O. Quarterly Information (Unaudited)................................................. 88
</TABLE>
51
<PAGE> 53
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CONTROL
On December 12, 1994, Transco Energy Company (Transco) and The Williams
Companies, Inc. (Williams) announced that they had entered into a merger
agreement (Merger Agreement) pursuant to which Williams agreed to commence a
cash tender offer to acquire up to 24.6 million shares, or approximately 60%, of
the outstanding shares of Transco's common stock for $17.50 per share and common
stock purchase right. The cash offer would then be followed by a stock merger
(Merger) in which shares of Transco common stock not purchased in the tender
offer would be exchanged for 0.625 shares of Williams' common stock and 0.3125
attached Williams' preferred stock purchase rights. The Merger Agreement was
approved by both Transco and Williams' Boards of Directors on December 11, 1994.
The tender offer began on December 16, 1994 and expired on January 17,
1995. Approximately 35.2 million shares, or approximately 86.7%, of the
outstanding shares of Transco's common stock were tendered to Williams for
purchase and not withdrawn. Pursuant to the Merger Agreement, on January 18,
1995, Williams accepted for payment 24.6 million shares of Transco's common
stock for $17.50 per share as the first step in acquiring the entire equity
interest of Transco. Also pursuant to the Merger Agreement, shortly before
Williams' acceptance for payment, all of the common stock purchase rights
attached to the Transco common shares were redeemed by Transco for $0.05 per
right (See Note G). The remainder of the outstanding shares of Transco's common
stock will be converted to Williams' common stock upon majority approval by
Transco's stockholders. The conversion will occur at the effective date of the
Merger which is expected to be in April 1995.
Williams has stated that it intends to cause Transco, as promptly as
practicable following the Merger and subject to receipt of any necessary
consents, to declare and pay as dividends to Williams all of Transco's interests
in its principal operating subsidiaries, Transcontinental Gas Pipe Line
Corporation (TGPL), Texas Gas Transmission Corporation (Texas Gas) and Transco
Gas Marketing Company (TGMC) (the dividends collectively, the Operating Company
Dividends). After giving effect to the Operating Company Dividends,
substantially all of Transco's remaining assets will be in non-regulated
activities. Certain of such assets are non-core assets which Williams has stated
it intends to dispose of during 1995.
Transco's consolidated financial statements have been prepared on the
historical cost basis and do not reflect an allocation of the purchase price
that will be recorded by Williams as a result of the Merger.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Transco and
its wholly-owned subsidiaries. As used herein, the terms "Transco" or the
"Company" refer to Transco Energy Company and its wholly-owned subsidiaries
unless the context otherwise requires. Intercompany sales are at market prices
and all significant intercompany accounts and transactions have been eliminated.
The equity method of accounting is used for investments in affiliates in which
50% or less of the voting interest is owned.
As a result of its sale in 1993, as described in Note J, the Power
Generation segment has been classified in the Consolidated Statement of
Operations for 1993 and 1992 as discontinued operations; and, as such, revenues
and expenses have been excluded from the results for continuing operations.
Certain other reclassifications have been made in the 1993 and 1992
financial statements to conform to the 1994 presentation.
BUSINESS SEGMENTS
In January 1993, upon Federal Energy Regulatory Commission (FERC) approval,
Transco realigned the Gas Marketing segment of its business under the common
management of a newly formed subsidiary, TGMC.
52
<PAGE> 54
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TGMC, through agency agreements with TGPL and Texas Gas, manages all
jurisdictional merchant gas sales made by TGPL and Texas Gas except for monthly
sales of gas purchased by Texas Gas under gas purchase contracts with pricing
provisions that are not variable market based, which Texas Gas sells at auction.
Accordingly, effective January 1, 1993 for TGPL and November 1, 1993 for Texas
Gas, substantially all sales revenues and the related costs, including gas
costs, applicable to TGPL and Texas Gas' merchant sales service are reported by
Transco in its Gas Marketing segment.
DEPRECIATION, DEPLETION AND AMORTIZATION
Natural gas transmission plant. Depreciation rates used for major regulated
gas plant facilities at year-end 1994, 1993 and 1992 were:
<TABLE>
<CAPTION>
TGPL TEXAS GAS
-------------------------------------- --------------------------------------
CATEGORY OF PROPERTY 1994 1993 1992 1994 1993 1992
-------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gathering facilities............ 6.22% 6.22% 6.22% 0.75%-1.20% 0.75%-1.20% 0.75%-1.20%
Storage facilities.............. 2.50% 2.50% 2.50% 2.55% 2.55% 2.30%
Onshore transmission
facilities.................... 2.65% 2.50%-2.65% 2.50% 2.25% 2.25% 2.00%
Offshore transmission
facilities.................... 3.75%-7.78% 3.75%-7.78% 3.75%-7.78% 6.00% 6.00% 6.00%
</TABLE>
Depreciation of general plant is provided at straight-line rates.
Natural gas gathering and liquids separation and fractionation plant.
Depreciation of natural gas gathering facilities is based on the
units-of-production method over the estimated life of the reserves associated
with the facility or at straight-line rates over a 20 to 38-year life.
Depreciation of liquids separation and fractionation plant is primarily based on
the straight-line method over a 16 to 22-year life.
Coal properties. Mineral rights often are acquired through royalty
payments. Royalty payments representing prepayments recoupable against future
production are included in other assets in the accompanying Consolidated Balance
Sheet, with amounts expected to be recouped within one year classified as a
current asset. As mining occurs on these leases, the prepayment is amortized and
included in the cost of coal mined. Amounts determined to be nonrecoupable are
charged to expense.
Cost of coal lease rights, including costs related to the purchase of the
coal properties by Transco and mine development costs, are capitalized and
amortized by the units-of-production method over the estimated recoverable
reserves. Coal production machinery and equipment are depreciated principally by
the straight-line method over a three to five-year life.
Coalbed methane properties. As described in Note L, Transco has an
investment in a nonoperating interest in certain coalbed methane properties. The
properties are operated by TECO Coalbed Methane, Inc. (TECO). All future
development costs will be borne by TECO. Transco's remaining investment will be
amortized using the future gross revenue method based on future revenues to be
received through Transco's nonoperating interest in the underlying proved
coalbed methane properties.
INCOME TAXES
Tax policy. Transco and its wholly-owned subsidiaries file a consolidated
federal income tax return. It is Transco's policy to charge or credit each
subsidiary with an amount equivalent to its federal income tax expense or
benefit computed as if each subsidiary had a separate return, but including
benefits from each subsidiary's losses and tax credits that may be utilized only
on a consolidated basis.
Accounting for income taxes. Transco uses the liability method of
accounting for deferred taxes, which requires, among other things, adjustments
to the existing deferred tax balances for changes in tax rates, whereby such
balances will more closely approximate the actual taxes to be paid. Net tax rate
reductions
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TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related to regulated operations and subject to refund to customers over the
average remaining life of natural gas transmission plant have been shown in the
accompanying Consolidated Balance Sheet as income taxes refundable to customers,
the current portion of which is included in other current liabilities.
REVENUE RECOGNITION
Transco's subsidiaries recognize revenues for the sale of their respective
commodities in the period of delivery. Transco's pipelines recognize revenue for
the transportation of gas in the period the service is provided. TGPL and Texas
Gas are subject to FERC regulations and, accordingly, certain revenues are
collected subject to possible refunds pending final FERC orders. Transco
establishes reserves, where required, for such revenues collected subject to
refund.
ALLOWANCES FOR DOUBTFUL RECEIVABLES
Due to its customer base, Transco has not historically experienced
recurring credit losses in connection with its receivables. As a result,
receivables determined to be uncollectible are reserved or written off in the
period of such determination. At December 31, 1994 and 1993, Transco's allowance
for doubtful accounts was $22.3 million and $4.1 million, respectively. Of the
balance at December 31, 1994, $17.2 million were receivables from Continental
Energy Associates Limited Partnership as discussed in Note C.
CASH FLOWS FROM OPERATING ACTIVITIES
Transco uses the indirect method to report cash flows from operating
activities, which requires adjustments to net income to reconcile to net cash
flows provided by operating activities. The Company includes short-term,
highly-liquid investments that have a maturity of three months or less as cash
equivalents.
RESTRICTED DEPOSITS
At December 31, 1994 and 1993, the Company had approximately $10 million
and $31 million, respectively, of restricted deposits that are included in the
accompanying Consolidated Balance Sheet in current assets as deposits. These
restricted deposits serve as collateral for various standby letters of credit,
regulatory trusts and legal proceedings.
CAPITALIZED INTEREST
The allowance for funds used during construction represents the cost of
funds applicable to regulated natural gas transmission plant under construction
as permitted by FERC regulatory practices. Interest is capitalized on major
capital projects of non-regulated subsidiary companies. The allowance for
borrowed funds used during construction and capitalized interest was $1.0
million, $4.0 million and $4.8 million for 1994, 1993 and 1992, respectively.
The allowance for equity funds was $3.9 million, $3.3 million and $3.2 million
for 1994, 1993 and 1992, respectively.
GAS IN STORAGE
The Company utilizes the last-in, first-out (LIFO) method of accounting for
inventory gas in storage. The current replacement cost of the inventory gas in
storage at December 31, 1994 and 1993 was $45 million and $62 million,
respectively.
As part of Texas Gas' implementation of Order 636, Texas Gas has been
allowed to retain its storage gas, in part to meet operational balancing needs
on its system, and in part to meet the requirements of Texas Gas' "no-notice"
transportation service, which allows customers to temporarily draw from Texas
Gas' storage gas to be repaid in-kind during the following summer season. As a
result, Texas Gas' gas stored underground is classified as other noncurrent
assets in the accompanying Consolidated Balance Sheet.
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TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GAS IMBALANCES
In the course of providing transportation services to customers, TGPL and
Texas Gas may receive different quantities of gas from shippers than the
quantities delivered on behalf of those shippers. Additionally, Transco's
pipeline and gas marketing subsidiaries transport gas on various pipeline
systems which may deliver different quantities of gas on behalf of Transco than
the quantities of gas received from Transco. These transactions result in gas
transportation and exchange imbalance receivables and payables which are
recovered or repaid in cash or through the receipt or delivery of gas in the
future and are recorded in the accompanying Consolidated Balance Sheet.
Imbalances have become of greater significance to the pipeline industry
generally, since the implementation of open access transportation by the FERC in
1985, as a result of the substantial increase in the number of shippers on
pipeline systems. Settlement of imbalances requires agreement between the
pipelines and shippers as to allocations of volumes to specific transportation
contracts and timing of delivery of gas based on operational conditions. TGPL
and Texas Gas' rate structures include a method whereby most imbalances
generated after August 1, 1991 and November 1, 1993, respectively, are settled
on a monthly basis. TGPL's imbalances predating August 1, 1991 and Texas Gas'
reconciled imbalances predating November 1, 1993 are being recovered or repaid
in cash or through the receipt or delivery of gas upon agreements of allocation,
as permitted by operating conditions. All imbalances have been classified as
current assets or current liabilities at December 31, 1994.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENTS
Primary earnings (loss) per share is computed by dividing common stock
equity in net income (loss) by the weighted average number of shares adjusted
for common stock equivalents where applicable. The $4.75 series, 9.25% series
and $3.50 series cumulative convertible preferred stock were determined at the
time of issuance not to be common stock equivalents. The unallocated portion of
non-leveraged Tran$tock shares is excluded in the computation of primary
earnings per share.
Fully diluted earnings (loss) per share is not presented because such
difference would not be material from amounts computed for primary earnings
(loss) per share.
DERIVATIVE FINANCIAL INSTRUMENTS
Transco has been a party to interest rate swap agreements to manage
interest rate risks and is a party to various futures contracts and option and
commodity price swap agreements used to manage price volatility in its natural
gas and natural gas liquids marketing activities. See Note M for a discussion of
Transco's accounting policy for the recognition of gains and losses in
connection with these financial instruments.
B. REGULATORY MATTERS
TGPL MATTERS
Rate matters. On March 2, 1992, TGPL filed with the FERC a general rate
case (Docket No. RP92-137). The general rate filing proposed an increase in
transportation rates, based primarily on increases in operating and maintenance
costs, including those associated with additional services provided to TGPL's
markets since its last general rate filing, and increased cost of capital. The
filing also included a change to straight fixed-variable (SFV) rate design and
an increase in rate base resulting from additional plant and equipment costs and
higher working capital requirements. On September 1, 1992, the increased rates
went into effect, subject to refund.
On May 3, 1993, TGPL filed with the FERC an Offer of Settlement (the
Settlement) with regard to Docket No. RP92-137. On November 4, 1993, the FERC
issued an order accepting the Settlement. The Settlement resolves all issues in
Docket No. RP92-137 except (i) issues relating to TGPL's rate of return, (see
discussion below), and (ii) the issue of the appropriate load factor for the
design of TGPL's interruptible
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TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rates, which the FERC referred to a hearing in Docket No. RP92-137, for
prospective effect only (see Order 636 discussion for additional issues referred
to this hearing). In addition, in the Settlement TGPL agreed to file a new
general section 4 rate case to be effective no later than September 1, 1995. The
Settlement became effective on April 1, 1994. One party has appealed the FERC's
orders related to the Settlement to the United States Court of Appeals for the
D.C. Circuit (D.C. Circuit Court). Through January 31, 1995, TGPL made partial
refunds of approximately $150 million, including interest, under Docket No.
RP92-137. An additional refund of approximately $24 million, including interest,
is expected to be made during the first quarter of 1995. TGPL had previously
provided a reserve for these refunds. TGPL has also provided a reserve which,
excluding the remanded proceedings with respect to TGPL's rate of return, it
believes is adequate for any additional refunds that may be required under
Docket No. RP92-137.
On September 17, 1992, the FERC issued a decision addressing the single
issue of the appropriate rate of return in Docket No. RP92-137. The FERC, using
a hypothetical capital structure based on the average capital structure of a
group of seven publicly-traded companies with pipeline subsidiaries, determined
TGPL's appropriate after-tax rate of return on equity to be 14.45%. The FERC did
not determine TGPL's cost of debt and preferred stock, suggesting that this
issue should be the subject of further proceedings in the context of the general
rate case. Consequently, TGPL's current settlement rates reflect an after-tax
rate of return on equity of 14.45% but, consistent with the FERC order, the
rates continue to reflect the cost of debt and preferred stock originally filed
in the general rate case. The issue of the appropriate rate of return for TGPL
was appealed to the D.C. Circuit Court. TGPL appealed, seeking to increase the
rate of return, and certain other parties appealed, seeking to lower the rate of
return. On December 23, 1994, the D.C. Circuit Court issued an opinion remanding
to the FERC the FERC's September 17, 1992 order. The D.C. Circuit Court
determined that the FERC had failed to explain adequately its decisions to use a
hypothetical capital structure for TGPL, to select a rate of return on equity at
the top range of reasonableness, and to use as a proxy group to develop TGPL's
hypothetical capital structure a group of publicly-traded parent companies with
pipeline subsidiaries rather than a group of regulated pipelines. Accordingly,
the D.C. Circuit Court remanded the order to the FERC for further consideration.
Although no assurances can be given, Transco believes that the final resolution
of this rate of return issue will not have a material adverse effect on its
financial position, results of operations or net cash flows.
As discussed below, the issue of the allocation of certain costs to TGPL's
merchant sales service, among others, was referred to the hearing in Docket No.
RP92-137 by the FERC orders approving TGPL's implementation of Order 636. In the
Administrative Law Judge's (ALJ) initial decision on October 20, 1994, the ALJ
determined that there is no genuine issue of material fact warranting a
trial-type hearing on the issue, and directed TGPL to remove from its gathering
function approximately $5.6 million of indirect costs and to reassign this
amount to its merchant sales service. On November 21, 1994, TGPL filed a brief
on exceptions with the FERC, seeking to reverse the ALJ's decision. On December
12, 1994, certain parties, including the FERC's staff, filed briefs opposing
TGPL's exceptions. In late February 1995, the FERC issued an order affirming the
ALJ's October 20, 1994 decision and directing TGPL to file, within 15 days after
the FERC's final order on the initial decision, to remove from its gathering
function a total of $5.6 million of indirect costs and to reassign that amount
to its merchant service. Any changes in TGPL's rates or services resulting from
this issue would have a prospective effect only. Although no assurances can be
given, Transco believes that the final resolution of this cost allocation issue
will not have a material adverse effect on its financial position, results of
operations or net cash flows.
On October 26, 1994, the FERC issued a notice of a request for initiation
of a complaint proceeding in TGPL's Order 636 restructuring docket, stating that
Fina Natural Gas Company (Fina) has filed a complaint requesting that the FERC
initiate a proceeding under section 5 of the Natural Gas Act of 1938 (NGA) to
investigate the functionalization of TGPL's production-area facilities. Fina
asserts that some of TGPL's production-area facilities have been
misfunctionalized as transmission, and that under recent gathering orders, those
facilities should properly be functionalized as gathering facilities. On
November 28, 1994, TGPL filed
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TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an answer in response to the notice. In that answer, TGPL requested that the
FERC defer action on Fina's complaint until June 1, 1995. TGPL advised the FERC
that, in light of the FERC's evolving policies on gathering and production-area
rate design, TGPL is evaluating which, if any, of its Gulf Coast gathering
facilities could be spun down into a nonjurisdictional subsidiary. TGPL stated
that it anticipates that it will complete that evaluation on or before June 1,
1995, at which point TGPL would either submit a proposal to the FERC or will
notify the FERC of its intentions. If the FERC elects to initiate a proceeding,
any change in classification of the function of plant facilities between
transmission and gathering would be prospective only. Although no assurances can
be given, Transco does not believe the final outcome of this issue will have a
material adverse effect on its financial position, results of operations or net
cash flows.
TEXAS GAS MATTERS
Rate matters. In April 1993, Texas Gas filed a general rate case (Docket
No. RP93-106), which became effective November 1, 1993, subject to refund. The
rate case was filed to satisfy the three-year filing requirement of the FERC's
regulations, to recover increased operating costs, to provide a return on
increased capital investment in pipeline facilities, to implement the SFV rate
design methodology and to facilitate resolution of various rate-related issues
in Texas Gas' Order 636 restructuring proceeding. A settlement agreement
regarding the general rate case was filed on June 14, 1994, approved on
September 21, 1994 and became final October 21, 1994. On December 20, 1994,
Texas Gas made refunds of approximately $42.2 million, including interest. Texas
Gas previously had provided a reserve for these refunds.
On September 30, 1994, Texas Gas filed a general rate case (Docket No.
RP94-423) which will be effective April 1, 1995, subject to refund. This new
rate case reflects a requested annual revenue increase of approximately $66.9
million, based on filed rates, primarily attributable to increases in the
utility rate base, operating expenses, and rate of return and related taxes.
On July 29, 1994, and in rehearing on September 16, 1994, the FERC issued
an order accepting a filing made by Texas Gas to resolve its transportation and
exchange imbalances pre-dating its implementation of Order 636. Following the
parties' agreement as to the allocations, reconciled imbalances will be repaid
in cash, or through receipt or delivery of gas, as permitted by operating
conditions, by the end of 1995.
ORDER 636
TGPL
On November 1, 1993, TGPL implemented Order 636. Prior to its
implementation of Order 636, TGPL received orders from the FERC which, among
other things, (i) required TGPL to revise its throughput projection for rate
purposes to reflect a mix of throughput that includes a higher level of
interruptible transportation, (ii) accepted TGPL's proposal for rolled-in rate
treatment of its Mobile Bay facilities and exempted TGPL from having to reflect
Mobile Bay transportation volumes and related revenues in a separate
interruptible revenue crediting mechanism, (iii) approved a Stipulation and
Agreement filed with the FERC by TGPL and its sales customers resolving certain
sales service issues and mooting potential issues regarding TGPL's recovery of
gas supply realignment (GSR) costs associated with TGPL's firm sales service,
and (iv) referred to the hearing in Docket No. RP92-137 the following issues:
TGPL's limited Section 4 filing with the FERC relating to TGPL's production-area
rate design, the allocation of certain costs to TGPL's merchant sales service,
TGPL's use of a system-wide cost of service and the level of TGPL's gathering
rates and aggregation/pooling services in TGPL's production area. Any changes in
TGPL's rates or services resulting from this hearing would have a prospective
effect only.
Order 636 provides that pipelines should be allowed the opportunity to
recover all prudently incurred transition costs. TGPL does not expect to incur
GSR costs associated with its firm sales service. TGPL's non-GSR transition
costs are anticipated to be insignificant.
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TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TGPL and certain other parties have filed appeals of certain of the FERC's
orders to the D.C. Circuit Court. On February 13, 1995, the D.C. Circuit Court
issued an order holding all appeals of restructuring orders arising out of Order
636 in abeyance until the court renders an opinion in the appeals of Order 636.
Among the issues raised by the parties are whether the separately stated
gathering rates charged by TGPL should be subject to refund and issues related
to TGPL's storage tracker authority.
TGPL has expressed to the FERC concerns that inconsistent treatment under
Order 636 of TGPL and its competitor pipelines with regard to rate design and
cost allocation issues in the production area may result in rates which could
make TGPL less competitive, both in terms of production-area and long-haul
transportation. A hearing before a FERC ALJ, dealing with, among other things,
TGPL's production-area rate design, concluded in June 1994 and the parties
submitted briefs to the ALJ in August and September 1994. The decision of the
ALJ, when issued, will be subject to review by the FERC. TGPL is unable at this
time to fully assess the competitive effect and resulting financial impact on
TGPL of having to maintain its current production-area rate design which is
different than that of its competitors.
Texas Gas
Texas Gas has restructured its business to implement the provisions of
Order 636 effective November 1, 1993. Texas Gas' transition costs under Order
636, which are primarily related to GSR contract termination costs, GSR pricing
differential costs incurred pursuant to Texas Gas' monthly auction process, as
discussed below, and unrecovered purchased gas costs, are not currently expected
to exceed approximately $90 million.
During 1993, as part of Texas Gas' restructuring under Order 636, Texas Gas
engaged in negotiations which have resulted in the successful termination of
approximately 90% of Texas Gas' deliverability under its gas purchase contracts
with pricing provisions that are not variable market based. Gas purchased under
its remaining gas purchase contracts with pricing provisions that are not
variable market based is being resold at a monthly auction pursuant to Order
636. Texas Gas continues to pay to the supplier the actual contract price and is
entitled to file for full recovery of the difference between the contract price
and the amount received for sales at auction as GSR costs under Order 636.
Through December 31, 1994, Texas Gas had paid a total of $46.4 million for
GSR costs, primarily as a result of certain GSR contract terminations. During
1994, Texas Gas made four quarterly filings to recover $37.8 million of GSR
costs, plus interest, pursuant to the transition cost recovery provisions of
Order 636 and Texas Gas' FERC-approved Gas Tariff. This amount represents 90% of
the total GSR costs paid through August 1994, which are expected to be recovered
via demand surcharges to Texas Gas' firm transportation rates. Texas Gas
continues to make quarterly filings to allow recovery of 90% of its GSR costs as
such costs are paid. The remaining 10% of GSR costs is expected to be recovered
from interruptible transportation service. On December 29, 1994, Texas Gas made
a filing to reflect that, for the ten months ended August 31, 1994, Texas Gas
allocated to and recovered from interruptible transportation service $4.2
million of GSR costs, pursuant to its FERC-approved Gas Tariff.
Consolidated
Transco expects that any Order 636 transition costs incurred should be
recovered from customers of TGPL and Texas Gas, subject only to the costs and
other risks associated with the difference between the time such costs are
incurred and the time when those costs may be recovered from customers.
OTHER REGULATORY MATTERS
Order 94-A. In 1983, the FERC issued Order 94-A, which permitted producers
to collect certain production-related gas costs from pipelines on a retroactive
basis. The FERC subsequently issued orders allowing several pipelines, including
TGPL and Texas Gas, to direct bill their customers for such production-
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TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related costs through fixed monthly charges based on a customer's historical
purchases. In 1990, the D.C. Circuit Court overturned the FERC's authorization
for pipelines to direct bill production-related costs to customers based on gas
purchased in prior periods and remanded the matter to the FERC to determine an
appropriate recovery mechanism.
TGPL's Rate Settlement and Gas Inventory Charge (GIC) Docket No. RP90-8
Settlement contains a provision pursuant to which TGPL's customers, with the
exception of Columbia Gas Transmission Corporation (Columbia), have agreed not
to contest the Order 94-A payments previously made to TGPL by them. TGPL had
billed to and recovered from Columbia approximately $7 million of Order 94-A
costs. In October 1993, TGPL and Columbia filed with the FERC for approval a
letter agreement in which TGPL agreed to refund $1.4 million to Columbia, which
amount is inclusive of principal and interest, in full and final settlement of
all issues in this proceeding. On January 26, 1994, Columbia filed a letter with
the FERC stating that, due to developments in other pipeline company proceedings
involving settlements of the issue of recovery of Order 94-A costs from
Columbia, Columbia could no longer support the settlement between TGPL and
Columbia. On February 13, 1995, the FERC issued an order rejecting the October
26 settlement and requiring TGPL to refund to Columbia within 30 days the
principal amount of the Order 94-A costs collected from Columbia. The order does
not require TGPL to pay any interest on the principal amount refunded to
Columbia. TGPL has filed with the FERC a request for an extension of time to
make the refund. The FERC has granted an extension of time for making the
refund, to and including 30 days after FERC action on requests for rehearing.
TGPL has filed for rehearing of the FERC's February 13 order. Columbia has also
filed for rehearing of the February 13 order asking that the FERC require that
TGPL pay interest on the refund of the Order No. 94-A amounts. TGPL has provided
a reserve of approximately $7 million which it believes is adequate to provide
for any amounts which it may ultimately be required to refund.
In April 1992, Texas Gas filed a settlement with the FERC providing for a
reallocation of the Order 94-A payments previously collected from customers. The
settlement provided for net refunds of $8.1 million to certain customers and
direct bill recovery of $2.7 million from other customers. The remaining $5.4
million would be recovered through Texas Gas' Purchase Gas Adjustment (PGA)
mechanism. In February 1993, the FERC issued an order approving the settlement.
On January 12, 1994, the FERC found that it had committed a legal error in
allowing the previously mentioned direct bill of Order 94-A costs. The effect of
this order, as issued, would be to require Texas Gas to make refunds to certain
customers of $13.5 million, recover $2.7 million through direct billing of other
customers, recover $5.4 million as part of the direct billing of its unrecovered
purchased gas costs and absorb the remaining $5.4 million. Texas Gas filed for
rehearing of this order and received an extension staying the effectiveness of
this order until 30 days after the FERC's ruling on rehearing. On October 18,
1994, the FERC issued its "Order Denying Rehearing" which affirmed its January
12, 1994 order. On November 17, 1994, Texas Gas made $4.3 million in refunds and
filed for and received a stay of the order's requirement to make the remaining
$9.2 million of refunds by November 17, 1994. Texas Gas continues to believe
that it is entitled to full recovery of these FERC-ordered costs and has filed a
court appeal. On January 17, 1995, Texas Gas filed a joint motion with Columbia,
the party due the remaining refunds, to extend the time for making refunds until
the court rules. Texas Gas, however, believes that its reserve of $5.4 million,
plus interest, is adequate to provide for any costs it may ultimately be
required to absorb.
Although no assurances can be given, Transco believes that the final
resolution of the recovery of production-related costs will not have a material
adverse effect on its financial position, results of operations or net cash
flows.
Orders 500 and 528. Pursuant to Orders 500 and 528, certain other pipelines
from which Texas Gas made gas purchases (upstream pipelines) had received
approval from the FERC to bill customers for their producer settlement costs.
Texas Gas had, in turn, made filings with the FERC for approval to flow these
costs through to its customers. On August 4, 1994, the FERC issued an order
approving the settlement agreements of Texas Gas and its upstream pipelines.
Pursuant to the settlements, on September 30, 1994, Texas Gas flowed
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TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
through to its former sales customers $39.9 million. This order resolves all of
Texas Gas' issues related to the flowthrough of upstream pipelines' producer
settlement costs.
In September 1993, Texas Gas filed to recover 75% of $3.4 million of its
producer settlement costs under Order 528 which resulted from reimbursements to
producers for certain royalty payments. In December 1994, the FERC approved a
settlement allowing for recovery of $0.9 million through direct bill and $1.7
million through a volumetric surcharge, both of which were collected over a
12-month period which began October 3, 1993.
C. LEGAL PROCEEDINGS
PRODUCER CONTRACT LITIGATION
In TGPL's only remaining proceeding involving take-or-pay and other
producer contract claims, a producer filed in United States District Court for
the Southern District of Texas (Federal District Court) claiming that it should
have received more favorable terms for settlement of its contract claims and
asserting federal antitrust claims. In October 1992, the Federal District Court
issued an order granting TGPL's motion for summary judgment on the antitrust
claims and in June 1993, the Federal District Court issued an order granting
TGPL's motion for summary judgment on all remaining claims. The producer
appealed to the United States Court of Appeals for the Fifth Circuit (Fifth
Circuit Court). In July 1994, the Fifth Circuit Court affirmed the judgment of
the Federal District Court dismissing the producer's claims in all respects and
denied the producer's petition for rehearing. The producer filed no further
appeal.
On May 7, 1992, TGPL and Challenger Minerals Inc. (Challenger) entered into
a Settlement Agreement to settle all matters in controversy between them,
including, but not limited to, all claims and causes of action which were
asserted or which might have been asserted in the lawsuit. In settling this
litigation, TGPL agreed to provide shares of Transco common stock with a market
value of $15 million to Challenger in 1994 and, in connection with such
agreement, placed 1,500,000 shares of Transco common stock in escrow. The number
of shares ultimately released to Challenger was to be determined by dividing $15
million by Transco's average common stock price during January 1994, subject to
certain adjustments, with Challenger receiving a minimum of 750,000 shares. In
February 1994, 1,017,771 shares of Transco common stock were released to
Challenger from escrow and the remainder of the shares were returned to Transco
resulting in a $7.1 million increase in treasury stock.
OTHER LITIGATION AND CLAIMS
Dakota Gasification litigation. In October 1990, Dakota Gasification
Company (Dakota), the owner of the Great Plains Coal Gasification Plant (Plant),
filed suit in the United States District Court in North Dakota against TGPL and
three other pipeline companies alleging that TGPL and the other pipeline
companies had not complied with their respective obligations under certain gas
purchase and gas transportation contracts. Specifically at issue is the proper
price to be paid by TGPL and the other pipelines for synthetic gas since August
1989, the proper rate to be charged by Dakota for transportation through the
Great Plains pipeline since October 1987, and the proper quantity of synthetic
gas required to be taken-or-paid for by TGPL and the other pipelines.
On September 8, 1992, Dakota and the United States Department of Justice on
behalf of the Department of Energy (DOJ) filed a Third Amended Complaint in the
U.S. District Court in North Dakota naming as defendants in the suit, in
addition to TGPL and the other pipelines, Transco and Transco Coal Gas Company,
the subsidiary of Transco that was the partner in Great Plains Gasification
Associates (Partnership), the partnership that originally constructed the Plant.
In addition, Dakota and DOJ named as defendants all of the other partners in the
Partnership and each of the parent companies of these entities. In the Third
Amended Complaint, Dakota and DOJ charged: (i) the pipeline defendants with
breach of contract for failure to pay for
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TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
volumes of gas tendered but not taken, for underpayment for gas purchased and
for failure to pay for transportation services; (ii) all defendants with breach
of representations and warranties, misrepresentation and breach of an implied
covenant of good faith and fair dealing; and (iii) all parent company defendants
and the affiliated partner defendants of each of the pipeline defendants with
intentional interference with contractual relations. Dakota and DOJ are seeking
declaratory and injunctive relief; the recovery of damages, alleging that the
four pipeline defendants have underpaid for gas, collectively, as of June 30,
1992, by more than $232 million plus interest and for additional damages for
transportation services; and costs and expenses, including attorneys' fees. On
October 30, 1992, Dakota invoiced TGPL $70.5 million for "all synthetic gas
costs" Dakota claims are due from TGPL. Because the proper gas price under
TGPL's gas purchase contract with Dakota is derived from a formula involving the
weighted average prices paid for certain natural gas purchased by TGPL, and is
further the average of each of such prices calculated for each of the four
pipeline purchasers, it is not feasible at this time for TGPL to determine if
it, in fact, has underpaid for gas.
On March 30, 1994, the parties executed definitive agreements which would
settle the litigation subject to final non-appealable regulatory approvals. The
settlement is also subject to a FERC ruling that TGPL's existing authority to
recover in rates certain costs related to the purchase and transportation of gas
produced by Dakota will pertain to gas purchase and transportation costs TGPL
will pay Dakota under the terms of the settlement. On June 23, 1994, TGPL filed
a petition with the FERC seeking approval of the settlement provisions and the
contract amendment including pass-through of all costs to TGPL's customers. On
October 18, 1994, the FERC issued an order consolidating TGPL's petition with
the petitions filed by the other three pipeline companies and setting the matter
for hearing before an ALJ. The hearing will be limited to the issues of (i)
whether the revised agreements are prudent, and (ii) the level of Dakota costs
to be recovered in the proceeding. The FERC directed the ALJ to issue an initial
decision by December 31, 1995 in order that final FERC approval may take place
by December 31, 1996. On November 7, 1994, the ALJ convened a prehearing
conference and adopted a procedural schedule to govern the hearing. Under that
procedural schedule, the hearing is scheduled to commence on June 20, 1995. In
the event that the necessary regulatory approvals are not obtained, TGPL,
Transco and Transco Coal Gas Company intend to vigorously defend the suit.
Although no assurances can be given, TGPL and Transco believe that TGPL has
substantially complied with its obligation under the contracts with Dakota and
that Transco and Transco Coal Gas Company have not breached representations,
warranties or implied covenants and have not intentionally interfered with the
parties' contractual relations. Although no assurances can be given, Transco
does not believe that the ultimate resolution of this litigation, whether
settled or not, will have a material adverse effect on its financial position,
results of operations or net cash flows.
Royalty claims. In connection with TGPL and Texas Gas' renegotiations with
producers to resolve take-or-pay and other contract claims and to amend gas
purchase contracts, TGPL and Texas Gas have each entered into certain
settlements which may require the indemnification by TGPL or Texas Gas of
certain claims for additional royalties which the producers may be required to
pay as a result of such settlements. In October 1992, the Fifth Circuit and the
Louisiana Supreme Court, with respect to the same litigation in applying
Louisiana law, determined that royalties are due on take-or-pay payments under
the royalty clauses of the specific mineral leases reviewed by the courts.
Thereafter, the State Mineral Board of Louisiana passed a resolution directing
the state's lessees to pay to the state royalties on gas contract settlement
payments. As a result of these and related developments, TGPL and Texas Gas have
been made aware of demands on producers for additional royalties and such
producers may receive other demands which could result in claims against TGPL
and Texas Gas pursuant to the indemnification provisions in their respective
settlements. Indemnification for royalties will depend on, among other things,
the specific lease provisions between the producer and the lessor and the terms
of the settlement between the producer and either TGPL or Texas Gas. Texas Gas
may file to recover 75% of any such amounts it may be required to pay pursuant
to indemnities for royalties under the provisions of Order 528.
61
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TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TGPL
In October 1991, a lawsuit was filed in the 32nd Judicial District Court
for the Parish of Terrebonne, State of Louisiana (Betty Duplantis Brown, et al
vs. Mobil Oil Exploration and Producing U.S. Inc., et al (Duplantis)), in which
royalty owners alleged that they were third party beneficiaries of the original
gas purchase contract between TGPL and the producers and that the settlement
agreement entered into between TGPL and such producers is not valid without the
royalty owners' consent. Additionally, in a separate lawsuit consolidated with
the Duplantis lawsuit, allegations were made that Transco Exploration Company
(TXC) and TXP Operating Company (TXPO) and other defendant-producers were
entitled to make claims for breach of gas purchase contracts but failed to
either make claims or receive compensation for such breaches. On October 6,
1994, all parties in the Duplantis lawsuit, including TXC and TXPO, reached a
settlement in principle, which closed on January 20, 1995. TXC and TXPO paid, in
total, approximately $2.5 million, which represents TXC and TXPO's portion of an
$8.4 million settlement to be paid by all of the defendant-producers. The
settlement also released TGPL from any liability to the plaintiffs and the
defendant-producers.
In December 1992, a lawsuit was filed in the United States District Court
for the Southern District of Texas (Vaquillas Ranch Company, Ltd., et al vs.
Texaco Exploration and Production, Inc. (Vaquillas Ranch)) in which royalty
owners have made allegations against the producer for breach of express
obligations under the leases; breach of the covenant to reasonably market gas;
breach of the covenant to reasonably develop; breach of the covenant to protect
against drainage; and failure to deal in good faith. In August 1993, a lawsuit
was filed in the United States District Court for the Southern District of Texas
(Floyd C. Billings, et al vs. Texaco Exploration and Production Inc., et al
(Billings)), in which the royalty owners' claims are virtually identical to the
ones made in the Vaquillas Ranch lawsuit. However, the royalty owners did not
claim that the producer breached any covenant to develop or protect against
drainage. In addition, in the Billings lawsuit the royalty owners have sued the
parent and an affiliate of the producer and TGPL for allegedly conspiring to
tortiously interfere with their lease. The producer defendants in each of the
Billings and Vaquillas Ranch lawsuits have cross-claimed against TGPL. While the
two complaints do not specify monetary damages, the royalty owners have verbally
alleged that their claims against the producers could approximate $100 million.
Both of the Vaquillas Ranch and the Billings lawsuits have been remanded to
state court. No trial dates have been set.
On July 5, 1994, the plaintiffs in the Vaquillas Ranch lawsuit filed a
separate lawsuit in the 111th Judicial District Court of Webb County, Texas
(Vaquillas Ranch Company, Ltd., et al vs. Transcontinental Gas Pipe Line
Corporation and Transco Gas Supply Company) in which the plaintiffs contend that
TGPL tortiously interfered with the plaintiffs' lease by inducing the producer
to enter into certain agreements that reduced TGPL's take-or-pay obligations and
the price TGPL was obligated to pay for the gas it purchased. The plaintiffs are
requesting an unspecified amount of actual and punitive damages for the alleged
tortious interference. It is likely that this lawsuit will be consolidated with
the Vaquillas Ranch lawsuit that has been remanded to state court.
On January 14, 1994, a lawsuit was filed in the 4th Judicial District Court
of Rusk County, Texas (Marathon Oil Company vs. Transcontinental Gas Pipe Line
Corporation and Transco Energy Company (Marathon)) and, on March 15, 1994, a
lawsuit was filed in the 189th Judicial District Court of Harris County, Texas
(Texaco, Inc. vs. Transcontinental Gas Pipe Line Corporation (Texaco)). In the
Marathon and Texaco lawsuits, the respective plaintiffs each have made claims
against TGPL for reimbursements of settlement amounts paid to royalty owners. In
the Marathon and Texaco lawsuits, the respective plaintiffs seek to recover
approximately $3.6 million and approximately $14.7 million, respectively. In the
Marathon lawsuit, trial has been set for July 31, 1995.
Each of these lawsuits is in the discovery process. TGPL has denied
liability in the litigation and believes that it has meritorious defenses to the
claims which it intends to pursue vigorously. TGPL believes at this time
62
<PAGE> 64
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that its exposure, if any, under the provisions of its settlements with the
producers is substantially less than the amounts claimed by the royalty owners.
TGPL has not provided a reserve for these lawsuits.
In addition, TGPL has been advised by Freeport-McMoRan, Inc. (FMP) that the
Minerals Management Service (MMS) has made claims for royalties due under
certain gas contracts. FMP has asserted that TGPL's royalty reimbursement
obligation to FMP is approximately $5.7 million, including interest. TGPL has
denied any liability to FMP, however, the parties are continuing to discuss this
matter.
Texas Gas
Two lawsuits have been filed against Texas Gas in Louisiana, seeking
reimbursement for royalties allegedly incurred by the producers on amounts
previously paid to the producers by Texas Gas to settle past take-or-pay
disputes and to reform the gas purchase contracts, pursuant to "excess royalty"
clauses in the gas purchase contracts. The amount in dispute is estimated to be
less than $10 million. Texas Gas disputes the application of the "excess
royalty" clause to the particular royalties in question; however, to the extent
any obligation to reimburse the producers exists, it is subject to Texas Gas'
ability to include such payments in its rates or cost of service. (See Note B.
Regulatory Matters -- Order 500 and Order 528). Texas Gas has provided a reserve
which it believes is adequate to provide for the ultimate resolution of Texas
Gas' royalty claims and litigation.
Consolidated
Although no assurances can be given, Transco believes that the ultimate
resolution of TGPL and Texas Gas' royalty claims and litigation will not have a
material adverse effect on Transco's financial position, results of operation or
net cash flows.
Coal Litigation. In April 1985, a lawsuit was filed in the Clay Circuit
Court of the 41st Judicial Circuit of the Commonwealth of Kentucky (Spurlock,
Stewart, Allen, et. al. vs. Leeco, Inc.) in which the plaintiffs alleged
intentional trespass and the wrongful taking of coal from their property by
Leeco, Inc., a subsidiary of Transco Coal Company (TCC). In July 1992, the
Special Judge of the Clay Circuit Court awarded the plaintiffs approximately
$3.5 million in damages, with interest accruing post-judgment. Leeco appealed
the judgment, based on advice of counsel that the lower court had committed
reversible error. In September 1994, the Kentucky Court of Appeals affirmed the
earlier judgment for the plaintiffs, although the court remanded an award of
attorneys' fees for reconsideration by the trial court. In December 1994, the
parties entered into a settlement that resulted in Leeco recording a charge of
$4.0 million pretax, $2.6 million after-tax.
Continental Energy Associates. On November 14, 1994, Continental Energy
Associates Limited Partnership, a Massachusetts limited partnership (the
Partnership), filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy
Code with the United States Bankruptcy Court, Middle District of Pennsylvania
(the Bankruptcy Court). The Partnership owns a cogeneration facility in
Hazleton, Pennsylvania (the Facility).
Hazleton Fuel Management Company (HFMC), a subsidiary of Transco, supplies
natural gas and fuel oil to the Facility. As of December 31, 1994, it had
current outstanding receivables from the Partnership of approximately $17.2
million, for which Transco has established a reserve in the same amount.
The construction of the Facility was funded by several banks that have a
security interest in all of the Partnership's assets. HFMC has asserted to the
Bankruptcy Court that payment of its receivables are superior to the lien of the
banks and intends to vigorously pursue the collection of such amounts. The
Bankruptcy Court has authorized the prepayment to HFMC of all future gas
deliveries to the Facility subject to the Bankruptcy Court's review of the
prices of such gas deliveries. In February 1995, the Partnership filed a motion
requesting the Bankruptcy Court to reject the gas supply contract with HFMC. In
addition, in
63
<PAGE> 65
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
February 1995, the Bankruptcy Court appointed a "responsible officer" to assume
control of the Facility in place of the debtor.
Although no assurances can be given, Transco believes that the ultimate
resolution of the Partnership's reorganization proceeding will not have a
material adverse effect on its financial position, results of operations or net
cash flows.
Corpus Christi Litigation. In April 1992, Corpus Christi Gas Gathering,
Inc. and certain affiliates (Corpus Christi) filed suit in the 117th District
Court in Nueces County, Texas against Transco and certain of its gas gathering
subsidiaries claiming breach of fiduciary duty. The original complaint did not
specify monetary damages. The case involved certain partnerships between Transco
subsidiaries and Corpus Christi entities that jointly owned certain gas
gathering lines and intrastate pipeline assets. In December 1992, Corpus Christi
amended its petition to add allegations of failure to share business
opportunities, fraud and a claim of usury associated with certain loans made by
Transco subsidiaries to Corpus Christi. In its amended petition, Corpus Christi
alleged damages of $890 million in usury claims, unspecified actual and punitive
damages for certain other claims and attorneys' fees. In January 1993, Transco
filed an answer denying the claims made by Corpus Christi in the amended
petition and filed a counterclaim against Corpus Christi and certain related
individuals alleging actual and punitive damages in excess of $250 million.
In October 1993, the parties settled the litigation on terms whereby
Transco acquired Corpus Christi's interest in the jointly-owned gas gathering
and intrastate pipeline assets, terminated the existing business relationships
with Corpus Christi, and then leased certain of the assets to Corpus Christi.
The Company paid Corpus Christi $5.5 million, plus accrued interest, in cash and
executed a non-interest bearing note for $4 million due April 1, 1994. In
addition, the acquisition of Corpus Christi's interest in the assets was
accomplished by exchanging stock in certain of their companies for one million
shares of Transco common stock valued at $17 7/8 per share (the closing price of
the stock on October 18, 1993). The litigation was dismissed with prejudice. The
payments and non-cash charges related to the settlement of the litigation and
restructuring of these business relationships totaled $50.3 million pretax,
$32.7 million after-tax and was recorded in the third quarter of 1993.
D. ENVIRONMENTAL MATTERS
Transco and certain of its subsidiaries are subject to extensive federal,
state and local environmental laws and regulations which affect Transco's
operations related to the construction and operation of pipeline facilities and
coal mining. Appropriate governmental authorities may enforce these laws and
regulations with a variety of civil and criminal enforcement measures, including
monetary penalties, assessment and remediation requirements and injunctions as
to future compliance. Transco's and certain of its subsidiaries' use and
disposal of hazardous materials are subject to the requirements of the federal
Toxic Substances Control Act (TSCA), the federal Resource Conservation and
Recovery Act (RCRA) and comparable state statutes. The Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), also known as
"Superfund," imposes liability, without regard to the fault or the legality of
the original act, for release of a "hazardous substance" into the environment.
Because these laws and regulations change from time to time, practices that have
been acceptable to the industry and to the regulators have to be changed and
assessment and monitoring have to be undertaken to determine whether those
practices have damaged the environment and whether remediation is required.
Since 1989, TGPL and Texas Gas have had studies underway to test their
facilities for the presence of toxic and hazardous substances to determine to
what extent, if any, remediation may be necessary. On the basis of the findings
to date, TGPL and Texas Gas estimate that environmental assessment and
remediation costs that will be incurred over the next five years under TSCA,
RCRA, CERCLA and comparable state statutes will total approximately $56 million
to $68 million. This estimate depends upon a number of assumptions concerning
the scope of remediation that will be required at certain locations and the cost
of remedial measures to be undertaken. TGPL and Texas Gas are continuing to
64
<PAGE> 66
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
conduct environmental assessments and are implementing a variety of remedial
measures that may result in increases or decreases in the total estimated costs.
At December 31, 1994, Transco had a reserve of approximately $57 million for
these estimated costs.
TGPL and Texas Gas consider environmental assessment and remediation costs
and costs associated with compliance with environmental standards to be
recoverable through rates, since they are prudent costs incurred in the ordinary
course of business. To date, TGPL and Texas Gas have been permitted recovery of
environmental costs incurred, and it is their intent to continue seeking
recovery of such costs, as incurred, through rate filings. Therefore, these
estimated costs of environmental assessment and remediation have been recorded
as regulatory assets in the accompanying Consolidated Balance Sheet.
TGPL and Texas Gas have both used lubricating oils containing
polychlorinated biphenyls (PCBs) and, although the use of such oils was
discontinued in the 1970s, have discovered residual PCB contamination in
equipment and soils at certain gas compressor station sites. TGPL and Texas Gas
have worked closely with the Environmental Protection Agency (EPA) and state
regulatory authorities regarding PCB issues, and both have programs to assess
and remediate such conditions where they exist, the costs of which are a
significant portion of the $56 million to $68 million range discussed above.
Civil penalties have been assessed by the EPA against other major pipeline
companies for the alleged improper use and disposal of PCBs. TGPL recently has
received an information request from the EPA. Although penalties have not
presently been asserted, no assurances can be given that the EPA will not seek
such penalties in the future.
TGPL has been named as a potentially responsible party (PRP) in two
Superfund waste disposal sites. TGPL has also been named as a PRP in two
Louisiana state sites. Texas Gas has either been named as a PRP or received an
information request regarding its potential involvement in four Superfund waste
disposal sites and one state waste disposal site; while TXC, for itself and as
managing general partner of TXP, has been named as PRP in three Superfund sites
and in two Louisiana state sites. Based on present volumetric estimates, TGPL's
estimated aggregate exposure for remediation of the two Superfund sites is
approximately $600,000; Texas Gas' estimated aggregate exposure is approximately
$500,000; and TXC's estimated exposure at three of the Superfund sites where it
has been named as a PRP is less than $400,000. TXC and TGPL's estimated
individual exposure at each of the two Louisiana state sites where they have
been named as PRPs is less than $100,000 per site. The estimated remediation
costs for all such sites have been included in Transco's environmental reserve
discussed above. Liability under CERCLA (and applicable state law) can be joint
and several with other PRPs. Although volumetric allocation is a factor in
assessing liability, it is not necessarily determinative; thus, the ultimate
liability could be substantially greater than the amounts described above.
Although no assurances can be given, Transco does not believe that the PRP
status of TGPL, Texas Gas nor TXC will have a material adverse effect on its
financial position, results of operations or net cash flows.
Magnolia Methane Corp. has been named as a PRP in one Superfund waste
disposal site and has negotiated a de minimis buyout for $11,000. Magnolia
Methane Corp. does not anticipate future exposure at this site to exceed
$100,000.
Transco and certain of its subsidiaries are also subject to the federal
Clean Air Act and to the federal Clean Air Act Amendments of 1990 (1990
Amendments), which added significantly to the existing requirements established
by the federal Clean Air Act. The 1990 Amendments required that the EPA issue
new regulations, mainly related to mobile sources, air toxics, ozone
non-attainment areas and acid rain. Transco is installing new emission control
devices where required and conducting certain emission testing programs to
comply with the federal Clean Air Act standards and the 1990 Amendments. In
addition, pursuant to the 1990 Amendments, the EPA has issued regulations under
which states must implement new air pollution controls to achieve attainment of
national ambient air quality standards in areas where they are not currently
achieved. Both TGPL and Texas Gas have compressor stations in ozone
non-attainment areas that could require substantial additional air pollution
reduction expenditures, depending on the requirements imposed. While it will not
be possible to estimate the ultimate costs of compliance with these new
65
<PAGE> 67
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
requirements until states approve TGPL's proposed plans for modifications,
Transco expects that significant capital spending will be required to modify
Transco's facilities, particularly the compressor engines along TGPL's pipeline
system. Additions to facilities for compliance with currently known federal
Clean Air Act standards and the 1990 Amendments are expected to cost in the
range of $51 million to $62 million over the next five years and will be
recorded as additions to property, plant and equipment as the facilities are
added. Such costs, however, may increase depending on the requirements imposed.
TGPL and Texas Gas consider costs associated with compliance with the federal
Clean Air Act and the 1990 Amendments to be prudent costs incurred in the
ordinary course of business and, therefore, recoverable through their rates.
In November 1994, TGPL received notice pursuant to section 304 of the
federal Clean Air Act of the intent of three Virginia citizens to file suit
against it for alleged violations of several provisions of both federal and
state air regulations. Since 1991, TGPL has worked with the appropriate Virginia
agencies pursuant to an agreement to resolve the emissions issues raised by the
citizens. TGPL believes the state agencies are in agreement with the actions
proposed by TGPL which will resolve emission issues at its Virginia facilities.
TGPL believes the citizens' claims are without merit and is prepared to
vigorously defend any suit brought by the citizens. Although no assurances can
be given, Transco does not believe that this issue will have a material adverse
effect on its financial condition, results of operations or net cash flows.
66
<PAGE> 68
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
E. FINANCING
Long-term debt. At December 31, 1994 and 1993, long-term debt issues were
outstanding as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Transco Energy Company:
Credit Agreement variable rate due 1994................... $ -- $ 9,383
---------- ----------
Debentures:
9 7/8% due 2020........................................ 125,000 125,000
---------- ----------
Notes:
9 1/2% due 1995........................................ 150,000 150,000
9 1/8% due 1998........................................ 200,000 200,000
11 1/4% due 1999....................................... 300,000 300,000
9 5/8% due 2000........................................ 125,000 125,000
9 3/8% due 2001........................................ 150,000 150,000
---------- ----------
Total notes....................................... 925,000 925,000
---------- ----------
Total............................................. 1,050,000 1,059,383
---------- ----------
Transcontinental Gas Pipe Line Corporation:
Debentures:
9 1/8% due 2017........................................ 150,000 150,000
---------- ----------
Notes:
9% due 1996............................................ 150,000 150,000
8 1/8% due 1997........................................ 99,000 99,000
6.21% due 2000 (subject to remarketing in 1996)........ 125,000 125,000
8 7/8% due 2002........................................ 125,000 125,000
---------- ----------
Total notes....................................... 499,000 499,000
---------- ----------
Total............................................. 649,000 649,000
---------- ----------
Texas Gas Transmission Corporation:
Debentures:
10% due 1994........................................... -- 150,000
Notes:
9 5/8% due 1997........................................ 100,000 100,000
8 5/8% due 2004........................................ 150,000 --
---------- ----------
Total............................................. 250,000 250,000
---------- ----------
Transco Coal Company:
Other due 1995-2000....................................... 251 347
---------- ----------
Total............................................. 251 347
---------- ----------
Total long-term debt issues................................. 1,949,251 1,958,730
Less: Unamortized debt premium and discount............... 13,574 12,680
Current maturities................................... 150,102 159,479
---------- ----------
Total long-term debt, less current maturities............... $1,785,575 $1,786,571
========= =========
</TABLE>
67
<PAGE> 69
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sinking fund or prepayment requirements applicable to long-term debt
outstanding at December 31, 1994, are as follows (in thousands):
<TABLE>
<CAPTION>
REQUIRED
COMPANY DEBT ISSUE AMOUNT
------- ----------- --------
<S> <C> <C>
1995
Transco Energy Company.............................. 9 1/2% Notes $150,000
Transco Coal Company................................ Other 102
--------
Total $150,102
========
1996
Transcontinental Gas Pipe Line Corporation.......... 9% Notes $150,000
Transcontinental Gas Pipe Line Corporation.......... 6.21% Notes 125,000
Transco Coal Company................................ Other 109
--------
Total $275,109
========
1997
Transcontinental Gas Pipe Line Corporation.......... 8 1/8% Notes $ 99,000
Texas Gas Transmission Corporation.................. 9 5/8% Notes 100,000
Transco Coal Company................................ Other 10
--------
Total $199,010
========
1998
Transco Energy Company.............................. 9 1/8% Notes $200,000
Transco Coal Company................................ Other 10
--------
Total $200,010
========
1999
Transco Energy Company.............................. 11 1/4% Notes $300,000
Transco Coal Company................................ Other 10
--------
Total $300,010
========
</TABLE>
No property is pledged as collateral under any of the long-term debt
issues.
Short-term debt. As of December 31, 1994, $27 million of short-term debt
was outstanding under Transco's Amended Bank Credit Facility. As of December 31,
1993, no short-term debt was outstanding. The weighted average interest rate on
short-term debt during 1994 and 1993 was 8.9% and 5.9%, respectively.
Recapitalization. In connection with the Merger, in January 1995, the
Boards of Directors of Transco and Williams approved a proposed recapitalization
plan for Transco under which Williams will advance or contribute to Transco up
to an estimated $950 million to execute the proposed plan. The following actions
were completed in January and February 1995 in connection with the
recapitalization plan:
- Termination of Transco's Amended Bank Credit Facility dated December
31, 1993, and the repayment of the outstanding balance of $36
million, replacing it with new credit agreements described below;
- Termination of the program to sell monthly trade receivables of TGPL
and Texas Gas, replacing it with the new credit agreements with the
expectation that at some future time Williams will enter into a new
receivables program;
- Termination of Transco's interest rate swaps that had effectively
converted $450 million of fixed-rate debt into floating-rate debt;
and
68
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TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- Termination of Transco's Reimbursement Facility dated December 31,
1993, replacing it with letters of credit obtained pursuant to a
Standby Letter of Credit Facility between First Interstate Bank of
California and Williams.
Transco's Amended Bank Credit Facility was replaced with a Credit Agreement
among Williams, Transco, and TCC (Credit Agreement) and a Credit Agreement among
Williams and certain of its subsidiaries, TGPL and Texas Gas (Williams Credit
Agreement).
Under the Credit Agreement, Williams may advance to Transco and TCC up to
an aggregate of $950 million, not exceeding $50 million to TCC. Interest on
advances under the Credit Agreement is paid at the London Interbank Offer Rate
(LIBOR), which at December 31, 1994 was 5.94%, plus an applicable margin, which
at December 31, 1994 was 0.625%.
The Williams Credit Agreement, with a group of 22 banks, provides for an
$800 million working capital line of credit, under which TGPL can borrow up to
$400 million and Texas Gas can borrow up to $200 million. Interest on advances
is paid at a rate based on the base rate of Citibank N.A., which at December 31,
1994 was 8.5%; the latest three-week moving average of secondary market morning
offering rates in the United States for three-month certificates of deposit of
major United States money market banks, which at December 31, 1994 was 6.31%,
plus 1/2%; or the Federal Funds Rate in effect, which at December 31, 1994 was
5.45%, plus 1/2%.
In addition, the recapitalization plan includes a tender offer initiated by
Transco on February 10, 1995, to acquire any and all of its outstanding 11 1/4%
Notes due July 1, 1999. The offer expired on February 17, 1995. In February
1995, Transco acquired approximately $284 million, or 94%, of the 11 1/4% Notes.
The price paid for the 11 1/4% Notes tendered was computed using a yield to call
equal to a fixed spread of 30 basis points over the yield to maturity of the
U.S. Treasury Note due August 15, 1997, at the time the 11 1/4% Notes were
tendered. The remaining outstanding 11 1/4% Notes are first callable on July 1,
1997, at a price of 101.875%.
Refinancing. On April 11, 1994, Texas Gas issued $150 million of 8 5/8%
Notes due April 1, 2004. The 8 5/8% Notes are not redeemable prior to maturity
and are general unsecured obligations of Texas Gas. Proceeds from the issuance
were used to redeem Texas Gas' outstanding 10% Debentures on April 29, 1994.
In May 1993, TGPL repriced the interest rate on its Extendible Notes due
May 15, 2000. The interest rate for the interest period beginning May 15, 1993
and ending May 14, 1996 is 6.21%. The Extendible Notes are equal in rank with
all existing indebtedness of TGPL and senior in right of payment to any future
subordinated indebtedness. The Extendible Notes are redeemable at the option of
TGPL, in whole or in part, at their principal amount plus accrued interest
thereon on May 15, 1996. This was a refinancing and TGPL did not receive any
proceeds from the resale of the Extendible Notes.
Restrictive covenants. As a result of the termination of the Amended Bank
Credit Facility and the Reimbursement Facility, as discussed above, the
restrictive covenants contained in those agreements were terminated. Prior to
the initiation of the tender offer for the 11 1/4% Notes discussed above,
holders of a majority in principal amount of the 11 1/4% Notes agreed to waive
certain provisions of the Indenture dated as of July 1, 1992 (Indenture), under
which the 11 1/4% Notes were issued, that restricted the disposition of certain
Transco assets. The holders of the majority in principal amount of the 11 1/4%
Notes also agreed to certain amendments to the Indenture that eliminated certain
restrictive covenants in the Indenture. The amendments eliminated the
restrictive covenants which limit, among other things, the incurrence of new
debt by the Company or its material subsidiaries (as defined) and the Company's
ability to make restricted payments, including dividends.
Sale of receivables. Transco has sold trade and producer settlement
receivables of TGPL and Texas Gas. The sale of trade receivables was made
without recourse. At December 31, 1994 and 1993, approximately
69
<PAGE> 71
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$112 million and $134 million, respectively, of trade receivables were held by
an investor. As discussed above, the sale of receivables program was terminated
in January 1995.
F. PREFERRED STOCK
CONVERTIBLE PREFERRED STOCK OF TRANSCO
Transco has authorized 15,000,000 shares of cumulative first preferred
stock and 2,000,000 shares of cumulative second preferred stock, both without
par value. There are two issues of cumulative first preferred stock outstanding
at December 31, 1994, the $3.50 Series and the $4.75 Series. None of the second
preferred had been issued at December 31, 1994.
$4.75 Series. At December 31, 1994 and 1993, 2,979,900 shares of Transco's
$4.75 Series Cumulative Convertible Preferred Stock were issued and outstanding.
The $4.75 Series provides for no sinking fund or mandatory redemption and the
stated value is $50 per share. The $4.75 Series is convertible into common stock
of the Company, at the option of the holder at any time, at the conversion rate
of 0.894 share of common stock for each share of preferred stock.
Transco has given notice to holders that the Company plans to redeem all of
the outstanding shares of the $4.75 Series. The redemption is to be effective
March 20, 1995, at a redemption price of $50.475 per share plus accrued
dividends.
$3.50 Series. In November 1993, Transco issued 2,500,000 shares of $3.50
Series Cumulative Convertible Preferred Stock, all of which were outstanding at
December 31, 1994. The net proceeds from the sale were approximately $121.3
million. The $3.50 Series provides for no sinking fund or mandatory redemption
and the stated value is $50 per share. The $3.50 Series is convertible into
common stock of the Company, at the option of the holder at any time, at the
conversion rate of 2.5 shares of common stock for each share of preferred stock.
Effective with the date of the Merger, each issued and outstanding share of
Transco's $3.50 Series will be converted into the right to receive one share of
preferred stock of Williams' which will be designated the Williams' $3.50 Series
Cumulative Convertible Preferred Stock. Each share of Williams' $3.50 Series
will be initially convertible into 1.5625 shares of Williams' common stock and
will have the designation, preferences and rights set forth in the Merger
Agreement. The conversion ratio of Williams' $3.50 Series into Williams' common
shares represents the conversion ratio of Transco $3.50 Series into Transco
common shares multiplied by 0.625, the conversion ratio of Transco common shares
into Williams' common shares.
In the event of a change in control of the Company (as defined in the
Certificate of Designation, Preferences and Rights), each holder of the stock
has the right, at the holder's option, to require the Company to redeem all or
any part of the holder's shares out of funds lawfully available unless such
change in control is approved by the Company's continuing directors. Holders do
not have such redemption rights in connection with the tender offer or the
Merger which was approved by the Company's Board of Directors.
9.25% Series. In November 1993, Transco redeemed all the outstanding shares
of 9.25% Series Cumulative Convertible Preferred Stock for an aggregate purchase
price of approximately $133.2 million.
70
<PAGE> 72
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREFERRED STOCK OF SUBSIDIARY
TGPL has authorized 10,000,000 shares of cumulative first preferred stock
without par value, of which 497,444 shares and 757,427 shares were outstanding
at December 31, 1994 and 1993, respectively. TGPL has authorized 2,000,000
shares of cumulative second preferred stock without par value. None of the
second preferred had been issued at December 31, 1994. The first preferred stock
issued and outstanding at December 31, 1994 and 1993, included the following
series:
<TABLE>
<CAPTION>
SHARES AMOUNT
STATED VALUE ------------------- -------------------
PER SHARE 1994 1993 1994 1993
------------ ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$5.00 Series................... $100 -- 12,500 $ -- $ 1,250
4.80 Series................... 100 10,000 20,000 1,000 2,000
6.65 Series................... 100 37,444 49,927 3,744 4,993
8.75 Series................... 100 450,000 675,000 45,000 67,500
------- ------- ------- -------
Total TGPL preferred
stock outstanding.... 497,444 757,427 $49,744 $75,743
======= ======= ======= =======
</TABLE>
TGPL gave notice to the holders of each series of outstanding preferred
stock that TGPL will redeem all outstanding preferred stock effective March 23,
1995 at a redemption price for each series of $100.00 per share plus accrued
dividends.
The changes in the total TGPL preferred stock in each of the years 1994,
1993 and 1992 are (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----------------- ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year... 757 $75,743 1,017 $101,741 1,061 $106,059
Retirements.................. 260 25,999 260 25,998 44 4,318
------ ------- ------ -------- ------ --------
Balance at end of year......... 497 $49,744 757 $ 75,743 1,017 $101,741
====== ======= ===== ======== ===== ========
</TABLE>
G. COMMON STOCK
Merger Agreement. As discussed in Note A, Williams commenced a tender offer
which began on December 16, 1994 and expired on January 17, 1995. Approximately
35.2 million shares, or approximately 86.7%, of the outstanding shares of
Transco's common stock were tendered to Williams for purchase and not withdrawn.
Pursuant to the Merger Agreement, on January 18, 1995, Williams accepted for
payment 24.6 million shares, or approximately 60%, of Transco's common stock for
$17.50 per share and common stock purchase right as the first step in acquiring
the entire equity interest of Transco. The remainder of the outstanding shares
of Transco's common stock will be converted into the right to receive 0.625 of a
share of Williams' common stock and 0.3125 attached Williams' preferred stock
purchase rights for each share of Transco's common stock. The conversion will
occur at the effective date of the Merger, which is expected to be in April
1995.
Reserved shares. At December 31, 1994, there were 75,524,740 shares of
common stock of Transco reserved for issuance under various employee incentive
and benefit plans, for conversion of Transco's convertible securities and for
issuance in the event common stock purchase rights are exercised.
Challenger litigation settlement. As discussed in Note C, in May 1992, TGPL
and Challenger Minerals Inc. entered into a Settlement Agreement to settle all
matters in Challenger's lawsuit. Part of the settlement included issuing Transco
common stock with a market value of $15 million to Challenger in 1994. TGPL had
71
<PAGE> 73
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
placed 1,500,000 shares of Transco common stock in escrow. In February 1994,
1,017,771 shares of Transco common stock were released to Challenger from
escrow, which was determined by dividing $15 million by Transco's average stock
price during January 1994. The remainder of the shares were returned to Transco
and recorded as treasury shares.
Corpus Christi Litigation. As discussed in Note C, in October 1993, Transco
and Corpus Christi entered into an agreement to settle all matters in
litigation. Part of the settlement included issuing one million shares of
Transco common stock.
Purchase rights. In January 1986, the Company declared a dividend
distribution of one common share purchase right on each outstanding share of
common stock. When exercisable, each right entitles its holder to buy one share
of the Company's common stock at a price of $150 per share. The rights become
exercisable 10 days after a person or group acquires 20% or more of the
Company's voting stock or makes an offer, the consummation of which would result
in such person or group owning 30% or more of the Company's common stock. On
January 17, 1995, prior to Williams' acceptance for payment of 24.6 million
shares, or 60%, of the Company's common stock pursuant to its tender offer,
Transco redeemed all of the outstanding common stock purchase rights for $0.05
per right. Pursuant to the terms of the Merger Agreement and the tender offer,
all rights to the proceeds of such redemption with respect to the Company's
common stock and associated common stock purchase rights accepted for payment
pursuant to the tender offer were assigned to Williams.
Incentive plans. A total of 3,250,000 shares of common stock has been
authorized for grants of stock options, awards of restricted stock and awards of
other stock compensation. Shares available for future grants at December 31,
1994, 1993 and 1992 were 1,487,567; 135,776 and 323,332, respectively.
Stock options. Stock options under Transco's stock option plans entitle
employees to purchase shares of common stock directly from the Company at the
market price of Transco's common stock on the date of grant. Each option becomes
exercisable in such amounts and at such intervals as the Compensation Committee
of the Board of Directors may determine in granting such option, but cannot be
exercisable until at least six months after the date of grant. The expiration
date of an option is determined by the Compensation Committee at the time of
grant, but cannot be later than 10 years from the date of grant. The following
table summarizes the activity that occurred in the plans during 1994, 1993 and
1992 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1994 1993 1992
------------------------- ------------------------- -------------------------
NUMBER OF NUMBER OF NUMBER OF
OPTION PRICE SHARES OPTION PRICE SHARES OPTION PRICE SHARES
PER SHARE UNDER PER SHARE UNDER PER SHARE UNDER
RANGE OPTION RANGE OPTION RANGE OPTION
-------------- --------- -------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year... $13.125-56.375 2,454 $13.125-56.375 2,425 $18.375-56.375 2,020
Granted...................... 14.375-15.875 1,006 13.625-17.375 300 13.125-18.750 587
Exercised.................... 13.125-14.625 (15) 13.125-14.000 (40) --
Cancelled.................... 13.125-53.000 (453) 13.125-52.000 (231) 13.125-52.000 (182)
--------- --------- ---------
Balance at end of year......... 13.125-56.375 2,992 13.125-56.375 2,454 13.125-56.375 2,425
======== ======== ========
Total shares exercisable at
year-end................. 1,511 1,642 1,498
======== ======== ========
</TABLE>
As a result of the tender offer by Williams, certain unvested stock options
vested upon the completion of the tender offer. The remaining unvested options
will vest at the effective time of the Merger. If the stock options are not
exercised prior to or at the effective time, the options will be cancelled and
holders of the options will have the choice to receive an amount in cash to the
extent the option price is below $17.50, or to receive replacement options from
Williams.
72
<PAGE> 74
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restricted stock. Awards of restricted shares of common stock to certain
employees are based on terms and conditions established by the Compensation
Committee of the Board of Directors, but cannot be exercisable until at least
six months after the date of grant. The restricted stock may not be sold,
exchanged, transferred or assigned or otherwise encumbered by the recipient
until the satisfaction of all of such terms and conditions set by the
Compensation Committee.
The following table summarizes the activity in restricted stock shares
during 1994, 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--- --- ---
<S> <C> <C> <C>
Balance at beginning of year......................... 168 171 136
Awarded............................................ 73 82 87
Earned............................................. (12) (49) (11)
Forfeited.......................................... (42) (36) (41)
--- --- ---
Balance at end of year............................... 187 168 171
=== === ===
</TABLE>
Of the 187,287 shares outstanding at December 31, 1994, 85,575 shares and
87,125 shares are applicable to performance measurement and vesting periods
ending during the years 1995 and 1996, respectively. In January 1995, 14,587
shares were earned that were applicable to the performance measurement period
ending December 31, 1994. Differences between the restricted stock share
balances above and the balances included in Common Stockholders' Equity in the
accompanying Consolidated Balance Sheet reflect the proportional number of
restricted shares for which compensation expense has been recognized.
In conjunction with certain of the restricted stock shares described above,
restricted stock units were issued to holders of restricted stock. A restricted
stock unit represents one share of common stock to be issued in the future upon
the determination by the Compensation Committee that the Company had achieved
specified performance goals in excess of the goals set for a corresponding grant
of restricted stock. At December 31, 1994 and 1993, 72,025 and 67,614 restricted
stock units were outstanding.
As a result of the tender offer by Williams, the performance measurement
periods scheduled to end December 31, 1995 and 1996 ended one day prior to the
expiration of the tender offer. The number of shares of common stock earned and
issuable to employees for these performance measurement periods in exchange for
restricted stock and restricted stock units totaled 192,565 shares and were paid
in cash at a price of $17.50 per share during the first quarter of 1995. Under
the Merger Agreement, 18,650 shares of non-performance-based restricted stock
will become vested at the consummation of the Merger and will be converted into
the right to receive unrestricted shares of Williams' common stock based upon
the exchange rate in the Merger.
H. EMPLOYEE BENEFIT PLANS
Retirement plans. Substantially all of Transco's employees are covered
under a retirement plan offered by either Transco (Transco Retirement Plan),
Transco Coal Company (TCC Retirement Plan) or Texas Gas (Texas Gas Retirement
Plan).
The benefits under the Transco Retirement Plan are determined by a formula
based on the employee's highest 36 consecutive months of earnings out of the
last 60 months of service prior to actual retirement date and years of
participation in the plan. The TCC Retirement Plan benefit formula considers the
employee's earnings for the last 60 months of service. The benefits under the
Texas Gas Retirement Plan are determined by a formula based upon years of
service and the employee's highest average base compensation during any five
consecutive years within the last ten years of employment. All three plans
provide for the vesting of employees after five years of credited service.
Transco's funding policy is to contribute an amount at least equal to the
minimum funding requirements actuarially determined by an independent actuary in
accordance
73
<PAGE> 75
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with the Employee Retirement Income Security Act of 1974. The plans' assets,
which are managed by external investment organizations, include cash and cash
equivalents, corporate and government debt instruments, preferred and common
stocks, commingled funds, international equity funds and venture capital limited
partnership interests.
The following table sets forth the funded status of the plans at October 1,
1994 and 1993, and the amount of prepaid (accrued) pension costs as of December
31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------------------- --------------------
TRANSCO TEXAS TRANSCO TEXAS
AND TCC GAS AND TCC GAS
PLANS PLAN PLANS PLAN
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated
benefit obligation, including vested
benefits of $113,398 for the Transco and
TCC Retirement Plans and $50,214 for the
Texas Gas Retirement Plan at October 1,
1994 and $115,134 for the Transco and TCC
Retirement Plans and $46,750 for the Texas
Gas Retirement Plan at October 1, 1993.... $(130,482) $(52,381) $(125,715) $(47,542)
========= ======== ========= ========
Actuarial present value of projected benefit
obligation................................ $(173,341) $(88,641) $(168,252) $(83,557)
Plan assets at fair value................... 135,711 102,992 123,109 101,089
--------- -------- --------- --------
Projected benefit obligation less than (in
excess of) plan assets.................... (37,630) 14,351 (45,143) 17,532
Unrecognized net loss....................... 14,057 17,655 9,425 15,254
Unrecognized net asset:
Transco Retirement Plan at October 1, 1984
being recognized over 15 years......... (5,249) -- (6,299) --
Texas Gas Retirement Plan at January 1,
1986 being recognized over 19 years.... -- (11,583) -- (12,733)
Unrecognized prior service cost............. (2,498) 4,447 (1,813) 4,369
Activity subsequent to measurement date..... 2,504 -- 161 --
--------- -------- --------- --------
Prepaid (accrued) pension cost.............. $ (28,816) $ 24,870 $ (43,669) $ 24,422
========= ======== ========= ========
</TABLE>
Of the $28.8 million accrued pension cost related to the Transco and TCC
Retirement Plans at December 31, 1994, $11.9 million has been classified as a
non-current liability and $16.9 million, representing the plans' remaining 1994
plan year contributions and a portion of the plans' 1995 plan year
contributions, has been classified as a current liability in the accompanying
Consolidated Balance Sheet. The $24.9 million of prepaid pension cost related to
the Texas Gas Retirement Plan has been classified as an Other Asset in the
accompanying Consolidated Balance Sheet.
The following table sets forth the components of pension cost for all
plans, which is included in the accompanying consolidated financial statements,
for the years ended December 31, 1994, 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the
period........................................... $ 12,484 $ 11,461 $ 11,440
Interest cost on projected benefit obligation...... 17,822 15,366 16,452
Actual return on plan assets....................... (6,662) (29,321) (23,153)
Net amortization and deferral...................... (17,343) 8,047 (766)
-------- -------- --------
Pension cost....................................... $ 6,301 $ 5,553 $ 3,973
======== ======== ========
</TABLE>
74
<PAGE> 76
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The projected unit credit method is used to determine the actuarial present
value of the accumulated benefit obligation and the projected benefit
obligation. The following table summarizes the various assumptions used to
determine the projected benefit obligation for the plans for the years 1994,
1993 and 1992(1):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- ----
<S> <C> <C> <C>
Discount rate............................................... 7.5% 7.25% 7.5%
Rate of increase in future compensation levels.............. 5.0% 5.0% 5.0%
Expected long-term rate of return on assets................. 10% 10% 10%
</TABLE>
---------------
(1) Pension costs are determined using the assumptions as of the beginning of
the year. The funded status is determined using the assumptions as of the
end of the year.
Tran$tock. In January 1987, the Board of Directors approved an employee
stock ownership plan called Tran$tock, which subsequently purchased 3,966,942
shares of newly issued Transco common stock at $45 3/8 per share. Tran$tock was
funded by a $180 million loan which was extinguished at year-end 1994. Tran$tock
used $120 million of the funds received from the restructuring of Transco's
retirement plan, tax-deductible dividends paid on the common stock held in the
plan and contributions by Transco to service the loan. The final allocation of
shares was made to eligible participants in January 1995.
Compensation expense of $10.5 million, $10.7 million and $11.0 million
related to Tran$tock has been recognized in 1994, 1993 and 1992, respectively.
As a result of reductions in dividends on the Company's common stock in 1987 and
1991, the Company was required to make tax-deductible contributions to the plan
to service interest and principal on the remaining loan balance. Included in
compensation expense above is $7.5 million, $7.6 million and $7.7 million,
respectively, related to these contributions and $0.2 million, $0.4 million and
$0.6 million, respectively, in tax-deductible dividends on unallocated,
unleveraged Tran$tock shares.
Postretirement benefits other than pensions. Transco has three plans that
provide certain health care and life insurance benefits for retired employees of
Texas Gas (Texas Gas Plan), Transco Coal Company (TCC Plan) and Transco and all
other subsidiaries (Transco Plan).
The Transco Plan provides medical and life insurance benefits to Transco
employees who retire under the Transco Retirement Plan with at least ten years
of participation in Transco's group insurance plans and the retirement plan
immediately preceding retirement. Effective January 1, 1994, the Transco Plan
was amended to require monthly contributions by retirees and to increase annual
deductibles, out-of-pocket limits and lifetime maximum benefits per individual.
The Texas Gas Plan provides medical and life insurance benefits to Texas
Gas employees who retire under the Texas Gas Retirement Plan with at least five
years of service. The Texas Gas Plan is contributory for medical benefits and
for life insurance benefits in excess of specified limits.
The TCC Plan provides medical and dental benefits to TCC employees who
retire under the TCC Retirement Plan with at least ten years of service and
ceases such coverage when retirees attain age 70. Life insurance benefits are
not provided to TCC retirees. The TCC Plan is contributory whereby TCC retirees
pay premiums to TCC to continue their benefits. Effective July 1, 1993, TCC
implemented annual deductibles and out-of-pocket limits for retirees which were
further increased effective January 1, 1994.
The medical benefits for all retired Transco employees are currently funded
at a specified amount per month and for all retired Texas Gas employees at a
specified amount per quarter through trusts established under the provisions of
section 501(c)(9) of the Internal Revenue Code. The benefits for retired TCC
employees are currently funded on a pay-as-you-go basis.
75
<PAGE> 77
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to 1993, Transco accounted for postretirement benefits other than
pensions (primarily health care) on a cash basis, which had been the accounting
method followed by most employers. In the first quarter of 1993, Transco adopted
Statement of Financial Accounting Standards (SFAS) No. 106, Employer's
Accounting for Postretirement Benefits Other Than Pensions, which requires
Transco to accrue, during the years that employees render the necessary service,
the estimated cost of providing postretirement benefits other than pensions to
those employees. At the January 1, 1993 date of adoption of SFAS No. 106,
Transco's postretirement benefits obligation (transition obligation) was $193
million of which $173 million was related to jurisdictional pipeline operations
and $20 million was related to non-jurisdictional operations. Effective January
1, 1994, the transition obligation was reduced by approximately $14 million by
the Transco Plan and TCC Plan amendments discussed above. The transition
obligation is being amortized over the remaining service life of active
participants for the Texas Gas Plan and twenty years for the Transco and TCC
Plans.
In December 1992, the FERC issued a Statement of Policy which allows
jurisdictional pipelines to recognize allowances for prudently incurred costs of
postretirement benefits other than pensions on an accrual basis consistent with
the accounting principles set forth in SFAS No. 106. Transco believes that all
costs of providing postretirement benefits to its employees are necessary and
prudent operating expenses and that such costs associated with its
jurisdictional natural gas pipeline operations are recoverable in rates. The
Company has recognized and expects to continue to recognize the additional
jurisdictional costs concurrent with the receipt of revenues. Since most of
Transco's existing employees are associated with its jurisdictional pipeline
operations, the adoption of SFAS No. 106 in 1993 did not have a material effect
on Transco's financial position, results of operations or net cash flows. In May
1993 and June 1994, TGPL and Texas Gas, respectively, filed settlement
agreements with the FERC with regard to their respective general rate cases
which provided for recovery through jurisdictional rates of all prudently
incurred costs of postretirement benefits accrued under SFAS No. 106. These
settlements were approved by the FERC in November 1993 for TGPL and in September
1994 for Texas Gas.
The following table sets forth the three plans' combined funded status at
December 31, 1994 and 1993 reconciled with the accrued postretirement benefits
cost included in Transco's Consolidated Balance Sheet at December 31, 1994 and
1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $(114,885) $(121,367)
Fully eligible active plan participants.................. (45,072) (43,650)
Other active plan participants........................... (46,801) (47,802)
--------- ---------
(206,758) (212,819)
Plans assets at fair value................................. 61,121 36,336
--------- ---------
Accumulated postretirement benefit obligation in excess of
plan assets.............................................. (145,637) (176,483)
Unrecognized net gain...................................... (20,079) (2,776)
Unrecognized transition obligation......................... 160,738 169,488
--------- ---------
Accrued postretirement benefit cost........................ $ (4,978) $ (9,771)
========= =========
</TABLE>
76
<PAGE> 78
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the components of the net periodic
postretirement benefit cost, which is included in the accompanying consolidated
financial statements for the year ended December 31, 1994 and 1993 (in
thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Service cost -- benefits earned during the period.......... $ 6,116 $ 5,514
Interest cost on accumulated postretirement benefit
obligation............................................... 15,083 16,127
Actual return on plan assets............................... (1,477) (2,976)
Amortization of transition obligation...................... 8,750 9,480
Net amortization and deferral.............................. (1,926) 1,329
--------- ---------
Net periodic postretirement benefit cost................... 26,546 29,474
Less deferral of costs not included in jurisdictional
rates.................................................... 543 5,013
--------- ---------
Net periodic postretirement benefit cost, net of deferred
costs.................................................... $ 26,003 $ 24,461
========= =========
</TABLE>
The cost of providing these benefits for retirees and survivors during 1992
on a pay-as-you-go-basis was $10.1 million.
The annual expense is subject to change in future periods as a result of,
among other things, the passage of time, changes in participants, changes in
plan benefits and changes in assumptions upon which the estimates are made.
For measurement purposes as of December 31, 1994, the initial annual rate
of increase in the per capita cost of covered health care benefits was assumed
to be 11.4%. The rate was assumed to decrease gradually to 6% for the year 2004
and remain at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rate by one percentage point in each year would
increase the accumulated postretirement benefit obligation for health care
benefits as of January 1, 1995 by 13% and the aggregate of the service and
interest cost components of the net periodic postretirement health care benefit
cost for 1995 by 17%.
To determine the accumulated postretirement benefit obligation, all three
plans used a discount rate of 7.75% and a salary growth assumption of 5.0% per
annum. Plan assets are managed by external investment organizations and include
cash and cash equivalents, commingled funds, preferred and common stocks,
international equity funds and government and corporate debt instruments. The
expected long-term rate of return on plan assets was 7% after taxes. Realized
returns on plan assets are subject to federal income taxes at a sliding scale
that reaches a 39.6% tax rate.
In January and November 1993, TGPL and Texas Gas, respectively, began
recovering in rates their postretirement benefits costs accrued under SFAS No.
106. For the period January 1993 through October 1993, Texas Gas established a
regulatory asset for the difference between its postretirement benefits expense
accrued under SFAS No. 106 and the amount it collected in rates. As of December
31, 1994, Texas Gas had recorded a regulatory asset of $5.5 million, which
pursuant to its latest rate case filing, Texas Gas proposes to recover over
eight and one-half years beginning April 1, 1995.
Transco believes that all costs of providing postretirement benefits to its
employees are necessary and prudent operating expenses and that such costs
associated with its jurisdictional natural gas pipeline operations will be
recoverable in rates.
77
<PAGE> 79
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. INCOME TAXES
Following is a summary of the provision for (benefit of) income taxes for
1994, 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current........................................ $ 19,651 $ 6,808 $(20,983)
Deferred....................................... (29,421) (37,349) (18,526)
-------- -------- --------
(9,770) (30,541) (39,509)
-------- -------- --------
State and municipal:
Current........................................ 7,176 9,034 6,115
Deferred....................................... 4,172 3,426 5,459
-------- -------- --------
11,348 12,460 11,574
-------- -------- --------
Provision for (benefit of) income taxes.......... $ 1,578 $(18,081) $(27,935)
======== ======== ========
</TABLE>
In August 1993, the Omnibus Budget Reconciliation Act of 1993 was signed
into law. Among its provisions was an overall increase in corporate federal
income tax rates from 34% to 35% effective January 1, 1993. As a result, Transco
recognized additional income tax expense of $1.6 million in 1993 related to the
increase in corporate federal income tax rates.
Following is a reconciliation of the statutory federal income tax rate to
the effective tax rate (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------------------- -------------------- --------------------
PERCENT PERCENT PERCENT
OF PRETAX OF PRETAX OF PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Taxes computed by applying
statutory rate............. $ 720 35.0% $(20,247) (35.0)% $(28,168) (34.0)%
TGPL's amortization of over
funded tax liabilities..... (7,675) (373.0) (7,675) (13.3) (7,675) (9.3)
Statutory depletion in excess
of cost depletion on coal
properties................. (2,596) (126.2) (3,585) (6.2) (1,744) (2.1)
Adjustment of deferred taxes
for effects of federal
income tax rate increase... -- -- 1,648 2.8 -- --
Section 29 credits........... 17 0.8 (2,163) (3.7) (2,811) (3.4)
Tran$tock compensation....... 989 48.1 913 1.6 911 1.1
Other, net................... (1,225) (59.6) 568 1.0 (22) --
------- --------- -------- --------- -------- ---------
Benefit of federal income
taxes...................... $(9,770) (474.9)% $(30,541) (52.8)% $(39,509) (47.7)%
======= ======= ======== ======= ======== =======
</TABLE>
Deferred income taxes result from temporary differences between the tax
basis of an asset or liability and its reported amount in the financial
statements that will result in taxable or deductible amounts in future years, or
temporary differences resulting from events that have been recognized in the
financial statements that will result in taxable or deductible amounts in future
years. The tax effect of each type of temporary difference and
78
<PAGE> 80
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carryforward reflected in deferred income tax benefits and liabilities as of
December 31, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
(ASSETS) LIABILITIES 1994 1993
--------------------------------------------------------------- -------- --------
<S> <C> <C>
Unused alternative minimum tax credits......................... $(99,755) $(87,255)
Revenues collected subject to refund recognized for tax but
deferred for financial purposes until refunded to customers,
net.......................................................... (27,202) 780
Asset impairments expensed for financial purposes but deferred
for tax purposes............................................. (14,369) --
Federal income tax benefit for state income taxes.............. (12,308) (12,334)
Oil and gas exploration and development costs expensed for
financial purposes but deferred for tax purposes, net........ (13,936) (1,839)
Producer settlements, legal and regulatory issues expensed for
financial purposes but deferred for tax purposes, net........ (5,439) (19,395)
Restructuring costs expensed for financial purposes but
deferred for tax purposes until paid......................... (3,500) (15,413)
Depreciation differences on gas transmission plant, net........ 321,448 320,837
Depreciation differences on gas gathering and liquids
separation and fractionation plant, net...................... 6,363 9,919
Depreciation, depletion and amortization differences related to
coal operations, net......................................... 36,850 42,201
Allowance for funds used during construction................... 16,126 14,331
Differences between tax and book basis of partnership
interests.................................................... 15,566 14,525
Gas costs expensed for tax purposes but deferred for financial
purposes until recovered through future rates, net........... 16,934 8,157
Other, net..................................................... 12,247 (11,714)
-------- --------
Net deferred income tax liability.............................. $249,025 $262,800
======== ========
</TABLE>
At December 31, 1994, Transco had, for federal income tax purposes,
estimated alternative minimum tax credits of $99.8 million with no expiration
date. These credits have been recognized for financial statement purposes as a
reduction of its deferred tax liability.
J. DISCONTINUED OPERATIONS AND SALES OF ASSETS
Sale of power generation subsidiary. In 1993, Transco sold the common stock
of Transco Energy Ventures Company (TEVCO) to National Power America, Inc.
(National Power), a subsidiary of National Power PLC, for $160 million in cash,
subject to certain adjustments. Transco received adjusted cash proceeds of $150
million and recorded a gain on the sale of $50.5 million pretax, $31.6 million
after-tax, in 1993. The TEVCO sales agreement provided Transco a right of first
refusal in the event that National Power elected to sell Tren-Fuels, Inc., a
compressed natural gas fueling company and subsidiary of TEVCO. Pursuant to its
right of first refusal, Transco acquired Tren-Fuels from National Power in
September 1994. In addition, Transco and National Power reached agreement on a
net worth adjustment to the TEVCO purchase price to reflect the net increase in
the net worth of TEVCO between March 31, 1993 and September 13, 1993, the
closing date of the sale. Under the agreements, Transco paid National Power
$12.5 million with respect to the acquisition of Tren-Fuels and National Power
paid Transco $8 million associated with the net worth adjustment.
The Power Generation segment has been classified in the Consolidated
Statement of Operations as discontinued operations; and, as such, revenues and
expenses have been excluded from the results of continuing operations.
79
<PAGE> 81
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating results of the discontinued operations were as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Revenues......................................................... $16,167 $35,275
Costs and expenses............................................... 15,824 31,001
------- -------
Income before income taxes....................................... 343 4,274
Provision for income taxes....................................... 436 1,625
------- -------
Net income (loss) from operations of discontinued segment........ $ (93) $ 2,649
======= =======
</TABLE>
Sale of oil and gas subsidiary. In 1992, the Company sold its wholly-owned
oil and gas subsidiary, Transco Exploration and Production Company (TEPCO), for
$45 million, subject to certain adjustments. The Company recognized a $56.3
million loss, $36.9 million after-tax, in 1992 in connection with this sale.
Prior to the sale, Transco had reduced the net capitalized costs of its oil and
gas properties by a non-cash charge to earnings of $35.2 million, $23.2
after-tax.
Sale of gas gathering and pipeline assets. In 1992, the Company and certain
of its subsidiaries sold their interests in certain gas gathering and pipeline
assets, including the High Island Offshore System, the U-T Offshore System, the
Green Canyon Pipe Line Company and the Louisiana Offshore Pipeline System, for
$65 million, subject to certain adjustments. The Company recognized a $6.6
million loss, $4.6 million after-tax, in 1992 in connection with the sale of
these assets.
Sale of TXP's assets. In 1992, TXP sold its interest in the West Chalkley
property, the most significant asset remaining to be sold under TXP's plan of
liquidation, for $82 million, subject to certain adjustments. Following the
sale, TXP paid a final liquidating distribution of $1.06 per unit to
unitholders. Transco received $61.6 million in cash distributions as a result of
the liquidation of TXP and recorded a $17.7 million gain, $11.7 million
after-tax.
Sale of gas gathering assets and liquids separation plant. In 1992, the
Company sold its interests in certain non-jurisdictional gas gathering assets
and a liquids separation plant known as the TOMCAT facilities for $24.9 million.
The Company recognized an $18.5 million loss, $12.2 million after-tax, in 1992
in connection with the sale of its interests in these assets.
Sale of coal facilities. In 1993, Transco Coal Company (TCC) sold a coal
loading and storage facility for $0.5 million. The Company recognized a $0.9
million loss, $0.5 million after-tax, in 1993 in connection with this sale.
Sale of other assets. In 1992, the Company sold miscellaneous non-essential
assets for aggregate proceeds of approximately $13 million. The Company
recognized a $3.0 million loss, $2.0 million after-tax, during 1992 in
connection with these sales.
K. INVESTMENT IN UNCONSOLIDATED AFFILIATES AND NOTES RECEIVABLE
Investment in unconsolidated affiliates. As of December 31, 1994, Transco
had investments consisting of a 50% or less ownership interest in various
companies that are constructing and operating natural gas gathering and
processing facilities, liquids separation facilities, intrastate pipelines
located onshore and offshore Texas and Louisiana and the Liberty Pipeline in the
states of New York and New Jersey; and providing compressed natural gas vehicle
fueling services in the states of California, Arizona, Nevada and Texas. Of the
net investments shown in the table below, $7 million are in partnerships in
which Transco is a general partner. Transco's credit risk exposure in the event
of nonperformance by the investees is the book value of the investment and the
obligations that may be incurred as a general partner. The remaining investments
are in joint ventures in which Transco's credit risk exposure in the event of
nonperformance by the investees is limited to the book value of the investment.
In the fourth quarter of 1994, a $4.2 million pretax charge was recorded to
establish a reserve for Transco's investment in the Liberty Pipeline general
partnership following
80
<PAGE> 82
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the indefinite delay of the project. Also in the fourth quarter of 1994, TXG Gas
Marketing Company recorded a $3.5 million pretax charge to establish a reserve
for its investment in certain gas processing facilities. In December 1994,
Transco sold an indirect 12.5% interest it held in its headquarters building
through its investment in the Post Oak/Alabama Partnership. As discussed in Note
C, Transco settled litigation with Corpus Christi in 1993 on terms whereby
Transco acquired Corpus Christi's 50% interest in the Corpus Christi General
Partnerships. Also, as discussed in Note J, Transco sold its investments in 1992
in the High Island Offshore System and the U-T Offshore System.
Following is a summary of Transco's net investment in unconsolidated
affiliates (amounts in thousands):
<TABLE>
<CAPTION>
EQUITY IN EARNINGS
NET INVESTMENT (LOSSES)
----------------- ------------------------
DECEMBER 31, YEARS ENDED DECEMBER 31,
PERCENT ----------------- ------------------------
SEGMENT/INVESTMENT OWNERSHIP 1994 1993 1994 1993 1992
-------------------------------------------- --------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Pipelines
Liberty Pipeline Company.................. 36.21% $ -- $ 3,374 $ 296 $ 309 $ 13
High Island Offshore System............... 40.00% -- -- -- -- 1,343
U-T Offshore System....................... 33.33% -- -- -- -- 252
Other..................................... various 2,903 2,986 -- 11 59
------- ------- ------ ------ ------
2,903 6,360 296 320 1,667
------- ------- ------ ------ ------
Gas Marketing
Corpus Christi General Partnerships....... 50.00% -- -- -- (185) (173)
Cameron Meadows Processing Plant.......... 50.00% 9,624 9,804 (234) (544) 1,110
Other..................................... various 1,672 6,543 (412) (155) (7)
------- ------- ------ ------ ------
11,296 16,347 (646) (884) 930
------- ------- ------ ------ ------
Gas Gathering
Corpus Christi General Partnerships....... 50.00% -- -- -- (2,126) (963)
Other..................................... various 5,730 6,541 414 (93) 839
------- ------- ------ ------ ------
5,730 6,541 414 (2,219) (124)
------- ------- ------ ------ ------
Other
Post Oak/Alabama Partnership.............. 50.00% -- -- 3,521 2,971 2,954
Other..................................... various 1,576 198 (170) 47 --
------- ------- ------ ------ ------
1,576 198 3,351 3,018 2,954
------- ------- ------ ------ ------
Consolidated................................ $21,505 $29,446 $3,415 $ 235 $5,427
======= ======= ====== ====== ======
</TABLE>
Notes receivable. In 1991, TGPL accepted a note receivable in consideration
for the conveyance of certain interests in a gas field and related processing
plant to a producer. The note was to be repaid out of proceeds from the field
production and plant revenues. However, in 1993, the producers sold the gas
field and related processing plant. TGPL's portion of the sales proceeds was
used to reduce the outstanding note receivable. The remaining balance plus
certain associated costs were written off in 1993 resulting in an after-tax
non-cash charge of $12.5 million.
In connection with the sale of Petro Source Corporation (Petro Source) in
September 1988, Transco holds subordinated notes of $11 million due in 1998 from
Petro Source Investments, Inc. Petro Source is based in Texas and markets crude
oil, natural gas liquids and petroleum products throughout the Gulf Coast
states, East Coast states and Nevada. These notes are secured by the common
stock of Petro Source.
In connection with the sale of TEPCO in July 1992, Transco received an
unsecured promissory note of $2 million due in 1997 from Forest Oil Corporation.
81
<PAGE> 83
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transco's credit risk exposure in the event of nonperformance by the
borrowers is limited to the book value of the notes. Transco's policy for
collateral on these notes is to take a mortgage if the note is related to real
property or to take a security interest if the note is related to personal
property.
Following is a summary of Transco's notes receivable as of December 31,
1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
NOTES RECEIVABLE
-------------------
DECEMBER 31,
-------------------
RECEIVABLE FROM 1994 1993
----------------------------------------------------------------- ------- -------
<S> <C> <C>
Petro Source Investments, Inc.................................... $11,000 $11,000
Petro Source Corporation......................................... -- 1,929
Forest Oil Corporation........................................... 2,000 2,000
------- -------
Consolidated..................................................... $13,000 $14,929
======= =======
</TABLE>
L. INVESTMENT IN NONOPERATING INTEREST IN COALBED METHANE PROPERTIES
In 1989, Transco began investing in certain coalbed methane properties in
the Black Warrior Basin in Alabama. The coalbed methane project has not
performed up to the original expectations and encountered costs that were higher
than originally anticipated. Transco, through its subsidiary Magnolia Methane
Corp. (Magnolia), assumed operatorship of the coalbed methane project in
February 1992. In order to eliminate the need for future capital investments by
the Company and to eliminate losses incurred in the operation of these
properties, in July 1993, Magnolia and TECO, a subsidiary of TECO Energy Inc.,
agreed to transfer Magnolia's interest in 500 wells in the Black Warrior Basin
of Alabama to TECO. In exchange for the transfer of its interest, Magnolia
received $15.5 million in cash plus future production payments based on various
percentages of net proceeds, as defined, generated from gas production from the
properties and tax credits under Section 29 of the Internal Revenue Code of
1986. The $15.5 million of proceeds were treated as a recovery of capitalized
costs with no gain or loss recognized.
Under the terms of the agreement, before Magnolia begins to receive
payments for its nonoperating interest, TECO is entitled to recover its initial
cash investment and a return thereon. Magnolia is entitled to receive production
payments until the termination date which is the earlier of (i) December 31,
2005, or (ii) such date as it is determined that 85% of the economically
recoverable reserves existing at July 1, 1993 have been recovered from the
transferred properties. As of December 31, 1994, Transco had not received any
payments pursuant to the agreement. Although all future development costs will
be borne by TECO, TECO is under no obligation to invest in or develop any gas
production from the coalbed methane properties. Magnolia has agreed to indemnify
TECO from certain liabilities (including environmental liabilities) relating to
Magnolia's coalbed methane properties. Transco has guaranteed performance of
Magnolia's obligations under the agreement and Transco Energy Marketing
Company's (TEMCO) obligation to purchase gas from certain of the coalbed methane
properties.
At December 31, 1994, 500 wells had been drilled on the coalbed methane
properties transferred to TECO, of which 325 were completed and 139 were
producing gas at a combined rate of approximately 14 million cubic feet per day
(MMcf/d) (unaudited). Based on reserve engineering studies prepared by
independent petroleum engineers, the Company estimates that proved gas reserves
net to TECO and the Company's interest are approximately 74 billion cubic feet
(Bcf) as of January 1, 1995 (unaudited). There are significant uncertainties
inherent in estimating quantities of proved reserves and in projecting rates of
production and the timing and amount of future costs. Oil and gas reserve
engineering must be recognized as a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact way and
estimates of other engineers might differ materially from the estimate discussed
above. The accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of drilling, testing and production subsequent to the date of the
estimate
82
<PAGE> 84
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
may justify revision of such estimate, and, as a general rule, reserve estimates
based upon volumetric analysis are inherently less reliable than those based on
lengthy production history. Accordingly, reserve estimates are often different
from the quantities of oil and gas that ultimately are recovered.
Transco's remaining investment is subject to a ceiling test that limits the
investment to the aggregate of the present value of future net revenues of
proved properties and the lower of cost or fair value of unproved properties.
Transco's ceiling test at December 31, 1994, was calculated using estimated
future production payments to be received from TECO based on year-end gas prices
and the total cost of proved and unproved properties. Based on that calculation,
in December 1994, Transco recorded a non-cash charge of $45.0 million, $29.3
million after-tax, $0.72 per share, to reduce the book value of its nonoperating
interest in the coalbed methane properties.
At December 31, 1994, Transco's investment in its nonoperating interest in
the coalbed methane properties totaled $86 million (after the effects of the $45
million charge in 1994, a $70 million charge in 1993 and the $15.5 million of
cash proceeds received from TECO). The ultimate recovery of Transco's remaining
investment depends on production from the properties and future gas prices. The
Company cannot predict at this time the ultimate results of these operations or
the amounts of reserves that may ultimately be recoverable. If future
development operations do not result in establishing sufficient reserves to
recover the Company's remaining coalbed methane investment, or if other factors
cause the Company's evaluation of its investment to diminish, additional
reductions in the book value of the Company's investment would be required in
future periods through non-cash charges to earnings.
At December 31, 1994, Transco's investment in the Magnolia Pipeline totaled
$67 million. The ultimate recovery of Transco's investment in the Magnolia
Pipeline is dependent on transportation of gas produced in the Black Warrior
Basin, including production from the properties transferred to TECO, as well as
transportation of gas from other sources.
M. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
TGPL has a 20-year lease agreement with Transco Tower Limited for its
headquarters building which expires in 2004. TGPL has an option to renew and
extend the existing lease term under the same provisions for three successive
renewal terms of five years each.
The future minimum lease payments under the Company's various operating
leases are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING LEASES
-------------------------------------------
TRANSCO TOWER OTHER LEASES TOTAL
------------- ------------ --------
<S> <C> <C> <C>
1995........................................... $ 26,972 $5,174 $ 32,146
1996........................................... 26,972 1,653 28,625
1997........................................... 26,972 -- 26,972
1998........................................... 26,972 -- 26,972
1999........................................... 26,972 -- 26,972
Thereafter..................................... 114,631 -- 114,631
--------- ------ --------
Total minimum obligations............ $ 249,491 $6,827 $256,318
========= ====== ========
</TABLE>
83
<PAGE> 85
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total consolidated lease expense is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Transco Tower lease expense........................... $ 24,253 $ 24,810 $ 23,791
Other lease expense................................... 16,254 13,236 15,462
-------- -------- --------
Total....................................... $ 40,507 $ 38,046 $ 39,253
======= ======= =======
</TABLE>
LONG-TERM GAS PURCHASE AND TRANSPORTATION CONTRACTS
Certain of Transco's subsidiaries have long-term gas purchase contracts
containing take-or-pay provisions and prices which are not variable market
based. Future changes in market conditions affecting the volumes of gas sold and
prices of natural gas may expose the Company to financial risks pursuant to
these contracts.
Pursuant to a settlement that TGPL has with all its customers, TGPL has in
place a GIC which, although no assurances can be given, TGPL believes will be
adequate to enable full recovery of its above-spot-market gas costs. Through an
agency agreement with TGPL, TGMC has assumed management of TGPL's merchant sales
service and, as TGPL's agent, is at risk for any above-spot-market gas costs it
may incur in excess of the amounts recovered under the GIC.
During 1993, as part of Texas Gas' restructuring under Order 636, Texas Gas
engaged in negotiations with suppliers which resulted in the successful
termination of approximately 90% of Texas Gas' deliverability under its gas
purchase contracts with pricing provisions that are not variable market based.
Gas purchased under its remaining contracts with pricing provisions that are not
variable market based is being resold at a monthly auction pursuant to Order
636. Texas Gas continues to pay to the supplier the actual contract price and is
entitled to file for full recovery of the difference between the contract price
and the amount received for sales at auction as GSR costs under Order 636.
Through December 31, 1994, Texas Gas had paid a total of $46.4 million for
GSR costs, primarily as a result of the contract terminations. During 1994,
Texas Gas made four quarterly filings to recover $37.8 million of GSR costs,
plus interest, pursuant to the transition cost recovery provisions of Order 636
and Texas Gas' FERC-approved Gas Tariff. This amount represents 90% of the total
GSR costs paid through August 1994 which are expected to be recovered via demand
surcharges to Texas Gas' firm transportation rates. Texas Gas continues to make
quarterly filings to allow recovery of 90% of its GSR costs as such costs are
paid. The remaining 10% of GSR costs is expected to be recovered from
interruptible transportation service. On December 29, 1994, as revised on
February 13, 1995, Texas Gas made a filing to reflect that, for the ten months
ended August 31, 1994, Texas Gas allocated to and recovered from interruptible
transportation service $4.2 million of GSR costs, pursuant to its FERC-approved
Gas Tariff. Pursuant to Order 636, Texas Gas may file to recover 100% of these
costs as GSR costs.
At December 31, 1994, TEMCO had no minimum purchase commitments under
long-term gas purchase contracts with pricing provisions that are not variable
market based or at a significant premium to market prices.
TEMCO has entered into sales agreements with customers that provide for
above-spot-market gas sales prices and expects such sales agreements will be
adequate to permit TEMCO to recover its gas purchase costs. However, because
certain of its gas purchase contracts contain floor price provisions, a spot
market price environment of approximately $1.50 per MMbtu or less may expose
TEMCO to financial risks of not fully recovering its gas costs.
In addition, TEMCO is a party to firm transportation contracts with third
parties in which monthly demand charges are paid for pipeline capacity in order
to transport Canadian gas to markets in the United States. During 1994, TEMCO
substantially recovered the cost of its firm transportation capacity under those
contracts through various business alternatives. TEMCO's current annual
commitment for such firm
84
<PAGE> 86
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transportation capacity is approximately $56 million under contracts that
substantially expire in 2002. To the extent TEMCO is unable to continue to find
business alternatives for potentially underutilized transportation capacity or
receive sales prices at or near its cost, Gas Marketing's results of operations
could be negatively impacted. However, TEMCO believes that the aggregate cost of
the firm transportation capacity will be recovered and, therefore, will not have
a material adverse effect on Transco's financial position, results of operations
or net cash flows.
Transco's basic business policy is to perform under the terms and
conditions of its contractual obligations. To achieve this objective, an
operating plan is utilized to monitor the current status of contractual
obligations under each gas purchase agreement, whereby the obligation-to-date is
matched against the performance-to-date. Any overperformance or underperformance
is corrected by appropriate adjustments to the operating plan over the remainder
of the period of the agreement. Deliverability tests, actual takes and prices
paid are some of the factors reviewed at least monthly, and in some cases
weekly, in order to ensure that performance is proceeding according to plan.
Since Transco has been and expects to continue to be able to perform in
accordance with its contract terms and expects to recover all material contract
costs from customers, no provision has been recorded for future loss. Although
no assurances can be given, Transco does not believe that financial risks
associated with its long-term gas purchase contracts will have a material
adverse effect on the Company's consolidated financial position, results of
operations or net cash flows.
ROYALTY COMMITMENTS
TCC has various coal lease agreements which require minimum annual royalty
payments. Royalties on actual production from these leases are available to
offset the minimum annual obligation. These minimum royalties total $6.5
million, $7.2 million, $7.2 million, $6.9 million and $5.1 million for the years
1995 through 1999, respectively, and $23.6 million for all years thereafter.
As discussed in Note C, in connection with TGPL and Texas Gas'
renegotiations of supply contracts with producers to resolve take-or-pay and
other contract claims and to amend gas purchase contracts, TGPL and Texas Gas
have each entered into certain settlements which may require the indemnification
by TGPL or Texas Gas of certain claims for royalties which the producer may be
required to pay as a result of such settlements.
WORKERS' COMPENSATION RESERVES
Coal mining subsidiary companies of TCC are liable under the Federal Coal
Mine Health and Safety Act of 1969, as amended, to pay pneumoconiosis (black
lung) benefits to eligible employees and former employees, and their dependents.
The subsidiaries also are liable under various state statutes for black lung and
for other types of workers' compensation claims (traumatic claims). A
self-insurance program is maintained for all black lung claims. Traumatic claims
are self-insured up to certain limits and independent insurance carriers cover
those claims not self-insured.
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Trade receivables. As of December 31, 1994, approximately $132 million or
90% of Transco's trade receivables was associated with the operations of the
Pipelines and Gas Marketing segments. These trade receivables primarily are due
from local distribution companies and other pipeline companies predominantly
located in the eastern and midwestern United States. Approximately $13 million
or 9% of Transco's trade receivables was associated with the operations of the
Coal segment and primarily is due from electric utilities and industrial
customers throughout the eastern United States. Transco's credit risk exposure
in the event of nonperformance by the other parties is limited to the face value
of the receivables. No collateral is required on these receivables. Transco has
not historically experienced significant credit losses in connection with its
trade receivables.
85
<PAGE> 87
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap agreements. In July 1992 and January 1994, Transco
executed five-year interest rate swap agreements with a group of banks that
effectively converted $300 million and $150 million, respectively, of Transco's
fixed-rate debt into floating-rate debt. Under the swap agreements, Transco paid
a floating rate of interest based on the six-month LIBOR and the banks paid
Transco fixed rates of interest. The difference paid or received was charged or
credited to interest expense with a cumulative net pretax interest savings to
Transco of approximately $15 million through December 31, 1994. In conjunction
with the recapitalization plan and the Merger, these agreements were terminated
in January 1995 at a cost of approximately $29 million.
The nominal amount (in thousands) of each agreement and rates of interest
paid and received were as follows:
<TABLE>
<CAPTION>
RATES PAID RATES RECEIVED
NOMINAL ---------------------- ----------------------
AMOUNT 1994 1993 1992 1994 1993 1992
----------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
$300,000................................. 5.82% 3.52% 3.49% 6.37% 6.37% 6.37%
$150,000................................. 4.31% -- -- 5.23% -- --
</TABLE>
Other derivative financial instruments. Transco has been a party to various
futures contracts and option agreements traded on the New York Mercantile
Exchange and various option and commodity price swap agreements made in the
over-the-counter market (derivatives) in the management of price volatility in
its natural gas and natural gas liquids marketing activities. Transco does not
use derivatives for trading purposes. Derivatives designated as hedges are
carried at market value with gains and losses deferred until the hedged
marketing activity is included in current net income or loss. In connection with
open contracts on natural gas and natural gas liquids marketing activity
designated as hedges, Transco recorded a net deferred gain of approximately $0.7
million and $0.5 million at December 31, 1994 and 1993, respectively, based on
the market value of the open contracts calculated using the applicable year-end
closing prices. The December 1994 open contracts are expected to be closed from
January 1995 through October 1998. As of December 31, 1994, open contracts on
natural gas and natural gas liquids activity had an absolute notional quantity
of 117.7 Bcf and 132.6 million barrels, respectively. The total net cash flow
requirement related to these contracts at December 31, 1994 was $2.3 million.
Transco is exposed to market risk on these contracts to the extent of
changes in the market prices for natural gas and liquids between December 31,
1994, and the date the contracts are closed. However, market risk exposure on
hedged transactions is offset by the gain or loss recognized upon the sale of
the products that are hedged. While market values are used to express the
amounts of derivatives, the amounts potentially subject to credit risks, in the
event of nonperformance by third parties, are substantially smaller. Transco
minimizes such risk exposure by limiting the third parties to companies whose
long-term credit ratings are at the minimum investment grade, and, in the
majority of cases, they possess at least a single A Standard & Poor's
Corporation designation. Therefore, Transco does not expect to record any losses
as a result of third party default.
86
<PAGE> 88
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
N. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of the Company's financial
instruments as of December 31, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term financial assets.......... $ 96,154 $ 251,498 $ 96,154 $ 251,498
Long-term notes receivable.................... 13,000 14,929 13,000 14,929
Receivables (derivatives)..................... 4,781 1,014 4,781 12,391
Financial liabilities:
Short-term financial liabilities.............. 371,939 461,166 370,242 459,776
Long-term debt, less current maturities....... 1,799,149 1,799,251 1,686,179 1,850,349
Payables (derivatives)........................ 4,066 503 34,719 1,361
</TABLE>
CASH AND SHORT-TERM FINANCIAL ASSETS AND LIABILITIES
For short-term instruments, the carrying amount is a reasonable estimate of
fair value due to the short maturity of those instruments. For current
maturities of long-term debt which is publicly traded, the estimated fair value
is based on quoted market prices at year end, less accrued interest.
LONG-TERM NOTES RECEIVABLE
The carrying amount for all long-term notes receivable is a reasonable
estimate of fair value since these notes earn an appropriate rate of interest
for the risk involved.
DERIVATIVE FINANCIAL INSTRUMENTS
The amounts shown as receivables and payables (derivatives) relate to the
Company's interest rate swaps and natural gas and natural gas liquids futures,
options and commodity price swaps.
The carrying amount of these derivatives approximates fair value for all
periods except for certain commodity price and interest rate swaps which are not
included in the accompanying Consolidated Balance Sheet as of December 31, 1994
and 1993. The estimated fair value of these derivative financial instruments is
based on the estimated consideration that would be received to terminate those
agreements and contracts in a gain position and the estimated cost that would be
incurred to terminate those agreements and contracts in a loss position. As
discussed in Note M, in conjunction with the recapitalization plan and the
Merger, the interest rate swap agreements were terminated in January 1995 at a
cost of approximately $29 million.
LONG-TERM DEBT
Effectively all of the Company's debt is publicly traded, therefore
estimated fair value is based on quoted market prices at year end, less accrued
interest.
87
<PAGE> 89
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
O. QUARTERLY INFORMATION (UNAUDITED)
The following summarizes selected quarterly financial data for 1994 and
1993 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
---------------------------------------------- -------- -------- --------- --------
<S> <C> <C> <C> <C>
Operating revenues.......................... $834,090 $694,986 $ 605,656(1) $681,486
Operating expenses.......................... 737,341 633,420 557,848(2) 683,792(3)
-------- -------- --------- --------
Operating income (loss)..................... 96,749 61,566 47,808 (2,306)
-------- -------- --------- --------
Other (income) deductions:
Interest expense......................... 46,674 47,582 47,882 48,928
Other (income) and deductions, net....... 3,157 734 (722) 2,121
-------- -------- --------- --------
Total other deductions.............. 49,831 48,316 47,160 51,049
-------- -------- --------- --------
Income (loss) before income taxes........... 46,918 13,250 648 (53,355)
Provision for (benefit of) income taxes..... 17,409 5,073 (493) (20,411)
-------- -------- --------- --------
Net income (loss)........................... 29,509 8,177 1,141 (32,944)
Dividends on convertible preferred stock.... 5,726 5,726 5,726 5,726
-------- -------- --------- --------
Common stock equity in net income (loss).... $ 23,783 $ 2,451 $ (4,585) $(38,670)
======== ======== ========= ========
Primary earnings (loss) per share of common
stock and common stock equivalents....... $ 0.58 $ 0.06 $ (0.11) $ (0.95)
======== ======== ========= ========
Average shares of common stock and common
stock equivalents outstanding............ 40,690 40,716 40,632 40,721
======== ======== ========= ========
</TABLE>
---------------
(1) Includes $2,457 charge related to a royalty claims settlement.
(2) Includes $4,500 charge related to a coal company litigation.
(3) Includes a charge of $45,000 to reduce the book value of investment in
nonoperating interest in coalbed methane properties, a provision of $41,055
related to asset impairments, a provision of $6,000 related to a pipeline
regulatory issue and a credit of $549 related to settlement of the coal
company litigation.
88
<PAGE> 90
TRANSCO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1993 QUARTER QUARTER QUARTER QUARTER
---------------------------------------------- -------- -------- --------- --------
<S> <C> <C> <C> <C>
Operating revenues.......................... $779,674 $679,920 $ 674,960 $787,372
Operating expenses.......................... 692,471 618,408 687,556(1) 777,209(2)
-------- -------- --------- --------
Operating income (loss)..................... 87,203 61,512 (12,596) 10,163
-------- -------- --------- --------
Other (income) deductions:
Interest expense......................... 48,662 47,543 47,114 46,962
Other (income) and deductions, net....... 1,423 1,611 2,055 4,408
-------- -------- --------- --------
Total other deductions.............. 50,085 49,154 49,169 51,370
-------- -------- --------- --------
Income (loss) from continuing operations
before income taxes...................... 37,118 12,358 (61,765) (41,207)
Provision for (benefit of) income taxes..... 14,111 4,274 (18,600) (17,866)
-------- -------- --------- --------
Income (loss) from continuing operations.... 23,007 8,084 (43,165) (23,341)
-------- -------- --------- --------
Income (loss) from operations of
discontinued segment, net of income
taxes.................................... 113 (206) -- --
Gain on sale of discontinued segment, net of
income taxes............................. -- -- 31,572 --
-------- -------- --------- --------
Net income (loss) from discontinued
operations............................... 113 (206) 31,572 --
-------- -------- --------- --------
Net income (loss)........................... 23,120 7,878 (11,593) (23,341)
Dividends on convertible preferred stock.... 6,433 6,432 6,433 5,749
-------- -------- --------- --------
Common stock equity in net income (loss).... $ 16,687 $ 1,446 $ (18,026) $(29,090)
======== ======== ========= ========
Primary earnings (loss) per share of common
stock and common stock equivalents....... $ 0.42 $ 0.04 $ (0.46) $ (0.73)
======== ======== ========= ========
Average shares of common stock and common
stock equivalents outstanding............ 39,300 39,306 38,990 39,850
======== ======== ========= ========
</TABLE>
---------------
(1) Includes $20,125 charge for write-off of note receivable and $50,269 charge
for Corpus Christi settlement.
(2) Includes $70,000 charge to reduce the book value of investment in
nonoperating interest in coalbed methane properties.
89
<PAGE> 91
TRANSCO ENERGY COMPANY
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF OPERATIONS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Operating Costs and Expenses:
Operation............................................. $ 8,660 $ 8,855 $ 8,519
Taxes -- other than income taxes...................... 362 332 26
--------- --------- ---------
Total operating costs and expenses............ 9,022 9,187 8,545
--------- --------- ---------
Operating Loss.......................................... (9,022) (9,187) (8,545)
--------- --------- ---------
Other (Income) and Other Deductions:
Interest expense -- advances from subsidiaries*....... 22,743 16,272 12,794
Other interest expense................................ 104,797 101,149 103,819
Interest income from subsidiaries*.................... (9,874) (11,131) (18,540)
Losses on sales of assets............................. -- -- 56,317
Other, net............................................ (297) (2,469) (1,405)
--------- --------- ---------
Total other (income) and other deductions..... 117,369 103,821 152,985
--------- --------- ---------
Loss from Continuing Operations Before Income Taxes and
Equity in Earnings (Losses) of Subsidiaries........... (126,391) (113,008) (161,530)
Benefit of Income Taxes................................. (44,325) (39,623) (55,515)
--------- --------- ---------
Loss from Continuing Operations Before Equity in
Earnings (Losses) of Subsidiaries..................... (82,066) (73,385) (106,015)
Equity in Earnings (Losses) of Subsidiaries* (Dividends
of $29,198, $36,424, and $4,792 in 1994, 1993 and
1992, respectively)................................... 87,949 37,970 54,022
--------- --------- ---------
Income (Loss) from Continuing Operations................ 5,883 (35,415) (51,993)
--------- --------- ---------
Income (Loss) from Operations of Discontinued Segment,
Net of Income Taxes................................... -- (93) 2,649
Gain on Sale of Discontinued Segment, Net of Income
Taxes................................................. -- 31,572 --
--------- --------- ---------
Net Income (Loss) from Discontinued Operations.......... -- 31,479 2,649
--------- --------- ---------
Net Income (Loss)....................................... 5,883 (3,936) (49,344)
Dividends on Convertible Preferred Stock................ 22,904 25,047 25,730
--------- --------- ---------
Common Stock Equity in Net Income (Loss)................ $ (17,021) $ (28,983) $ (75,074)
========= ========= =========
</TABLE>
---------------
* Eliminated in consolidation.
This condensed statement should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which are included in Item 8
hereof.
90
<PAGE> 92
TRANSCO ENERGY COMPANY
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1993
--------- ---------
<S> <C> <C>
Current Assets:
Cash and temporary cash investments.......................................... $ 20,232 $ 152,324
Deposits..................................................................... 3,965 25,336
Receivables:
Subsidiaries*.............................................................. 22,515 20,619
Federal income tax benefits................................................ -- 7,719
Other...................................................................... 56 10,002
Deferred income taxes........................................................ 3,653 4,362
---------- ----------
Total current assets.................................................. 50,421 220,362
---------- ----------
Investments at cost plus equity in undistributed earnings:
Subsidiaries*:
Cost plus equity in undistributed earnings................................. 2,036,459 1,966,991
Advances................................................................... 370,026 391,351
---------- ----------
Total investments..................................................... 2,406,485 2,358,342
---------- ----------
Other Assets:
Notes receivable............................................................. 2,000 2,000
Other........................................................................ 11,482 9,978
---------- ----------
Total other assets.................................................... 13,482 11,978
---------- ----------
$2,470,388 $2,590,682
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt.............................................................. $ 27,000 $ --
Current maturities of long-term debt......................................... 150,000 9,383
Payables:
Subsidiaries*.............................................................. 30,978 67,183
Advances from subsidiaries*................................................ 156,428 207,504
Other...................................................................... 1,159 4,254
Dividends.................................................................. 5,727 5,653
Accrued liabilities:
Federal income taxes....................................................... 10,594 --
Interest................................................................... 28,414 23,730
Employee benefits.......................................................... 13,093 14,229
Other...................................................................... 799 551
Other........................................................................ 127 7,836
---------- ----------
Total current liabilities............................................. 424,319 340,323
---------- ----------
Advances from Subsidiaries*.................................................... 216,239 204,891
---------- ----------
Long-term Debt, less current maturities........................................ 894,747 1,043,843
---------- ----------
Other Liabilities and Deferred Credits:
Income taxes................................................................. 252,679 267,162
Other........................................................................ 55,531 77,762
---------- ----------
Total other liabilities and deferred credits.......................... 308,210 344,924
---------- ----------
Convertible Preferred Stock -- non-redeemable, net............................. 265,322 265,418
---------- ----------
Common Stockholders' Equity:
Common stock................................................................. 20,716 20,693
Premium on capital stock and other paid-in capital........................... 507,448 511,797
Retained earnings (deficit).................................................. (156,921) (115,447)
---------- ----------
371,243 417,043
Less -- Treasury stock, at cost.............................................. 7,695 207
-- Common stock held by Tran$tock
Deferred compensation............................................... -- 14,395
Receivable from Tran$tock........................................... -- 9,383
-- Restricted stock
Deferred compensation............................................... 1,997 1,775
---------- ----------
Total common stockholders' equity..................................... 361,551 391,283
---------- ----------
$2,470,388 $2,590,682
========== ==========
</TABLE>
---------------
* Eliminated in consolidation.
This condensed statement should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which are included in Item 8
hereof.
91
<PAGE> 93
TRANSCO ENERGY COMPANY
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 5,883 $ (3,936) $ (49,344)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Deferred income taxes................................ (11,045) 1,628 (10,686)
Equity in earnings of subsidiaries, net of
distributions*..................................... (58,751) (1,453) (51,879)
Losses (gains) on sales of assets.................... -- (50,481) 56,317
Changes in operating assets and liabilities:
Deposits........................................... 21,371 (5,905) (19,432)
Receivables........................................ 8,000 8,363 (4,340)
Receivables from subsidiaries*..................... (2,565) (2,045) 10,279
Payables........................................... (3,095) (156) (10,694)
Payables to subsidiaries*.......................... (38,759) 42,336 4,478
Accrued liabilities................................ 8,400 380 7,688
Other, net......................................... (12,524) 5,249 (13,211)
--------- --------- ---------
Net cash used in operating activities.............. (83,085) (6,020) (80,824)
--------- --------- ---------
Cash flows from financing activities:
Net decrease in short-term debt......................... 27,000 -- (320,000)
Sale of common stock, net of issue expense**............ -- 218 126,573
Net additions to long-term debt......................... -- -- 450,000
Retirement of long-term debt............................ (9,383) (8,841) (158,330)
Sale of preferred stock, net of issue expense........... (95) 121,423 --
Retirement of preferred stock........................... (1,141) (132,658) --
Net increase (decrease) in advances from
subsidiaries*........................................ (39,727) 75,792 98,693
Dividends on common stock............................... (24,634) (24,374) (20,112)
Dividends on preferred stock............................ (22,832) (25,827) (25,730)
Other, net.............................................. (1,835) (702) (84)
--------- --------- ---------
Net cash provided by (used in) financing
activities...................................... (72,647) 5,031 151,010
--------- --------- ---------
Cash flows from investing activities:
Return of capital by subsidiaries*...................... -- 18,928 72,546
Net (increase) decrease in advances to subsidiaries*.... 21,324 (21,909) 120,419
Investment in subsidiaries*............................. -- (1) (306,887)
Proceeds from sales of assets........................... 8,000 143,631 40,370
Retirement of loan by Tran$tock......................... 9,383 8,841 8,330
Acquisition of Companies................................ (12,500) -- --
Other, net.............................................. (2,567) (2,128) (959)
--------- --------- ---------
Net cash provided by (used in) investing
activities...................................... 23,640 147,362 (66,181)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... (132,092) 146,373 4,005
Cash and cash equivalents at beginning of period.......... 152,324 5,951 1,946
--------- --------- ---------
Cash and cash equivalents at end of period................ $ 20,232 $ 152,324 $ 5,951
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the year for:
Interest............................................. $ 99,596 $ 101,766 $ 90,863
Income taxes, net.................................... (1,318) 9,401 (1,572)
</TABLE>
---------------
* Eliminated in consolidation.
** 1992 includes $15,000 of common stock sold to a subsidiary, which is
eliminated in consolidation.
This condensed statement should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which are included in Item 8
hereof.
92
<PAGE> 94
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DEDUCTIONS
ADDITIONS ------------
------------------------ FOR PURPOSE
BALANCE AT CHARGED TO CHARGED TO WHICH BALANCE AT
BEGINNING COSTS AND OTHER RESERVES END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WERE CREATED PERIOD
--------------------------------------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1994
Reserves deducted from assets to which
they apply --
Reserve for loss on investments........ $2,008 $7,667 $ -- $ -- $ 9,675
======== ======== ======== ========== ========
Allowance for doubtful accounts........ $4,110 $4,585 $ 14,939 $1,285 $ 22,349
======== ======== ======== ========== ========
1993
Reserves deducted from assets to which
they apply --
Reserve for loss on investments........ $5,185 $ 200 $ -- $3,377(1) $ 2,008
======== ======== ======== ========== ========
Allowance for doubtful accounts........ $3,427 $3,100 $ -- $2,417 $ 4,110
======== ======== ======== ========== ========
1992
Reserves deducted from assets to which
they apply --
Reserve for loss on investments........ $5,300 $ 600 $ -- $ 715 $ 5,185
======== ======== ======== ========== ========
Allowance for doubtful accounts........ $3,130 $7,740 $ -- $7,443 $ 3,427
======== ======== ======== ========== ========
</TABLE>
---------------
(1) Includes deductions of $2,639 as a result of sale of TEVCO.
93
<PAGE> 95
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
94
<PAGE> 96
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS OF THE REGISTRANT
GORDON F. AHALT
Member of Transco's Compensation Committee and Nominating Committee. B.S.,
University of Pittsburgh. From 1951 to 1954, employed by Standard Oil Company of
Indiana. Joined Petroleum Division of The Chase Manhattan Bank in 1954,
appointed Vice President in 1964. Vice President and Division Head in 1965. In
1969, appointed as Senior Vice President in charge of the Bank's Energy Group.
Became associated with White, Weld & Co. Incorporated, an investment banking and
securities brokerage firm, in 1972 as Senior Vice President in Corporate
Finance. Returned to Chase in 1973 to head Corporate and Project Finance Group
in Corporate Banking Department. In 1977, became President-Chief Executive
Officer of International Energy Bank Limited. Served as Senior Vice President
and Chief Financial Officer, Ashland Oil, Inc. from late 1979 to January 1982,
when he assumed his current position. Director, Harbert Corporation, Cal Dive
International, Bancroft and Ellsworth Funds. Serves as Energy Consultant to W.H.
Reaves & Co., Inc. Previously served as director of Transco Energy Company from
October 1974 to May 1980. Age 67. Principal Occupation: President, G.F.A. Inc.
(petroleum industry management and financial services consulting firm). Director
since 1982.
BENJAMIN F. BAILAR
Member of Transco's Audit Committee and Nominating Committee. B.A.,
University of Colorado, M.B.A., Harvard Graduate School of Business
Administration. From 1975 to 1978 served as Postmaster General of the United
States. From 1978 to 1982 served as Executive Vice President, Chief Financial
Officer and Director of United States Gypsum Company. From 1983 to 1984 served
as President and Chief Executive Officer of Scott Publishing Company. From 1984
to 1987 was a financial consultant with Franklin Financial Corp. Joined Rice
University in 1987. Director, Dana Corporation, First Interstate Bank of Texas,
U.S. Can Corporation and Smith International, Inc. Age 60. Principal Occupation:
Dean and Professor of Administration, Jesse H. Jones Graduate School of
Administration, Rice University. Director since 1988.
KEITH E. BAILEY
B.S., Missouri School of Mines and Metallurgy. Completed Program for
Management Development at Harvard University. Chairman, Chief Executive Officer
and President of The Williams Companies, Inc., which is primarily engaged in the
transmission, gathering and processing of natural gas, the transmission of
petroleum products and telecommunications. Has held various executive level
positions with Williams for more than five years. Is also a director of BOK
Financial Corporation, Northwest Pipeline Corporation and Apco Argentina, Inc.,
and serves on several boards relating to community activities. Age 52. Named
director in 1995.
JOHN C. BUMGARNER JR.
B.A., University of Kansas, M.B.A., Stanford University. Joined The
Williams Companies, Inc. in 1977 as Vice President of Planning after more than
10 years with a major oil company. Named as Senior Vice President, Corporate
Development and Planning in 1979. Served in a variety of financial management
positions, including Treasurer and Manager of Corporate Planning. Director,
Management Planning Systems, Inc., Mayfest, and Downtown Tulsa Unlimited. Age
52. Principal Occupation: Senior Vice President, Corporate Development and
Planning, The Williams Companies, Inc. Named director in 1995.
JOHN P. DES BARRES
Member (ex officio) of Transco's Nominating Committee. Associate Degree in
electrical engineering, Worcester Junior College. Completed the Harvard Business
School's Program for Management Development
95
<PAGE> 97
and attended the Massachusetts Institute of Technology Sloan School Senior
Executive Program. Joined Sun Company in 1963. Appointed director of business
planning and marketing development for Sun Pipe Line Company in 1978 and then
President in November 1979. In April 1988, joined Santa Fe Pacific Pipelines,
Inc. as Chairman, President and Chief Executive Officer. Joined the Company in
October 1991 as President and Chief Executive Officer and a director. Elected
Chairman of the Board of the Company in 1992. Director of Interstate Natural Gas
Association of America and of American Gas Association. Member of National
Petroleum Council and Business Advisory Committee, Northwestern University
Transportation Center Director and Chairman, Sam Houston Area Council for the
Boy Scouts of America. Director, YMCA of Greater Houston. Board of Directors,
Houston Symphony and Advisory Board, Theatre Under the Stars. Age 55. Principal
Occupation: Chairman of the Board, President and Chief Executive Officer of the
Company. Director since 1991.
ROBERT W. FRI
Chairman of Transco's Audit Committee. B.A., Rice University. M.B.A.,
Harvard Business School. Associated with McKinsey & Company, Inc., management
consulting firm, from 1963 to 1971 and again from 1973 to 1975, being elected a
principal in the firm in 1968. From 1971 to 1973 served as first Deputy
Administrator of the Environmental Protection Agency, becoming Acting
Administrator in 1973. Was first Deputy and then Acting Administrator of Energy
Research and Development Administration from 1975 to 1977. During 1978 was a
private consultant. From 1979 to 1986 was President of Energy Transition
Corporation. Director, Environmental and Energy Study Institute, Science
Services, Inc. and Atlantic Council of the U.S. Age 59. Principal Occupation:
President and Director, Resources for the Future, Inc. (non-profit research
organization). Director since 1978.
J. DAVID GRISSOM
Chairman of Transco's Compensation Committee. Beginning in 1977, served as
Chairman of the Board and Chief Executive Officer of Citizens Fidelity
Corporation and later as Vice Chairman of PNC Financial Corporation, holding
such positions until 1989. Director, Columbia/HCA Healthcare Corp., Providian
Corporation, Sphere Drake Holdings, Ltd., L.G. & E. Energy Corp., Regal Cinemas,
Inc. and Churchill Downs, Inc. Age 56. Principal Occupation: Chairman of the
Board, Mayfair Capital (private investment firm). Director since 1989.
PATRICIA L. HIGGINS
Member of Transco's Audit Committee. B.S., Montclair (NJ) State College.
Cornell University's Management Development Program. Harvard Advanced Management
Program. From 1977 to 1991, served as Division and District Manager for AT&T
Communications, Service Vice President -- Northeast Region with AT&T Network
Service Division and International Sales Operations and Vice President with AT&T
Network Systems. Joined NYNEX in 1991 as Group Vice President -- Suburban and
Upstate New York and from 1993 to December 1994 served as Group Vice
President -- Manhattan. Joined Unisys Corporation as President of the
Communications Line of Business in January 1995. Director of Fleet Bank. Vice
Chairman, Business Committee of the Metropolitan Museum of Art. Member, New York
State Governor's Council on Lifetime Health, Fitness and Sports and Dean's
Advisory Council, State of New York University at Buffalo. Age 45. Principal
Occupation: President, Communications Line of Business, Unisys Corporation.
Director since 1994.
WILLIAM H. LUERS
Chairman of Transco's Nominating Committee. B.A. Hamilton College, M.A.,
Columbia University. Served as officer in U.S. Navy 1952 to 1956. Served as a
Foreign Service Officer in the Department of State 1957 to 1986 in Italy,
Germany and the Soviet Union, as well as in Washington, D.C. From 1978 to 1982
was U.S. Ambassador to Venezuela. From 1983 to 1986 was U.S. Ambassador to
Czechoslovakia. Member of the Council on Foreign Relations of New York.
Director, IDEX Corporation, Scudder New Europe Fund, Scudder Global Fund,
Scudder International Fund, Scudder International Bond Fund. The Rockefeller
96
<PAGE> 98
Brothers' Fund. The Trust for Mutual Understanding and The Institute for
East-West Studies. Age 65. Principal Occupation: President, The Metropolitan
Museum of Art. Director since 1986.
FREDERICK H. SCHULTZ
Member of Transco's Compensation Committee and Nominating Committee. B.A.,
Princeton University. Served as artillery officer in U.S. Army 1952 to 1954.
Employed by The Barnett Bank of Jacksonville 1956 to 1957. Member Florida House
of Representatives 1963 to 1970; Speaker of The House 1968 to 1970. Chairman of
the Board, Barnett Investment Services, Inc., 1973 to 1979. Vice Chairman, Board
of Governors, Federal Reserve System, Washington, D.C., 1979 to 1982. Director,
Barnett Banks, Inc., American Heritage Life Insurance Co., Riverside Group,
Inc., Southeast Atlantic Corp. and Wickes Lumber Co. Owner and operator, private
investment firm. Age 66. Principal Occupation: Investments. Director since 1982.
97
<PAGE> 99
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table shows certain information about the executive officers
as such term is defined in Rule 3b-7 promulgated under the Securities Exchange
Act of 1934, as amended, of the Company as of March 3, 1995.
<TABLE>
<CAPTION>
EXECUTIVE
NAME AGE POSITION OFFICER SINCE
---------------------- --- ----------------------------------------- -------------
<S> <C> <C> <C>
John P. Des Barres.... 55 Chairman of the Board, President & Chief October 1991
Executive Officer
Robert W. Best........ 48 Senior Vice President -- Natural Gas January 1991
Larry J. Dagley....... 46 Senior Vice President & Chief Financial August 1985
Officer
David E. Varner....... 57 Senior Vice President, General Counsel & May 1982
Secretary
Nicholas J.
Neuhausel........... 49 Senior Vice President -- Human June 1993
Resources & Administration
</TABLE>
With the exception of the following, all officers of the Company have been
employed by the Company or its subsidiaries for more than the last five years.
John P. Des Barres joined Transco in October 1991 as President and Chief
Executive Officer. He was elected Chairman of the Board in May 1992. Prior to
joining Transco, Mr. Des Barres served from April 1988 through September 1991 as
Chairman, President and Chief Executive Officer of Santa Fe Pacific Pipelines,
Inc. Prior to joining Santa Fe, he served as President of Sun Pipe Line Company,
a subsidiary of Sun Company, Inc., a diversified energy company.
Nicholas J. Neuhausel joined Transco in June 1993 as Senior Vice
President -- Human Resources & Administration. Prior to joining Transco, Mr.
Neuhausel held various positions with Sun Company, Inc., a diversified energy
company, and its subsidiaries, including Vice President of Human Resources and
Administration.
The officers of the Company serve at the pleasure of the Board of
Directors. No family relationship exists between any of them.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Based on a review of the copies of forms and amendments required by Section
16(a) of the Securities Exchange Act of 1934 received by the Company, or written
representations that no filings were required, the Company believes that during
1994 all Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10 percent stockholders were met.
98
<PAGE> 100
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below discloses the annual and long-term compensation awarded or
paid to or earned by (i) the Chief Executive Officer and (ii) the four other
most highly compensated executive officers of the Company who were serving as
executive officers at December 31, 1994 ((i) and (ii) above collectively
referred to herein as the "Named Executive Officers" and individually referred
to as a "Named Executive Officer") for services rendered to the Company in all
capacities for the fiscal years ended December 31, 1994, 1993 and 1992.
TRANSCO ENERGY COMPANY SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- ----------------------- -------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
---------------------- ----- --------- -------- ------------ ---------- ---------- ------- ---------------
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS LTIP
NAME AND COMPENSATION AWARD(S) /SARS PAYOUTS ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) ($)(2) (#) ($) COMPENSATION($)
---------------------- ----- --------- -------- ------------ ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John P. Des Barres, 1994 $534,250 (3) $272,500 $ 59,686(4) $ 0 232,300 $65,835 $ 0
Chairman of the 1993 $513,000 (3) $275,000 $100,662(4) $ 0 0 $ 0 $ 0
Board, President 1992 $486,667 (3) $200,000 $383,520(4)(5) $ 0 0 $ 0 $ 0
and Chief Executive
Officer
Robert W. Best, 1994 $330,171 $137,200 $ 0 $ 0 115,800 $30,457(6) $61,261(7)
Senior Vice 1993 $315,000 $136,900 $ 11,050(4) $ 0 0 $20,439(6) $70,182(7)
President 1992 $307,438 $ 90,000 $182,602(8) $144,375 12,500 $ 0 $47,530(7)
Natural Gas
Larry J. Dagley, 1994 $241,667 $100,000 $ 27,269(4) $ 0 79,000 $15,362(6) $ 0
Senior Vice 1993 $213,523 $101,800 $ 26,211(4) $ 0 20,000 $10,311(6) $ 0
President and 1992 $193,750 $ 64,000 $ 17,461(4) $ 82,688 0 $ 8,114(9) $ 0
Chief Financial
Officer
David E. Varner, 1994 $245,833 $100,000 $ 24,629(4) $ 0 75,700 $24,140(6) $ 0
Senior Vice 1993 $240,000 $ 83,400 $ 28,349(4) $ 0 0 $16,159(6) $ 0
President, 1992 $237,500 $ 50,000 $ 23,161(4) $ 0 0 $13,737(9) $ 0
General Counsel and
Secretary
Nicholas J. Neuhausel, 1994 $204,667 $ 72,800 $ 7,337(4) $ 0 58,100 $ 0 $ 0
Senior Vice 1993 $109,091 $ 43,000 $ 0 $ 0 15,000 $ 0 $ 0
President,
Human Resources and
Administration
</TABLE>
---------------
(1) Excludes perquisites and other personal benefits, securities and property
paid to or earned by a Named Executive Officer, the aggregate amount of
which is the lesser of $50,000 or 10% of the annual salary and bonus
reported for such person in columns (c) and (d).
(2) As of the close of business on December 31, 1994, Mr. Des Barres held 20,000
shares of Restricted Stock with a value of $332,500. On January 1, 1995,
10,000 of such shares vested and the remaining 10,000 shares will vest on
January 1, 1996, assuming Mr. Des Barres is an employee of the Company on
the vesting dates. As of the close of business on December 31, 1994, Messrs.
Best and Dagley held 5,500 and 3,150 shares of Restricted Stock, with a
value of $91,438 and $52,369, respectively. Such Restricted Stock shares
vest at a rate of 2,750 and 1,575, respectively, annually on each March 24
in 1995 and 1996, assuming the holder is an employee of the Company on the
vesting dates. The Company has elected to report performance-based
Restricted Stock in column (h) upon the vesting thereof. As of the close of
business on December 31, 1994, Messrs. Best, Dagley, Des Barres, Neuhausel
and Varner held 18,050,
(Notes continued on following page)
99
<PAGE> 101
10,050, 35,750, 4,200 and 12,050 shares of performance-based Restricted
Stock and 9,025, 5,025, 17,875, 2,100 and 6,025 corresponding Restricted
Stock Units, respectively. The value of this Restricted Stock for Messrs.
Best, Dagley, Des Barres, Neuhausel and Varner as of December 31, 1994
(excluding the 1992 grants, the payment of which is reported in column (h)
and discussed in footnote 6 below) was $300,081, $167,081, $594,344, $69,825
and $200,331, respectively. This Restricted Stock is subject to
performance-based vesting conditions. During the restriction period, all of
the aforementioned shares of Restricted Stock are entitled to receive
dividends payable to stockholders. All Restricted Stock values in this
footnote are calculated based upon the closing price of Transco's Common
Stock on December 31, 1994.
As a result of the tender offer by Williams, the performance
measurement periods scheduled to end December 31, 1995 and 1996 ended one
day prior to the expiration of the tender offer. The number of shares of
common stock earned and issuable for these performance measurement periods
in exchange for restricted stock and restricted stock units were paid in
cash at a price of $17.50 per share during the first quarter of 1995.
Non-performance-based restricted stock will become vested at the
consummation of the Merger and will be converted into the right to receive
unrestricted shares of Williams common stock.
(3) Includes director's fees of $8,000 in 1994, $13,000 in 1993 and $20,000 in
1992.
(4) Includes, except for Mr. Best, the value (as of the date of allocation) of
shares of the Company's Common Stock allocated pursuant to the Company's
Tran$tock Plan and accruals under the Company's Benefit Restoration Plan (an
Internal Revenue Code Section 415 Excess Plan) related to Tran$tock
allocations which would have been made under the Tran$tock Plan but for
certain limitations imposed under the Internal Revenue Code.
(5) Also includes moving and relocation expenses including tax gross-up
($257,033) and other perquisites and personal benefits ($25,075).
(6) Represents cash value of Restricted Stock which vested pursuant to grants
under the Company's 1991 Incentive Stock Plan. This Restricted Stock was
issued in 1992 and vesting was subject to certain performance criteria under
which all or a portion would be earned upon attainment by the Company,
during a performance period beginning on January 1, 1992 and ending on
December 31, 1994, of certain performance goals.
(7) Includes (i) a matching contribution under the Texas Gas Thrift Plan
($10,262 for 1992, $10,013 for 1993 and $6,750 for 1994), (ii) a related
accrual ($3,562 for 1993 and $8,855 for 1994) under the Texas Gas Excess
Benefit Plan (an Internal Revenue Code Section 415 Excess Plan), and (iii)
amounts accrued to provide a retirement benefit ($35,888 for 1992, $55,047
for 1993 and $43,932 for 1994) and to provide a death benefit ($1,380 for
1992, $1,560 for 1993 and $1,724 for 1994) under the Texas Gas Salary
Continuation Plan.
(8) Includes moving and relocation expenses including tax gross-up ($156,236),
other perquisites and personal benefits ($19,555) and dividends on
performance-based Restricted Stock (i.e., Restricted Stock that vests only
if the Company achieves certain performance goals).
(9) Represents cash payment for Performance Units earned pursuant to grants
under the Company's 1983 Incentive Plan. When these Performance Units were
granted in 1989, the performance criteria under which all or a portion would
be earned required that the Company and certain subsidiaries achieve certain
performance goals. In 1990, the performance criteria was revised to
condition the vesting of all or a portion of the awards upon the attainment
of certain performance goals solely by the Company.
100
<PAGE> 102
OPTIONS GRANTED IN LAST FISCAL YEAR
Shown below is further information on the stock options, reflected in
column (g) of the Summary Compensation Table, granted pursuant to the Company's
1991 Incentive Stock Plan during the fiscal year ended December 31, 1994 to the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
GRANTED TO
OPTIONS EMPLOYEES EXERCISE OR
GRANTED IN FISCAL BASE PRICE EXPIRATION GRANT DATE
NAME (#)(1) YEAR ($/SHARE) DATE VALUE(2)
---- ------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
John P. Des Barres.................. 232,300 23.10% $ 15.50 5/16/04 $1,015,151
Robert W. Best...................... 115,800 11.52% $ 15.50 5/16/04 $ 506,046
Larry J. Dagley..................... 79,000 7.86% $ 15.50 5/16/04 $ 345,230
David E. Varner..................... 75,700 7.53% $ 15.50 5/16/04 $ 330,809
Nicholas J. Neuhausel............... 58,100 5.78% $ 15.50 5/16/04 $ 253,897
</TABLE>
---------------
(1) These options vest at a rate of 25% annually, expire ten years after the
date of grant and, if held for more than 6 months, may be accelerated
automatically upon a change in control of the Company or, if approved by the
Compensation Committee, upon the occurrence of certain other events such as
retirement. The exercise price is equal to the market value of the Company's
Common Stock on the date of grant. The stock options contain a tax
withholding feature which permits the optionee, with the consent of the
Compensation Committee, to surrender shares for the payment of any taxes due
in connection with the exercise of the option.
As a result of the tender offer by Williams, these options vested upon
the completion of the tender offer. If the stock options are not exercised
prior to or at the effective time of the Merger, the options will be
cancelled and holders of the options will have the choice to receive an
amount in cash, to the extent the option price of the options is below
$17.50, or to receive replacement options from Williams.
(2) The estimated present value of stock options is based on the Black-Scholes
Model, a mathematical formula that calculates a theoretical option value
based on certain assumptions. The assumptions used in calculating the values
that appear in this column are as follows: a volatility factor of 0.2493 for
the 12 months preceding date of grant, a risk-free rate of return of 7.31%,
yield on U.S. Treasury zero-coupon bond expiring in May 2004, a dividend
yield of 3.87%, and a time of exercise of ten years, based on the annual
dividend rate as of the date of grant. The actual value, if any, that a
Named Executive Officer may realize will depend on the spread between the
option price and the market price on the date the option is exercised.
Therefore, there can be no assurance that the value estimated by the
Black-Scholes Model will be predictive of the actual value realized by the
Named Executive Officer on the date the option is exercised.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
None of the Named Executive Officers exercised any stock options during
fiscal year 1994. Shown below is information with respect to the unexercised
options to purchase the Company's Common Stock granted under the Company's 1991
Incentive Stock Plan or 1983 Incentive Plan to the Named Executive Officers and
held by them at December 31, 1994.
101
<PAGE> 103
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY(1)
UNEXERCISED OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END(#) YEAR-END($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------------------------------ ------------------------- ---------------------------
<S> <C> <C>
John P. Des Barres.............................. 70,350/255,750 $0/$261,338
Robert W. Best.................................. 50,675/129,125 $0/$130,275
Larry J. Dagley................................. 42,071/98,313 $1,875/$94,500
David E. Varner................................. 51,525/81,575 $0/$85,163
Nicholas J. Neuhausel........................... 3,750/69,350 $7,031/$86,456
</TABLE>
---------------
(1) A stock option is considered to be "in-the-money" if the market price of the
related stock is higher than the exercise price of the option. The Transco
Common Stock price at December 31, 1994 was $16.625 per share.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
Shown below is information with respect to long-term incentive awards made
to the Named Executive Officers in the fiscal year ended December 31, 1994 under
the Company's 1991 Incentive Stock Plan.
LONG-TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER NON-
SHARES, UNITS OTHER PERIOD UNTIL STOCK PRICE-BASED PLANS
OR OTHER MATURATION OR -------------------------------------
NAME RIGHTS(#) PAYOUT THRESHOLD(#) TARGET(#) MAXIMUM(#)
------------------------- ------------- ------------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
John P. Des Barres....... 17,400(1) 1/03/94 to 12/31/96 2,958 17,400 26,100
8,700(2)
Robert W. Best........... 8,800(1) 1/03/94 to 12/31/96 1,496 8,800 13,200
4,400(2)
Larry J. Dagley.......... 5,600(1) 1/03/94 to 12/31/96 952 5,600 8,400
2,800(2)
David E. Varner.......... 5,850(1) 1/03/94 to 12/31/96 995 5,850 8,775
2,925(2)
Nicholas J. Neuhausel.... 4,200(1) 1/03/94 to 12/31/96 714 4,200 6,300
2,100(2)
</TABLE>
---------------
(1) Represents performance-based Restricted Stock granted pursuant to the 1991
Incentive Stock Plan. A grantee of such Restricted Stock is the record owner
thereof during the restriction period and has all rights of a stockholder
including the right to vote and to receive dividends; provided, however,
that such grantee does not have the right to transfer such Restricted Stock
until the restrictions relating thereto are removed by the Compensation
Committee upon the achievement by the Company of certain performance goals.
The performance criterion for these awards is based upon the Company's total
shareholder return relative to a peer group of other companies.
(2) Represents the grant of Restricted Stock Units which are issued in
conjunction with the Restricted Stock presented immediately above. A
Restricted Stock Unit represents one share of Common Stock to be issued to
the grantee in the future upon the determination by the Compensation
Committee that the Company has achieved specified performance goals in
excess of the goals set for a corresponding grant of Restricted Stock. All
awards of Restricted Stock and Restricted Stock Units presented above are
accompanied by tax withholding rights.
102
<PAGE> 104
TRANSCO ENERGY COMPANY RETIREMENT PLAN AND SUPPLEMENTAL RETIREMENT BENEFIT PLAN
PENSION TABLE
The following table shows the estimated annual benefits that would be
payable upon normal retirement under the Transco Retirement Plan and, if
applicable, the Transco Supplemental Retirement Agreements, to employees in
various earnings classifications with representative years of service, assuming
in each case that the employee elected a single life annuity as the form of
benefit payment. Benefits listed in the table are not subject to a deduction for
offsets for social security or other offset amounts. The Transco Supplemental
Retirement Agreements provides benefits to participating executives that cannot
be paid under the Transco Retirement Plan because of limitations imposed by the
Internal Revenue Code on benefits payable under a qualified plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35
----------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 200,000............................... 50,677 67,569 84,461 101,353 118,245
$ 400,000............................... 103,177 137,569 171,961 206,353 240,745
$ 600,000............................... 155,677 207,569 259,461 311,353 363,245
$ 800,000............................... 208,177 277,569 346,961 416,353 485,745
$1,000,000............................... 260,677 347,569 434,461 521,353 608,245
</TABLE>
---------------
(1) The covered compensation upon which final average earnings are computed
under the Transco Retirement Plan is the base compensation of the
participant, excluding bonuses, commissions, per diem, premium pay or any
other extra compensation, reimbursement for business expenses, group life
insurance premiums, overtime pay, or any benefits under the Transco
Retirement Plan or any other benefit plan with the exception of Internal
Revenue Code Section 401(k) contributions made under the Transco Thrift Plan
and salary reduction contributions made under the Company's Internal Revenue
Code Section 125 cafeteria plan and is subject to the Internal Revenue Code
limitation described above. This base compensation is set forth in column
(c) of the Summary Compensation Table. Final average earnings are computed
by averaging covered compensation over the highest three consecutive years
out of the final five years prior to retirement. Under the Transco
Supplemental Retirement Agreements, the covered compensation includes all
covered compensation under the Transco Retirement Plan, without regard to
the Internal Revenue Code limitation described above, plus annual incentive
compensation. This annual incentive compensation is set forth in column (d)
of the Summary Compensation Table.
The current years of service with the Company for the Named Executive
Officers as of December 31, 1994 are: Mr. Des Barres 3.33 years, Mr. Dagley 9.42
years, Mr. Varner 12.67 years, Mr. Neuhausel 1.58 years, respectively. Mr. Best
does not participate in this plan. Mr. Des Barres has a Supplemental Retirement
Agreement which credits him with an additional 28 years of service for the
purposes of calculating his retirement benefit. Mr. Des Barres vested in this
benefit on September 30, 1994. Any amount received under this agreement is
required to be reduced by any amount Mr. Des Barres receives under any other
employer's retirement plan. This agreement was entered into by the Company and
Mr. Des Barres in connection with his acceptance of employment with the Company
and is intended to replace a similar benefit which he had been provided by his
previous employer.
TEXAS GAS RETIREMENT PLAN AND SUPPLEMENTAL RETIREMENT BENEFIT PLAN PENSION TABLE
The following table shows estimated annual benefits that would be payable
on normal retirement under the Texas Gas Retirement Plan and, if applicable, the
Texas Gas Supplemental Retirement Benefit Plan to participants in such plans in
various earnings classifications, with representative years of service, assuming
in each case that the employee elected a five-year certain and life thereafter
annuity as the form of benefit payment. Benefits listed in the table are not
subject to a deduction for offsets for social security or other offset
103
<PAGE> 105
amounts. The Texas Gas Supplemental Retirement Benefit Plan provides benefits to
participating executives that cannot be paid under the Retirement Plan because
of certain limitations imposed by the Internal Revenue Code on the benefits
payable under a qualified plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------
REMUNERATION(1) 15 20 25 30 35
------------------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 200,000....................................... 48,180 64,240 80,300 96,360 112,420
$ 400,000....................................... 96,930 129,240 161,550 193,860 226,170
$ 600,000....................................... 145,680 194,240 242,800 291,360 339,920
$ 800,000....................................... 194,430 259,240 324,050 388,860 453,670
$1,000,000....................................... 243,180 324,240 405,300 486,360 567,420
</TABLE>
---------------
(1) The covered compensation upon which final average earnings are computed
under the Texas Gas Retirement Plan and the Texas Gas Supplemental
Retirement Benefit Plan is the base compensation of the participant,
excluding overtime, bonuses, commissions, payments under an employee benefit
plan, or other special compensation without regard to the Internal Revenue
Code limitation described above. This base compensation is set forth in
column (c) of the Summary Compensation Table.
Mr. Best, whose years of service at December 31, 1994 were 20.25 years, is
the only Named Executive Officer who participates in the Texas Gas Retirement
Plan or the Texas Gas Supplemental Retirement Benefit Plan.
TERMINATION AND SEVERANCE AGREEMENTS
A Termination Agreement between Transco and Mr. Des Barres is currently in
effect. This Agreement provides that if a "change in control"(1) occurs, and Mr.
Des Barres' employment with Transco terminates within five years after the
change in control and prior to his 65th birthday, Transco will pay him, as a
termination payment, a lump sum equal to his annual salary, estimated bonus
amounts based upon a certain target award percentage which must equal at least
50 percent of his base salary and the value of certain benefits under Transco's
benefit plans and programs which would have accrued during a period of up to
five years after the change in control, subject to certain adjustments and
offsets. Mr. Dagley and Mr. Varner have also entered into Termination Agreements
with provisions similar to those described above for Mr. Des Barres, except that
each shall be entitled to receive, upon termination within three years after a
change in control, a lump sum amount equal to the sum of annual base salary,
estimated bonus amounts and certain benefits under Transco's employee benefit
plans and programs which would have accrued during a period of up to three years
after the change in control. In addition, a Termination Agreement is also in
effect for Mr. Neuhausel. Mr. Neuhausel's Termination Agreement has the same
provisions as the Agreements of Messrs. Dagley and Varner, except that his total
payments under the Termination Agreement will be limited to an amount such that
no payments to him will be "excess parachute payments" for tax purposes.
Mr. Des Barres has also entered into a Severance Agreement which provides
benefits similar to the Termination Agreement for the period from the date of
termination and ending September 1996, but is not conditioned upon the
occurrence of a change in control of Transco. The Severance Agreement terminates
in September 1996, unless extended by mutual agreement. Mr. Best has entered
into a Severance Agreement with provisions similar to those described for Mr.
Des Barres, except that the Severance Agreement provides,
---------------
(1)A "Change of Control" is defined to include the acquisition by any person of
beneficial ownership of 25% or more of the outstanding shares of Transco common
stock, approval by the stockholders of the Company of a reorganization, merger
or consolidation, subject to certain circumstances, and approval by the
stockholders of the Company of a complete liquidation of dissolution of the
Company or the sale or other disposition of all or substantially all of the
assets of the Company, subject to certain circumstances.
104
<PAGE> 106
upon termination of employment by Transco, for the payment by Transco of a lump
sum equal to Mr. Best's annual base salary, estimated bonus amounts and the
value of certain benefits under Transco's employee benefit plans and programs
which would have accrued during a period of up to three years after termination.
Messrs. Dagley, Neuhausel and Varner have entered into Severance Agreements with
provisions similar to those described above for Mr. Best, except that the
Agreements provide for the payment by Transco of benefits which would have
accrued during a one-year period after termination and the payment of the annual
base salary amount is to be paid in semi-monthly installments for twelve months
and certain benefits for tax, financial and outplacement counseling.
Transco, Williams and each of Messrs. Des Barres, Dagley, Neuhausel and
Varner entered into agreements dated as of December 11, 1994 providing that such
executives agree to eliminate their rights under their Severance Agreements upon
any termination of their employment following a change of control in which they
receive benefits under their Termination Agreements except that (i) in the case
of Messrs. Des Barres, Dagley and Varner, to the extent they would receive less
than one year's salary as severance under their respective Termination
Agreement, they will continue to receive the balance of one year as severance
under their Severance Agreement, and (ii) in the case of Messrs. Dagley,
Neuhausel and Varner, they will continue to receive certain tax, financial
counseling and outplacement benefits provided under their Severance Agreements.
On December 11, 1994, the Board of Directors established the Senior
Executive Special Bonus and Retention Plan (the Senior Executive Plan), under
which the participants received bonuses as a result of the consummation of the
tender offer by Williams and will receive bonuses following the consummation of
the Merger or another Extraordinary Transaction (as defined in the Senior
Executive Plan) involving Transco, if such event occurs on or before December
31, 1995. The bonuses payable under the Senior Executive Plan consist of (i) a
cash bonus (Transaction Bonus) which was paid upon the consummation of the
tender offer, and (ii) a retention bonus (Retention Bonus) in an amount equal to
the Transaction Bonus, also payable in cash, on the later of December 31, 1995
or the sixth month anniversary of the effective date of the Merger or another
Extraordinary Transaction. An individual participant will be eligible to receive
the Retention Bonus only if (i) he is employed by Transco on the date the
Retention Bonus becomes payable, (ii) his employment is terminated by Transco
before the Extraordinary Transaction in anticipation of, or at the request of a
party intending to consummate, the Extraordinary Transaction, or (iii) his
employment is terminated by the participant for "good reason" or by Transco
without "cause" (as defined in the participant's Termination Agreement with
Transco) before the Retention Bonus becomes payable. The participants in the
program, and the aggregate amount of the combined Transaction Bonus and
Retention Bonus that each of them is eligible to receive under the Senior
Executive Plan are: Messrs. Des Barres ($2,062,500), Best ($1,375,000), Dagley
($1,375,000) and Varner ($687,500). Pursuant to such participants' Termination
Agreements (or in the case of Mr. Best, his Severance Agreement), Transco
indemnifies the participants against certain excise taxes payable by them, which
would include any such excise taxes payable on bonuses under the Senior
Executive Plan.
105
<PAGE> 107
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SECURITY OWNERSHIP
The following identifies all persons known to the Company, as of February
28, 1995, to be beneficial owners of more than 5% of any class of the Company's
voting securities.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL OUTSTANDING
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
---------------- ---------------------------------------------- ---------- -----------
<S> <C> <C> <C>
Common Stock: The Williams Companies, Inc. 24,600,000(1) 60.36
One Williams Center
Tulsa, Oklahoma 74172
Sasco Capital, Incorporated 3,454,300(2) 8.48
10 Sasco Hill Road
Fairfield, Connecticut 06430
The Prudential Insurance Company of America 2,363,472(3) 5.80
Prudential Plaza
Newark, New Jersey 07102-3777
</TABLE>
---------------
(1) According to a Schedule 13D filed with the Securities and Exchange
Commission (the SEC) by The Williams Companies, Inc. (Williams), as of
January 30, 1995, Williams had sole voting and dispositive power over
24,600,000 shares of the Company's Common Stock. Williams had no shared
powers with respect to any other shares of the Company. See "Item 1. Merger
with Williams."
(2) According to a Schedule 13G filed with the SEC by Sasco Capital,
Incorporated (Sasco), as of December 31, 1994, Sasco had sole voting power
over 1,768,100 shares of the Company's Common Stock and sole dispositive
power over 3,454,300 shares of the Company's Common Stock. Sasco had no
shared powers with respect to any other shares of the Company.
(3) According to a Schedule 13G filed with the SEC by The Prudential Insurance
Company of America (Prudential), as of December 31, 1994, Prudential had
sole voting and dispositive power over 19,286 shares of the Company's Common
Stock, shared voting power over 2,332,100 shares, and shared dispositive
power over 2,333,100 shares.
106
<PAGE> 108
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following sets forth, as to the Common Stock of the Company, the number
of such securities held by each Director, each of the Named Executive Officers
and the Directors and executive officers of the Company as a group. None of the
Company's Directors and executive officers own any of the Company's Cumulative
Convertible Preferred Stock, $3.50 Series or $4.75 Series.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP PERCENT
AS OF OF
NAME MARCH 3, 1995 CLASS
---- ------------- -------
<S> <C> <C>
Directors
Gordon F. Ahalt....................................................... 13,392.000 .03
Benjamin F. Bailar.................................................... 13,392.000 .03
Keith E. Bailey....................................................... -- --
John C. Bumgarner Jr.................................................. -- --
John P. Des Barres.................................................... 351,046.273 .85
Robert W. Fri......................................................... 13,122.127 .03
J. David Grissom...................................................... 13,091.000 .03
Patricia L. Higgins................................................... 5,000.000 .01
William H. Luers...................................................... 13,091.000 .03
Frederick H. Schultz.................................................. 13,091.000 .03
Named Executive Officers
Robert W. Best........................................................ 187,228.000 .46
Larry J. Dagley....................................................... 146,580.623 .36
David E. Varner....................................................... 143,950.251 .35
Nicholas J. Neuhausel................................................. 73,279.789 .18
Directors and executive officers as a group (14 persons).............. 986,265.419 2.37
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
107
<PAGE> 109
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
A. INDEX
<TABLE>
<CAPTION>
PAGE REFERENCE TO
-----------------
1994 10-K
-----------------
<S> <C>
1. FINANCIAL STATEMENTS:
Report of Independent Public Accountants............................... 41
Consolidated Balance Sheet as of December 31, 1994 and 1993............ 43
Consolidated Statement of Operations for the Years Ended December 31,
1994, 1993 and 1992................................................... 45
Consolidated Statement of Cash Flows for the Years Ended December 31,
1994, 1993 and 1992................................................... 46
Consolidated Statement of Common Stockholders' Equity for the Years
Ended December 31, 1994, 1993 and 1992................................ 47
Schedule of Segment Information for the Years Ended December 31, 1994,
1993 and 1992......................................................... 48
Notes to Consolidated Financial Statements............................. 51
Consent of Independent Public Accountants.............................. 114
2. FINANCIAL STATEMENT SCHEDULES:
Schedule I -- Condensed financial information of Registrant -- for the
years ended December 31, 1994, 1993 and 1992............ 90
Schedule II -- Valuation and qualifying accounts and reserves -- for
the years ended December 31, 1994, 1993 and 1992........ 93
</TABLE>
The following schedules are omitted because of the absence of the
conditions under which they are required:
III, IV and V.
3. EXHIBITS:
The following instruments are included as exhibits to this report. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, copies of the instrument have been included herewith.
<TABLE>
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(2) 1 -- Agreement and Plan of Merger dated as of December 12, 1994 by and among The
Williams Companies, Inc., WC Acquisition Corp. and Transco. (Exhibit 2 to
Schedule 14D-9 Commission File Number 005-19963)
2 -- Amendment to Agreement and Plan of Merger dated as of February 17, 1995 by and
among The Williams Companies, Inc., WC Acquisition Corp. and Transco.
3 -- Stock Option Agreement dated as of December 12, 1994 by and between The
Williams Companies, Inc. and Transco. (Exhibit 3 to Schedule 14D-9 Commission
File Number 005-19963)
(3) 1 -- Second Restated Certificate of Incorporation, as amended, of Registrant.
(Exhibit (3)-1 to Transco Form 10-K for 1989 Commission File Number 1-7513)
2 -- By-Laws of Registrant, as amended.
(4) Transco Energy Company
1 -- Certificate of Designation, Preferences and Rights relating to Registrant's
Cumulative Convertible Preferred Stock, $3.50 Series. (Exhibit (4)-2 to Transco
Form 10-K for 1993 Commission File Number 1-7513)
2 -- Certificate of Designation, Preferences and Rights relating to Registrant's
Cumulative Convertible Preferred Stock, $4.75 Series. (Registration Statement
No. 33-1145)
</TABLE>
108
<PAGE> 110
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3 -- Indenture dated as of May 1, 1990 between Transco and The Bank of New York, as
Trustee. (Transco Form 8-K dated June 25, 1990 Commission File Number 1-7513)
(a) First Supplemental Indenture dated as of June 20, 1990 between Transco
and The Bank of New York, as Trustee. (Transco Form 8-K dated June 25,
1990 Commission File Number 1-7513)
(b) Certified Resolutions of Transco Board of Directors, adopted July 20,
1990. (Transco Form 8-K dated August 2, 1990 Commission File Number
1-7513)
(c) Second Supplemental Indenture dated as of November 29, 1990. (Transco
Form 8-K dated December 7, 1990 Commission File Number 1-7513)
(d) Third Supplemental Indenture dated as of April 23, 1991. (Transco Form
8-K dated April 30, 1991 Commission File Number 1-7513)
(e) Fourth Supplemental Indenture dated as of August 22, 1991. (Transco Form
8-K dated August 27, 1991 Commission File Number 1-7513)
4 -- Credit Agreement dated as of December 31, 1991 among Transco, the Banks named
therein and Citibank, N.A., as Agent and Bank of Montreal, as Co-Agent.
(Exhibit (4)-13 to Transco Form 10-K for 1991 Commission File Number 1-7513)
(a) First Amendment Agreement dated as of March 31, 1992 among Transco, the
Banks named therein, Citibank N.A., as Agent and Bank of Montreal, as
Co-Agent. (Transco Form 10-Q for March 31, 1992 Commission File Number
1-7513)
(b) Second Amendment Agreement dated as of May 11, 1992 among Transco, the
Banks named therein, Citibank N.A., as Agent and Bank of Montreal, as
Co-Agent. (Transco Form 10-Q for March 31, 1992 Commission File Number
1-7513)
(c) Amended and Restated Credit Agreement dated as of December 31, 1993 among
Transco, the Banks named therein, Citibank, N.A., as Agent and Bank of
Montreal, as Co-Agent. (Exhibit (4)-5c to Transco Form 10-K for 1993
Commission File Number 1-7513)
(i) Second Amendment dated as of December 12, 1994 among Transco, the
Banks named therein and Citibank, N.A., as Agent. (Exhibit 30 to
Amendment No. 3 to Schedule 14D-9 Commission File Number 005-19963)
(ii) Third Amendment Agreement dated as of December 12, 1994 among
Transco, the Banks named therein and Citibank, N.A., as Agent
(Exhibit 31 to Amendment No. 3 to Schedule 14D-9 Commission File
Number 005-19963)
5 -- Indenture dated as of July 1, 1992 between Transco and The Bank of New York, as
Trustee. (Transco Form 8-K dated July 2, 1992 Commission File Number 1-7513)
(a) First Supplemental Indenture dated as of October 15, 1993 between Transco
and the Bank of New York, as Trustee. (Exhibit (4)-6a to Transco Form
10-K for 1993 Commission File Number 1-7513)
(b) Second Supplemental Indenture dated as of February 10, 1995 between
Transco and the Bank of New York, as Trustee
6 -- Reimbursement Agreement dated as of December 31, 1993 among Transco, the Banks
named therein and Bank of Montreal as Agent and Issuing Bank. (Exhibit (4)-7 to
Transco Form 10-K for 1993 Commission File Number 1-7513)
(a) Second Amendment dated as of December 12, 1994 among Transco, the Banks
named therein and Bank of Montreal as Agent and Issuing Bank. (Exhibit 32
to Amendment No. 3 to Schedule 14D-9 Commission File Number 005-19963)
(b) Third Amendment dated as of December 12, 1994 among Transco, the Banks
named therein and Bank of Montreal as Agent and Issuing Bank. (Exhibit 33
to Amendment No. 3 to Schedule 14D-9 Commission File Number 005-19963)
7 -- Credit Agreement dated as of February 23, 1995 by and among TGPL, Texas Gas,
The Williams Companies Inc., Northwest Pipeline Corporation, Williams Pipe Line
Company and Citibank, N.A. as agent and the Banks named therein
8 -- Credit Agreement dated as of January 23, 1995, by and among The Williams
Companies, Inc., Transco and TCC
</TABLE>
109
<PAGE> 111
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(10) COMPENSATION PLANS AND MANAGEMENT CONTRACTS
1 -- 1983 Incentive Plan of Transco. (Transco Registration Statement No. 2-85895)
2 -- 1991 Incentive Plan of Transco. (Transco Registration Statement No. 33-40495)
3 -- Amended & Restated 1991 Incentive Stock Plan
4 -- Transco Incentive Compensation Plan. (Exhibit (10)-4 to Transco Form 10-K for
1989 Commission File Number 1-7513)
5 -- Benefit Restoration Plan of Transco. (Exhibit (10)-4 to Transco Form 10-K for
1992 Commission File Number 1-7513)
6 -- Transco Tran$tock Employee Stock Ownership Plan. (Transco Registration
Statement No. 33-11721)
7 -- Form of Supplemental Retirement Agreement which Transco has entered into with
Messrs. Dagley and Varner. (Exhibit (10)-7 to Transco Form 10-K for 1992
Commission File Number 1-7513)
8 -- Form of Termination Agreement which Transco has entered into with Messrs. Best,
Dagley and Varner. (Exhibit (10)-8 to Transco Form 10-K for 1992 Commission
File Number 1-7513)
9 -- Severance Agreement between Transco and John P. Des Barres, effective as of
September 14, 1991. (Exhibit (10)-10 to Transco Form 10-K for 1992 Commission
File Number 1-7513)
10 -- Termination Agreement between Transco and John P. Des Barres, effective as of
September 14, 1991. (Exhibit (10)-11 to Transco Form 10-K for 1992 Commission
File Number 1-7513)
11 -- Severance Agreement, dated as of March 25, 1992, by and between Transco and
Robert W. Best. (Exhibit (10)-12 to Transco Form 10-K for 1993 Commission File
Number 1-7513)
12 -- Severance Agreement, dated as of March 17, 1993, by and between Transco and
David E. Varner and schedule identifying substantially similar Severance
Agreements between Transco and other executive officers. (Exhibit (10)-13 to
Transco Form 10-K for 1993 Commission File Number 1-7513)
13 -- Indemnification Agreement between Transco and David E. Varner and schedule
identifying substantially similar Indemnification Agreements between Transco
and other executive officers. (Exhibit (10)-16 to Transco Form 10-K for 1993
Commission File Number 1-7513)
14 -- Termination Agreement dated as of December 11, 1994 between Transco and
Nicholas J. Neuhausel. (Exhibit 7 to Schedule 14D-9 Commission File Number
005-19963)
15 -- Amendment dated as of December 11, 1994 to the Termination Agreement between
Transco and Larry J. Dagley dated as of March 25, 1992. (Exhibit 8 to Schedule
14D-9 Commission File Number 005-19963)
16 -- Amendment dated as of December 11, 1994 to the Termination Agreement between
Transco and David E. Varner dated as of March 25, 1992. (Exhibit 10 to Schedule
14D-9 Commission File Number 005-19963)
17 -- Amendment dated as of December 11, 1994 to the Termination Agreement between
Transco and John P. Des Barres dated as of October 31, 1991. (Exhibit 11 to
Schedule 14D-9 Commission File Number 005-19963)
18 -- Amendment dated as of December 11, 1994 to the Severance Agreement between
Transco and Robert W. Best dated as of March 25, 1992. (Exhibit 12 to Schedule
14D-9 Commission File Number 005-19963)
19 -- Senior Executive Special Bonus and Retention Plan. (Exhibit 13 to Schedule
14D-9 Commission File Number 005-19963)
20 -- Agreement dated as of December 11, 1994 between Transco, The Williams
Companies, Inc. and Larry J. Dagley. (Exhibit 14 to Schedule 14D-9 Commission
File Number 005-19963)
21 -- Agreement dated as of December 11, 1994 between Transco, The Williams
Companies, Inc. and David E. Varner. (Exhibit 15 to Schedule 14D-9 Commission
File Number 005-19963)
</TABLE>
110
<PAGE> 112
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22 -- Agreement dated as of December 11, 1994 between Transco, The Williams
Companies, Inc. and Nicholas Neuhausel. (Exhibit 16 to Schedule 14D-9
Commission File Number 005-19963)
23 -- Agreement dated as of December 11, 1994 between Transco, The Williams
Companies, Inc. and John P. Des Barres. (Exhibit 19 to Schedule 14D-9
Commission File Number 005-19963)
MATERIAL CONTRACTS -- TRANSCONTINENTAL GAS PIPE LINE CORPORATION
24 -- Second Restated Certificate of Incorporation, as amended of TGPL. (Exhibit 3.1
to TGPL Form 8-K dated January 23, 1987 Commission File Number 1-7584)
(a) Certificate of Amendment, dated July 30, 1992, to the Second Restated
Certificate of Incorporation (Exhibit (10)-17a to Transco Form 10-K for
1993 Commission File Number 1-7513)
(b) Certificate of Amendment, dated December 22, 1987, to the Second Restated
Certificate of Incorporation (Exhibit (10)-17b to Transco Form 10-K for
1993 Commission File Number 1-7513)
(c) Certificate of Amendment, dated August 5, 1987, to the Second Restated
Certificate of Incorporation (Exhibit (10)-17c to Transco Form 10-K for
1993 Commission File Number 1-7513)
25 -- By-Laws of TGPL, as amended. (Exhibit (10)-13 to Transco Form 10-K for 1992
Commission File Number 1-7513)
26 -- Certificate of Designation, Preferences and Rights relating to TGPL's
Cumulative Preferred Stock, $8.75 Series. (Exhibit 3.1 to TGPL Form 8-K dated
January 23, 1987 Commission File Number 1-7584)
27 -- Indenture dated as of June 1, 1983 between TGPL and RepublicBank Houston,
National Association, as Trustee. (Exhibit (4)-5 to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(a) First Supplemental Indenture dated September 20, 1984 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5a to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(b) Second Supplemental Indenture dated as of May 31, 1985 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5b to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(c) Third Supplemental Indenture dated as of December 3, 1985 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5c to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(d) Certified Resolutions of a Special Committee of the Board of Directors
dated October 31, 1986. (Exhibit (4)-5d to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(e) Fourth Supplemental Indenture dated as of November 7, 1986 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5e to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(f) Fifth Supplemental Indenture dated as of January 15, 1987 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5f to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(g) Certified Resolutions of a Special Committee of the Board of Directors
dated January 29, 1987. (Exhibit (4)-5g to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(h) Sixth Supplemental Indenture dated as of September 15, 1987 from TGPL to
First RepublicBank Houston, National Association related to Indenture
dated as of June 1, 1983. (Exhibit (4)-5h to TGPL Form 10-K for 1989
Commission File Number 1-7584)
</TABLE>
111
<PAGE> 113
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28 -- Indenture dated September 15, 1992 between TGPL and the Bank of New York, as
Trustee. (Exhibit 4.2 to TGPL Form 8-K dated September 17, 1992 Commission File
Number 1-7584)
MATERIAL CONTRACTS -- TEXAS GAS TRANSMISSION CORPORATION
29 -- Certificate of Incorporation of Texas Gas (Exhibit 3.1 to Texas Gas Form 10-K
for 1989 Commission File Number 1-4169)
30 -- By-Laws of Texas Gas. (Texas Gas Form 10-K for 1991 Commission File Number
1-4169)
31 -- Indenture dated July 15, 1992 between Texas Gas and Chase Manhattan Bank
(Exhibit 4.2 to Texas Gas Form 8-K dated July 16, 1992 Commission File Number
1-4169)
32 -- Indenture dated April 11, 1994 between Texas Gas and Chase Manhattan Bank.
(Exhibit 4.2 to Texas Gas Form 8-K dated April 13, 1994 Commission File Number
1-4169)
33 -- Texas Gas Supplemental Benefit Plan. (Exhibit (10)-26 to Transco Form 10-K for
1993 Commission File Number 1-7513)
(21) Schedule listing subsidiaries of the Registrant
(23) Consent of Independent Public Accountants is set forth on page 114
</TABLE>
B. REPORTS ON FORM 8-K
Transco filed the following Current Reports on Form 8-K:
(i) Form 8-K dated April 7, 1994 with respect to settlement agreements
entered into by Transco and TGPL, among others, to resolve litigation with
Dakota Gasification Company and the Department of Energy.
(ii) Form 8-K dated December 12, 1994 with respect to the Agreement
and Plan of Merger with The Williams Companies, Inc. and WC Acquisition
Corp.
(iii) Form 8-K dated December 15, 1994 with respect to the
reorganization proceeding of Continental Energy Associates Limited
Partnership.
(iv) Form 8-K dated January 18, 1995 with respect to the change of
control of Transco.
(v) Form 8-K dated February 9, 1995 with respect to Transco's fourth
quarter earnings.
C. OTHER MATTERS
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
File No. 33-28358 (filed April 28, 1989), No. 2-71716 (filed April 10, 1981),
No. 33-11721 (filed February 3, 1987), No. 2-64025 (filed April 6, 1979), No.
33-31179 (filed September 20, 1979), No. 33-40495 (filed May 9, 1991), No.
33-44478 (filed December 12, 1991), No. 33-47727 (filed May 7, 1992) and
33-53731 (filed May 14, 1994):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
112
<PAGE> 114
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, ON THIS 23RD DAY OF
MARCH, 1995.
TRANSCO ENERGY COMPANY
REGISTRANT
BY: NICK A. BACILE
-----------------------------
(NICK A. BACILE)
Vice President and Controller
(Principal Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED ON THIS 23RD DAY OF MARCH, 1995, BELOW BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
<TABLE>
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SIGNATURE TITLE
--------- -----
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GORDON F. AHALT Director
-------------------------------------------
(Gordon F. Ahalt)
BENJAMIN F. BAILAR Director
-------------------------------------------
(Benjamin F. Bailar)
KEITH E. BAILEY Director
-------------------------------------------
(Keith E. Bailey)
JOHN C. BUMGARNER JR. Director
-------------------------------------------
(John C. Bumgarner Jr.)
JOHN P. DES BARRES Chairman of the Board, President and Chief
------------------------------------------- Executive Officer (principal executive
(John P. Des Barres) officer)
ROBERT W. FRI Director
-------------------------------------------
(Robert W. Fri)
J. DAVID GRISSOM Director
-------------------------------------------
(J. David Grissom)
PATRICIA L. HIGGINS Director
-------------------------------------------
(Patricia L. Higgins)
WILLIAM H. LUERS Director
-------------------------------------------
(William H. Luers)
FREDERICK H. SCHULTZ Director
-------------------------------------------
(Frederick H. Schultz)
LARRY J. DAGLEY Senior Vice President and Chief Financial
------------------------------------------- Officer (principal financial officer)
(Larry J. Dagley)
</TABLE>
113
<PAGE> 115
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated February 20, 1995 included in this Form 10-K
into Transco's previously filed registration statements on Form S-8 (File Nos.
2-64025, 2-71716, 33-28358, 33-11721, 33-31179, 33-40495, 33-44478, 33-47727 and
33-53731).
ARTHUR ANDERSEN LLP
Houston, Texas
March 23, 1995
114
<PAGE> 116
INDEX TO EXHIBITS
The following instruments are included as exhibits to this report. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, copies of the instrument have been included herewith.
<TABLE>
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(2) 1 -- Agreement and Plan of Merger dated as of December 12, 1994 by and among The
Williams Companies, Inc., WC Acquisition Corp. and Transco. (Exhibit 2 to
Schedule 14D-9 Commission File Number 005-19963)
2 -- Amendment to Agreement and Plan of Merger dated as of February 17, 1995 by and
among The Williams Companies, Inc., WC Acquisition Corp. and Transco.
3 -- Stock Option Agreement dated as of December 12, 1994 by and between The
Williams Companies, Inc. and Transco. (Exhibit 3 to Schedule 14D-9 Commission
File Number 005-19963)
(3) 1 -- Second Restated Certificate of Incorporation, as amended, of Registrant.
(Exhibit (3)-1 to Transco Form 10-K for 1989 Commission File Number 1-7513)
2 -- By-Laws of Registrant, as amended.
(4) Transco Energy Company
1 -- Certificate of Designation, Preferences and Rights relating to Registrant's
Cumulative Convertible Preferred Stock, $3.50 Series. (Exhibit (4)-2 to Transco
Form 10-K for 1993 Commission File Number 1-7513)
2 -- Certificate of Designation, Preferences and Rights relating to Registrant's
Cumulative Convertible Preferred Stock, $4.75 Series. (Registration Statement
No. 33-1145)
3 -- Indenture dated as of May 1, 1990 between Transco and The Bank of New York, as
Trustee. (Transco Form 8-K dated June 25, 1990 Commission File Number 1-7513)
(a) First Supplemental Indenture dated as of June 20, 1990 between Transco
and The Bank of New York, as Trustee. (Transco Form 8-K dated June 25,
1990 Commission File Number 1-7513)
(b) Certified Resolutions of Transco Board of Directors, adopted July 20,
1990. (Transco Form 8-K dated August 2, 1990 Commission File Number
1-7513)
(c) Second Supplemental Indenture dated as of November 29, 1990. (Transco
Form 8-K dated December 7, 1990 Commission File Number 1-7513)
(d) Third Supplemental Indenture dated as of April 23, 1991. (Transco Form
8-K dated April 30, 1991 Commission File Number 1-7513)
(e) Fourth Supplemental Indenture dated as of August 22, 1991. (Transco Form
8-K dated August 27, 1991 Commission File Number 1-7513)
4 -- Credit Agreement dated as of December 31, 1991 among Transco, the Banks named
therein and Citibank, N.A., as Agent and Bank of Montreal, as Co-Agent.
(Exhibit (4)-13 to Transco Form 10-K for 1991 Commission File Number 1-7513)
(a) First Amendment Agreement dated as of March 31, 1992 among Transco, the
Banks named therein, Citibank N.A., as Agent and Bank of Montreal, as
Co-Agent. (Transco Form 10-Q for March 31, 1992 Commission File Number
1-7513)
(b) Second Amendment Agreement dated as of May 11, 1992 among Transco, the
Banks named therein, Citibank N.A., as Agent and Bank of Montreal, as
Co-Agent. (Transco Form 10-Q for March 31, 1992 Commission File Number
1-7513)
(c) Amended and Restated Credit Agreement dated as of December 31, 1993 among
Transco, the Banks named therein, Citibank, N.A., as Agent and Bank of
Montreal, as Co-Agent. (Exhibit (4)-5c to Transco Form 10-K for 1993
Commission File Number 1-7513)
(i) Second Amendment dated as of December 12, 1994 among Transco, the
Banks named therein and Citibank, N.A., as Agent. (Exhibit 30 to
Amendment No. 3 to Schedule 14D-9 Commission File Number 005-19963)
(ii) Third Amendment Agreement dated as of December 12, 1994 among
Transco, the Banks named therein and Citibank, N.A., as Agent
(Exhibit 31 to Amendment No. 3 to Schedule 14D-9 Commission File
Number 005-19963)
</TABLE>
<PAGE> 117
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5 -- Indenture dated as of July 1, 1992 between Transco and The Bank of New York, as
Trustee. (Transco Form 8-K dated July 2, 1992 Commission File Number 1-7513)
(a) First Supplemental Indenture dated as of October 15, 1993 between Transco
and the Bank of New York, as Trustee. (Exhibit (4)-6a to Transco Form
10-K for 1993 Commission File Number 1-7513)
(b) Second Supplemental Indenture dated as of February 10, 1995 between
Transco and the Bank of New York, as Trustee
6 -- Reimbursement Agreement dated as of December 31, 1993 among Transco, the Banks
named therein and Bank of Montreal as Agent and Issuing Bank. (Exhibit (4)-7 to
Transco Form 10-K for 1993 Commission File Number 1-7513)
(a) Second Amendment dated as of December 12, 1994 among Transco, the Banks
named therein and Bank of Montreal as Agent and Issuing Bank. (Exhibit 32
to Amendment No. 3 to Schedule 14D-9 Commission File Number 005-19963)
(b) Third Amendment dated as of December 12, 1994 among Transco, the Banks
named therein and Bank of Montreal as Agent and Issuing Bank. (Exhibit 33
to Amendment No. 3 to Schedule 14D-9 Commission File Number 005-19963)
7 -- Credit Agreement dated as of February 23, 1995 by and among TGPL, Texas Gas,
The Williams Companies Inc., Northwest Pipeline Corporation, Williams Pipe Line
Company and Citibank, N.A. as agent and the Banks named therein
8 -- Credit Agreement dated as of January 23, 1995, by and among The Williams
Companies, Inc., Transco and TCC
(10) COMPENSATION PLANS AND MANAGEMENT CONTRACTS
1 -- 1983 Incentive Plan of Transco. (Transco Registration Statement No. 2-85895)
2 -- 1991 Incentive Plan of Transco. (Transco Registration Statement No. 33-40495)
3 -- Amended & Restated 1991 Incentive Stock Plan
4 -- Transco Incentive Compensation Plan. (Exhibit (10)-4 to Transco Form 10-K for
1989 Commission File Number 1-7513)
5 -- Benefit Restoration Plan of Transco. (Exhibit (10)-4 to Transco Form 10-K for
1992 Commission File Number 1-7513)
6 -- Transco Tran$tock Employee Stock Ownership Plan. (Transco Registration
Statement No. 33-11721)
7 -- Form of Supplemental Retirement Agreement which Transco has entered into with
Messrs. Dagley and Varner. (Exhibit (10)-7 to Transco Form 10-K for 1992
Commission File Number 1-7513)
8 -- Form of Termination Agreement which Transco has entered into with Messrs. Best,
Dagley and Varner. (Exhibit (10)-8 to Transco Form 10-K for 1992 Commission
File Number 1-7513)
9 -- Severance Agreement between Transco and John P. Des Barres, effective as of
September 14, 1991. (Exhibit (10)-10 to Transco Form 10-K for 1992 Commission
File Number 1-7513)
10 -- Termination Agreement between Transco and John P. Des Barres, effective as of
September 14, 1991. (Exhibit (10)-11 to Transco Form 10-K for 1992 Commission
File Number 1-7513)
11 -- Severance Agreement, dated as of March 25, 1992, by and between Transco and
Robert W. Best. (Exhibit (10)-12 to Transco Form 10-K for 1993 Commission File
Number 1-7513)
12 -- Severance Agreement, dated as of March 17, 1993, by and between Transco and
David E. Varner and schedule identifying substantially similar Severance
Agreements between Transco and other executive officers. (Exhibit (10)-13 to
Transco Form 10-K for 1993 Commission File Number 1-7513)
13 -- Indemnification Agreement between Transco and David E. Varner and schedule
identifying substantially similar Indemnification Agreements between Transco
and other executive officers. (Exhibit (10)-16 to Transco Form 10-K for 1993
Commission File Number 1-7513)
</TABLE>
<PAGE> 118
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14 -- Termination Agreement dated as of December 11, 1994 between Transco and
Nicholas J. Neuhausel. (Exhibit 7 to Schedule 14D-9 Commission File Number
005-19963)
15 -- Amendment dated as of December 11, 1994 to the Termination Agreement between
Transco and Larry J. Dagley dated as of March 25, 1992. (Exhibit 8 to Schedule
14D-9 Commission File Number 005-19963)
16 -- Amendment dated as of December 11, 1994 to the Termination Agreement between
Transco and David E. Varner dated as of March 25, 1992. (Exhibit 10 to Schedule
14D-9 Commission File Number 005-19963)
17 -- Amendment dated as of December 11, 1994 to the Termination Agreement between
Transco and John P. Des Barres dated as of October 31, 1991. (Exhibit 11 to
Schedule 14D-9 Commission File Number 005-19963)
18 -- Amendment dated as of December 11, 1994 to the Severance Agreement between
Transco and Robert W. Best dated as of March 25, 1992. (Exhibit 12 to Schedule
14D-9 Commission File Number 005-19963)
19 -- Senior Executive Special Bonus and Retention Plan. (Exhibit 13 to Schedule
14D-9 Commission File Number 005-19963)
20 -- Agreement dated as of December 11, 1994 between Transco, The Williams
Companies, Inc. and Larry J. Dagley. (Exhibit 14 to Schedule 14D-9 Commission
File Number 005-19963)
21 -- Agreement dated as of December 11, 1994 between Transco, The Williams
Companies, Inc. and David E. Varner. (Exhibit 15 to Schedule 14D-9 Commission
File Number 005-19963)
22 -- Agreement dated as of December 11, 1994 between Transco, The Williams
Companies, Inc. and Nicholas Neuhausel. (Exhibit 16 to Schedule 14D-9
Commission File Number 005-19963)
23 -- Agreement dated as of December 11, 1994 between Transco, The Williams
Companies, Inc. and John P. Des Barres. (Exhibit 19 to Schedule 14D-9
Commission File Number 005-19963)
MATERIAL CONTRACTS -- TRANSCONTINENTAL GAS PIPE LINE CORPORATION
24 -- Second Restated Certificate of Incorporation, as amended of TGPL. (Exhibit 3.1
to TGPL Form 8-K dated January 23, 1987 Commission File Number 1-7584)
(a) Certificate of Amendment, dated July 30, 1992, to the Second Restated
Certificate of Incorporation (Exhibit (10)-17a to Transco Form 10-K for
1993 Commission File Number 1-7513)
(b) Certificate of Amendment, dated December 22, 1987, to the Second Restated
Certificate of Incorporation (Exhibit (10)-17b to Transco Form 10-K for
1993 Commission File Number 1-7513)
(c) Certificate of Amendment, dated August 5, 1987, to the Second Restated
Certificate of Incorporation (Exhibit (10)-17c to Transco Form 10-K for
1993 Commission File Number 1-7513)
25 -- By-Laws of TGPL, as amended. (Exhibit (10)-13 to Transco Form 10-K for 1992
Commission File Number 1-7513)
26 -- Certificate of Designation, Preferences and Rights relating to TGPL's
Cumulative Preferred Stock, $8.75 Series. (Exhibit 3.1 to TGPL Form 8-K dated
January 23, 1987 Commission File Number 1-7584)
27 -- Indenture dated as of June 1, 1983 between TGPL and RepublicBank Houston,
National Association, as Trustee. (Exhibit (4)-5 to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(a) First Supplemental Indenture dated September 20, 1984 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5a to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
</TABLE>
<PAGE> 119
<TABLE>
<S> <C> <C>
(b) Second Supplemental Indenture dated as of May 31, 1985 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5b to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(c) Third Supplemental Indenture dated as of December 3, 1985 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5c to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(d) Certified Resolutions of a Special Committee of the Board of Directors
dated October 31, 1986. (Exhibit (4)-5d to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(e) Fourth Supplemental Indenture dated as of November 7, 1986 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5e to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(f) Fifth Supplemental Indenture dated as of January 15, 1987 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5f to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(g) Certified Resolutions of a Special Committee of the Board of Directors
dated January 29, 1987. (Exhibit (4)-5g to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(h) Sixth Supplemental Indenture dated as of September 15, 1987 from TGPL to
First RepublicBank Houston, National Association related to Indenture
dated as of June 1, 1983. (Exhibit (4)-5h to TGPL Form 10-K for 1989
Commission File Number 1-7584)
28 -- Indenture dated September 15, 1992 between TGPL and the Bank of New York, as
Trustee. (Exhibit 4.2 to TGPL Form 8-K dated September 17, 1992 Commission File
Number 1-7584)
MATERIAL CONTRACTS -- TEXAS GAS TRANSMISSION CORPORATION
29 -- Certificate of Incorporation of Texas Gas (Exhibit 3.1 to Texas Gas Form 10-K
for 1989 Commission File Number 1-4169)
30 -- By-Laws of Texas Gas. (Texas Gas Form 10-K for 1991 Commission File Number
1-4169)
31 -- Indenture dated July 15, 1992 between Texas Gas and Chase Manhattan Bank
(Exhibit 4.2 to Texas Gas Form 8-K dated July 16, 1992 Commission File Number
1-4169)
32 -- Indenture dated April 11, 1994 between Texas Gas and Chase Manhattan Bank.
(Exhibit 4.2 to Texas Gas Form 8-K dated April 13, 1994 Commission File Number
1-4169)
33 -- Texas Gas Supplemental Benefit Plan. (Exhibit (10)-26 to Transco Form 10-K for
1993 Commission File Number 1-7513)
(21) Schedule listing subsidiaries of the Registrant
(23) Consent of Independent Public Accountants is set forth on page 114
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 2.2
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT, dated as of February 17, 1995, to the Agreement and Plan of
Merger, dated as of December 12, 1994 (the "Merger Agreement"), by and among
The Williams Companies, Inc., a Delaware corporation ("Parent"), WC Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"),
and Transco Energy Company, a Delaware corporation (the "Company"). All
capitalized terms not defined herein shall have the meanings ascribed in the
Merger Agreement.
WHEREAS, the parties hereto desire to amend and restate the Merger
Agreement to reflect, among other things, the Company's call for redemption on
March 20, 1995 of all outstanding shares of the Company's $4.75 series
Cumulative Convertible Preferred Stock, such redemption to be financed by the
issuance of a new series of preferred stock of the Company to Parent or capital
contributions or loans by Parent;
NOW, THEREFORE, in consideration of the foregoing, the Parties hereto
aqree as follows:
1. The Merger Agreement is hereby amended and restated in the
form attached hereto as Exhibit A (the "Restated Merger Agreement").
2. Schedule 6.10(b)(i) is hereby amended and restated in the form
previously agreed between the parties hereto.
3. This Amendment may be executed in two or more counterparts,
all of which will be considered one and the same agreement and will become
effective when two or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
THE WILLIAMS COMPANIES, INC.
BY: /s/ J. Furman Lewis
WC ACQUISITION CORP.
BY: /s/ J. Furman Lewis
TRANSCO ENERGY COMPANY
BY: /s/ J. P. DesBarres
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
TRANSCO ENERGY COMPANY
ARTICLE I
STOCKHOLDERS
Section A. Stockholders' Meetings
1. Time. The annual meeting shall be held on the date and at
the time fixed, from time to time, by the directors. Special meetings of
stockholders shall be held on the date and at the time fixed by the directors
and set forth in the call of meeting. Any previously scheduled annual or
special meeting may be postponed by resolution of the Board of Directors upon
public notice given prior to the date previously scheduled for such meeting.
2. Place. Annual meetings and special meetings shall be held at
such place, within or without the State of Delaware, as the directors may, from
time to time, fix. Whenever the directors shall fail to fix such place, the
meeting shall be held at the registered office of the Company in the State of
Delaware.
3. Call. Annual meetings and special meetings may be called by
the directors or by any officer instructed by the directors to call the
meeting.
4. Notice or Waiver of Notice. Written notice of all meetings
shall be given, stating the place, date, and hour of the meeting. The notice
of an annual meeting shall state that the meeting is called for the election of
directors and for the
<PAGE> 2
transaction of other business which may properly come before the meeting, and
shall, (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. Except as otherwise provided by the General Corporation
Law, a copy of the notice of any meeting shall be given, personally or by mail,
not less than ten days nor more than sixty days before the date of the meeting,
unless the lapse of the prescribed period of time shall have been waived, and
directed to each stockholder at his record address or at such other address
which he may have furnished by request in writing to the secretary of the
Company. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States mail. If a meeting is adjourned
to another time, not more than thirty days hence, and/or to another place, and
if an announcement of the adjourned time and/or place is made at the meeting,
it shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice by him before or after the time stated therein. Attendance of a person
at a meeting of stockholders shall constitute a waiver of notice of such
meeting, except when the stockholder attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders need be specified in any written waiver of notice.
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<PAGE> 3
5. Stockholder List. The officer who has charge of the stock
ledger of the Company shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Company, or to vote at any meeting of stockholders.
6. Conduct of Meeting. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting -- the chairman of the board, the chief executive officer,
the president, or a vice president. If none of the foregoing officers is
present and acting, the meeting shall be presided over by a chairman to be
chosen by the stockholders. The secretary of the Company, or in his absence,
an assistant secretary, shall act as secretary of every meeting, but if neither
the secretary nor an assistant secretary is present the chairman of the meeting
shall appoint a secretary of the meeting.
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<PAGE> 4
7. Proxy Representation. Every stockholder may authorize
another person or persons to act for him by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting or voting or otherwise participating at a meeting. Every proxy must be
signed by the stockholder or by his attorney-in-fact. No proxy shall be voted
or acted upon after three years from its date unless such proxy provides for a
longer period. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and, if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Company generally.
8. Quorum. The holders of a majority of the outstanding shares
of stock entitled to vote at a meeting of stockholders, present in person or
represented by proxy, shall constitute a quorum at a meeting of stockholders
for the transaction of any business. The stockholders present may adjourn the
meeting despite the absence of a quorum. In addition, any annual or special
meeting of stockholders may be adjourned, whether or not a quorum is present,
by the Chairman of the Board or pursuant to resolution of the Board of
Directors.
9. Voting. Each share of stock shall entitle the holder thereof
to one vote. The directors shall be elected by the affirmative vote of a
majority of the shares present and entitled to vote at the meeting at which
such election is held. Any other action at a meeting of stockholders shall be
taken only by the affirmative vote of a majority of the shares present and
entitled to vote at such meeting. All elections of
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<PAGE> 5
directors shall be by written ballot. Voting by ballot shall not be required
for any other corporate action except as otherwise provided by the General
Corporation Law.
10. Inspectors and Judges. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any
adjournment thereof. If an inspector or inspectors or judge or judges are not
appointed, the person presiding at the meeting may, but need not, appoint one
or more inspectors or judges. In case any person who may be appointed as an
inspector or judge fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or at the meeting
by the person presiding thereat. Each inspector or judge, if any, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector or judge at such meeting with
strict impartiality and according to the best of his ability. The inspectors
or judges, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors or
judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them.
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<PAGE> 6
11. Notice of Stockholder Business and Nomination of Directors.
(a) Annual Meetings of Stockholders. (i) Nominations of persons
for election to the Board of Directors of the Company and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (A) pursuant to the Company's notice of meeting, (B) by or at
the direction of the Board of Directors or (C) by any stockholder of the
Company who was a stockholder of record at the time of giving of notice
provided for in this Bylaw, who is entitled to vote at the meeting and who has
complied with the notice procedures set forth in this Section 11.
(ii) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (C) of paragraph
(a)(i) of this Section 11, the stockholder must have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice shall be delivered to the Secretary of the Company at the
principal executive offices of the Company not less than 60 days nor more than
90 days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of (x) the 60th day prior to such annual
meeting and (y) the 10th day following the day on which public announcement of
the date of such meeting is first made. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for
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<PAGE> 7
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (B) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; (C) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is
made (I) the name and address of such stockholder, as they appear on the
Company's books, and of such beneficial owner and (II) the class and number of
shares of the Company which are owned beneficially and of record by such
stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this Section 11 to the contrary, in the event that any person
nominated by the Board of Directors of the Company for election as a director
(other than a person nominated to fill a vacancy created by the death of a
director) was not a director or nominee named (A) in the Company's proxy
statement for the preceding annual meeting or (B) in a public announcement made
by the Company at least 60 days prior to the first anniversary of the preceding
year's annual meeting (a "New Nominee"), a stockholder's notice required by
this Section 11 shall also be considered timely if it shall be delivered to the
Secretary of the Company at the principal executive offices of the Company not
later than the close of business on the 10th day following the day on which
public
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<PAGE> 8
announcement is first made by the Company of the election or nomination of such
New Nominee to the Board of Directors.
(iv) The Company shall set forth in its proxy statement for each
annual meeting of stockholders the date by which notice of nominations by
stockholders of persons for election as director or of other business proposed
to be brought by stockholders at the next annual meeting of stockholders must
be received by the Company to be considered timely pursuant to this Section 11.
With respect to the first annual meeting of stockholders after the adoption of
this Section 11, the Company shall issue a public announcement setting forth
such information not less than 30 days prior to the applicable date.
(b) Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Company's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the Company's
notice of meeting (i) by or at the direction of the Board of Directors or (ii)
by any stockholder of the Company who (A) is a stockholder of record at the
time of giving of the notice provided for in this Section 11, (B) is entitled
to vote at the meeting and (C) complies with the notice procedures set forth in
this Section 11. Stockholders desiring to nominate persons for election to the
Board of Directors at such a special meeting of stockholders shall deliver the
stockholder's notice required by paragraph (a)(ii) of this Section 11 to the
Secretary of the Company at the principal executive offices of the Company not
earlier than the 90th day prior to such special meeting and not later than the
close of business on the later
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<PAGE> 9
of (x) the 60th day prior to such special meeting and (y) the 10th day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General. (i) Only persons who are nominated in accordance
with the procedures set forth in this Section 11 shall be eligible to serve as
directors. Only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 11. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section 11 and, if any proposed nomination or business is not in
compliance with this Section 11, to declare that such defective proposal shall
be disregarded.
(ii) For purposes of this Section 11, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 11, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 11. Nothing in this Section 11 shall be deemed to limit
the Company's obligation to include stockholder proposals in its proxy
statement if such inclusion is required by Rule 14a-8 under the Exchange Act.
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<PAGE> 10
Section B. Stockholder's Action
12. Meeting Required. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, such vote may only be taken at an annual or special
meeting with prior notice, except as provided in the Restated Certificate of
Incorporation, as amended.
Section C. Record Date for Determining Stockholders
13. Date Fixed by Directors. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or for the purpose of determining stockholders
entitled to receive payment of any dividend or other distribution or the
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other
lawful action, the directors may fix, in advance, a date as the record date for
any such determination of stockholders. Such date shall not be more than sixty
days nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action.
14. Date Not Fixed by Directors. If no record date is fixed by
the directors, the record date for the determination of stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board
of directors adopts the resolution relating thereto.
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<PAGE> 11
15. Date For Adjourned Meeting. When a determination of
stock-holders of record entitled to notice of or to vote at any meeting of
stockholders has been made as provided in this paragraph, such determination
shall apply to any adjournment thereof; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
Section D. Certificates of Stock
16. Signatures Required. Every holder of stock in the Company
shall be entitled to have a certificate signed by, or in the name of the
Company by the Chairman of the Board of Directors, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the Company certifying the number of shares owned by
him in the Company. Any of or all the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the Company with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue.
17. Multiple Classes or Series of Stock and Partly Paid Stock.
Whenever the Company shall be authorized to issue more than one class of stock
or more than one series of any class of stock, and whenever the Company shall
issue any shares of its stock as partly paid stock, the certificates
representing shares of any such class or series or of any such partly paid
stock shall set forth thereon the statements prescribed by the General
Corporation Law. Any restrictions on the transfer or registration of transfer
of
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<PAGE> 12
any shares of stock of any class or series shall be noted conspicuously on the
certificate representing such shares.
18. Lost, Stolen or Destroyed Certificates. The Company may
issue a new certificate of stock in place of any certificate theretofore issued
by it, alleged to have been lost, stolen, or destroyed, and the Company may
require the owner of any lost, stolen, or destroyed certificate, or his legal
representative, to give the Company a bond sufficient to indemnify the Company
against any claim that may be made against it on account of the alleged loss,
theft, or destruction of any such certificate or the issuance of any such new
certificate.
Section E. Transfers of Stock
19. Required Procedures. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if
any, transfers or registration of transfers of shares of stock of the Company
shall be made only on the stock ledger of the Company by the registered holder
thereof, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the secretary of the Company or with a transfer agent
or a registrar, if any, and on surrender of the certificate or certificates for
such shares of stock properly endorsed and the payment of all taxes due
thereon.
ARTICLE II
DIRECTORS
Section A. General
20. Functions and Definitions. The business of the Company shall
be managed by or under the direction of the board of directors of the Company.
The use
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<PAGE> 13
of the phrase "whole board" herein refers to the total number of directors
which the Company would have if there were no vacancies.
21. Qualifications and Number. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors constituting the whole board shall be ten
and such additional number, if any, as may be necessary to permit holders of
preferred stock to elect such number of directors as they may be entitled. The
number of directors may not be increased except as provided in Article VI
hereof.
22. Election and Term. The board of directors shall be elected
by the stockholders at the annual meeting of stockholders or at special
meetings of stockholders called for such purpose. The directors shall be
divided into three classes, each class to contain as near as possible to
one-third (1/3) of the whole number of directors of the board of directors. The
initial term of office for members of the first class shall expire at the
annual meeting of stockholders next following; the initial term for members of
the second class shall expire at the annual meeting of stockholders one year
thereafter; and the initial term for members of the third class shall expire at
the annual meeting of stockholders two years thereafter. At the expiration of
the initial term, and of each succeeding term of each class, the directors of
each class shall be elected to serve for a term of three years. If a newly
created directorship or a vacancy or vacancies shall occur in the board of
directors, including a vacancy or vacancies due to the removal of a director or
directors for cause, such vacancy or vacancies may be filled with the approval
of 80 percent of the remaining directors, although less than a quorum. Any
director so elected shall serve for the unexpired term of office or until his
successor is
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<PAGE> 14
elected and qualified at an annual meeting or a special meeting called for the
purpose of electing such successor director or until his earlier resignation or
removal.
23. Removal. One or more of the directors may be removed only
for cause by the stockholders or by the board of directors.
24. Committees. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of two or more of the directors of the Company. The board
may designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
Any such committee, to the extent provided in the resolution of the board,
shall have and may exercise the powers of the board of directors in the
management of the business and affairs of the Company, and may authorize the
seal of the Company to be affixed to all papers which may require it. In the
absence or disqualification of any member of any such committee or committees,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member.
Section B. Director's Meetings
25. Time. Meetings shall be held at such time as the board shall
fix, except that the first meeting of a newly elected board shall be held as
soon after its election as the directors may conveniently assemble.
26. Place. Meetings shall be held at such place within or
without the State of Delaware as shall be fixed by the board.
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<PAGE> 15
27. Call. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by or
at the direction of the chairman of the board, if any, or the president, or a
majority of the directors in office.
28. Notice or Actual or Constructive Waiver. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings at least twenty-four hours in advance of the time set for
such meeting. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States mail. The notice of any meeting
need not specify the purpose of the meeting. Any requirement of furnishing a
notice shall be waived by any director who signs a written waiver of such
notice before or after the time stated therein.
29. Quorum and Action. One-third of the whole board shall
constitute a quorum. A majority of the directors present, whether or not a
quorum is present, may adjourn a meeting to another time and place. Except as
herein otherwise provided, and except as otherwise provided by the Restated
Certificate of Incorporation, as amended, or the General Corporation Law, the
act of the board shall be the act by vote of a majority of the directors
present at a meeting, a quorum being present. The quorum and voting provisions
herein stated shall not be construed as conflicting with any provisions of the
Restated Certificate of Incorporation, as amended, or the General Corporation
Law and these by-laws which govern a meeting of directors held to fill
vacancies and newly created directorships in the board.
-15-
<PAGE> 16
30. Chairman. The board may elect one of its members as chairman
of the board. The chairman of the board, if any, and if present and acting,
shall preside at all meetings of the board of directors and of the stockholders
of the Company. Otherwise, the president, if present, acting and a director,
or any other director chosen by the board, shall preside.
31. Required Consent. Any action required or permitted to be
taken at any meeting of the board of directors or any committee thereof may be
taken without a meeting if all members of the board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.
ARTICLE III
OFFICERS
Section A. General
32. Officers to be Elected. The directors shall elect a
president, a vice president, a secretary, a treasurer and a controller, and may
elect a chief executive officer, one or more additional vice presidents,
assistant secretaries, assistant treasurers and assistant controllers, and may
elect such other officers and agents as are desired. Any number of offices may
be held by the same person.
33. Term. Unless otherwise provided in the resolution of
election or appointment, each officer shall hold office until the meeting of
the board of directors following the next annual meeting of stockholders and
until his successor has been elected and qualified or until his earlier death,
resignation or removal.
-16-
<PAGE> 17
34. Powers and Duties Generally. Officers shall have the powers
and duties set forth herein and in the resolutions appointing them.
35. Removal. The board of directors may remove any officer for
cause or without cause.
Section B. Duties of Each Officer
36. President. The president shall be the chief executive
officer of the Company, shall be responsible for the general and active
management of the business of the Company, and shall see that all orders and
resolutions of the board are carried into effect. He shall execute bonds,
mortgages and other contracts, requiring a seal, under the seal of the Company,
except where required or permitted by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the board of directors to some other officer or agent of the Company. To
the extent permitted by law, his signature upon bonds or debentures
authenticated by the signature of a trustee may be facsimile.
37. Vice Presidents. The vice presidents in order of their
organizational ranking shall, in the absence, disability or event of a vacancy
in the office of the president, perform the duties and exercise the powers of
the president, and shall perform such other duties as the board of directors
shall prescribe. Where such organizational ranking is the same, seniority in
ranking shall take precedence. To the extent permitted by law, the signature
of any vice president upon bonds or debentures authenticated by the signature
of a trustee may be facsimile.
38. Secretary and Assistant Secretaries. The secretary shall
attend all sessions of the board and all meetings of the stockholders and
record all votes and the
-17-
<PAGE> 18
minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for the standing committees. He shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
board of directors, and shall perform such other duties as may be prescribed by
the board of directors or president, under whose supervision he shall be. He
shall keep in safe custody the seal of the Company and, when authorized by the
board, affix the same to any instrument requiring it and, when so affixed, it
shall be attested by his signature or by the signature of the treasurer or an
assistant secretary, which signature may, to the extent permitted by law, be
facsimile. The assistant secretaries in order of their seniority shall, in the
absence, disability or event of vacancy in the office of the secretary, perform
the duties and exercise the powers of the secretary and shall perform such
other duties as the board of directors shall prescribe.
39. Treasurer and Assistant Treasurers. The treasurer shall have
the custody of the corporate funds and securities and shall establish full and
accurate accounts of all receipts and disbursements belonging to the Company
and shall deposit all moneys and other valuable effects in the name and to the
credit of the Company in such depositories as may be designated by the board of
directors. He shall disburse the funds of the Company as may be ordered by the
board, requiring proper vouchers for such disbursements, and shall render to
the president and directors, at the regular meetings of the board, or whenever
they may require it, an accounting of all his transactions as treasurer and of
the financial condition of the Company. If required by the board of directors,
he shall give the Company a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the
-18-
<PAGE> 19
board for the faithful performance of the duties of his office and for the
restoration to the Company, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property
of whatever kind in his possession or under his control belonging to the
Company. The assistant treasurers in the order of their seniority shall, in
the absence, disability or event of a vacancy in the office of the treasurer,
perform the duties and exercise the powers of the treasurer, and shall perform
such other duties as the board of directors shall prescribe.
40. Controller and Assistant Controllers. The controller shall
maintain adequate books of account and records of all assets, liabilities,
contracts, leases, and transactions of the Company, and shall see that adequate
audits thereof are currently and regularly made on a consistent basis. He
shall be responsible for the preparation and issuance of all financial reports
of the Company as may be designated from time to time or be required by the
board of directors, the president, and governmental agencies. He shall
initiate, coordinate and enforce throughout the Company appropriate procedures
and corporate practices to adequately safeguard the Company's resources and to
assure that the business of the Company will be conducted in an efficient and
economical manner. The assistant controllers in the order of their seniority
shall, in the absence, disability or event of a vacancy in the office of the
controller, perform the duties and exercise the powers of the controller, and
shall perform such other duties as the board of directors shall prescribe.
-19-
<PAGE> 20
ARTICLE IV
CORPORATE SEAL
41. Form. The corporate seal shall be in such form as the board
of directors shall prescribe.
ARTICLE V
FISCAL YEAR
42. Term. The fiscal year shall begin the first day of January
in each year and shall end the last day of the next following December.
ARTICLE VI
CONTROL OVER BY-LAWS
43. Adoption, Amendment, Alteration and Repeal. The board of
directors may adopt, amend or repeal any provisions of the bylaws, except that
any amendment or the repeal of this Section 43 and any amendment or repeal the
effect of which would be to increase the number of directors constituting the
board of directors shall require the approval of not less than eighty percent
(80%) of the directors then holding office. The stockholders shall not make,
repeal, alter, amend or rescind the Bylaws except by the vote of the holders of
not less than eighty percent (80%) of the total voting power of all shares of
stock of the Corporation entitled to vote in the election of directors,
considered for purposes of this Section 43 as one class.
ARTICLE VII
INDEMNIFICATION
44. Right of Indemnification. The corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law or its
Articles of
-20-
<PAGE> 21
Incorporation as it presently exists or may hereafter be amended, any person
who was or is made, or is threatened to be made, a party or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding") by reason of the fact that he,
or a person for whom he is the legal representative, is or was a director,
officer or employee of the corporation or is or was serving at the request of
the corporation as director, officer, employee or fiduciary of another
corporation or of a partnership, joint venture, trust, enterprise or non-profit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses reasonably incurred by such person.
The corporation shall indemnify a person in connection with a proceeding
initiated by such person only if the proceeding was authorized by the Board of
Directors of the corporation. The corporation may indemnify an agent of the
corporation to the same extent that a director, officer or employee is
indemnified hereunder.
45. Prepayment of Expenses. The corporation shall pay the
expenses incurred in defending any proceeding in advance of its final
disposition; provided, however, that the payment of expenses incurred by a
director or officer in his capacity as a director or officer in advance of the
final disposition of the proceeding shall be made only upon receipt of an
undertaking by the director or officer to repay all amounts advanced if it
should be ultimately determined that the director or officer is not entitled to
be indemnified under this Article or otherwise.
46. Claims. If claim for indemnification or payment of expenses
under this Article is not paid in full within ninety days after a written claim
therefor has been received by the corporation, the claimant may file suit to
recover the unpaid amount
-21-
<PAGE> 22
of such claim and, if successful in whole or in part, shall be entitled to be
paid the expense of prosecuting such claim. In any such action, the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
47. Non-Exclusivity of Rights. The rights conferred on any
person by this Article shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
48. Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right
or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.
-22-
<PAGE> 1
EXHIBIT 4.5(b)
--------------------------------------------------------------------------------
TRANSCO ENERGY COMPANY,
Issuer
to
THE BANK OF NEW YORK,
Trustee.
-----------------
SECOND SUPPLEMENTAL INDENTURE
Dated as of February 10, 1995
-----------------
$300,000,000
of
11 - 1/4% Notes
DUE 1999
--------------------------------------------------------------------------------
<PAGE> 2
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of the 10th day of
February 1995, made by and between TRANSCO ENERGY COMPANY, a corporation duly
organized and existing under the laws of the State of Delaware (hereinafter
sometimes referred to as the "Company"), and THE BANK OF NEW YORK, a banking
corporation organized and existing under the laws of the State of New York
(hereinafter sometimes referred to as the "Trustee"), as Trustee.
RECITALS OF THE COMPANY
WHEREAS, the Company and the Trustee entered into an Indenture dated as
of July 1, 1992 (as amended by the First Supplemental Indenture dated as of
October 15, 1993 by and between the Company and the Trustee, the "Indenture")
to provide for the issuance of the Company's 11-1/4% Notes due 1999 (the
"Notes") in the aggregate principal amount of $300,000,000;
WHEREAS, in accordance with the terms of the original Indenture, the
Company and the Trustee entered into the First Supplemental Indenture dated as
of October 15, 1993 for the purpose of modifying Section 1010 of the Indenture;
WHEREAS, the Company desires to execute and deliver this Second
Supplemental Indenture in accordance with the provisions of the Indenture for
the purposes of eliminating or modifying certain covenants of the Company,
eliminating the provision restricting mergers and asset transfers by the
Company, amending the events of default provision and making certain conforming
and other changes;
WHEREAS, Section 902 of the Indenture provides for the Company and the
Trustee to enter into an indenture supplemental thereto for the purpose of
eliminating any provisions of the Indenture or modifying in any manner the
rights of Holders of the Notes, subject to certain conditions specified
therein:
WHEREAS, the execution and delivery of this Second Supplemental
Indenture by the Company have been duly authorized by the Company;
WHEREAS, the execution and delivery of this Second Supplemental
Indenture by the Company and the Trustee has been consented to by the Holders
of over 50% of the aggregate principal amount of the Outstanding Notes in
accordance with Section 902 of the Indenture, which consent was received by the
Company pursuant to the terms of a Consent and Waiver dated as of February 10,
1995; and
WHEREAS, all the conditions and requirements necessary to make this
Second Supplemental Indenture, when duly executed and delivered, a valid and
binding agreement of the Company in accordance with its terms and for the
purposes herein expressed, have been performed and fulfilled.
NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH:
<PAGE> 3
2
For and in consideration of these premises, it is mutually covenanted
and agreed, for the equal and proportionate benefit of all Holders of the
Notes, as follows:
ARTICLE ONE
INCORPORATION OF PREVIOUS DOCUMENTS
SECTION 1.01. Incorporation of Previous Documents. This Second
Supplemental Indenture is a supplemental indenture within the meaning of the
Indenture and shall be read together and shall have the same effect as though
all the provisions thereof and hereof were contained in one instrument. Unless
otherwise expressly provided, the provisions of the Indenture are incorporated
herein by reference.
SECTION 1.02. Definitions. Unless otherwise provided herein, the terms
used herein shall have the meanings ascribed to such terms in the Indenture.
ARTICLE TWO
AMENDMENTS TO THE INDENTURE
SECTION 2.01. Amendments to Section 101 of the Indenture.
(a) Section 101 of the Indenture is hereby amended by deleting in
their entirety the following definitions: "Consolidated Capitalization",
"Consolidated Funded Debt", "Consolidated Income Tax Expense", "Consolidated
Interest Coverage Ratio", "Consolidated Interest Expense", "Consolidated Net
Income", "Consolidated Net Tangible Assets", "Consolidated Net Worth",
"Consolidated Non-Cash Charges", "Consolidated Subsidiaries", "Consolidated
Tangible Net Worth', "Funded Debt", and "Tangible Assets".
(b) The definition of "Material Subsidiary" in Section 1.01 of the
Indenture is hereby amended by adding at the end of such definition the
following:
", provided that, with respect to each such Material
Subsidiary, such Material Subsidiary is a Subsidiary of the Company."
SECTION 2.02. Amendments to Section 501 of the Indenture. Section 501
is hereby amended by deleting clauses (4) and (11) in their entirety and
replacing such clauses, respectively, with the following:
"(4) [intentionally omitted]"
"(11) [intentionally omitted]"
<PAGE> 4
3
SECTION 2.03. Amendments to Section 801 of the Indenture Section 801
is hereby amended by deleting such section in its entirety and replacing such
section with the following:
"Section 801. Company May Consolidate, Etc., Only on Certain Terms
[intentionally omitted]"
SECTION 2.04. Amendments to Section 802 of the Indenture. Section 802
is hereby amended by deleting such section in its entirety and replacing such
section with the following:
"Section 8.02. Successor Substituted
[intentionally omitted]"
SECTION 2.05. Amendments to Section 1009 of the Indenture. Section
1009 is hereby amended by deleting such section in its entirety and replacing
such section with the following:
"Section 1009. Limitation on Material Subsidiary Debt and Preferred
Stock.
[intentionally omitted]"
SECTION 2.06. Amendments to Section 1010 of the Indenture. Section 10
is hereby amended by deleting such section in its entirety and replacing such
section with the following:
"Section 1010. Limitation on Restricted Payments.
[intentionally omitted]"
SECTION 2.07. Amendments to Section 1011 of the Indenture. Section
1011 is hereby amended by deleting such section in its entirety and replacing
such section:
"Section 1011. Limitation on Speculative Trading.
[intentionally omitted]"
<PAGE> 5
4
SECTION 2.08. Amendments to Section 1012 of the Indenture. Section 1012
is hereby amended by deleting such section in its entirety and replacing such
section with the following:
"Section 1012. Limitations Concerning Distributions by and Transfers
to Material Subsidiaries.
[intentionally omitted]"
SECTION 2.09. Amendments to Section 1013 of the Indenture. Section 1013
is hereby amended by deleting such section in its entirety and replacing such
section with the following:
"Section 1013. Limitation on Liens.
As long as any Notes are Outstanding, the Company will not, and will
not permit any Material Subsidiary to, pledge, mortgage or hypothecate, or
permit any mortgage, pledge or other lien upon, any property at any time
owned by the Company or any Material Subsidiary, as the case may be, to
secure any Indebtedness, without making effective provision whereby the
Notes then Outstanding shall be equally and ratably secured together with
any other Indebtedness similarly entitled to be equally and ratably
secured; provided, however, that this restriction shall not apply to nor
prevent the creation or existence of:
(a) any mortgage, pledge or lien (1) which secures all or
part of the purchase, acquisition or construction price or cost of any
property or improvements to property (or secures a loan made to enable
the Company or any Material Subsidiary to acquire or construct the
property described in the instrument creating such mortgage, pledge or
lien), or (2) upon any property acquired or constructed by the Company
or any Material Subsidiary and created not later than 90 days after (i)
such acquisition or completion of such construction or (ii) commencement
of full operation of such property, whichever is later, or (3) existing
on any property at the time of the acquisition thereof, whether or not
assumed by the Company, or any Material Subsidiary; provided that in
all such cases such mortgage, pledge or lien shall extend only to the
property so acquired or constructed, fixed improvements thereon,
replacements, products and proceeds thereof, the income and profits
therefrom and, in the case of construction, the real property on which
such property is located;
(b) any mortgage, pledge or lien which secured Indebtedness
of a Material Subsidiary to the Company or to a Material Subsidiary;
<PAGE> 6
5
(c) any lien upon any property or assets of a Person existing
thereon at the time such Person becomes a Subsidiary by acquisition or
otherwise;
(d) any refunding or extension of maturity, in whole or in
part, of any mortgage, pledge or lien created, existing or assumed in
accordance with the provisions of clauses (a) through (c) above,
inclusive, provided that the principal amount of the Indebtedness
secured by such refunding or extended mortgage, pledge or lien shall
not exceed the principal amount of the Indebtedness to be refunded or
extended outstanding at the time of such refunding or extension, and
that such refunding or extended mortgage, pledge or lien shall be
limited to the same property that secured the Indebtedness refunded or
extended;
(e) any liens for taxes and assessments of the Company or a
Material Subsidiary which are (i) for the then current year or (ii)
not at the time delinquent or (iii) delinquent but the validity of
which is being contested at the time by the Company or any Material
Subsidiary in good faith:
(f) any lien of, or to secure performance of, leases of the
Company or of any Material Subsidiary;
(g) any governmental lien, mechanics', materialmens',
carriers' or similar lien incurred in the ordinary course of business
by the Company or any Material Subsidiary which is not yet due or which
is being contested in good faith by appropriate proceedings and any
undetermined lien which is incidental to construction;
(h) any lien arising out of pledges or deposits under
workers' compensation laws, unemployment insurance. old age pensions or
other social security or retirement benefits or similar legislation;
(i) any irregularities in or deficiencies of title to any
rights-of-way for pipelines, telephone lines, water lines, and/or
appurtenances thereto or other improvements thereon, and to any real
estate used or to be used primarily for right-of-way purposes, provided
that in the opinion of counsel the Company shall have obtained from the
apparent owner of the lands or estates therein covered by any such
right-of-way a sufficient right, by the terms of the instrument
granting such right-of-way, to the use thereof for the construction,
operation or maintenance of such lines, appurtenances or improvements
for which the same are used or are to be used, or provided that in the
opinion of
<PAGE> 7
6
counsel the Company has power under eminent domain or similar
statutes to remove such irregularities or deficiencies;
(j) any lien securing the performance of bids, tenders,
contracts (other than for the repayment of Indebtedness), leases (other
than capital leases), statutory obligations, surety and appeal bonds,
or progress or partial payments made to the Company or any Material
Subsidiary and any other lien of like nature made or incurred in the
ordinary course of business, and
(k) any lien existing on the date of this Indenture.
In case the Company shall propose to pledge, mortgage or hypothecate
any assets or property at any time owned by it to secure any Indebtedness,
other than as permitted by clauses (a) to (k), inclusive, of this Section
1013, it will prior thereto give written notice thereof to the Trustee. and
will prior to or simultaneously with such pledge, mortgage or
hypothecation, by supplemental indenture or other appropriate instrument
executed to the Trustee (or to the extent legally necessary to another
trustee or additional or separate trustee) effectively secure all the Notes
then Outstanding equally and ratably with such Indebtedness, and the
Trustee is hereby authorized, if necessary, to execute any such
supplemental indenture or other instrument. In the event that the Company
or any Material Subsidiary shall hereafter secure the Notes then
Outstanding equally and ratably with any other Indebtedness pursuant to
this Section 1013, the Company will deliver to the Trustee an Officers'
Certificate stating that this Section 1013 has been complied with in
connection with such transaction and the Trustee may receive said Officers'
Certificate as conclusive evidence of the compliance with this Section 1013
of such transaction. including the compliance of any supplemental indenture
or other instrument executed in connection with such transaction.
For the purposes of this Section 1013, the term "Indebtedness" shall
mean all items of indebtedness for borrowed money (other than unamortized
debt discount and premium) which would be included in determining the total
liabilities as shown on the liability side of a balance sheet as of the
date as of which Indebtedness is to be determined, and shall include
indebtedness for borrowed money (other than unamortized debt discount and
premium) with respect to which the Company or any Subsidiary customarily
pays interest secured by any mortgage, pledge or other lien or encumbrance
of or upon, or any security interest in, any properties or assets owned by
the Company or any Subsidiary, whether or not the Indebtedness secured
thereby shall have been assumed, and shall also include guarantees of
Indebtedness of others; provided that in determining Indebtedness of the
Company or any Subsidiary there shall be included the aggregate liquidation
preference of all outstanding securities of
<PAGE> 8
7
any Subsidiary senior to its Common Stock that are not owned by the Company
or a Subsidiary; and provided, further, that the term "Indebtedness"
of any Person shall not include the following:
(a) any indebtedness, evidence of which is held in treasury (but the
subsequent resale of such indebtedness shall be deemed to
constitute the creation thereof); or
(b) any particular indebtedness if, upon or prior to the maturity
thereof, there shall have been deposited with a depositary (or set
aside and segregated. if permitted by the instrument creating such
indebtedness), in trust, money (or evidence of such indebtedness as
permitted by the instrument creating such indebtedness) in the
necessary amount to pay, redeem or satisfy such indebtedness."
SECTION 2.10. Amendments to Section 1014 of the Indenture. Section
1014 is hereby amended by deleting such section in its entirety and replacing
such section with the following:
"Section 1014. Limitation on Sale and Leaseback Transactions.
[intentionally omitted"
SECTION 2.11. Amendments to Section 1015 of the
Indenture. Section 1015 is hereby amended bv deleting such section in its
entirety and replacing such section with the following:
"Section 1015. Limitation on Transactions with Affiliates and Related
Persons.
[intentionally omitted]"
SECTION 2.12. Amendments to Section 1017 of the Indenture. Section 1017
is hereby amended by deleting such section in its entirety and replacing such
section with the following:
"Section 1017. Limitation on Investments.
intentionally omitted]"
SECTION 2.13. Amendments to Section 1018 of the Indenture. Section 1018
is hereby amended by deleting such section in its entirety and replacing such
section with the following:
<PAGE> 9
8
"Section 1018. Limitation on Debt.
[intentionally omitted "
ARTICLE THREE
THE TRUSTEE
SECTION 3.01. Acceptance bv Trustee. The Trustee hereby accepts the
amendments to the Indenture effected by this Second Supplemental Indenture and
agrees to execute the trusts created by the Indenture as hereby amended, but
only upon the terms and conditions in the Indenture and in this Second
Supplemental Indenture. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Second
Supplemental Indenture, for the due execution hereof by the Company or for or
in respect of the recitals contained herein, all of which recitals are made by
the Company solely.
ARTICLE FOUR
MISCELLANEOUS PROVISIONS
SECTION 4.01. Further Assurances. The parties hereto will execute and
deliver such further instruments and do such further acts and things as may be
reasonably required to carry out the intent and purpose of this Second
Supplemental Indenture and the Indenture.
SECTION 4.02. Counteparts. This Second 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 4.03. Effect of Headings. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
SECTION 4.04. Governing Law. This Second Supplemental Indenture shall
be governed by and construed in accordance with the laws of the State of New
York.
SECTION 4.05. Successors and Assigns. All covenants and agreements of
the Company in this Second Supplemental Indenture shall bind its successors and
assigns, whether so expressed or not. All covenants and agreements of the
Trustee in this Second Supplemental Indenture shall bind its successor and
assigns, whether so expressed or not.
SECTION 4.06. Separability Clause. In case any provision of this
Second Supplemental Indenture should be invalid, illegal or unenforceable, the
validity, legality and
<PAGE> 10
9
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 4.07. Indenture Remains in Full Force and Effect. Except to the
extent amended hereby or in connection herewith, all terms, provisions and
conditions of the Indenture and all documents executed in connection therewith
shall continue in full force and effect and shall remain enforceable and
binding in accordance with their respective terms. Except as specifically
modified herein, the Indenture remains unchanged and in full force and effect.
SECTION 4.08. Conflict with Trust Indenture Act. If any provision of
this Second Supplemental Indenture limits, qualifies or conflicts with a
provision of the Trust Indenture Act of 1939, as amended (the "TIA") that is
required under the TIA to be a part of and govern this Second Supplemental
Indenture, the latter provision shall control. If any provision of this Second
Supplemental Indenture modifies or excludes any provision of the TIA that may
be so modified or excluded, the latter provision shall be deemed to apply to
this Second Supplemental Indenture as so modified or to be excluded, as the
case may be.
<PAGE> 11
10
IN WITNESS WHEREOF, the Company and the Trustee have caused this
Second Supplemental Indenture to be duly executed and their respective
corporate seals to be hereunto affixed and attested, all as of the day and year
first above written.
TRANSCO ENTERGY COMPANY
By: /s/ LARRY J. DAGLEY
-----------------------------------
Name: LARRY J. DAGLEY
Title: Senior Vice President
[Corporate Seal] and Chief Financial Officer
ATTEST:
----------------------------------
THE BANK OF NEW YORK
By:
-----------------------------------
Name:
Title:
[Corporate Seal]
ATTEST:
----------------------------------
<PAGE> 12
IN WITNESS WHEREOF, the Company and the Trustee have caused this
Second Supplemental Indenture to be duly executed and their respective
corporate seals to be hereunto affixed and attested, all as of the day and year
first above written.
TRANSCO ENERGY COMPANY
By:
-----------------------------------
Name:
Title:
[Corporate Seal]
ATTEST:
----------------------------------
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
-----------------------------------
Name: WALTER N. GITLIN
Title: Vice President
[Corporate Seal]
ATTEST:
/s/ ROBERT F. McINTYRE
----------------------------------
ROBERT F. McINTYRE
Assitant Vice President
<PAGE> 1
EXHIBIT 4.7
U.S. $800,000,000
CREDIT AGREEMENT
Dated as of February 23, 1995
Among
THE WILLIAMS COMPANIES, INC.
NORTHWEST PIPELINE CORPORATION
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
TEXAS GAS TRANSMISSION CORPORATION
WILLIAMS PIPE LINE COMPANY
as Borrowers
and
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.04. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.05. Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.02. Making the A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.04. Reduction of the Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.05. Repayment of A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2,06. Interest on A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.07. Additional Interest on Eurodollar Rate Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.08. Interest Rate Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.09. Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.10. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.11. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.12. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.13. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.15. Sharing of Payments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.16. The B Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.17. Optional Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.18. Extension of Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.19. Voluntary Conversion of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.20. Automatic Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE III
CONDITIONS
Section 3.01. Conditions Precedent to Initial Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 3.02. Additional Conditions Precedent to Each A Borrowing . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.03. Conditions Precedent to Each B Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE V
COVENANTS OF THE BORROWERS
Section 5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VII
THE AGENT
Section 7.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.02. Agent's Reliance, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.03. Citibank and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.06. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.02. Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 8.04. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 8.05. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.06. Binding Effect; Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 8.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8,08. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.09. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.10. Survival of Agreements, Representations and Warranties, Etc . . . . . . . . . . . . . . . . . . . . 61
Section 8.11. Borrowers' Right to Apply Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
<PAGE> 4
Schedule I - Bank Information
Schedule II - Borrower Information
Schedule III - Permitted NWP Liens
Schedule IV - Permitted TGPL Liens
Schedule V - Permitted TGT Liens
Schedule VI - Permitted TWC Liens
Schedule VII - Permitted WPL Liens
Exhibit A-1 - Form of A Note
Exhibit A-2 - Form of B Note
Exhibit B-1 - Notice of A Borrowing
Exhibit B-2 - Notice of B Borrowing
Exhibit C - Opinion of J. Furman Lewis
Exhibit D - Opinion of William G. von Glahn
Exhibit E - Opinion of David E. Varner
Exhibit F - Opinion of Special Counsel to Agent
Exhibit G - Existing Transfer Restrictions
Exhibit H - Form of Transfer Agreement
Exhibit I - Additional Disclosures
<PAGE> 5
CREDIT AGREEMENT
Dated as of February 23, 1995
This Credit Agreement dated as of February 23, 1995, is by and among
the Borrowers, the Agent and the Banks. In consideration of the mutual
covenants and agreements contained herein, the Borrowers, the Agent and the
Banks hereby agree as set forth herein.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"A Advance" means an advance by a Bank to a Borrower as part
of an A Borrowing and refers to a Base Rate Advance or a Eurodollar
Rate Advance, each of which shall be a "Type" of A Advance.
"A Borrowing" means a borrowing consisting of simultaneous A
Advances of the same Type to the same Borrower made by each of the
Banks pursuant to Section 2.01.
"A Note" means a promissory note of a Borrower payable to the
order of any Bank, in substantially the form of Exhibit A-1 hereto,
evidencing the aggregate indebtedness of such Borrower to such Bank
resulting from the A Advances to such Borrower owed to such Bank.
"Advance" means an A Advance or a B Advance.
"Agent" means Citibank, N.A. in its capacity as agent pursuant
to Article VII hereof and any successor Agent pursuant to Section
7.06.
"Agreement" means this Credit Agreement dated as of February
23, 1995 among the Borrowers, the Agent and the Banks, as amended or
modified from time to time.
"Applicable Lending Office" means, with respect to each Bank,
such Bank's Domestic Lending Office in the case of a Base Rate Advance
and such Bank's Eurodollar Lending Office in the case of a Eurodollar
Rate Advance and,
<PAGE> 6
in the case of a B Advance, the office of such Bank notified by such
Bank to the Agent as its Applicable Lending Office with respect to
such B Advance.
"Applicable Margin" means
(i) as to any A Advance to any Borrower (other than WPL during
such times as WPL is Unrated), the rate per annum set forth in the
following table for the relevant Type of such A Advance and for the
relevant Rating Category applicable to such Borrower from time to
time:
<TABLE>
<CAPTION>
Rating Eurodollar Rate Base
Category Advance Rate Advance
-------- ------- ------------
<S> <C> <C>
One .35% 0
Two .40% 0
Three .45% 0
Four .55% 0
Five .75% .25%
Six 1.125% .50%
Seven 1.50% .75%
</TABLE>
and (ii) for each day during such times as WPL is Unrated, as to any A
Advance to WPL, the rate per annum set forth in the following
table for the relevant Type of such A Advance and for the relevant
amount of the Applicable WPL Debt to TNW Ratio for such day:
<TABLE>
<CAPTION>
Applicable
WPL Debt to Eurodollar Rate Base
TNW Ratio Advance Rate Advance
----------- ------- ------------
<S> <C> <C>
Less than .55 .45% 0
.55 or greater and
less than .60 .55% 0
.60 or greater .75% .25%
</TABLE>
The Applicable Margin determined pursuant to clause (i) of this
definition for any A Advance to any Borrower shall change when and as
the relevant Rating Category applicable to such Borrower changes.
Furthermore, the applicability of clause (i) or (ii) of this
definition to WPL shall change when and as the status of WPL as
Unrated or not Unrated changes. For example, if WPL borrows on
September 15 of a year a Eurodollar Rate Advance with a three month
Interest Period and WPL is Unrated from September 15 through October
15 of such year
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<PAGE> 7
and is not Unrated thereafter, then the Applicable Margin for such
Advance will be determined (1) pursuant to the foregoing clause (ii)
from September 15 through October 15 of such year (and the
Applicable WPL Debt to TNW Ratio (a) for the days from September 15
through September 30 will be the WPL Debt to TNW Ratio on March 31 of
such year and (b) for the days after September 30 will be the WPL
Debt to TNW Ratio on June 30 of such year), and (2) pursuant to the
foregoing clause (i) during the other days of such Interest Period.
Furthermore if, in such example, the Rating Category applicable to WPL
from October 16 through October 20 was Rating Category Five and
thereafter was Rating Category Four, the Applicable Margin for such
Advance would be .75% from October 16 through October 20 and .55%
thereafter.
"Applicable WPL Debt to TNW Ratio" for any day means the WPL
Debt to TNW Ratio as of the end of the calendar quarter which
is the second calendar quarter prior to such day. For example, the
Applicable WPL Debt to TNW Ratio for any day in the calendar quarter
ending September 30 of a year will be the WPL Debt to TNW Ratio as of
March 31 of such year.
"Arranger" means Citicorp Securities, Inc.
"Attributable Obligation" of any Person means, with respect
to any Sale and Lease-Back Transaction of such Person as of any
particular time, the present value at such time discounted at the rate
of interest implicit in the terms of the lease of the obligations of
the lessee under such lease for net rental payments during the
remaining term of the lease (including any period for which such lease
has been extended or may, at the option of such Person, be extended).
"B Advance" means an advance by a Bank to a Borrower as part
of a B Borrowing resulting from the auction bidding procedure
described in Section 2.16.
"B Borrowing" means a borrowing consisting of simultaneous B
Advances to the same Borrower from each of the Banks whose offer to
make one or more B Advances as part of such borrowing has been
accepted by such Borrower under the auction bidding procedure
described in Section 2.16.
"B Note" means a promissory note of a Borrower payable to
the order of any Bank, in substantially the form of Exhibit A-2
hereto, evidencing the indebtedness of such Borrower to such Bank
resulting from a B Advance made to such Borrower by such Bank.
"B Reduction" has the meaning specified in Section 2.01.
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<PAGE> 8
"Banks" means the lenders listed on the signature pages
hereof and each other Person that becomes a Bank pursuant to
the last sentence of Section 8.06(a).
"Base Rate" means a fluctuating interest rate per annum as
shall be in effect from time to time which rate per annum shall
at all times be equal to the highest of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as
Citibank's base rate; or
(b) 1/2 of one percent per annum above the latest
three-week moving average of secondary market morning
offering rates in the United States for three-month
certificates of deposit of major United States money market
banks, such three-week moving average being determined weekly
on each Monday (or, if any such day is not a Business Day, on
the next succeeding Business Day) for the three-week period
ending on the previous Friday by Citibank on the basis of such
rates reported by certificate of deposit dealers to and
published by the Federal Reserve Bank of New York or, if such
publication shall be suspended or terminated, on the basis of
quotations for such rates received by Citibank from three New
York certificate of deposit dealers of recognized standing
selected by Citibank, in either case adjusted to the nearest
1/4 of one percent or, if there is no nearest 1/4 of one
percent, to the next higher 1/4 of one percent; or
(c) 1/2 of one percent per annum above the
Federal Funds Rate in effect from time to time.
"Base Rate Advance" means an A Advance which bears interest
as provided in Section 2.06(a).
"Borrowers" means TWC, NWP, TGPL, TGT and WPL.
"Borrowing" means an A Borrowing or a B Borrowing.
"Business Day" means a day of the year on which banks are
not required or authorized to close in New York City and, if
the applicable Business Day relates to any Eurodollar Rate Advances or
relates to any B Advance as to which the related Notice of B
Borrowing is delivered pursuant to clause (B) of Section 2.16(a)(i),
on which dealings are carried on in the London interbank market.
"Citibank" means Citibank, N.A.
-4-
<PAGE> 9
"Code" means, as appropriate, the Internal Revenue Code of
1986, as amended, or any successor Federal tax code, and any
reference to any statutory provision shall be deemed to be a reference
to any successor provision or provisions.
"Commitment" of any Bank to any Borrower means at any time
the lesser of (i) the amount set opposite or deemed (pursuant
to clause (vii) of the last sentence of Section 8.06(a) and as
reflected in the relevant Transfer Agreement referred to in such
sentence) to be set opposite such Bank's name for such Borrower on
the signature pages hereof as such amount may be terminated, reduced
or increased pursuant to Section 2.04, Section 2.17, Section 6.01 or
Section 8.06(a), or (ii) the amount of the Commitment of such Bank to
TWC at such time.
"Consolidated" refers to the consolidation of the accounts
of any Person and its subsidiaries in accordance with generally
accepted accounting principles.
"Consolidated Net Worth" of any Person means the Net Worth
of such Person and its Subsidiaries on a Consolidated basis.
"Consolidated Tangible Net Worth" of any Person means the
Tangible Net Worth of such Person and its Subsidiaries on a
Consolidated basis.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of the other
Type pursuant to Section 2.02, Section 2.19 or Section 2.20.
"Debt" means, in the case of any Person, (i) indebtedness of
such Person for borrowed money, (ii) obligations of such Person
evidenced by bonds, debentures or notes, (iii) obligations of such
Person to pay the deferred purchase price of property or services,
(iv) monetary obligations of such Person as lessee under leases which
are, in accordance with generally accepted accounting principles,
recorded as capital leases, (v) obligations of such Person under
guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (iv) or clause (vii) of
this definition, (vi) indebtedness or obligations of others of the
kinds referred to in clauses (i) through (v) or clause (vii) of this
definition secured by any Lien on or in respect of any property of
such Person, and (vii) all liabilities of such Person in respect of
unfunded vested benefits under any Plan; provided, however, that Debt
shall not include any obligation under or resulting from any agreement
referred to in paragraph (y) of Schedule III, paragraph (y) of
Schedule IV, paragraph (y) of Schedule V, paragraph (y) of Schedule VI
or paragraph (h) of Schedule VII or under or resulting from any
-5-
<PAGE> 10
sale and leaseback referred to in paragraph (aa) of Schedule
III, paragraph (aa) of Schedule IV, paragraph (aa) of Schedule V,
paragraph (bb) of Schedule VI or paragraph (i) of Schedule VII.
"Domestic Lending Office" means, with respect to any Bank,
the office of such Bank specified as its "Domestic Lending
Office" opposite its name on Schedule I hereto or pursuant to Section
8.06(a), or such other office of such Bank as such Bank may from time
to time specify to the Borrowers and the Agent.
"Environment" shall have the meaning set forth in 42 U.S.C.
Section 9601(8) as defined on the date of this Agreement, and
"Environmental" shall mean pertaining or relating to the Environment.
"Environmental Protection Statute" shall mean any United
States local, state or federal, or any foreign, law, statute,
regulation, order, consent decree or other agreement or Governmental
Requirement arising from or in connection with or relating to the
protection or regulation of the Environment, including, without
limitation, those laws, statutes, regulations, orders, decrees,
agreements and other Governmental Requirements relating to the
disposal, cleanup, production, storing, refining, handling,
transferring, processing or transporting of Hazardous Waste, Hazardous
Substances or any pollutant or contaminant, wherever located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder from time to time.
"ERISA Affiliate" of any Borrower means any trade or
business (whether or not incorporated) which is a member of a
group of which such Borrower is a member and which is under common
control within the meaning of the regulations under Section 414 of the
Code.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Bank,
the office of such Bank specified as its "Eurodollar Lending
Office" opposite its name on Schedule I hereto or pursuant to Section
8.06(a) (or, if no such office is specified, its Domestic Lending
Office) or such other office of such Bank as such Bank may from time
to time specify to the Borrowers and the Agent.
-6-
<PAGE> 11
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same A
Borrowing, an interest rate per annum (rounded upward to the nearest
whole multiple of 1/16 of 1% per annum, if such rate is not such a
multiple) equal to the rate per annum at which deposits in U.S.
dollars are offered by the principal office of Citibank in London,
England to prime banks in the London interbank market at 11:00 A.M.
(London time) two Business Days before the first day of such Interest
Period in an amount substantially equal to the amount of the
Eurodollar Rate Advance of Citibank comprising part of such A
Borrowing to be outstanding during such Interest Period and for a
period equal to such Interest Period.
"Eurodollar Rate Advance" means an A Advance which bears
interest as provided in Section 2.06(b).
"Eurodollar Rate Reserve Percentage" of any Bank for any
Interest Period for any Eurodollar Rate Advance means the
reserve percentage applicable during such Interest Period (or if more
than one such percentage shall be so applicable, the daily average of
such percentages for those days in such Interest Period during which
any such percentage shall be so applicable) under regulations issued
from time to time by the Board of Governors of the Federal Reserve
System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for such Bank with
respect to liabilities or assets consisting of or including
Eurocurrency Liabilities having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section
6.01. For purposes of clause (iv) of the definition herein of
"Interest Period", Section 2.19 and Section 6.01, an Event of Default
exists as to a particular Borrower if such Event of Default exists
wholly or in part as a result of any event, condition, action,
inaction, representation or other matter of, by or otherwise directly
or indirectly pertaining to such Borrower or any Subsidiary of such
Borrower. Without limiting the foregoing and for purposes of further
clarification, it is agreed that inasmuch as each of NWP, WPL, TGPL
and TGT is a Subsidiary of TWC, any Event of Default that exists as to
any of NWP, WPL, TGPL or TGT also exists as to TWC.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period
to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations
for such day on
-7-
<PAGE> 12
such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
"Governmental Requirements" means all judgments, orders,
writs, injunctions, decrees, awards, laws, ordinances,
statutes, regulations, rules, franchises, permits, certificates,
licenses, authorizations and the like and any other requirements of
any government or any commission, board, court, agency,
instrumentality or political subdivision thereof.
"Hazardous Substance" shall have the meaning set forth in 42
U.S.C. Section 9601(14) and shall also include each other
substance considered to be a hazardous substance under any
Environmental Protection Statute.
"Hazardous Waste" shall have the meaning set forth in 42
U.S.C. Section 6903(5) and shall also include each other
substance considered to be a hazardous waste under any Environmental
Protection Statute (including, without limitation 40 C.F.R. Section
261.3).
"Insufficiency" means, with respect to any Plan, the
amount, if any, by which the present value of the vested
benefits under such Plan exceeds the fair market value of the assets
of such Plan allocable to such benefits.
"Interst Period" means, for each A Advance to a Borrower
comprising part of the same A Borrowing, the period commencing
on the date of such A Advance or the date of the Conversion of any
Base Rate Advance into a Eurodollar Rate Advance and ending on the
last day of the period selected by such Borrower pursuant to the
provisions below and, thereafter, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending
on the last day of the period selected by such Borrower pursuant to
the provisions below. The duration of each Interest Period shall be
one, two, three or six months, in each case as such Borrower may, upon
notice received by the Agent not later than 11:00 A.M. (New York City
time) on the third Business Day prior to the first day of such
Interest Period, select; provided, however, that:
(i) Interest Periods commencing on the same date
for A Advances comprising part of the same A Borrowing shall
be of the same duration;
(ii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day,
the last day of such Interest Period shall be extended to
occur on the next succeeding Business Day, provided that
if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the
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<PAGE> 13
last day of such Interest Period shall occur on the next
preceding Business Day;
(iii) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the
last Business Day of the calendar month in which it would have
ended if there were a numerically corresponding day in such
calendar month; and
(iv) no Borrower may select any Interest Period
which ends after the Termination Date, and no Borrower
may select any Interest Period if any Event of Default exists
as to such Borrower.
"Lien" means any mortgage, lien, pledge, charge, deed of
trust, security interest, encumbrance or other type of
preferential arrangement to secure or provide for the payment of any
obligation of any Person, whether arising by contract, operation of
law or otherwise (including, without limitation, the interest of a
vendor or lessor under any conditional sale agreement, capital lease
or other title retention agreement).
"Majority Banks" means at any time Banks holding at least
66-2/3% of the then aggregate unpaid principal amount of the A
Notes held by Banks, or, if no such principal amount is then
outstanding, Banks having at least 66-2/3% of the Commitments or, if
no such principal amount is then outstanding and all Commitments have
terminated, Banks holding at least 66-2/3% of the then aggregate
unpaid principal amount of the B Notes held by Banks (provided that
for purposes of this definition and Sections 2.17, 6.01 and 7.01
neither any Borrower nor any Subsidiary or Related Party of any
Borrower, if a Bank, shall be included in (i) the Banks holding the A
Notes or B Notes or (ii) determining the aggregate unpaid principal
amount of the A Notes or the B Notes or the amount of the
Commitments).
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which any Borrower or any
ERISA Affiliate of any Borrower is making or accruing an obligation
to make contributions, or has within any of the preceding five plan
years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means an employee benefit plan,
other than a Multiemployer Plan, subject to Title IV of ERISA
to which any Borrower or any ERISA Affiliate of any Borrower, and one
or more employers other than any
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<PAGE> 14
Borrower or an ERISA Affiliate of any Borrower, is making or
accruing an obligation to make contributions or, in the event that any
such plan has been terminated, to which any Borrower or any ERISA
Affiliate of any Borrower made or accrued an obligation to make
contributions during any of the five plan years preceding the date of
termination of such plan.
"Net Worth" of any Person means, as of any date of
determination, the excess of total assets of such Person over
total liabilities of such Person, total assets and total liabilities
each to be determined in accordance with generally accepted accounting
principles.
"Non-Borrowing Subsidiary" of any Borrower means a
Subsidiary of such Borrower which Subsidiary is not itself a
Borrower.
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning specified in Section
2.02(a).
"Notice of B Borrowing" has the meaning specified in Section
2.16(a).
"NWP" means Northwest Pipeline Corporation, a Delaware
corporation.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted NWP Liens" means Liens specifically described on
Schedule III.
"Permitted TGPL Liens" means Liens specifically described on
Schedule IV.
"Permitted TGT Liens" means Liens specifically described on
Schedule V.
"Permitted TWC Liens" means Liens specifically described on
Schedule VI.
"Permitted WPL Liens" means Liens specifically described on
Schedule VII.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any
political subdivision or agency thereof.
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<PAGE> 15
"Plan" means an employee pension benefit plan (other
than a Multiemployer Plan) as defined in Section 3(2) of ERISA
currently maintained by, or to which contributions have been made at
any time after December 31, 1984 by, any Borrower or any ERISA
Affiliate of any Borrower for employees of a Borrower or any such
ERISA Affiliate and covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code.
"Public Filings" means TWC'S, NWP'S, TGPL's and TGT's
respective annual reports on Form 10-K for the year ended
December 31, 1993, and TWC'S, NWP'S, TGPL'S and TGT's respective
quarterly reports on Form 10-Q for the quarters ended March 31, 1994,
June 30, 1994 and September 30, 1994.
"Rating Category" means any of Rating Category One, Rating
Category Two, Rating Category Three, Rating Category Four,
Rating Category Five, Rating Category Six or Rating Category Seven.
"Rating Category One" is applicable to a Borrower at such
times as the senior unsecured long-term debt of such Borrower
is rated A- or better by S&P or A3 or better by Moody's.
"Rating Category Two" is applicable to a Borrower at such
times as (i) Rating Category One is not applicable to such
Borrower and (ii) the senior unsecured long-term debt of such Borrower
is rated BBB+ by S&P or Baa1 by Moody's.
"Rating Category Three" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category
Two is applicable to such Borrower and (ii) the senior unsecured
long-term debt of such Borrower is rated BBB by S&P or Baa2 by
Moody's.
"Rating Category Four" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category
Two nor Rating Category Three is applicable to such Borrower and (ii)
the senior unsecured long-term debt of such Borrower is rated BBB- by
S&P or Baa3 by Moody's.
"Rating Category Five" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category
Two nor Rating Category Three nor Rating Category Four is applicable
to such Borrower and (ii) the senior unsecured long-term debt of such
Borrower is rated BB+ by S&P or Ba1 by Moody's.
"Rating Category Six" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category
Two nor Rating Category Three nor Rating Category Four nor Rating
Category Five is applicable to such
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<PAGE> 16
Borrower and (ii) the senior unsecured long-term debt of such
Borrower is rated BB by S&P or Ba2 by Moody's.
"Rating Category Seven" is applicable to a Borrower at such
times as neither Rating Category One nor Rating Category Two
nor Rating Category Three nor Rating Category Four nor Rating Category
Five nor Rating Category Six is applicable to such Borrower.
"Related Party" of any Person means any corporation,
partnership, joint venture or other entity of which more than
10% of the outstanding capital stock or other equity interests having
ordinary voting power to elect a majority of the board of directors of
such corporation, partnership, joint venture or other entity or others
performing similar functions (irrespective of whether or not at the
time capital stock or other equity interests of any other class or
classes of such corporation, partnership, joint venture or other
entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such
Person or which owns at the time directly or indirectly more than 10%
of the outstanding capital stock or other equity interests having
ordinary voting power to elect a majority of the board of directors of
such Person or others performing similar functions (irrespective of
whether or not at the time capital stock or other equity interests of
any other class or classes of such corporation, partnership, joint
venture or other entity shall or might have voting power upon the
occurrence of any contingency); provided, however, that neither TWC
nor any Subsidiary of TWC shall be considered to be a Related Party of
TWC or any Subsidiary of TWC.
"S&P" means Standard & Poor's Ratings Group, a division of
Mc-Graw Hill, Inc. on the date hereof.
"Sale and Lease-Back Transaction" of any Person means any
arrangement entered into by such Person or any Subsidiary of
such Person, directly or indirectly, whereby such Person or any
Subsidiary of such Person shall sell or transfer any property, whether
now owned or hereafter acquired, and whereby such Person or any
Subsidiary of such Person shall then or thereafter rent or lease as
lessee such property or any part thereof or other property which such
Person or any Subsidiary of such Person intends to use for
substantially the same purpose or purposes as the property sold or
transferred; provided, however, that any sale and lease-back of
cushion gas, whether now or hereafter existing, shall not be
considered to be a Sale and Lease-Back Transaction and any sale and
lease-back of inventory, whether now or hereafter existing, by WPL or
any of its Subsidiaries (other than another Borrower) shall not be
considered to be a Sale and Lease-Back Transaction.
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<PAGE> 17
"Stated Termination Date" means February 29, 2000 or such
later date, if any as may be agreed to by the Borrowers and the
Banks pursuant to Section 2.18.
"Subordinated Debt" means any Debt of any Borrower which
is effectively subordinated to the obligations of such Borrower
hereunder and under the Notes.
"Subsidiary" of any Person means any corporation,
partnership, joint venture or other entity of which more than
50% of the outstanding capital stock or other equity interests having
ordinary voting power to elect a majority of the board of directors of
such corporation, partnership, joint venture or other entity or others
performing similar functions (irrespective of whether or not at the
time capital stock or other equity interests of any other class or
classes of such corporation, partnership, joint venture or other
entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such
Person.
"Tangible Net Worth" of any Person means, as of any date
of determination, the excess of total assets of such Person
over total liabilities of such Person, total assets and total
liabilities each to be determined in accordance with generally
accepted accounting principles, excluding, however, from the
determination of total assets (i) patents, patent applications,
trademarks, copyrights and trade names, (ii) goodwill, organizational,
experimental, research and development expense and other like
intangibles, (iii) treasury stock, (iv) monies set apart and held in a
sinking or other analogous fund established for the purchase,
redemption or other retirement of capital stock or Subordinated Debt,
and (v) unamortized debt discount and expense.
"Termination Date" means the earlier of (i) the Stated
Termination Date or (ii) the date of termination in whole of
the Commitments pursuant to Section 2.04, 2.17 or 6.01.
"Termination Event" means (i) a "reportable event", as such
term is described in Section 4043 of ERISA (other than a
"reportable event" not subject to the provision for 30-day notice to
the PBGC), or an event described in Section 4062(f) of ERISA, or (ii)
the withdrawal of any Borrower or any ERISA Affiliate of any Borrower
from a Multiple Employer Plan during a plan year in which it was a
"substantial employer", as such term is defined in Section 4001(a)(2)
of ERISA, or the incurrence of liability by any Borrower or any ERISA
Affiliate of any Borrower under Section 4064 of ERISA upon the
termination of a Plan or Multiple Employer Plan, or (iii) the
distribution of a notice of intent to terminate a Plan pursuant to
Section 4041(a)(2) of ERISA or the treatment of a Plan amendment as a
termination under Section 4041 of
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<PAGE> 18
ERISA, or (iv) the institution of proceedings to terminate a
Plan by the PBGC under Section 4042 of ERISA, or (v) any other event
or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan.
"TGPL" means Transcontinental Gas Pipe Line Corporation, a
Delaware corporation.
"TGT" means Texas Gas Transmission Corporation, a Delaware
corporation.
"Transfer Agreement" has the meaning specified in Section
8.06.
"TWC" means The Williams Companies, Inc., a Delaware
corporation.
"Type" has the meaning set forth in the definition herein of
A Advance.
"Unrated" means, as to any Borrower, that no senior
unsecured long-term debt of such Borrower is rated by S&P and
no senior unsecured long-term debt of such Borrower is rated by
Moody's.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary
of such Person all of the capital stock and other equity
interests of which is owned by such Person or any Wholly-Owned
Subsidiary of such Person.
"Withdrawal Liability" shall have the meaning given such
term under Part I of Subtitle E of Title IV of ERISA.
"WEV" means Williams Energy Ventures, Inc., a Delaware
corporation.
"WFS" means Williams Field Services Group, Inc., a
Delaware corporation.
"WNG" means Williams Natural Gas Company, a Delaware
corporation.
"WPL" means Williams Pipe Line Company, a Delaware
corporation.
"WPL Debt to TNW Ratio" means at any date the ratio of (i)
the aggregate amount at such date of all Debt of WPL and its
Subsidiaries on a Consolidated basis to (ii) the sum of the
Consolidated Tangible Net Worth at such date of WPL plus the aggregate
amount at such date of all Debt of WPL and its Subsidiaries on a
Consolidated basis.
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<PAGE> 19
Section 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding."
Section 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles, and each reference herein to "generally
accepted accounting principles" shall mean generally accepted accounting
principles consistent with those applied in the preparation of the financial
statements referred to in Section 4.01(e)(i).
Section 1.04. Miscellaneous. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule and Exhibit references are to
Articles and Sections of and Schedules and Exhibits to this Agreement, unless
otherwise specified.
Section 1.05. Ratings. A rating, whether public or private, by
S&P or Moody's shall be deemed to be in effect on the date of announcement or
publication by S&P or Moody's, as the case may be, of such rating, or, in the
absence of such announcement or publication, on the effective date of such
rating and will remain in effect until the announcement or publication of, or
in the absence of such announcement or publication, the effective date of, any
change in, or withdrawal or termination of, such rating. In the event the
standards for any rating by Moody's or S&P are revised, or any such rating is
designated differently (such as by changing letter designations to different
letter designations or to numerical designations), the references herein to
such rating shall be deemed to refer to the revised or redesignated rating for
which the standards are closest to, but not lower than, the standards at the
date hereof for the rating which has been revised or redesignated, all as
determined by the Majority Banks in good faith. Long-term debt supported by a
letter of credit, guaranty, insurance or other similar credit enhancement
mechanism shall not be considered as senior unsecured long-term debt. If either
Moody's or S&P has at any time more than one rating applicable to senior
unsecured long-term debt of a Borrower, the lowest such rating shall be
applicable for purposes hereof. For example, if Moody's rates some senior
unsecured long-term debt of a Borrower Ba1 and other such debt of such Borrower
Ba2, the senior unsecured long-term debt of such Borrower shall be deemed to be
rated Ba2 by Moody's.
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<PAGE> 20
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The A Advances. Each Bank severally agrees, on
the terms and conditions hereinafter set forth, to make A Advances to each
Borrower from time to time on any Business Day during the period from the date
hereof until the Termination Date in an aggregate amount outstanding not to
exceed at any time such Bank's Commitment to such Borrower, provided that the
aggregate amount of the Commitments of the Banks to any Borrower shall, except
for purposes of Section 2.03(a), be deemed used from time to time to the extent
of the aggregate amount of the B Advances then outstanding to such Borrower and
such deemed use of the aggregate amount of such Commitments shall be applied to
the Banks ratably according to their respective Commitments to such Borrower
(such deemed use of the aggregate amount of the Commitments of any Borrower
being a "B Reduction"), and provided further that the aggregate amount of all A
Advances to all Borrowers by any Bank shall not exceed at any time outstanding
such Bank's Commitment to TWC (determined after giving effect to such Bank's
ratable share of all B Reductions). Each A Borrowing shall be in an aggregate
amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof, and shall consist of A Advances of the same Type made to the same
Borrower on the same day by the Banks ratably according to their respective
Commitments. Within the limits of each Bank's Commitment to a Borrower, such
Borrower may borrow, prepay pursuant to Section 2.10 and reborrow under this
Section 2.01.
Section 2.02. Making the A Advances. (a) Each A Borrowing
shall be made on notice, given not later than (1) in the case of a proposed
Borrowing comprised of Eurodollar Rate Advances, 11:00 A.M. (New York City
time) at least three Business Days prior to the date of the proposed Borrowing,
and (2) in the case of a proposed Borrowing comprised of Base Rate Advances,
10:00 A.M. (New York City time) on the date of the proposed Borrowing, by the
Borrower requesting such A Borrowing to the Agent, which shall give to each
Bank prompt notice thereof by telecopy, telex or cable. Each such notice of an
A Borrowing (a "Notice of A Borrowing") shall be by telecopy, telex or cable,
confirmed immediately in writing, in substantially the form of Exhibit B-1
hereto, executed by the Borrower requesting such A Borrowing and specifying
therein the requested (i) date of such A Borrowing (which shall be a Business
Day), (ii) initial Type of A Advances comprising such A Borrowing, (iii)
aggregate amount of such A Borrowing, and (iv) in the case of an A Borrowing
comprised of Eurodollar Rate Advances, initial Interest Period for each such A
Advance. Each Bank shall, before 11:00 A.M. (New York City time) on the date
of such A Borrowing, make available for the account of its Applicable Lending
Office to the Agent at its New York address referred to in Section 8.02, in
same day funds, such Bank's ratable portion of such A Borrowing. After the
Agent's receipt of such funds and upon fulfillment of the applicable
conditions set forth in Article III, the Agent will
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<PAGE> 21
make such funds available to the Borrower requesting such A Borrowing at the
Agent's aforesaid address.
(b) Anything herein to the contrary notwithstanding:
(i) at no time shall there be outstanding to
any one Borrower more than six A Borrowings comprised of Eurodollar
Rate Advances;
(ii) no Borrower may select Eurodollar Rate
Advances for any Borrowing if the aggregate amount of such Borrowing
is less than (x) if such Borrowing is made by WPL, $5,000,000, and (y)
if such Borrowing is made by any other Borrower, $20,000,000;
(iii) if the Majority Banks shall notify the Agent
that either (A) the Eurodollar Rate for any Interest Period for any
Eurodollar Rate Advances will not adequately reflect the cost to such
Banks of making or funding their respective Eurodollar Rate Advances
for such Interest Period, or (B) that U.S. dollar deposits for the
relevant amounts and Interest Period for their respective Advances are
not available to them in the London interbank market, or it is
otherwise impossible to have Eurodollar Rate Advances, the Agent shall
forthwith so notify the Borrowers and the Banks, whereupon (I) each
Eurodollar Rate Advance will automatically, on the last day of the
then existing Interest Period therefor, Convert into a Base Rate
Advance, and (II) the obligations of the Banks to make, or to Convert
Advances into, Eurodollar Rate Advances shall be suspended until the
Agent, at the request of the Majority Banks, shall notify the
Borrowers and the Banks that the circumstances causing such suspension
no longer exist, and, except as provided in Section 2.02(b)(v), each
Advance comprising any requested A Borrowing shall be a Base Rate
Advance;
(iv) if the Agent is unable to determine the
Eurodollar Rate for Eurodollar Rate Advances, the obligation of the
Banks to make, or to Convert Advances into, Eurodollar Rate Advances
shall be suspended until the Agent shall notify the Borrowers and the
Banks that the circumstances causing such suspension no longer exist,
and, except as provided in Section 2.02(b)(v), each Advance comprising
any requested A Borrowing shall be a Base Rate Advance; and
(v) if a Borrower has requested a proposed A
Borrowing consisting of Eurodollar Rate Advances and as a result of
circumstances referred to in Section 2.02(b)(iii) or (iv) such A
Borrowing would not consist of Eurodollar Rate Advances, such Borrower
may, by notice given not later than 3:00 P.M. (New York City time) at
least one Business Day prior to the date such proposed A Borrowing
would otherwise be made, cancel such A Borrowing, in which case such A
Borrowing shall be cancelled and no Advances shall be made as a
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<PAGE> 22
result of such requested A Borrowing, but such Borrower shall
indemnify the Banks in connection with such cancellation as
contemplated by Section 2.02(c).
(c) Each Notice of A Borrowing shall be irrevocable and
binding on the Borrowers, except as set forth in Section 2.02(b)(v). In the
case of any A Borrowing requested by a Borrower which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances, such
Borrower shall indemnify each Bank against any loss, cost or expense incurred
by such Bank as a result of any failure to fulfill on or before the date
specified in such Notice of A Borrowing for such A Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of reasonably anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such Bank to fund the A Advance to be made by such Bank as part of such A
Borrowing when such A Advance, as a result of such failure, is not made on such
date. A certificate in reasonable detail as to the basis for and the amount of
such loss, cost or expense submitted to such Borrower and the Agent by such
Bank shall be prima facie evidence of the amount of such loss, cost or expense.
If an A Borrowing requested by a Borrower which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances is not made
as an A Borrowing comprised of Eurodollar Rate Advances as a result of Section
2.02(b), such Borrower shall indemnify each Bank against any loss (excluding
loss of profits), cost or expense incurred by such Bank by reason of the
liquidation or reemployment of deposits or other funds acquired by such Bank
prior to the time such Bank is actually aware that such A Borrowing will not be
so made to fund the A Advance to be made by such Bank as part of such A
Borrowing. A certificate in reasonable detail as to the basis for and the
amount of such loss, cost or expense submitted to such Borrower and the Agent
by such Bank shall be prima facie evidence of the amount of such loss, cost or
expense.
(d) Unless the Agent shall have received notice from a
Bank prior to the date of any A Borrowing to a Borrower that such Bank will not
make available to the Agent such Bank's ratable portion of such A Borrowing,
the Agent may assume that such Bank has made such portion available to the
Agent on the date of such A Borrowing in accordance with subsection (a) of this
Section 2.02 and the Agent may, in reliance upon such assumption, make
available to such Borrower requesting such A Borrowing on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such ratable portion available to the Agent, such Bank and such Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount
is made available to such Borrower until the date such amount is repaid to the
Agent, at (i) in the case of such Borrower, the interest rate applicable at the
time to A Advances comprising such A Borrowing and (ii) in the case of such
Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Bank's A
Advance as part of such A Borrowing for purposes of this Agreement.
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<PAGE> 23
(e) The failure of any Bank to make the A Advance to be
made by it as part of any A Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its A Advance on the date of such A
Borrowing, but no Bank shall be responsible for' the failure of any other Bank
to make the A Advance to be made by such other Bank on the date of any A
Borrowing.
Section 2.03. Fees.
(a) Commitment Fee. TWC agrees to pay to the Agent for
the account of each Bank a commitment fee on the average daily unused (for the
purposes of this Section 2.03(a) A Advances made to any Borrower shall be
considered to have been made to TWC, but B Advances to any Borrower shall not,
for purposes of this Section 2.03(a), be considered, to be usage of any
Commitment) portion of such Bank's Commitment to TWC from the date hereof until
the Termination Date at a rate per annum from time to time equal to (i) at such
times as Rating Category One is applicable to TWC, .10%, (ii) at such times as
Rating Category Two is applicable to TWC, .125%, (iii) at such times as Rating
Category Three is applicable to TWC, .1 5%, (iv) at such times as Rating
Category Four is applicable to TWC, .20%, (v) at such times as Rating Category
Five is applicable to TWC, .30%, (vi) at such times as Rating Category Six is
applicable to TWC, .375% and (vii) at such times as Rating Category Seven is
applicable to TWC, .50%, payable in arrears on the last day of each March,
June, September and December during the term such Bank has any Commitment to
any Borrower and on the Termination Date.
(b) Agent's Fees. TWC agrees to pay to the Agent, for its
sole account, such fees as may be separately agreed to in writing by TWC and
the Agent.
Section 2.04. Reduction of the Commitments. (a) Optional. Each
Borrower shall have the right, upon at least three Business Days notice to the
Agent, to terminate in whole or reduce ratably in part the unused portions of
the respective Commitments of the Banks to such Borrower, provided that each
partial reduction shall be in the aggregate amount of at least $20,000,000, and
provided further, that the aggregate amount of the Commitments of the Banks to
any Borrower shall not be reduced to an amount which is less than the aggregate
principal amount of the Advances then outstanding to such Borrower, and
provided further, that the aggregate amount of the Commitments of the Banks to
TWC shall not be reduced to an amount which is less than the aggregate
principal amount of the Advances then outstanding to the Borrower as to which
the aggregate outstanding principal amount of Advances is then the largest.
(b) Termination. If all of the Commitments of the Banks
to a Borrower (other than TWC) are terminated pursuant to Section 2.04(a) and
such Borrower has paid all principal, interest, fees, costs and other amounts
owed by it hereunder and under the Notes executed by it, such Borrower shall
have the right, upon
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<PAGE> 24
at least three Business Days notice to the Agent, to elect to cease to be a
Borrower hereunder, except for purposes of the definition herein of Majority
Banks and for purposes of Sections 2.11, 2.14 and 8.04.
Section 2.05. Repayment of A Advances. Each Borrower shall
repay, on the Stated Termination Date or such earlier date as the Notes may be
declared due pursuant to Article VI, the unpaid principal amount of each A
Advance made by each Bank to such Borrower.
Section 2.06. Interest on A Advances. Each Borrower shall pay
interest on the unpaid principal amount of each A Advance made by each Bank to
such Borrower from the date of such A Advance until such principal amount shall
be paid in full, at the following rates per annum:
(a) Base Rate Advances. At such times as such A Advance
is a Base Rate Advance, a rate per annum equal at all times to the
Base Rate in effect from time to time plus the Applicable Margin in
effect from time to time for such A Advance, payable quarterly in
arrears on the last day of each March, June, September and December
and on the date such Advance shall be Converted or paid in full;
provided that any amount of principal of any Base Rate Advance,
interest, fees and other amounts payable hereunder (other than
principal of any Eurodollar Rate Advance) which is not paid when due
(whether at stated maturity, by acceleration or otherwise) shall bear
interest, from the date on which such amount is due until such amount
is paid in full, payable on demand, at a rate per annum equal at all
times to the sum of the Base Rate in effect from time to time plus the
Applicable Margin for Base Rate Advances to such Borrower in effect
from time to time plus 2% per annum.
(b) Eurodollar Rate Advances. At such times as such A
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such A Advance to the sum of the
Eurodollar Rate for such Interest Period plus the Applicable Margin in
effect from time to time for such A Advance, payable on the last day
of such Interest Period and, if such Interest Period has a duration of
more than three months, on each day which occurs during such Interest
Period every three months from the first day of such Interest Period;
provided that any amount of principal of any Eurodollar Rate Advance
which is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which
such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the greater of (x)
the sum of the Base Rate in effect from time to time plus the
Applicable Margin for Base Rate Advances to such Borrower in effect
from time to time plus 2% per annum and (y) the sum of the rate per
annum required to be paid on such A Advance immediately prior to the
date on which such amount became due plus 2% per annum.
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<PAGE> 25
Section 2.07. Additional Interest on Eurodollar Rate Advances.
Each Borrower shall pay to each Bank, so long as such Bank shall be required
under regulations of the Board of Governors of the Federal Reserve System to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities, additional interest on the unpaid principal
amount of each Eurodollar Rate Advance of such Bank to such Borrower, from the
date of such Advance until such principal amount is paid in full, at an
interest rate per annum equal at all times to the remainder obtained by
subtracting (i) the Eurodollar Rate for the Interest Period for such Advance
from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage
equal to 100% minus the Eurodollar Rate Reserve Percentage of such Bank for
such Interest Period, payable on each date on which interest is payable on such
Advance. Such additional interest shall be determined by such Bank and notified
to such Borrower through the Agent. A certificate as to the amount of such
additional interest submitted to such Borrower and the Agent by such Bank shall
be conclusive and binding for all purposes, absent manifest error. No Bank
shall have the right to recover any additional interest pursuant to this
Section 2.07 for any period more than 90 days prior to the date such Bank
notifies the Borrowers that additional interest may be charged pursuant to this
Section 2.07.
Section 2.08. Interest Rate Determination. The Agent shall
give prompt notice to the Borrower to which an A Advance is made and the Banks
of the applicable interest rate for each Eurodollar Rate Advance determined by
the Agent for purposes of Section 2.06(b).
Section 2.09. Evidence of Debt. The indebtedness of each
Borrower resulting from the A Advances owed to each Bank by such Borrower shall
be evidenced by an A Note of such Borrower payable to the order of such Bank.
Section 2.10. Prepayments.
(a) No Borrower shall have any right to prepay any
principal amount of any A Advance except as provided in this Section 2.10.
(b) Any Borrower may, in respect of Base Rate Advances
upon notice to the Agent before 10:00 A.M. (New York City time) on the date of
prepayment, and in respect of Eurodollar Rate Advances upon at least three
Business Days' notice to the Agent, in each case stating the proposed date
(which shall be a Business Day) and aggregate principal amount of the
prepayment, and if such notice is given such Borrower shall, prepay the
outstanding principal amounts of the A Advances comprising part of the same A
Borrowing in whole or ratably in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid and amounts, if any,
required to be paid pursuant to Section 8.04(b) as a result of such
prepayment; provided, however, that each partial prepayment pursuant to this
Section 2.10(b) shall be in an aggregate principal amount not less than
$5,000,000 and in an aggregate
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principal amount such that after giving effect thereto no A Borrowing comprised
of Base Rate Advances shall have a principal amount outstanding of less than
$5,000,000 and no A Borrowing comprised of Eurodollar Rate Advances shall have
a principal amount outstanding of less than (i) if such A Borrowing was made by
WPL, $5,000,000, and (ii) if such A Borrowing was made by any other Borrower,
$20,000,000.
(c) Each Borrower will give notice to the Agent at or
before the time of each prepayment by such Borrower of Advances pursuant to
this Section 2.10 specifying the Advances which are to be prepaid and the
amount of such prepayment to be applied to such Advances, and each payment of
any Advance pursuant to this Section 2.10 or any other provision of this
Agreement shall be made in a manner such that all Advances comprising part of
the same Borrowing are paid in whole or ratably in part.
Section 2.11. Increased Costs. (a) If, due to either (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation, application or applicability of any
law or regulation or (ii) the compliance with any guideline or request from any
central bank or other governmental authority (whether or not having the force
of law), there shall be any increase in the cost to any Bank of agreeing to
make or making, funding or maintaining Eurodollar Rate Advances to any
Borrower, then such Borrower shall from time to time, upon demand by such Bank
(with a copy of such demand to the Agent), pay to the Agent for the account of
such Bank additional amounts sufficient to compensate such Bank for such
increased cost. A certificate as to the amount of such increased cost,
submitted to such Borrower and the Agent by such Bank, shall be prima facie
evidence of the amount of such increased cost. No Bank shall have the right to
recover any such increased costs for any period more than 90 days prior to the
date such Bank notifies the Borrowers of any such introduction, change,
compliance or proposed compliance.
(b) If any Bank determines that compliance with any law
or regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by
such Bank or any corporation controlling such Bank and that the amount of such
capital is increased by or based upon the existence of such Bank's commitment
to lend to any Borrower hereunder and other commitments of this type, then,
upon demand by such Bank (with a copy of such demand to the Agent), such
Borrower shall immediately pay to the Agent for the account of such Bank, from
time to time as specified by such Bank, additional amounts sufficient to
compensate such Bank or such corporation in the light of such circumstances, to
the extent that such Bank reasonably determines such increase in capital to be
allocable to the existence of such Bank's commitment to lend hereunder. A
certificate as to the amount of such additional amounts, submitted to such
Borrower and the Agent by such
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Bank, shall be prima facie evidence of the amount of such additional amounts.
No Bank shall have any right to recover any additional amounts under this
Section 2.11(b) for any period more than 90 days prior to the date such Bank
notifies the Borrower of any such compliance.
(c) In the event that any Bank makes a demand for
payment under Section 2.07 or this Section 2.11, TWC may within ninety days of
such demand, if no Event of Default or event which, with the giving of notice
or lapse of time or both, would constitute an Event of Default then exists,
replace such Bank with another commercial bank in accordance with all of the
provisions of the last sentence of Section 8.06(a) (including execution of an
appropriate Transfer Agreement) provided that (i) all obligations of such Bank
to lend hereunder shall be terminated and the Notes payable to such Bank and
all other obligations owed to such Bank hereunder shall be purchased in full
without recourse at par plus accrued interest at or prior to such replacement,
(ii) such replacement bank shall be reasonably satisfactory to the Agent and
the Majority Banks, (iii) such replacement bank shall, from and after such
replacement, be deemed for all purposes to be a "Bank" hereunder with a
Commitment to each Borrower in the amount of the respective Commitment of such
Bank to such Borrower immediately prior to such replacement (plus, if such
replacement bank is already a Bank prior to such replacement the respective
Commitment of such Bank to such Borrower prior to such replacement), as such
amount may be changed from time to time pursuant hereto, and shall have all of
the rights, duties and obligations hereunder of the Bank being replaced, and
(iv) such other actions shall be taken by the Borrowers, such Bank and such
replacement bank as may be appropriate to effect the replacement of such Bank
with such replacement bank on terms such that such replacement bank has all of
the rights, duties and obligations hereunder as such Bank (including, without
limitation, execution and delivery of new Notes of each Borrower to such
replacement bank, redelivery to each Borrower in due course of the Notes of
such Borrower payable to such Bank and specification of the information
contemplated by Schedule I as to such replacement bank).
Section 2.12. Illegality. Notwithstanding any other provision
of this Agreement, if any Bank shall notify the Agent that the introduction of
or any change in or in the interpretation of any law or regulation shall make
it unlawful, or that any central bank or other governmental authority shall
assert that it is unlawful, for any Bank or its Eurodollar Lending Office to
perform its obligations hereunder to make, or Convert a Base Rate Advance into,
a Eurodollar Rate Advance or to continue to fund or maintain any Eurodollar
Rate Advance, then, on notice thereof to the Borrowers by the Agent, (i) the
obligation of each of the Banks to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Agent, at the request of
the Majority Banks, shall notify the Borrowers and the Banks that the
circumstances causing such suspension no longer exist, and (ii) the Borrowers
shall forthwith prepay in full all Eurodollar Rate Advances of all Banks then
outstanding together with all accrued interest thereon and all amounts payable
pursuant to Section 8.04(b), unless
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each Bank shall determine in good faith in its sole opinion that it is lawful
to maintain the Eurodollar Rate Advances made by such Bank to the end of the
respective Interest Periods then applicable thereto or unless the Borrower,
within five Business Days of notice from the Agent, Converts all Eurodollar
Rate Advances of all Banks then outstanding into Base Rate Advances in
accordance with Section 2.19.
Section 2.13. Payments and Computations. (a) Each Borrower
shall make each payment hereunder and under the Notes to be made, by it not
later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars
to the Agent at its New York address referred to in Section 8.02 in same day
funds. The Agent will promptly thereafter cause to be distributed like funds
relating to the payment of principal, interest or commitment fees ratably
(other than amounts payable pursuant to Section 2.07, 2.11, 2.14, 2.16 or
8.04(b)) to the Banks for the account of their respective Applicable Lending
Offices, and like funds relating to the payment of any other amount payable to
any Bank to such Bank for the account of its Applicable Lending Office, in each
case to be applied in accordance with the terms of this Agreement. In no event
shall any Bank be entitled to share any fee paid to the Agent pursuant to
Section 2.03(b), any auction fee paid to the Agent pursuant to Section
2.16(a)(i) or any other fee paid to the Agent, as such.
(b) Each Borrower hereby authorizes each Bank, if and to
the extent payment owed to such Bank by such Borrower is not made when due
hereunder or under any Note of such Borrower held by such Bank, to charge from
time to time against any or all of such Borrower's accounts with such Bank any
amount so due.
(c) All computations of interest based on clause (a) or
clause (b) of the definition herein of Base Rate and of commitment fees shall
be made by the Agent on the basis of a year of 365 or 366 days, as the case may
be, and all computations of interest based on the Eurodollar Rate, the Federal
Funds Rate or clause (c) of the definition herein of Base Rate shall be made by
the Agent, and all computations of interest pursuant to Section 2.07 shall be
made by a Bank, on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or commitment fees are payable.
Each determination by the Agent (or, in the case of Section 2.07, by a Bank) of
an interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Whenever any payment hereunder or under the Notes
shall be stated to be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of payment of interest or
commitment fee, as the case may be; provided, however, if such extension would
cause payment of interest on or principal of Eurodollar Rate Advances to be
made in the next following calendar month, such payment shall be made on the
next preceding Business Day.
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(e) Unless the Agent shall have received notice from a
Borrower prior to the date on which any payment is due by such Borrower to any
Bank hereunder that such Borrower will not make such payment in full, the Agent
may assume that such Borrower has made such payment in full to the Agent on
such date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then
due such Bank. If and to the extent such Borrower shall not have so made such
payment in full to the Agent, each Bank shall repay to the Agent forthwith on
demand such amount distributed to such Bank together with interest thereon, for
each day from the date such amount is distributed to such Bank until the date
such Bank repays such amount to the Agent, at the Federal Funds Rate.
Section 2.14. Taxes. (a) Any and all payments by any Borrower
hereunder or under the Notes shall be made, in accordance with Section 2.13,
free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings with respect
thereto, and all liabilities with respect thereto, excluding in the case of
each Bank and the Agent, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Bank or the
Agent (as the case may be) is organized or any political subdivision thereof
and, in the case of each Bank, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or
any political subdivision thereof (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If any Borrower shall be required by law to deduct
any Taxes from or in respect of any sum payable hereunder or under any Note to
any Bank or the Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.14) such Bank or
the Agent (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) such Borrower shall make
such deductions and (iii) such Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with
applicable law.
(b) In addition, each Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made by such Borrower
hereunder or under the Notes executed by it or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or such Notes
(hereinafter referred to as "Other Taxes").
(c) Each Borrower will indemnify each Bank and the Agent
for the full amount of Taxes or Other Taxes (including, without limitation any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this,
Section 2.14) owed and paid by such Bank or the Agent (as the case may be) and
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto. This indemnification shall be made within 30 days from
the date such Bank or the Agent (as the case may be) makes written demand
therefor.
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(d) Within 30 days after the date of the payment of Taxes
by or at the direction of any Borrower, such Borrower will furnish to the
Agent, at its address referred to in Section 8.02, the original or a certified
copy of a receipt evidencing payment thereof. Should any Bank or the Agent
ever receive any refund, credit or deduction from any taxing authority to which
such Bank or the Agent would not be entitled but for the payment by a Borrower
of Taxes as required by this Section 2.14 (it being understood that the
decision as to whether or not to claim, and if claimed, as to the amount of any
such refund, credit or deduction shall be made by such Bank or the Agent, as
the case may be, in its sole discretion), such Bank or the Agent, as the case
may be, thereupon shall repay to such Borrower an amount with respect to such
refund, credit or deduction equal to any net reduction in taxes actually
obtained by such Bank or the Agent, as the case may be, and determined by such
Bank or the Agent, as the case may be, to be attributable to such refund,
credit or deduction.
(e) Without prejudice to the survival of any other
agreement of the Borrowers hereunder, the agreements and obligations of the
Borrowers contained in this Section 2.14 shall survive the payment in full of
principal and interest hereunder and under the Notes.
Section 2.15. Sharing of Payments, Etc. If any Bank shall
obtain any payment (whether voluntary or involuntary, or through the exercise
of any right of set-off or otherwise) on account of the A Advances made by it
(other than pursuant to Section 2.07, 2.11, 2.14 or 8.04(b)) in excess of its
ratable share of payments on account of the A Advances obtained by all the
Banks, such Bank shall forthwith purchase from the other Banks such
participations in the A Advances owed to them as shall be necessary to cause
such purchasing Bank to share the excess payment ratably with each of them,
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Bank, such purchase from each Bank
shall be rescinded and such Bank shall repay to the purchasing Bank the
purchase price to the extent of such Bank's ratable share (according to the
proportion of (i) the amount of the participation purchased from such Bank as a
result of such excess payment to (ii) the total amount of such excess payment)
of such recovery together with an amount equal to such Bank's ratable share
(according to the proportion of (i) the amount of such Bank's required
repayment to (ii) the total amount so recovered from the purchasing Bank) of
any interest or other amount paid or payable by the purchasing Bank in respect
of the total amount so recovered. Each Borrower agrees that any Bank so
purchasing a participation from another Bank pursuant to this Section 2.15 may,
to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Bank were the direct creditor of such Borrower in the amount of such
participation.
Section 2.16. The B Advances. (a) Each Bank severally agrees
that each Borrower may make B Borrowings under this Section 2.16 from time to
time on any Business Day during the period from the date hereof until the
earlier of (I) the
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Termination Date or (II) the date occurring 30 days prior to the Stated
Termination Date in the manner set forth below; provided that, following the
making of each B Borrowing, the aggregate amount of the Advances then
outstanding to such Borrower shall not exceed the aggregate amount of the
Commitments of the Banks to such Borrower (computed without regard to any B
Reduction) and the aggregate amount of all Advances then outstanding shall not
exceed the aggregate amount of the Commitments of the Banks to TWC (computed
without regard to any B Reduction).
(i) A Borrower may request a B Borrowing under this
Section 2.16 by delivering to the Agent, by telecopier, telex or
cable, confirmed immediately in writing, a notice of a B Borrowing (a
"Notice of B Borrowing"), in substantially the form of Exhibit B-2
hereto, specifying the date and aggregate amount of the proposed B
Borrowing, the maturity date for repayment of each B Advance to be
made as part of such B Borrowing (which maturity date may not be
earlier than the date occurring 14 days after the date of such B
Borrowing or later than the earlier of (x) 6 months after the date of
such B Borrowing or (y) the Stated Termination Date), the interest
payment date or dates relating thereto, and any other terms to be
applicable to such B Borrowing (including, without limitation, the
basis to be used by the Banks in determining the rate or rates of
interest to be offered by them as provided in paragraph (ii) below and
prepayment terms, if any, but excluding any waiver or other
modification to any of the conditions set forth in Article III), not
later than 10:00 A.M. (New York City time) (A) at least one Business
Day prior to the date of the proposed B Borrowing, if such Borrower
shall specify in the Notice of B Borrowing that the rates of interest
to be offered by the Banks shall be fixed rates per annum and (B) at
least five Business Days prior to the date of the proposed B
Borrowing, if the Borrower shall instead specify in the Notice of B
Borrowing the basis to be used by the Banks in determining the rates
of interest to be offered by them. The Agent shall in turn promptly
notify each Bank of each request for a B Borrowing received by it from
a Borrower by sending such Bank a copy of the related Notice of B
Borrowing. Each time that a Borrower gives a Notice of B Borrowing,
such Borrower shall pay to the Agent an auction fee equal to $250
times the number of Banks at such time.
(ii) Each Bank may, if in its sole discretion it elects to
do so, irrevocably offer to make one or more B Advances to a Borrower
as part of such proposed B Borrowing at a rate or rates of interest
specified by such Bank in it is sole discretion, by notifying the
Agent (which shall give prompt notice thereof to such Borrower),
before 10:00 A.M. (New York City time) (x) on the date of such
proposed B Borrowing, in the case of a Notice of B Borrowing delivered
pursuant to clause (A) of paragraph (i) above, and (y) three Business
Days before the date of such proposed B Borrowing in the case of a
Notice of B Borrowing delivered pursuant to clause (B) of paragraph
(i) above, of the minimum amount and maximum amount of each B Advance
which such Bank
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would be willing to make as part of such proposed B Borrowing (which
amounts may, subject to the proviso to the first sentence of this
Section 2.16(a), exceed such Bank's Commitment to such Borrower), the
rate or rates of interest therefor and such Bank's Applicable Lending
Office with respect to such B Advance; provided that if the Agent in
its capacity as a Bank shall, in its sole discretion, elect to make
any such offer, it shall notify such Borrower of such offer before
9:45 A.M. (New York City time) on the date on which notice of such
election is to be given to the Agent by the other Banks. If any Bank
shall elect not to make such an offer, such Bank shall so notify the
Agent, before 10:00 A.M. (New York City time) on the date on which
notice of such election is to be given to the Agent by the other
Banks, and such Bank shall not be obligated to, and shall not, make
any B Advance as part of such B Borrowing; provided that the failure
by any Bank to give such notice shall not cause such Bank to be
obligated to make any B Advance as part of such proposed B Borrowing.
(iii) The Borrower requesting such proposed B Borrowing
shall, in turn, before 11:00 A.M. (New York City time) (x) on the
date of such proposed B Borrowing in the case of a Notice of B
Borrowing delivered pursuant to clause (A) of paragraph (i) above and
(y) three Business Days before the date of such proposed B Borrowing
in the case of a Notice of B Borrowing delivered pursuant to clause
(B) of paragraph (i) above, either
(A) cancel such B Borrowing by giving the Agent
notice to that effect, or
(B) accept one or more of the offers made by any
Bank or Banks pursuant to paragraph (ii) above, in order of
the lowest to highest rates of interest or margins (or, if two
or more Banks bid at the same rates of interest, and the
amount of accepted offers is less than the aggregate amount of
such offers, the amount to be borrowed from such Banks as part
of such B Borrowing shall be allocated among such Banks pro
rata on the basis of the maximum amount offered by such Banks
at such rates or margin in connection with such B Borrowing),
in any aggregate amount up to the aggregate amount initially
requested by the Borrower in the relevant Notice of B
Borrowing, by giving notice to the Agent of the amount of each
B Advance (which amount shall be equal to or greater than the
minimum amount, and equal to or less than the maximum amount,
notified to such Borrower by the Agent on behalf of such Bank
for such B Advance pursuant to paragraph (ii) above) to be
made by each Bank as part of such B Borrowing, and reject any
remaining offers made by Banks pursuant to paragraph (ii)
above by giving the Agent notice to that effect.
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(iv) If the Borrower requesting such B Borrowing notifies
the Agent that such B Borrowing is cancelled pursuant to paragraph
(iii)(A) above, the Agent shall give prompt notice thereof to the
Banks and such B Borrowing shall not be made.
(v) If the Borrower requesting such B Borrowing accepts one
or more of the offers made by any Bank or Banks pursuant to paragraph
(iii)(B) above, the Agent shall in turn promptly notify (A) each Bank
that has made an offer as described in paragraph (ii) above, of the
date and aggregate amount of such B Borrowing and whether or not any
offer or offers made by such Bank pursuant to paragraph (ii) above
have been accepted by such Borrower, (B) each Bank that is to make a B
Advance as part of such B Borrowing, of the amount of each B Advance
to be made by such Bank as part of such B Borrowing, and (C) each Bank
that is to make a B Advance as part of such B Borrowing, upon receipt,
that the Agent has received forms of documents appearing to fulfill
the applicable conditions set forth in Article III. Each Bank that is
to make a B Advance as part of such B Borrowing shall, before 12:00
noon (New York City time) on the date of such B Borrowing specified in
the notice received from the Agent pursuant to clause (A) of the
preceding sentence or any later time when such Bank shall have
received notice from the Agent pursuant to clause (C) of the
preceding sentence, make available for the account of its Applicable
Lending Office to the Agent at its New York address referred to in
Section 8.02 such Bank's portion of such B Borrowing, in same day
funds. Upon fulfillment of the applicable conditions set forth in
Article III and after receipt by the Agent of such funds, the Agent
will make such funds available to such Borrower at the Agent's
aforesaid address. Promptly after each B Borrowing the Agent will
notify each Bank of the amount of the B Borrowing, the Borrower to
which such B Borrowing was made, the consequent B Reduction and the
dates upon which such B Reduction commenced and will terminate.
(b) Each B Borrowing shall be in an aggregate amount of
not less than $5,000,000 or an integral multiple of $1,000,000 in
excess thereof. Each Borrower agrees that it will not request a B
Borrowing unless, upon the making of such B Borrowing, the limitations
set forth in the proviso to the first sentence of Section 2.16(a) are
complied with.
(c) Within the limits and on the conditions set forth in
this Section 2.16, each Borrower may from time to time borrow under
this Section 2.16, repay or prepay pursuant to subsection (d) below,
and reborrow under this Section 2.16, provided that a B Borrowing
shall not be made by any Borrower within three Business Days of the
date of another B Borrowing to such Borrower.
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<PAGE> 34
(d) Each Borrower shall repay to the Agent for the
account of each Bank which has made a B Advance to such Borrower, or
each other holder of a B Note of such Borrower, on the maturity date
of each B Advance made to such Borrower (such maturity date being that
specified by such Borrower for repayment of such B Advance in the
related Notice of B Borrowing delivered pursuant to subsection (a)(i)
above and provided in the B Note evidencing such B Advance) the then
unpaid principal amount of such B Advance. No Borrower shall have any
right to prepay any principal amount of any B Advance unless, and then
only on the terms, specified by such Borrower for such B Advance in
the related Notice of B Borrowing delivered pursuant to subsection
(a)(i) above and set forth in the B Note evidencing such B Advance.
(e) Each Borrower shall pay interest on the unpaid
principal amount of each B Advance made to such Borrower from the date
of such B Advance to the date the principal amount of such B Advance
is repaid in full, at the rate of interest for such B Advance
specified by the Bank making such B Advance in its notice with respect
thereto delivered pursuant to subsection (a)(ii) above, payable on the
interest payment date or dates specified by such Borrower for such B
Advance in the related Notice of B Borrowing delivered pursuant to
subsection (a)(i) above, as provided in the B Note evidencing such B
Advance.
(f) The indebtedness of each Borrower resulting from each
B Advance made to such Borrower as part of a B Borrowing shall be
evidenced by a separate B Note of such Borrower payable to the order
of the Bank making such B Advance.
(g) The failure of any Bank to make the B Advance to be
made by it as part of any B Borrowing shall not relieve any other Bank
of its obligation, if any, hereunder to make its B Advance on the date
of such B Borrowing, but no Bank shall be responsible for the failure
of any other Bank to make the B Advance to be made by such other Bank
on the date of any B Borrowing.
Section 2.17. Optional Termination. Notwithstanding anything
to the contrary in this Agreement, if (i) any Person (other than a trustee or
other fiduciary holding securities under an employee benefit plan of TWC or of
any Subsidiary of TWC) or two or more Persons acting in concert (other than any
group of employees of TWC or of any of its Subsidiaries) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934), directly or
indirectly, of securities of TWC (or other securities convertible into such
securities) representing 20% or more of the combined voting power of all
securities of TWC entitled to vote in the election of directors, other than
securities having such power only by reason of the happening of a contingency,
or (ii) during any period of up to 24 consecutive months, commencing before or
after the date of this Agreement, individuals who at the beginning of such
24-month period were
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directors of TWC or who were elected by individuals who at the beginning of
such period were such directors or by individuals elected in accordance with
this clause (ii) shall cease for any reason to constitute a majority of the
board of directors of TWC, or (iii) any Person (other than TWC or a
Wholly-Owned Subsidiary of TWC) or two or more Persons acting in concert shall
have acquired by contract or otherwise, or shall have entered into a contract
or arrangement which upon consummation will result in its or their acquisition
of, the power to exercise, directly or indirectly, a controlling influence over
the management or policies of any Borrower; then the Agent shall at the
request, or may with the consent, of the holders of at least 66-2/3% in
principal amount of the A Notes then outstanding or, if no A Notes are then
outstanding, Banks having at least 66-2/3% of the Commitments, by notice to the
Borrowers, declare all of the Commitments and the obligation of each Bank to
make Advances to be terminated, whereupon all of the Commitments and each such
obligation shall forthwith terminate, and no Borrower shall have any further
right to borrow hereunder.
Section 2.18. Extension of Termination Date. By notice given
to the Agent and the Banks, at least thirty days but not more than forty-five
days before February 1 of any year after 1998, the Borrowers may request the
Banks to extend the Stated Termination Date for an additional year to a date
which is an anniversary date of the Stated Termination Date. Within thirty days
after receipt of such request, each Bank that agrees, in its sole and absolute
discretion, to so extend the Stated Termination Date shall notify the Borrowers
and the Agent that it so agrees, and if all Banks so agree the Stated
Termination Date shall be so extended.
Section 2.19. Voluntary Conversion of Advances. Any Borrower
may on any Business Day, if no Event of Default then exists as to such
Borrower, upon notice (which shall be irrevocable) given to the Agent not later
than 11:00 A.M. (x) in the case of a proposed Conversion into Eurodollar Rate
Advances, on the third Business Day prior to the date of the proposed
conversion, and (y) in the case of a proposed Conversion into Base Rate
Advances, on the date of the proposed Conversion, and subject to the provisions
of Sections 2.02 and 2.12, Convert all Advances of one Type comprising the same
A Borrowing into Advances of the other Type; provided that (i) no Conversion of
any Eurodollar Rate Advances shall occur on a day other than the last day of an
Interest Period for such Eurodollar Rate Advances, except as contemplated by
Section 2.12, and (ii) Advances may not be Converted into Eurodollar Rate
Advances if the aggregate unpaid principal amount of the Advances is less than
$20,000,000. Each such notice of a Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the A Advances
to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances,
the duration of the Interest Period for each such Advance.
Section 2.20. Automatic Provisions. (a) If any Borrower shall
fail to select the duration of any Interest Period for Eurodollar Rate Advances
in accordance with the provisions contained in the definition of "Interest
Period" in Section 1.01, the
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Agent will forthwith so notify such Borrower and the Lenders, and such Advances
will automatically, on the last day of the then existing Interest Period
therefor, Convert into Base Rate Advances.
(b) On the date on which the aggregate unpaid principal
amount of the Eurodollar Rate Advances of any Borrower shall be reduced to less
than $20,000,000, all of such Eurodollar Rate Advances shall automatically
Convert into Base Rate Advances.
ARTICLE III
CONDITIONS
Section 3.01. Conditions Precedent to Initial Advances. The
obligation of each Bank to make its initial Advance is subject to the condition
precedent that the Agent shall have received on or before the day of the
initial Borrowing, each dated on or before such day, in form and substance
satisfactory to the Agent and (except for the Notes) in sufficient copies for
each Bank:
(a) The A Notes executed severally by each of the
respective Borrowers to the order of each of the respective Banks and
this Agreement executed by the Borrowers.
(b) Certified copies of the resolutions of the Board of
Directors, or the Executive Committee thereof, of each Borrower
approving this Agreement and the Notes to be executed by such
Borrower.
(c) A certificate of the Secretary or an Assistant
Secretary of each Borrower certifying (i) that attached thereto are
true and complete copies of the Certificate of Incorporation and
Bylaws of such Borrower as in effect on the date hereof, and (ii) the
names and true signatures of the officers of such Borrower authorized
to sign this Agreement, Notices of A Borrowing, Notices of B
Borrowing and the Notes to be executed by such Borrower and any other
documents to be delivered hereunder by such Borrower.
(d) An opinion of J. Furman Lewis, Esq., General Counsel
of TWC, substantially in the form of Exhibit C hereto and as to such
other matters as any Bank through the Agent may reasonably request.
(e) An opinion of William G. von Glahn, Associate General
Counsel of TWC, substantially in the form of Exhibit D and as to such
other matters as any Bank through the Agent may reasonably request.
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(f) An opinion of David E. Varner, counsel for TGPL and
TGT, substantially in the form of Exhibit E and as to such other
matters as any Bank through the Agent may reasonably request.
(g) An opinion of Messrs. Bracewell & Patterson, counsel
for the Agent, substantially in the form of Exhibit F hereto.
(h) A statement executed by TWC confirming that the
Credit Agreement dated as of December 23, 1992 among the Borrowers,
Citibank, N.A., as agent, and the lenders parties thereto, as
amended, has been terminated (except as contemplated by the last
sentence of Section 8.10 thereof) and that all principal, interest and
other amounts owed thereunder have been paid in full. Each Bank hereby
waives the requirement of notice of termination contemplated by
Section 2.04(a) of such Credit Agreement, as amended.
(i) A certificate of an officer of each Borrower (other
than WPL) stating the respective ratings by each of S&P and Moody's of
the senior unsecured long-term debt of such Borrower as in effect on
the date of this Agreement and a certificate of an officer of WPL
stating (and showing the calculation of) the WPL Debt to TNW Ratio as
of September 30, 1994.
Section 3.02. Additional Conditions Precedent to Each A
Borrowing. The obligation of each Bank to make an A Advance to a Borrower on
the occasion of any A Borrowing (including the initial A Borrowing) shall be
subject to the further conditions precedent that on the date of such A
Borrowing (a) the following statements shall be true (and each of the giving of
the applicable Notice of A Borrowing and the acceptance by such Borrower of the
proceeds of such A Borrowing shall constitute a representation and warranty by
such Borrower that on the date of such A Borrowing such statements are true):
(i) The representations and warranties contained in
Section 4.01 pertaining to such Borrower and its Subsidiaries are
correct on and as of the date of such A Borrowing, before and after
giving effect to such A Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date,
(ii) No event has occurred and is continuing, or would
result from such A Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or which would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both, and
(iii) After giving effect to such A Borrowing and all other
Borrowings which have been requested on or prior to such date but
which have not been made prior to such date, the aggregate principal
amount of all Advances will not
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exceed the aggregate of the Commitments of the Banks to TWC (computed
without regard to any B Reduction);
and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.
Section 3.03. Conditions Precedent to Each B Borrowing. The
obligation of each Bank which is to make a B Advance to a Borrower on the
occasion of a B Borrowing (including the initial B Borrowing) to make such B
Advance as part of such B Borrowing is subject to the further conditions
precedent that (i) at or before the time required by paragraph (iii) of Section
2.16(a), the Agent shall have received the written confirmatory notice of such
B Borrowing contemplated by such paragraph, (ii) on or before the date of such
B Borrowing, but prior to such B Borrowing, the Agent shall have received a B
Note executed by such Borrower payable to the order of such Bank for each of
the one or more B Advances to be made by such Bank as part of such B Borrowing,
in a principal amount equal to the principal amount of the B Advance to be
evidenced thereby and otherwise on such terms as were agreed to for such B
Advance in accordance with Section 2.16, and (iii) on the date of such B
Borrowing (a) the following statements shall be true (and each of the giving of
the applicable Notice of B Borrowing and the acceptance by such Borrower of the
proceeds of such B Borrowing shall constitute a representation and warranty by
such Borrower that on the date of such B Borrowing such statements are true):
(1) The representations and warranties contained in
Section 4.01 pertaining to such Borrower and its Subsidiaries are
correct on and as of the date of such B Borrowing, before and after
giving effect to such B Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date,
(2) No event has occurred and is continuing or would
result from such B Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or which would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both,
(3) Following the making of such B Borrowing and all
other Borrowings to be made on the same day to such Borrower under
this Agreement, the aggregate principal amount of all Advances to such
Borrower then outstanding will not exceed the aggregate amount of the
Commitments to such Borrower (computed without regard to any B
Reduction), and
(4) After giving effect to such B Borrowing and all other
Borrowings which have been requested on or prior to such date but
which have not been made prior to such date, the aggregate principal
amount of all Advances will not
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exceed the aggregate of the Commitments of the Banks to TWC (computed
without regard to any B Reduction);
and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrowers.
Each Borrower represents and warrants as to itself and its Subsidiaries as
follows:
(a) Each Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has all corporate powers and all governmental licenses,
authorizations, certificates, consents and approvals required to carry
on its business as now conducted in all material respects, except for
those licenses, authorizations, certificates, consents and approvals
the failure to have which could not reasonably be expected to have a
material adverse effect on the business, assets, condition or
operation of such Borrower and its Subsidiaries taken as a whole. Each
Subsidiary of each Borrower is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, except where the failure to be so organized, existing
and in good standing could not reasonably be expected to have a
material adverse effect on the business, assets, condition or
operations of such Borrower and its Subsidiaries taken as a whole.
Each Subsidiary of a Borrower has all corporate powers and all
governmental licenses, authorizations, certificates, consents and
approvals required to carry on its business as now conducted in all
material respects, except for those licenses, authorizations,
certificates, consents and approvals the failure to have which could
not reasonably be expected to have a material adverse effect on the
business, assets, condition or operation of such Borrower and its
Subsidiaries taken as a whole.
(b) The execution, delivery and performance by each
Borrower of this Agreement and the Notes and the consummation of the
transactions contemplated by this Agreement are within such
Borrower's corporate powers, have been duly authorized by all
necessary corporate action, do not contravene (i) such Borrower's
charter or by-laws or (ii) law or any contractual restriction binding
on or affecting such Borrower and will not result in or require the
creation or imposition of any Lien prohibited by this Agreement. At
the time of each borrowing of any Advance by a Borrower, such
borrowing and the use of the proceeds of such Advance will be within
such Borrower's corporate powers, will have been duly authorized by
all necessary corporate action, will not contravene (i) such
Borrower's charter or by-laws or (ii) law or any
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<PAGE> 40
contractual restriction binding on or affecting such Borrower and will
not result in or require the creation or imposition of any Lien
prohibited by this Agreement.
(c) No authorization or approval or other action by, and
no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by
any Borrower of this Agreement or the Notes or the consummation of the
transactions contemplated by this Agreement. At the time of each
borrowing of any Advance by a Borrower, no authorization or approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body will be required for such borrowing or
the use of the proceeds of such Advance.
(d) This Agreement has been duly executed and delivered
by each Borrower. This Agreement is the legal, valid and binding
obligation of each Borrower enforceable against each Borrower in
accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally and by
general principles of equity. The A Notes of each Borrower are, and
when executed the B Notes of such Borrower will be, the legal,
valid and binding obligations of such Borrower enforceable against
such Borrower in accordance with their respective terms, except as
such enforceability may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally and by general principles of equity.
(e) (i) The Consolidated and consolidating balance sheets
of TWC and its Subsidiaries as at December 31, 1993, and the related
Consolidated and consolidating statements of income and cash flows of
TWC and its Subsidiaries for the fiscal year then ended, copies of
which have been furnished to each Bank, and the Consolidated and
consolidating balance sheets of TWC and its Subsidiaries as at
September 30, 1994, and the related Consolidated and consolidating
statements of income and cash flows of TWC and its Subsidiaries for
the nine months then ended, duly certified by an authorized financial
officer of TWC, copies of which have been furnished to each Bank,
fairly present, subject, in the case of such balance sheets as at
September 30, 1994 and such statements of income and cash flows for
the nine months then ended, to year-end audit adjustments, the
Consolidated and consolidating financial condition of TWC and its
Subsidiaries as at such dates and the Consolidated and consolidating
results of operations of TWC and its Subsidiaries for the year and
nine month period, respectively, ended on such dates, all in
accordance with generally accepted accounting principles consistently
applied. Since September 30, 1994, there has been no material adverse
change in the condition or operations of TWC or its Subsidiaries. It
is agreed that the sale of Williams
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Telecommunications Group, Inc., a Delaware corporation, and its
Subsidiaries and the purchase of Transco Energy Company, a Delaware
corporation, and its Subsidiaries (and (i) payment of cash by TWC and
issuance of shares by TWC in connection with such purchase, (ii)
assumption by TWC of debt of Transco Energy Company and its
Subsidiaries outstanding on the date hereof, (iii) the proposed merger
related to such purchase with a Subsidiary of TWC that is not a
Borrower, and (iv) contributions of capital to and loans to Transco
Energy Company and its Subsidiaries by TWC in an aggregate amount of
up to $950,000,000) do not constitute a material adverse change with
respect to any Borrower; provided, however, that this sentence shall
not be applicable to any adverse change resulting from or arising in
connection with any event, circumstance or condition (other than those
listed in clauses (i) through (iv) of this sentence) occurring or
existing after the date hereof.
(ii) The consolidating balance sheets of TWC and its
Subsidiaries as at December 31, 1993 and September 30, 1994 referred
to in Section 4.01 (e)(i), and the related consolidating statements of
income and cash flows of TWC and its Subsidiaries for the fiscal year
and nine months, respectively, then ended referred to in Section
4.01(e)(i), to the extent such balance sheets and statements pertain
to NWP, fairly present (subject, in the case of such balance sheet as
at September 30, 1994 and such statements of income and cash flows for
the nine months then ended, to year-end audit adjustments) the
Consolidated financial condition of NWP and its Subsidiaries as at
such dates and the Consolidated results of operations of NWP and its
Subsidiaries for the year and nine month period, respectively, ended
on such dates, all in accordance with generally accepted accounting
principles consistently applied. Since September 30, 1994, there has
been no material adverse change in the condition or operations of NWP
or its Subsidiaries.
(iii) The consolidating balance sheets of TWC and its
Subsidiaries as at December 31, 1993 and September 30, 1994 referred
to in Section 4.01(e)(i), and the related consolidating statements of
income and cash flows of TWC and its Subsidiaries for the fiscal year
and nine months, respectively, then ended referred to in Section
4.01(e)(i), to the extent such balance sheets and statements pertain
to WPL, fairly present (subject, in the case of such balance sheet as
at September 30, 1994 and such statements of income and cash flows for
the nine months then ended, to year-end audit adjustments) the
Consolidated financial condition of WPL and its Subsidiaries as at
such dates and the Consolidated results of operations of WPL and its
Subsidiaries for the year and nine month period, respectively, ended
on such dates, all in accordance with generally accepted accounting
principles consistently applied. Since September 30, 1994, there has
been no material adverse change in the condition or operations of WPL
or its Subsidiaries. It is agreed that the Minneapolis terminal fire
(involving an
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estimated uninsured loss of approximately $750,000) is not a material
adverse change.
(iv) The Consolidated balance sheet of TGPL and its
Subsidiaries as at December 31, 1993, and the related Consolidated
statement of income and cash flows of TGPL and its Subsidiaries for
the fiscal year then ended, copies of which have been furnished to
each Bank, and the Consolidated balance sheet of TGPL and its
Subsidiaries as at September 30, 1994, and the related Consolidated
statement of income and cash flows of TGPL and its Subsidiaries for
the nine months then ended, duly certified by an authorized financial
officer of TGPL, copies of which have been furnished to each Bank,
fairly present, subject, in the case of such balance sheet as at
September 30, 1994 and such statement of income and cash flows for the
nine months then ended, to year-end audit adjustments, the
Consolidated financial condition of TGPL and its Subsidiaries as at
such dates and the Consolidated results of operations of TGPL and its
Subsidiaries for the year and nine month period, respectively, ended
on such dates, all in accordance with generally accepted accounting
principles consistently applied. Since September 30, 1994, there has
been no material adverse change in the condition or operations of TGPL
or its Subsidiaries. It is agreed that the $6,000,000 increase in the
reserve for refund obligations that has been made since September 30,
1994 but prior to the date hereof is not a material adverse change.
(v) The Consolidated balance sheet of TGT and its
Subsidiaries as at December 31, 1993, and the related Consolidated
statement of income and cash flows of TGT and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each
Bank, and the Consolidated balance sheet of TGT and its Subsidiaries
as at September 30, 1994, and the related Consolidated statement of
income and cash flows of TGT and its Subsidiaries for the nine months
then ended, duly certified by an authorized financial officer of TGT,
copies of which have been furnished to each Bank, fairly present,
subject, in the case of such balance sheet as at September 30, 1994
and such statement of income and cash flows for the nine months then
ended, to year-end audit adjustments, the Consolidated financial
condition of TGT and its Subsidiaries as at such dates and the
Consolidated results of operations of TGT and its Subsidiaries for the
year and nine month period, respectively, ended on such dates, all in
accordance with generally accepted accounting principles consistently
applied. Since September 30, 1994, there has been no material adverse
change in the condition or operations of TGT or its Subsidiaries.
(f) Except as set forth in the Public Filings or in
Exhibit I or as otherwise disclosed in writing by a Borrower to the
Banks and the Agent after the date hereof and approved by the Majority
Banks, there is, as to each Borrower, no pending or, to the knowledge
of such Borrower, threatened action
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or proceeding affecting such Borrower or any Subsidiary of such
Borrower before any court, governmental agency or arbitrator, which
could reasonably be expected to materially and adversely affect the
financial condition or operations of such Borrower and its
Subsidiaries taken as a whole or which purports to affect the
legality, validity, binding effect or enforceability of this Agreement
or any Note.
(g) No proceeds of any Advance will be used for any
purpose or in any manner not permitted by Section 5.02(k).
(h) No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of any Advance will be used
to purchase or carry any such margin stock (other than purchases of
common stock expressly permitted by Section 5.02(k)) or to extend
credit to others for the purpose of purchasing or carrying any such
margin stock. Following the application of the proceeds of each
Advance, not more than 25% of the value of the assets of any Borrower
will be represented by such margin stock and not more than 25% of the
value of the assets of any Borrower and its Subsidiaries will be
represented by such margin stock.
(i) No Borrower is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(j) No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan for which an Insufficiency
exists. No Borrower nor any ERISA Affiliate of any Borrower has
received an notification that any Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV
of ERISA, and no Borrower is aware of any reason to expect that any
Multiemployer Plan is to be in reorganization or to be terminated
within the meaning of Title IV of ERISA.
(k) As of the date of this Agreement, the United States
federal income tax returns of each Borrower and the Subsidiaries of
each Borrower have been examined through the fiscal year ended
December 31, 1989. Each Borrower and the Subsidiaries of each Borrower
have filed all United States Federal income tax returns and all other
material domestic tax returns which are required to be filed by them
and have paid, or provided for the payment before the same become
delinquent of, all taxes due pursuant to such returns or pursuant to
any assessment received by any Borrower or any such Subsidiary, other
than those taxes contested in good faith by appropriate proceedings,
The charges, accruals
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and reserves on the books of each Borrower and the Subsidiaries of
each Borrower in respect of taxes are adequate.
(l) No Borrower is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", or a
"public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
(m) Except as set forth in the Public Filings or as
otherwise disclosed in writing by a Borrower to the Banks and the
Agent after the date hereof and approved by the Majority Banks, the
Borrowers and their respective Subsidiaries are in compliance in all
material respects with all Environmental Protection Statutes to the
extent material to their respective operations or financial condition.
Except as set forth in the Public Filings or as otherwise disclosed
in writing by a Borrower to the Banks and the Agent after the date
hereof and approved by the Majority Banks, the aggregate contingent
and non-contingent liabilities of each Borrower and its Subsidiaries
(other than those reserved for in accordance with generally accepted
accounting principles and set forth in the financial statements
regarding such Borrower referred to in Section 4.01(e) and delivered
to each Bank) which are reasonably expected to arise in connection
with (i) the requirements of Environmental Protection Statutes or (ii)
any obligation or liability to any Person in connection with any
Environmental matters (including without limitation, any release or
threatened release (as such terms are defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980) of any
Hazardous Waste, Hazardous Substance, other waste, petroleum or
petroleum products into the Environment) does not exceed 10% of the
Consolidated Tangible Net Worth of such Borrower (excluding
liabilities to the extent covered by insurance if the insurer has
confirmed that such insurance covers such liabilities or which such
Borrower reasonably expects to recover from ratepayers).
ARTICLE V
COVENANTS OF THE BORROWERS
Section 5.01. Affirmative Covenants. So long as any Note shall
remain unpaid or any Bank shall have any Commitment to any Borrower hereunder,
each Borrower will, unless the Majority Banks shall otherwise consent in
writing:
(a) Compliance with Laws, Etc. Comply, and cause each of
its Subsidiaries to comply, in all material respects with all
applicable laws, rules, regulations and orders (except where failure
to comply could not reasonably be expected to have a material adverse
effect on the business, assets, condition or
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operations of such Borrower and its Subsidiaries taken as a whole),
such compliance to include, without limitation, the payment and
discharge before the same become delinquent of all taxes, assessments
and governmental charges or levies imposed upon it or any of its
Subsidiaries or upon any of its property or any property of any of its
Subsidiaries, and all lawful claims which, if unpaid, might become a
Lien upon any property of it or any of its Subsidiaries, provided that
no Borrower nor any Subsidiary of a Borrower shall be required to pay
any such tax, assessment, charge, levy or claim which is being
contested in good faith and by proper proceedings and with respect to
which reserves in conformity with generally accepted accounting
principles, if required by such principles, have been provided on the
books of such Borrower or such Subsidiary, as the case may be.
(b) Reporting Requirements. Furnish to each of the Banks:
(i) as soon as possible and in any event within
five days after the occurrence of each Event of Default or
each event which, with the giving of notice or lapse of time
or both, would constitute an Event of Default, continuing on
the date of such statement, a statement of an authorized
financial officer of such Borrower setting forth the details
of such Event of Default or event and the actions, if any,
which such Borrower has taken and proposes to take with
respect thereto;
(ii) as soon as available and in any event not
later than 60 days after the end of each of the first three
quarters of each fiscal year of such Borrower, the
Consolidated and, in the case of TWC, consolidating balance
sheets of such Borrower and its Subsidiaries as of the end of
such quarter and the Consolidated and, in the case of TWC,
consolidating statements of income and cash flows of such
Borrower and its Subsidiaries for the period commencing at the
end of the previous year and ending with the end of such
quarter, all in reasonable detail and duly certified (subject
to year-end audit adjustments) by an authorized financial
officer of such Borrower as having been prepared in accordance
with generally accepted accounting principles, together with a
certificate of said officer (a) stating that he has no
knowledge that an Event of Default, or an event which, with
notice or lapse of time or both, would constitute an Event of
Default has occurred and is continuing or, if an Event of
Default or such an event has occurred and is continuing, a
statement as to the nature thereof and the action, if any,
which such Borrower proposes to take with respect thereto, and
(b) showing in detail the calculation supporting such
statement in respect of Section 5.02(b);
(iii) as soon as available and in any event not
later than 105 days after the end of each fiscal year of such
Borrower, a copy of the
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annual audit report for such year for such Borrower and its
Subsidiaries, including therein Consolidated and, in the case
of TWC, consolidating balance sheets of such Borrower and its
Subsidiaries as of the end of such fiscal year and
Consolidated and, in the case of TWC, consolidating statements
of income and cash flows of such Borrower and its Subsidiaries
for such fiscal year, in each case prepared in accordance with
generally accepted accounting principles and certified by
Ernst & Young or other independent certified public
accountants of recognized standing acceptable to the Majority
Banks, together with a certificate of such accounting firm to
the Banks (a) stating that, in the course of the regular audit
of the business of such Borrower and its Subsidiaries, which
audit was conducted by such accounting firm in accordance with
generally accepted auditing standards, such accounting firm
has obtained no knowledge that an Event of Default or an event
which, with notice or lapse of time or both, would constitute
an Event of Default, has occurred and is continuing, or if, in
the opinion of such accounting firm, an Event of Default or
such an event has occurred and is continuing, a statement as
to the nature thereof, and (b) showing in detail the
calculations supporting such statement in respect of Section
5.02(b); provided, however, that in the case of NWP the
primary audited financial statements required by this Section
5.01(b)(iii) may be presented on a historical cost basis, but
such audited financial statements shall include, as additional
information, on a push-down basis reflecting the purchase
price of NWP paid by TWC, a Consolidated balance sheet, a
Consolidated statement of income and a Consolidated cash flow
statement of NWP and its Subsidiaries as of the end of and for
the relevant fiscal year, all prepared in accordance with
generally accepted accounting principles but excluding
footnotes for the push-down financial statements;
(iv) such other information respecting the
business or properties, or the condition or operations,
financial or otherwise, of such Borrower or any of its
Subsidiaries as any Bank through the Agent may from time to
time reasonably request;
(v) promptly after the sending or filing thereof,
copies of all proxy material, reports and other information
which such Borrower sends to any of its security holders, and
copies of all reports and registration statements which such
Borrower or any Subsidiary of such Borrower files with the
Securities and Exchange Commission or any national securities
exchange;
(vi) as soon as possible and in any event (A)
within 30 Business Days after such Borrower or any ERISA
Affiliate of such Borrower
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knows or has reason to know that any Termination Event
described in clause (i) of the definition of Termination Event
with respect to any Plan has occurred and (B) within 30
Business Days after such Borrower or any ERISA Affiliate of
such Borrower knows or has reason to know that any other
Termination Event with respect to any Plan has occurred or is
reasonably expected to occur, a statement of the chief
financial officer or chief accounting officer of such Borrower
describing such Termination Event and the action, if any,
which such Borrower or such ERISA Affiliate of such Borrower
proposes to take with respect thereto;
(vii) promptly and in any event within 25 Business
Days after receipt thereof by such Borrower or any ERISA
Affiliate of such Borrower, copies of each notice received by
such Borrower or any ERISA Affiliate of such Borrower from the
PBGC stating its intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
(viii) within 30 days following request therefor by
any Bank, copies of each Schedule B (Actuarial Information) to
each annual report (Form 5500 Series) of such Borrower or any
ERISA Affiliate of such Borrower with respect to each Plan;
(ix) promptly and in any event within 25 Business
Days after receipt thereof by such Borrower or any ERISA
Affiliate of such Borrower from the sponsor of a Multiemployer
Plan, a copy of each notice received by such Borrower or any
ERISA Affiliate of such Borrower concerning (A) the imposition
of a Withdrawal Liability by a Multiemployer Plan, (B) the
determination that a Multiemployer Plan is, or is expected to
be, in reorganization within the meaning of Title IV of ERISA,
(C) the termination of a Multiemployer Plan within the meaning
of Title IV of ERISA, or (D) the amount of liability incurred,
or expected to be incurred, by such Borrower or any ERISA
Affiliate of such Borrower in connection with any event
described in clause (A), (B) or (C) above;
(x) not more than 45 days (or 90 days in the case
of the last fiscal quarter of a fiscal year of such Borrower)
after the end of each fiscal quarter of such Borrower,
a certificate of an authorized financial officer of such
Borrower (a) stating the respective ratings, if any, by each
of S&P and Moody's of the senior unsecured long-term debt of
such Borrower as of the last day of such quarter, and (b) if
such Borrower is WPL, stating (and showing the calculation of)
the WPL Debt to TNW Ratio on the last day of such quarter; and
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(xi) promptly after any change in, or withdrawal
or termination of, the rating of any senior unsecured
long-term debt of such Borrower by S&P or Moody's, notice
thereof.
(c) Maintenance of Insurance. Maintain, and cause each of
its Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses
and owning similar properties in the same general areas in which such
Borrower or its Subsidiaries operate, provided that such Borrower or
any of its Subsidiaries may self insure to the extent and in the
manner normal for companies of like size, type and financial
condition.
(d) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain,
its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified,
and cause each Subsidiary to qualify and remain qualified, as a
foreign corporation in each jurisdiction in which qualification is
necessary or desirable in view of its business and operations or the
ownership of its properties, except (1) in the case of any
Non-Borrowing Subsidiary of such Borrower, where the failure of such
Subsidiary to so preserve, maintain, qualify and remain qualified
could not reasonably be expected to have a material adverse effect on
the business, assets, condition or operations of such Borrower and its
Subsidiaries taken as a whole and (2) in the case of such Borrower,
where the failure of such Borrower to preserve and maintain such
rights, franchises and privileges and to so qualify and remain
qualified could not reasonably be expected to have a material adverse
effect on the business, assets, condition or operations of such
Borrower and its Subsidiaries taken as a whole.
Section 5.02. Negative Covenants. So long as any Note shall
remain unpaid or any Bank shall have any Commitment to any Borrower hereunder,
no Borrower will, without the written consent of the Majority Banks:
(a) Liens, Etc. Create, assume, incur or suffer to exist,
or permit any of its Subsidiaries to create, assume, incur or suffer
to exist, any Lien on or in respect of any of its property, whether
now owned or hereafter acquired, or assign or otherwise convey, or
permit any such Subsidiary to assign or otherwise convey, any right to
receive income, in each case to secure or provide for the payment of
any Debt of any Person, except that:
(i) TWC and its Non-Borrowing Subsidiaries which
are not Subsidiaries of any other Borrower may create, incur,
assume or suffer to exist Permitted TWC Liens;
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<PAGE> 49
(ii) NWP and its Subsidiaries may create, incur,
assume or suffer to exist Permitted NWP Liens;
(iii) TGPL and its Subsidiaries may create, incur,
assume or suffer to exist Permitted TGPL Liens;
(iv) TGT and its Subsidiaries may create, incur,
assume or suffer to exist Permitted TGT Liens; and
(v) WPL and its Subsidiaries may create, incur,
assume or suffer to exist Permitted WPL Liens.
(b) Debt. (i) In the case of TWC, permit the ratio of (A)
the aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to (B) the sum of the Consolidated Net Worth of TWC
plus the aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to exceed 0.65 to 1.0 at any time; and
(ii) In the case of any Borrower (other than TWC) permit
the ratio of (A) the aggregate amount of all Debt of such Borrower and
its Subsidiaries on a Consolidated basis to (B) the sum of the
Consolidated Net Worth of such Borrower plus the aggregate amount of
all Debt of such Borrower and its Subsidiaries on a Consolidated basis
to exceed 0.60 to 1.0 at any time.
(c) Merger and Sale of Assets. Merge or consolidate with
or into any other Person, or sell, lease or otherwise transfer all or
substantially all of its assets, or permit any of its Subsidiaries
(except immaterial Subsidiaries (other than WNG and WFS) that are not
Borrowers) to merge or consolidate with or into any other Person, or
sell, lease or otherwise transfer all or substantially all of its
assets, except that this Section 5.02(c) shall not prohibit:
(i) any Borrower and its Subsidiaries from
selling, leasing or otherwise transferring their respective
assets in the ordinary course of business;
(ii) if, but only if, (x) there shall not exist or
result an Event of Default or an event which with notice or
lapse of time or both would constitute an Event of Default and
(y) in the case of each transaction referred to in this
paragraph (ii) involving any Borrower or any of its
Subsidiaries, such transaction could not reasonably be
expected to impair materially the ability of such Borrower to
perform its obligations hereunder and under the Notes and such
Borrower shall continue to exist, any merger, consolidation or
sale, lease or other transfer of assets that does not involve
any Person other than TWC and its Subsidiaries;
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<PAGE> 50
(iii) if, but only if, there shall not exist or
result an Event of Default or an event which with notice or
lapse of time or both would constitute an Event of Default,
any Borrower and its Subsidiaries from selling, leasing or
otherwise transferring their respective gathering assets and
other production area facilities, or the stock of any Person
substantially all of the assets of which are gathering assets
and other production area facilities, to TWC or to any
Subsidiary of TWC for consideration that is not materially
less than the net book value of such assets and facilities;
(iv) any sale and lease-back of cushion gas by any
Borrower or any of its Subsidiaries or any sale and lease-back
of inventory by WPL or any of its Subsidiaries (other than
another Borrower);
(v) sales of receivables of any kind; or
(vi) if, but only if, there shall not exist or
result an Event of Default or an event which with notice or
lapse of time or both would constitute an Event of Default,
any sale, lease or other transfer of any stock or assets of
Transco Energy Company and its Subsidiaries so long as prior
to the time of such sale, lease or other transfer Transco
Energy Company and its Subsidiaries shall have transferred to
TWC all of their respective interests in TGPL and TGT and
shall not have reacquired any such interest.
(d) Agreements to Restrict Dividends and Certain
Transfers. Enter into or suffer to exist, or permit any of its
Subsidiaries to enter into or suffer to exist, any consensual
encumbrance or restriction on the ability of any Subsidiary of TWC (i)
to pay, directly or indirectly, dividends or make any other
distributions in respect of its capital stock or pay any Debt or other
obligation owed to TWC or to any Subsidiary of TWC; or (ii) to make
loans or advances to TWC or any Subsidiary of TWC, except (1)
encumbrances and restrictions on any immaterial Non-Borrowing
Subsidiary of TWC (other than WNG and WFS), (2) those encumbrances and
restrictions existing on the date hereof and described in Exhibit G,
(3) other encumbrances and restrictions now or hereafter existing of
any Borrower or any of its Subsidiaries that are not more restrictive
in any material respect than the encumbrances and restrictions with
respect to such Borrower or its Subsidiaries described in Exhibit G,
and (4) any encumbrances and restrictions created in connection with
any sale and leaseback of cushion gas by any Borrower or any
Subsidiary of any Borrower or any sale and lease-back of inventory by
WPL or any of its Subsidiaries (other than another Borrower).
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<PAGE> 51
(e) Loans and Advances. Borrow or otherwise receive any
loan or advance from TWC, and TWC will not make or permit to remain
outstanding any loan or advance to, or own, purchase or acquire any
obligations or debt securities of, any Subsidiary of TWC, except that
TWC may make and permit to remain outstanding loans and advances to
its Subsidiaries (and such Subsidiaries may borrow or otherwise
receive such loans and advances) if each such loan or advance
(excluding loans and advances to a Subsidiary of TWC if the aggregate
principal amount of all such excluded loans and advances to such
Subsidiary does not exceed $100,000) is evidenced by a written
instrument duly executed by the Subsidiary of TWC to which such loan
or advance is made, bears interest at TWC's or such Subsidiary's
market rate of interest and matures on or before the Termination Date.
(f) Maintenance of Ownership of Certain Subsidiaries.
Sell, issue or otherwise dispose of, or create, assume, incur or
suffer to exist any Lien on or in respect of, or permit any of its
Subsidiaries to sell, issue or otherwise dispose of or create, assume,
incur or suffer to exist any Lien on or in respect of, any shares of
or any interest in any shares of the capital stock of (1) WNG, WFS,
WPL, TGPL, TGT or NWP or any of their respective material Subsidiaries
or (2) any Subsidiary of TWC at the time it owns any shares of or any
interest in any shares of the capital stock of WNG, WFS, WPL, TGPL,
TGT or NWP or any of their respective material Subsidiaries;
provided, however, that if, but only if, (x) there shall not exist or
result an Event of Default or an event which with notice or lapse of
time or both would constitute an Event of Default and (y) in the case
of each sale or other disposition referred to in this proviso
involving any Borrower or any of its Subsidiaries, such sale or other
disposition could not reasonably be expected to impair materially the
ability of such Borrower to perform its obligations hereunder and
under the Notes and such Borrower shall continue to exist, this
Section 5.02(f) shall not prohibit the sale or other disposition of
the stock of any Subsidiary of TWC to TWC or any Wholly Owned
Subsidiary of TWC.
(g) Compliance with ERISA. (i) Terminate, or permit any
ERISA Affiliate of such Borrower to terminate, any Plan so as to
result in any liability of such Borrower or any such ERISA Affiliate
to the PBGC in excess of $5,000,000, or (ii) permit to exist any
occurrence of any Termination Event with respect to a Plan for which
there is an Insufficiency in excess of $5,000,000.
(h) Transactions with Related Parties. Make any sale to,
make any purchase from, extend credit to, make payment for services
rendered by, or enter into any other transaction with, or permit any
Subsidiary of such Borrower to make any sale to, make any purchase
from, extend credit to, make payment for services rendered by, or
enter into any other transaction with, any Related Party
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of such Borrower or of such Subsidiary unless as a whole such sales,
purchases, extensions of credit, rendition of services and other
transactions are (at the time such sale, purchase, extension of
credit, rendition of services or other transaction is entered into) on
terms and conditions reasonably fair in all material respects to such
Borrower or such Subsidiary in the good faith judgment of such
Borrower.
(i) Guarantees. Guarantee or otherwise become
contingently liable for, or permit any of its Subsidiaries to
guarantee or otherwise become contingently liable for, Debt of any
Subsidiary of TWC (other than Williams Energy Company and its
Subsidiaries which are not Borrowers) while an Event of Default is
continuing.
(j) Sale and Lease-Back Transactions. Enter into, or
permit any of its Subsidiaries to enter into, any Sale and Lease-Back
Transaction, if after giving effect thereto such Borrower would not be
permitted to incur at least $1.00 of additional Debt secured by a Lien
permitted by (i) paragraph (z) of Schedule III in the case of NWP and
its Subsidiaries, (ii) paragraph (z) of Schedule VI in the case of TWC
and its Non-Borrowing Subsidiaries which are not Subsidiaries of any
other Borrower, (iii) paragraph (z) of Schedule IV in the case of TGPL
and its Subsidiaries, (iv) paragraph (z) of Schedule V in the case of
TGT and its Subsidiaries, and (v) paragraph (i) of Schedule VII in the
case of WPL and its Subsidiaries.
(k) Use of Proceeds. Use any proceeds of any Advance for
any purpose other than general corporate purposes (including, without
limitation, working capital and capital expenditures) or use any such
proceeds in any manner which violates or results in a violation of
law; provided, however that no proceeds of any Advance will be used to
acquire any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, (other
than any purchase of common stock of any corporation, if such purchase
is not subject to Sections 13 and 14 of the Securities Exchange Act of
1934 and is not opposed, resisted or recommended against by such
corporation or its management or directors, provided that the
aggregate amount of common stock of any corporation (other than Apco
Argentina Inc., a Cayman Islands corporation) purchased during any
calendar year shall not exceed 1% of the common stock of such
corporation issued and outstanding at the time of such purchase) or in
any manner which contravenes law, and no proceeds of any Advance will
be used to purchase or carry any margin stock (within the meaning of
Regulation G or Regulation U issued by the Board of Governors of the
Federal Reserve System).
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ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any
Note executed by it when the same becomes due and payable, or shall
fail to pay any interest on any such Note or any fee or other amount
to be paid by it hereunder within ten days after the same becomes due
and payable; or
(b) Any certification, representation or warranty made by
any Borrower herein or by any Borrower (or any officer of any
Borrower) in writing under or in connection with any Note or this
Agreement (including, without limitation, representations and
warranties deemed made pursuant to Section 3.02 or 3.03) shall prove
to have been incorrect in any material respect when made or deemed
made; or
(c) Any Borrower shall fail to perform or observe (i) any
term, covenant or agreement contained in Section 5.01(b) on its part
to be performed or observed and such failure shall continue for five
Business Days after the earlier of the date notice thereof shall have
been given to such Borrower by the Agent or any Bank or the date such
Borrower shall have knowledge of such failure, or (ii) any term,
covenant or agreement contained in this Agreement (other than a term,
covenant or agreement contained in Section 5.01(b)) or any Note on its
part to be performed or observed; or
(d) Any Borrower or any Subsidiary of any Borrower shall
fail to pay any principal of or premium or interest on any Debt which
is outstanding in a principal amount of at least $20,000,000 in the
aggregate (excluding Debt evidenced by the Notes) of such Borrower or
such Subsidiary (as the case may be), when the same becomes due and
payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt; or any other event shall occur or
condition shall exist under any agreement or instrument relating to
any such Debt and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such
event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be declared to be
due and payable, or required to be prepaid (other than by a regularly
scheduled required prepayment or as required pursuant to an
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<PAGE> 54
illegality event of the type set forth in Section 2.12), prior to the
stated maturity thereof; or
(e) Any Borrower or any Subsidiary of any Borrower
(except any immaterial Subsidiary of such Borrower other than WNG, WEV
and WFS) shall generally not pay its debts as such debts become due,
or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against any Borrower or any
Subsidiary of any Borrower (except any immaterial Subsidiary of such
Borrower other than WNG, WEV and WFS) seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver,
trustee, or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted
against it (but not instituted by it), shall remain undismissed or
unstayed for a period of 30 days; or any Borrower or any Subsidiary
of any Borrower (except any immaterial Subsidiary of such Borrower
other than WNG, WEV and WFS) shall take any corporate action to
authorize any of the actions set forth above in this subsection (e);
or
(f) Any judgment or order for the payment of money in
excess of $20,000,000 shall be rendered against any Borrower or any
Subsidiary of any Borrower (except any immaterial Subsidiary of such
Borrower other than WEV, WNG and WVFS) and remain unsatisfied and
either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any
period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; or
(g) Any Termination Event with respect to a Plan shall
have occurred and, 30 days after notice thereof shall have been given
to any Borrower by the Agent, (i) such Termination Event shall still
exist and (ii) the sum (determined as of the date of occurrence of
such Termination Event) of the Insufficiency of such Plan and the
Insufficiency of any and all other Plans with respect to which a
Termination Event shall have occurred and then exist (or in the case
of a Plan with respect to which a Termination Event described in
clause (ii) of the definition of Termination Event shall have occurred
and then exist, the liability related thereto) is equal to or greater
than $5,000,000; or
(h) Any Borrower or any ERISA Affiliate of any Borrower
shall have been notified by the sponsor of a Multiemployer Plan that
it has incurred
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Withdrawal Liability to such Multiemployer Plan in an amount which,
when aggregated with all other amounts required to be paid to
Multiemployer Plans in connection with Withdrawal Liabilities
(determined as of the date of such notification), exceeds $15,000,000
in the aggregate or requires payments exceeding $10,000,000 per annum;
or
(i) Any Borrower or any ERISA Affiliate of any Borrower
shall have been notified by the sponsor of a Multiemployer Plan that
such Multiemployer Plan is in reorganization or is being terminated,
within the meaning of Title IV of ERISA, if as a result of such
reorganization or termination the aggregate annual contributions of
the Borrowers and their respective ERISA Affiliates to all
Multiemployer Plans which are then in reorganization or being
terminated have been or will be increased over the amounts contributed
to such Multiemployer Plans for the respective plan years which
include the date hereof by an amount exceeding $5,000,000;
then, and in any such event, the Agent (i) shall at the request, or may with
the consent, of the holders of at least 66-2/3)% in principal amount of the A
Notes then outstanding or, if no A Notes are then outstanding, Banks having at
least 66-2/3% of the Commitments, by notice to the Borrowers, declare all of
the Commitments and the obligation of each Bank to make Advances to be
terminated, whereupon all of the Commitments and each such obligation shall
forthwith terminate and (ii) shall at the request, or may with the consent, of
the holders of at least 66-2/3% in principal amount of the A Notes then
outstanding or if no A Notes are then outstanding, Banks having at least
66-2/3)% of the Commitments, or, if no A Notes are then outstanding and all
Commitments have terminated, the holders of at least 66-2/3% in principal
amount of the B Notes then outstanding, by notice to the Borrower as to which
an Event of Default exists (determined as contemplated by the definition herein
of Events of Default), declare the Notes of such Borrower, all interest thereon
and all other amounts payable by such Borrower under this Agreement to be
forthwith due and payable, whereupon such Notes, such interest and all such
amounts shall become and be forthwith due and payable, without requirement of
any presentment, demand, protest, notice of intent to accelerate, further
notice of acceleration or other further notice of any kind (other than the
notice expressly provided for above), all of which are hereby expressly waived
by each Borrower; provided, however, that in the event of any Event of Default
described in Section 6.01(e), (A) the obligation of each Bank to make
Advances shall automatically be terminated and (B) the Notes, all such interest
and all such amounts shall automatically become and be due and payable, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or any other notice of any kind, all of which are hereby
expressly waived by each Borrower.
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ARTICLE VII
THE AGENT
Section 7.01. Authorization and Action. Each Bank hereby
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the Agent
by the terms hereof, together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement
(including, without limitation, enforcement or collection of the Notes), the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of
holders of at least 66-2/3% in principal amount of the A Notes then outstanding
or, if no A Notes are then outstanding, Banks having at least 66-2/3% of the
Commitments (or, if no A Notes are then outstanding and all Commitments have
terminated, upon the instructions of holders of at least 66-2/3% in principal
amount of the B Notes then outstanding), and such instructions shall be binding
upon all Banks and all holders of Notes; provided, however, that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to any Note, this Agreement or applicable law.
The Agent agrees to give to each Bank, prompt notice of each notice given to it
by any Borrower pursuant to the terms of this Agreement.
Section 7.02. Agent's Reliance, Etc. Neither the Agent nor any
of its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with any Note
or this Agreement, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the Agent:
(i) may treat the payee of any Note as the holder thereof until the Agent
receives and accepts a Transfer Agreement executed by a Borrower, the Bank
which is the payee of such Note, as assignor, and the assignee in accordance
with the last sentence of Section 8.06(a); (ii) may consult with legal counsel
(including counsel for any Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Bank
and shall not be responsible to any Bank for any statements, warranties or
representations (whether written or oral) made in or in connection with any
Note or this Agreement; (iv) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or
conditions of any Note or this Agreement on the part of any Borrower or to
inspect the property (including the books and records) of any Borrower; (v)
shall not be responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Note or this Agreement
or any other instrument or document furnished pursuant hereto; and (vi) shall
incur no liability under or in respect of any Note or this Agreement by acting
upon any notice, consent,
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<PAGE> 57
certificate or other instrument or writing (which may be by telecopier,
telegram, cable or telex) believed by it to be genuine and signed or sent by
the proper party or parties.
Section 7.03. Citibank and Affiliates. With respect to its
Commitments, the Advances made by it and the Notes issued to it, Citibank
shall have the same rights and powers under any Note and this Agreement as any
other Bank and may exercise the same as though it was not the Agent; and the
term "Bank" or "Banks" shall, unless otherwise expressly indicated, include
Citibank in its individual capacity. Citibank and its affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and
generally engage in any kind of business with, any Borrower, any Subsidiary of
any Borrower, any Person who may do business with or own, directly or
indirectly, securities of any Borrower or any such Subsidiary and any other
Person, all as if Citibank were not the Agent and without any duty to account
therefor to the Banks.
Section 7.04. Bank Credit Decision. Each Bank acknowledges
that it has, independently and without reliance upon the Agent or any other
Bank and based on the financial statements referred to in Section 4.01(e) and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under any Note or this Agreement.
Section 7.05. Indemnification. The Banks agree to indemnify
the Agent (to the extent not reimbursed by the Borrowers), ratably according to
the respective principal amounts of the A Notes then held by each of them (or
if no A Notes are at the time outstanding or if any A Notes are held by Persons
which are not Banks, ratably according to either (i) the respective amounts of
their Commitments to TWC, or (ii) if all Commitments to TWC have terminated,
the respective amounts of the Commitments to TWC immediately prior to the time
the Commitments to TWC terminated), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent in any way relating to or
arising out of any Note or this Agreement or any action taken or omitted by the
Agent under any Note or this Agreement, provided that no Bank shall be liable
to the Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Bank agrees to reimburse the Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including
counsel fees) incurred by the Agent in connection with the preparation,
execution, delivery administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of
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rights or responsibilities under, any Note or this Agreement to the extent that
the Agent is not reimbursed for such expenses by the Borrowers.
Section 7.06. Successor Agent. The Agent may resign at any
time as Agent under this Agreement by giving written notice thereof to the
Banks and the Borrowers and may be removed at any time with or without cause by
the Majority Banks. Upon any such resignation or removal, the Majority Banks
shall have the right to appoint, with the consent of TWC (which consent shall
not be unreasonably withheld), a successor Agent from among the Banks. If no
successor Agent shall have been so appointed by the Majority Banks with such
consent, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the Majority Banks' removal
of the retiring Agent, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a Bank which is a commercial bank
organized under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $500,000,000.
Upon the acceptance of any appointment as Agent under this Agreement by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
and shall function as the Agent under this Agreement, and the retiring Agent
shall be discharged from its duties and obligations as Agent under this
Agreement. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Article VII shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc. No amendment or waiver of any
provision of any Note or this Agreement, nor consent to any departure by any
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Banks, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Banks, do any of the following: (a)
waive any of the conditions specified in Article III, (b) increase the
Commitments of the Banks or subject the Banks to any additional obligations,
(c) reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, (e) take any action which requires the signing of all the Banks
pursuant to the terms of this Agreement, (f) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the A Notes or B
Notes, or the number of Banks, which shall be
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required for the Banks or any of them to take any action under this Agreement,
or (g) amend this Section 8.01; and provided, further, that no amendment,
waiver or consent shall, unless in writing and signed by the Agent in addition
to the Banks required above to take such action, affect the rights or duties of
the Agent under any Note or this Agreement.
Section 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopy,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered, if to any Bank, as specified opposite its name on
Schedule I hereto or specified pursuant to Section 8.06(a); if to any Borrower,
as specified opposite its name on Schedule II hereto; and if to Citibank, as
Agent, to its address at 399 Park Avenue, New York, New York 10043, (telecopier
number: (212) 527-1084), Attention: John Sahr, with a copy to Citicorp North
America, Inc., 1200 Smith Street, Suite 2000, Houston, Texas 77002 (telecopier
number: (713) 654-2849; telex number 127001 (Attn: Route Code
HOUAA)), Attention: The Williams Companies, Inc. Account Officer; or, as to any
Borrower or the Agent, at such other address as shall be designated by such
party in a written notice to the other parties and, as to each other party,
at such other address as shall be designated by such party in a written notice
to the Borrowers and the Agent. All such notices and communications shall, when
mailed, telecopied, telegraphed, telexed or cabled, be effective when received
in the mail, sent by telecopier to any party to the telecopier number as set
forth herein or on Schedule I or Schedule II or specified pursuant to Section
8.06(a) (or other telecopy number specified by such party in a written notice
to the other parties hereto), delivered to the telegraph company, telexed to
any party to the telex number set forth herein or on Schedule I or Schedule II
or specified pursuant to Section 8.06(a) (or other telex number designated by
such party in a written notice to the other parties hereto), confirmed by telex
answerback, or delivered to the cable company, respectively, except that
notices and communications to the Agent shall not be effective until received
by the Agent.
Section 8.03. No Waiver; Remedies. No failure on the part of
any Bank or the Agent to exercise, and no delay in exercising, any right under
any Note or this Agreement shall operate as a waiver thereof; nor shall, any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
any Note and this Agreement are cumulative and not exclusive of any remedies
provided by law.
Section 8.04. Costs, Expenses and, Taxes. (a) (i) TWC agrees
to pay on demand all reasonable out-of-pocket costs and expenses of the
Arranger and the Agent in connection with the preparation, execution, delivery,
administration, modification and amendment of this Agreement, the Notes and the
other documents to be delivered under this Agreement, including, without
limitation, the reasonable fees and out-of-pocket
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expenses of counsel for the Agent with respect thereto and with respect to
advising the Agent as to its rights and responsibilities under any Note and
this Agreement, and (ii) each Borrower agrees to pay on demand all costs and
expenses, if any (including, without limitation, reasonable counsel fees and
expenses, which may include allocated costs of in-house counsel), of the Agent
and each Bank in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) against such Borrower of any Note of such
Borrower or this Agreement and the other documents to be delivered by such
Borrower under this Agreement.
(b) If any payment (or purchase pursuant to Section 2.11
(c) or Section 8.06(b)) of principal of, or Conversion of, any Eurodollar Rate
Advance or B Advance made to any Borrower is made other than on the last day of
an Interest Period relating to such Advance (or in the case of a B Advance,
other than on the original scheduled maturity date thereof), as a result of a
payment pursuant to Section 2.10 or 2.12 or acceleration of the maturity of the
Notes pursuant to Section 6.01 or for any other reason or as a result of any
such purchase or any Conversion, such Borrower shall, upon demand by any Bank
(with a copy of such demand to the Agent), pay to the Agent for the account of
such Bank any amounts required to compensate such Bank for any additional
losses, costs or expenses which it may reasonably incur as a result of any such
payment, purchase or Conversion, including, without limitation, any loss, cost
or expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Bank to fund or maintain such Advance.
(c) Each Borrower agrees, to the fullest extent Permitted
by law, to indemnify and hold harmless the Agent, the Arranger and each Bank
and each of their respective directors, officers, employees and agents from and
against any and all claims, damages, liabilities and out-of-pocket expenses
(including, without limitation, reasonable fees and disbursements of counsel)
for which any of them may become liable or which may be incurred by or asserted
against the Agent, the Arranger or such Bank or any such director, officer,
employee or agent (other than by another Bank or any successor or assign of
another Bank), in each case in connection with or arising out of or by reason
of any investigation, litigation, or proceeding, whether or not the Agent, the
Arranger or such Bank or any such director, officer, employee or agent is a
party thereto, arising out of, related to or in connection with this Agreement
or the Notes or any transaction in which any proceeds of all or any part of the
Advances are applied (other than any such claim, damage, liability or expense
to the extent attributable to the gross negligence or willful misconduct of, or
violation of any law or regulation by, either the party seeking indemnity under
this Section 8.04(c) or any of its directors, officers, employees or agents).
Section 8.05. Right of Set-off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Agent to declare the Notes of
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a Borrower due and payable pursuant to the provisions of Section 6.01, each
Bank is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Bank to or for the credit or the account
of such Borrower against any and all of the obligations of such Borrower now or
hereafter existing under this Agreement and the Notes held by such Bank,
irrespective of whether or not such Bank shall have made any demand under this
Agreement or such Notes and although such obligations may be unmatured. Each
Bank agrees promptly to notify such Borrower after such set-off and application
made by such Bank, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Bank
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which such Bank may have.
Section 8.06. Binding Effect; Transfers. (a) This Agreement
shall become effective when it shall have been executed by the Borrowers and
the Agent and when each Bank listed on the signature pages hereof has delivered
an executed counterpart hereof to the Agent, has sent to the Agent a facsimile
copy of its signature hereon or has notified the Agent that such Bank has
executed this Agreement and thereafter shall be binding upon and inure to the
benefit of the Borrowers, the Agent and each Bank and their respective
successors and assigns, except that the Borrowers shall not have the right to
assign any of their respective rights hereunder or any interest herein without
the prior written consent of the Banks. Each Bank may assign to one or more
banks, financial institutions or government entities all or any part of, or may
grant participations to one or more banks, financial institutions or government
entities in or to all or any part of, any Advance or Advances owing to such
Bank, any Note or Notes held by such Bank and all or any portion of such Bank's
Commitments, and to the extent of any such assignment or participation
(unless otherwise stated therein) the assignee or purchaser of such assignment
or participation shall, to the fullest extent permitted by law, have the same
rights and benefits hereunder and under such Note or Notes as it would have if
it were such Bank hereunder, provided that, except in the case of an
assignment meeting the requirements of the next sentence hereof, (1) such
Bank's obligations under this Agreement, including, without limitation, its
Commitments to the Borrowers hereunder, shall remain unchanged, such Bank shall
remain responsible for the performance thereof, such Bank shall remain the
holder of any such Note or Notes for all purposes under this Agreement, and the
Borrowers, the other Banks and the Agent shall continue to deal solely with and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement; and (2) no Bank shall assign or grant a participation
that conveys to the assignee or participant the right to vote or consent under
this Agreement, other than the right to vote upon or consent to (i) any
increase in the amount of any Commitment of such Bank; (ii) any reduction of
the principal amount of, or interest to be paid on, such Bank's Advance or
Advances or Note or Notes; (iii) any reduction of any fee or other amount
payable hereunder to such
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Bank; or (iv) any postponement of any date fixed for any payment of principal
of, or interest on, such Bank's Advance or Advances or Note or Notes or any fee
or other amount payable hereunder to such Bank.
If (I) the assignee of any Bank either (1) is another Bank or (2) is
approved in writing by the Agent and the Borrowers or (3) is approved in
writing by the Agent and either an Event of Default exists or the Borrowers
have relinquished the right to approve the assignment pursuant to Section
8.06(b), and (II) such assignee assumes all or any portion (which portion shall
be a constant, and not a varying, percentage, and the amount of the Commitment
to TWC assigned, whether all or a portion, shall be in a minimum amount of
$5,000,000) of each of the Commitments of such assigning Bank to the respective
Borrowers (either all of each such Commitment shall be assigned or the
percentage portion of each such Commitment assigned shall be the same as to
each Borrower) by executing a document in the form of Exhibit H (or with such
changes thereto as have been approved in writing by the Agent in its sole
discretion as evidenced by its execution thereof) duly executed by the Agent,
the Borrowers (unless an Event of Default exists or the Borrowers have
relinquished the right to approve the assignment pursuant to Section 8.06(b)),
such assigning Bank and such assignee and delivered to the Agent ("Transfer
Agreement"), then upon such delivery, (i) such assigning Bank shall be released
from its obligations under this Agreement with respect to all or such portion,
as the case may be, of its Commitments, (ii) such assignee Shall become
obligated for all or such portion, as the case may be, of such Commitments and
all other obligations of such assigning Bank hereunder with respect to or
arising as a result of all or such portion, as the case may be, of such
Commitments, (iii) such assignee shall be assigned the right to vote or consent
under this Agreement, to the extent of all or such portion, as the case may be,
of such Commitments, (iv) each Borrower shall deliver, in replacement of the A
Note of such Borrower to such assigning Bank then outstanding (a) to such
assignee, a new A Note of such Borrower in the amount of the Commitment of such
assigning Bank to such Borrower which is being so assumed by such assignee
plus, in the case of any assignee which is already a Bank hereunder, the amount
of such assignee's Commitment to such Borrower immediately prior to such
assignment (any such assignee which is already a Bank hereunder agrees to
cancel and return to such Borrower, with reasonable promptness following the
delivery of such new A Note, the A Note being replaced thereby), (b) to such
assigning Bank, a new A Note in the amount of the balance, if any, of the
Commitment of such assigning Bank to such Borrower (without giving effect to
any B Reduction) retained by such assigning Bank (and such assigning Bank
agrees to cancel and return to such Borrower, with reasonable promptness
following delivery of such new A Notes, the A Note being replaced thereby), and
(c) to the Agent, photocopies of such new A Notes, (v) if such assignment is of
all of such assigning Bank's Commitments to the Borrowers, all of the
outstanding A Advances made by such assigning Bank shall be transferred to such
assignee, (vi) if such assignment is not of all of such Commitments, a part of
each A Advance to each Borrower equal to the
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amount of such Advance multiplied by a fraction, the numerator of which is the
amount of such portion of such assigning Bank's Commitment to such Borrower so
assumed and the denominator of which is the amount of the Commitment of such
assigning Bank to such Borrower (without giving effect to any B Reduction)
immediately prior to such assumption, shall be transferred to such assignee and
evidenced by such assignee's A Note from such Borrower, and the balance of such
A Advance shall be evidenced by such assigning Bank's new A Note from such
Borrower delivered pursuant to clause (iv)(b) of this sentence, (vii) if such
assignee is not a "Bank": hereunder prior to such assignment, such assignee
shall become a party to this Agreement as a Bank and shall be deemed to be a
"Bank" hereunder, and the amount of all or such portion, as the case may be, of
the Commitments to the respective Borrowers so assumed shall be deemed to be
the amount set opposite such assignee's name on the signature pages hereof for
purposes of this Agreement, and (viii) if such assignee is not a Bank
hereunder prior to such assignment, such assignee shall be deemed to have
specified the offices of such assignee named in the respective Transfer
Agreement as its "Domestic Lending Office" and "Eurodollar Lending Office" for
all purposes of this Agreement and to have specified for purposes of Section
8.02 the notice information set forth in such Transfer Agreement; and the Agent
shall promptly after execution of any Transfer Agreement by the Agent and the
other parties thereto notify the Banks of the parties to such Transfer
Agreement and the amounts of the assigning Bank's Commitments assumed thereby.
(b) If the Borrowers do not consent to a proposed assignment by a
Bank pursuant to the last sentence of Section 8.06(a), TWC may, within 15 days
of its receipt of a request that it consent to such assignment nominate by
notice to the Agent and such Bank a bank which, if it is not a Bank, is
acceptable to the Agent, and which unconditionally offers in writing (with a
copy to the Agent) to purchase and assume, to the extent of the amount of such
proposed assignment, in accordance with all of the provisions of the last
sentence of Section 8.06(a) (including execution of an appropriate Transfer
Agreement), all of such Bank's rights and obligations (including, without
limitation, its Commitments) hereunder and interest in the Advances owing to
such Bank and the Notes held by such Bank without recourse at par plus interest
accrued thereon to the date of such purchase on a date therein specified (not
less than three nor greater than five Business Days after such nomination).
Such Bank at its option may elect to accept or not accept such purchase offer.
If a Bank accepts such an offer and the bank first nominated by TWC pursuant to
this Section 8.06(b) fails to purchase such rights and interest on such
specified date in accordance with the terms of such offer, TWC may, within 15
days of such failure, repeat the process contemplated by the first sentence of
this Section 8.06(b) by nominating another bank for purposes of this Section
8.06(b) by notice to the Agent and such Bank. If TWC does not so nominate such
a bank within 15 days of its receipt of such request that it consent to such
assignment or if TWC fails to nominate another bank following such a failure to
purchase or if such second nominated bank fails to purchase in accordance with
the
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terms of an offer complying with the first sentence of this Section 8.06(b),
the Borrowers shall be deemed to have relinquished their right to consent to
such assignment. If such Bank elects to not accept such a purchase offer under
this Section 8.06(b) as to a particular proposed assignment, the Borrowers
shall not be deemed to have relinquished their right to consent to such
assignment.
(c) The Borrowers agree to promptly execute the Transfer Agreement
pertaining to any assignment as to which approval by the Borrowers of the
assignee is not required by clause (I) of the last sentence of Section 8.06(a).
(d) Any Bank may assign, as collateral or otherwise, any of its
rights (including, without limitation, rights to payments of principal of
and/or interest on the Notes) under this Agreement or any of the Notes to any
Federal Reserve Bank without notice to or consent of any Borrower or the Agent.
Section 8.07. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State
of New York.
Section 8.08. Interest. It is the intention of the parties
hereto that the Agent and each Bank shall conform strictly to usury laws,
applicable to it, if any. Accordingly, if the transactions with the Agent or
any Bank contemplated hereby would be usurious under applicable law, then, in
that event, notwithstanding anything to the contrary in the Notes, this
Agreement or any other agreement entered into in connection with or as security
for this Agreement or the Notes, it is agreed as follows: (i) the aggregate of
all consideration which constitutes interest under applicable law that is
contracted for, taken, reserved, charged or received by the Agent or such Bank,
as the case may be, under the Notes, this Agreement or under any other
agreement entered into in connection with or as security for this Agreement or
the Notes shall under no circumstances exceed the maximum amount allowed by
such applicable law and any excess shall be cancelled automatically and, if
theretofore paid, shall at the option of the Agent or such Bank, as the case
may be, be credited by the Agent or such Bank, as the case may be, on the
principal amount of the obligations owed to the Agent or such Bank, as the case
may be, by the appropriate Borrower or refunded by the Agent or such Bank, as
the case may be, to the appropriate Borrower, and (ii) in the event that the
maturity of any Note or other obligation payable to the Agent or such Bank, as
the case may be, is accelerated or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to the Agent or such Bank, as the case may be, may never include
more than the maximum amount allowed by such applicable law and excess
interest, if any, to the Agent or such Bank, as the case may be, provided for in
this Agreement or otherwise shall be cancelled automatically as of the date of
such acceleration or prepayment And, if theretofore paid, shall, at the option
of the Agent or such Bank, as the case may be, be credited by the Agent or
such Bank, as the case may be, on the principal amount of the obligations
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owed to the Agent or such Bank, as the case may be, by the appropriate Borrower
or refunded by the Agent or such Bank, as the case may be, to the appropriate
Borrower.
Section 8.09. Execution in Counterparts. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
Section 8.10. Survival of Agreements, Representations and
Warranties, Etc. All warranties, representations and covenants made by any
Borrower or any officer of any Borrower herein or in any certificate or other
document delivered in connection with this Agreement shall be considered to
have been relied upon by the Banks and shall survive the issuance and delivery
of the Notes and the making of the Advances regardless of any investigation.
The indemnities and other payment obligations of each Borrower contained in
this Agreement, and the indemnities by the Banks in favor of the Agent and its
officers, directors, employees and agents, will survive the repayment of the
Advances and the termination of this Agreement.
Section 8.11. Borrowers' Right to Apply Deposits. In the
event that any Bank is placed in receivership or enters a similar proceeding,
each Borrower may, to the full extent permitted by law, make any
payment due to such Bank hereunder, to the extent of final, collected
unrestricted deposits of such Borrower in U.S. dollars held by such Bank, by
giving notice to the Agent and such Bank directing such Bank to apply such
deposits to such indebtedness. If the amount of such deposits is insufficient
to pay such indebtedness then due and owing in full, such Borrower shall pay
the balance of such insufficiency in accordance with this Agreement.
Section 8.12. Confidentiality. Each Bank agrees that it will
use best efforts, to the extent not inconsistent with practical business
requirements, not to disclose without the prior consent of TWC (other than to
employees, auditors, accountants, counsel or other professional advisors of the
Agent or any Bank) any information with respect to the Borrowers or their
Subsidiaries which is furnished pursuant to this Agreement and which (i) the
Borrowers in good faith consider to be confidential and (ii) is either clearly
marked confidential or is designated by the Borrowers to the Agent or the Banks
in writing as confidential, provided that any Bank may disclose any such
information (a) as has become generally available to the public, (b) as may be
required or appropriate in any report, statement or testimony submitted to or
required by any municipal, state or Federal regulatory body having or claiming
to have jurisdiction over such Bank or submitted to or required by the Board of
Governors of the Federal Reserve System or the Federal Deposit Insurance
Corporation or similar organizations (whether in the United States or
elsewhere) or their successors, (c) as may be required or appropriate in
response to any summons or subpoena in connection with any litigation, (d) in
order to comply with any law, order, regulation
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or ruling applicable to such Bank, (e) to the prospective transferee in
connection with any contemplated transfer of any of the Notes or any interest
therein by such Bank, provided that such prospective transferee executes an
agreement with or for the benefit of the Borrowers containing provisions
substantially identical to those contained in this Section 8.12, and provided
further that if the contemplated transfer is a grant of a participation in a
Note (and not an assignment), no such information shall be authorized to be
delivered to such participant pursuant to this clause (e) except (i) such
information delivered pursuant to Section 4.01(e) or Section 5.01(b) (other
than paragraph (iv) thereof), and (ii) if prior notice of the delivery thereof
is given to TWC, such information as may be required by law or regulation to be
delivered, (f) in connection with the exercise of any remedy by such Bank
pertaining to this Agreement, any of the Notes or any other document delivered
in connection herewith, (g) in connection with any litigation involving such
Bank pertaining to this Agreement, any of the Notes or any other document
delivered in connection herewith, (h) to any Bank or the Agent, or (i) to
any affiliate of any Bank, provided that such affiliate executes an agreement
with or for the benefit of the Borrowers containing provisions substantially
identical to those contained in this Section 8.12.
Section 8.13. WAIVER OF JURY TRIAL. THE BORROWERS, THE AGENT,
AND THE BANKS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY NOTE OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
BORROWERS
THE WILLIAMS COMPANIES, INC.
By: __________________________
Name: ________________________
Title: _______________________
NORTHWEST PIPELINE CORPORATION
By: __________________________
Name: ________________________
Title: _______________________
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TRANSCONTINENTAL GAS PIPE LINE
CORPORATION
By: __________________________
Name: ________________________
Title: _______________________
TEXAS GAS TRANSMISSION
CORPORATION
By: __________________________
Name: ________________________
Title: _______________________
WILLIAMS PIPE LINE COMPANY
By: __________________________
Name: ________________________
Title: _______________________
AGENT:
CITIBANK, N.A., as Agent
By: __________________________
Authorized Officer
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Commitments BANKS
TWC Commitment $60,000,000 CITIBANK, N.A.
NWP Commitment $30,000,000
TGPL Commitment $30,000,000
TGT Commitment $15,000,000 By: __________________________
WPL Commitment $ 7,500,000 Authorized Officer
TWC Commitment $50,000,000 BANK OF AMERICA NATIONAL TRUST
NWP Commitment $25,000,000 AND SAVINGS ASSOCIATION
TGPL Commitment $25,000,000
TGT Commitment $12,500,000
WPL Commitment $ 6,250,000 By:___________________________
Authorized Officer
TWC Commitment $50,000,000 CHEMICAL BANK
NWP Commitment $25,000,000
TGPL Commitment $25,000,000
TGT Commitment $12,500,000 By: _________________________
WPL Commitment $ 6,250,000 Authorized Officer
TWC Commitment $50,000,000 CIBC INC.
NWP Commitment $25,000,000
TGPL Commitment $25,000,000
TGT Commitment $12,500,000 By: _________________________
WPL Commitment $ 6,250,000 Authorized Officer
TWC Commitment $42,000,000 BARCLAYS BANK PLC
NWP Commitment $21,000,000
TGPL Commitment $21,000,000
TGT Commitment $10,500,000 By: _________________________
WPL Commitment $ 5,250,000 Authorized Officer
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TWC Commitment $42,000,000 THE FIRST NATIONAL BANK OF
NWP Commitment $21,000,000 CHICAGO
TGPL Commitment $21,000,000
TGT Commitment $10,500,000
WPL Commitment $ 5,250,000 By: _______________________
Authorized Officer
TWC Commitment $42,000,000 FIRST INTERSTATE BANK OF
NWP Commitment $21,000,000 CALIFORNIA
TGPL Commitment $21,000,000
TGT Commitment $10,500,000
WPL Commitment $ 5,250,000 By: _______________________
Authorized Officer
TWC Commitment $42,000,000 MORGAN GUARANTY TRUST
NWP Commitment $21,000,000 COMPANY OF NEW YORK
TGPL Commitment $21,000,000
TGT Commitment $10,500,000
WPL Commitment $ 5,250,000 By: _______________________
Authorized Officer
TWC Commitment $42,000,000 ROYAL BANK OF CANADA
NWP Commitment $21,000,000
TGPL Commitment $21,000,000
TGT Commitment $10,500,000
WPL Commitment $ 5,250,000 By: _______________________
Authorized Officer
TWC Commitment $35,000,000 THE FIRST NATIONAL BANK
NWP Commitment $17,500,000 OF BOSTON
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By: _________________________
Authorized Officer
TWC Commitment $35,000,000 THE BANK OF NEW YORK
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By: ________________________
Authorized Officer
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TWC Commitment $35,000,000 THE BANK OF NOVA SCOTIA
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By: _________________________
Authorized Officer
TWC Commitment $35,000,000 THE CHASE MANHATTAN
NWP Commitment $17,500,000 BANK, N.A.
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By: _________________________
Authorized Officer
TWC Commitment $35,000,000 CREDIT LYONNAIS
NWP Commitment $17,500,000 CAYMAN ISLAND BRANCH
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By: _________________________
Authorized Officer
TWC Commitment $35,000,000 THE FUJI BANK, LIMITED
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By: _________________________
Authorized Officer
TWC Commitment $35,000,000 MELLON BANK, N.A.
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By: _________________________
Authorized Officer
TWC Commitment $35,000,000 SOCIETE GENERALE
NWP Commitment $17,500,000 SOUTHWEST AGENCY
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By: _________________________
Authorized Officer
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TWC Commitment $35,000,000 BANK OF SCOTLAND
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By: _________________________
Authorized Officer
TWC Commitment $35,000,000 BANK OF MONTREAL
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By: _________________________
Authorized Officer
TWC Commitment $10,000,000 BANK OF OKLAHOMA, N.A.
NWP Commitment $ 5,000,000
TGPL Commitment $ 5,000,000
TGT Commitment $ 2,500,000
WPL Commitment $ 1,250,000 By: _________________________
Authorized Officer
TWC Commitment $10,000,000 COMMERCE BANK, N.A.
NWP Commitment $ 5,000,000
TGPL Commitment $ 5,000,000
TGT Commitment $ 2,500,000
WPL Commitment $ 1,250,000 By: _________________________
Authorized Officer
TWC Commitment $10,000,000 BANK IV OKLAHOMA, N.A.
NWP Commitment $ 5,000,000
TGPL Commitment $ 5,000,000
TGT Commitment $ 2,500,000
WPL Commitment $ 1,250,000 By: _________________________
Authorized Officer
___________________
$800,000,000 Total of the TWC Commitments
$400,000,000 Total of the NWP Commitments
$400,000,000 Total of the TGPL Commitments
$200,000,000 Total of the TGT Commitments
$100,000,000 Total of the WPL Commitments
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EXHIBIT 4.8
CREDIT AGREEMENT
CREDIT AGREEMENT ("Agreement"), dated as of January 23, 1995, among
The Williams Companies, Inc., as Lender, and Transco Energy Company ("TEC") and
Transco Coal Company ("TCC"), each as Borrower and, collectively, the
Borrowers.
ARTICLE I
DEFINITIONS
As used in this Agreement:
"ADVANCE" means a borrowing hereunder.
"AGREEMENT" means this Credit Agreement, as it may be amended from
time to time.
"APPLICABLE MARGIN" means the margin applicable to Lender under its
revolving credit agreement as in effect from time to time (currently .625%).
"BASE RATE" means the rate of interest announced publicly by Citibank
in New York, New York, from time to time, as Citibank's base rate.
"BORROWING DATE" means a date on which an Advance is made hereunder.
"BORROWING NOTICE" is defined in Section 2.4.
"BUSINESS DAY" means a day other than a Saturday or Sunday on which
the Lender is open for business.
"CAPITALIZED LEASE" of a Person means any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with generally accepted accounting principles.
"CITIBANK" means Citibank, N.A.
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"COMMITMENT" means the obligation of Lender to make Advances not
exceeding, in the aggregate, $950,000,000, and not exceeding $50,000,000 in the
aggregate to TCC, minus the aggregate of Lender's cash contributions to equity
of Borrower on or after the date hereof.
"DEFAULT" means an event described in Article VI.
"EURODOLLAR RATE" means an interest rate per annum (rounded upward to
the nearest whole multiple of 1/16 of 1% per annum, if such rate is not such a
multiple) equal to the rate per annum at which deposits in U.S. dollars are
offered by the principal office of Citibank in London, England to prime banks
in the London interbank market at 11:00 A.M. (London time) as reported by
Citibank's telephone recorded rating announcement ("TRRA") on the first day of
each month, obtained by calling (212) 291-6644. If the first day of the month
is not a business day, the previous business day's rate will prevail. The
Eurodollar Rate may also be referred to as LIBOR or the LIBO Rate ("London
Interbank Offered Rate") by the TRRA.
"FLOATING RATE" means the Eurodollar Rate plus the Applicable Margin.
"GUARANTY" means any agreement by which any Person assumes,
guarantees, endorses, contingently agrees to purchase or provide funds for
the payment of, or otherwise becomes liable upon, the obligation of any other
Person, or agrees to maintain the net worth or working capital or other
financial condition of any other Person or otherwise assures any creditor of
such other Person against loss, including, without limitation, any comfort
letter, operating agreement or take-or-pay contract.
"INDEBTEDNESS" means (i) obligations for borrowed money (including
guarantees of such obligations), (ii) obligations representing the deferred
purchase price of property, other than accounts payable arising in the ordinary
course of such Person's business payable on terms not uncustomary in the trade,
(iii) obligations which are evidenced by notes, bonds, acceptances, or
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other similar instruments, (iv) Capitalized Lease Obligations, and (v)
obligations for which such Person is obligated pursuant to a Letter of Credit.
"INTEREST PAYMENT DATE" shall have the meaning set forth in Section
2.8 hereof.
"LETTER OF CREDIT" means a letter of credit or similar instrument
which is issued upon the application of such Person or upon which such Person
is an account party or for which such Person is in any way liable.
"LOAN DOCUMENTS" means this Agreement and the Note.
"MATERIAL SUBSIDIARY" means each of Transco Gas Company, Transco Gas
Marketing Company, Texas Gas Transmission Corporation, and Transcontinental Gas
Pipe Line Corporation.
"MERGER AGREEMENT" means the Agreement and Plan of Merger dated as of
December 12, 1994 by and among Lender, WC Acquisition Corp, and TEC.
"NOTE" means a promissory note in substantially the form of Exhibit
"A-1" hereto and a promissory note in substantially the form of Exhibit "A-2"
hereto, duly executed and delivered to Lender by Borrower and payable to the
order of Lender in the amount of its Commitment, including any amendment,
modification, renewal or replacement of such promissory note.
"OBLIGATIONS" means all unpaid principal of and accrued and unpaid
interest on the Note, and all other obligations of Borrower to Lender arising
under the Loan Documents.
"PERSON" means any corporation, natural person, firm, joint venture,
partnership, trust, unincorporated organization, enterprise, government or any
department or agency of any government.
"REPAYMENT DATE" means the date upon which all or any portion of an
Advance is repaid to Lender.
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"SUBSIDIARY" of any company means any corporation or other entity more
than 50% of the outstanding voting securities or other ownership interest of
which shall at the time be owned or controlled, directly or indirectly, by the
company.
"TERMINATION DATE" means the earlier of (a) December 31, 1995 (or such
later date if any which is the Termination Date as defined in Lender's
revolving credit agreement as in effect from time to time), or (b) the date, if
any, on which Lender terminates its obligations to make loans under this
Agreement pursuant to Section 7.1.
"UNMATURED DEFAULT" means an event which, but for the lapse of time or
the giving of notice, or both, would constitute a Default.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II
THE CREDITS
2.1 Loans Prior to Termination Date. From and including the date
of this Agreement and prior to the Termination Date, Lender agrees, on the
terms and conditions set forth in this Agreement, to make Advances to Borrower
from time to time in outstanding amounts not to exceed, in the aggregate at any
one time, the amount of its Commitment. Subject to the terms of this
Agreement, Borrower may borrow, repay and reborrow at any time prior to the
Termination Date.
2.2 Rate; Payment on Termination Date. The Advances shall be
Floating Rate Advances. Each Advance shall be paid in full by Borrower on or
before the Termination Date.
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2.3 Optional Principal Payments. Borrower may at any time and
from time to time pay all outstanding Floating Rate Advances, or, in a minimum
aggregate amount of $100,000, or any integral multiple thereof, any portion of
the outstanding Floating Rate Advances without penalty or premium.
2.4 Borrowing Notices.
(a) Borrower shall give Lender written or oral notice (a
"Borrowing Notice") not later than 10:00 a.m. Central time on the Borrowing
Date of each Advance specifying:
(i) the Borrowing Date, which shall be a Business
Day, of such Advance, and
(ii) the aggregate amount of such Advance.
Each Advance shall bear interest from and including the first day of the
Borrowing Date applicable thereto to (but not including) the Repayment Date at
the Floating Rate.
2.5 Minimum Amount of Each Advance. Each Advance shall be in the
minimum amount of $100,000 (and in multiples of $100,000 if in excess thereof).
2.6 Rate after Maturity. Any Advance not paid when due, whether
by acceleration or otherwise, shall bear interest until paid in full at a rate
per annum equal to the Base Rate plus 2% per annum, however, such rate shall at
no time exceed the maximum interest rate allowed by law.
2.7 Method of Payment. All payments of principal, interest, and
fees hereunder shall be made in immediately available funds to Lender at
Lender's designated bank account at First National Bank of Chicago.
2.8 Interest Payment Dates; Interest Basis. Interest accrued on
each Advance shall be payable monthly on the 25th day of each month and on any
date on which the Advance is due whether as a result of acceleration or
otherwise ("Interest Payment Date"). At Borrower's
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option, interest may be advanced on the Interest Payment Date (except in the
event of acceleration) and, if so advanced, shall constitute an Advance
hereunder. Interest shall be calculated for actual days elapsed on the basis
of a 366- or 365-day year, as appropriate. Interest shall be payable for the
day an Advance is made but not for the Repayment Date if payment is received
prior to noon (local time) at the place of payment. If any payment of
principal of or interest on an Advance or any payment of a fee shall become due
on a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and, in the case of a principal payment, such extension
of time shall be included in computing interest in connection with such
payment.
2.9 Cost Protection. If (a) any law or any governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any interpretation thereof, or compliance by Lender with
such:
(i) subjects Lender to any tax, duty, charge or
withholding on or from payments due from Borrower (excluding taxation
of the overall net income of Lender), or changes the basis of taxation
of payments to Lender in respect of its Advances or other amounts due
it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against Lender, or
(iii) imposes any other conditions the result of which is
to increase the cost to Lender of making, funding or maintaining loans
or reduces any amount receivable by Lender in connection with loans,
or requires Lender to make any payment calculated by reference to the
amount of loans held or interest received by it, by an amount deemed
material by Lender; or
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(b) there is a change in Lenders' cost of funds, then, within 15 days of demand
by Lender, Borrower shall pay to Lender that portion of such increased expense
incurred.
2.10 Lender Certificates; Survival of Indemnity. Lender shall
exercise reasonable efforts to avoid or reduce any liability of Borrower to
Lender under Section 2.9, so long as such action is not financially or legally
disadvantageous to Lender. A certificate of Lender as to the amount due under
Section 2.9 setting forth in reasonable detail the basis for demand and
computations shall be final, conclusive and binding on Borrower in the absence
of manifest error. Unless otherwise provided herein, the amount specified in
the certificate shall be payable on demand after receipt by Borrower of the
certificate. The obligations of Borrower under Section 2.9 shall survive
payment of the Obligations and termination of this Agreement.
2.11 Change in Provisions. Borrower agrees that this Agreement
shall be amended as necessary to reflect any changes in Lenders policies or
procedures with respect to loans to its Subsidiaries.
ARTICLE III
CONDITIONS PRECEDENT
3.1 Initial Advance. The Lender shall not be required to make an
initial Advance, unless, on the Borrowing Date,: (a) Borrower has delivered to
Lender a duly executed Note payable to the order of Lender; (b) there exists no
Default or Unmatured Default; (c) the representations and warranties contained
in Article IV are true and correct; and (d) Borrower shall have furnished other
documents as Lender may have reasonably requested.
3.2 Subsequent Advances. The Lender shall not be required to make
any Subsequent Advance, unless on the applicable Borrowing Date each of the
conditions set forth in Section 3.1 are met at the time of such Advance. Each
Borrowing Notice with respect to each such Advance
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shall constitute a representation and warranty by Borrower that each of the
conditions contained in Section 3.1 have been satisfied.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to Lender that:
4.1 Corporate Existence and Standing. Borrower and each of its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each jurisdiction in which a
failure to have such authority could have a material adverse effect on their
business, operations or financial or other condition, or could materially
adversely affect any of their ability to perform their obligations under the
Loan Documents.
4.2 Authorization and Validity. Borrower has the corporate power
and authority and legal right to execute and deliver the Loan Documents and to
perform its obligations thereunder. The execution and delivery by Borrower of
the Loan Documents and the performance of its obligations thereunder have been
duly authorized by all proper corporate proceedings, and the Loan Documents,
upon proper execution by Lender, shall constitute legal, valid and binding
obligations of Borrower enforceable in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
4.3 No Conflict; Government Consent. Neither the execution and
delivery by Borrower of the Loan Documents, nor the consummation of the
transactions therein contemplated, nor compliance with the provisions thereof
will violate any order, writ, judgment, injunction, decree or award binding on
the Borrower or its Subsidiaries or violate any law, rule, or regulation
binding on the Borrower or its Subsidiaries, Borrower's certificates of
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<PAGE> 9
incorporation or by-laws, or the provisions of any material indenture,
instrument or agreement to which the Borrower or its Subsidiaries is a party or
is subject, or by which it, or its property, is bound, or conflict with or
constitute a default thereunder, or result in the creation or imposition of any
Lien in, of or on the property of the Borrower or its Subsidiaries pursuant to
the terms of any such indenture, instrument or agreement. No order, consent,
approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required to authorize, or is required
in connection with, the execution, delivery and performance of, or the
legality, validity, binding effect or enforceability of, any of the Loan
Documents.
4.4 Material Adverse Change/Financial Statements. The
consolidated and consolidating balance sheets of TEC as at December 31, 1993
and September 30, 1994 and the related consolidated and consolidating
statements of income and cash flows of TEC for the fiscal year and nine months,
respectively, furnished to Lender fairly present (subject, in the case of the
September 30, 1994 balance sheet, to year-end audit adjustments) the
consolidated financial condition at such dates and results of operations of the
Borrowers for such periods in accordance with generally accepted accounting
principles consistently applied. There has been no material adverse change in
the business, financial condition, prospects or results of operations of
Borrower since the date of such financial statements except as publicly
disclosed or as disclosed in the Merger Agreement.
4.5 Taxes. Borrower and its Subsidiaries have filed all United
States federal tax returns and all other tax returns which are required to be
filed and have paid all taxes due pursuant to said returns or pursuant to any
assessment except such taxes, if any, as are being diligently contested in good
faith and as to which adequate reserves have been provided. No tax liens have
been filed and no claims are being asserted with respect to any such taxes
except as
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<PAGE> 10
disclosed in the Merger Agreement. The charges, accruals and reserves on the
books of Borrower and its Subsidiaries in respect of any taxes or other
governmental charges are adequate.
4.6 Litigation. Except as disclosed in Borrower's public filings
or in the Merger Agreement, there is no litigation or proceeding pending or, to
the knowledge of any of their officers, threatened against or affecting the
Borrower or its Subsidiaries which is reasonably likely to materially adversely
affect the business, financial condition or results of operations of the
Borrower or its Subsidiaries or the ability of the Borrower to perform its
obligations under the Loan Documents.
ARTICLE V
COVENANTS
During the term of this Agreement, unless Lender shall otherwise
consent in writing:
5.1 Use of Proceeds. Borrower will use the proceeds of the
Advances to implement the financing and recapitalization plan adopted by its
board of directors on January 25, 1995, as such plan may be amended from time
to time, and/or for general corporate purposes.
5.2 Dividends and Advances. Borrower shall not declare or pay
dividends, except customary dividends on Borrower's common and preferred stock,
or make advances except to its Subsidiaries, at any time without consent of
Lender.
5.3 Reports. Borrower shall, and shall cause each of its
Subsidiaries to, maintain a system of accounting established and administered
in accordance with generally accepted accounting principles, and the Borrowers
shall furnish to Lender:
(a) Within 90 days after the close of each of its fiscal
years, an unqualified audit report certified by independent certified
public accountants, including a consolidated and consolidating balance
sheet of TEC as of the end of such period, and a consolidated
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and consolidating income statement and statement of stockholders'
equity and of cash flow of TEC, each prepared in accordance with
generally accepted accounting principles, accompanied by any
management letter prepared by said accountants.
(b) Within 30 days after the close of the first three
quarterly periods of each of its fiscal years, a consolidated and
consolidating unaudited balance sheet of TEC as at the close of each
such period and a consolidated and consolidating income statement,
statements of stockholders' equity and of cash flow of TEC for the
period from the beginning of such fiscal year to the end of such
quarter, all prepared in accordance with generally accepted accounting
principals, certified by TEC's chief financial officer; and
(c) A notice of the occurrence of any Default or
Unmatured Default promptly, but in no event later than five (5) days
after Borrower obtains notice thereof.
5.4 Conduct of Business. Borrower and each of its Subsidiaries
shall remain duly incorporated, validly existing and in good standing as
domestic corporations in their jurisdiction of incorporation and maintain all
requisite authority to conduct their business in each jurisdiction in which a
failure to have such authority could have a material adverse effect on their
business, operations or financial or other condition or could affect their
ability to perform their obligations under the Loan Documents.
5.5 Maintenance of Licenses. Borrower and each of its
Subsidiaries shall do all things necessary to renew, extend and continue in
effect all permits, licenses and authorizations which may at any time and from
time to time be necessary to operate their businesses in compliance with all
applicable laws and regulations if the failure to have such permits, licenses
and authorizations could have a material adverse effect on their business,
operations or financial or other condition or materially adversely affect
Borrower's ability to perform its obligations under the Loan Documents.
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5.6 Taxes. Borrower and each of its Subsidiaries shall pay or
cause to be paid when due all taxes, assessments and governmental charges and
levies upon it or its income, profits or property, except those which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been set aside.
5.7 Insurance. Borrower and each of its Subsidiaries shall
maintain or cause to be maintained, with financially sound and reputable
insurance companies, insurance on all their property in such amounts and
covering such risks as is consistent with sound business practice or may
self-insure against such risks.
5.8 Compliance with Laws. Borrower and each Subsidiary of
Borrower shall comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject where the
failure to so comply with any such laws, rules, regulations, orders, writs,
judgments, injunctions, decrees, or awards, singly or in combination, could
have a material adverse effect on the business, operations or financial or
other condition of the Borrower or is reasonably likely to materially adversely
affect the ability of the Borrower to perform its obligations under the Loan
Documents.
5.9 Maintenance of Properties. Borrower and each Subsidiary of
Borrower shall do all things necessary to maintain, preserve, protect and keep
their properties in good repair, working order and condition, and make all
necessary and proper repairs, renewals and replacements so that the business
carried on in connection therewith may be properly conducted at all times.
5.10 Liens. Borrower shall not create, assume, incur, or suffer to
exist or permit any of its Subsidiaries to create, assume, incur or suffer to
exist, any liens or encumbrance on assets except as permitted under the
Indenture dated May, 1990 between the Borrower and Bank of New York, as
trustee.
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5.11 Indebtedness. Borrower shall not and shall not permit any of
its Subsidiaries to create, assume, incur, or suffer to exist any new
Indebtedness except for the Advances and except for borrowings under revolving
credit agreements entered into after the date hereof.
5.12 Merger and Sale of Assets. Except as provided in Schedule
5.12 hereto, Borrower shall not, and shall not permit any of its Subsidiaries
to merge or consolidate with or into any Person, other than Lender or Lender's
Subsidiaries, or sell, lease or otherwise transfer any substantial portion of
Borrower's or any Subsidiary's assets other than to Lender or Lender's
Subsidiaries.
5.13 Maintain Ownership of Subsidiaries. Except as provided in
Schedule 5.12 hereto, Borrower shall maintain its current ownership of all of
its current Subsidiaries except for Subsidiaries transferred to Lender or
Lender's Subsidiaries.
5.14 Independence of Covenants. All covenants under this Article V
shall be given independent effect so that if a particular action or condition
is not permitted by any of such covenants, the fact that it would be permitted
by an exception to, or otherwise be within the limitations of, another covenant
shall not avoid the occurrence of a Default if such action or condition exists.
ARTICLE VI
DEFAULTS
The occurrence of any one or more of the following events shall
constitute a Default:
6.1 Representations and Warranties. Any representation or warranty
made or deemed made by Borrower to Lender under the Loan Documents shall be
false in any material respect, as of the date as of which made or deemed made.
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6.2 Payment of Interest and Principal. Nonpayment of principal of
the Note when due, or nonpayment of interest upon the Note or other obligations
under any of the Loan Documents within three (3) Business Days after the same
becomes due.
6.3 Other Terms and Conditions. The breach (other than a breach
of a term or condition which constitutes a Default under Section 6.1 or 6.2) of
any of the terms or provisions of this Agreement or the Note which is not
remedied within five (5) days after notice from Lender.
6.4 Indebtedness. Failure of Borrower or any of its Subsidiaries
to pay when due any Indebtedness in excess of $5,000,000 or the default in the
performance of any term, provision or condition contained in any agreement
under which any Indebtedness was created or is governed, the effect of which is
to cause, or to permit the holder or holders of such Indebtedness to cause,
Indebtedness in excess of $5,000,000 to become due prior to its stated
maturity, or any Indebtedness in excess of $5,000,000 shall be declared to be
due and payable or required to be prepaid prior to the stated maturity thereof.
6.5 Insolvency. Borrower or any of its Material Subsidiaries
shall (a) have an order for relief entered with respect to it under any state
bankruptcy law or the Federal Bankruptcy Code, (b) not pay, or admit in writing
its inability to pay, its debts generally as they become due, (c) make an
assignment for the benefit of creditors, (d) apply for, seek, consent to, or
acquiesce in, appointment of a receiver, custodian, trustee, examiner,
liquidator or similar official for it or any substantial part of its property,
(e) institute any proceeding seeking an order for relief under the Federal
Bankruptcy Code or seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement, adjustment
or compromise of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors or fail to file an answer or
other pleading denying the material allegations
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of any such proceeding filed against it, (f) take any corporate action to
authorize or effect any of the foregoing actions set forth in this Section 6.5
or (g) fail to contest in good faith any appointment or proceeding described in
Section 6.6.
6.6 Appointment of Receiver or Trustee. Without application,
approval or consent, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for Borrower or any Subsidiary for any substantial
part of the property of any thereof, or a proceeding described in Section
6.5(d) shall be instituted against Borrower or any Subsidiary and such
appointment continues undischarged or such proceeding continued undismissed or
unstayed for a period of 60 consecutive days.
6.7 Condemnation/Seizure. Any court, government or governmental
agency shall condemn, seize or otherwise appropriate, or take custody or
control of any substantial portion of the property of Borrower or any of its
Material Subsidiaries.
6.8 Litigation. Borrower or any of its Subsidiaries shall fail
within 30 days to pay, bond or otherwise discharge any judgment or order for
the payment of money in excess of $5,000,000, which is not stayed on appeal or
is not otherwise being appropriately contested in good faith.
ARTICLE VII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
7.1 Acceleration. If any Default described in Section 6.5 or 6.6
occurs and is continuing, the obligations of Lender to make Advances hereunder
shall automatically terminate and the Obligations shall immediately become due
and payable without any election or action on the part of Lender. If any other
Default occurs, Lender may terminate or suspend its obligations to make Loans
hereunder, or declare the Obligations to be due and payable, or both,
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whereupon the Obligations shall become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which Borrower
hereby expressly waives.
7.2 Amendments. The parties hereto may enter into agreements
supplemental for the purpose of adding to or modifying any provisions of the
Loan Documents or changing in any manner the rights of Lender or Borrower or
hereunder or thereunder.
7.3 Successors and Assigns. The terms and provisions of the Loan
Documents as amended or restated, shall be binding upon and inure to the
benefit of Borrower and Lender, and their respective successors and assigns.
Notwithstanding the foregoing, neither this Agreement nor the Note may be
assigned by Lender or Borrower.
7.4 Preservation of Rights. No delay or omission of Lender to
exercise any right under the Loan Documents shall impair such right or be
construed to be a waiver of any Default or an acquiescence therein, and the
making of an Advance, notwithstanding the existence of a Default or an
inability to satisfy the conditions precedent to such Advance, shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right. All remedies contained in the Loan Documents or by law
afforded shall be cumulative and all shall be available to Lender until the
Obligations have been paid in full.
7.5 Survival of Representations. All representations and
warranties contained in this Agreement shall survive delivery of the Note and
the making of the Advances herein contemplated.
7.6 Entire Agreement. The Loan Documents embody the entire
agreement and understanding between Lender and Borrower and supersede all prior
agreements and understandings between Lender and Borrower relating to the
subject matter hereof.
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7.7 Notices. For purposes hereof, notices shall be given to
any party hereto at the following address for such party (or such other
address as such party shall notify the other parties hereto by notice complying
with this Section 7.7), and shall be deemed given only when delivered to or
received by the party to whom such notice is addressed:
Lender: The Williams Companies, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attn: Chief Financial Officer
TEC: Transco Energy Company
2800 Post Oak Boulevard
Houston, Texas 77056
Attn: Chief Financial Officer
TCC: Transco Coal Company
2800 Post Oak Boulevard
Houston, Texas 77056
Attn: Chief Financial Officer
7.8 CHOICE OF LAW. THE LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE
OF OKLAHOMA.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers as of the date first written above.
BORROWERS
TRANSCO ENERGY COMPANY
By:__________________________________
TRANSCO COAL COMPANY
By:__________________________________
LENDER
THE WILLIAMS COMPANIES, INC.
By:__________________________________
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<PAGE> 1
EXHIBIT 10.3
TRANSCO ENERGY COMPANY
AMENDED AND RESTATED
1991 INCENTIVE STOCK PLAN
1. PURPOSE
The purpose of the Transco Energy Company Amended and Restated 1991
Incentive Stock Plan (the "Plan") is to advance the interests of Transco Energy
Company ("Transco" or the "Company") and its Affiliates by providing incentive
awards and stock ownership opportunities to employees of the Company (including
officers and directors who are employees) who contribute significantly to the
performance of Transco and its Affiliates. In addition, the Plan provides stock
ownership opportunities to the members of the Board of Directors of Transco who
are not employees of Transco and its Affiliates ("Directors"). The Plan is
intended to enhance the ability of Transco and its Affiliates to attract and
retain individuals of superior ability and to motivate such employees and
Directors to exert their best efforts on behalf of the Company and its
Affiliates and thereby increase stockholder value.
For purposes of the Plan, an Affiliate shall be any corporation or
other entity in which Transco has a direct or indirect ownership interest of
20% or more of the total combined voting power of all classes of stock or
ownership interests in such corporation or entity, which meets the definition
of "subsidiary" as defined in Rule 405 promulgated under the Securities Act of
1933, and which shall be designated an Affiliate by the Committee.
2. ADMINISTRATION AND INTERPRETATION
a. Administration. The Plan shall be administered by a committee (the
"Committee") consisting of not less than two members of the Board of Directors
of Transco appointed by and serving at the pleasure of the Board, provided that
each member shall be (i) a disinterested person within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), as such rule or its equivalent is in effect from time to time and
(ii) an "outside director," as defined in Internal Revenue Code (the "Code")
Section 162(m) and the regulations promulgated thereunder or their equivalent
as in effect from time to time. The Board may from time to time appoint members
of the Committee in substitution for or in addition to members previously
appointed and may fill vacancies, however caused, in the Committee. A majority
of the members of the Committee shall constitute a quorum and the acts of a
majority of the members present at a meeting at which a quorum is present or
the acts of a majority of the members evidenced in writing shall be the acts of
the Committee.
Except as provided in Sections 5f and 7d hereof, the Committee shall
have the full and exclusive right to make all grants and awards under the Plan.
In making grants and awards, the
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Committee shall take into consideration the contribution the individual has
made or may make to the success of Transco or its Affiliates and such other
considerations as the Committee shall determine. The Committee shall also have
the authority to consult with and receive recommendations from the Chief
Executive Officer and other officers and employees of Transco and its
Affiliates with regard to these matters. In no event shall any individual
participating in the Plan, his or her legal representatives, heirs, legatees,
distributees, or successors have any right to participate in the Plan, except
to such extent, if any, as the Committee shall determine. The Committee may
correct any defect or any omission or reconcile any inconsistency in the Plan
or in any award or grant made hereunder in the manner and to the extent it
shall deem desirable.
The Committee may from time to time, with respect to grants and awards
under the Plan, prescribe such terms and conditions as it deems appropriate,
including, without limitation, causing grants and awards to be subject to the
achievement of such specific goals as may be established by the Committee from
time to time, provided that such terms and conditions are not more favorable to
a Participant than those expressly set forth in the Plan.
The day-to-day administration of the Plan may be carried out by such
officers and employees of Transco or its Affiliates as shall be designated from
time to time by the Committee.
b. Interpretation. The Committee may prescribe, amend and rescind
rules and regulations for administration of the Plan and shall have full power
and authority to construe and interpret the Plan. The interpretation and
construction by the Committee of any provisions of the Plan or of any grant or
award under the Plan and any determination by the Committee under any provision
of the Plan or any such grant or award shall be final and conclusive on all
persons, including, Transco, its Affiliates and all persons participating in
the Plan for all purposes.
c. Limitation on Liability. Neither the Committee nor any member
thereof, nor any other person performing ministerial or other duties under the
Plan on behalf of the Committee shall be liable for any act, omission,
interpretation, construction or determination made in connection with the Plan
in good faith, and the members of the Committee and such other persons shall be
entitled to indemnification and reimbursement by Transco in respect of any
claim, loss, damage or expense (including counsel fees) arising therefrom to
the full extent permitted by law and under any insurance coverage that may be
in effect from time to time.
3. SHARES SUBJECT TO AWARDS UNDER THE PLAN
a. Limitation on Number of Shares. The shares subject to grants of
Options and Stock Appreciation Rights (as defined in Section 5 hereof), the
shares subject to awards of Restricted Stock and Restricted Stock Units (as
defined in Section 6 hereof) and the shares authorized for issuance in payment
of Deferred Stock Units (as defined in Section 7 hereof) shall be shares of
Transco's authorized but unissued common stock, par value $.50 per share
("Common Stock"), and shares of such Common Stock that are issued but not
outstanding and are held as treasury
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stock by Transco. Subject to adjustment as hereinafter provided, the aggregate
number of shares of Common Stock (i) as to which Options and Stock Appreciation
Rights may be granted under the Plan, (ii) that may be subject to awards of
Restricted Stock, and (iii) that may be distributed in payment of Restricted
Stock Units and Deferred Stock Units shall not exceed 3,250,000 shares;
provided, however, that of such shares the aggregate number of shares of Common
Stock that may be subject to awards of Restricted Stock and that may be
distributed in payment of Restricted Stock Units and Deferred Stock Units shall
not exceed 1,137,500 shares.
Shares of Common Stock ceasing to be subject to an Option, Stock
Appreciation Right, Restricted Stock Unit or Deferred Stock Unit because of the
exercise of such Option or Stock Appreciation Right when exercised for shares
of Common Stock or because a Restricted Stock Unit or Deferred Stock Unit is
paid in shares of Common Stock, or shares of Restricted Stock as to which all
restrictions have been removed, shall no longer be subject to any further
grant, award or payment under the Plan. If any outstanding Option or Stock
Appreciation Right, in whole or in part, expires or terminates unexercised or
is cancelled or any Stock Appreciation Right is exercised for cash or any
Restricted Stock Unit or Deferred Stock Unit, in whole or in part, expires or
is terminated or forfeited for any reason, the shares of Common Stock allocable
to the unexercised, terminated, cancelled or forfeited portion of such Option,
Stock Appreciation Right, Restricted Stock Unit or Deferred Stock Unit award
may again be made the subject of grants, awards or payments under the Plan.
Terminated or forfeited Restricted Stock may not be made the subject of grants,
awards or payments under the Plan, unless by order, rule, decision or
interpretation of the Securities and Exchange Commission or court of competent
jurisdiction or under applicable law such terminated or forfeited Restricted
Stock may be made the subject of further grants, awards or payments under the
Plan without jeopardizing the status of the Plan or such grants, awards or
payments under Rule 16b-3 promulgated under the 1934 Act.
b. Adjustments of Aggregate Number of Shares. The aggregate number of
shares of Common Stock stated in Section 3a shall be subject to appropriate
adjustment, from time to time, in accordance with the provisions of Section 8
hereof. In the event of a change in the Common Stock of Transco that is
limited to a change in the designation thereof to "Capital Stock" or other
similar designation, or to a change in the par value thereof, or from par value
to no par value, without increase or decrease in the number of issued shares,
the shares resulting from any such change shall be deemed to be Common Stock
within the meaning of the Plan.
4. ELIGIBILITY
The individuals who shall be eligible to receive Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units and/or Deferred
Stock Units under the Plan shall be such employees (including officers and
directors who are employees) of Transco or of any Affiliate as the Committee
from time to time shall determine. Directors shall only be eligible to receive
Options and Deferred Stock Units as provided in Sections 5f and 7d hereof.
Such employees and Directors shall hereafter be referred to collectively as
"Participants" and individually as a "Participant."
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<PAGE> 4
5. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
a. Grants of Options.
(1) In General. Stock options granted under the Plan may be either
"Incentive Stock Options" or "Non-qualified Stock Options" (both as defined
below and collectively referred to as "Options"). Options granted under the
Plan shall be of such type, for such number of shares of Common Stock and
subject to such terms and conditions as the Committee shall designate. The
Committee may grant Non-qualified Stock Options at any time and from time
to time before May 8, 2001 to such employees as it shall determine. The
Committee may grant Incentive Stock Options at any time and from time to
time before March 20, 2001 to such employees as it shall determine. No
individual may be granted Options under this Plan during any five year
period entitling him or her to receive in the aggregate more than 500,000
shares of Common Stock as adjusted in accordance with the provisions of
Section 8 hereof.
(2) Incentive Stock Options. The term "Incentive Stock Option" shall
mean an Option, or portion thereof, that is intended to qualify as an
incentive stock option under Section 422 of the Code. The aggregate Market
Value Per Share (as defined in Section 5c(4) hereof, calculated as of the
date of grant) of Common Stock with respect to which Incentive Stock
Options are exercisable for the first time in any calendar year by any
individual under the Plan (and any other incentive stock options that may
be issued under any stock option plan that may be maintained by Transco or
an Affiliate) may not exceed the sum of $100,000 or such greater or lesser
limit which may hereafter be imposed by law. Incentive Stock Options may
only be granted to employees of the Company and such Affiliates of the
Company in which the Company has direct or indirect ownership of 50% or
more of the total combined voting power of all classes of stock.
(3) Non-qualified Stock Options. The term "Non-qualified Stock Option"
shall mean any Option or portion thereof that is not an Incentive Stock
Option. Except as specifically provided herein, the provisions of this Plan
shall apply in the same manner to Incentive Stock Options and to
Non-qualified Stock Options.
b. Grants of Stock Appreciation Rights.
(1) In General. The term "Stock Appreciation Right" or "SAR" shall
mean the right to receive from Transco an amount equal to the Market Value
Per Share on the exercise date, minus the Market Value Per Share on the
date of grant (or, in the discretion of the Committee, the Market Value Per
Share on the date of the grant of the Option to which the SAR relates if
the SAR is attached to an Option after the Option has been granted),
multiplied by the total number of shares of Common Stock for which the SAR
is exercised. The amount payable by Transco upon the exercise of an SAR may
be paid in cash or in shares of Common Stock or in any combination thereof
as the Committee in its sole discretion shall determine, but no fractional
shares shall be issuable pursuant to any SAR.
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The Committee may grant SARs to employees at any time and from time to time
before May 8, 2001. SARs may be granted independently of or in conjunction
with an Option granted under the Plan. In the case of a Non-qualified Stock
Option, such rights may be granted either at or after the time of grant of
such Option. In the case of an Incentive Stock Option, such rights may be
granted only at the time of grant of such Option. In the case of an SAR
granted with a related Option, the SAR shall terminate and no longer be
exercisable upon the termination or exercise of the related Option.
(2) Limitations on SARs. Each SAR granted hereunder shall be
exercisable only upon the consent of the Committee.
c. Terms of Options and SARs. Options and SARs granted pursuant to this
Plan shall be evidenced by stock option (and/or, if applicable, SAR) agreements
(referred to herein as an "agreement") that shall comply with and be subject to
the following terms and conditions and may contain such other provisions,
consistent with this Plan, as the Committee shall deem advisable.
(1) Payment of Option Exercise Price. Upon exercise of an Option, the
full option purchase price for the shares with respect to which the Option
is being exercised shall be payable to Transco (i) in cash or by check
payable and acceptable to Transco, or (ii) subject to the approval of the
Committee, (a) by tendering to Transco such number of shares of Common
Stock owned by the optionee having an aggregate Market Value Per Share as
of the date of exercise and tender that is not greater than the full option
purchase price for the shares with respect to which the Option is being
exercised and by paying any remaining amount of the option purchase price
as provided in (i) above (provided that the Committee may, upon confirming
that the optionee owns the number of additional shares being tendered,
authorize the issuance of a new certificate for the number of shares being
acquired pursuant to the exercise of the Option less the number of shares
being tendered upon the exercise and return to the optionee (or not require
surrender of) the certificate for the shares being tendered upon the
exercise), (b) by the optionee delivering to Transco a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to Transco cash or a check payable and acceptable to
Transco to pay the option purchase price, or (c) by the withholding of
shares that otherwise would be issued upon the exercise having an aggregate
Market Value Per Share as of the date of exercise equal to the full option
purchase price; provided that in the event the optionee chooses to pay the
option purchase price as provided in (ii)(b) above, the optionee and the
broker shall comply with such procedures and enter into such indemnity and
other agreements as the Committee shall prescribe as a condition of such
payment procedure. Payment instruments will be received subject to
collection.
(2) Number of Shares. Each agreement shall state the total number of
shares of Common Stock that are subject to the Option and/or, if
applicable, SAR.
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(3) Exercise Price. The exercise price for each Option and SAR shall
be fixed by the Committee at the date of grant, but in no event may such
exercise price per share be less than the Market Value Per Share (as
defined below) on the date of the grant of the Option or SAR, except as
provided in 5b(1).
(4) Market Value Per Share. The Market Value Per Share as of any
particular date shall be determined by any fair and reasonable means
selected by the Committee, which may include, if the Common Stock is listed
for trading on the New York Stock Exchange, the closing price on such date
quoted in Network A of the consolidated transaction reporting system, which
is published in The Wall Street Journal reports of New York Stock
Exchange--Composite Transactions, or if no trade of the Common Stock shall
have been reported for such date, the closing price quoted in Network A of
the consolidated transaction reporting system, which is published in The
Wall Street Journal reports of the New York Stock Exchange--Composite
Transactions for the next day prior thereto on which a trade of the Common
Stock was so reported.
(5) Term. The term of each Option and/or, if applicable, SAR shall be
determined by the Committee at the date of grant; provided, however, that
each Option and/or, if applicable, SAR shall, notwithstanding anything in
the Plan or an agreement to the contrary (including but not limited to any
extension of the post-retirement or post-termination exercise period
pursuant to subsection (7) below), expire not more than ten years from the
date the Option or SAR is granted or, if earlier, the date specified in the
agreement with respect to the grant of such Option or SAR.
(6) Date of Exercise. In the discretion of the Committee, each
agreement may contain a provision stating when the Option and/or, if
applicable, SAR granted therein may be exercised in whole or in part. The
Committee may, however, at any time, in its sole discretion, amend any
outstanding Option or SAR to accelerate the time that such Option or SAR
shall be exercisable or to provide that the time for exercising such Option
or SAR shall be accelerated upon the occurrence of a specified event.
Notwithstanding the foregoing, however, no Option or SAR, or any portion
thereof, may be exercisable until at least six months after the date of
grant of such Option or SAR.
(7) Termination of Employment. In the event that an individual's
employment with Transco and its Affiliates shall terminate for reasons
other than (i) retirement pursuant to a retirement plan of Transco or one
of its Affiliates ("Retirement"), (ii) disability (as hereafter defined) or
(iii) death, the individual's Options and/or, if applicable, SARs, shall be
exercisable by him or her, subject to subsections (5) and (6) above, only
within three months after such termination, and only to the extent the
Option and/or, if applicable, SAR, was exercisable immediately prior to
such termination of employment; provided, however, that, notwithstanding
the foregoing, to the extent the Option and/or, if applicable, SAR, was
exercisable immediately prior to such termination of employment, the
Committee may, subject to subsections (5) and (6) above, in its discretion,
extend such three-month period up to but not to exceed in the aggregate 36
months. "Disability" as used herein shall mean
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sickness or injury that causes an individual to be unable to perform the
duties of his regular job and termination or placement by the Company or
its Affiliates of the individual on medical leave of absence pursuant to a
disability plan or program sponsored or maintained by the Company or an
Affiliate.
If, however, any termination of employment is due to Retirement or
Disability, the individual shall have the right, subject to the provisions
of subsections (5) and (6) above, to exercise any Option and/or, if
applicable, SAR, at any time within the 36-month period commencing on the
day next following such termination of employment to the extent that the
individual was entitled to exercise the same on the day immediately prior
to such termination; provided, however, if an individual's employment shall
terminate due to Retirement but such individual continues to serve on the
Board of Directors of the Company, such individual shall have the right,
subject to the provisions of subsections (5) and (6) above, to exercise any
Option and/or, if applicable, SAR, within 36 months after such individual
ceases to serve on the Board of Directors of the Company to the extent that
the Option and/or, if applicable, SAR, was exercisable immediately prior to
such cessation of service on the Board of Directors. Service on the Board
of Directors after termination of employment from the Company shall be
credited towards any vesting requirements relating to Options and/or, if
applicable, SARs granted while an employee of the Company. Whether any
termination of employment is due to Retirement or Disability and whether an
authorized leave of absence or absence on military or government service or
for other reasons shall constitute a termination of employment for the
purposes of the Plan shall be determined by the Committee.
If an individual shall die while entitled to exercise an Option
and/or, if applicable, SAR, the individual's estate, personal
representative or beneficiary, as the case may be, shall have the right,
subject to the provisions of subsections (5) and (6) above, to exercise the
Option and/or, if applicable, SAR, at any time within 12 months from the
date of the optionee's death, to the extent that the optionee was entitled
to exercise the same on the day immediately prior to the optionee's death;
provided, however, that, notwithstanding the foregoing, to the extent the
Option and/or, if applicable, SAR, was exercisable immediately prior to
death, the Committee may, subject to subsections (5) and (6) above, in its
discretion, extend such twelve-month period up to but not to exceed in the
aggregate 36 months.
d. Effect of Exercise of Options and SARs. The right of an individual to
exercise an Option or SAR shall terminate to the extent that such Option or SAR
is exercised and, to the extent that an SAR relates to a specific Option, the
exercise of the SAR shall terminate a corresponding portion of the related
Option and, conversely, to the extent that such optionee exercises the related
Option, a corresponding portion of such SAR shall terminate.
e. Options and SARs Granted by Other Corporations. Notwithstanding anything
to the contrary in Section 5c(3) hereof, Options and SARs may be granted under
the Plan from time to time in substitution for stock options and stock
appreciation rights held by employees of corporations who become employees of
Transco or of any Affiliate as a result of a merger or
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consolidation of the employer corporation with Transco or such Affiliate, or
the acquisition by Transco or an Affiliate of the assets of the employer
corporation or the acquisition by Transco or an Affiliate of stock of the
employer corporation, with the result that such employer corporation becomes an
Affiliate.
f. Options Granted to Directors. Options granted to Directors shall be
subject to all provisions and terms of this Plan otherwise applicable thereto,
except that notwithstanding such other provisions and terms of this Plan to the
contrary, all Options granted to Directors shall be subject and may be granted
only pursuant to the following provisions:
(1) Granting of Awards. Commencing with the Annual Meeting in 1991,
each Director shall be granted Options with respect to 1,000 shares of
Common Stock effective as of the date of each Annual Meeting at which he or
she is elected or continues to serve as a Director. Individuals who become
Directors for the first time on or after the 1991 Annual Meeting of
Stockholders shall be granted Options with respect to 5,000 shares of
Common Stock effective as of the date on which they become a member of the
Board of Directors of Transco.
(2) Type and Terms of Awards. Each Option granted to a Director shall
be a Non-qualified Stock Option. All Options granted to Directors shall
have an exercise price equal to the Market Value Per Share on the date of
grant, shall become exercisable for the first time one year after the date
of grant (except as provided by or permitted pursuant to Section 9) and
shall have a term of ten years unless earlier terminated as provided in (3)
below.
(3) Termination of Service. In the event that a Director ceases to be
a member of the Board of Directors of Transco after five years of service
on the Board ("Retirement Date"), Options received by such Director
pursuant to this Section 5f shall be exercisable only until the earlier of
the tenth anniversary of the date of grant or the third anniversary of such
Retirement Date and only to the extent that such Options were exercisable
on such Retirement Date. In the event that a Director ceases to be a member
of the Board of Directors of Transco prior to completing five years of
service on the Board, Options received by such Director pursuant to this
Section 5f shall be exercisable only until the earlier of the tenth
anniversary of the date of grant or the first anniversary of such
termination of service and only to the extent that such Options were
exercisable on the date of such termination. In the event that a Director
shall die while serving as a Director, all Options held by such person for
six months or more shall be deemed to be exercisable as of the date of
death and such options shall be exercisable until the earlier of the tenth
anniversary of the date of grant or the third anniversary of the date of
death.
6. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
a. Awards of Restricted Stock and Restricted Stock Units. Awards under this
Section 6 may be made by the Committee at any time and from time to time before
May 8, 2001 to such employees as it shall determine. An award may be (i) Common
Stock issued contemporaneously
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with the award subject to such terms, conditions and restrictions for such
periods as the Committee may determine ("Restricted Stock"), or (ii) restricted
stock units representing shares of Common Stock to be issued to the employee in
the future after the satisfaction of the terms, conditions and restrictions of
the award set by the Committee at the time of the award ("Restricted Stock
Units"). All awards of Restricted Stock and Restricted Stock Units shall be
subject to the condition that they and, in the case of Restricted Stock Units,
the Common Stock issued in payment thereof, may not be sold, pledged,
transferred, assigned or otherwise encumbered or disposed of until at least six
months after the date of grant.
The grantee of Restricted Stock shall be the record owner of such shares
and shall have all the rights of a stockholder with respect to such shares
including the right to vote and the right to receive dividends or other
distributions paid or made with respect to such shares. Any certificate or
certificates representing shares of Restricted Stock shall bear a legend
similar to the following:
The shares represented by this certificate have been issued pursuant
to the terms of the Transco Energy Company Amended and Restated 1991
Incentive Stock Plan and may not be sold, pledged, transferred, assigned or
otherwise encumbered or disposed of in any manner except as is set forth in
the Plan or the agreement relating to such award dated ________________.
After the satisfaction of all of the terms, conditions and restrictions set
by the Committee with respect to an award of Restricted Stock, a certificate,
without the legend set forth above, for the number of shares that are no longer
subject to such terms, conditions and restrictions shall be delivered to the
employee. The remaining outstanding unearned shares of Restricted Stock issued
with respect to such award, if any, shall either be forfeited and surrendered
to Transco or, if appropriate under the terms of the award applicable to such
Restricted Stock, shall continue to be subject to the terms, conditions and
restrictions set by the Committee. The Committee may, however, at any time, in
its sole discretion, amend any outstanding award of Restricted Stock to
accelerate the time such award is earned or to provide that the time for
earning such award shall be accelerated upon the occurrence of a specified
event.
After the satisfaction of all of the terms, conditions and restrictions set
by the Committee with respect to an award of Restricted Stock Units, Transco
shall issue to the employee the number of shares earned pursuant to such award.
Any remaining portion of Restricted Stock Units which are unearned shall either
be cancelled or, if appropriate under the terms of the award applicable to such
Restricted Stock Units, shall continue to be subject to the terms, conditions
and restrictions set by the Committee. The Committee may, however, at any time,
in its sole discretion, amend any outstanding award of Restricted Stock Units
to accelerate the time such award is earned or to provide that the time for
earning such award shall be accelerated upon the occurrence of a specified
event.
b. Termination of Employment. The delivery of a certificate, without the
legend set forth above, for the portion of such award that is no longer subject
to such terms, conditions and
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restrictions set by the Committee is hereinafter referred to as the "payment"
of such portion of the award. If the employment with Transco and its Affiliates
of an employee to whom an award of Restricted Stock or Restricted Stock Units
has been made is terminated for any reason before satisfaction of the terms,
conditions and restrictions for the payment of all or a portion of the award,
then only such portion of the award, if any, that is payable pursuant to its
terms and conditions as of the date of the employee's termination shall be paid
and the remaining portion of such award shall be reacquired by Transco or
cancelled, as applicable, and all of such employee's rights thereto shall be
forfeited; provided, however, upon any termination, regardless of the reason,
the Committee may, in its sole discretion, deem the terms and conditions have
been met for all or part of such remaining portion.
7. DEFERRED STOCK UNITS.
a. Deferred Stock Units and Dividend Equivalent Reinvestment. A Deferred
Stock Unit shall represent a right to one share of Common Stock. Each time the
Company shall declare a dividend on its Common Stock, a corresponding dividend
shall be deemed to be credited to each outstanding Deferred Stock Unit and
shall be deemed reinvested in additional Deferred Stock Units or fractions
thereof at the Market Value Per Share (as defined in Section 5c(4)) of Common
Stock on the day on which the dividend is paid. All Deferred Stock Units shall
be subject to the condition that they or the Common Stock issued in payment
thereof may not be sold, pledged, transferred or assigned or otherwise
encumbered or disposed of until at least six months after the date of grant of
the Deferred Stock Unit.
b. Grants. Deferred Stock Units may be awarded by the Committee at any time
and from time to time prior to May 8, 2001 and shall be subject to such terms,
conditions and restrictions (including but not limited to vesting requirements)
for such periods as the Committee may determine.
c. Voluntary Deferrals.
(1) Incentive Compensation Deferrals. Subject to the approval by the
Committee, any employee may make an irrevocable election to defer the
payment of all or a portion of any cash incentive compensation payable by
the Company or its Affiliates to such employee as, when and if payable. If
an employee has made a deferral election, which has been approved by the
Committee, the Committee shall grant to him or her as of the date such
incentive compensation was payable, such number of Deferred Stock Units as
is equal to the dollar amount of incentive compensation which the employee
has elected to defer divided by the Market Value Per Share (as defined in
Section 5c(4)) of Common Stock on such date. The employee shall be
immediately vested in such Deferred Stock Units. The irrevocable election
shall be made at such time prior to the date the incentive compensation is
payable as the Committee shall determine. No deferrals may be made after
May 8, 2001.
(2) Restricted Stock and Restricted Stock Unit Deferrals. Subject to
approval by the Committee, an employee who has received an award of
Restricted Stock or Restricted Stock
10
<PAGE> 11
Units may make an irrevocable election to defer the payment of all or a
portion of such award as, when and if such award vests or is payable. If an
employee has made a deferral election which has been approved by the
Committee, upon surrender to the Company of the Restricted Stock and/or
Restricted Stock Units to which the election relates, such number of
Deferred Stock Units shall be granted to him or her as of the date of the
vesting or payment, as applicable, of such Restricted Stock or Restricted
Stock Units, as is equal to the number of shares of Common Stock that would
have vested and/or been received by the employee on such date. The employee
shall be immediately vested in such Deferred Stock Units. The irrevocable
election shall be made at such period of time prior to the vesting of such
Restricted Stock or payment of such Restricted Stock Units as the Committee
shall determine. No deferrals may be made after May 8, 2001.
d. Deferred Stock Units Granted to Directors. Effective with the 1994
Annual Meeting of Stockholders, each Director shall be granted 2500 Deferred
Stock Units in recognition of his past service on the Board of Directors.
Commencing with the 1994 Annual Meeting of Stockholders and continuing
thereafter during the term of the Plan, each Director shall be granted 500
Deferred Stock Units effective as of the date of each Annual Meeting at which
he is elected or continues to serve as a Director. Deferred Stock Units granted
to Directors shall vest after completion of five continuous years of service on
the Board of Directors; provided, however, that all Deferred Stock Units held
by a Director for six months or more shall be fully vested upon the death of a
Director.
e. Payment of Deferred Stock Units. Deferred Stock Units shall be payable
only in shares of Common Stock, except for Deferred Stock Units representing
fractional shares of Common Stock which will be paid in cash. Payments of
vested Deferred Stock Units shall be made only after an employee's employment
with the Company or its Affiliates has terminated. Payment shall be made no
later than the first day of April in the year next following the employee's
termination of employment in the case of Retirement or as soon as practicable
following the employee's termination of employment for any other reason;
provided, however, that if an individual's employment shall terminate due to
Retirement or otherwise but such individual continues to serve on the Board of
Directors, payment shall be made as provided for Directors. Payments of vested
Deferred Stock Units to a member of the Board of Directors shall be made no
later than the April 1 in the year next following the date such Director
ceases, for any reason, to be a member of the Board of Directors. All nonvested
Deferred Stock Units shall be forfeited upon termination. Service on the Board
of Directors after termination of employment from the Company shall be credited
towards any vesting requirements relating to Deferred Stock Units granted while
an employee of the Company.
8. RECAPITALIZATION
The aggregate number of shares stated in Section 3a, the number of shares
of Common Stock to which each outstanding Option and SAR relates, including
Options granted to Directors under Section 5f hereof, the exercise price in
respect of any such Option and SAR, the number of shares of Restricted Stock
awarded or outstanding, the number of Restricted Stock Units
11
<PAGE> 12
awarded or outstanding and the number Deferred Stock Units awarded or
outstanding, including Deferred Stock Units granted to Directors under Section
7d hereof, may be adjusted in such equitable manner as determined by the
Committee, in its sole discretion and without liability to any person, in the
event of (i) a subdivision or consolidation of shares of Common Stock or other
capital adjustments, (ii) the payment of a stock dividend or a
recapitalization, or (iii) a "corporate transaction", as such term is defined
in Treasury Regulation 1.425-1(a)(1)(ii), or any other transaction which, in
the opinion of the Committee, is similar to a "corporate transaction", as
defined by the said Treasury Regulations as in effect on March 1, 1991,
including without limitation any spin-off or other distribution to the security
holders of the Company of securities or property of the Company or an Affiliate
thereof. The Committee may exercise its discretion to make any such adjustments
on an optionee-by-optionee (or with respect to SARs, Restricted Stock,
Restricted Stock Units, or Deferred Stock Units, employee-by-employee) basis
and with respect to all or only some of the Options, SARs, Restricted Stock,
Restricted Stock Units or Deferred Stock Units held by an optionee or employee.
9. CHANGE IN CONTROL
a. Definition. As used in this Plan, a "Change in Control" shall be deemed
to have occurred upon, and shall mean (A) the acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934
Act) (an "Acquiring Person"), of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of 25% or more of either (i) the
then outstanding shares of Common Stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change in
Control: (w) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (x) any
acquisition by the Company, (y) any acquisition by any employee benefit plan(s)
(or related trust(s)) sponsored or maintained by the Company or any corporation
controlled by the Company or (z) any acquisition by any corporation pursuant to
a reorganization, merger or consolidation, if, immediately following such
reorganization, merger or consolidation the conditions described in clauses
(i), (ii) and (iii) of clause B of this Section 9a are satisfied; or (B) the
approval by the stockholders of the Company of a reorganization, merger or
consolidation, in each case, unless immediately following such reorganization,
merger or consolidation (i) more than 60% of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportions
as their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding the Company,
any employee benefit plan(s) (or related trust(s)) of the Company or any
corporation
12
<PAGE> 13
controlled by the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 25% or more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board (as defined below) at the
time of the execution of the initial agreement providing for such
reorganization, merger or consolidation. The "Incumbent Board" shall mean
individuals who as of May 17, 1994, constitute the Company's Board of
Directors; provided, however, that any individual becoming a director
subsequent to such date whose election, or nomination for election, by the
Company's stockholders, was approved by a vote of at least a majority of the
directors comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either (i) an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act), or
an actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Company's Board of Directors or (ii) a plan or
agreement to replace a majority of the members of the Company's Board of
Directors then comprising the Incumbent Board.
b. Effect of Change in Control. Upon a Change in Control, notwithstanding
the terms of this Plan or any agreement to the contrary, any and all
outstanding Options and SARs held by the individual for six months or more and
not fully vested will vest in full and be immediately exercisable, and any
other restrictions on such Options and SARs, including, without limitation,
requirements concerning the achievement of specific goals shall terminate. The
date on which such accelerated vesting and immediate exercisability shall occur
(the "Acceleration Date") shall be on the date of the Change in Control. All
Options and SARs not held by an individual for six months or more as of the
date of the Change in Control shall expire on the date of the Change in
Control; provided, however, that in the discretion of the Committee (which may
be exercised before the Change in Control on a prospective basis), Options and
SARs which on the date of the Change in Control have been held for less than
six months may be determined to vest in full and no longer be subject to any
restriction (other than the requirement that the Committee consent to the
exercise of an SAR) as of the date they shall have been held for six months and
such date shall be the "Acceleration Date" as to such shares.
Notwithstanding the terms of this Plan or any agreement to the contrary, a
holder of an SAR granted under the Plan may, for a period of 30 days following
the Acceleration Date (but not to exceed the remaining term of such SAR), elect
to exercise an SAR without the consent of the Committee as provided in Section
5 of the Plan. In the event a holder of an SAR elects during such 30-day period
(or the remaining term of such SAR, whichever is less) to exercise an SAR, such
exercise shall be for cash in an aggregate amount equal to (A) the "Fair Market
Value" (as
13
<PAGE> 14
hereinafter defined), less the exercise price of such SAR, times "X", where:
X = in the event a Change in Control occurs pursuant to any tender
offer subject to Section 14(d)(1) of the 1934 Act, or exchange
offer subject to the Securities Act of 1933 or any other offer or
series of offers to purchase Common Stock for cash or securities
of another person ("Tender Offer"), the number of shares subject
to the SAR that would have been purchased (or exchanged for the
offeror's securities in the event of an exchange offer) by the
Acquiring Person (as hereinafter defined) had the optionee
tendered all of the shares subject to the SAR in response to the
Tender Offer (or accepted the exchange with respect to all of such
shares);
plus (B) the difference between the Fair Market Value and the exercise price of
the SAR, times the "remaining portion of the SAR" (as defined hereafter), if
any. For purposes of the preceding sentence, the "remaining portion of the SAR"
shall be defined to mean the number of shares of Common Stock subject to
exercise of the SAR, minus "X", as defined above. In the event of the exercise
of an SAR in accordance with the terms of this Section 9, which SAR is not in
tandem with an Incentive Stock Option, "Fair Market Value" as used in (A) above
shall be defined to mean the greater of (i) the highest price per share of the
Common Stock (a) offered pursuant to the Tender Offer or (b) paid by the
Acquiring Person to effect the Change in Control or (ii) the amount calculated
as provided below. "Fair Market Value" for purposes of (ii) of the preceding
sentence, for purposes of the exercise of an SAR in tandem with an Incentive
Stock Option, and for purposes of (B) above, shall be defined to mean the
closing price of the Common Stock quoted in Network A of the consolidated
transaction reporting system, which is published in The Wall Street Journal
reports of New York Stock Exchange--Composite Transactions for the next day
prior to such exercise on which a trade of the Common Stock was so reported, or
on any other national securities exchange on which such securities are listed,
or the average bid and ask prices of such securities if traded in the
over-the-counter market or, if not so listed or traded in the over-the-counter
market, at the value determined in accordance with such fair and reasonable
means as the Committee shall specify. Any consideration other than cash forming
part or all of the consideration to be paid for the Common Stock pursuant to a
Change in Control shall be valued for purposes hereof, if such other
consideration is securities, at the mean of the high and low sales prices of
such securities on the business day immediately preceding the Acceleration Date
on any national securities exchange on which such securities are listed, or the
average bid and ask prices of such securities if traded in the over-the-counter
market or if not so listed or traded in the over-the-counter market or if such
other consideration is not securities, at the value determined in accordance
with such fair and reasonable means as the Committee shall specify.
With respect to Restricted Stock, Restricted Stock Units and Deferred Stock
Units, the Committee may, in the agreements in which such grants or awards are
made or in amendments to such agreements or in any other agreement, upon a
Change in Control or thereafter, immediately vest such grant or award, or
accelerate the time such grant or award is earned, or provide that the time for
earning such award shall be accelerated upon the occurrence of a specified
event, or deem any terms, conditions and/or restrictions to have been met for
all or
14
<PAGE> 15
part of such remaining portion of the applicable period or upon the occurrence
of a specified event.
The Committee may modify or amend this Section 9 to provide for other
benefits in the event of a Change in Control or may provide other benefits upon
a Change in Control in the agreement pursuant to which such award was made or a
subsequent amendment thereto, notwithstanding that such amendment or agreement
conflicts with this Section 9. However, such modifications or amendments shall
affect an outstanding grant or award only if the consent of the holder of such
grant or award is obtained.
Anything herein to the contrary notwithstanding, if any right granted
pursuant to this Section 9 would make a Change in Control transaction intended
to qualify for pooling of interests accounting under APB No. 16 ineligible for
such accounting treatment that but for this Section 9 would otherwise be
eligible for such accounting treatment, the Committee may substitute Common
Stock with a Market Value Per Share equal to the cash that would otherwise be
payable pursuant to this Section 9.
10. INVESTMENT AGREEMENT
If, at the time of the exercise of any Option or SAR, the award of
Restricted Stock or Restricted Stock Unit or a payment of a Restricted Stock
Unit in shares of Common Stock or the issuance of Deferred Stock Units or
payment thereof in shares of Common Stock, in the opinion of counsel for
Transco, it is necessary or desirable, in order to comply with any then
applicable laws or regulations relating to the sale of securities, for the
individual exercising the Option or SAR or receiving awards of Restricted
Stock, Restricted Stock Units, or Deferred Stock Units or Common Stock in
payment of a Restricted Stock Unit or Deferred Stock Unit to agree to hold any
shares issued to the individual for investment and without intention to resell
or distribute the same and for the individual to agree to dispose of such
shares only in compliance with such laws and regulations, the individual will,
upon the request of Transco, execute and deliver to Transco a further agreement
to such effect.
11. WITHHOLDING FOR TAXES
Any cash payment under the Plan shall be reduced by any amounts required to
be withheld or paid with respect thereto under all present or future federal,
state and local taxes and other laws and regulations that may be in effect as
of the date of each such payment ("Tax Amounts"). Any issuance of Common Stock
pursuant to the Plan shall not be made until appropriate arrangements have been
made for the payment of any amounts that may be required to be withheld or paid
with respect thereto. Such arrangements may, in the discretion of the
Committee, include allowing the individual to tender to Transco shares of
Common Stock owned by the individual, or to request Transco to withhold a
portion of the shares of Common Stock being distributed to the individual,
which have a Market Value Per Share as of the date of such tender or
withholding that is not greater than the sum of all Tax Amounts, together with
payment of any remaining portion of all Tax Amounts in cash or by check payable
and acceptable to
15
<PAGE> 16
Transco.
12. DESIGNATION OF BENEFICIARY
Each Participant, to whom an award of Restricted Stock, Restricted Stock
Units or Deferred Stock Units has been made under this Plan may designate a
beneficiary or beneficiaries (which beneficiary may be an entity other than a
natural person) to receive any payment that under the terms of such award or
awards may become payable on or after the Participant's death. At any time, and
from time to time, any such designation may be changed or cancelled by the
Participant without the consent of any such beneficiary. Any such designation,
change or cancellation must be on a form provided for that purpose by the
Committee and shall not be effective until received by the Committee. If no
beneficiary has been named by a deceased Participant, or the designated
beneficiaries have predeceased the individual, the beneficiary shall be the
Participant's estate. If an individual designates more than one beneficiary,
any payments under this Plan to such beneficiaries shall be made in equal
shares unless the Participant has designated otherwise, in which case the
payments shall be made in the shares designated by the Participant.
13. TERMINATION OF AUTHORITY TO GRANT AWARDS
No grants or awards shall be made under this Plan after May 8, 2001.
14. AMENDMENT AND TERMINATION
The Board of Directors of Transco may from time to time and at any time
alter, amend, suspend, discontinue or terminate this Plan and any awards and
grants hereunder; provided, however, that no such action of the Board of
Directors of Transco may, without the approval of the stockholders of Transco,
alter the provisions of the Plan so as to (i) increase the maximum number of
shares of Common Stock that may be subject to awards and grants and distributed
in the payment of awards and exercises under the Plan (except as provided in
Section 3b and 8); (ii) materially modify the class of individuals eligible to
receive awards and grants under the Plan; (iii) extend beyond ten years the
maximum terms of Options or SARs granted under the Plan or extend the term of
the Plan; (iv) decrease the option price applicable to any Option and/or SAR;
provided, however, that the provisions of this clause (iv) shall not prevent
the granting to any person holding an Option or SAR of an additional Option
and/or SAR exercisable at a lower price; (v) withdraw the administration of the
Plan from the Committee; (vi) permit any member of the Committee to be eligible
to receive an award or grant pursuant to the terms of the Plan (except pursuant
to Sections 5f and 7d hereof); or (vii) materially increase the benefits
accruing to Participants under the Plan, except as permitted by Rule 16b-3
promulgated under the 1934 Act. Notwithstanding the above, any amendment may be
made to conform the Plan and any award made hereunder to the requirements of
Rule 16b-3 promulgated under the 1934 Act, as now in effect or as may hereafter
be amended. Further, the provisions of Sections 5f and 7d may not be amended
more than once every six months or such greater or lesser period as permitted
by Rule 16b-3, as in effect from time to time, other than to comply
16
<PAGE> 17
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended or the rules promulgated thereunder.
15. PREEMPTION BY APPLICABLE LAWS AND REGULATIONS
Anything in the Plan or any agreement entered into pursuant to the Plan to
the contrary notwithstanding, if, at any time specified herein or therein for
the making of any determination, the grant of Options or SARs, the award of
Restricted Stock, Restricted Stock Units or Deferred Stock Units, the issuance
or other distribution of shares of Common Stock, the payment of consideration
to an individual as a result of the exercise of any SAR, or the payment of any
Restricted Stock Units or Deferred Stock Units, as the case may be, any law,
regulation or requirement of any governmental authority having jurisdiction in
the premises shall require either Transco or the Participant (or the
Participant's beneficiary), as the case may be, to take any action in
connection with any such determination grant, award, issuance or distribution,
the shares then to be issued or distributed, or such payment or the making of
such determination grant, award, issuance or distribution or the issuance or
distribution of such shares or such payment, as the case may be, shall be
deferred until such action shall have been taken. It is the intent of the
Company that no grant or award or the vesting or payment thereof under this
Plan shall subject the recipient to liability for short-swing trading profit
under Section 16 of the 1934 Act and any grant or award which subjects the
recipient to such liability shall be void ab initio and any vesting or payment
which subjects the recipient to such liability shall be automatically delayed
for such time as is necessary to avoid such liability.
16. MISCELLANEOUS
a. No Employment Contract. Nothing contained in this Plan or any agreement
made pursuant to this Plan shall be construed as conferring upon any employee
the right to continue in the employ of Transco or any Affiliate.
b. Employment with Affiliates. Employment by Transco for the purpose of
this Plan shall be deemed to include employment by, and to continue during any
period in which an employee is in the employment of, any Affiliate.
c. No Rights as a Stockholder. A Participant shall have no rights as a
stockholder with respect to shares covered by such Participant's Option or SAR
or Restricted Stock Unit award until the date of the issuance of shares to the
Participant pursuant thereto and no adjustment will be made for dividends or
other distributions or rights for which the record date is prior to the date of
such issuance except as specifically provided in this Plan. A Participant shall
have no rights as a stockholder with respect to shares covered by such
Participant's Deferred Stock Units until the date of the issuance of the shares
to the individual account thereto, provided that such Participant shall be
entitled to dividend equivalents as set forth in Section 7a.
d. No Right to Corporate Assets. Nothing contained in the Plan shall be
construed as giving any Participant, such Participant's beneficiaries or any
other person any equity or other interest
17
<PAGE> 18
of any kind in any assets of Transco or any Affiliate or creating a trust of
any kind or a fiduciary relationship of any kind between Transco or an
Affiliate and any such person.
e. No Restriction on Corporate Action. Nothing contained in the Plan shall
be construed to prevent Transco or any Affiliate from taking any corporate
action that is deemed by Transco or such Affiliate to be appropriate or in its
best interest, whether or not such action would have an adverse effect on the
Plan or any award made under the Plan. No Participant, beneficiary or other
person shall have any claim against Transco or any Subsidiary as a result of
any such action.
f. Non-assignability. Neither a Participant nor a Participant's beneficiary
shall have the power or right to sell, pledge, transfer, assign or otherwise
encumber or dispose of such Participant's or beneficiary's interest arising
under the Plan or in any Option, SAR, Restricted Stock, Restricted Stock Unit,
Deferred Stock Unit, or other award received under the Plan; nor shall such
interest be subject to seizure for the payment of a Participant's or
beneficiary's debts, judgments, alimony, or separate maintenance or be
transferable by operation of law in the event of a Participant's or
beneficiary's bankruptcy or insolvency and to the extent any such interest
arising under the Plan or agreement relating to any Option, SAR, Restricted
Stock, Restricted Stock Unit, Deferred Stock Units, or other award received
under the Plan is assigned to a spouse pursuant to any divorce proceeding, such
assignment shall be deemed to be null and void and of no force and effect
notwithstanding any vesting provisions or other terms herein or in the
agreement evidencing such award.
g. Application of Funds. The proceeds received by Transco from the sale of
shares pursuant to the Plan will be used for general corporate purposes.
h. Governing Law; Construction. All rights and obligations under the Plan
shall be governed by, and the Plan shall be construed in accordance with, the
laws of the State of Texas without regard to the principles of conflicts of
laws and the laws of the United States of America. Titles and headings to
Sections herein are for purposes of reference only, and shall in no way limit,
define or otherwise affect the meaning or interpretation of any provisions of
the Plan.
18
<PAGE> 1
EXHIBIT (21)
TRANSCO ENERGY COMPANY SUBSIDIARIES
<TABLE>
<CAPTION>
% Owned State of
Subsidiary Name By Parent Incorporation
<S> <C> <C>
Energy Tech, Inc. 100.00 Delaware
Gasco Insurance Company Limited 100.00 Bermuda
Hazleton Fuel Management Company 100.00 Delaware
Hazleton Pipeline Company 100.00 Delaware
TM Cogeneration Company 100.00 Delaware
Transco Coal Company 100.00 Delaware
Cross Mtn. Coal, Inc. 100.00 Tennessee
Farmer Coal Company, Inc. 100.00 Kentucky
Highland Coal, Inc. 100.00 Kentucky
Interstate Coal Company, Inc. 100.00 Kentucky
Beech Grove Processing Company 100.00 Tennessee
Bledsoe Coal Leasing Company 100.00 Delaware
Inland Ports, Inc. 100.00 Tennessee
Leeco, Inc. 100.00 Kentucky
Mountain Clay, Inc. 100.00 Kentucky
Randall Fuel Company, Inc. 100.00 Georgia
Stansbury & Company, Inc. 100.00 Delaware
Typo Mining, Inc. 100.00 Delaware
Aceco, Inc. 100.00 Kentucky
Bituminous-Laurel Mining, Inc. 100.00 Kentucky
New Brush Creek Mining, Inc. 100.00 Kentucky
Polls Creek Coal Co., Inc. 100.00 Kentucky
Oswayo Mining, Inc. 100.00 Kentucky
Sizemore Trucking, Inc. 100.00 Kentucky
Pro-Land, Inc. 100.00 Kentucky
River Coal Company, Inc. 100.00 Kentucky
Valley View Coal, Inc. 100.00 Tennessee
Transco Coal Gas Company 100.00 Delaware
Transco Energy Investment Company 100.00 Delaware
Transco Exploration Company 100.00 Delaware
Transco Gas Company 100.00 Delaware
Border Gas, Inc. 10.00 Delaware
Liberty Operating Company 100.00 Delaware
NESP Supply Corp. 33.33 Delaware
Texas Gas Investment Co. 100.00 Delaware
Texas Gas Transmission Corporation 100.00 Delaware
Trans-Jeff Chemical Corporation 50.00 Delaware
Transco Blue Ridge Pipeline Company 100.00 Delaware
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Transco Gas Gathering Company 100.00 Delaware
Magnolia Pipeline Corporation 100.00 Alabama
Nuval Intrastate Transmission Company 100.00 Delaware
Transco Brine Services Company 100.00 Delaware
Transco Industrial Pipeline Company 100.00 Delaware
Transco Matagorda Pipeline Company 100.00 Delaware
Transco Offshore Gathering Company 100.00 Delaware
Transco Terminal Company 100.00 Delaware
Transco-Louisiana Intrastate
Pipeline Company 100.00 Delaware
Transco-Texas Intrastate
Pipeline Company 100.00 Delaware
Transco Gas Marketing Company 100.00 Delaware
Transco Energy Marketing Company 100.00 Delaware
Transco Liquids Company 100.00 Delaware
HI-BOL Pipeline Company 100.00 Delaware
Transco Power Trading Co. 100.00 Delaware
TXG Energy Services Company 100.00 Delaware
TXG Gas Marketing Company 100.00 Delaware
TXG Intrastate Pipeline Company 100.00 Delaware
Transco Liberty Pipeline Company 100.00 Delaware
Transco Production Services Company 100.00 Delaware
Transcontinental Gas Pipe Line Corporation 100.00 Delaware
Transeastern Gas Pipeline Company, Inc. 100.00 Delaware
TXG Engineering, Inc. 100.00 Delaware
Transco P-S Company 100.00 Delaware
Transco Resources, Inc. 100.00 Delaware
ForTran Exploration Company 100.00 Delaware
Magnolia Methane Corp. 100.00 Delaware
Transco Transportation Company 100.00 Delaware
Tubexpress, Inc. 50.00 Delaware
Transco Tower Realty, Inc. 100.00 Delaware
TREN-FUELS, Inc. 100.00 Texas
Fleet Star, Inc. 100.00 Delaware
Enfuels Corporation 37.50 Delaware
FST Holdings, Inc. 50.00 Delaware
Fleet Star of Texas, L.C. 50.00 Texas
TRANSTAR Technologies, L.C. 50.00 Texas
Tren-Fuels Services, Inc. 100.00 Colorado
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS INCLUDED IN THE FORM 10-k
FOR THE YEAR ENDED DECEMBER 31, 1994, OF TRANSCO ENERGY COMPANY AND
SUBSIDIARIES, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 44,619
<SECURITIES> 0
<RECEIVABLES> 146,776
<ALLOWANCES> 0
<INVENTORY> 99,030
<CURRENT-ASSETS> 549,371
<PP&E> 5,851,891
<DEPRECIATION> 2,988,293
<TOTAL-ASSETS> 3,773,106
<CURRENT-LIABILITIES> 859,761
<BONDS> 1,785,575<F1>
<COMMON> 20,716
49,375<F2>
265,322<F2>
<OTHER-SE> 340,835
<TOTAL-LIABILITY-AND-EQUITY> 3,773,106
<SALES> 1,767,173
<TOTAL-REVENUES> 2,816,218
<CGS> 1,571,679
<TOTAL-COSTS> 2,272,502
<OTHER-EXPENSES> 92,055
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,066
<INCOME-PRETAX> 7,461
<INCOME-TAX> 1,578
<INCOME-CONTINUING> 5,883
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,883<F3>
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> 0
<FN>
<F1>NET OF UNAMORTIZED DEBT PREMIUM AND DISCOUNT
<F2>NET OF ISSUE EXPENSE
<F3>BEFORE PREFERRED DIVIDENDS OF 22,904
</FN>
</TABLE>
