UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---
ACT OF 1934
For the Fiscal Year Ended June 30, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---
EXCHANGE ACT OF 1934
Commission File No. 1-6407
SOUTHERN UNION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 75-0571592
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
504 Lavaca Street, Eighth Floor 78701
Austin, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 477-5852
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $1 per share New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
registrant on September 19, 2001 was $740,961,553. The number of shares of the
registrant's Common Stock outstanding on September 19, 2001 was 53,824,027.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for the year ended
June 30, 2001, are incorporated by reference in Parts II and IV.
Portions of the registrant's proxy statement for its annual meeting of
stockholders to be held on November 14, 2001, are incorporated by reference into
Part III.
PART I
ITEM 1. Business.
Introduction
Southern Union Company (Southern Union and together with its subsidiaries, the
Company) was incorporated under the laws of the State of Delaware in 1932.
Southern Union is one of the top five natural gas utilities in the United
States, as measured by number of customers. The Company's principal line of
business is the distribution of natural gas as a public utility through its
operating divisions principally in Texas, Missouri, Florida, Pennsylvania since
November 1999, and Rhode Island and Massachusetts effective with three
acquisitions completed in September 2000 (see Acquisitions).
Southern Union Gas, headquartered in Austin, Texas, serves approximately 535,000
customers in Texas (including Austin, Brownsville, El Paso, Galveston,
Harlingen, McAllen and Port Arthur). Missouri Gas Energy, headquartered in
Kansas City, Missouri, serves approximately 498,000 customers in central and
western Missouri (including Kansas City, St. Joseph, Joplin and Monett). PG
Energy, headquartered in Wilkes-Barre, Pennsylvania, serves approximately
156,000 customers in northeastern and central Pennsylvania (including
Wilkes-Barre, Scranton and Williamsport). South Florida Natural Gas (SFNG),
headquartered in New Smyrna Beach, Florida, serves approxi mately 4,600
customers in central Florida (including New Smyrna Beach, Edgewater and areas of
Volusia County, Florida.) With the acquisition of Providence Energy Corporation,
Valley Resources, Inc. and Fall River Gas Company in September 2000 (whose
primary business is the distribution of natural gas through its public utility
companies and are collectively hereafter referred to as the New England
Division), the Company now serves approximately 292,000 customers in Rhode
Island and Massachusetts (including Providence, Newport and Cumberland, Rhode
Island and Fall River, North Attleboro and Somerset, Massachusetts.) The diverse
geographic areas of the Company's natural gas distribution systems should reduce
the overall sensitivity of Southern Union's operations to weather risk and local
economic conditions.
Acquisitions and Divestitures
Acquisitions On September 28, 2000, Southern Union completed the acquisition of
Providence Energy Corporation (ProvEnergy) for approximately $270,000,000 in
cash plus the assumption of approximately $90,000,000 in long-term debt. The
ProvEnergy natural gas distribution operations are Providence Gas and North
Attleboro Gas, which collectively serve approximately 177,000 natural gas
customers. Providence Gas serves natural gas customers in Providence and
Newport, Rhode Island, and 23 other cities and towns in Rhode Island. North
Attleboro Gas serves customers in North Attleboro and Plainville, Massachusetts,
towns adjacent to the northeastern Rhode Island border. ProvEnergy Power
Company, LLC is a subsidiary acquired in the acquisition which owns 50% of
Capital Center Energy Company, LLC., a joint venture formed between ProvEnergy
and ERI Services, Inc. to provide retail power.
On September 28, 2000, Southern Union completed the acquisition of Fall River
Gas Company (Fall River Gas) for approximately 1,400,000 shares (before
adjustment for any subsequent stock dividend) of Southern Union common stock and
approximately $27,000,000 in cash plus assumption of approximately $20,000,000
in long-term debt. Fall River Gas serves approximately 49,000 customers in the
city of Fall River and the towns of Somerset, Swansea and Westport, all located
in southeastern Massachusetts. Also acquired in the Fall River Gas merger was
Fall River Gas Appliance Company, Inc., which rents water heaters and conversion
burners (primarily for residential use) in Fall River Gas' service area.
On September 20, 2000, Southern Union completed the acquisition of Valley
Resources, Inc. (Valley Resources) for approximately $125,000,000 in cash plus
the assumption of approximately $30,000,000 in long-term debt. Valley Resources
natural gas distribution operations are Valley Gas Company and Bristol and
Warren Gas Company, which collectively serve approximately 66,000 natural gas
customers. Valley Resources' three non-utility subsidiaries acquired in the
merger rent and sell appliances, offer service contract programs, sell liquid
propane in Rhode Island and nearby Massachusetts, and distribute as a wholesaler
franchised lines to plumbing and heating contractors. Also, acquired in the
acquisition was Valley Resources' 90% interest (which is now 100%) in Alternate
Energy Corporation, which sells, installs and designs natural gas conversion
systems and facilities, is an authorized representative of the
--------------------------------------------------------------------------------
1
ONSI Corporation fuel cell, holds patents for a natural gas/diesel co-firing
system and for a device to control the flow of fuel on dual-fuel equipment.
The assets of ProvEnergy, Fall River Gas and Valley Resources (hereafter
referred to as the Company's New Eng land Operations) have been included in the
consolidated balance sheet of the Company at June 30, 2001 and the results of
operations from the New England Operations have been included in the statement
of consolidated opera tions since their respective acquisition dates in
September 2000. Thus, the results of operations for the year ended June 30, 2001
are not comparable to prior periods. The acquisitions were accounted for using
the purchase method. The Company plans to sell or dispose of certain non-core
businesses and acquired in the New England Operations.
On November 4, 1999, the Company acquired Pennsylvania Enterprises, Inc.
(hereafter referred to as the Pennsylvania Operations) in a transaction valued
at approximately $500,000,000, including assumption of long-term debt of
approximately $115,000,000. The Company issued approximately 16,700,000 shares
(before adjustment for any subsequent stock dividends) of common stock and paid
approximately $36,000,000 in cash to complete the transaction. Income from the
Pennsylvania Operations have been included in the statement of consolidated
operations since November 4, 1999. Thus, the results of operations for the year
ended June 30, 2000 are not comparable to prior periods. The acquisition was
accounted for using the purchase method.
The Pennsylvania Operations are headquartered in Wilkes-Barre, Pennsylvania with
natural gas distribution being its primary business. The principal operating
division of the Pennsylvania Operations is the PG Energy division of the Company
which serves more than 156,000 gas customers in northeastern and central
Pennsylvania. Subsidiaries of the Company acquired and currently operating in
the acquisition of the Pennsylvania Operations include PG Energy Services Inc.,
(Energy Services) and PEI Power Corporation (PEI Power). Through Energy
Services, the Company supplies propane and offers the inspection, maintenance
and servicing of residential and small commercial gas-fired equipment. Through
PEI Power, an exempt wholesale generator (within the meaning of the Public
Utility Holding Company Act of 1935), the Company provides electricity services
to the broad mid-Atlantic market of Pennsylvania, New Jersey, Maryland, Delaware
and the District of Columbia. The Company plans to sell or dispose of propane
operations of Energy Services, which are not material to the Company. The
Company has not yet sold these operations and there can be no assurance that a
sale on terms satisfactory to the Company will be completed.
Divestitures The Company is currently identifying non-core subsidiaries and
assets and plans to sell or dispose of such properties. Such sales may include
investments in marketable securities. The majority of the net cash pro ceeds
obtained from the sale of non-core assets will be used to reduce long-term debt
or other long-term obligations.
The Company acquired ProvEnergy Oil Enterprises, Inc. (ProvEnergy Oil) through
the acquisition of ProvEnergy. ProvEnergy Oil, which operated a fuel oil
distribution business through its subsidiary, ProvEnergy Fuels, Inc. (ProvEnergy
Fuels) for residential and commercial customers in Rhode Island and
Massachusetts, was sold for $15,800,000 in August 2001. No gain or loss was
recognized on this transaction.
In connection with the acquisition of the Pennsylvania Operations, the Company
acquired Energy Services, Keystone Pipeline Services, Inc. (Keystone, a
wholly-owned subsidiary of Energy Services) and Theta Land Corporation. In July
2001, the sale of Energy Services' commercial and industrial gas marketing
contracts was completed for approximately $5,000,000, resulting in a pre-tax
gain of $4,600,000. Keystone, which engaged primarily in the construction,
maintenance, and rehabilitation of natural gas distribution pipelines, was sold
for $3,300,000 in June 2001 for a pre-tax gain of $707,000. Theta Land
Corporation, which owned and provided land management and development services
for more than 44,000 acres of land, was sold for $12,150,000 in January 2000. No
gain or loss was recognized on this transaction.
--------------------------------------------------------------------------------
2
Company Operations
The Company's principal line of business is the distribution of natural gas
through its Southern Union Gas, Missouri Gas Energy, PG Energy, and SFNG
divisions, and, effective with the September 2000 acquisitions, its New England
Division. (See Acquisitions) . The Company's gas utility operations are
generally seasonal in nature, with a sig nificant percentage of its annual
revenues and earnings occurring in the traditional winter heating season. As
such, the Company is a sales and market-driven energy company whose management
is committed to achieving profitable growth of its utility divisions in an
increasingly competitive business environment and partnering with companies
which complement Southern Union's existing customer service and core utility
business. Management's strategies for achieving these objectives principally
consist of: (i) promoting new sales opportunities and markets for natural gas;
(ii) enhancing financial and operating performance; (iii) expanding the Company
through development of existing utility businesses and possibly by acquiring of
selective new utility businesses; and (iv) investing selectively in
complementary businesses. Management develops and continually evaluates these
strategies and their imple mentation by applying their experience and expertise
in analyzing the energy industry, technological advances, market opportunities
and general business trends. Each of these strategies, as implemented throughout
the Company's existing businesses, reflects the Company's commitment to its core
natural gas utility business.
Subsidiaries of Southern Union have been established to support and expand
natural gas sales and other energy sales and to capitalize on the Company's
energy expertise. Subsidiaries of the Company market natural gas to end- users,
operate natural gas pipeline systems, generate electricity, distribute propane
and sell commercial gas air conditioning and other gas-fired engine-driven
applications. The Company distributes propane to 9,000, 3,100 and 1,800
customers in Texas, Pennsylvania and Florida, respectively. Additionally,
certain subsidiaries own or hold interests in real estate and other assets,
which are primarily used in the Company's utility business. Central to all of
the Company's present businesses and strategies is the distribution and
transportation of natural gas.
Southern Union Energy International, Inc. (SUEI) and Southern Union
International Investments, Inc. (Investments), both wholly-owned subsidiaries of
Southern Union, participate in energy-related projects internationally. Energia
Estrella del Sur, S. A. de C. V. (Estrella), a wholly-owned Mexican subsidiary
of SUEI and Investments, seeks to participate in energy-related projects in
Mexico. Estrella has a 43% equity ownership in a natural gas distribution com-
pany, along with other related operations, which currently serves 25,000 custo-
mers in Piedras Negras, Mexico, across the border from Southern Union Gas' Eagle
Pass, Texas service area.
Mercado Gas Services, Inc. (Mercado), a wholly-owned subsidiary of Southern
Union, markets natural gas to com mercial and industrial customers. Mercado's
sales and purchasing activities are made through short-term and long- term
contracts. These contracts and business activities are not subject to direct
rate regulation.
Southern Transmission Company (STC), a wholly-owned subsidiary of Southern
Union, owns and operates 165.3 miles of intrastate pipeline that serves
commercial, industrial and utility customers in central, south and coastal
Texas.
Norteno Pipeline Company (Norteno), a wholly-owned subsidiary of Southern Union,
owns and operates interstate pipelines that serve the gas distribution
properties of Southern Union Gas and the Public Service Company of New Mexico.
Norteno also transports gas through its interstate network to the country of
Mexico for Pemex Gas y Petroquimica Basica (PEMEX).
SUPro Energy Company (SUPro), a wholly-owned subsidiary of Southern Union,
provides propane gas services to customers located principally in Austin, El
Paso and Alpine, Texas as well as Las Cruces, New Mexico and sur rounding
communities. SUPro sold 5,859,000 and 5,734,000 gallons of propane for the years
ended June 30, 2001 and 2000.
Atlantic Gas Corporation, a wholly-owned subsidiary of Southern Union, provides
propane gas services to 1,800 cus tomers located in and around the communities
of New Symrna Beach, Lauderhill and Dunnellon, Florida. Atlantic Gas Corporation
sold 1,108,000 and 1,193,000 gallons of propane for the year ended June 30, 2001
and 2000, respectively.
--------------------------------------------------------------------------------
3
PG Energy Services, Inc. (Energy Services), a wholly-owned subsidiary of
Southern Union, supplies propane and offers the inspection, maintenance and
servicing of residential and small commercial gas-fired equipment to 3,100
residential, commercial and industrial users primarily in central and
northeastern Pennsylvania.
PEI Power Corporation (Power Corp.), a wholly-owned subsidiary of Southern
Union, an exempt wholesale generator (within the meaning of the Public Utility
Holding Company Act of 1935), generates and sells electricity provided by
two power plants which share a site in Archbald, Pennsylvania. Power Corp.
acquired the first plant, a 25-megawatt cogeneration facility fueled by a
combination of natural gas and methane, in November 1997. During fiscal year
2001 Power Corp. constructed an additional 45-megawatt natural gas-fired
facility in a joint venture with Cayuga Energy. Power Corp. owns 49.9% of the
second plant which is now in service and sells electricity to the broad mid-
Atlantic market of Pennsylvania, New Jersey, Maryland, Delaware and the District
of Columbia.
ProvEnergy Power Company LLC (ProvEnergy Power), a wholly-owned subsidiary of
Southern Union, provides outsourced energy management services and owns 50% of
Capital Center Energy Company LLC, a joint venture formed between ProvEnergy and
ERI Services, Inc. to provide retail power.
Fall River Gas Appliance Company, Inc. (Fall River Appliance), a wholly-owned
subsidiary of Southern Union, rents water heaters and conversion burners
(primarily for residential use) to over 18,000 customers, sells central heating
and air conditioning systems, water heaters and grills, and offers service
contracts on gas appliances in the city of Fall River and the towns of Somerset,
Swansea and Westport, all located in southeastern Massachusetts.
Valley Propane, Inc. (Valley Propane), a wholly-owned subsidiary of Southern
Union, sells liquid propane to 2,800 industrial, commercial and residential
customers in Rhode Island and nearby Massachusetts.
Valley Appliance and Merchandising Company (VAMCO), a wholly-owned subsidiary of
Southern Union, merchan dises and rents natural gas burning appliances, offers
appliance service contract programs, and sells water filtration systems to
residential customers. VAMCO also provides construction management services for
natural gas-related projects to commercial and industrial customers.
Morris Merchants, Inc. (Morris Merchants), a wholly-owned subsidiary of Southern
Union, serves as a manufacturer's representative agency for franchised plumbing
and heating contract supplies, and distributes as a wholesaler franchised lines
to plumbing and heating contractors.
Alternate Energy Corporation (AEC), a wholly-owned subsidiary of Southern Union,
is an energy consulting firm which equips vehicular and stationary engines with
natural gas fuel systems, builds natural gas fueling facilities, and is an
authorized representative of the ONSI Corporation fuel cell and Capstone Micro
Turbines. In addition, AEC retains patents on a natural gas/diesel co-firing
system and on "Passport" FMS (Fuel Management System) which monitors and
controls the transfer of fuel on dual-fuel equipment.
The Company also holds investments in commercially developed real estate in El
Paso, Harlingen and Kansas City through Southern Union's wholly-owned
subsidiary, Lavaca Realty Company (Lavaca Realty). Additionally, through the
acquisition of the Pennsylvania Operations and New England Operations, the
Company owns several tracts of land, certain of which is being prepared for
development, primarily in Lackawanna County of northeastern Pennsyl vania, and
various office buildings, parking garages and operational facilities throughout
Rhode Island and Massa chusetts. Depending upon market conditions, the Company
may sell certain of these investments from time to time.
Southern Union's strategy for long-term growth includes acquiring the right
assets that will position the Company favorably in an evolving competitive
marketplace. The Pennsylvania Operations and New England Operations acquisitions
provide Southern Union with a strong presence in the attractive northeastern
market. These acquisitions also provide geographic and weather diversity to the
Company's service areas. Going forward, Southern Union may consider other
acquisitions which will financially enhance growth and take advantage of future
market opportunities.
Company Investments
Over the past several years, the Company acquired an equity interest in Capstone
Turbine Corporation (Capstone). This company has developed a microturbine fueled
by natural gas or propane that produces electricity and creates less pollution
than conventional systems. The refrigerator-sized microturbine unit can
efficiently provide nearly 30 kilowatts of electricity to a small business.
Additionally, this technology is highly reliable and requires low mainte nance.
In late June 2000, Capstone completed its initial public offering (IPO). The
Company sold securities in Capstone during fiscal year 2001, realizing pre-tax
gains of $74,582,000. As of June 30, 2001 and August 31, 2001, the value of the
Company's remaining investment in Capstone was $29,447,000 and $6,652,000,
respectively, based on the closing prices for Capstone shares on those days. As
of June 30, 2001, the Company had 1,333,061 shares of Capstone common stock.
--------------------------------------------------------------------------------
4
Southern Union also holds a $14,586,000 equity interest in PointServe, Inc.
(PointServe), a business-to-business online scheduling solution. Patent-pending,
online scheduling technology should enable service providers to spend less and
earn more by creating accountability of marketing dollars and increasing
operational efficiencies, thus increasing customer satisfaction and loyalty.
Working closely with Southern Union Gas during 2001, PointServe developed a
comprehensive solution for the entire service supply chain, involving both
workforce management and the Company's customer service website. The plan, which
involves the deployment of PointServe's Service Logic(TM) technology, is
designed to help Southern Union Gas achieve tighter appointment time windows and
provide more reliable, responsive service to customers as well as a variety of
management measurement tools.
In April 2001, PointServe acquired Servana.com, Inc. (Servana), in which
Southern Union had an equity interest. Servana partners with utility companies
to deliver comprehensive e-commerce solutions to the customer's home. The
company is positioning itself to become the dominant utility-based home-service
portal, leveraging the utility's brand identity and prominence in local markets.
Servana's Internet-based solutions provide numerous consumer benefits, including
24/7 online access to utilities, no hold times, and better access to call center
staffers who can then handle unique customer care issues.
As of June 30, 2001, Southern Union had a $4,495,000 equity interest in Advent
Networks, Inc. (Advent), head quartered in Austin, Texas. Advent's UltraBand(TM)
technology is expected to deliver digital broadband services 40 times faster
than digital subscriber lines (DSL) or cable modems, and 1,000 times faster than
dial-up modems, over the "last mile". UltraBand(TM) should provide cable network
overbuilders a competitive advantage with its capability to deliver content at a
quality and speed that cannot be provided over cable modem.
Competition
Natural gas distribution has been evolving from a highly regulated environment
to one where competition and customer choice is being promoted. The
restructuring of natural gas distribution began in the 1990's when the Federal
Energy Regulatory Commission (FERC) required interstate pipeline companies to
separate, or unbundle, the merchant function of selling natural gas from the
transportation and storage services they provide and offer those services to end
users on the same terms as local distribution companies. As a result, certain
large volume custo mers, primarily industrial and significant commercial
customers, have had opportunities to access alternative natural gas supplies
and, in some instances, delivery service from other pipeline systems. The
Company has offered trans portation arrangements to customers who secure their
own gas supplies. These transportation arrangements, coupled with the efforts of
Southern Union's unregulated marketing subsidiaries, enable the Company to
provide competitively priced gas service to these large volume customers. In
addition, the Company has successfully used flexible rate provisions, when
needed, to retain customers who may have access to alternative energy sources.
As energy providers, Southern Union Gas, Missouri Gas Energy, PG Energy, New
England and SFNG have historic ally competed with alternative energy sources,
particularly electricity, propane, fuel oil, coal, natural gas liquids and other
refined products available in the Company's service areas. At present rates, the
cost of electricity to residential and commercial customers in the Company's
service areas generally is higher than the effective cost of natural gas
service. There can be no assurance, however, that future fluctuations in gas and
electric costs will not reduce the cost advantage of natural gas service. The
cost of expansion for peak load requirements of electricity in some of Southern
Union Gas' and Missouri Gas Energy's service areas has historically provided
opportunities to allow energy switching to natural gas pursuant to integrated
resource planning techniques. Electric competition has responded by offering
equipment rebates and incentive rates.
Competition between the use of fuel oils, natural gas and propane, particularly
by industrial, electric generation and agricultural customers, has also
increased due to the volatility of natural gas prices and increased marketing
efforts from various energy companies. In order to be more competitive with
certain alternate fuels in Pennsylvania, PG Energy offers an Alternate Fuel Rate
for eligible customers. This rate applies to commercial and industrial accounts
that have the capability of using fuel oils or propane as alternate sources of
energy. Whenever the cost of such alternate fuel drops below PG Energy's normal
tariff rates, PG Energy is permitted by the Pennsylvania Public Utility
Commission (PPUC) to lower its price to these customers so that PG Energy can
remain competitive with the alternate fuel. However, in no instance may PG
Energy sell gas under this special arrangement for less than its average
commodity cost of gas purchased during the month. Competition between the use of
fuel oils, natural gas and propane, is generally greater in Pennsylvania and New
England than the Company's remaining service areas; however, this competition
affects the nationwide market for natural gas. Additionally, the general
economic
--------------------------------------------------------------------------------
5
conditions in the Company's service areas continue to affect certain customers
and market areas, thus impacting the results of the Company's operations.
The Company's gas distribution divisions are not currently in significant direct
competition with any other distributors of natural gas to residential and small
commercial customers within their service areas, other than in Pennsylvania. In
1999, the Commonwealth of Pennsylvania enacted the Natural Gas Choice and
Competition Act, which extended the ability to choose suppliers to small
commercial and residential customers as well. Effective April 29, 2000, all of
PG Energy's customers have the ability to select an alternate supplier of
natural gas, which PG Energy will continue to deliver through its distribution
system. Customers can also choose to remain with PG Energy as their supplier
under regulated natural gas rates. In either case, PG Energy serves as the
supplier of last resort. Despite customers' recently acquired right to choose,
higher-than-normal wholesale prices for natural gas have prevented suppliers
from offering competitive rates. To date, due to the lack of offers that provide
any savings over PG Energy's current regulated gas rates, no commercial or
residential customers have switched to alternate suppliers. However, if a
moderation in the wholesale market for natural gas over time produces an
increase in offers competitive with PG Energy's rates, customers may eventually
choose alternate suppliers.
Gas Supply
The cost and reliability of natural gas service is dependent upon the Company's
ability to contract for favorable mixes of long-term and short-term gas supply
arrangements and through favorable fixed and variable transportation con tracts.
The Company has been directly acquiring its gas supplies since the mid-1980s
when interstate pipeline sys tems opened their systems for transportation
service. The Company has the organization, personnel and equipment necessary to
dispatch and monitor gas volumes on a daily, hourly and even a real-time basis
to ensure reliable service to customers.
The FERC required the "unbundling" of services offered by interstate pipeline
companies beginning in 1992. As a result, gas purchasing and transportation
decisions and associated risks have been shifted from the pipeline com panies to
the gas distributors. The increased demands on distributors to effectively
manage their gas supply in an environment of volatile gas prices provides an
advantage to distribution companies such as Southern Union who have demonstrated
a history of contracting favorable and efficient gas supply arrangements in an
open market system.
The majority of 2001 gas requirements for the utility operations of Southern
Union Gas and the New England Division were delivered under short- and long-term
transportation contracts through five major pipeline companies. The majority of
2001 gas requirements for the utility operations of Missouri Gas Energy and PG
Energy were delivered under short- and long-term transportation contracts
through four major pipeline companies, while the majority of SFNG's 2001 gas
requirements were delivered under a management supply contract through one major
pipeline company. These contracts have various expiration dates ranging from
calendar year 2001 through 2018. Southern Union Gas also purchases significant
volumes of gas under long- and short-term arrangements with suppliers. The
amounts of such short-term purchases are contingent upon price. Southern Union
Gas, Missouri Gas Energy, the New England Division and SFNG all have firm supply
commitments for all areas that are supplied with gas purchased under short-term
arrangements. Missouri Gas Energy also holds contract rights to over 16 Bcf of
storage capacity. PG Energy, the New England Division and Southern Union Gas
each hold contract rights to over 11 Bcf, 5 Bcf and 4 Bcf of storage capacity,
respectively, to assist in meeting peak demands. Storage capacity approximates
20% of the Company's annual gas distribution volumes.
Gas sales and/or transportation contracts with interruption provisions, whereby
large volume users purchase gas with the understanding that they may be forced
to shut down or switch to alternate sources of energy at times when the gas is
needed for higher priority customers, have been utilized for load management by
Southern Union and the gas industry as a whole. In addition, during times of
special supply problems, curtailments of deliveries to customers with firm
contracts may be made in accordance with guidelines established by appropriate
federal and state regulatory agencies. There have been no supply-related
curtailments of deliveries to Southern Union Gas, Missouri Gas Energy, PG
Energy, the New England Division or SFNG utility sales customers during the last
ten years.
The Company is committed under various agreements to purchase certain quantities
of gas in the future. At June 30, 2001, the Company has purchase commitments for
certain quantities of gas at variable, market-based prices that have an annual
value of $204,999,000. The Company's purchase commitments may extend over a
period of several
--------------------------------------------------------------------------------
6
years depending upon when the required quantity is purchased. The Company has
purchase gas tariffs in effect for all its utility service areas that provide
for recovery of its purchase gas costs under defined methodologies.
Beginning in 1996, the Missouri Public Service Commission (MPSC) authorized a
series of experimental gas supply incentive plans for Missouri Gas Energy. The
initial three year plan, effective July 1, 1996, achieved a reduction in overall
gas costs of $6,900,000 resulting in savings to Missouri customers of $4,000,000
and additional revenues to the Company of $2,900,000 for the year ended June 30,
1999. The MPSC subsequently approved an additional two year gas supply incentive
plan that became effective August 31, 2000. Earnings under the current plan are
primarily dependent on certain market conditions and market prices for natural
gas which did not occur in fiscal 2001, and there is no assurance that the
Company will have an opportunity to generate earnings under this aspect of the
plan during fiscal 2002.
Utility Regulation and Rates
The Company's rates and operations are subject to regulation by local, state and
federal authorities. In Texas, municipalities have primary jurisdiction over
natural gas rates within their respective incorporated areas. Rates in adjacent
environs and appellate matters are the responsibility of the Railroad Commission
of Texas (RRC). In Missouri, natural gas rates are established by the MPSC on a
system-wide basis. In Pennsylvania, natural gas rates for PG Energy are approved
by the PPUC on a system-wide basis. In Rhode Island, natural gas rates for
Providence Gas, Valley Gas Company and Bristol and Warren Gas Company are
approved by the Rhode Island Public Utilities Commission (RIPUC). In
Massachusetts natural gas rates for Fall River Gas Company and North Attleboro
Gas are subject to the regulatory authority of the Massachusetts Department of
Telecommunications and Energy (MDTE). In Florida, natural gas rates are
established by the Florida Public Service Commission on a system-wide basis. The
FERC has jurisdiction over rates, facilities and services of Norteno and Power
Corp., and the RRC has jurisdiction over STC.
The Company holds non-exclusive franchises with varying expiration dates in all
incorporated communities where it is necessary to carry on its business as it is
now being conducted. Providence, Rhode Island; Fall River, Massachusetts; Kansas
City, Missouri; El Paso, Texas; Austin, Texas; St. Joseph, Missouri; and Port
Arthur, Texas; are the seven largest cities in which the Company's utility
customers are located. The franchises in the following cities expire as follows:
El Paso, Texas in 2030; Port Arthur, Texas in 2013; Kansas City, Missouri in
2010; and Austin, Texas in 2006. The Company fully expects these franchises to
be renewed upon their expiration. The franchises in Providence, Rhode Island;
Fall River, Massachusetts; and St. Joseph, Missouri are perpetual.
Gas service rates are established by regulatory authorities to permit utilities
the opportunity to recover operating, administrative and financing costs, and
the opportunity to earn a reasonable return on equity. Gas costs are billed to
customers through purchase gas adjustment (PGA) clauses which permit the Company
to adjust its sales price as the cost of purchased gas changes. This is
important because the cost of natural gas accounts for a significant portion of
the Company's total expenses. The appropriate regulatory authority must receive
notice of such adjustments prior to billing implementation.
Other than in Pennsylvania, the Company supports any service rate changes to its
regulators using a historic test year of operating results adjusted to normal
conditions and for any known and measurable revenue or expense changes. Because
the regulatory process has certain inherent time delays, rate orders may not
reflect the operating costs at the time new rates are put into effect. In
Pennsylvania, a future test year is utilized for ratemaking purposes, therefore,
there is no delay and rate orders more closely reflect the operating costs at
the time new rates are put into effect.
The monthly customer bill contains a fixed service charge, a usage charge for
service to deliver gas, and a charge for the amount of natural gas used. While
the monthly fixed charge provides an even revenue stream, the usage charge
increases the Company's annual revenue and earnings in the traditional heating
load months when usage of natural gas increases. In recent years, the majority
of the Company's rate increases in Texas have resulted in increased monthly
fixed charges which help stabilize earnings. Weather normalization clauses also
serve to stabilize earnings in 22 Texas towns and cities, including Austin,
Andrews and various El Paso service areas, Galveston, Port Arthur and Mineral
Wells.
--------------------------------------------------------------------------------
7
Missouri On July 5, 2001, the MPSC issued an order approving a unanimous
settlement of Missouri Gas Energy's rate request. The settlement provides for an
annual $9,892,000 base rate increase, as well as $1,081,000 in added revenue
from new and revised service charges. The majority of the rate increase will be
recovered through increased customer service charges to gas sales service
customers. New rates became effective August 6, 2001, two months before the
statutory deadline for resolving the case. The approved settlement requires
parties to seek dismissal of all pending judicial reviews of prior rate cases.
The settlement also provides for the development of a two-year experimental
low-income program that will help certain customers in the Joplin area pay their
natural gas bills.
On August 21, 1998, Missouri Gas Energy was notified by the MPSC of its decision
to grant a $13,300,000 annual increase to revenue effective on September 2,
1998, which is primarily earned volumetrically.
The approval of the January 31, 1994 acquisition of the Missouri properties by
the MPSC was subject to the terms of a stipulation and settlement agreement,
which, among other things, requires Missouri Gas Energy to reduce rate base by
$30,000,000 (amortized over a ten-year period on a straight-line basis) to
compensate rate payers for rate base reductions that were eliminated as a result
of the acquisition.
Rhode Island Pursuant to the RIPUC's Written Order issued April 30, 2001,
Providence Gas' Price Stabilization Plan was extended through June 2002. The
related settlement agreement provides for additional gas distribution margin of
$12,030,000 over the 21-month period, October 2000 through June 2002, or
approximately $6,240,000 for the twelve months ended September 2001.
The settlement agreement also contains a weather mitigation clause and a
non-firm margin incentive mechanism (non-firm margin is margin earned from
interruptible customers with the ability to switch to alternative fuels). The
weather mitigation clause is designed to mitigate the impact of weather
volatility on customer billings, which will assist customers in paying bills and
stabilize the revenue stream to Providence Gas. Providence Gas will defer the
margin impact of weather that is greater than 2% colder-than-normal and will
recover the margin impact of weather that is greater than 3% warmer-than-normal
by making the corresponding adjustment to the deferred revenue account (DRA).
The non-firm margin incentive mechanism is designed to encourage Providence Gas
to promote the development of non-firm margins, which will reduce the cost of
service to all customers. Providence Gas will retain 25% of all non-firm margins
earned in excess of $1,200,000.
Under the settlement agreement, Providence Gas may earn up to 10.7%, but not
less than 7.0%, using the average return on equity for the two 12-month periods
of October 2000 through September 2001 and July 2001 through June 2002.
Effective October 1, 2000, the RIPUC had approved a settlement agreement between
Providence Gas, the Rhode Island Division of Public Utilities and Carriers, the
Energy Council of Rhode Island, and The George Wiley Center. The settlement
agreement recognized the need for an increase in distribution system revenues of
$4,500,000, recovered through an adjustment to the throughput portion of the gas
charge, and provided for a 21-month base rate freeze. In the settlement
agreement, the RIPUC authorized system improvement programs. Additionally,
higher levels of support for low income bill payment assistance was authorized
as well as the continuation of the utility's demand side management and
weatherization assistance programs.
Pennsylvania On April 3, 2000, PG Energy filed an application with the PPUC
seeking an increase in its base rates designed to produce $17,900,000 in
additional annual revenues. On December 7, 2000, the PPUC approved a settlement
agreement that provided for a rate increase designed to produce $10,800,000 of
additional annual revenue. The new rates became effective on January 1, 2001.
El Paso, Texas On October 18, 1999, Southern Union Gas filed a $1,696,000 rate
increase request for the El Paso service area with the City of El Paso. In
February 2000, the City of El Paso approved a $650,000 revenue increase, and an
improved rate design that collects a greater portion of the Company's revenue
stream from the monthly customer charge. Additionally, the City of El Paso
approved a new 30-year franchise for Southern Union Gas.
Other During the three-year period ended June 30, 2001, the Company did not file
for any other rate increases in any of its major service areas, although several
annual cost of service adjustments were filed.
--------------------------------------------------------------------------------
8
In addition to the regulation of its utility and pipeline businesses, the
Company is affected by numerous other regula tory controls, including, among
others, pipeline safety requirements of the United States Department of
Transporta tion, safety regulations under the Occupational Safety and Health
Act, and various state and federal environmental statutes and regulations. The
Company believes that its operations are in compliance with applicable safety
and environmental statutes and regulations.
Environmental
The Company is investigating the possibility that the Company or predecessor
companies may have been associated with Manufactured Gas Plant (MGP) sites in
its former service territories, principally in Arizona and New Mexico, and
existing service territories in Texas, Missouri, Pennsylvania, Massachusetts and
Rhode Island. At the present time, the Company is aware of certain MGP sites in
these areas and is investigating those and certain other locations. While the
Company's evaluation of these Texas, Missouri, Arizona, New Mexico,
Pennsylvania, Massachusetts and Rhode Island MGP sites is in its preliminary
stages, it is likely that some compliance costs may be identified and become
subject to reasonable quantification. Within the Company's service territories
certain MGP sites are currently the subject of governmental actions. See
Management's Discussion and Analysis of Results of Operations and Financial
Condition (MD&A) -- Cautionary Statement Regarding Forward-Looking Information
and Commitments and Contingencies in the Notes to the Consolidated Financial
Statements.
Investments in Real Estate
Lavaca Realty owns a two-story office building in El Paso, Texas as well as a
one-story office building in Harlingen, Texas. Other significant real estate
investments held at June 30, 2001 include 39,341 square feet of undeveloped land
in McAllen, Texas and 25,000 square feet of improved property in Kansas City,
Missouri, of which 40% is occupied by Missouri Gas Energy and the remainder by a
non-affiliated entity. Additionally, through the acquisition of the Pennsylvania
Operations and New England Operations, the Company owns several tracts of land,
certain of which are being prepared for development, primarily in Lackawanna
County of northeastern Pennsylvania, and various office buildings, parking
garages and operational facilities throughout Rhode Island and Massachusetts.
Depending upon market conditions, the Company may sell certain of these
investments from time to time.
Employees
As of July 31, 2001, the Company had 3,105 employees, of whom 2,320 are paid on
an hourly basis, 784 are paid on a salary basis and one is paid on a commission
basis. Of the 2,278 hourly paid employees, 50% are represented by unions. Of
those employees represented by unions, 44% are employed by Missouri Gas Energy,
19% are employed by PG Energy, 35% are employed by the New England Division and
2% by Southern Union Gas.
In August 2001, the Company announced implementation of a corporate
reorganization and restructuring which was initially announced in July 2001 as
part of a Cash Flow Improvement Plan. See MD&A -- Other Matters -- Corporate
Restructuring. Actions taken included (i) the offering of voluntary Early
Retirement Programs ("ERPs") in certain of its operating divisions and (ii) a
limited reduction in force ("RIF") within its corporate division. ERPs,
providing for increased benefits for those electing retirement, were offered to
approximately 400 eligible employees across the Company's operating divisions.
In connection with the RIF, 48 employees were offered severance packages.
During fiscal 2001, the Company agreed to three-year contracts with two
bargaining units representing Pennsylvania employees, which were effective in
April 2001 and August of 2000, respectively. In December 1998, the Company
agreed to five-year contracts with each bargaining-unit representing Missouri
employees, which were effective in May 1999.
Providence Gas' two bargaining units are covered by contracts through January
2002 and May 2002. Valley Resources' two bargaining units are covered by
contracts through March 2002 and May 2002. Fall River Gas' bargaining unit
employees are covered by a contract through April 2002.
From time to time the Company may be subject to labor disputes; however, such
disputes have not in recent years disrupted its business. The Company believes
that its relations with its employees are good.
--------------------------------------------------------------------------------
9
Statistics of Principal Utility and Related Operations
The following table shows certain operating statistics of the Company's gas
distribution divisions with operations in Texas, Missouri, Pennsylvania, and New
England (Rhode Island and Massachusetts), which the Company owned during the
years ended June 30:
Year Ended June 30,
------------------------------
2001 2000 1999
-------- -------- --------
Southern Union Gas:
Average number of gas sales customers served:
Residential.................................. 491,086 483,220 473,563
Commercial................................... 32,762 31,860 30,847
Industrial and irrigation.................... 251 253 258
Public authorities and other................. 2,818 2,862 2,849
-------- -------- --------
Total average customers served............. 526,917 518,195 507,517
======== ======== ========
Gas sales in millions of cubic feet (MMcf):
Residential.................................. 24,260 19,524 19,553
Commercial................................... 10,069 8,677 8,539
Industrial and irrigation.................... 1,103 969 1,082
Public authorities and other................. 2,855 2,377 2,266
-------- -------- --------
Gas sales billed........................... 38,287 31,547 31,440
Net change in unbilled gas sales............. (97) 137 175
-------- -------- --------
Total gas sales............................ 38,190 31,684 31,615
======== ======== ========
Weather:
Degree days (a).............................. 2,380 1,516 1,576
Percent of 10-year measure (b)............... 130% 83% 86%
Percent of 30-year measure (b)............... 112% 71% 74%
Gas transported in MMcf........................ 26,753 17,472 16,668
Missouri Gas Energy:
Average number of gas sales customers served:
Residential.................................. 428,971 424,771 418,266
Commercial................................... 59,742 58,323 57,247
Industrial................................... 310 309 313
-------- -------- --------
Total average customers served............. 489,023 483,403 475,826
======== ======== ========
Gas sales in MMcf:
Residential.................................. 44,011 34,999 36,578
Commercial................................... 19,828 15,640 16,842
Industrial................................... 598 412 375
-------- -------- --------
Gas sales billed........................... 64,437 51,051 53,795
Net change in unbilled gas sales............. (64) 37 204
-------- -------- --------
Total gas sales............................ 64,373 51,088 53,999
======== ======== ========
Weather:
Degree days (a).............................. 5,541 4,176 4,438
Percent of 10-year measure (b)............... 107% 80% 85%
Percent of 30-year measure (b).............. 106% 80% 85%
Gas transported in MMcf........................ 30,921 31,644 31,774
------------------------
(a) "Degree days" are a measure of the coldness of the weather experienced. A
degree day is equivalent to each degree that the daily mean temperature for
a day falls below 65 degrees Fahrenheit.
(b) Information with respect to weather conditions is provided by the National
Oceanic and Atmospheric Administration. Percentages of 10- and 30-year
measure are computed based on the weighted average volumes of gas sales
billed. The 10- and 30-year measure is used for consistent external
reporting purposes. Measures of normal weather used by the Company's
regulatory authorities to set rates vary by jurisdiction. Periods used to
measure normal weather for regulatory purposes range from 10 years to 30
years.
--------------------------------------------------------------------------------
10
Year Ended Eight Months Ended
June 30, 2001 June 30, 2000(a)
------------- ------------------
PG Energy:
Average number of gas sales customers served:
Residential................................ 140,815 140,019
Commercial................................. 13,991 13,872
Industrial................................. 206 209
Public Authorities and Other............... 310 314
-------- --------
Total average customers served........... 155,322 154,414
======== ========
Gas sales in MMcf:
Residential................................ 17,965 14,830
Commercial................................. 6,561 4,969
Industrial................................. 535 215
Public Authorities and Other............... 368 213
-------- --------
Gas sales billed......................... 25,429 20,227
Net change in unbilled gas sales........... 40 (314)
-------- --------
Total gas sales.......................... 25,469 19,913
======== ========
Weather:
Degree days (b)............................ 6,621 5,287
Percent of 10-year measure (c)............. 108% 86%
Percent of 30-year measure (c)............. 105% 92%
Gas transported in MMcf...................... 25,430 19,403
Nine Months Ended
June 30, 2001(d)
-----------------
New England Division:
Average number of gas sales customers served:
Residential................................ 264,349
Commercial................................. 21,634
Industrial................................. 3,570
Public Authorities and Other............... 45
--------
Total average customers served........... 289,598
========
Gas sales in MMcf:
Residential................................ 21,690
Commercial................................. 7,293
Industrial................................. 2,721
Public Authorities and Other............... 22
--------
Gas sales billed......................... 31,726
Net change in unbilled gas sales........... 286
--------
Total gas sales.......................... 32,012
========
Weather:
Degree days (b)............................ 5,273
Percent of 10-year measure (c)............. 105%
Percent of 30-year measure (c)............. 102%
Gas transported in MMcf...................... 7,399
-----------------------
(a) PG Energy was acquired on November 4, 1999. See Acquisitions.
(b) "Degree days" are a measure of the coldness of the weather experienced. A
degree day is equivalent to each degree that the daily mean temperature for
a day falls below 65 degrees Fahrenheit.
(c) Information with respect to weather conditions is provided by the National
Oceanic and Atmospheric Administration. Percentages of 10- and 30-year
measure are computed based on the weighted average volumes of gas sales
billed. The 10- and 30-year measure is used for consistent external
reporting purposes. Measures of normal weather used by the Company's
regulatory authorities to set rates vary by jurisdiction. Periods used to
measure normal weather for regulatory purposes range from 10 years to 30
years.
(d) Information for Fall River Gas and ProvEnergy, acquired September 28, 2000,
and Valley Resources, acquired September 20, 2000, is included since
October 1, 2000. See Acquisitions.
--------------------------------------------------------------------------------
11
Customers. The following table shows the number of customers served by the
Company, through its divisions, subsidiaries and affiliates, as of the end of
its last three fiscal years.
Gas Utility Customers at June 30,
----------------------------------
2001 2000 1999
---------- ---------- ----------
Southern Union Gas:
Austin and other central and south Texas
communities............................. 190,696 183,872 175,596
El Paso and other west Texas communities.. 189,134 187,189 182,516
Galveston and Port Arthur................. 49,292 50,237 50,543
Panhandle and north Texas communities..... 24,046 24,584 24,728
Rio Grande Valley communities and Eagle
Pass.................................... 74,641 75,608 75,983
---------- ---------- ----------
527,809 521,490 509,366
---------- ---------- ----------
Missouri Gas Energy:
Kansas City, Missouri Metropolitan Area... 379,057 379,804 374,020
St. Joseph, Joplin, Monett and others..... 103,469 104,432 103,052
---------- ---------- ----------
482,526 484,236 477,072
---------- ---------- ----------
PG Energy................................... 155,439 154,399 --
New England Division........................ 289,048 -- --
Other (a)................................... 44,103 25,971 24,947
---------- ---------- ----------
Total....................................... 1,498,925 1,186,096 1,011,385
========== ========== ==========
--------------------------
(a) Includes Mercado, South Florida Natural Gas, Atlantic Gas Corporation,
SUPro Energy Services, PG Energy Services, Inc., Valley Propane, ProvEnergy
Fuels and a natural gas distribution company serving customers in Piedras
Negras, Mexico, in which the Company has a 43% equity ownership, in each
case for the year-end in which the Company had such operations or
investments.
ITEM 2. Properties.
See Item 1, Business, for information concerning the general location and
characteristics of the important physical properties and assets of the Company.
Southern Union Gas has 8,062 miles of mains, 4,395 miles of service lines and
164 miles of transmission lines. STC and Norteno have 171 miles and 7 miles,
respectively, of transmission lines. Missouri Gas Energy has 7,767 miles of
mains, 4,776 miles of service lines and 47 miles of transmission lines. PG
Energy has 2,484 miles of mains, 1,472 miles of service lines and 29 miles of
transmission lines. New England has 3,613 miles of mains and 3,178 miles of
service lines. SFNG has 143 miles of mains and 85 miles of service lines. The
Company considers its systems to be in good condition and well-maintained, and
it has continuing replacement programs based on historical per formance and
system surveillance.
Power Corp. retains ownership of two electric power plants which share a site in
Archbald, Pennsylvania. Power Corp. acquired the first plant, a 25-megawatt
cogeneration facility fueled by a combination of natural gas and methane, in
November 1997. During fiscal year 2001 Power Corp. constructed an additional
45-megawatt, natural gas-fired plant in a joint venture with Cayuga Energy.
Power Corp. owns 49.9% of the second plant which is now in service and selling
electricity to the broad mid-Atlantic market of Pennsylvania, New Jersey,
Maryland, Delaware and the District of Columbia.
ITEM 3. Legal Proceedings.
See Commitments and Contingencies in the Notes to Consolidated Financial
Statements for a discussion of the Company's legal proceedings. See MD&A --
Cautionary Statement Regarding Forward-Looking Information.
ITEM 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders of Southern Union
during the quarter ended June 30, 2001.
--------------------------------------------------------------------------------
12
PART II
ITEM 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
Market Information
Southern Union's common stock is traded on the New York Stock Exchange under the
symbol "SUG". The high and low sales prices (adjusted for any stock dividends
and stock splits) for shares of Southern Union common stock since July 1, 1999
are set forth below:
$/Share
--------------
High Low
------ ------
July 1 to September 19, 2001................................. $24.18 $17.81
(Quarter Ended)
June 30, 2001................................................ 21.35 16.71
March 31, 2001............................................... 25.12 18.10
December 31, 2000............................................. 26.61 16.19
September 30, 2000............................................ 19.76 15.24
(Quarter Ended)
June 30, 2000................................................. 16.44 13.72
March 31, 2000................................................ 17.29 12.02
December 31, 1999............................................. 19.05 15.82
September 30, 1999............................................ 19.67 16.33
Holders
As of September 19, 2001, there were 7,724 holders of record of Southern Union's
common stock and 53,824,027 shares of Southern Union's common stock outstanding.
The holders of record do not include persons whose shares are held of record by
a bank, brokerage house or clearing agency, but does include any such bank,
brokerage house or clearing agency that is a holder of record.
On August 31, 2001 36,618,220 shares of Southern Union's common stock were held
by non-affiliates (i.e., not beneficially held by directors, executive officers,
their immediate family members, or holders of 10% or more of shares
outstanding).
Dividends
Provisions in certain of Southern Union's long-term debt and its bank credit
facilities limit the payment of cash or asset dividends on capital stock. Under
the most restrictive provisions in effect, Southern Union may not declare or pay
any cash or asset dividends on its common stock or acquire or retire any of
Southern Union's common stock, unless no event of default exists and the Company
meets certain financial ratio requirements, which presently are met.
Southern Union has a policy of reinvesting its earnings in its businesses,
rather than paying cash dividends. Since 1994, Southern Union has distributed an
annual stock dividend of 5%. There have been no cash dividends on its common
stock during this period. On August 30, 2001, June 30, 2000, August 6, 1999 and
December 9, 1998, the Company distributed its annual 5% common stock dividend to
stockholders of record on August 16, 2001, June 19, 2000, July 23, 1999 and
November 23, 1998, respectively. A portion of each of the 5% stock dividends
distributed on August 30, 2001, June 30, 2000, August 6, 1999 and December 9,
1998 was characterized as a distribution of capital due to the level of the
Company's retained earnings available for distribution as of the declaration
date.
--------------------------------------------------------------------------------
13
ITEM 6. Selected Financial Data.
As of and for the year ended June 30,
------------------------------------------------------
2001(a) 2000(b) 1999 1998(c) 1997
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per share amounts)
Total operating
revenues................ $1,932,813 $ 831,704 $ 605,231 $ 669,304 $ 717,031
Earnings from continuing
operations (d).......... 57,285 9,845 10,445 12,229 19,032
Earnings per common and
common share equiva-
lents (e)............... 1.04 .21 .29 .35 .56
Total assets............. 2,896,871 2,021,460 1,087,348 1,047,764 990,403
Common stockholders'
equity.................. 721,857 735,455 301,058 296,834 267,462
Short-term debt and capi-
tal lease obligation.... 5,913 2,193 2,066 1,777 687
Long-term debt and capi-
tal lease obligation,
excluding current
portion................. 1,329,631 733,774 390,931 406,407 386,157
Company-obligated manda-
torily redeemable pre-
ferred securities of
subsidiary trust........ 100,000 100,000 100,000 100,000 100,000
Average customers served. 1,506,371 1,132,699 998,476 979,186 955,838
---------------------
(a) The New England Operations, formed through the acquisition of Providence
Energy Corporation and Fall River Gas Company on September 28, 2000, and
Valley Resources, Inc. on September 20, 2000, were accounted for as a
purchase and are included in the Company's consolidated balance sheet at
June 30, 2001. The results of operations for the New England Operations
have been included in the Company's consolidated results of operations
since their respective acquisition dates. For these reasons, the
consolidated results of operations of the Company for the periods
subsequent to the acquisitions are not comparable to the same periods in
prior years.
(b) The Pennsylvania Operations were acquired on November 4, 1999 and were
accounted for as a purchase. The Pennsylvania Operations' assets were
included in the Company's consolidated balance sheet at June 30, 2000 and
its results of operations have been included in the Company's consolidated
results of operations since November 4, 1999. For these reasons, the
consolidated results of operations of the Company for the periods
subsequent to the acquisition are not comparable to the same periods in
prior years.
(c) On December 31, 1997, Southern Union acquired Atlantic for 755,650
pre-split and pre-stock dividend shares of common stock valued at
$18,041,000 and cash of $4,436,000.
(d) As of June 30, 1998, Missouri Gas Energy wrote off $8,163,000 pre-tax in
previously recorded regulatory assets as a result of announced rate orders
and court rulings.
(e) Earnings per share for all periods presented were computed based on the
weighted average number of shares of common stock and common stock
equivalents outstanding during the year adjusted for (i) the 5% stock
dividends distributed on August 30, 2001, June 30, 2000, August 6, 1999,
December 9, 1998 and December 10, 1997, and (ii) the 50% stock dividend
distributed on July 13, 1998.
--------------------------------------------------------------------------------
14
ITEM 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Overview Southern Union Company's core business is the distribution of natural
gas as a public utility through: Southern Union Gas; Missouri Gas Energy; PG
Energy; Atlantic Utilities, doing business as South Florida Natural Gas (SFNG);
and, effective with the September 2000 acquisitions of Providence Energy
Corporation, Valley Resources, Inc. and Fall River Gas Company, its New England
Division. Southern Union Gas serves 535,000 customers in Texas (including
Austin, Brownsville, El Paso, Galveston, Harlingen, McAllen and Port Arthur).
Missouri Gas Energy serves 498,000 customers in central and western Missouri
(including Kansas City, St. Joseph, Joplin and Monett). PG Energy serves 156,000
customers in northeastern and central Pennsylvania (including Wilkes-Barre,
Scranton and Williamsport). SFNG serves 4,600 customers in portions of central
Florida (including New Smyrna Beach, Edgewater and areas of Volusia County,
Florida). The New England Division serves approximately 292,000 customers in
Rhode Island and Massachusetts (including Providence, Newport and Cumberland,
Rhode Island, and Fall River, North Attleboro and Somerset, Massachusetts).
On September 28, 2000, Southern Union completed the acquisition of Providence
Energy Corporation (ProvEnergy) for approximately $270,000,000 in cash plus the
assumption of approximately $90,000,000 in long-term debt. The ProvEnergy
natural gas distribution operations are Providence Gas and North Attleboro Gas,
which collectively serve approximately 177,000 natural gas customers. Providence
Gas serves natural gas customers in Providence and Newport, Rhode Island, and 23
other cities and towns in Rhode Island. North Attleboro Gas serves customers in
North Attleboro and Plainville, Massachusetts, towns adjacent to the
northeastern Rhode Island border. Sub sidiaries of the Company acquired in the
ProvEnergy merger include ProvEnergy Oil Enterprises, Inc. (ProvEnergy Oil), and
ProvEnergy Power Company, LLC. ProvEnergy Oil, which operated a fuel oil
distribution business through its subsidiary, ProvEnergy Fuels, Inc. (ProvEnergy
Fuels) for residential and commercial customers in Rhode Island and
Massachusetts, was sold for $15,800,000 in August 2001. No gain or loss was
recognized on this transaction. ProvEnergy Power Company owns 50% of Capital
Center Energy Company, LLC., a joint venture formed between ProvEnergy and ERI
Services, Inc. to provide retail power.
On September 28, 2000, Southern Union completed the acquisition of Fall River
Gas Company (Fall River Gas) for approximately 1,400,000 shares (before
adjustment for any subsequent stock dividend) of Southern Union common stock and
approximately $27,000,000 in cash plus assumption of approximately $20,000,000
in long-term debt. Fall River Gas serves approximately 49,000 customers in the
city of Fall River and the towns of Somerset, Swansea and Westport, all located
in southeastern Massachusetts. Also acquired in the Fall River Gas merger was
Fall River Gas Appliance Company, Inc., which rents water heaters and conversion
burners (primarily for residential use) in Fall River Gas' service area.
On September 20, 2000, Southern Union completed the acquisition of Valley
Resources, Inc. (Valley Resources) for approximately $125,000,000 in cash plus
the assumption of approximately $30,000,000 in long-term debt. Valley Resources
natural gas distribution operations are Valley Gas Company and Bristol and
Warren Gas Company, which collectively serve approximately 66,000 natural gas
customers. Valley Resources' three non-utility subsidiaries acquired in the
merger include Valley Propane Inc. (Valley Propane), Morris Merchants Inc.
(Morris Merchants) and Valley Appliance and Merchandising Company (VAMCO).
Valley Propane sells liquid propane to 2,800 customers in Rhode Island and
nearby Massachusetts. Morris Merchants serves as a manufacturers'
representative agency for franchised plumbing and heating contract supplies
throughout New England and New York. VAMCO merchandises and rents natural gas
burning appliances, offers appliance service contract programs, sells water
filtration systems and provides construction management services for natural
gas-related projects. Also acquired in the acquisition was Valley Resources' 90%
interest (which is now 100%) in Alternate Energy Corporation, which sells,
installs and designs natural gas conversion systems and facilities, is an
authorized representative of the ONSI Corporation fuel cell, holds patents for a
natural gas/diesel co-firing system and for a device to control the flow of fuel
on dual-fuel equipment.
The assets of ProvEnergy, Fall River Gas and Valley Resources (hereafter
referred to as the Company's New England Operations) have been included in the
consolidated balance sheet of the Company at June 30, 2001 and the results of
operations from the New England Operations have been included in the statement
of consolidated operations since their respective acquisition dates. Thus, the
results of operations for the year ended June 30, 2001 are not comparable to
prior periods. The New England Operations' primary business is the distribution
of natural gas through its public utility companies (collectively referred to as
the New England Division). The acquisitions were
--------------------------------------------------------------------------------
15
accounted for using the purchase method. The Company plans to sell or dispose of
certain non-core businesses acquired in the New England Operations.
On November 4, 1999, the Company acquired Pennsylvania Enterprises, Inc.
(hereafter referred to as the Pennsyl vania Operations) in a transaction valued
at approximately $500,000,000, including assumption of long-term debt of
approximately $115,000,000. The Company issued approximately 16,700,000 shares
(before adjustment for any subsequent stock dividends) of common stock and paid
approximately $36,000,000 in cash to complete the transaction. The income from
the Pennsylvania Operations have been included in the statement of consolidated
operations since November 4, 1999. Thus, the results of operations for the year
ended June 30, 2000 are not comparable to prior periods. The acquisition was
accounted for using the purchase method.
The Pennsylvania Operations natural gas utility businesses are being operated as
the PG Energy division of the Company. Through the acquisition of the
Pennsylvania Operations the Company acquired and now operates PG Energy Services
Inc., (Energy Services) and PEI Power Corporation (PEI Power). Through Energy
Services, the Company supplies propane and offers the inspection, maintenance
and servicing of residential and small commercial gas-fired equipment. Through
PEI Power, an exempt wholesale generator (within the meaning of the Public
Utility Holding Company Act of 1935), the Company provides electricity services
to the broad mid-Atlantic market of Pennsylvania, New Jersey, Maryland, Delaware
and the District of Columbia. In July 2001, the commercial and industrial gas
marketing contracts of Energy Services were sold for approximately $5,000,000,
resulting in a pre-tax gain of $4,600,000. The Company also plans to sell or
dispose of propane operations of Energy Services, which are not material to the
Company. The Company has not yet sold these operations and there can be no
assurance that a sale on terms satisfactory to the Company will be completed.
Results of Operations
Net Earnings Southern Union Company's 2001 (fiscal year ended June 30) net
earnings were $57,285,000 ($1.04 per common share, diluted for outstanding
options and warrants -- hereafter referred to as per share), compared with
$9,845,000 ($.21 per share) in 2000. Net earnings for the year ended June 30,
2001 were positively impacted by the sale of a portion of Southern Union's
holdings in Capstone Turbine Corporation realizing after-tax gains of
$43,726,000. Net earnings in 2001 also reflect the acquisition of the New
England Operations which contributed $6,074,000 in net earnings. While operating
margin benefited from weather that was 36% colder than 2000, pur chased gas
costs increased over 90% in 2001 compared with the prior year resulting in an
increase in bad debt expense of $16,642,000, net of tax. Average common and
common share equivalents outstanding increased 15% in 2001 due to the issuance
of 1,370,629 shares and 16,713,735 shares, before adjustment for any subsequent
stock dividends, of the Company's common stock in connection with the
acquisition of Fall River Gas and the Pennsylvania Operations, respectively. The
Company earned 8.8% on average common equity in 2001.
The Company's 2000 net earnings were $9,845,000 ($.21 per share), compared with
$10,445,000 ($.29 per share) in 1999. The acquisition of the Pennsylvania
Operations, net of interest expense on $300,000,000 of 8.25% Senior Notes issued
on November 3, 1999, contributed $4,266,000 in net earnings. Throughout fiscal
year 2000, the Company experienced extremely warm winter weather in all of its
service territories. In addition, the Company expended costs associated with
unsuccessful acquisition activities and related litigation. Also, during fiscal
year 2000, the Company incurred non-cash losses of $1,207,000, net of tax from
unauthorized financial derivative energy trading activity. This was partially
offset by an increase in the average number of customers served. Though weather
in the Southern Union Gas service territories during 2000 was 4% warmer than
1999, gas sales volumes in the corresponding period remained constant due to an
increase of 11,000 average number of customers served. In the Missouri service
territories weather was 6% warmer during 2000 than 1999 and gas sales volumes in
the corresponding period decreased 5%. An increase of 8,000 average number of
customers served in Missouri partially offset the decrease in gas sales volumes
in 2000. During fiscal years 2000 and 1999, the Company incurred pre-tax costs
of $10,363,000 and $3,839,000, respectively, related to an unsuccessful
acquisition effort and related litigation, impacting per share earnings by $.12
and $.06, respectively. Average common and common share equivalents out standing
increased 33% in 2000 due to the issuance of 16,713,735 pre-stock dividend
shares of the Company's common stock on November 4, 1999 in connection with the
acquisition of the Pennsylvania Operations. The Company earned 1.9% and 3.5% on
average common equity in 2000 and 1999, respectively.
Operating Revenues Operating revenues in 2001 increased $1,101,109,000, or 132%,
to $1,932,813,000 while gas purchase and other energy costs increased
$877,052,000, or 176%, to $1,374,750,000.
--------------------------------------------------------------------------------
16
The increase in both operating revenues and gas purchase and other energy costs
between periods was primarily due to a 47% increase in gas sales volumes to
176,654 MMcf in 2001 from 119,778 MMcf in 2000 and by a 90% increase in the
average cost of gas from $3.67 per Mcf in 2000 to $6.98 per Mcf in 2001. The
increase in the average cost of gas is due to increases in average spot market
gas prices throughout the Company's distribution system as a result of seasonal
impacts on demands for natural gas as well as the current competitive pricing
occurring within the entire energy industry. The New England Operations
contributed $429,074,000 to the overall increase in operating revenues,
$270,599,000 in gas purchase and other energy costs and 32,012 MMcf of the
increase in gas sales volume. The Pennsylvania Operations generated a net
increase from 2000 to 2001 of $155,093,000 in operating revenues, $135,766,000
in gas purchase and other energy costs, and 5,557 MMcf of the increase in gas
sales volume. Additionally impacting operating revenues in 2001 was a
$33,905,000 increase in gross receipt taxes primarily due to an increase in gas
purchase and other energy costs in the Texas and Missouri service territories in
2001 as compared to 2000 as well as the acquisition of the New England
Operations. Gross receipt taxes are levied on sales revenues billed to the
customers and remitted to the various taxing authorities. The remaining increase
in operating revenues, gas purchase and other energy costs, and gas sales volume
resulted principally from the colder-than-normal weather in the Texas and
Missouri service territories in 2001 as compared to the unusually mild
temperatures in 2000.
Gas purchase costs generally do not directly affect earnings since these costs
are passed on to customers pursuant to purchase gas adjustment (PGA) clauses.
Accordingly, while changes in the cost of gas may cause the Company's operating
revenues to fluctuate, operating margin is generally not affected by increases
or decreases in the cost of gas. Increases in gas purchase costs indirectly
affect earnings as the customer's bill increases, usually resulting in increased
bad debt and collection costs being recorded by the Company.
Gas transportation volumes in 2001 increased 13,489 MMcf to 90,504 MMcf at an
average transportation rate per Mcf of $.50 compared with $.43 in 2000. The New
England Division contributed an increase of 7,399 MMcf, while PG Energy
experienced a net increase of 6,027 MMcf in 2001.
Operating revenues in 2000 compared with 1999 increased $226,473,000, or 37%, to
$831,704,000, while gas purchase and other energy costs increased $155,397,000,
or 45%, to $497,698,000.
The increase in both operating revenues and gas purchase and other energy costs
was primarily due to a 14% increase in gas sales volumes from 105,156 MMcf in
1999 to 119,778 MMcf in 2000 and by a 14% increase in the average cost of gas
from $3.23 per Mcf in 1999 to $3.67 per Mcf in 2000. The acquisition of PG
Energy contributed 19,913 MMcf of the increase while the remaining operations of
the Company resulted in a gas sales volume decrease of 5,291 MMcf. The increase
in the average cost of gas was due to increases in average spot market gas
prices resulting from seasonal impacts on demands as noted above. Also impacting
operating revenues in 2000 was a $2,862,000 increase in gross receipt taxes
primarily due to the acquisition of the Pennsylvania Operations. Operating
revenues in 2000 compared with 1999 were also impacted by a $2,900,000 decrease
in revenues from the gas supply incentive plan approved by the MPSC in July,
1996. Under the plan, Southern Union and its Missouri customers shared in
certain savings below benchmark levels of gas costs incurred as a result of the
Company's gas procurement activities. Operating revenues were marginally
impacted by the $13,300,000 annual increase to revenues granted to Missouri Gas
Energy, effective as of September 2, 1998, as this rate increase is primarily
earned volumetrically and therefore was negatively impacted by the
warmer-than-normal weather in both 2000 and 1999.
Gas transportation volumes in 2000 increased 21,323 MMcf to 77,015 MMcf at an
average transportation rate per Mcf of $.43 compared with $.36 in 1999. PG
Energy contributed 19,403 MMcf of the increase in 2000. Transporta tion volumes
at Missouri Gas Energy in 2000 were relatively flat and increased from 23,918
MMcf to 25,969 MMcf in 2000 for Southern Union Gas and the Company's pipeline
subsidiaries. This increase was primarily due to a 15% increase, or 990 MMcf, in
the amount of volumes transported into Mexico by Norteno Pipeline Company
(Norteno), a subsidiary of the Company.
--------------------------------------------------------------------------------
17
Operating Margin Operating margin in 2001 (operating revenues less gas purchase
and other energy costs and revenue-related taxes) increased by $190,152,000,
compared with an increase of $68,214,000, in 2000. Operating margins and
earnings are primarily dependent upon gas sales volumes, gas service rates, and
the timing of the acquisition of the New England Operations and Pennsylvania
Operations. The level of gas sales volumes is sensitive to the variability of
the weather. Sales volumes, which were negatively impacted by unusually mild
temperatures throughout fiscal years 2000 and 1999, benefited from colder
weather during 2001. If normal weather had been present throughout the Company's
service territories in 2000 and 1999, operating margin would have increased by
approximately $21,214,000 and $20,334,000, respectively. Texas, Missouri and
Pennsylvania accounted for 21%, 29% and 18%, respectively, of the Company's
operating margin in 2001 and 32%, 42% and 23%, respectively, in 2000. New
England accounted for 30% of the Company's operating margin in 2001.
Weather Weather in the Missouri Gas Energy service territories in 2001 was 106%
of a 30-year measure, 33% colder than in 2000. Weather in the Southern Union Gas
service territories in 2001 was 112% of a 30-year measure, 58% colder than in
2000. About half of the customers served by Southern Union Gas are weather
normalized. Weather in the PG Energy service territories in 2001 was 105% of a
30-year measure, 14% colder than for the eight months ended June 30, 2000.
Weather in the New England service territories was 102% of a 30-year measure for
the nine months ended June 30, 2001.
Weather in Missouri in 2000 was 80% of a 30-year measure, 6% warmer than in
1999. Weather in Texas in 2000 was 71% of a 30-year measure, 4% warmer than in
1999. Weather in the PG Energy service territories was 92% of a 30-year measure
for the eight months ended June 30, 2000.
Customers The average number of customers served in 2001, 2000 and 1999 was
1,506,371, 1,132,699 and 998,476, respectively. These customer totals exclude
Southern Union's 43% equity ownership in a natural gas distribution company in
Piedras Negras, Mexico which currently serves 25,000 customers. Southern Union
Gas served 526,917 customers in Texas during 2001. Missouri Gas Energy served
489,023 customers in central and western Missouri. PG Energy served 155,322
customers in northeastern and central Pennsylvania, and the New England Division
served 289,598 customers in Rhode Island and Massachusetts during the nine
months ended June 30, 2001. SFNG and Atlantic Gas Corporation, a propane
subsidiary of the Company, served 4,385 and 764 customers, respectively, during
2001. SUPro Energy Company (SUPro), a subsidiary of the Company, served 8,836
propane customers while PG Energy Services, Inc. (Energy Services), a subsidiary
of the Company, served 14,990 electric, propane and natural gas customers during
2001. In Rhode Island and Massachusetts, Valley Propane, Inc. (Valley Propane),
a subsidiary of the Company, served 2,800 propane customers while ProvEnergy
Fuels, Inc. (ProvEnergy Fuels), a fuel oil subsidiary of the Company, served
14,000 customers during the nine months ended June 30, 2001.
Operating Expenses Operating, maintenance and general expenses in 2001 increased
$102,967,000, or 75%, to $239,554,000. Increases of $65,878,000 and $12,737,000
were the result of the acquisitions of the New England Operations and the
Pennsylvania Operations, respectively. An increase in bad debt expense in the
Texas and Missouri service territories of $18,294,000 resulted from an increase
in delinquent customer receivables as a result of higher gas prices and colder
weather. Also impacting operating expenses were increases in employee payroll
and benefit costs.
Depreciation and amortization expense in 2001 increased $31,845,000 to
$86,985,000. The increase was primarily due to the New England Operations and
the Pennsylvania Operations, respectively, and normal growth in plant. Taxes
other than on income and revenues, principally consisting of property, payroll
and state franchise taxes increased $12,591,000 to $29,860,000 in 2001. The
increase was also primarily the result of the acquisition of the New England
Operations. See Other Matters -- Accounting Pronouncements.
Operating, maintenance and general expenses in 2000 increased $26,894,000, or
25%, to $136,587,000. An increase of $23,804,000 was the result of the
acquisition of the Pennsylvania Operations. Increased expenses associated with
increased bad debt expense and inventory write-downs for SUPro, as well as
increases in Company employee benefit costs also contributed to the increase in
2000.
--------------------------------------------------------------------------------
18
Depreciation and amortization expense in 2000 increased $13,285,000 to
$55,140,000 as a result of the acquisition of the Pennsylvania Operations and
normal growth in plant. Taxes other than on income and revenues, principally
consisting of property, payroll and state franchise taxes increased $2,768,000
to $17,269,000 in 2000. The increase was primarily the result of the acquisition
of the Pennsylvania Operations. See Other Matters -- Accounting Pronouncements.
Employees The Company employed 3,092, 2,285 and 1,554 individuals as of June 30,
2001, 2000 and 1999, respectively. After gas purchases and taxes, employee costs
and related benefits are the Company's most significant expense. Such expense
includes salaries, payroll and related taxes and employee benefits such as
health, savings, retirement and educational assistance.
In August 2001, the Company announced implementation of a corporate
reorganization and restructuring which was initially announced in July 2001 as
part of a Cash Flow Improvement Plan. See Corporate Restructuring. Actions taken
included: (i) the offering of voluntary Early Retirement Programs ("ERPs") in
certain of its operating divisions and (ii) a limited reduction in force ("RIF")
within its corporate division. ERPs, providing for increased benefits for those
electing retirement, were offered to approximately 400 eligible employees across
the Company's operating divisions. In connection with the RIF, 48 employees were
offered severance packages.
During fiscal 2001, the Company agreed to three-year contracts with two
bargaining units representing Pennsylvania employees, which were effective in
April 2001and August 2000, respectively. In December 1998, the Company agreed to
five-year contracts with each of the bargaining units representing Missouri
employees, which were effective in May 1999.
Interest Expense and Dividends on Preferred Securities Total interest expense in
2001 increased by $52,027,000, or 101%, to $103,519,000. Interest expense on
long-term debt and capital leases increased by $46,725,000 in 2001 primarily due
to a $485,000,000 bank note (the Term Note) entered into by the Company for the
acquisition of the New England Operations, the issuance of $300,000,000 of 8.25%
Senior Notes on November 3, 1999 (8.25% Senior Notes) for the acquisition of the
Pennsylvania Operations and the assumption of debt by the Company from the New
England Operations and Pennsylvania Operations. The Company entered into the
Term Note on August 28, 2000 to (i) fund the cash consideration paid to
stockholders of Fall River Gas, ProvEnergy and Valley Resources, (ii) refinance
and repay long- and short-term debt assumed in the New England Operations, and
(iii) acquisition costs of the New England Operations. The Company also assumed
$113,321,000 in long-term debt of the New England Operations. The 8.25% Senior
Notes were issued to fund the acquisition of Pennsylvania Enterprises, Inc. and
to extinguish $135,000,000 in existing debt of the Pennsylvania Operations. The
Company also assumed $45,000,000 in long-term debt of the Pennsylvania
Operations which was not refinanced or extinguished with the Term Note or the
8.25% Senior Notes.
.
Interest expense on short-term debt in 2001 increased $6,647,000 to $7,913,000
primarily due to the increase in the average short-term debt outstanding by
$102,827,000 to $123,829,000. An increase in the average outstanding balance of
short-term credit facilities reflects the higher cost of gas and the expansion
of the Company's operations into Rhode Island and Massachusetts with the
acquisition of the New England Operations during the current fiscal year. Draws
on short-term debt also arise as Southern Union is required to make payments to
natural gas suppliers in advance of the receipt of cash payments from the
Company's customers. The average rate of interest on short- term debt increased
from 6% in 2000 to 6.4% in 2001.
Total interest expense in 2000 increased by $15,493,000, or 43%, to $51,492,000.
Interest expense on long-term debt and capital leases increased by $17,736,000
in 2000 primarily due to the issuance of the 8.25% Senior Notes for the
acquisition of the Pennsylvania Operations.
Interest expense on short-term debt in 2000 decreased $284,000 to $1,266,000
primarily due to the decrease in the average short-term debt outstanding by
$6,472,000 to $21,002,000. The average rate of interest on short-term debt
increased from 5.6% in 1999 to 6% in 2000.
Other Income (Expense), Net Other income, net, in 2001 was $76,819,000, compared
to other expense, net of $9,708,000 in 2000. Other income in 2001 includes
realized gains on the sale of a portion of Southern Union's holdings in Capstone
Turbine Corporation of $74,582,000, a $13,532,000 gain on the sale of non-core
real estate
--------------------------------------------------------------------------------
19
and interest and dividend income of $7,643,000. These items were offset by
$12,855,000 of legal costs associated with ongoing litigation associated with
the unsuccessful acquisition of Southwest Gas Corporation (Southwest) and
$5,684,000 of non-cash trading losses. See Quantitative and Qualitative
Disclosure About Market Risk for further discussion of these non-cash trading
losses.
Other expense in 2000 included $10,363,000 of costs associated with the
aforementioned unsuccessful acquisition efforts and related litigation and
$2,236,000 of non-cash trading losses. These items were offset by net rental
income of Lavaca Realty Company (Lavaca Realty) of $1,757,000.
Other expense in 1999 included $3,839,000 of costs associated with various
acquisition efforts and a net expense of $619,000 related to the amortization
and current deferral of interest and other expenses associated with the Missouri
Gas Energy Safety Program. These items were offset by net rental income of
Lavaca Realty of $1,448,000 and equity earnings of $609,000 from Southern
Union's 43% equity ownership of a natural gas distribution company in Piedras
Negras, Mexico.
Federal and State Income Taxes Federal and state income tax expense in 2001,
2000 and 1999 was $40,000,000, $9,589,000 and $7,109,000, respectively. The
Company's consolidated federal and state effective income tax rate was 41%, 49%
and 40% in 2001, 2000 and 1999, respectively. The fluctuation in the effective
federal and state income tax rate is a result of non-tax deductible amortization
of additional purchase cost along with the level of pre- tax earnings.
Liquidity and Capital Resources
Operating Activities The seasonal nature of Southern Union's business results in
a high level of cash flow needs to finance gas purchases and other energy costs,
outstanding customer accounts receivable and certain tax pay ments. To provide
these funds, as well as funds for its continuing construction and maintenance
programs, the Com pany has historically used its credit facilities along with
internally-generated funds. Because of available short-term credit and the
ability to obtain various market financing, management believes it has adequate
financial flexibility to meet its cash needs.
The Company has increased the scale of its operations and the size of its
customer base by pursuing and consum mating business combination transactions.
On September 20, 2000, the Company acquired Valley Resources, on September 28,
2000, the Company acquired both Fall River Gas and ProvEnergy, and on November
4, 1999, the Company acquired the Pennsylvania Operations. See Business --
Acquisitions. Acquisitions require substantial increase in expenditures which
may need to be financed through cash flow from operations or future debt and
equity offerings. The availability and terms of any such financing sources will
depend upon various factors and conditions such as the Company's combined cash
flow and earnings, the Company's resulting capital structure, and conditions in
financial markets at the time of such offerings. Acquisitions and financings
also affect the Company's combined results due to factors such as the Company's
ability to realize any anticipated benefits from the acquisitions, successful
integration of new and different operations and businesses, and effects of
different regional economic and weather conditions. Future acquisitions or
merger-related refinancing may involve the issuance of shares of the Company's
common stock, which could have a dilutive effect on the then-current
stockholders of the Company. See Other Matters -- Cautionary Statement Regarding
Forward-Looking Information.
Cash flows from operating activities before changes in operating assets and
liabilities for 2001 were $123,260,000 compared with $74,050,000 and $65,069,000
for 2000 and 1999, respectively. After changes in operating assets and
liabilities, cash flows used in operating activities was $135,177,000 in 2001.
Cash flow from operating activities was $70,522,000 and $76,583,000 for 2000 and
1999, respectively. Changes in operating assets and liabilities used cash of
$258,437,000 in 2001 compared with $3,528,000 in 2000. Changes in operating
assets and liabilities provided cash of $11,784,000 in 1999. The current year
changes in operating assets and liabilities reflect an increase in gas sales
volumes coupled with an increase in the average cost of gas resulting in a
higher level of accounts receivable. Operating activities were also impacted by
the timing of acquisitions and the timing of natural gas purchases stored in
inventory by Missouri Gas Energy, PG Energy and the New England Operations.
At June 30, 2001, 2000 and 1999, the Company's primary source of liquidity
included borrowings available under the Company's credit facilities. A balance
of $190,600,000 and nil was outstanding under the credit facilities at June 30,
2001 and 2000, respectively. In May, 2001, the Company amended and restated
these credit facilities. As of August 31, 2001 there was a balance of
$211,800,000 outstanding under these credit facilities.
--------------------------------------------------------------------------------
20
Investing Activities Cash flow used in investing activities in 2001 increased
$292,152,000 to $446,675,000 and increased by $73,314,000 to $154,523,000 in
2000. Investing activity cash flow was primarily affected by additions to
property, plant and equipment, acquisition and sales of operations, sales and
purchases of investment securities and the sale of non-core real estate.
During 2001, 2000 and 1999, the Company expended $123,776,000, $100,446,000 and
$73,147,000, respectively, for capital expenditures excluding acquisitions.
These expenditures primarily related to distribution system replace ment and
expansion. Included in these capital expenditures were $14,040,000, $14,286,000
and $17,951,000 for the Missouri Gas Energy Safety Program in 2001, 2000 and
1999, respectively. This program is anticipated to be completed by fiscal year
2020. Cash flow from operations has historically been utilized to finance
capital expenditures and is expected to be the primary source for future capital
expenditures.
In September 2000, Southern Union acquired the New England Operations for
1,370,629 pre-stock dividend shares of Southern Union common stock and
$414,497,000 in cash. On December 15, 2000, the Company sold its Austin, Texas
headquarters building, Lavaca Plaza, for $20,638,000, resulting in a pre-tax
gain of $13,532,000. On June 8, 2001, the disposal of a former subsidiary of the
Pennsylvania Operations generated proceeds of $3,300,000 and a pre-tax gain of
$707,000.
On November 4, 1999, Southern Union acquired the Pennsylvania Operations for
16,713,735 pre-stock dividend shares of common stock and $36,152,000 in cash. On
the date of acquisition, Pennsylvania Operations had $576,000 in cash and cash
equivalents. In January 2000, a former subsidiary of the Pennsylvania Operations
was sold for $12,150,000. No gain or loss was recognized on this transaction.
During 2001, the Company realized proceeds and a net gain on the sale of
investment securities in Capstone Turbine Corporation (Capstone) of $84,762,000
and $74,582,000, respectively. As of August 31, 2001, the fair value of the
Company's remaining investment in Capstone was $6,652,000. Subject to market
conditions, the Company expects to monetize its remaining investment. The
Company intends to use the proceeds from such sales to reduce outstanding debt.
During 2001, 2000 and 1999, the Company purchased investment securities of
$12,495,000, $21,001,000 and $7,000,000, respectively.
The Company completed the installation of an AMR system at Missouri Gas Energy
during the first quarter of fiscal year 1999. The installation of the AMR system
involved an investment of approximately $30,000,000 which is accounted for as a
capital lease obligation. As of June 30, 2001, the capital lease obligation
outstanding was $23,200,000.
Financing Activities Cash flow from financing activities was $555,242,000,
$111,830,000 and $4,356,000 in 2001, 2000 and 1999, respectively. Financing
activity cash flow changes were primarily due to the net impact of acquisition
financing, repayment of debt, net activity under the revolving credit
facilities, purchase of treasury stock and changes in cash overdrafts. As a
result of these financing transactions, the Company's total debt to total
capital ratio at June 30, 2001 was 61.8%, compared with 46.8% and 49.0% at June
30, 2000 and 1999, respectively. The Company's effective debt cost rate under
the current debt structure is 7.98% (which includes interest and the
amortization of debt issuance costs and redemption premiums on refinanced debt).
In connection with the acquisition of the New England Operations, the Company
entered into a $535,000,000 Term Note on August 28, 2000 to fund (i) the cash
portion of the consideration to be paid to Fall River Gas' stockholders; (ii)
the all cash consideration to be paid to the ProvEnergy and Valley Resources
stockholders, (iii) repayment of approximately $50,000,000 of long- and
short-term debt assumed in the New England mergers, and (iv) related acquisition
costs. As of June 30, 2001, a balance of $485,000,000 was outstanding on this
Term Note. The Term Note, which initially expired on August 27, 2001, has been
extended through August 26, 2002. No additional draws can be made on the Term
Note. The interest rate on borrowings under the Term Note is a floating rate
based on LIBOR or prime interest rates. See Quantitative and Qualitative
Disclosures About Market Risk.
Concurrent with the acquisition of the Pennsylvania Operations, the Company
issued $300,000,000 of 8.25% Senior Notes due 2029 which were used to: (i) fund
the cash portion of the consideration to be paid to the Pennsylvania Operations
shareholders; (ii) refinance and repay certain debt of Pennsylvania Operations,
and (iii) repay outstanding borrowings under the Company's various credit
facilities. These senior notes are senior unsecured obligations and will rank
equally in right of payment with each other and with the Company's other
unsecured and unsubordinated
--------------------------------------------------------------------------------
21
obligations, including the 7.60% Senior Notes due 2024. In connection with the
acquisition of the Pennsylvania Operations, the Company assumed $30,000,000 of
8.375% Series First Mortgage Bonds due in December 2002 and $15,000,000 of 9.34%
Series First Mortgage Bonds due in 2019.
In fiscal year 2002, the Company may choose to refinance some portion or all of
the Term Note. Sources of future or alternative financing that the Company may
consider include commercial and investment banks, institutional lenders,
institutional investors and public securities markets. The availability and
terms of any such financing sources will depend upon various factors and
conditions such as the Company's combined cash flow and earnings, the Company's
resulting capital structure, and conditions in financial markets at the time of
such offerings. Acquisitions and financing will also affect the Company's
combined results due to factors such as the Company's ability to realize any
anticipated benefits from the mergers and any other acquisitions, successful
integration of new and different operations and businesses, and effects of
different regional economic and weather conditions. See Other Matters --
Cautionary Statement Regarding Forward-Looking Information.
In June 1999, the Company repurchased $20,000,000 of Senior Notes. Depending
upon market conditions and available cash balances, the Company may repurchase
additional debt securities in the future. See Preferred Securities of Subsidiary
Trust and Debt and Capital Lease in the Notes to the Consolidated Financial
Statements.
On May 29, 2001, the Company restated and amended its short-term and long-term
credit facilities (together referred to as Revolving Credit Facilities). The
Company has available $150,000,000 under the short-term facility, which expires
May 28, 2002, and $225,000,000 under the long-term facility, which expires on
May 29, 2004. The Company has additional availability under uncommitted line of
credit facilities (Uncommitted Facilities) with various banks. Borrowings under
the facilities are available for Southern Union's working capital, letter of
credit requirements and other general corporate purposes. The Revolving Credit
Facilities are subject to a commitment fee based on the rating of the Senior
Notes. As of June 30, 2001, the commitment fee was an annualized 0.14%.
The Company had standby letters of credit outstanding of $2,716,000 at June 30,
2001 and $6,199,000 at June 30, 2000, which guarantee payment of insurance
claims and other various commitments.
Quantitative and Qualitative Disclosures About Market Risk
The Company has long-term debt, Preferred Securities and Revolving Credit
Facilities, which subject the Company to the risk of loss associated with
movements in market interest rates.
At June 30, 2001, the Company had issued fixed-rate long-term debt, capital
lease and Preferred Securities aggregating $950,544,000 in principal amount and
having a fair value of $932,667,000. These instruments are fixed- rate and,
therefore, do not expose the Company to the risk of earnings loss due to changes
in market interest rates. However, the fair value of these instruments would
increase by approximately $42,320,000 if interest and dividend rates were to
decline by 10% from their levels at June 30, 2001. In general, such an increase
in fair value would impact earnings and cash flows only if the Company were to
reacquire all or a portion of these instruments in the open market prior to
their maturity.
The Company's floating-rate obligations aggregated $675,600,000 at June 30, 2001
and primarily consisted of the Term Note entered into by the Company for the
acquisition of the New England Operations and amounts borrowed under Revolving
Credit Facilities of the Company. The floating-rate obligations under the Term
Note and Revolving Credit Facilities expose the Company to the risk of increased
interest expense in the event of increases in short-term interest rates. If the
floating rates were to increase by 10% from June 30, 2001 levels, the Company's
consolidated interest expense would increase by a total of approximately
$194,000 each month in which such increase continued.
The risk of an economic loss is reduced at this time as a result of the
Company's regulated status. Any unrealized gains or losses are accounted for in
accordance with the Financial Accounting Standards Board Accounting for the
Effects of Certain Types of Regulation as a regulatory asset/liability because
the Company believes that its future contributions which are currently recovered
through the rate-making process will be adjusted for these gains and losses.
The change in exposure to loss in earnings and cash flow related to interest
rate risk from June 30, 2000 to June 30, 2001 is not material to the Company.
--------------------------------------------------------------------------------
22
See Preferred Securities of Subsidiary Trust and Debt and Capital Lease in the
Notes to the Consolidated Financial Statements.
The Company owns approximately 1.3 million shares of Capstone common stock. This
investment is classified as "available for sale" under the Financial Accounting
Standards Board Accounting for Certain Investments in Debt and Equity
Securities. Unrealized gains and losses resulting from changes in the market
value of Capstone are recorded in Other Comprehensive Income. The Capstone
investment exposes the Company to losses in the fair value of Capstone common
stock. A 10% decline in the market value per share of Capstone common stock from
the June 30, 2001 levels would result in an $2,900,000 loss in value to the
Company.
In connection with the acquisition of the Pennsylvania Operations, the Company
assumed a guaranty with a bank whereby the Company unconditionally guaranteed
payment of financing obtained for the development of PEI Power Park. In March
1999, the Borough of Archbald, the County of Lackawanna, and the Valley View
School District (together the Taxing Authorities) approved a Tax Incremental
Financing Plan (TIF Plan) for the development of PEI Power Park. The TIF Plan
requires that: (i) the Redevelopment Authority of Lackawanna County raise
$10,600,000 of funds to be used for infrastructure improvements of the PEI Power
Park; (ii) the Taxing Authorities create a tax increment district and use the
incremental tax revenues generated from new development to service the
$10,600,000 debt; and (iii) PEI Power Corporation, a subsidiary of the Company,
guarantee the debt service payments. In May 1999, the Redevelopment Authority of
Lackawanna County borrowed $10,600,000 from a bank under a promissory note (TIF
Debt). The TIF Debt has a 12-year term, with a 7.75% annual interest rate, and
requires semi-annual principal and interest payments of approximately $725,000
(interest only for the first year). As of June 30, 2001, incremental tax
revenues cover approximately 17% of the annual debt service. The balance
outstanding on the TIF Debt was $9,943,000 as of June 30, 2001.
In accordance with effective adoption of Financial Accounting Standard Board
(FASB), Accounting for Derivative Instruments and Hedging Activities on July 1,
2000 the Company recorded a net-of-tax cumulative-effect gain of $602,000 in
earnings to recognize the fair value of the gas derivative contracts at Energy
Services that are not designated as hedges. The Company also recorded $826,000
in accumulated other comprehensive income which recognizes the fair value of two
interest rate swap derivatives that were designated as cash flow hedges.
During fiscal year 2001, the Company was party to an interest rate swap designed
to reduce exposure to changes in the fair value of a fixed rate lease
commitment. This interest rate swap, designated as a fair value hedge, was
terminated in October 2000 resulting in a pre-tax gain of $182,000 which will be
amortized through the remaining term of the underlying lease obligation. The
Company also continues to be obligated under three interest rate swaps created
to hedge exposure against volatility in interest payments on variable rate debt.
At June 30, 2001 the fair value of these interest rate derivatives was a
liability of $2,009,000 and is offset by a matching adjustment to other
comprehensive income. For the fiscal year ended June 30, 2001 net settlement
payments of $1,733,000 were made related to these derivatives and recorded to
interest expense. The Company expects to reclassify as interest expense
$1,911,000 in derivative losses, net of taxes, from accumulated other
comprehensive income as the settlement of swap payments occur over the next
twelve months. The maximum term over which the Company is hedging exposures to
the variability of cash flows is 28 months.
Subsequent to June 30, 2001, the Company entered three interest rate swaps, in
order to take advantage of market interest rate reductions. The first derivative
instrument, effective July 5, 2001, carries a notional amount of $100,000,000
and terminates June 30, 2005. The remaining derivative instruments, effective
July 23, 2001 and August 1, 2001, carry notional amounts of $300,000,000 and
$200,000,000, respectively, and terminate November 15, 2004 and February 1,
2005, respectively. On September 19, 2001, these interest rate swaps were
unwound, resulting in a pre-tax gain and cash flow of $17,200,000.
In March 2001, the Company discovered unauthorized financial derivative energy
trading activity by a non-regulated, wholly-owned subsidiary. During March 2001
and April 2001, all unauthorized trading activity was closed resulting in a
cumulative cash expense of $191,000, net of taxes. The remaining deferred
liability of $7,921,000 at June 30, 2001 related to these derivative instruments
will be recognized as income in the Consolidated Statement of Operations over
the next four years based on the related contracts.
In May 2001, the Company acquired natural gas commodity swap derivatives and
collar transactions in order to mitigate price volatility of natural gas passed
through to utility customers. The cost of the derivative products and
--------------------------------------------------------------------------------
23
the settlement of the respective obligations are recorded through the gas
purchase adjustment clause as authorized by the applicable regulatory authority
and therefore do not impact earnings. The fair value of the contracts are
recorded as an adjustment to a regulatory asset/liability in the consolidated
financial statements. As of June 30, 2001, the Company owned contracts
representing 3,718,840 MMBtu of natural gas at an average strike price of $4.20
per MMBtu. The fair value of the contracts, which expire in May 2002, are
included in the consolidated financial statements as a liability and a matching
adjustment to deferred cost of gas of $1,701,000.
Other Matters
Corporate Restructuring In August 2001, the Company announced implementation of
a corporate reorganization and restructuring which was initially announced in
July 2001 as part of a Cash Flow Improvement Plan designed to increase
annualized pre-tax cash flow from operations by at least $50 million by the end
of fiscal year 2002. Actions taken included (i) the offering of voluntary ERPs
in certain of its operating divisions and (ii) a limited RIF within its
corporate division. ERPs, providing for increased benefits for those electing
retirement, were offered to approxi mately 400 eligible employees across the
Company's operating divisions.
In connection with the corporate reorganization and restructuring, Southern
Union is decentralizing certain of its corporate management functions and will
transfer those functions to its divisions in Texas, Missouri, Pennsylvania and
New England. The resulting RIF is limited solely to certain corporate employees
in the Company's Austin and Kansas City offices. The resulting organization will
have employees transferred to operating divisions and others in shared service
positions. Forty-eight employees were offered severance packages.
As a result of actions associated with the corporate reorganization and
restructuring described above and the disposal of certain assets, the Company
expects an annual cost savings in a range of $35 million to $40 million.
The Company anticipates a one-time charge of between $25 million to $32 million
for the quarter ending September 30, 2001. This charge will include costs
associated with the ERP and corporate reorganization and restructuring, costs
connected with redundant IT systems, and certain other related costs. The size
of this charge may be reduced subject to favorable regulatory treatment of the
ERP costs in certain operating divisions. The Company expects that most of the
restructuring actions will be completed by the end of fiscal 2002.
Foreign Operations On July 23, 1997, Energia Estrella del Sur, S. A. de C. V.,
a wholly-owned subsidiary of Southern Union Energy International, Inc. and
Southern Union International Investments, Inc., both subsidiaries of the Com-
pany, acquired an equity ownership in a natural gas distribution company and
other operations which currently serves 25,000 customers in Piedras Negras,
Mexico, which is across the border from the Company's Eagle Pass, Texas service
area. Southern Union currently has a 43% equity ownership in this company.
Financial results of foreign operations did not have a significant impact on the
Company's financial results during 2001, 2000 and 1999.
Stock Splits and Dividends On August 30, 2001, June 30, 2000, August 6, 1999 and
December 9, 1998, Southern Union distributed a 5% common stock dividend to
stockholders of record on August 16, 2001, June 19, 2000, July 23, 1999 and
November 23, 1998. A portion of each of these 5% stock dividends was
characterized as a distribution of capital due to the level of the Company's
retained earnings available for distribution as of the declaration date. Unless
otherwise stated, all per share data included herein and in the accompanying
Consolidated Financial Statements and Notes thereto have been restated to give
effect to the stock dividends.
Contingencies The Company is investigating the possibility that the Company or
predecessor companies may have been associated with Manufactured Gas Plant (MGP)
sites in its former service territories, principally in Arizona and New Mexico,
and present service territories in Texas, Missouri, Pennsylvania, Massachusetts
and Rhode Island. At the present time, the Company is aware of certain MGP sites
in these areas and is investigating those and certain other locations. While the
Company's evaluation of these Texas, Missouri, Arizona, New Mexico,
Pennsylvania, Massachusetts and Rhode Island MGP sites is in its preliminary
stages, it is likely that some compliance costs may be identified and become
subject to reasonable quantification. Within the Company's service territories
certain MGP sites are currently the subject of governmental actions. See MD&A --
Cautionary Statement Regarding Forward-Looking Information and Commitments and
Contingencies in the Notes to the Consolidated Financial Statements.
--------------------------------------------------------------------------------
24
On February 1, 1999, Southern Union submitted a proposal to the Board of
Directors of Southwest Gas Corporation (Southwest) to acquire all of Southwest's
outstanding common stock for $32.00 per share. Southwest at that time had a
pending merger agreement with ONEOK, Inc. (ONEOK) at $28.50 per share, executed
on December 14, 1998. On February 22, 1999, Southern Union and Southwest both
publicly announced Southern Union's proposal, after the Southwest Board of
Directors determined that Southern Union's proposal was a Superior Proposal (as
defined in the Southwest merger agreement with ONEOK). At that time Southern
Union entered into a Confidentiality and Standstill Agreement with Southwest at
Southwest's insistence. On April 25, 1999, Southwest's Board of Directors
rejected Southern Union's $32.00 per share offer and accepted an amended offer
of $30.00 per share from ONEOK. On April 27, 1999, Southern Union increased its
offer to $33.50 per share and agreed to pay interest which, together with
dividends, would provide Southwest shareholders with a 6% annual rate of return
on its $33.50 offer, com mencing February 15, 2000, until closing. Southern
Union's revised proposal was rejected by Southwest's Board of Directors. On
January 21, 2000, ONEOK announced that it was withdrawing from the Southwest
merger agreement.
There are several lawsuits pending that relate to activities surrounding
Southern Union's efforts to acquire Southwest. In addition, there is before the
U. S. Court of Appeals for the Tenth Circuit, an appeal by Southern Union of a
preliminary injunction entered by the U. S. District Court for the Northern
District of Oklahoma. Southern Union intends to pursue vigorously its claims
against Southwest, ONEOK, and certain individual defendants, and defend itself
vigorously against the claims by Southwest and ONEOK. See Commitments and
Contingencies in the Notes to Consolidated Financial Statements for a discussion
of these lawsuits.
In August 1998, a jury in Edinburg, Texas concluded deliberations on the City of
Edinburg's franchise fee lawsuit against PG&E Gas Transmission, Texas
Corporation (formerly Valero Energy Corporation (Valero)) and a number of its
subsidiaries, as well as former Valero subsidiary Rio Grande Valley Gas Company
(RGV) and RGV's successor company, Southern Union Company. Southern Union
purchased RGV from Valero in October 1993. The jury awarded the plaintiff
damages, against all defendants under several largely overlapping but mutually
exclusive claims, totaling approximately $13,000,000. The trial judge
subsequently reduced the award to approximately $700,000 against Southern Union
and $7,800,000 against Valero and Southern Union together. The trial court's
decision was appealed to the Thirteenth District of the Texas Court of Appeals
(Court of Appeals). In December 2000, the Court of Appeals reversed and modified
the trial court's judgment of approximately $8,500,000 and awarded the City of
Edinburg $585,000, plus pre-judgment interest of $190,000 against RGV and Valero
for breach of contract. The Court of Appeals upheld the award for attorneys'
fees of approximately $3,500,000 against Valero, RGV and Southern Union. In
subsequent decisions, the Court of Appeals first excluded Southern Union from,
then reinstated against Southern Union, the December 2000 judgment. The Court of
Appeals also remanded a portion of the case to the Trial Court with instructions
to retry certain issues. The Company will continue to pursue reversal on appeal.
The Company believes that the outcome of this matter will not have a material
adverse impact on the Company's results of operations, financial position or
cash flows. The Company also has entered into a settlement agreement to settle a
related class action lawsuit with a majority of the cities served by the Company
in Texas. The settlement will not have a material adverse impact on the
Company's results of operations, financial position or cash flows.
Southern Union and its subsidiaries are parties to other legal proceedings that
management considers to be normal actions to which an enterprise of its size and
nature might be subject, and not to be material to the Company's overall
business or financial condition, results of operations or cash flows.
See Commitments and Contingencies in the Notes to Consolidated Financial
Statements.
Inflation The Company believes that inflation has caused and will continue to
cause increases in certain operating expenses and has required and will continue
to require assets to be replaced at higher costs. The Company continually
reviews the adequacy of its gas service rates in relation to the increasing cost
of providing service and the inherent regulatory lag in adjusting those rates.
Regulatory The majority of the Company's business activities are subject to
various regulatory authorities. The Company's financial condition and results of
operations have been and will continue to be dependent upon the receipt of
adequate and timely adjustments in rates. Gas service rates, which consist of a
monthly fixed charge and a gas usage charge, are established by regulatory
authorities and are intended to permit utilities the opportunity to recover
operating, administrative and financing costs and to have the opportunity to
earn a reasonable return on equity. The
--------------------------------------------------------------------------------
25
monthly fixed charge provides a base revenue stream while the usage charge
increases the Company's revenues and earnings in colder weather when natural gas
usage increases.
On July 5, 2001, the Missouri Public Service Commission issued an order
approving a unanimous settlement of Missouri Gas Energy's rate request. The
settlement provides for an annual $9,892,000 base rate increase, as well as
$1,081,000 in added revenue from new and revised service charges. The majority
of the rate increase will be recovered through increased monthly fixed charges
to gas sales service customers. New rates became effective August 6, 2001, two
months before the statutory deadline for resolving the case. The approved
settlement requires parties to seek dismissal of all pending judicial reviews of
prior rate cases. The settlement also provides for the development of a two-year
experimental low-income program that will help certain customers in the Joplin
area pay their natural gas bills.
Pursuant to the Rhode Island Public Utilities Commission's Written Order issued
April 30, 2001, Providence Gas' Price Stabilization Plan was extended through
June 2002. The aforementioned agreement provides for additional gas distribution
margin of $12,030,000 over the 21-month period, October 2000 through June 2002,
or approximately $6,240,000 for the twelve months ended September 2001. The
settlement agreement also contains a weather mitigation clause and a non-firm
margin incentive mechanism (non-firm margin is margin earned from interruptible
customers with the ability to switch to alternative fuels). The weather
mitigation clause is designed to mitigate the impact of weather volatility on
customer billings, which will assist customers in paying bills and stabilize the
revenue stream to Providence Gas. Providence Gas will defer the margin impact of
weather that is greater than 2% colder- than-normal and will recover the margin
impact of weather that is greater than 3% warmer-than-normal by making the
corresponding adjustment to the deferred revenue account (DRA). The non-firm
margin incentive mechanism is designed to encourage Providence Gas to promote
the development of non-firm margins, which will reduce the cost of service to
all customers. Providence Gas will retain 25% of all non-firm margins earned in
excess of $1,200,000. Under the settlement agreement, Providence Gas may earn up
to 10.7%, but not less than 7.0%, using the average return on equity for the two
12-month periods of October 2000 through September 2001 and July 2001 through
June 2002.
Effective October 1, 2000, the Rhode Island Public Utilities Commission (RIPUC)
had approved a settlement agreement between Providence Gas, the Rhode Island
Division of Public Utilities and Carriers, the Energy Council of Rhode Island,
and The George Wiley Center. The settlement agreement recognized the need for an
increase in distribution system revenues of $4,500,000, recovered through an
adjustment to the throughput portion of the gas charge, and provided for a
21-month base rate freeze. In the settlement agreement, the RIPUC authorized
system improvement programs. Additionally, higher levels of support for low
income bill payment assistance was authorized as well as the continuation of the
utility's demand side management and weatherization assistance programs.
On April 3, 2000, PG Energy filed an application with the Pennsylvania Public
Utility Commission (PPUC) seeking an increase in its base rates designed to
produce $17,900,000 in additional annual revenues. On December 7, 2000, the PPUC
approved a settlement agreement that provided for a rate increase designed to
produce $10,800,000 of additional annual revenue. The new rates became effective
on January 1, 2001.
On October 18, 1999, Southern Union Gas filed a $1,696,000 rate increase request
for the El Paso service area with the City of El Paso. In February 2000, the
City of El Paso approved a $650,000 revenue increase, and an improved rate
design that collects a greater portion of the Company's revenue stream from the
monthly customer charge. Additionally, the City of El Paso approved a new
30-year franchise for Southern Union Gas.
Pursuant to a 1989 MPSC order, Missouri Gas Energy is engaged in a major gas
safety program in its service territories. This program includes replacement of
company- and customer-owned gas service and yard lines, the movement and
resetting of meters, the replacement of cast iron mains and the replacement and
cathodic protection of bare steel mains. In recognition of the significant
capital expenditures associated with this safety program, the MPSC permits the
deferral, and subsequent recovery through rates, of depreciation expense,
property taxes and associated carrying costs. The continuation of the Missouri
Gas Energy Safety Program will result in significant levels of future capital
expenditures. The Company estimates incurring capital expenditures of
$12,854,000 in fiscal 2002 related to this program which are expected to be
financed through cash flow from operations. See Utility Regulation and Rates and
Commitments and Contingencies in the Notes to Consolidated Financial Statements.
--------------------------------------------------------------------------------
26
In August 1997, the MPSC issued an order authorizing Missouri Gas Energy to
begin making semi-annual purchase gas adjustments (PGA) in November and April,
instead of more frequent adjustments as previously made. Additionally, the order
authorized Missouri Gas Energy to establish an Experimental Price Stabilization
Fund for purposes of procuring natural gas financial instruments to hedge a
minimal portion of its gas purchase costs for the winter heating season. The
cost of purchasing these financial instruments and any gains derived from such
activities are passed on to the Missouri customers through the PGA. Accordingly,
there is no earnings impact as a result of the use of these financial
instruments. These procedures help stabilize the monthly heating bills for
Missouri customers. The Company believes it bears minimal risk under the
authorized transactions.
Beginning in 1996, the MPSC authorized a series of experimental gas supply
incentive plans for Missouri Gas Energy. The initial three year plan, effective
July 1, 1996, achieved a reduction in overall gas costs of $6,900,000 resulting
in savings to Missouri customers of $4,000,000 and additional revenues to the
Company of $2,900,000 for the year ended June 30, 1999. The MPSC subsequently
approved an additional two year gas supply incentive plan that became effective
August 31, 2000. Earnings under the current plan are primarily dependent on
certain market conditions and market prices for natural gas which did not occur
in fiscal 2001, and there is no assurance that the Company will have an
opportunity to generate earnings under this aspect of the plan during fiscal
2002.
The Company continues to pursue certain changes to rates and rate structures
that are intended to reduce the sensi tivity of earnings to weather including
weather normalization clauses and higher monthly fixed monthly customer charges.
Southern Union Gas has weather normalization clauses in 22 Texas towns and
cities, including Austin, Andrews and various El Paso service areas, Galveston,
Port Arthur and Mineral Wells. These clauses allow for the adjustments that help
stabilize customers' monthly bills and the Company's earnings from the varying
effects of weather.
Accounting Pronouncements In June 2001, the FASB issued Goodwill and Other
Intangible Assets. The Statement is effective for all fiscal quarters of fiscal
years beginning after December 15, 2001. Early application is permitted for
entities with fiscal years beginning after March 15, 2001, provided that the
first quarter's financial statements have not previously been issued. The
Statement requires, among other things, that goodwill is no longer subject to
amortization over its estimated useful life. Rather, goodwill will be subject to
at least an annual assessment for impairment by applying a fair-value-based
test. The Company intends to adopt this Standard during the quarter ending
September 30, 2001. The Company is currently evaluating what effect this
Statement will have on the earnings and financial position of the Company.
See the Notes to Consolidated Financial Statements for other accounting
pronouncements followed by the Company.
Cautionary Statement Regarding Forward-Looking Information This Management's
Discussion and Analysis of Results of Operations and Financial Condition and
other sections of this Annual Report on Form 10-K contain forward-looking
statements that are based on current expectations, estimates and projections
about the industry in which the Company operates, management's beliefs and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions, which are difficult to
predict and many of which are outside the Company's control. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. The Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. Readers are cautioned not to put undue
reliance on such forward-looking statements. Stockholders may review the
Company's reports filed in the future with the Securities and Exchange
Commission for more current descriptions of developments that could cause actual
results to differ materially from such forward-looking statements.
Factors that could cause or contribute to actual results differing materially
from such forward-looking statements include the following: cost of commodity
prices; gas sales volumes; weather conditions in the Company's service
territories; the achievement of operating efficiencies and the purchases and
implementation of new technologies for attaining such efficiencies; impact of
relations with labor unions of bargaining-unit employees; the receipt of timely
and adequate rate relief; the outcome of pending and future litigation;
governmental regulations and proceedings affecting or involving the Company;
unanticipated environmental liabilities; changes in business strategy; the risk
--------------------------------------------------------------------------------
27
that the businesses acquired and any other businesses or investments that
Southern Union has acquired or may acquire may not be successfully integrated
with the businesses of Southern Union; and the nature and impact of any
extraordinary transactions such as any acquisition or divestiture of a business
unit or any assets. These are representative of the factors that could affect
the outcome of the forward-looking statements. In addition, such statements
could be affected by general industry and market conditions, and general
economic conditions, including interest rate fluctuations, federal, state and
local laws and regulations affecting the retail gas industry or the energy
industry generally, and other factors.
ITEM 8. Financial Statements and Supplementary Data.
The information required here is included in the report as set forth in the
Index to Consolidated Financial Statements on page F-1.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
--------------------------------------------------------------------------------
28
PART III
ITEM 10. Directors and Executive Officers of Registrant.
There is incorporated in this Item 10 by reference the information in the
Company's definitive proxy statement for the 2001 Annual Meeting of Stockholders
under the captions Board of Directors -- Board Size and Composition and
Executive Officers and Compensation -- Executive Officers Who Are Not Directors.
ITEM 11. Executive Compensation.
There is incorporated in this Item 11 by reference the information in the
Company's definitive proxy statement for the 2001 Annual Meeting of Stockholders
under the captions Executive Officers and Compensation -- Executive Compensation
and Certain Relationships.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
There is incorporated in this Item 12 by reference the information in the
Company's definitive proxy statement for the 2001 Annual Meeting of Stockholders
under the caption Security Ownership.
ITEM 13. Certain Relationships and Related Transactions.
There is incorporated in this Item 13 by reference the information in the
Company's definitive proxy statement for the 2001 Annual Meeting of Stockholders
under the caption Certain Relationships.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) and (2) Financial Statements and Financial Statement Schedules. See
------------------------------------------------------
Index to Consolidated Financial Statements set forth on page
F-1.
(a)(3) Exhibits.
--------
Exhibit No. Description
----------- -------------------------------------------------------------------
3(a) Restated Certificate of Incorporation of Southern Union Company.
(Filed as Exhibit 3(a) to Southern Union's Transition Report on
Form 10-K for the year ended June 30, 1994 and incorporated herein
by reference.)
3(b) Amendment to Restated Certificate of Incorporation of Southern
Union Company which was filed with the Secretary of State of
Delaware and became effective on October 26, 1999. (Filed as
Exhibit 3(a) to Southern Union's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1999 and incorporated herein by
reference.)
3(c) Southern Union Company Bylaws, as amended. (Filed as Exhibit 3(a)
to Southern Union's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999 and incorporated herein by reference.)
4(a) Specimen Common Stock Certificate. (Filed as Exhibit 4(a) to
Southern Union's Annual Report on Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference.)
4(b) Indenture between Chase Manhattan Bank, N.A., as trustee, and
Southern Union Company dated January 31, 1994. (Filed as Exhibit
4.1 to Southern Union's Current Report on Form 8-K dated
February 15, 1994 and incorporated herein by reference.)
--------------------------------------------------------------------------------
29
Exhibit No. Description
----------- -------------------------------------------------------------------
4(c) Officers' Certificate dated January 31, 1994 setting forth the
terms of the 7.60% Senior Debt Securities due 2024. (Filed as
Exhibit 4.2 to Southern Union's Current Report on Form 8-K dated
February 15, 1994 and incorporated herein by reference.)
4(d) Officer's Certificate of Southern Union Company dated November 3,
1999 with respect to 8.25% Senior Notes due 2029. (Filed as
Exhibit 99.1 to Southern Union's Current Report on Form 8-K filed
on November 19, 1999 and incorporated herein by reference.)
4(e) Certificate of Trust of Southern Union Financing I. (Filed as
Exhibit 4-A to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
4(f) Certificate of Trust of Southern Union Financing II. (Filed as
Exhibit 4-B to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
4(g) Certificate of Trust of Southern Union Financing III. (Filed as
Exhibit 4-C to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
4(h) Form of Amended and Restated Declaration of Trust of Southern Union
Financing I. (Filed as Exhibit 4-D to Southern Union's Registra-
tion Statement on Form S-3 (No. 33-58297) and incorporated herein
by reference.)
4(i) Form of Subordinated Debt Securities Indenture among Southern Union
Company and The Chase Manhattan Bank, N. A., as Trustee. (Filed as
Exhibit 4-G to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
4(j) Form of Supplemental Indenture to Subordinated Debt Securities
Indenture with respect to the Subordinated Debt Securities issued
in connection with the Southern Union Financing I Preferred
Securities. (Filed as Exhibit 4-H to Southern Union's Registration
Statement on Form S-3 (No. 33-58297) and incorporated herein by
reference.)
4(k) Form of Southern Union Financing I Preferred Security (included in
4(g) above.) (Filed as Exhibit 4-I to Southern Union's Registra-
tion Statement on Form S-3 (No. 33-58297) and incorporated herein
by reference.)
4(l) Form of Subordinated Debt Security (included in 4(i) above.)
(Filed as Exhibit 4-J to Southern Union's Registration Statement on
Form S-3 (No. 33-58297) and incorporated herein by reference.)
4(m) Form of Guarantee with respect to Southern Union Financing I
Preferred Securities. (Filed as Exhibit 4-K to Southern Union's
Registration Statement on Form S-3 (No. 33-58297) and incorporated
herein by reference.)
4(n) First Mortgage Bonds Debenture of Mortgage and Deed of Trust dated
as of March 15, 1946 by Southern Union Company (as successor to PG
Energy, Inc. formerly, Pennsylvania Gas and Water Company, and
originally, Scranton-Spring Brook Water Service Company to
Guaranty Trust Company of New York. (Filed as Exhibit 4.1 to
Southern Union's Current Report on Form 8-K filed on December 30,
1999 and incorporated herein by reference.)
4(o) Twenty-Third Supplemental Indenture dated as of August 15, 1989
(Supplemental to Indenture dated as of March 15, 1946) between
Southern Union Company and Morgan Guaranty Trust Company of New
York (formerly Guaranty Trust Company of New York). (Filed as
Exhibit 4.2 to Southern Union's Current Report on Form 8-K filed
on December 30, 1999 and incorporated herein by reference.)
--------------------------------------------------------------------------------
30
Exhibit No. Description
----------- -------------------------------------------------------------------
4(p) Twenty-Sixth Supplemental Indenture dated as of December 1, 1992
(Supplemental to Indenture dated as of March 15, 1946) between
Southern Union Company and Morgan Guaranty Trust Company of New
York. (Filed as Exhibit 4.3 to Southern Union's Current Report on
Form 8-K filed on December 30, 1999 and incorporated herein by
reference.)
4(q) Thirtieth Supplemental Indenture dated as of December 1, 1995
(Supplemental to Indenture dated as of March 15, 1946) between
Southern Union Company and First Trust of New York, National
Association (as successor trustee to Morgan Guaranty Trust Company
of New York). (Filed as Exhibit 4.4 to Southern Union's Current
Report on Form 8-K filed on December 30, 1999 and incorporated
herein by reference.)
4(r) Thirty-First Supplemental Indenture dated as of November 4, 1999
(Supplemental to Indenture dated as of March 15, 1946) between
Southern Union Company and U. S. Bank Trust, National Association
(formerly, First Trust of New York, National Association). (Filed
as Exhibit 4.5 to Southern Union's Current Report on Form 8-K
filed on December 30, 1999 and incorporated herein by reference.)
4(s) Pennsylvania Gas and Water Company Bond Purchase Agreement dated
September 1, 1989. (Filed as Exhibit 4.6 to Southern Union's
Current Report on Form 8-K filed on December 30, 1999 and
incorporated herein by reference.)
4(t) Southern Union is a party to other debt instruments, none of which
authorizes the issuance of debt securities in an amount which
exceeds 10% of the total assets of Southern Union. Southern Union
hereby agrees to furnish a copy of any of these instruments to the
Commission upon request.
10(a) Amended and Restated Revolving Credit Agreement (Long-Term Credit
Facility) between Southern Union Company and the Banks named
therein dated May 29, 2001.
10(b) Amended and Restated Revolving Credit Agreement (Short-Term Credit
Facility) between Southern Union Company and the Banks named
therein dated May 29, 2001.
10(c) Term Loan Credit Agreement between Southern Union Company and the
Banks named therein dated August 28, 2000. (Filed as Exhibit 10(c)
to Southern Union's Annual Report on Form 10-K for the year ended
June 30, 2000 and incorporated herein by reference.)
10(d) Form of Indemnification Agreement between Southern Union Company
and each of the Directors of Southern Union Company. (Filed as
Exhibit 10(i) to Southern Union's Annual Report on Form 10-K for
the year ended December 31, 1986 and incorporated herein by
reference.)
10(e) Southern Union Company 1992 Long-Term Stock Incentive Plan, As
Amended. (Filed as Exhibit 10(l) to Southern Union's Annual Report
on Form 10-K for the year ended June 30, 1998 and incorporated
herein by reference.)(*)
10(f) Southern Union Company Director's Deferred Compensation Plan.
(Filed as Exhibit 10(g) to Southern Union's Annual Report on Form
10-K for the year ended December 31, 1993 and incorporated herein
by reference.)(*)
10(g) Southern Union Company Amended Supplemental Deferred Compensation
Plan with Amendments. (Filed as Exhibit 4 to Southern Union's Form
S-8 filed March 27, 1999 and incorporated herein by reference.)(*)
-------------------------
(*) Indicates Management Compensation Plan.
--------------------------------------------------------------------------------
31
Exhibit No. Description
----------- -------------------------------------------------------------------
10(h) Form of warrant granted to Fleischman and Walsh L.L.P. (Filed as
Exhibit 10(j) to Southern Union's Transition Report on Form 10-K
for the year ended June 30, 1994 and incorporated herein by
reference.)
10(i) Employment agreement between Thomas F. Karam and Southern Union
Company dated December 28, 1999. (Filed as Exhibit 10(a) to
Southern Union's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999 and incorporated herein by reference.)
10(j) Secured Promissory Note and Security Agreements between
Thomas F. Karam and Southern Union Company dated December 20, 1999.
(Filed as Exhibit 10(b) to Southern Union's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1999 and incorporated
herein by reference.)
10(k) Southern Union Company Pennsylvania Division Stock Incentive Plan.
(Filed as Exhibit 4 to Form S-8, SEC File No. 333-36146, filed on
May 3, 2000 and incorporated herein by reference.)(*)
10(l) Southern Union Company Pennsylvania Division 1992 Stock Option
Plan. (Filed as Exhibit 4 to Form S-8, SEC File No. 333-36150,
filed on May 3, 2000 and incorporated herein by reference.)(*)
21 Subsidiaries of the Company.
23 Consent of Independent Accountants.
24 Power of Attorney.
(b) Reports on Form 8-K. Southern Union filed no current reports on Form
-------------------
8-K during the three months ended June 30, 2001.
--------------------------
(*) Indicates Management Compensation Plan.
--------------------------------------------------------------------------------
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Southern Union has duly caused this report to be signed by the
undersigned, thereunto duly authorized, on September 28, 2001.
SOUTHERN UNION COMPANY
By THOMAS F. KARAM
--------------------------
Thomas F. Karam
President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of Southern Union and in the
capacities indicated as of September 28, 2001.
Signature/Name Title
GEORGE L. LINDEMANN* Chairman of the Board, Chief Executive Officer
and Director
JOHN E. BRENNAN* Director
FRANK W. DENIUS* Director
AARON I. FLEISCHMAN* Director
KURT A. GITTER, M.D.* Director
THOMAS F. KARAM Director
---------------------
Thomas F. Karam
ADAM M. LINDEMANN* Director
ROGER J. PEARSON* Director
GEORGE ROUNTREE, III* Director
RONALD W. SIMMS* Director
DAN K. WASSONG* Director
RONALD J. ENDRES Executive Vice President and Chief Financial Officer
--------------------
Ronald J. Endres
DAVID J. KVAPIL Senior Vice President and Corporate Controllerr
--------------------
David J. Kvapil (Principal Accounting Officer)
*By THOMAS F. KARAM
-----------------
Thomas F. Karam
Attorney-in-fact
--------------------------------------------------------------------------------
SOUTHERN UNION COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
------------
Financial Statements
Consolidated statement of operations -- years ended June 30,
2001, 2000 and 1999........................................... F-2
Consolidated balance sheet -- June 30, 2001 and 2000............ F-3 to F-4
Consolidated statement of cash flows -- years ended June 30,
2001, 2000 and 1999........................................... F-5
Consolidated statement of common stockholders' equity -- years
ended June 30, 2001, 2000 and 1999............................ F-6
Notes to consolidated financial statements...................... F-7 to F-31
Report of independent accountants............................... F-32
All schedules are omitted as the required information is not applicable or the
information is presented in the consolidated financial statements or related
notes.
--------------------------------------------------------------------------------
F-1
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended June 30,
-------------------------------------
2001 2000 1999
----------- ----------- -----------
(thousands of dollars, except shares
and per share amounts)
Operating revenues.................... $ 1,932,813 $ 831,704 $ 605,231
Cost of gas and other energy.......... (1,374,750) (497,698) (342,301)
Revenue related taxes................. (68,801) (34,896) (32,034)
----------- ----------- -----------
Operating margin.................... 489,262 299,110 230,896
Operating expenses:
Operating, maintenance and general.. 239,554 136,587 109,693
Depreciation and amortization....... 86,985 55,140 41,855
Taxes, other than on income and
revenues.......................... 29,860 17,269 14,501
----------- ----------- -----------
Total operating expenses.......... 356,399 208,996 166,049
----------- ----------- -----------
Net operating revenues............ 132,863 90,114 64,847
----------- ----------- -----------
Other income (expenses):
Interest ........................... (103,519) (51,492) (35,999)
Dividends on preferred securities of
subsidiary trust.................. (9,480) (9,480) (9,480)
Other, net.......................... 76,819 (9,708) (1,814)
----------- ----------- -----------
Total other expenses, net......... (36,180) (70,680) (47,293)
----------- ----------- -----------
Earnings before income taxes.......... 96,683 19,434 17,554
Federal and state income taxes........ 40,000 9,589 7,109
----------- ----------- -----------
Earnings before cumulative effect of
change in accounting principle...... 56,683 9,845 10,445
Cumulative effect of change in
accounting principle, net of tax..... 602 -- --
----------- ----------- -----------
Net earnings available for common
stock................................ $ 57,285 $ 9,845 $ 10,445
=========== =========== ===========
Net earnings per share:
Basic
Before cumulative effect of change
in accounting principle.......... $ 1.09 $ .22 $ .31
Cumulative effect of change in
accounting principle, net of tax. .01 -- --
----------- ----------- -----------
$ 1.10 $ .22 $ .31
=========== =========== ===========
Diluted
Before cumulative effect of change
in accounting principle.......... $ 1.03 $ .21 $ .29
Cumulative effect of change in
accounting principle, net of tax. .01 -- --
----------- ----------- -----------
$ 1.04 $ .21 $ .29
=========== =========== ===========
Weighted average shares outstanding:
Basic................................ 52,068,814 45,563,814 34,059,104
=========== =========== ===========
Diluted............................. 54,960,595 47,670,818 35,927,834
=========== =========== ===========
See accompanying notes.
--------------------------------------------------------------------------------
F-2
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
June 30,
----------------------
2001 2000
---------- ----------
(thousands of dollars)
Property, plant and equipment:
Plant in service................................... $2,201,975 $1,580,077
Construction work in progress...................... 25,520 30,192
---------- ----------
2,227,495 1,610,269
Less accumulated depreciation and amortization... (771,170) (509,947)
---------- ----------
1,456,325 1,100,322
Additional purchase cost assigned to utility
plant, net of accumulated amortization of
$57,014,000 and $39,551,000, respectively...... 735,344 386,839
---------- ----------
Net property, plant and equipment.............. 2,191,669 1,487,161
Current assets:
Cash and cash equivalents.......................... 1,219 27,829
Accounts receivable, billed and unbilled, net...... 218,912 74,959
Inventories, principally at average cost........... 106,505 60,259
Deferred gas purchase costs........................ 65,171 --
Investment securities available for sale........... 29,447 187,817
Prepayments and other.............................. 14,778 877
---------- ----------
Total current assets............................. 436,032 351,741
Deferred charges..................................... 205,711 145,006
Investment securities, at cost....................... 19,081 10,489
Real estate.......................................... 2,506 9,461
Other................................................ 41,872 17,602
---------- ----------
Total assets....................................... $2,896,871 $2,021,460
========== ==========
See accompanying notes.
--------------------------------------------------------------------------------
F-3
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
STOCKHOLDERS' EQUITY AND LIABILITIES
June 30,
----------------------
2001 2000
---------- ----------
(thousands of dollars)
Common stockholders' equity:
Common stock, $1 par value; authorized 200,000,000
shares; issued 54,552,609 shares at June 30, 2001. $ 54,553 $ 50,521
Premium on capital stock............................ 676,324 599,835
Less treasury stock: 1,046,617 and 1,010,077
shares, respectively, at cost..................... (15,869) (15,554)
Less common stock held in Trust: 1,128,435 and
1,012,806 shares, respectively.................... (19,196) (15,330)
Deferred compensation plans......................... 7,499 808
Accumulated other comprehensive income.............. 13,443 115,175
Retained earnings................................... 5,103 --
---------- ----------
721,857 735,455
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated notes of Southern Union................ 100,000 100,000
Long-term debt and capital lease obligation........... 1,329,631 733,774
---------- ----------
Total capitalization.............................. 2,151,488 1,569,229
Current liabilities:
Long-term debt and capital lease obligation due
within one year................................... 5,913 2,193
Notes payable....................................... 190,600 3
Accounts payable.................................... 103,623 77,488
Federal, state and local taxes...................... 32,342 7,359
Accrued interest.................................... 18,475 15,922
Accrued dividends on preferred securities of
subsidiary trust.................................. 2,370 --
Customer deposits................................... 17,915 17,255
Deferred gas purchases.............................. -- 11,708
Other............................................... 67,383 30,778
---------- ----------
Total current liabilities......................... 438,621 162,706
Deferred credits and other ........................... 103,471 106,015
Accumulated deferred income taxes..................... 203,291 183,510
Commitments and contingencies......................... -- --
Total stockholders' equity and liabilities........ $2,896,871 $2,021,460
========== ==========
See accompanying notes.
--------------------------------------------------------------------------------
F-4
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended June 30,
-------------------------------
2001 2000 1999
--------- --------- ---------
(thousands of dollars)
Cash flows (used in) from operating
activities:
Net earnings.............................. $ 57,285 $ 9,845 $ 10,445
Adjustments to reconcile net earnings to
net cash flows from (used in) operating
activities:
Depreciation and amortization......... 86,985 55,140 41,855
Deferred income taxes................. 27,778 435 7,867
Provision for bad debts............... 32,706 4,998 3,279
Financial derivative trading losses... 5,684 2,236 --
Gain on sale of investment securities. (74,582) -- --
Gain on sale of subsidiary............ (707) -- --
Gain on sale of real estate........... (13,532) -- --
Cumulative effect of change in
accounting principle................ (602) -- --
Other ................................ 2,245 1,396 1,623
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable, billed and
unbilled........................ (129,175) (3,830) (212)
Accounts payable.................. (14,944) 22,602 5,228
Taxes and other liabilities....... (6,779) (5,636) (1,240)
Customer deposits................. (1,151) (3,407) (4)
Deferred gas purchase costs....... (67,876) (15,114) 10,698
Inventories ...................... (31,545) 91 (3,213)
Other............................. (6,967) 1,766 527
--------- --------- ---------
Net cash flows (used in) from
operating activities................ (135,177) 70,522 76,853
--------- --------- ---------
Cash flows used in investing activities:
Additions to property, plant and equipment.. (123,776) (100,446) (73,147)
Acquisition of operations, net of cash
received.................................. (414,497) (38,366) --
Purchase of investment securities........... (12,495) (21,001) (7,000)
Increase in customer advances............... 1,198 1,350 2,139
Decrease in deferred charges and credits.... (11,922) (3,657) (4,086)
Proceeds from sale of investment securities. 85,761 -- --
Proceeds from sale of real estate, net of
closing costs............................. 20,638 -- --
Proceeds from sale of subsidiary............ 3,300 12,150 --
Other....................................... 5,118 (4,553) 885
--------- --------- ---------
Net cash flows used in investing
activities.............................. (446,675) (154,523) (81,209)
--------- --------- ---------
Cash flows from financing activities:
Issuance of long-term debt.................. 535,000 300,000 --
Issuance cost of debt....................... (3,474) (7,292) --
Premium on early extinguishment of debt..... -- (719) --
Purchase of treasury stock.................. -- (14,425) --
Repayment of debt and capital lease
obligation................................ (167,270) (138,791) (20,837)
Net borrowings (payments) under revolving
credit facilities......................... 190,597 (21,000) 19,403
Increase (decrease) in cash overdrafts...... -- (6,655) 6,033
Other....................................... 389 712 (243)
--------- --------- ---------
Net cash flows from financing activities.. 555,242 111,830 4,356
--------- --------- ---------
Change in cash and cash equivalents........... (26,610) 27,829 --
Cash and cash equivalents at beginning of
year........................................ 27,829 -- --
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 1,219 $ 27,829 $ --
========= ========= =========
Cash paid for interest, net of amounts capitalized, in 2001, 2000 and 1999 was
$107,870,000, $57,735,000 and $45,039,000, respectively. Cash paid for income
taxes in 2001, 2000 and 1999 was $21,052,000, $4,311,000 and $1,194,000,
respectively.
See accompanying notes.
--------------------------------------------------------------------------------
F-5
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumu-
lated
Common Premium Common Other
Stock on Treasury Stock Compre-
$1, Par Capital Stock, Held in hensive Retained
Value Stock at Cost Trust Income Earnings Total
------- -------- -------- -------- -------- -------- --------
(thousands of dollars)
Balance
July 1, 1998.. $28,252 $252,638 $ (794) $ -- $ -- $ 16,738 $296,834
Comprehensive
income:
Net earn-
ings....... -- -- -- -- -- 10,445 10,445
Minimum
pension
liability
adjustment;
net of tax. -- -- -- -- (436) -- (436)
--------
Comprehen-
sive
income..... 10,009
--------
Purchase of
common stock
held in
trust........ -- -- -- (4,927) -- -- (4,927)
5% stock divi-
dend --
declared
November 11,
1998......... 1,411 7,483 -- -- -- (8,898) (4)
5% stock divi-
dend --
declared
July 13,
1999......... 1,485 16,797 -- -- -- (18,285) (3)
Exercise of
stock
options...... 92 (308) -- -- -- -- (216)
------- -------- -------- -------- -------- -------- --------
Balance
June 30, 1999. 31,240 276,610 (794) (4,927) (436) -- 301,693
Comprehensive
income:
Net earn-
ings....... -- -- -- -- -- 9,845 9,845
Unrealized
gain in
investment
securities,
net of tax. -- -- -- -- 115,175 -- 115,175
Minimum
pension
liability
adjustment;
net of tax. -- -- -- -- 436 -- 436
--------
Comprehen-
sive
income..... 125,456
--------
Purchase of
common stock
held in
trust........ -- -- -- (9,864) -- -- (9,864)
5% stock divi-
dend......... 2,359 7,452 -- -- -- (9,845) (34)
Purchase of
treasury
stock........ -- -- (14,425) -- -- -- (14,425)
Issuance of
stock for
acquisition.. 16,714 315,235 -- -- -- -- 331,949
Exercise of
stock
options...... 208 538 (335) 269 -- -- 680
------- -------- -------- -------- -------- -------- --------
Balance
June 30, 2000. 50,521 599,835 (15,554) (14,522) 115,175 -- 735,455
Comprehensive
income:
Net earn-
ings....... -- -- -- -- -- 57,285 57,285
Unrealized
loss in
investment
securi-
ties, net
of tax
benefit.... -- -- -- -- (96,323) -- (96,323)
Minimum
pension
liability
adjustment;
net of tax. -- -- -- -- (4,324) -- (4,324)
Cumulative
effect of
change in
accounting
principle,
net of tax. -- -- -- -- 826 -- 826
Unrealized
loss on
hedging
activities,
net of tax
benefit.... -- -- -- -- (1,911) -- (1,911)
--------
Comprehen-
sive
income
(loss)..... (44,447)
--------
Payment on
note re-
ceivable..... -- 290 -- -- -- -- 290
Purchase of
common stock
held in
trust........ -- -- -- (4,009) -- -- (4,009)
5% stock divi-
dend......... 2,556 49,626 -- -- -- (52,182) --
Benefit plan
modification. -- -- -- 6,560 -- -- 6,560
Issuance of
stock for
acquisition.. 1,371 25,930 -- -- -- -- 27,301
Exercise of
stock
options...... 105 643 (315) 274 -- -- 707
------- -------- -------- -------- -------- -------- --------
Balance
June 30, 2001. $54,553 $676,324 $(15,869) $(11,697) $ 13,443 $ 5,103 $721,857
======= ======== ======== ======== ======== ======== ========
See accompanying notes.
--------------------------------------------------------------------------------
F-6
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I Summary of Significant Accounting Policies
Operations Southern Union Company (Southern Union and, together with its
wholly-owned subsidiaries, the Company), is a public utility primarily engaged
in the distribution and sale of natural gas to residential, commercial and
industrial customers located primarily in Texas, Missouri, Pennsylvania, Rhode
Island and Massachusetts. See Acquisitions. Subsidiaries of Southern Union also
operate natural gas pipeline systems, generate electricity, market natural gas
to end-users, distribute propane and sell commercial gas air conditioning and
other gas-fired engine- driven applications. Certain subsidiaries own or hold
interests in real estate and other assets, which are primarily used in the
Company's utility business. Substantial operations of the Company are subject to
regulation. Accounting policies conform to the Financial Accounting Standards
Board (FASB) standard, Accounting for the Effects of Certain Types of Regulation
in the case of regulated operations.
Principles of Consolidation The consolidated financial statements include the
accounts of Southern Union and its wholly-owned subsidiaries. Investments in
which the Company has significant influence over the operations of the investee
and the Company owns a 20% to 50% interest are accounted for using the equity
method. All significant intercompany accounts and transactions are eliminated in
consolidation. All dollar amounts in the tables herein, except per share
amounts, are stated in thousands unless otherwise indicated. Certain
reclassifications have been made to prior years' financial statements to conform
with the current year presentation.
Gas Utility Revenues and Gas Purchase Costs Gas utility customers are billed on
a monthly-cycle basis. The related cost of gas and revenue taxes are matched
with cycle-billed revenues through utilization of purchased gas adjustment
provisions in tariffs approved by the regulatory agencies having jurisdiction.
Revenues from gas delivered but not yet billed are accrued, along with the
related gas purchase costs and revenue-related taxes. The distribution and sale
of natural gas in Texas, Missouri, Pennsylvania, Rhode Island and Massachusetts
contributed in excess of 85% of the Company's total revenue, net earnings and
identifiable assets in 2001, 2000 and 1999. Four suppliers provided 59%, 55% and
50% of the Company's gas purchases in 2001, 2000 and 1999, respectively.
Earnings Per Share The Company's earnings per share presentation conforms to the
FASB standard, Earnings per Share. All share and per share data have been
restated for all stock dividends and stock splits distributed through August 30,
2001 unless otherwise noted.
Accumulated Other Comprehensive Income In 1999, the Company adopted Reporting
Comprehensive Income, a FASB standard which established rules for the reporting
of comprehensive income and its components. The main components of comprehensive
income that relate to the Company are net earnings, unrealized holding gains and
losses on investment securities, minimum pension liability adjustments,
unrealized loss on hedging activities and cumulative effect of change in
accounting principle, all of which are presented in the consolidated statement
of stockholders' equity. Prior to adoption, the unrealized holding gains and
losses were presented as part of stock holders' equity and the pension liability
adjustments were presented in the consolidated balance sheet.
Unrealized holding gains on investment securities were $18,852,000, $115,175,000
and nil in 2001, 2000 and 1999, respectively. The reclassification adjustment
for gains included in net income, net of tax, for reporting other compre hensive
income was $43,726,000, nil and nil in 2001, 2000 and 1999, respectively. The
unrealized holding gains or losses on investment securities and the
reclassification adjustment for gains are combined and reflected on the
consolidated statement of stockholders' equity.
Credit Risk Concentrations of credit risk in trade receivables are limited due
to the large customer base with relatively small individual account balances. In
addition, Company policy requires a deposit from certain customers. The Company
has recorded an allowance for doubtful accounts totaling $31,163,000,
$7,503,000, $6,588,000 and $8,267,000 at June 30, 2001, 2000, 1999 and 1998,
respectively. The allowance for doubtful accounts is increased for estimated
uncollectible accounts and reduced for the write-off of trade receivables.
--------------------------------------------------------------------------------
F-7
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments The carrying amounts reported in the balance
sheet for cash and cash equiva lents, accounts receivable, accounts payable and
notes payable approximate their fair value. The fair value of the Company's
preferred securities of subsidiary trust and long-term debt is estimated using
current market quotes and other estimation techniques.
Inventories Inventories consist of natural gas in underground storage and
materials and supplies. Natural gas in underground storage of $101,549,000 and
$51,869,000 at June 30, 2001 and 2000, respectively, consists of 20,535,000 and
15,226,000 British thermal units, respectively.
Segment Reporting The FASB standard, Disclosures about Segments of an Enterprise
and Related Information, requires disclosure of segment data based on how
management makes decisions about allocating resources to segments and measuring
performance. The Company is principally engaged in the gas distribution industry
in the United States and has no other reportable industry segments.
Derivative Instruments and Hedging Activities The Company accounts for its
derivatives in accordance with the FASB Standard, Accounting for Derivative
Instruments and Hedging Activities which was adopted at the inception of fiscal
year 2001. Under this Statement, the Company recognizes derivatives on the
consolidated balance sheet at their fair value. On the date of the derivative
contract, the Company designates the derivative as: (i) a hedge of the fair
value of a recognized asset or liability or of an unrecognized firm commitment
("fair value" hedge); (ii) a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a recognized asset
or liability ("cash flow" hedge), or (iii) "held for trading" ("trading"
instruments.) Changes in the fair value of a derivative that qualifies as a
fair-value hedge, along with the gain or loss on the hedged asset or liability
that is attributable to the hedged risk (including gains or losses on firm
commitments), are recorded in earnings. Changes in the fair value of a
derivative that qualifies as a cash-flow hedge are recorded in other
comprehensive income, until earnings are affected by the variability of cash
flows. Hedge ineffectiveness is recorded through earnings immediately. Lastly,
changes in the fair value of derivative trading instruments are reported in
current-period earnings. See Note IX -- Derivative Instruments and Hedging
Activities.
The Company utilizes derivative instruments on a limited basis to manage certain
business risks. Interest rate swaps are employed to hedge the effect of changes
in interest rates related to certain debt instruments and commodity swaps and
options to manage price risk associated with certain energy contracts, primarily
heating oil.
In accordance with adoption of this Statement on July 1, 2000, the Company
recorded a net-of-tax cumulative-effect gain of $602,000 in earnings to
recognize the fair value of the gas derivative contracts at PG Energy Services,
Inc., a wholly-owned subsidiary, that are not designated as hedges. The Company
also recorded $826,000 in accumulated other comprehensive income which
recognizes the fair value of two interest rate swap derivatives that were
designated as cash flow hedges.
New Pronouncements In June 2001, the FASB issued Goodwill and Other Intangible
Assets. The Statement is effective for all fiscal quarters of fiscal years
beginning after December 15, 2001. Early application is permitted for entities
with fiscal years beginning after March 15, 2001, provided that the first
quarter's financial statements have not previously been issued. The Statement
requires, among other things, that goodwill is no longer subject to amortization
over its estimated useful life. Rather, goodwill will be subject to at least an
annual assessment for impairment by applying a fair-value-based test. The
Company intends to adopt this Standard during the quarter ending September 30,
2001. The Company is currently evaluating what effect this Statement will have
on the earnings and financial position of the Company.
Use of Estimates The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial
--------------------------------------------------------------------------------
F-8
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
II Acquisitions and Divestitures
On September 28, 2000, Southern Union completed the acquisition of Providence
Energy Corporation (ProvEnergy) for approximately $270,000,000 in cash plus the
assumption of approximately $90,000,000 in long-term debt. The ProvEnergy
natural gas distribution operations are Providence Gas and North Attleboro Gas,
which collectively serve approximately 177,000 natural gas customers. Providence
Gas serves natural gas customers in Providence and Newport, Rhode Island, and 23
other cities and towns in Rhode Island. North Attleboro Gas serves customers in
North Attleboro and Plainville, Massachusetts, towns adjacent to the
northeastern Rhode Island border. Sub sidiaries of the Company acquired in the
ProvEnergy merger include ProvEnergy Oil Enterprises, Inc. (ProvEnergy Oil), and
ProvEnergy Power Company, LLC. ProvEnergy Oil, which operated a fuel oil
distribution business through its subsidiary, ProvEnergy Fuels, Inc. (ProvEnergy
Fuels) for residential and commercial customers in Rhode Island and
Massachusetts, was sold for $15,800,000 in August 2001. No gain or loss was
recognized on this transaction. ProvEnergy Power Company owns 50% of Capital
Center Energy Company, LLC., a joint venture formed between ProvEnergy and ERI
Services, Inc. to provide retail power.
On September 28, 2000, Southern Union completed the acquisition of Fall River
Gas Company (Fall River Gas) for approximately 1,400,000 shares (before
adjustment for any subsequent stock dividend) of Southern Union common stock and
approximately $27,000,000 in cash plus assumption of approximately $20,000,000
in long-term debt. Fall River Gas serves approximately 49,000 customers in the
city of Fall River and the towns of Somerset, Swansea and Westport, all located
in southeastern Massachusetts. Also acquired in the Fall River Gas merger was
Fall River Gas Appliance Company, Inc., which rents water heaters and conversion
burners (primarily for residential use) in Fall River Gas' service area.
On September 20, 2000, Southern Union completed the acquisition of Valley
Resources, Inc. (Valley Resources) for approximately $125,000,000 in cash plus
the assumption of approximately $30,000,000 in long-term debt. Valley Resources
natural gas distribution operations are Valley Gas Company and Bristol and
Warren Gas Company, which collectively serve approximately 66,000 natural gas
customers. Valley Resources' three non-utility subsidiaries acquired in the
merger include Valley Propane Inc. (Valley Propane), Morris Merchants Inc.
(Morris Merchants) and Valley Appliance and Merchandising Company (VAMCO).
Valley Propane sells liquid propane to 2,800 customers in Rhode Island and
nearby Massachusetts. Morris Merchants serves as a manufacturers'
representative agency for franchised plumbing and heating contract supplies
throughout New England and New York. VAMCO merchandises and rents natural gas
burning appliances, offers appliance service contract programs, sells water
filtration systems and provides construction management services for natural
gas-related projects. Also, acquired in the acquisition was Valley Resources'
90% interest (which is now 100%) in Alternate Energy Corporation, which sells,
installs and designs natural gas conversion systems and facilities, is an
authorized representative of the ONSI Corporation fuel cell, holds patents for a
natural gas/diesel co-firing system and for a device to control the flow of fuel
on dual-fuel equipment.
The Company funded the cash portion of the above described acquisitions and any
related refinancings of assumed debt with a bank note (the Term Note). See Debt
and Capital Lease. The assets of ProvEnergy, Fall River Gas and Valley Resources
(hereafter referred to as the Company's New England Operations) have been
included in the consolidated balance sheet of the Company at June 30, 2001 and
the results of operations from the New England Operations have been included in
the statement of consolidated operations since their respective acquisition
dates. The New England Operations' primary business is the distribution of
natural gas through its public utility companies (collectively referred to as
the New England Division). The acquisitions were accounted for using the
purchase method. The additional purchase cost assigned to utility plant of
approximately $365,989,000 reflects the excess of the purchase price over the
historical book carrying value of the utility plant. Amortization of the
additional
--------------------------------------------------------------------------------
F-9
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
purchase cost assigned to utility plant is provided on a straight-line basis
over forty years. The Company plans to sell or dispose of certain non-core
businesses acquired in the New England Operations.
Prior to the consummation of the acquisition of the New England Operations, the
Company purchased shares of Providence Energy Corporation, Fall River Gas
Company and Valley Resources, Inc. common stock for $2,882,000. As all necessary
approvals for the merger had not been obtained when these shares were purchased,
these purchases were treated as investment securities prior to closing the
mergers.
On November 4, 1999, the Company acquired Pennsylvania Enterprises, Inc.
(hereafter referred to as the Pennsylvania Operations) in a transaction valued
at approximately $500,000,000, including assumption of long-term debt of
approximately $115,000,000. The Company issued approximately 16,700,000 shares
(before adjustment for any subsequent stock dividends) of common stock and paid
approximately $36,000,000 in cash to complete the transaction. The Company
funded the cash portion of the acquisition of the Pennsylvania Operations and
related refinancings with the sale of $300,000,000 of 8.25% Senior Notes due
2029 completed on November 3, 1999 (8.25% Senior Notes). See Debt and Capital
Lease.
The Pennsylvania Operations are headquartered in Wilkes-Barre, Pennsylvania with
natural gas distribution being its primary business. The principal operating
division of the Pennsylvania Operations is the PG Energy division of the Company
which serves more than 156,000 gas customers in northeastern and central
Pennsylvania. Subsidiaries of the Company acquired in the acquisition of the
Pennsylvania Operations include PG Energy Services Inc., (Energy Services), PEI
Power Corporation (PEI Power), Keystone Pipeline Services, Inc. (Keystone, a
wholly-owned subsidiary of Energy Services), and Theta Land Corporation. Through
Energy Services, the Company supplies propane and offers the inspection,
maintenance and servicing of residential and small commercial gas-fired
equipment. Through PEI Power, an exempt wholesale generator (within the meaning
of the Public Utility Holding Company Act of 1935), the Company provides
electricity services to the broad mid-Atlantic market of Pennsylvania, New
Jersey, Maryland, Delaware and the District of Columbia. Keystone, which engaged
primarily in the construction, maintenance, and rehabilitation of natural gas
distribution pipelines, was sold for $3,300,000 in June 2001 for a pre-tax gain
of $707,000. Theta Land Corporation, which owned and provided land management
and development services for more than 44,000 acres of land, was sold for
$12,150,000 in January 2000. No gain or loss was recognized on this transaction.
In July 2001, the commercial and industrial gas marketing contracts of Energy
Services were sold for approximately $5,000,000, resulting in a pre-tax gain of
$4,600,000. The Company also plans to sell or dispose of propane operations of
Energy Services, which are not material to the Company. The Company has not yet
sold these operations and there can be no assurance that a sale on terms
satisfactory to the Company will be completed.
The assets of the Pennsylvania Operations are included in the consolidated
balance sheet of the Company at June 30, 2001 and the results of operations from
the Pennsylvania Operations have been included in the statement of consolidated
operations since November 4, 1999. The acquisition was accounted for using the
purchase method. The additional purchase cost assigned to utility plant of
approximately $261,000,000 reflects the excess of the purchase price over the
historical book carrying value of the utility plant. Amortization of the
additional purchase cost assigned to utility plant is provided on a
straight-line basis over forty years.
Prior to the consummation of the acquisition of the Pennsylvania Operations, the
Company purchased 358,500 shares of Pennsylvania Enterprises, Inc. stock for
$11,887,000 during both the first and second quarters of the Company's fiscal
year 2000. As all necessary approvals for the merger had not been obtained,
these purchases were treated as investment securities.
Pro Forma Financial Information
The following unaudited pro forma financial information for the year ended
June 30, 2001 and 2000 is presented as though the following events had occurred
at the beginning of the earliest period presented: (i) acquisition of the New
--------------------------------------------------------------------------------
F-10
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
England Operations and the Pennsylvania Operations; (ii) the issuance of the
Term Note and the sale of the 8.25% Senior Notes; and (iii) the refinancing of
certain short-term and long-term debt at the time of the acquisitions. The pro
forma financial information is not necessarily indicative of the results which
would have actually been obtained had the acquisition of the New England
Operations and Pennsylvania Operations, the issuance of the Term Note, the sale
of senior notes or the refinancings been completed as of the assumed date for
the periods presented or which may be obtained in the future.
Year Ended June 30,
2001 2000
----------- -----------
Operating revenues................................. $ 1,976,473 $ 1,245,481
Income (loss) before extraordinary item............ 35,751 (24,137)
Net earnings (loss) available for common stock..... 35,751 (24,137)
Net earnings (loss) per common stock:
Basic............................................ .68 (.43)
Diluted.......................................... .65 (.43)
III Other Income (Expense), Net
Other income in 2001 of $76,819,000 includes realized gains on the sale of a
portion of Southern Union's holdings in Capstone Turbine Corporation of
$74,582,000, a $13,532,000 gain on the sale of non-core real estate and interest
and dividend income of $7,643,000. These items were offset by $12,855,000 of
legal costs associated with ongoing litigation associated with the unsuccessful
acquisition of Southwest Gas Corporation (Southwest) and $5,684,000 of non-cash
trading losses.
Other expense of $9,708,000 in 2000 included $10,363,000 of costs associated
with the aforementioned unsuccessful acquisition efforts and related litigation
and $2,236,000 of non-cash trading losses. These items were offset by net rental
income of Lavaca Realty Company (Lavaca Realty) of $1,757,000.
Other expense of $1,814,000 in 1999 included: $3,839,000 of costs associated
with various acquisition efforts and a net expense of $619,000 related to the
amortization and current deferral of interest and other expenses associated with
the Missouri Gas Energy Safety Program. These items were offset by net rental
income of Lavaca Realty of $1,448,000 and equity earnings of $609,000 from
Southern Union's 43% equity ownership of its Mexico Operations.
IV Cash Flow Information
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Short-term investments are highly
liquid investments with maturities of more than three months when purchased, and
are carried at cost, which approximates market. The Company places its temporary
cash invest ments with a high credit quality financial institution which, in
turn, invests the temporary funds in a variety of high- quality short-term
financial securities.
Under the Company's cash management system, checks issued but not presented to
banks frequently result in overdraft balances for accounting purposes and are
classified in accounts payable in the consolidated balance sheet.
V Earnings Per Share
During the three-year period ended June 30, 2001, no adjustments were required
in net earnings available for common stock for the earnings per share
calculations. Average shares outstanding for basic earnings per share were
52,068,814, 45,563,814 and 34,059,104 for the years ended June 30, 2001, 2000
and 1999, respectively. Diluted earnings per share includes average shares
outstanding as well as common stock equivalents from stock options
--------------------------------------------------------------------------------
F-11
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and warrants. Common stock equivalents were 2,891,781, 2,107,004 and 1,868,730
for the years ended June 30, 2001, 2000 and 1999, respectively.
VI Property, Plant and Equipment
Plant Plant in service and construction work in progress are stated at original
cost net of contributions in aid of construction. The cost of additions includes
an allowance for funds used during construction and applicable overhead charges.
Gain or loss is recognized upon the disposition of significant utility
properties and other property constituting operating units. Gain or loss from
minor dispositions of property is charged to accumulated depreciation and
amortization. The Company capitalizes the cost of significant
internally-developed computer software systems and amortizes the cost over the
expected useful life. See Debt and Capital Lease.
June 30,
2001 2000
----------- -----------
Distribution plant............................... $ 1,969,103 $ 1,479,426
General plant.................................... 156,502 138,206
Other............................................ 136,654 19,735
----------- -----------
Total plant.................................... 2,262,259 1,637,367
Less contributions in aid of construction........ (60,284) (57,290)
----------- -----------
Plant in service............................... 2,201,975 1,580,077
Construction work in progress.................... 25,520 30,192
----------- -----------
2,227,495 1,610,269
Less accumulated depreciation and amortization... (771,170) (509,947)
----------- -----------
1,456,325 1,100,322
Additional purchase cost assigned to utility
plant, net..................................... 735,344 386,839
----------- -----------
Net property, plant and equipment.............. $ 2,191,669 $ 1,487,161
=========== ===========
Acquisitions of rate-regulated entities are recorded at the historical book
carrying value of utility plant. On September 28, 2000, ProvEnergy and Fall
River Gas were acquired in which historical utility plant and equipment had a
cost of $357,822,000 and $64,384,000, respectively, and accumulated depreciation
and amortization of $138,857,000 and $24,401,000, respectively. On September 20,
2000, Valley Resources was acquired in which historical utility plant and
equipment had a cost and accumulated depreciation and amortization of
$105,888,000 and $47,010,000, respectively. On November 4, 1999, the
Pennsylvania Operations were acquired in which historical utility plant and
equipment had a cost and accumulated depreciation and amortization of
$408,304,000 and $103,275,000, respectively.
Additional purchase cost assigned to utility plant is the excess of the purchase
price over the book carrying value of the net assets acquired. In general, the
Company has not been allowed recovery of additional purchase cost assigned to
utility plant directly in rates. Periodically, the Company evaluates the
carrying value of its additional purchase cost assigned to utility plant,
long-lived assets, capital leases and other identifiable intangibles by
comparing the anticipated future operating income from the businesses giving
rise to the respective asset with the original cost or unamortized balance. See
Summary of Significant Accounting Policies -- New Pronouncements.
Depreciation and Amortization Depreciation of utility plant is provided at an
average straight-line rate of approximately 3% per annum of the cost of such
depreciable properties less applicable salvage. Franchises are amortized over
their respective lives. Depreciation and amortization of other property is
provided at straight-line rates estimated to recover the costs of the
properties, after allowance for salvage, over their respective lives.
Internally-developed computer software system costs are amortized over various
regulatory-approved periods. Amortization of additional purchase cost assigned
to utility plant is provided on a straight-line basis over forty years
--------------------------------------------------------------------------------
F-12
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unless the Company's regulators have provided for the recovery of the additional
purchase cost in rates, in which case the Company's policy is to utilize the
amortization period which follows the rate recovery period.
Depreciation of property, plant and equipment in 2001, 2000 and 1999 was
$69,523,000, $46,757,000 and $37,771,000, respectively.
VII Investment Securities
At June 30, 2001, the Company held securities of Capstone Turbine Corporation
(Capstone). In late June 2000, Capstone completed its initial public offering
(IPO). This investment is classified as "available for sale" under the Financial
Accounting Standards Board Standard Accounting for Certain Investments in Debt
and Equity Securities; accordingly, these securities are stated at fair value,
with unrealized gains and losses recorded in a separate compo nent of common
stockholders' equity. Realized gains and losses on sales of investments, as
determined on a specific identification basis, are included in the Consolidated
Statement of Operations when incurred. As of June 30, 2001, the Company's
investment in Capstone had a fair value of $29,447,000 and unrealized gains, net
of tax, related to this investment were $18,852,000. The Company has classified
this investment as current, as it plans to monetize its investment as soon as
practicable and use the proceeds to reduce outstanding debt.
At June 30, 2001 and 2000, all other securities owned by the Company are
accounted for under the cost method. The Company's other investments in
securities consist of preferred stock in non-public companies whose value is not
readily determinable. Realized gains and losses on sales of these investments,
as determined on a specific identification basis, are included in the
Consolidated Statement of Operations when incurred, and dividends are recognized
as income when received.
VIII Stockholders' Equity
Stock Splits and Dividends On August 30, 2001, June 30, 2000, August 6, 1999 and
December 9, 1998 Southern Union distributed its annual 5% common stock dividend
to stockholders of record on August 16, 2001, June 19, 2000, July 23, 1999 and
November 23, 1998, respectively. A portion of each of the 5% stock dividends was
characterized as a distribution of capital due to the level of the Company's
retained earnings available for distribution as of the declaration date. Unless
otherwise stated, all per share and share data included herein have been
restated to give effect to the dividends.
Common Stock The Company maintains its 1992 Long-Term Stock Incentive Plan (1992
Plan) under which options to purchase 7,335,311 shares were provided to be
granted to officers and key employees at prices not less than the fair market
value on the date of grant. The 1992 Plan allows for the granting of stock
appreciation rights, dividend equivalents, performance shares and restricted
stock. The Company also had an incentive stock option plan (1982 Plan) which
provided for the granting of 787,500 options, until December 31, 1991. Options
granted under both the 1992 Plan and the 1982 Plan are exercisable for periods
of ten years from the date of grant or such lesser period as may be designated
for particular options, and become exercisable after a specified period of time
from the date of grant in cumulative annual installments. Options typically vest
20% per year for five years but may be a lesser or greater period as designated
for particular options.
In connection with the acquisition of the Pennsylvania Operations, the Company
adopted the Pennsylvania Division 1992 Stock Option Plan (Pennsylvania Option
Plan) and the Pennsylvania Division Stock Incentive Plan (Pennsyl vania
Incentive Plan). Under the terms of the Pennsylvania Option Plan, a total of
396,902 shares were provided to be granted to eligible employees. Stock options
awarded under the Pennsylvania Option Plan may be either Incentive Stock Options
or Nonqualified Stock Options. Upon acquisition, individuals not electing a cash
payment equal to the difference at the date of acquisition between the option
price and the market price of the shares as to which such option related, were
converted to Southern Union options using a conversion rate that maintained the
same aggregate value and the aggregate spread of the pre-acquisition options. No
additional options will be granted
--------------------------------------------------------------------------------
F-13
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
under the Pennsylvania Option Plan. Under the terms of the Pennsylvania
Incentive Plan, a total of 190,590 shares were provided to be granted to
eligible employees, officers and directors. Awards under the Pennsylvania
Incentive Plan may take the form of stock options, restricted stock, and other
awards where the value of the award is based upon the performance of the
Company's stock. Upon acquisition, individuals not electing a cash payment equal
to the difference at the date of acquisition between the option price and the
market price of the shares as to which such option related, were converted to
Southern Union options using a conversion rate that maintained the same aggre
gate value and the aggregate spread of the pre-acquisition options. During 2000,
13,230 options were granted to a Director of the Company at an exercise price of
$16.41. These options granted vest 20% per year for five years. No additional
options will be granted under the Pennsylvania Incentive Plan.
The Company accounts for its incentive plans under the Accounting Principles
Board opinion, Accounting for Stock Issued to Employees and related
authoritative interpretations. The Company recorded no compensation expense for
2001, 2000 and 1999. During 1997, the Company adopted the FASB standard,
Accounting for Stock-Based Compensation, for footnote disclosure purposes only.
Had compensation cost for these incentive plans been determined consistent with
this standard, the Company's net income and diluted earnings per share would
have been $54,793,000 and $1.00, respectively, in 2001, $8,190,000 and $.17,
respectively, in 2000 and $9,429,000 and $.26, respectively, in 1999. Because
this standard has not been applied to options granted prior to July 1, 1995, the
resulting pro forma compensation cost may not be representative of that to be
expected in future years.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in 2001 and 2000, respectively: dividend yield of nil for both years;
volatility of 27.5% for both years; risk-free interest rate of 5% and 6%; and
expected life outstanding of 5.5 to 7.2 years for both years. No options were
granted during 1999.
1992 Plan 1982 Plan
--------------------- -------------------
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
--------- -------- -------- --------
Outstanding July 1, 1998......... 2,845,443 $ 9.81 402,101 $ 2.79
Exercised...................... (118,837) 5.81 (45,979) 2.80
Canceled....................... (46,753) 13.54 -- --
--------- --------
Outstanding June 30, 1999........ 2,679,853 9.93 356,122 2.79
Granted........................ 1,078,054 16.43 -- --
Exercised...................... (123,517) 6.58 (227,199) 2.81
Canceled....................... (31,815) 15.46 -- --
--------- --------
Outstanding June 30, 2000........ 3,602,575 11.94 128,923 2.76
Granted........................ 802,682 17.81 -- --
Exercised...................... (85,908) 8.86 (128,923) 2.76
Canceled....................... (38,233) 15.57 -- --
--------- --------
Outstanding June 30, 2001........ 4,281,116 13.07 -- --
========= ========
The following table summarizes information about stock options outstanding under
the 1992 Plan at June 30, 2001:
Options Outstanding Options Exercisable
------------------------------------------------------ ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number of Contractual Exercise Number of Exercise
Exercise Prices Options Life Price Options Price
--------------- ----------- ----------- -------- ---------- --------
$ 0.00 - $ 5.00 351,307 1.3 years $ 3.49 351,307 $ 3.49
5.01 - 10.00 843,436 3.6 years 7.04 779,305 6.98
10.01 - 15.00 491,174 5.8 years 11.88 394,191 11.86
15.01 - 20.00 2,595,199 8.4 years 16.55 653,134 15.69
----------- ----------
4,281,116 2,177,937
=========== ==========
--------------------------------------------------------------------------------
F-14
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The shares exercisable under the 1992 Plan and the corresponding weighted
average exercise price at June 30, 2001, 2000 and 1999 were 2,177,937 and $9.91;
1,728,954 and $8.58; and 1,497,738 and $7.50, respectively. The shares
exercisable under the 1982 Plan and the corresponding weighted average exercise
price at June 30, 2001, 2000 and 1999 were nil and nil; 128,923 and $2.76; and
356,122 and $2.76, respectively. The shares exercisable under the Pennsylvania
Option Plan and the corresponding weighted average exercise price at June 30,
2001 and 2000 were 396,902 and $10.54 and 396,902 and $10.54. The shares
exercisable under the Pennsylvania Incentive Plan and the corresponding weighted
average exercise price at June 30, 2001 and 2000 were 180,004 and $12.15 and
177,359 and $12.06. The weighted average remaining contractual life of options
outstanding under the Pennsylvania Option Plan and the Pennsylvania Incentive
Plan at June 30, 2001 were 5 and 6.9 years, respectively. There were 2,477,979
shares available for future option grants under the 1992 Plan at June 30, 2001.
No shares were available for future option grants under the 1982 Plan at June
30, 2001.
On February 10, 1994, Southern Union granted a warrant which expires on
February 10, 2004, to purchase up to 110,808 shares of Common Stock at an
exercise price of $6.26 to the Company's outside legal counsel.
Retained Earnings Under the most restrictive provisions in effect, as a result
of the sale of Senior Notes, Southern Union will not declare or pay any cash or
asset dividends on common stock (other than dividends and distributions payable
solely in shares of its common stock or in rights to acquire its common stock)
or acquire or retire any shares of Southern Union's common stock, unless no
event of default exists and the Company meets certain financial ratio
requirements. In addition, Southern Union's charter relating to the issuance of
preferred stock limits the payment of cash or asset dividends on capital stock.
IX Derivative Instruments and Hedging Activities
Derivative Activities During fiscal year 2001, the Company was party to an
interest rate swap designed to reduce exposure to changes in the fair value of a
fixed rate lease commitment. This interest rate swap, designated as a fair value
hedge, was terminated in October 2000 resulting in a pre-tax gain of $182,000
which will be amortized through the remaining term of the underlying lease
obligation. The Company also continues to be obligated under three interest
rate swaps created to hedge exposure against volatility in interest payments on
variable rate debt. At June 30, 2001 the fair value of these interest rate
derivatives was a liability of $2,009,000 and is offset by a matching adjustment
to other comprehensive income. For the fiscal year ended June 30, 2001 net
settlement payments of $1,733,000 were made related to these derivatives and
recorded to interest expense. The Company expects to reclassify as interest
expense $1,911,000 in derivative losses, net of taxes, from accumulated other
comprehensive income as the settlement of swap payments occur over the next
twelve months. The maximum term over which the Company is hedging exposures to
the variability of cash flows is 28 months.
Subsequent to June 30, 2001, the Company entered three interest rate swaps in
order to take advantage of market interest rate reductions. The first derivative
instrument, effective July 5, 2001, carries a notional amount of $100,000,000
and terminates June 30, 2005. The remaining derivative instruments, effective
July 23, 2001 and August 1, 2001, carry notional amounts of $300,000,000 and
$200,000,000, respectively, and terminate November 15, 2004 and February 1,
2005, respectively. On September 19, 2001, these interest rate swaps were
unwound, resulting in a pre-tax gain and cash flow of $17,200,000.
The Company was also previously committed under two gas derivative contracts
related to certain non-regulated operations acquired in conjunction with the
acquisition of the Pennsylvania Operations. These two contracts were not
designated as hedging instruments and therefore did not qualify to receive hedge
accounting treatment under the Statement. During the quarter ended December 31,
2000, the Company recorded the expiration of these contracts as a pre-tax loss
of $526,000 through other income. This loss was offset by a pre-tax gain of
$494,000 recorded through cost of gas arising from the monthly settlement of the
two derivative contracts that expired in November 2000.
--------------------------------------------------------------------------------
F-15
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In conjunction with the acquisition of Providence Energy Corporation, the
Company also acquired ProvEnergy Oil, a distributor of fuel oil to retail and
commercial customers. ProvEnergy Oil offers certain retail customers price caps
for winter heating oil and purchases heating oil call options as a hedge against
price fluctuations on the related of fuel oil at an average strike price of $.75
a gallon, and the fair value of the hedging options was nil. The maximum term
over which the Company is hedging exposures to the variability of cash flows for
forecasted purchases of home heating oil is nine months. See Note II --
Acquisitions and Divestitures.
Trading Contracts In March 2001, the Company discovered unauthorized financial
derivative energy trading activity by a non-regulated, wholly-owned subsidiary.
During March 2001 and April 2001, all unauthorized trading activity was closed
resulting in a cumulative cash expense of $191,000, net of taxes. The majority
of the remaining deferred liability of $7,921,000 at June 30, 2001 related to
these derivative instruments will be recognized as income in the Consolidated
Statement of Operations over the next four years based on the related contracts.
In May 2001, the Company acquired natural gas commodity swap derivatives and
collar transactions in order to mitigate price volatility of natural gas passed
through to utility customers. The cost of the derivative products and the
settlement of the respective obligations are recorded through the gas purchase
adjustment clause as authorized by the applicable regulatory authority and
therefore do not impact earnings. The fair value of the contracts are recorded
as an adjustment to a regulatory asset/liability in the consolidated financial
statements. As of June 30, 2001, the Company owned contracts representing
3,718,840 MMBtu of natural gas at an average strike price of $4.20 per MMBtu.
The fair value of the contracts, which expire in May 2002, are included in the
consolidated financial statements as a liability and a matching adjustment to
deferred cost of gas of $1,701,000.
X Preferred Securities of Subsidiary Trust
On May 17, 1995, Southern Union Financing I (Subsidiary Trust), a consolidated
wholly-owned subsidiary of Southern Union, issued $100,000,000 of 9.48% Trust
Originated Preferred Securities (Preferred Securities). In connection with the
Subsidiary Trust's issuance of the Preferred Securities and the related purchase
by Southern Union of all of the Subsidiary Trust's common securities (Common
Securities), Southern Union issued to the Subsidiary Trust $103,092,800
principal amount of its 9.48% Subordinated Deferrable Interest Notes, due 2025
(Subordinated Notes). The sole assets of the Subsidiary Trust are the
Subordinated Notes. The interest and other payment dates on the Subordinated
Notes correspond to the distribution and other payment dates on the Preferred
Securities and the Com mon Securities. Under certain circumstances, the
Subordinated Notes may be distributed to holders of the Preferred Securities and
holders of the Common Securities in liquidation of the Subsidiary Trust. The
Subordinated Notes were redeemable at the option of the Company on or after May
17, 2000, at a redemption price of $25 per Subordinated Note plus accrued and
unpaid interest. The Preferred Securities and the Common Securities will be
redeemed on a pro rata basis to the same extent as the Subordinated Notes are
repaid, at $25 per Preferred Security and Common Security plus accumulated and
unpaid distributions. Southern Union's obligations under the Subordinated Notes
and related agreements, taken together, constitute a full and unconditional
guarantee by Southern Union of payments due on the Preferred Securities. As of
June 30, 2001, the quoted market price per Preferred Security was $25.35. As of
June 30, 2001 and 2000, 4,000,000 shares of Preferred Securities were
outstanding.
--------------------------------------------------------------------------------
F-16
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XI Debt and Capital Lease
June 30,
2001 2000
---------- ----------
7.60% Senior Notes due 2024.......................... $ 364,515 $ 364,515
8.25% Senior Notes due 2029.......................... 300,000 300,000
Term Note, due 2002.................................. 485,000 --
8.375% First Mortgage Bonds, due 2002................ 30,000 30,000
5.62% First Mortgage Bonds, due 2003................. 4,800 --
10.25% First Mortgage Bonds, due 2008................ 2,182 --
6.82% First Mortgage Bonds, due 2018................. 15,000 --
9.34% First Mortgage Bonds, due 2019................. 15,000 15,000
9.63% First Mortgage Bonds, due 2020................. 10,000 --
9.44% First Mortgage Bonds, due 2020................. 6,500 --
8.09% First Mortgage Bonds, due 2022................. 12,500 --
8.46% First Mortgage Bonds, due 2022................. 12,500 --
7.50% First Mortgage Bonds, due 2025................. 15,000 --
7.99% First Mortgage Bonds, due 2026................. 7,000 --
7.24% First Mortgage Bonds, due 2027................. 6,000 --
6.50% First Mortgage Bonds, due 2029................. 14,333 --
7.70% Debentures, due 2022........................... 6,806 --
Capital lease and other.............................. 28,408 26,452
---------- ----------
Total debt and capital lease......................... 1,335,544 735,967
Less current portion............................... 5,913 2,193
---------- ----------
Total long-term debt and capital lease............... $1,329,631 $ 733,774
========== ==========
The maturities of long-term debt and capital lease payments for each of the next
five years ending June 30 are: 2002 -- $5,913,000; 2003 -- $530,072,000; 2004 --
$11,656,000; 2005 -- $1,291,000; 2006 -- $1,236,000 and thereafter $785,376,000.
Senior Notes On November 3, 1999, the Company completed the sale of $300,000,000
of 8.25% Senior Notes (8.25% Notes) due 2029. The net proceeds from the sale of
these 8.25% Notes were used to: (i) fund the acquisition of Pennsylvania
Enterprises, Inc.; (ii) repay approximately $109,900,000 of borrowings under the
revolving credit facility, and (iii) repay approximately $136,000,000 of long-
and short-term debt assumed in the acquisition. Debt issuance costs and premiums
on the early extinguishment of debt are accounted for in accordance with that
required by its various regulatory bodies having jurisdiction over the Company's
operations. The Company recognizes gains or losses on the early extinguishment
of debt to the extent it is provided for by its regulatory authorities and in
some cases such gains or losses are deferred and amortized over the term of the
new or replacement debt issues.
The 8.25% Notes and the 7.60% Senior Notes traded at $1,001 and $950 (per $1,000
note), respectively on June 30, 2001, as quoted by a major brokerage firm. The
carrying amount of long-term debt at June 30, 2001 and 2000 was $1,335,544,000
and $735,967,000, respectively. The fair value of long-term debt at June 30,
2001 and 2000 was $1,317,667,000 and $700,934,000, respectively.
Assumed Debt In connection with the acquisition of the Pennsylvania Operations,
the Company assumed $45,000,000 of First Mortgage Bonds bearing interest between
8.375% and 9.34%. In connection with the acquisition of ProvEnergy, the Company
assumed $86,916,000 of First Mortgage Bonds bearing interest between 5.62% and
10.25%. In connection with the acquisition of Fall River Gas, the Company
assumed $19,500,000 of First Mortgage Bonds bearing interest between 7.24% and
9.44%. In connection with the acquisition of Valley Resources, the Company
assumed $6,905,000 of 7.70% Debentures.
--------------------------------------------------------------------------------
F-17
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capital Lease The Company completed the installation of an Automated Meter
Reading (AMR) system at Missouri Gas Energy during the first quarter of fiscal
year 1999. The installation of the AMR system involved an investment of
approximately $30,000,000 which is accounted for as a capital lease obligation.
As of June 30, 2001, the capital lease obligation outstanding was $23,687,000
with a fixed rate of 5.79%. This system has significantly improved meter reading
accuracy and timeliness and provided electronic accessibility to meters in
residential customers' basements, thereby assisting in the reduction of the
number of estimated bills. Depreciation on the AMR system is provided at an
average straight-line rate of approximately 5% per annum of the cost of such
property.
Credit Facilities On May 29, 2001, the Company restated and amended its
short-term and long-term credit facilities (together referred to as "Revolving
Credit Facilities"). The Company has available $150,000,000 under the short-
term facility, which expires May 28,2002, and $225,000,000 under the long-term
facility, which expires on May 29, 2004. The Company has additional availability
under uncommitted line of credit facilities with various banks. Borrowings under
the Revolving Credit Facilities are available for Southern Union's working
capital, letter of credit requirements and other general corporate purposes. The
Revolving Credit Facilities are subject to a commitment fee based on the rating
of the Senior Notes. As of June 30, 2001, the commitment fee was an annualized
0.14% on the unused balance. The interest rate on borrowings on the Revolving
Credit Facilities is calculated based on a formula using the LIBOR or prime
interest rates. The average interest rate under the facilities was 6.4% for the
year ended June 30, 2001 and 6.0% for the year ended June 30, 2000. A
$190,600,000 and nil balance was outstanding under the facilities at June 30,
2001 and 2000, respectively. A balance of $211,800,000 was outstanding under the
Revolving Credit Facilities at August 31, 2001.
Term Note On August 28, 2000 the Company entered into the Term Note to fund (i)
the cash portion of the con sideration to be paid to the Fall River Gas'
stockholders; (ii) the all cash consideration to be paid to the ProvEnergy and
Valley Resources stockholders, (iii) repayment of approximately $50,000,000 of
long- and short-term debt assumed in the mergers, and (iv) all related
acquisition costs. As of June 30, 2001, a balance of $485,000,000 was
outstanding under this Term Note. The Term Note, which initially expired on
August 27, 2001, has been extended through August 26, 2002 for a fee. No
additional draws can be made on the Term Note.
XII Employee Benefits
Pension and Other Post-Retirement Benefits The Company adopted in 1999,
Employers Disclosures About Pensions and Other Post-Retirement Benefits, a FASB
standard which changed the Company's reporting require ments for its pension and
post-retirement benefit plans.
The Company maintains nine trusteed non-contributory defined benefit retirement
plans (Plans) which cover substantially all employees. The Company funds the
Plans' cost in accordance with federal regulations, not to exceed the amounts
deductible for income tax purposes. The Plans' assets are invested in cash,
government securities, corporate bonds and stock, and various funds. The Company
also has a supplemental non-contributory retirement plan for certain executive
employees and other post-retirement benefit plans for its employees.
--------------------------------------------------------------------------------
F-18
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Post-retirement medical and other benefit liabilities are accrued on an
actuarial basis during the years an employee provides services. The following
table represents a reconciliation of the plans at June 30, 2001 and 2000.
2001 2000
---------- ----------
Change in Benefit Obligation
Benefit obligation at beginning of year............. $ 247,103 $ 204,461
Acquisitions........................................ 150,764 54,261
Service cost........................................ 4,680 2,251
Interest cost....................................... 25,479 16,265
Benefits paid....................................... (27,387) (17,798)
Actuarial (gain) loss............................... 18,847 (20,452)
Plan amendments..................................... 2,325 8,115
Settlement recognition.............................. (905) --
--------- ---------
Benefit obligation at end of year................... $ 420,906 $ 247,103
========= =========
Change in Plan Assets
Fair value of plan assets at beginning of year...... $ 224,424 $ 162,621
Acquisitions........................................ 172,019 50,657
Return on plan assets............................... (16,362) 21,499
Employer contributions.............................. 12,910 7,445
Benefits paid....................................... (27,387) (17,798)
--------- ---------
Fair value of plan assets at end of year............ $ 365,604 $ 224,424
========= =========
Funded Status
Funded status at end of year........................ $ (55,302) $ (22,679)
Unrecognized transition obligation.................. 2,511 2,637
Unrecognized net actuarial (gain) loss.............. 33,054 (31,417)
Unrecognized prior service cost..................... 17,730 17,080
--------- ---------
Accrued benefit cost................................ $ (2,007) $ (34,379)
========= =========
Amounts Recognized in the Consolidated Balance Sheet
Prepaid benefit cost................................ $ 57,145 $ 11,738
Accrued benefit liability........................... (76,330) (62,498)
Intangible asset.................................... 12,854 16,381
Accumulated other comprehensive income.............. 4,324 --
--------- ---------
Net liability recognized............................ $ (2,007) $ (34,379)
========= =========
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets as of June 30, 2001 were $83,773,000, $81,103,000, and
$53,745,000, respectively, and for those same plans were $19,492,000,
$19,492,000, and nil, respectively as of June 30, 2000.
The accumulated post-retirement benefit obligation and fair value of plan assets
for post-retirement benefit plans with accumulated post-retirement benefit
obligations in excess of fair value of plan assets as of June 30, 2001 were
$74,250,000 and $22,058,000 respectively, and for those same plans were
$45,920,000 and $7,859,000, respectively as of June 30, 2000.
--------------------------------------------------------------------------------
F-19
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted-average assumptions used for the year ended June 30, 2001, 2000 and
1999 were:
2001 2000 1999
-------- -------- --------
Discount rate
Beginning of year.............................. 8.00% 7.00% 7.00%
End of year.................................... 7.50% 8.00% 7.00%
Expected return on assets - tax exempt accounts.. 9.00% 8.00% 8.00%
Expected return on assets - taxable accounts..... 5.40% 5.25% 5.25%
Rate of compensation increase (average).......... 5.00% 5.62% 5.62%
Health care cost trend rate...................... 12.00% 9.00% 7.25%
Net periodic benefit cost for the year ended June 30, 2001, 2000 and 1999
includes the following components:
2001 2000 1999
-------- -------- --------
Service cost.................................. $ 4,680 $ 2,251 $ 3,364
Interest cost................................. 25,484 16,265 13,829
Expected return on plan assets................ (26,954) (14,554) (13,006)
Amortization of transition amount............. 127 127 127
Amortization of prior service cost............ 1,675 948 438
Recognized actuarial gain..................... (3,539) (2,704) (3,319)
Curtailment................................... -- -- 131
Settlement recognition........................ (178) -- --
-------- -------- --------
Net periodic pension cost...................... $ 1,295 $ 2,333 $ 1,564
======== ======== ========
The assumed rate of compensation increase (average) used in measuring the
accumulated post-retirement benefit obligation was 5.0% during 2001. For
ProvEnergy, Fall River Gas and Valley Resources the rate of compensation
increase (average) used in measuring the accumulated post-retirement benefit
obligation was 5.5%, 4.25% and 5.1%, respectively, during 2001.
The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 12.00% during 2001. This rate was assumed
to decrease gradually each year to a rate of 6.0% for 2005 and remain at that
level thereafter. For ProvGas participants electing medicare complete coverage,
the assumed health care cost trend rate used was 50.0%, and it was assumed to
decrease to 6.0% by 2005. The health care cost trend rate of 50.0% is due to
increases in HMO premium rates experienced in 2001. For Fall River Gas
participants the assumed health care cost trend rate used was 12.0%, and it was
assumed to decrease gradually to 6.0% by 2007.
Amortization of unrecognized actuarial gains and losses for Missouri Gas Energy
plans were determined using a rolling five year average gain or loss position
with a five year amortization period pursuant to a stipulation agreement with
the MPSC.
Effect of health care trend rate changes on health care plans:
One Percentage One Percentage
Point Increase Point Decrease
in Health Care in Health Care
Trend Rate Trend Rate
-------------- --------------
Effect on total service and interest cost
components............................... $ 196 $ (172)
Effect on post-retirement benefit
obligation............................... 2,191 (1,938)
The Company's nine qualified defined benefit retirement Plans cover: (i) those
Company employees who are not employed by Missouri Gas Energy or the
Pennsylvania Operations; (ii) those employees who are employed by
--------------------------------------------------------------------------------
F-20
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Missouri Gas Energy; (iii) those employees who are employed by the Pennsylvania
Operations; (iv) union employees of ProvEnergy; (v) non-union employees of
ProvEnergy; (vi) union employees of Valley Resources; (vii) non-union employees
of Valley Resources; (viii) union employees of Fall River; and (ix) non-union
employees of Fall River. On December 31, 1998, the Plans covering (i) and (ii)
above, exclusive of Missouri Gas Energy's union employees, were converted from
the traditional defined benefit Plans with benefits based on years of service
and final average compensation to cash balance defined benefit plans in which an
account is maintained for each employee.
The initial value of the account was determined as the actuarial present value
(as defined in the Plans) of the benefit accrued at transition (December 31,
1998) under the pre-existing traditional defined benefit plan. Future
contribution credits to the accounts are based on a percentage of future
compensation, which varies by individual. Interest credits to the accounts are
based on 30-year Treasury bond yields.
Defined Contribution Plan The Company provides a Savings Plan available to all
employees. Since January 1, 1997, the Company had contributed $.50 of Company
stock for each $1.00 contributed by a non-Missouri Gas Energy participant up to
5% of the employee's salary. Additionally, the Company contributes $.75 of
Company stock for each $1.00 contributed by a non-Missouri Gas Energy
participant from 6% to 10% of the employee's salary. Effective July 1, 1998,
Company contributions for Missouri Gas Energy non-union employees were revised
to coincide with that of non-Missouri Gas Energy participants as described
above. For Missouri Gas Energy union employees, the Company contributes $.50 of
Company stock for each $1.00 contributed by such a participant up to 7% of the
employee's salary. In Pennsylvania, the Company contributes 40% of the first 4%
of the participant's compensation paid into the Savings Plan for all
participants, other than those employed by Keystone. For employees of Keystone,
a wholly-owned subsidiary which was sold in June 2001, the matching contribution
was equal to 50% of the first 4% of the participant's compensation paid into the
Savings Plan. For Fall River Gas, the Company contributes 100% of the first 4%
of non-union employee compensation paid into the Savings Plan and 100% of the
first 3% of union employee compensation paid into the Savings Plan. For ProvGas,
the Company contributes 50% of the first 10% of the participant's compensation
paid into the Savings Plan. For Valley Resources, the Company contributes 50% of
the first 4% of the participant's compensation paid into the Savings Plan.
Company contributions are 100% vested after five years of continuous service.
Company contributions to the plan during 2001, 2000 and 1999 were $3,696,000,
$2,034,000 and $1,717,000, respectively.
Effective January 1, 1999 the Company amended its defined contribution plan to
provide contributions for certain employees who were employed as of December 31,
1998. These contributions were designed to replace certain benefits previously
provided under defined benefit plans. Employer contributions to these separate
accounts, re ferred to as Retirement Power Accounts, within the defined
contribution plan were determined based on the employee's age plus years of
service plus accumulated sick leave as of December 31, 1998. The contribution
amounts are determined as a percentage of compensation and range from 3.5% to
8.5%. Company contributions to Retirement Power Accounts during 2001, 2000 and
1999 were $2,029,000, $2,281,000 and $1,118,000, respectively.
Corporate Restructuring In August 2001, the Company announced implementation of
a corporate reorganization and restructuring which was initially announced in
July 2001 as part of a Cash Flow Improvement Plan designed to increase
annualized pre-tax cash flow from operations by at least $50 million by the end
of fiscal year 2002. Actions taken included (i) the offering of voluntary ERPs
in certain of its operating divisions and (ii) a limited RIF within its
corporate division. ERPs, providing for increased benefits for those electing
retirement, were offered to approxi mately 400 eligible employees across the
Company's operating divisions.
In connection with the corporate reorganization and restructuring, Southern
Union is decentralizing certain of its corporate management functions and will
transfer those functions to its divisions in Texas, Missouri, Pennsylvania and
New England. The resulting RIF is limited solely to certain corporate employees
in the Company's Austin and Kansas City offices. The resulting organization will
have employees transferred to operating divisions and others in shared service
positions. Forty-eight employees were offered severance packages.
--------------------------------------------------------------------------------
F-21
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company anticipates a one-time charge of between $25 million to $32 million
for the quarter ending September 30, 2001. This charge will include costs
associated with the ERP and corporate reorganization and restructuring, costs
connected with redundant IT systems, and certain other related costs. The size
of this charge may be reduced subject to favorable regulatory treatment of the
ERP costs in certain operating divisions. The Company expects that most of the
restructuring actions will be completed by the end of fiscal 2002.
Common Stock Held in Trust From time to time, the Company purchases outstanding
shares of common stock of Southern Union to fund certain Company employee
stock-based compensation plans. At June 30, 2001 and 2000, 933,191 and 989,515
shares, respectively, of common stock were held by various rabbi trusts for
certain of those Company's benefit plans. Effective March 22, 2001, the Company
amended a benefit plan holding common stock in a rabbi trust eliminating the
non-cash income and expense volatility associated with the accounting treatment
for such plan. During 2001 certain employees deferred receipt of Company shares
for stock options exercised. At June 30, 2001, 195,244 shares were held in a
rabbi trust for these employees.
XIII Taxes on Income
Year Ended June 30,
-------------------------
2001 2000 1999
------- ------- -------
Current:
Federal.......................................... $11,818 $ 6,640 $ (516)
State............................................ 404 345 (242)
------- ------- ------
12,222 6,985 (758)
------- ------- ------
Deferred:
Federal.......................................... 27,026 1,857 7,024
State............................................ 752 747 843
------- ------- ------
27,778 2,604 7,867
------- ------- ------
Total provision.................................... $40,000 $ 9,589 $7,109
======= ======= ======
Deferred credits and other liabilities also include $488,000 and $524,000 of
unamortized deferred investment tax credit as of June 30, 2001 and 2000,
respectively.
--------------------------------------------------------------------------------
F-22
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes result from temporary differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities.
June 30,
2001 2000
--------- ---------
Deferred tax assets:
Estimated alternative minimum tax credit............ $ 12,606 $ 21,389
Insurance accruals.................................. 663 1,100
Bad debt reserves................................... 5,045 1,135
Post-retirement benefits............................ 6,941 1,888
Other............................................... 19,412 11,118
--------- ---------
Total deferred tax assets......................... 44,667 36,630
--------- ---------
Deferred tax liabilities:
Property, plant and equipment....................... (183,361) (123,907)
Unamortized debt expense............................ (4,906) (4,732)
Deferred state and local taxes...................... (9,006) (12,289)
Regulatory liability................................ (13,859) (8,769)
Unrealized holding gain on securities............... (5,638) (62,017)
Other............................................... (26,143) (7,336)
--------- ---------
Total deferred tax liabilities.................... (242,913) (219,050)
--------- ---------
Net deferred tax liability............................ (198,246) (182,420)
Less current tax assets............................... 5,045 1,090
--------- ---------
Accumulated deferred income taxes..................... $(203,291) $(183,510)
========= =========
The Company accounts for income taxes utilizing the liability method which bases
the amounts of current and future tax assets and liabilities on events
recognized in the financial statements and on income tax laws and rates existing
at the time the temporary differences are expected to reverse.
Year Ended June 30,
-------------------------
2001 2000 1999
------- ------- -------
Computed statutory tax expense at 35%............. $33,839 $ 6,802 $ 6,144
Changes in taxes resulting from:
State income taxes, net of federal income tax
benefit....................................... 751 710 348
Amortization of acquisition adjustment.......... 5,277 2,311 830
Other........................................... 133 (234) (213)
------- ------- -------
Actual tax expense................................ $40,000 $ 9,589 $ 7,109
======= ======= =======
XIV Utility Regulation and Rates
Missouri On July 5, 2001, the Missouri Public Service Commission (MPSC) issued
an order approving a unanimous settlement of Missouri Gas Energy's rate request.
The settlement provides for an annual $9,892,000 base rate increase, as well as
$1,081,000 in added revenue from new and revised service charges. The majority
of the rate increase will be recovered through increased monthly fixed charges
to gas sales service customers. New rates became effective August 6, 2001, two
months before the statutory deadline for resolving the case. The approved
settlement requires parties to seek dismissal of all pending judicial reviews of
prior rate cases. The settlement also provides for the development of a two-year
experimental low-income program that will help certain customers in the Joplin
area pay their natural gas bills.
On August 21, 1998, Missouri Gas Energy was notified by the MPSC of its decision
to grant a $13,300,000 annual increase to revenue effective on September 2,
1998, which is primarily earned volumetrically.
--------------------------------------------------------------------------------
F-23
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The approval of the January 31, 1994 acquisition of the Missouri properties by
the MPSC was subject to the terms of a stipulation and settlement agreement,
which, among other things, requires Missouri Gas Energy to reduce rate base by
$30,000,000 (amortized over a ten-year period on a straight-line basis) to
compensate rate payers for rate base reductions that were eliminated as a result
of the acquisition.
Rhode Island Pursuant to the Rhode Island Public Utilities Commission's (RIPUC)
Written Order issued April 30, 2001, Providence Gas' Price Stabilization Plan
was extended through June 2002. The aforementioned agreement provides for
additional gas distribution margin of $12,030,000 over the 21-month period,
October 2000 through June 2002, or approximately $6,240,000 for the twelve
months ended September 2001.
The settlement agreement also contains a weather mitigation clause and a
non-firm margin incentive mechanism (non-firm margin is margin earned from
interruptible customers with the ability to switch to alternative fuels). The
weather mitigation clause is designed to mitigate the impact of weather
volatility on customer billings, which will assist customers in paying bills and
stabilize the revenue stream to Providence Gas. Providence Gas will defer the
margin impact of weather that is greater than 2% colder-than-normal and will
recover the margin impact of weather that is greater than 3% warmer-than-normal
by making the corresponding adjustment to the deferred revenue account (DRA).
The non-firm margin incentive mechanism is designed to encourage Providence Gas
to promote the development of non-firm margins, which will reduce the cost of
service to all customers. Providence Gas will retain 25% of all non-firm margins
earned in excess of $1,200,000.
Under the settlement agreement, Providence Gas may earn up to 10.7%, but not
less than 7.0%, using the average return on equity for the two 12-month periods
of October 2000 through September 2001 and July 2001 through June 2002.
Effective October 1, 2000, the RIPUC had approved a settlement agreement between
Providence Gas, the Rhode Island Division of Public Utilities and Carriers, the
Energy Council of Rhode Island, and The George Wiley Center. The settlement
agreement recognized the need for an increase in distribution system revenues of
$4,500,000, recovered through an adjustment to the throughput portion of the gas
charge, and provided for a 21-month base rate freeze. In the settlement
agreement, the RIPUC authorized system improvement programs. Additionally,
higher levels of support for low income bill payment assistance was authorized
as well as the continuation of the utility's demand side management and
weatherization assistance programs.
Pennsylvania On April 3, 2000, PG Energy filed an application with the
Pennsylvania Public Utility Commission (PPUC) seeking an increase in its base
rates designed to produce $17,900,000 in additional annual revenues. On December
7, 2000, the PPUC approved a settlement agreement that provided for a rate
increase designed to produce $10,800,000 of additional annual revenue. The new
rates became effective on January 1, 2001.
El Paso, Texas On October 18, 1999, Southern Union Gas filed a $1,696,000 rate
increase request for the El Paso service area with the City of El Paso. In
February 2000, the City of El Paso approved a $650,000 revenue increase, and an
improved rate design that collects a greater portion of the Company's revenue
stream from the monthly customer charge. Additionally, the City of El Paso
approved a new 30-year franchise for Southern Union Gas.
On April 13, 1998, Southern Union Gas filed a $2,228,000 request for a rate
increase from the City of El Paso, a request the City subsequently denied. On
April 21, 1998, the city council of El Paso voted to reduce the Company's rates
by $1,570,000 annually and to order a one-time cost of gas refund of $475,000.
On May 21, 1998, Southern Union Gas filed an appeal of the City of El Paso's
actions to reduce the Company's rates and require a one-time cost of gas refund
with the Texas Railroad Commission (RRC). On December 21, 1998, the RRC issued
its order implementing an $884,000 one-time cost of gas refund and a $99,000
base rate reduction. The cost of gas refund was completed in February 1999.
--------------------------------------------------------------------------------
F-24
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XV Leases
The Company leases certain facilities, equipment and office space under
cancelable and noncancelable operating leases. The minimum annual rentals under
operating leases for the next five years ending June 30 are as follows: 2002 --
$8,047,000; 2003 -- $8,144,000; 2004 -- $16,804,000; 2005 -- $4,304,000; 2006 --
$4,183,000 and thereafter $24,730,000. Rental expense was $10,353,000,
$10,384,000 and $7,732,000 for the years ended June 30, 2001, 2000 and 1999,
respectively.
XVI Commitments and Contingencies
Environmental The Company is subject to federal, state and local laws and
regulations relating to the protection of the environment. These evolving laws
and regulations may require expenditures over a long period of time to con trol
environmental impacts. The Company has established procedures for the on-going
evaluation of its operations to identify potential environmental exposures and
assure compliance with regulatory policies and procedures.
The Company is investigating the possibility that the Company or predecessor
companies may have been associated with Manufactured Gas Plant (MGP) sites in
its former service territories, principally in Arizona and New Mexico, and
present service territories in Texas, Missouri, Pennsylvania, Massachusetts and
Rhode Island. At the present time, the Company is aware of certain MGP sites in
these areas and is investigating those and certain other locations.
While the Company's evaluation of these Texas, Missouri, Arizona, New Mexico,
Pennsylvania, Massachusetts and Rhode Island MGP sites is in its preliminary
stages, it is likely that some compliance costs may be identified and become
subject to reasonable quantification. Within the Company's service territories
certain MGP sites are currently the subject of governmental actions. These sites
are as follows:
Kansas City, Missouri MGP Sites In a letter dated May 10, 1999, the Missouri
Department of Natural Resources (MDNR) sent notice of a planned Site
Inspection/Removal Site Evaluation of the Kansas City Coal Gas Former
Manufactured Gas Plant site. This site (comprised of two adjacent MGP operations
previously owned by two separate companies and hereafter referred to as Station
A and Station B) is located at East 1st Street and Campbell in Kansas City,
Missouri and is owned by Missouri Gas Energy (MGE). A 1988 investigation of the
site performed by an Environmental Protection Agency (EPA) contractor determined
that further remedial assessment was not required under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as
amended by the SUPERFUND Amendments and Reauthorization Act of 1986. The MDNR
has stated that the reassessment of the Kansas City Coal Gas site is part of a
statewide effort to identify, evaluate, and prioritize the potential hazards
posed by all of Missouri's MGP sites. During July 1999, the Company sent
applications to MDNR submitting the two sites to the agency's Voluntary Cleanup
Program (VCP). The sites were accepted into the VCP on August 2, 1999 and MGE
subsequently performed environmental assessments at the sites and submitted
assessment results to MDNR on March 6, 2000. In a letter dated June 21, 2000,
MDNR responded to the Station A environmental report submitted by the Company.
In that letter, MDNR stated that soil remediation will be neces sary at the site
(Station A) but that further exploration and delineation of site contamination
should be performed before remedial methods can be determined. MGE performed
additional assessment work in accordance with MDNR's request. In a letter dated
May 7, 2001, MDNR responded to the Station B environmental report. That letter
suggested that some soils would need to be remediated, but that certain areas on
Station B require further investigation to determine whether significant
contamination exists.
North of the Kansas City, Missouri Station A and B MGP sites, the City of Kansas
City Port Authority ("Port Authority") is developing a parcel of land adjacent
to the Missouri River and known as the "Riverfront Development." In the course
of developing this property, the Port Authority entered the Riverfront
Development into the Missouri Voluntary Cleanup Program. In a letter dated
April 23, 2001, MDNR invited representatives of MGE, the Port Authority and
Honeywell International Inc. (the alleged successor to Barrett Manufacturing
Company, a tar manufacturer formerly located on a portion of the Riverfront
Development) to a technical meeting to discuss the
--------------------------------------------------------------------------------
F-25
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
investigation, cleanup, closure and redevelopment of the Riverfront Development
and MGE's properties. That meeting was held on May 16, 2001. On July 18, 2001,
representatives of MGE and the Port Authority met to discuss MGE's proposal for
a limited assessment and remediation of a portion of the Port Authority property
allegedly impacted by the historic MGP. That proposal was set forth in a letter
from MGE to the Port Authority dated July 31, 2001. In a letter dated July 27,
2001, Honeywell International Inc. proposed to the Port Authority that Honeywell
perform a similar assessment on the portion of the Riverfront Development
formerly occupied by Barrett Manufacturing Company. In a letter addressed to MGE
and dated August 3, 2001, the Port Authority set forth its demand that MGE
assume responsibility for the remediation of soil and groundwater at the
Riverfront Development, and in a letter dated August 15, 2001, the Port
Authority granted a conditional acceptance of MGE's proposal for MGE's limited
assessment of the Riverfront Development. MGE and the Port Authority are
currently negotiating the terms of an access agreement that would allow MGE to
perform environmental work at the Riverfront Development.
Providence, Rhode Island Sites During 1995, Providence Gas began an
environmental evaluation at its primary gas distribution facility located at 642
Allens Avenue in Providence, Rhode Island. Environmental studies and a
subsequent remediation work plan were completed at an approximate cost of $4.5
million. Providence Gas also began a soil remediation project on a portion of
the site in July 1999. As of June 30, 2001, approximately $8,900,000 had been
expended on soil remediation under the remediation work plan. Based on the
results of the environmental investigation and the site information learned
during the performance of work under the remediation work plan, the Company
submitted a revised remedial action work plan ("RAWP") for the site to the Rhode
Island Department of Environmental Management ("RIDEM") on July 24, 2001.
Although additional remediation work is planned for the site during calendar
year 2002, assessment and remediation costs will not exceed $500,000 during
calendar year 2001. Because the Company has not received any comments from RIDEM
on the revised RAWP, the Company cannot offer any conclusions as to the total
future cost of remediation of the property at this time. However, one estimate
of the cost of the environmental work proposed under the revised RAWP is
$5,700,000.
In November 1998, Providence Gas received a letter of responsibility from the
RIDEM relating to possible contamination on previously owned property at 170
Allens Avenue in Providence. The current operator of the property has also
received a letter of responsibility. A work plan had been created and approved
by RIDEM. An investigation was then begun to determine the extent of
contamination, as well as the extent of the Company's responsibility. Providence
Gas entered into a cost-sharing agreement with the current operator of the
property, under which Providence Gas was responsible for approximately twenty
percent (20%) of the costs related to the investiga tion. Costs of testing at
this site as of June 30, 2001 were approximately $300,000. Until the results of
the investigation are known, the Company cannot offer any conclusions as to its
responsibility.
Tiverton, Rhode Island Site Fall River Gas Company is a defendant in a civil
action seeking to recover anticipated remediation costs associated with
contamination found at property owned by the plaintiffs. This claim is based on
alleged dumping of material by Fall River Gas Company trucks at the site in the
1930s and 1940s.
Valley Gas Company Sites Valley Gas Company is a party to an action in which
Blackstone Valley Electric Company ("Blackstone") brought suit for contribution
to its expenses of cleanup of a site on Mendon Road in Attleboro, Massachusetts,
to which coal manufacturing waste was transported from a former MGP site in
Pawtucket, Rhode Island (the "Blackstone Litigation"). Blackstone Valley
Electric Company v. Stone & Webster, Inc., Stone & Webster Engineering
Corporation, Stone & Webster Management Consultants, Inc. and Valley Gas
Company, C. A. No. 94-10178JLT, United States District Court, District of
Massachusetts. Valley Gas Company takes the position in that litigation that it
is indemnified for any cleanup expenses by Blackstone pursuant to a 1961
agreement signed at the time of Valley Gas Company's creation. This suit was
stayed in 1995 pending the issuance of rulemaking at the United States EPA
(Commonwealth of Massachusetts v. Blackstone Valley Electric Company, 67 F.3d
981 (1995)). In January 2001, the EPA issued a Preliminary Administrative
Decision on this issue and announced that it was soliciting comments on the
Decision. While the public comment period has now closed, the EPA has yet to
reissue its decision. While this suit has been stayed, Valley Gas Company and
Blackstone (merged with Narragansett Electric Company in May 2000) have received
letters of responsibility from the RIDEM with respect
--------------------------------------------------------------------------------
F-26
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to releases from two MGP sites in Rhode Island. RIDEM issued letters of
responsibility to Valley Gas Company and Blackstone in September 1995 for the
Tidewater MGP in Pawtucket, Rhode Island, and in February 1997 for the Hamlet
Avenue MGP in Woonsocket, Rhode Island. Valley Gas Company entered into an
agreement with Blackstone (now Narragansett) in which Valley Gas Company and
Blackstone agreed to share equally the expenses for the costs associated with
the Tidewater site subject to reallocation upon final determination of the legal
issues that exist between the companies with respect to responsibility for
expenses for the Tidewater site and otherwise. No such agreement has been
reached with respect to the Hamlet site.
To the extent that potential costs associated with former MGPs are quantified,
the Company expects to provide any appropriate accruals and seek recovery for
such remediation costs through all appropriate means, including in rates charged
to customers, insurance and regulatory relief. At the time of the closing of the
acquisition of the Company's Missouri service territories, the Company entered
into an Environmental Liability Agreement that provides that Western Resources
retains financial responsibility for certain liabilities under environmental
laws that may exist or arise with respect to Missouri Gas Energy. In addition,
at the time it was acquired, Providence Gas had in place a regulatory plan that
created a mechanism for the recovery of environmental-related costs. This plan
provided for recovery of environmental investigation and remediation costs
incurred through September 30, 1997, as well as costs incurred during the
three-year term of the plan, are to be amortized over a 10-year period, at a
level authorized under the plan. A new plan, effective October 1, 2000 through
June 30, 2002, establishes an environmental fund for the recovery of evaluation,
remedial and clean-up costs arising out of the Company's MGPs and sites
associated with the operation and disposal activities from MGPs.
Although significant charges to earnings could be required prior to rate
recovery, management does not believe that environmental expenditures for MGP
sites will have a material adverse effect on the Company's financial position,
results of operations or cash flows.
The Company follows the provisions of an American Institute of Certified Public
Accountants Statement of Position, Environmental Remediation Liabilities, for
recognition, measurement, display and disclosure of environmental remediation
liabilities.
Regulatory In August 1998, a jury in Edinburg, Texas concluded deliberations on
the City of Edinburg's franchise fee lawsuit against PG&E Gas Transmission,
Texas Corporation (formerly Valero Energy Corporation (Valero)) and a number of
its subsidiaries, as well as former Valero subsidiary Rio Grande Valley Gas
Company (RGV) and RGV's successor company, Southern Union Company. Southern
Union purchased RGV from Valero in October 1993. The jury awarded the plaintiff
damages, against all defendants under several largely overlapping but mutually
exclusive claims, totaling approximately $13,000,000. The trial judge
subsequently reduced the award to approximately $700,000 against Southern Union
and $7,800,000 against Valero and Southern Union together. The trial court's
decision was appealed to the Thirteenth District of the Texas Court of Appeals
(Court of Appeals). In December 2000, the Court of Appeals reversed and modified
the trial court's judgment of approximately $8,500,000 and awarded the City of
Edinburg $585,000, plus pre-judgment interest of $190,000 against RGV and Valero
for breach of contract. The Court of Appeals upheld the award for attorneys'
fees of approximately $3,500,000 against Valero, RGV and Southern Union. In
subsequent decisions, the Court of Appeals first excluded Southern Union from,
then reinstated against Southern Union, the December 2000 judgment. The Court of
Appeals also remanded a portion of the case to the Trial Court with instructions
to retry certain issues. The Company will continue to pursue reversal on appeal.
The Company believes that the outcome of this matter will not have a material
adverse impact on the Company's results of operations, financial position or
cash flows. The Company also has entered into a settlement agreement to settle a
related class action lawsuit with a majority of the cities served by the Company
in Texas. The settlement will not have a material adverse impact on the
Company's results of operations, financial position or cash flows.
Southwest Gas Litigation On February 1, 1999, Southern Union submitted a
proposal to the Board of Directors of Southwest Gas Corporation (Southwest) to
acquire all of Southwest's outstanding common stock for $32.00 per
--------------------------------------------------------------------------------
F-27
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
share. Southwest at that time had a pending merger agreement with ONEOK, Inc.
(ONEOK) at $28.50 per share, executed on December 14, 1998. On February 22,
1999, Southern Union and Southwest both publicly announced Southern Union's
proposal, after the Southwest Board of Directors determined that Southern
Union's proposal was a Superior Proposal (as defined in the Southwest merger
agreement with ONEOK). At that time Southern Union entered into a
Confidentiality and Standstill Agreement with Southwest at Southwest's
insistence. On April 25, 1999, Southwest's Board of Directors rejected Southern
Union's $32.00 per share offer and accepted an amended offer of $30.00 per share
from ONEOK. On April 27, 1999, Southern Union increased its offer to $33.50 per
share and agreed to pay interest which, together with dividends, would provide
Southwest shareholders with a 6% annual rate of return on its $33.50 offer,
commencing February 15, 2000, until closing. Southern Union's revised proposal
was rejected by Southwest's Board of Directors. On January 21, 2000, ONEOK
announced that it was withdrawing from the Southwest merger agreement.
There are several lawsuits pending that relate to activities surrounding
Southern Union's efforts to acquire Southwest. Southern Union intends to
vigorously pursue its claims against Southwest, ONEOK, and certain individual
defendants, and vigorously defend itself against the claims by Southwest and
ONEOK.
Nevada Action -- Southwest Gas Corporation v. Southern Union Company; Case No.
CV-S-99-0530-JBR (U.S.D.C., District of Nevada) (transferred to the District of
Arizona to Case No. CIV-00-452-PHX-RGS) On April 30, 1999, Southwest filed an
action against Southern Union in the United States District Court for the
District of Nevada. The complaint alleged breach of the Confidentiality and
Standstill Agreement between Southern Union and Southwest, misappropriation of
original trade secrets in violation of California statutes, intentional
interference with the ONEOK merger agreement, intentional interference with
prospective advantage, breach of a common-law duty of good faith and fair
dealing, and unfair business practices in violation of California statutes. On
May 6, 1999, Southwest filed an amended complaint that added a claim for breach
of the Securities Exchange Act of 1934 to the claims in the original complaint.
Southwest seeks declaratory and injunctive relief together with money damages
"in excess of $75,000.00." Southern Union has answered the complaint, denying
liability under all counts. Southern Union has filed a counterclaim alleging
breach of contract, breach of duty of good faith and fair dealing, mistake of
fact and fraudulent inducement with respect to the Confidentiality and
Standstill Agreement. The counterclaim seeks partial rescission of the
Confidentiality and Standstill Agreement and/or declaratory relief. On March 8,
2000, the Nevada Court transferred this case to the District of Arizona.
Oklahoma Action -- ONEOK, Inc. v. Southern Union Company; Case No.
99-CV-0345H(M) (U.S.D.C., Northern District of Oklahoma) On May 5, 1999, ONEOK
filed an action against Southern Union in the United States District Court for
the Northern District of Oklahoma, asserting third-party beneficiary status
under the Confidentiality and Standstill Agreement between Southern Union and
Southwest, and alleging a claim for breach of that Agreement as well as a claim
for intentional interference with the ONEOK-Southwest merger agreement. That
same day, ONEOK moved for a temporary restraining order against Southern Union
to bar Southern Union from making any attempt to solicit proxies from or
influence the shareholders of Southwest with respect to Southern Union's offer
to purchase Southwest, from taking any actions in the regulatory proceedings
that concern the proposed merger of ONEOK and Southwest, from taking any actions
in the Klein v. Southwest Gas Corp. case and from taking any actions to seek to
control or influence the shareholders, management, directors or policies of
Southwest, either alone or in concert with others. The court entered a
preliminary injunction on May 17, 1999. Southern Union has answered the
Complaint, denying liability under all counts. Southern Union has asserted a
counterclaim seeking declaratory judgment on enforceability of the
Confidentiality and Standstill Agreement and a declaration that Southern Union
has not breached the Confidentiality and Standstill Agreement. On September 12,
2000, the court entered an order transferring this case from the Northern
District of Oklahoma to the District of Arizona as Case No. CIV-00-1812-
PHX-ROS.
Appeal of Oklahoma Action -- ONEOK, Inc. v. Southern Union Company; Case No.
99-5103 (Tenth Circuit Court of Appeals) On May 17, 1999 Southern Union noticed
its appeal of the Oklahoma District Court's preliminary injunction in the United
States District Court of Appeals for the Tenth Circuit. On March 22, 2000, the
appellate court
--------------------------------------------------------------------------------
F-28
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
returned this matter to the district court for consideration of whether the
facts underlying ONEOK's original request for a preliminary injunction have so
materially changed that the need for injunctive relief originally granted no
longer exists.
Arizona Action -- Southern Union Company v. Southwest Gas Corporation; Case No.
CIV-99-1294-PHX-ROS (U.S.D.C., District of Arizona) On July 19, 1999, Southern
Union filed an action in the United States Court for the District of Arizona
(which was subsequently amended on October 11, 1999 and July 26, 2000), Judge
Roslyn Silver presiding. The current defendants are Southwest, ONEOK, Michael O.
Maffie (Southwest's President), Eugene N. Dubay (President of Kansas Gas
Service, a division of ONEOK), James M. Irvin (an Arizona Corporation
Commissioner), Jack D. Rose (former Executive Director of the Arizona
Corporation Commission) and John A. Gaberino (ONEOK's General Counsel). The
suit's remaining claims are fraud in the inducement, breach of contract, breach
of the covenant of good faith and fair dealing, rescission, intentional
interference with business relationship and tortious interference with
contractual relations. Southern Union seeks actual and punitive damages along
with rescission of its Standstill Agreement with Southwest. Pursuant to a ruling
by the court on summary judgment motions issued on September 23, 2001, Southern
Union's claims against the defendants remain intact and the Company will be
permitted to pursue claims for out-of-pocket and punitive damages.
Southwest Action in Arizona -- Southwest Gas Corporation v. ONEOK, Inc. and
Southern Union Company; Case No. CIV-00-119-PHX-ERC (U.S.D.C., District of
Arizona) On January 21, 2000, ONEOK announced its withdrawal from the Southwest
merger and filed a declaratory judgment action against Southwest. On January 24,
2000, Southwest Gas filed an action in Arizona naming ONEOK and Southern Union
as defendants. The Complaint asserts claims against Southern Union for breach of
contract, breach of the implied covenant of good faith and fair dealing,
interference with contract, intentional interference with prospective economic
advantage, misappropriation of trade secrets and declaratory relief. Southwest
seeks damages against Southern Union in excess of $75,000 as well as exemplary
damages. Southern Union has answered the Complaint, denying liability under all
counts.
All of the above federal actions have been consolidated in the U. S. District
Court in Arizona. A May 2002 trial date has been established for a trial of all
claims remaining after summary judgment.
The Company believes that the results of the above-noted Southwest litigation
will not have a materially adverse effect on the Company's financial condition,
results of operations and cash flows.
Other Southern Union and its subsidiaries are parties to other legal proceedings
that management considers to be normal actions to which an enterprise of its
size and nature might be subject, Management does not consider these actions to
be material to Southern Union's overall business or financial condition, results
of operations or cash flows.
Commitments The Company is committed under various agreements to purchase
certain quantities of gas in the future. At June 30, 2001, the Company has
purchase commitments for certain quantities of gas at variable, market-based
prices that have an annual value of $204,999,000. The Company's purchase
commitments may extend over a period of several years depending upon when the
required quantity is purchased. The Company has purchase gas tariffs in effect
for all its utility service areas that provide for recovery of its purchase gas
costs under defined methodologies.
In connection with the acquisition of the Pennsylvania Operations, the Company
assumed a guaranty with a bank whereby the Company unconditionally guaranteed
payment of financing obtained for the development of PEI Power Park. In March
1999, the Borough of Archbald, the County of Lackawanna, and the Valley View
School District (together the Taxing Authorities) approved a Tax Incremental
Financing Plan (TIF Plan) for the development of PEI Power Park. The TIF Plan
requires that: (i) the Redevelopment Authority of Lackawanna County raise
$10,600,000 of funds to be used for infrastructure improvements of the PEI Power
Park; (ii) the Taxing Authorities create a tax increment district and use the
incremental tax revenues generated from new development to service the
$10,600,000 debt; and (iii) PEI Power Corporation, a subsidiary of the Company,
guarantee the debt service payments. In May
--------------------------------------------------------------------------------
F-29
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1999, the Redevelopment Authority of Lackawanna County borrowed $10,600,000 from
a bank under a promissory note (TIF Debt). The TIF Debt has a 12-year term, with
a 7.75% annual interest rate, and requires semi-annual principal and interest
payments of approximately $725,000 (interest only for the first year). As of
June 30, 2001, incremental tax revenues cover approximately 17% of the annual
debt service. The balance outstanding on the TIF Debt was $9,943,000 as of
June 30, 2001.
During fiscal 2001, the Company agreed to two three-year contracts with
bargaining units representing Pennsylvania employees, which were effective in
April 2001 and August 2000, respectively. In December 1998, the Company agreed
to five-year contracts with each bargaining-unit representing Missouri
employees, which were effective in May 1999. Of the Company's employees
represented by unions, 44% are employed by Missouri Gas Energy, 35% are employed
by the New England Division and 19% are employed by PG Energy.
The Company had standby letters of credit outstanding of $2,716,000 and
$6,199,000 at June 30, 2001 and 2000, respectively, which guarantee payment of
various insurance premiums and state taxes.
--------------------------------------------------------------------------------
F-30
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XVII Quarterly Operations (Unaudited)
Quarter Ended
Year Ended --------------------------------------------------
June 30, 2001 September 30 December 31(1) March 31(2) June 30(2) Total
---------------- ------------ -------------- ----------- ---------- ----------
Total operating
revenues....... $ 144,468 $ 605,339 $ 914,654 $ 268,352 $1,932,813
Operating
margin......... 54,857 147,560 195,585 91,260 489,262
Net operating
revenues
(loss)......... (2,987) 53,721 92,724 (10,595) 132,863
Net earnings
(loss) avail-
able for
common stock... (13,974) 19,318 40,806 11,135 57,285
Earnings (loss)
per share --
diluted(3)..... (.28) .35 .73 .20 1.04
Quarter Ended
Year Ended -----------------------------------------------
June 30, 2001 September 30 December 31 March 31 June 30 Total
---------------- ------------ ------------- ---------- --------- ----------
Total operating
revenues....... $ 84,786 $ 239,595 $ 344,789 $ 162,534 $ 831,704
Operating
margin......... 41,545 83,226 112,801 61,538 299,110
Net operating
revenues....... 1,807 30,897 52,902 4,508 90,114
Net earnings
(loss) avail-
able for
common stock... (6,100) 7,132 19,516 (10,703) 9,845
Earnings (loss)
per share --
diluted(3)..... (.18) .15 .36 (.21) .21
------------------------
(1) Net earnings for the three-month period ended December 31, 2000, were
positively impacted by both the sale of non-core real estate and a portion
of Southern Union's holdings in Capstone Turbine Corporation, realizing
after-tax gains of $12,046,000 or $.22 per share. Excluding the effect of
these items, net earnings for the three-month period ended December 31,
2000 were $7,272,000 or $.13 per share.
(2) Net earnings during the third and fourth quarter of 2001 benefited from the
sale of a portion of Southern Union's holdings in Capstone Turbine
Corporation realizing after-tax gains of $38,682,000. Excluding the effect
of this item, net earnings for the quarter ended March 31, 2001 were
$34,059,000 or $.61 per share, and the net loss for the quarter ended June
30, 2001 was $20,800,000 or $.40 per share.
(3) The sum of earnings per share by quarter may not equal the net earnings per
common and common share equivalents for the year due to variations in the
weighted average common and common share equivalents outstanding used in
computing such amounts.
--------------------------------------------------------------------------------
F-31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Southern Union Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of stockholders'
equity, present fairly, in all material respects, the financial position of
Southern Union Company and its subsidiaries at June 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note I to the consolidated financial statements, the Company
changed its method of accounting for derivative instruments and hedging
activities effective July 1, 2000.
PricewaterhouseCoopers LLP
Austin, Texas
August 7, 2001, except for
Note IX, as to which the
date is September 19, 2001
--------------------------------------------------------------------------------
F-32
SUBSIDIARIES OF THE COMPANY Exhibit 21
Name State or Country of Incorporation
-------------------------------------------- ---------------------------------
Alternate Energy Corporation Rhode Island
Atlantic Gas Corporation Delaware
Energia Estrella del Sur, S. A. de C. V. Mexico
Enhanced Service Systems, Inc. Delaware
Fall River Gas Appliance Company, Inc. Massachusetts
Mercado Gas Services, Inc. Delaware
Norteno Pipeline Company Delaware
PEI Power Corporation Pennsylvania
PG Energy Services, Inc. Pennsylvania
ProvEnergy Power Company, LLC Rhode Island
Southern Transmission Company Delaware
Southern Union Energy International, Inc. Delaware
Southern Union Financing I Delaware
Southern Union International Investments, Inc. Delaware
SUPro Energy Company Delaware
Valley Appliance and Merchandising Company Rhode Island
--------------------------
Note: Certain wholly-owned subsidiaries of Southern Union Company are not
named above. Considered in the aggregate as a single subsidiary, these
unnamed entities would not constitute a "significant subsidiary" at the
end of the year covered by this report. Additionally, the Company has
other subsidiaries that conduct no business except to the extent
necessary to maintain their corporate name or existence.
--------------------------------------------------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File Nos. 333-87617, 333-02965 and 333-10585) and Form
S-8 (File Nos. 33-37261, 33-69596, 33-69598, 33-61558, 33-79443, 333-08994,
333-42635, 333-89971, 333-90347, 333-36146, 333-36150, 333-46382 and 333-47144)
of Southern Union Company and its subsidiaries of our report dated August 7,
2001, except for Note IX, as to which the date is September 19, 2001, relating
to the consolidated financial statements, which appears in this Annual Report on
Form 10-K.
PricewaterhouseCoopers LLP
Austin, Texas
September 28, 2001
--------------------------------------------------------------------------------
POWER OF ATTORNEY Exhibit 24
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas F. Karam, Dennis K. Morgan and
David J. Kvapil, or any of them, acting individually or together, as such
person's true and lawful attorney(s)-in-fact and agent(s), with full power of
substitution and revocation, to act in any capacity for such person and in such
person's name, place and stead in any and all capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended June 30, 2001 of Southern Union
Company, a Delaware corporation, and any amendments thereto, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission and the New York Stock Exchange.
Dated: September 26, 2001
GEORGE L. LINDEMANN ADAM M. LINDEMANN
------------------------------ ----------------------------------------
George L. Lindemann Adam M. Lindemann
JOHN E. BRENNAN ROGER J. PEARSON
------------------------------ ----------------------------------------
John E. Brennan Roger J. Pearson
THOMAS F. KARAM GEORGE ROUNTREE, III
------------------------------ ----------------------------------------
Thomas F. Karam George Rountree, III
FRANK W. DENIUS RONALD W. SIMMS
------------------------------ ----------------------------------------
Frank W. Denius Ronald W. Simms
AARON I. FLEISCHMAN DAN K. WASSONG
------------------------------ ----------------------------------------
Aaron I. Fleischman Dan K. Wassong
KURT A. GITTER, M.D.
------------------------------
Kurt A. Gitter
--------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED Exhibit 10(a)
REVOLVING CREDIT AGREEMENT
(LONG-TERM CREDIT FACILITY)
DATED AS OF MAY 29, 2001
BY AND AMONG
SOUTHERN UNION COMPANY
as the Borrower
AND
THE BANKS NAMED HEREIN
as the Banks
AND
THE CHASE MANHATTAN BANK
as the Administrative Agent
AND
BANK ONE, NA and FLEET NATIONAL BANK
as Co-Syndication Agents
AND
FIRST UNION NATIONAL BANK and THE MIZUHO FINANCIAL GROUP
as Co-Documentation Agents
AND
JPMORGAN SECURITIES INC.
as the Sole Book Runner and Lead Arranger
--------------------------------------------------------------------------------
PAGE>
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(LONG-TERM CREDIT FACILITY)
Reference is hereby made to that certain Amended and Restated Revolving Credit
Agreement (Long-Term Credit Facility) dated as of May 31, 2000, executed by and
between SOUTHERN UNION COMPANY, a corporation organized under the laws of
Delaware (the "Borrower"), the financial institutions listed on the signature
pages of said Revolving Credit Agreement (each of said financial institutions
now or hereafter a party to said Revolving Credit Agreement being hereinafter
referred to collectively as "Banks" and individually as a "Bank"), and CHASE
BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association, which has
been succeeded through merger by THE CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), in its capacity as agent (the"Agent") for the Banks.
The Borrower, the Banks and the Agent have previously amended said Amended and
Restated Revolving Credit Agreement pursuant to the terms of a First Amendment
to Amended and Restated to Revolving Credit Agreement (Long-Term Credit
Facility) dated as of August 4, 2000 (the "First Amendment"). Said Revolving
Credit Agreement, as previously amended by the First Amendment, is referred to
herein as the "Original Agreement."
As a result of certain discussions between the Borrower, the Agent and the
Banks, the parties to the Original Agreement now desire to amend and restate the
Original Agreement in its entirety. Accordingly, the Original Agreement is
hereby amended and restated in its entirety to hereafter be and read as follows:
SOUTHERN UNION COMPANY, a corporation organized under the laws of Delaware
(hereinafter called the "Borrower"), the financial institutions listed on the
signature pages hereof (collectively, the "Banks" and individually, a "Bank"),
THE CHASE MANHATTAN BANK, a New York banking corporation ("Chase"), in its
capacity as administrative agent (the "Agent") for the Banks hereunder, BANK
ONE, NA and FLEET NATIONAL BANK, in their capacity as co-syndication agents
("Co-Syndication Agents") for the Banks hereunder, and FIRST UNION NATIONAL BANK
and THE MIZUHO FINANCIAL GROUP, in their capacity as co-documentation agents
("Co-Documentation Agents") for the Banks hereunder, hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
"Additional Costs" shall mean, with respect to any Rate Period in the case
of any Eurodollar Rate Loan, all costs, losses or payments, as determined
by any Bank in its sole and absolute discretion (which determination shall
be conclusive in the absence of manifest error) that such Bank or its
Domestic Lending Office or its Eurodollar Lending Office does, or would, if
such Eurodollar Rate Loan were funded during such Rate Period by the
Domestic Lending Office or the Eurodollar Lending Office of such Bank,
incur, suffer or make by reason of:
(a) any and all present or future taxes (including, without limitation, any
interest equalization tax or any similar tax on the acquisition of debt
obligations, or any stamp or registration tax or duty or official or
sealed papers tax), levies, imposts or any other charge of any nature
whatsoever imposed by any taxing authority on or with regard to any
aspect of the transactions contemplated by this Agreement, except such
taxes as may be measured by the overall net income of such Bank or its
Domestic Lending Office or its Eurodollar Lending Office and imposed by
the jurisdiction, or any political subdivision or taxing authority
thereof, in which such Bank's Domestic Lending Office or its Eurodollar
Lending Office is located; and
(b) any increase in the cost to such Bank of agreeing to make or making,
funding or maintaining any Eurodollar Rate Loan because of or arising
from (i) the introduction of, or any change (other than any change by
way of imposition or increase of reserve requirements, in the case of
any Eurodollar Rate Loan, included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation or administration of, any law
or regulation or (ii) the compliance with any request from any central
bank or other governmental authority (whether or not having the force
of law).
"Affiliate" shall mean any Person controlling, controlled by or under
common control with any other Person. For purposes of this definition,
"control" (including "controlled by" and "under common control with") means
the
--------------------------------------------------------------------------------
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting securities or otherwise. If any Person shall own,
directly or indirectly, beneficially or of record, twenty percent (20%) or
more of the voting equity (whether outstanding capital stock, partnership
interests or otherwise) of another Person, such Person shall be deemed to
be an Affiliate.
"Agent" shall have the meaning set forth in the preamble hereto.
"Agreement" shall mean this Revolving Credit Agreement, as the same may be
amended, modified, supplemented or restated from time to time.
"Alternate Base Rate" shall mean, for any day, a rate, per annum (rounds
upward to the nearest 1/16 of 1%) equal to: (a) the greatest of (i) the
Prime Rate (computed on the basis of the actual number of days elapsed over
a year of 365 or 366 days, as the case may be) in effect on such day; or
(ii) the Federal Funds Rate in effect for such day plus one-half of one
percent (1/2%) (computed on the basis of the actual number of days elapsed
over a year of 360 days).
"Alternate Base Rate Loan" shall mean any Loan which bears interest at the
Alternate Base Rate.
"Applicable Lending Office" shall mean, with respect to each Bank, such
Bank's (a) Domestic Lending Office in the case of an Alternate Base Rate
Loan; and (b) Eurodollar Lending Office in the case of a Eurodollar Rate
Loan.
"Assignment and Acceptance" shall have the meaning set forth in Section
13.13.
"Available Senior Funded Debt Capacity" for any period shall mean, as of
the first day of that period, the principal amount of additional Senior
Funded Debt that the Borrower would be permitted to issue under the then
existing indentures, note purchase agreements and credit agreements (other
than the Agreement and other revolving credit agreements).
"Bank" shall have the meaning set forth in the preamble hereto and shall
include the Agent, in its individual capacity.
"Borrower" shall have the meaning set forth in the preamble hereto.
"Borrowing Date" shall mean a date upon which the Borrower has requested a
Loan is to be made in a Notice of Borrowing delivered pursuant to Section
2.1.
"Business Day" shall mean a day when the Agent is open for business,
provided that, if the applicable Business Day relates to any Eurodollar
Rate Loan, it shall mean a day when the Agent is open for business and
banks are open for business in the London interbank market and in New York
City.
"Capital Lease" shall mean any lease of any Property (whether real,
personal, or mixed) which, in conformity with GAAP, is accounted for as a
capital lease on the balance sheet of the lessee.
"Capitalized Lease Obligations" shall mean, for the Borrower and its
Subsidiaries, any of their obligations that should, in accordance with
GAAP, be recorded as Capital Leases.
"Cash Interest Expense" shall mean, for any period, total interest expense
to the extent paid in cash (including the interest component of Capitalized
Lease Obligations and capitalized interest and all dividends and interest
paid on or with respect to Borrower's Structured Securities) of the
Borrower and any Subsidiary for such period all as determined in conformity
with GAAP.
"Closing Date" shall mean May 29, 2001.
--------------------------------------------------------------------------------
"Code" shall mean the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and
interpretations thereof or thereunder issued by the Internal Revenue
Service.
"Commitment" shall have the meaning set forth in Section 2.1(a) and
"Commitments" shall mean, collectively, the Commitments of all of the
Banks.
"Consolidated Net Income" shall mean for any period the consolidated net
income of the Borrower and all Subsidiaries, determined in accordance with
GAAP, for such period.
"Consolidated Net Worth" shall mean, for any period for the Borrower and
all Subsidiaries, (a) the consolidated stockholders' equity of the Borrower
and its Subsidiaries, and preferred securities of the Borrower's
Subsidiaries, all determined in accordance with GAAP, less (b) the sum of
the following consolidated items, without duplica tion: the book amount of
any deferred charges (including, but not limited to, unamortized debt
discount and expenses, organization expenses, experimental and development
expenses, but excluding prepaid expenses) that are not permitted to be
recovered by the Borrower under rates permitted under rate tariffs, plus
(c) the sum of all amounts contributed or paid by the Borrower to the Rabbi
Trusts for purposes of funding the same, but only to the extent such
contributions and payments are required to be deducted from the
consolidated stockholders' equity of the Borrower and its Subsidiaries in
accordance with GAAP.
"Consolidated Total Capitalization" shall mean at any time the sum of: (a)
Consolidated Net Worth at such time; plus (b) the principal amount of
outstanding Debt of the Borrower and its Subsidiaries.
"Consolidated Total Indebtedness" shall mean all Debt of the Borrower and
all Subsidiaries including any current maturities thereof, plus, without
duplication, all amounts outstanding under Standby Letters of Credit and,
without duplication, all Facility Letter of Credit Obligations.
"Debt" means (without duplication), for any Person indebtedness for money
borrowed determined in accordance with GAAP but in any event including, (a)
indebtedness of such Person for borrowed money or arising out of any
extension of credit to or for the account of such Person (including,
without limitation, extensions of credit in the form of reimbursement or
payment obligations of such Person relating to letters of credit issued for
the account of such Person) or for the deferred purchase price of property
or services, except indebtedness which is owing to trade creditors in the
ordinary course of business and which is due within thirty (30) days after
the original invoice date; (b) indebtedness of the kind described in clause
(a) of this definition which is secured by (or for which the holder of such
Debt has any existing right, contingent or otherwise, to be secured by) any
Lien upon or in Property (including, without limitation, accounts and
contract rights) owned by such Person, whether or not such Person has
assumed or become liable for the payment of such indebtedness or
obligations; (c) Capitalized Lease Obligations of such Person; (d)
obligations under direct or indirect Guaranties other than Guaranties
issued by the Borrower covering obligations of the Southern Union Trusts
under the Structured Securities. Whenever the definition of Debt is being
used herein in order to compute a financial ratio or covenant applicable to
the consolidated business of the Borrower and its Subsidiaries, Debt which
is already included in such computation by virtue of the fact that it is
owed by a Subsidiary of the Borrower will not also be added by virtue of
the fact that the Borrower has executed a guaranty with respect to such
Debt that would otherwise require such guaranteed indebtedness to be
considered Debt hereunder. Nothing contained in the foregoing sentence is
intended to limit the other provisions of this Agreement which contain
limitations on the amount and types of Debt which may be incurred by the
Borrower or its Subsidiaries.
"Debtor Laws" shall mean all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency,
reorganization, or similar laws, or general equitable principles from time
to time in effect affecting the rights of creditors generally.
"Default" shall mean any of the events specified in Section 11, whether or
not there has been satisfied any requirement in connection with such event
for the giving of notice, or the lapse of time, or the happening of any
further condition, event or act.
"Dollars" and "$" shall mean lawful currency of the United States of
America.
--------------------------------------------------------------------------------
"Domestic Lending Office" shall mean, with respect to each Bank, the office
of such Bank located at its "Address for Notices" set forth below the name
of such Bank on the signature pages hereof or such other office of such
Bank as such Bank may from time to time specify to the Borrower and the
Agent.
"EBDIT" shall mean for any period the sum of (a) consolidated net earnings
for the Borrower and its Subsidiaries (excluding for all purposes hereof
all extraordinary items), plus (b) each of the following to the extent
actually deducted in deriving such net earnings: (i) depreciation and
amortization expense; (ii) interest expense; (iii) federal and state income
taxes; and (iv) dividends charged against income on or with respect to
Structured Securities, in each case before adjustment for extraordinary
items, as shown in the financial statements of Borrower and its
Subsidiaries referred to in Section 7.2 hereof (excluding for all purposes
hereof all extraordinary items), and determined in accordance with GAAP,
and (c) plus (or minus, if applicable) the net amount of non- cash
deductions from (or additions to, if applicable) such net earnings for such
period attributable to fluctuations in the market price(s) of securities
which the Borrower is obligated to purchase in future periods under any of
the Rabbi Trusts, but only to the extent that such deductions (or
additions, if applicable) are required to be taken in accordance with GAAP.
"Eligible Assignee" shall mean: (i) any Bank, or any Affiliate of any Bank,
or any institution 100% of the voting stock of which is directly, or
indirectly owned by such Bank or by the immediate or remote parent of such
Bank; or (ii) a commercial bank, a foreign branch of a United States
commercial bank, a domestic branch of a foreign commercial bank or other
financial institution having in each case assets in excess of
$1,000,000,000.00.
"Environmental Law" shall mean (a) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (as amended by the
Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.A. ss. 9601
et seq.), as amended from time to time, and any and all rules and
regulations issued or promulgated thereunder ("CERCLA"); (b) the Resource
Conservation and Recovery Act (as amended by the Hazardous and Solid Waste
Amendment of 1984, 42 U.S.C.A. ss. 6901 et seq.), as amended from time to
time, and any and all rules and regulations promulgated thereunder
("RCRA"); (c) the Clean Air Act, 42 U.S.C.A. ss. 7401 et seq., as amended
from time to time, and any and all rules and regulations promulgated
thereunder; (d) the Clean Water Act of 1977, 33 U.S.CA ss. 1251 et seq., as
amended from time to time, and any and all rules and regulations pro
mulgated thereunder; (e) the Toxic Substances Control Act, 15 U.S.C.A. ss.
2601 et seq., as amended from time to time, and any and all rules and
regulations promulgated thereunder; or (f) any other federal or state law,
statute, rule, or emulation enacted in connection with or relating to the
protection or regulation of the environment (including, without limitation,
those laws, statutes, rules, and regulations regulating the disposal,
removal, production, storing, refining, handling, transferring, processing,
or transporting of Hazardous Materials) and any rules and regulations
issued or promulgated in connection with any of the foregoing by any
governmental authority, and "Environmental Laws" shall mean each of the
foregoing.
"EPA" shall mean the Environmental Protection Agency, or any successor
organization.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations thereof issued by the Internal Revenue Service or the
Department of Labor thereunder.
"Eurocurrency Liabilities" shall have 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" shall mean, with respect to each Bank, the
office of such Bank located at its "Address for Notices" set forth below
the name of such Bank on the signature pages hereof, or such other office
of such Bank as such Bank may from time to time specify to the Borrower and
the Agent.
"Eurodollar Rate" shall mean with respect to the applicable Rate Period in
effect for each Eurodollar Rate Loan, the sum of (a) the quotient obtained
by dividing (i) the annual rate of interest determined by the Agent, at or
before 11:00 a.m. Houston time (or as soon thereafter as practicable), on
the second Business Day prior to the first day of such Rate Period, to be
the annual rate of interest at which deposits of Dollars are offered to the
Agent by prime banks in whatever Eurodollar interbank market may be
selected by the Agent in its sole discretion, acting in good faith, at the
time of determination and in accordance with then existing practice in such
--------------------------------------------------------------------------------
market for delivery on the first day of such Rate Period in immediately
available funds and having a maturity equal to such Rate Period in an
amount substantially equal to the amount of such Eurodollar Rate Loan by
(ii) a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage for such Rate Period, plus (b) an additional percentage per
annum changing with the rating of the Borrower's unsecured, non-credit
enhanced Senior Funded Debt and determined in accordance with the following
grid:
Rating of the Borrower's unsecured, non-credit Additional Per-
enhanced Senior Funded Debt centage Per Annum
------------------------------------------------ ---------------------
Equal to or greater than A3 by Moody's Investor
Service, Inc. and equal to or greater than A- by
---
Standard and Poor's Ratings Group 0.650%
------------------------------------------------ ---------------------
Baa1 by Moody's Investor Service, Inc. or BBB+
--
by Standard and Poor's Ratings Group 0.750%
------------------------------------------------ ---------------------
Baa2 by Moody's Investor Service, Inc. or BBB by
--
Standard and Poor's Ratings Group 0.800%
------------------------------------------------ ---------------------
Baa3 by Moody's Investor Service, Inc. or BBB-
--
by Standard and Poor's Ratings Group 0.850%
------------------------------------------------ ---------------------
Equal to or less than Ba1 by Moody's Investor
Service, Inc. and equal to or less than BB+ by
---
Standard and Poor's Ratings Group 1.350%
================================================ ====================
"Eurodollar Rate Loan" shall mean any Loan that bears interest at the
Eurodollar Rate.
"Eurodollar Rate Reserve Percentage" of the Agent for any Rate Period for
any Eurodollar Rate Loan shall mean the reserve percentage applicable
during such Rate Period (or if more than one such percentages shall be so
applicable, the daily average of such percentages for those days in such
Rate 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 member banks of
the Federal Reserve System with deposits exceeding $1,000,000,000 with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Rate Period.
"Event of Default" shall mean any of the events specified in Section 11,
provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening
of any further condition, event or act.
"Expiration Date" shall mean the last day of a Rate Period.
"Facility Letter(s) of Credit" shall mean, in the singular form, any
Standby Letter of Credit issued by an Issuing Bank for the account of the
Borrower pursuant to Section 3 and, in the plural form, all such Standby
Letters of Credit issued for the account of the Borrower.
--------------------------------------------------------------------------------
"Facility Letter of Credit Fee Percentage" shall mean a fee expressed as a
percent per annum for all periods equal to a percentage per annum changing
with the rating of the Borrower's unsecured, non-credit enhanced Senior
Funded Debt and determined in accordance with the following grid:
Rating of the Borrower's unsecured, non-credit Additional Per-
enhanced Senior Funded Debt centage Per Annum
------------------------------------------------ ---------------------
Equal to or greater than A3 by Moody's Investor
Service, Inc. and equal to or greater than A- by
---
Standard and Poor's Ratings Group 0.650%
------------------------------------------------ ---------------------
Baa1 by Moody's Investor Service, Inc. or BBB+
--
by Standard and Poor's Ratings Group 0.750%
------------------------------------------------ ---------------------
Baa2 by Moody's Investor Service, Inc. or BBB by
--
Standard and Poor's Ratings Group 0.800%
------------------------------------------------ ---------------------
Baa3 by Moody's Investor Service, Inc. or BBB-
--
by Standard and Poor's Ratings Group 0.850%
------------------------------------------------ ---------------------
Equal to or less than Ba1 by Moody's Investor
Service, Inc. and equal to or less than BB+ by
---
Standard and Poor's Ratings Group 1.350%
================================================ ====================
"Facility Letter of Credit Obligations" shall mean, at any particular time,
the sum of (a) the Reimbursement Obligations, plus (b) the aggregate
undrawn face amount of all outstanding Facility Letters of Credit, in each
case as determined by the Agent.
"Federal Funds Rate" shall mean, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates (rounded to the nearest 1/100 of 1%) on overnight
federal fund 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 such transactions received by the Agent from Fulton Prebon and Garvin
Guy Butler or two other federal funds brokers of recognized standing
selected by the Agent.
"Funded Debt" means all Debt of a Person which matures more than one year
from the date of creation or matures within one year from such date but is
renewable or extendible, at the option of such Person, by its terms or by
the terms of any instrument or agreement relating thereto, to a date more
than one year from such date or arises under a revolving credit or similar
agreement which obligates Banks to extend credit during a period of more
than one year from such date, including, without limitation, all amounts of
any Funded Debt required to be paid or prepaid within one year from the
date of determination of the existence of any such Funded Debt.
"GAAP" shall mean generally accepted accounting principles, applicable to
the circumstances as of the date of determination, applied consistently
with such principles as applied in the preparation of the Borrowers audited
financial statements referred to in Section 7.2.
"General Intangibles" shall mean all of the Borrower's contract rights now
existing or hereafter acquired, arising or created under contracts or
arrangements for the purchase, sale, storage or transportation of gas or
other Inventory.
"Governmental Authority" shall mean any (domestic or foreign) federal,
state, county, municipal, parish, pro vincial, or other government, or any
department, commission, board, court, agency (including, without
limitation, the EPA), or any other instrumentality of any of them or any
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of, or
pertaining to, government, including, without limitation, any arbitration
panel, any court, or any commission.
"Governmental Requirement" means any Order, Permit, law, statute
(including, without limitation, any Environ mental Protection Statute),
code, ordinance, rule, regulation, certificate, or other direction or
requirement of any Governmental Authority.
--------------------------------------------------------------------------------
"Guaranty" means, with respect to any Person, any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of
another Person, including, without limitation, by means of an agreement to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt or to maintain financial covenants, or to assure the payment of
such Debt by an agreement to make payments in respect of goods or services
regardless of whether delivered or to purchase or acquire the Debt of
another, or otherwise, provided that the term "Guaranty" shall not include
endorsements for deposit or collection in the ordinary course of business.
"Hazardous Materials" shall mean any substance which, pursuant to any
Environmental Laws, requires special handling in its collection, use,
storage, treatment or disposal, including but not limited to any of the
following: (a) any "hazardous waste" as defined by RCRA; (b) any "hazardous
substance" as defined by CERCLA; (c) asbestos; (d) polychlorinated
biphenyls; (e) any flammables, explosives or radioactive materials; and (f)
any substance, the presence of which on any of the Borrower's or any
Subsidiary's properties is prohibited by any Governmental Authority.
"Highest Lawful Rate" shall mean, with respect to each Bank, the maximum
nonusurious interest rate, if any, that at any time or from time to time
may be contracted for, taken, reserved, charged, or received with respect
to the Notes or on other amounts, if any, due to such Bank pursuant to this
Agreement, under laws applicable to such Bank which are presently in
effect, or, to the extent allowed by law, under such applicable laws which
may hereafter be in effect and which allow a higher maximum nonusurious
interest rate than applicable laws now allow.
"Indemnified Parties" shall have the meaning set forth in Section 13.16.
"Interest Payment Date" shall mean (a) as to any Eurodollar Rate Loan in
which the Rate Period with respect thereto is not greater than three (3)
months, the date on which such Rate Period ends; (b) as to any Eurodollar
Rate Loan in which the Rate Period with respect thereto is greater than
three (3) months, the date on which the third month of such Rate Period
ends, and the date on which each such Rate Period ends; (c) as to any
Alternate Base Rate Loan in which the Rate Period with respect thereto is
not greater than ninety (90) days, the date on which such Rate Period ends;
(d) as to any Alternate Base Rate Loan in which the Rate Period with
respect thereto is greater than ninety (90) days, the ninetieth (90th) day
of such Rate Period, and the date on which each such Rate Period ends; and
(e) as to all Loans, such time as the principal of and interest on the
Notes shall have been paid in full.
"Inventory" means, with respect to Borrower or any Subsidiary, all of such
Person's now owned or hereafter acquired or created inventory in all of its
forms and of every nature, wherever located, whether acquired by purchase,
merger, or otherwise, and all raw materials, work in process therefor and
finished goods thereof, and all supplies, materials, and products of every
nature and description used, usable, or consumed in connection with the
manufacture, packing, shipping, advertising, selling, leasing, furnishing,
or production of such goods, and shall include, in any event, all
"inventory" (within the meaning of such term in the Uniform Commercial Code
in effect in any applicable jurisdiction), whether in mass or joint, or
other interest or right of any kind in goods which are returned to,
repossessed by, or stopped in transit by such Person, and all accessions to
any of the foregoing and all products of any of the foregoing.
"Investment" of any Person means any investment so classified under GAAP,
and, whether or not so classified, includes (a) any direct or indirect loan
advance made by it to any other Person; (b) any direct or indirect Guaranty
for the benefit of such Person; provided, however, that for purposes of
determining Investments of Borrower hereunder, the existing Guaranty by
Borrower of certain tax increment financing extended by The Fidelity
Deposit and Discount Bank to The Redevelopment Authority of the County of
Lackawanna shall be deemed to not be an Investment; (c) any capital
contribution to any other Person; and (d) any ownership or similar interest
in any other Person; and the amount of any Investment shall be the original
principal or capital amount thereof (plus any subsequent principal or
capital amount) minus all cash returns of principal or capital thereof.
"Issuing Bank" shall mean (a) Banks and/or Affiliates of Banks listed on
the signature pages of this Agreement attached hereto and made a part
hereof, or (b) any Bank or any Affiliate not listed on the signature pages
of this Agreement in the event that such Bank or such Affiliate agrees, in
its sole discretion at the request of the
--------------------------------------------------------------------------------
Borrower, and on the terms and conditions mutually acceptable to such Bank
or such Affiliate, as the case may be, to become an Issuing Bank for the
purpose of issuing one or more Facility Letters of Credit pursuant to
Section 3. When a Bank is referred to as an Issuing Bank under this
Agreement, such reference to such Bank shall be interpreted to refer to
such Bank solely in its capacity as an Issuing Bank.
"L/C Subfacility" shall mean that portion of the Commitments equal to
$30,000,000.00.
"Letter(s) of Credit" shall mean, in the singular form, any letter of
credit issued by any Person for the account of the Borrower and, in the
plural form, all such letters of credit issued by any Person for the
account of the Borrower.
"Letter of Credit Commitment" shall mean, with respect to each Issuing
Bank, such Issuing Bank's commitment to issue Facility Letters of Credit.
"Letter of Credit Reimbursement Agreement" shall mean, with respect to a
Facility Letter of Credit, such form of application therefor and form of
reimbursement agreement therefor (whether in a single or several documents,
taken together) as the Issuing Bank from which the Facility Letter of
Credit is requested may employ in the ordinary course of business for its
own account, whether or not providing for collateral security, with such
modifications thereto as may be agreed upon by such Issuing Bank and the
account party and as are not materially adverse to the interests of any
Bank; provided, however, in the event of any conflict between the terms of
any Letter of Credit Reimbursement Agreement and this Agreement, the terms
of this Agreement shall control; and provided, further, that any grant or
purported grant of a security interest in favor of the Issuing Bank
contained in any Letter of Credit Reimbursement Agreement shall be void.
"Lien" shall mean any mortgage, deed of trust, pledge, security interest,
encumbrance, lien (including without limitation, any such interest arising
under any Environmental Law), or similar charge of any kind (including
without limitation, any agreement to give any of the foregoing, any
conditional sale or other title retention agreement or any lease in the
nature thereof), or the interest of the lessor under any Capital Lease.
"Loan" or "Loans" shall mean a loan or loans, respectively, from the Banks
to the Borrower made under Section 2.1.
"Loan Document" shall mean this Agreement, any Note, or any other document,
agreement or instrument now or hereafter executed and delivered by the
Borrower or any other Person in connection with any of the transactions
contemplated by any of the foregoing, as any of the foregoing may hereafter
be amended, modified, or supplemented, and "Loan Documents" shall mean,
collectively, each of the foregoing.
"Majority Bank" shall mean at any time Banks holding more than 50% of the
unpaid principal amounts out standing under the Notes, or, if no such
amounts are outstanding, more than 50% of the Pro Rata Percentages.
"Material Adverse Effect" shall mean any material adverse effect on (a) the
financial condition, business, properties, assets, prospects or operations
of the Borrower and its Subsidiaries taken as a whole, or (b) the ability
of the Borrower to perform its obligations under this Agreement, any Note
or any other Loan Document on a timely basis.
"Maturity Date" shall mean May 29, 2004, as modified pursuant to the
provisions of Section 2.4 hereof.
"Non-Facility Letter of Credit" shall mean any Letter of Credit which is
not a Facility Letter of Credit.
"Note" or "Notes" shall mean a promissory note or notes, respectively, of
the Borrower, executed and delivered under this Agreement.
"Notice of Borrowing" shall have the meaning set forth in Section 2.1(c).
--------------------------------------------------------------------------------
"Obligations" shall mean (a) all obligations of the Borrower to the Bank
under this Agreement, the Notes and all other Loan Documents to which it is
a party; (b) all Reimbursement Obligations; and (c) any other obligations
of the Borrower with respect to a Facility Letter of Credit.
"Officer's Certificate" shall mean a certificate signed in the name of the
Borrower or a Subsidiary, as the case may be, by either its President, one
of its Vice Presidents, its Treasurer, its Secretary, or one of its
Assistant Treasurers or Assistant Secretaries.
"Person" shall mean an individual, partnership, joint venture, corporation,
joint stock company, bank, trust, unincorporated organization and/or a
government or any department or agency thereof.
"Plan" shall mean any plan subject to Title IV of ERISA and maintained for
employees of the Borrower or of any member of a "controlled group of
corporations," as such term is defined in the Code, of which the Borrower
or any Subsidiary is a member, or any such plan to which the Borrower or
any Subsidiary is required to contribute on behalf of its employees.
"Prime Rate" shall mean, on any day, the rate determined by the Agent as
being its prime rate for that day. Without notice to the Borrower or any
other Person, the Prime Rate shall change automatically from time to time
as and in the amount by which said Prime Rate shall fluctuate, with each
such change to be effective as of the date of each change in such Prime
Rate. The Prime Rate is a reference rate and does not necessarily represent
the lowest or best rate actually charged to any customer. The Agent may
make commercial or other loans at rates of interest at, above or below the
Prime Rate.
"Prior Acquisitions" shall mean collectively the Borrower's previous
acquisitions of and mergers with Fall River Gas Company, Providence Energy
Corporation and Valley Resources, Inc.
"Pro-Rata Percentage" shall mean with respect to any Bank, a fraction
(expressed as a percentage), the numerator of which shall be the amount of
such Bank's Commitment and the denominator of which shall be the aggregate
amount of all the Commitments of the Banks, as adjusted from time to time
in accordance with Section 4.6.
"Property" shall mean any interest or right in any kind of property or
asset, whether real, personal, or mixed, owned or leased, tangible or
intangible, and whether now held or hereafter acquired.
"Qualifying Assets" shall mean (i) equity interests owned one hundred
percent (100%) by the Borrower in entities engaged primarily in one or more
of the Borrower's lines of business described in Section 7.15 (singly, a
"Qualified Entity," collectively, "Qualified Entities"), or productive
assets used in one or more of such lines of business; provided, however,
that as to any related group of such Assets acquired for a purchase price
of more than Sixty Million Dollars ($60,000,000.00) (including the amount
of any Debt assumed or deemed incurred in connection with such
acquisition), the Majority Banks shall have delivered to the Borrower their
prior written consent; and (ii) equity interests of less than one hundred
percent (100%) owned by the Borrower in one or more Qualifying Entities,
provided that at any one time the amount of the Borrower's investment in
Qualifying Assets described in clause (ii) (measured by the aggregate
purchase price paid therefor, including the aggregate amount of Debt
assumed or deemed incurred by Borrower in connection with such
acquisitions) does not exceed ten percent (10%) of the Consolidated Net
Worth of the Borrower and its Subsidiaries as of the applicable
determination date.
"Rabbi Trusts" shall mean those four (4) certain non-qualified deferred
compensation irrevocable trusts existing as of the Closing Date, previously
established by the Borrower for the benefit of its executive employees, so
long as the assets in each of such trusts which have not yet been
distributed to one or more executive employees of the Borrower remain
subject to the claims of the Borrower's general creditors.
"Rate Period" shall mean the period of time for which the Alternate Base
Rate or the Eurodollar Rate shall be in effect as to any Alternate Base
Rate Loan or Eurodollar Rate Loan, as the case may be, commencing with the
Borrowing Date or the Expiration Date of the immediately preceding Rate
Period, as the case may be, applicable to and ending on the effective date
of any reborrowing made as provided in Section 2.2(a) as the Borrower may
--------------------------------------------------------------------------------
specify in the related Notice of Borrowing, subject, however, to the early
termination provisions of the second sentence of Section 2.3(c) relating to
any Eurodollar Rate Loan; provided, however, that any Rate Period that
would otherwise end on a day which is not a Business Day shall be extended
to the next succeeding Business Day unless such Business Day falls in
another calendar month, in which case such Rate Period shall end on the
next preceding Business Day. For any Alternate Base Rate Loan, the Rate
Period shall be 90 days; and for any Eurodollar Rate Loan the Rate Period
may be 15 days, 1, 2, 3, or 6 months, in each case as specified in the
applicable Notice of Borrowing, subject to the provisions of Sections 2.2
and 2.3.
"Reimbursement Obligations" shall mean the reimbursement or repayment
obligations of the Borrower to Issuing Banks pursuant to this Agreement or
the applicable Letter of Credit Reimbursement Agreement with respect to
Facility Letters of Credit issued for the account of the Borrower.
"Release" shall mean a "release", as such term is defined in CERCLA.
"Restricted Payment" shall mean the Borrower's declaration or payment of
any dividend on, or purchase or agreement to purchase any of, or making of
any other distribution with respect to, any of its capital stock, except
any such dividend, purchase or distribution consisting solely of capital
stock of the Borrower, and except any dividend or interest paid on or with
respect to the Borrower's Structured Securities to the extent that such
amounts are included in Cash Interest Expense.
"Securities Act" shall have the meaning set forth in Section 13.1.
"Senior Funded Debt" shall mean Funded Debt of the Borrower excluding Debt
that is contractually sub ordinated in right of payment to any other Debt.
"Senior Notes" means (a) the $475,000,000 of 7.6% Senior Notes of the
Borrower previously placed with investors on or about January 31, 1994, and
(b) the $300,000,000 of 8.25% Senior Notes of the Borrower previously
placed with investors on or about November 3, 1999, as such Senior Notes
may be amended, modified, or supplemented from time to time in accordance
with the terms of this Agreement; and "Senior Note" means each such note
individually.
"Short-Term Credit Facility" means that certain $150,000,000.00 credit
facility provided to the Borrower by the Banks, as evidenced and governed
by the Short-Term Credit Facility Agreement.
"Short-Term Credit Facility Agreement" means that certain Amended and
Restated Revolving Credit Agree ment (Short-Term Credit Facility) of even
effective date herewith, executed by and among the Borrower, the Banks, and
the Agent in connection with the Short-Term Credit Facility, as the same
may be amended, modified, supplemented, or restated from time to time.
"Short-Term Credit Facility Notes" means the promissory notes of the
Borrower executed and delivered under the Short-Term Credit Facility
Agreement.
"Significant Property" shall mean at any time property or assets of the
Borrower or any Subsidiary having a book value (net of accumulated
depreciation taken in accordance with GAAP) of at least $5,000,000.00 or
that contributed (or is an integrated physical portion of an assemblage of
assets that contributed) at least 5% of the gross income of the owner
thereof for the fiscal quarter most recently ended.
"Southern Union Trust" means any of those certain Delaware business trusts
organized for the sole purpose of purchasing Subordinated Debt Securities
constituting a portion of, and described in the definition of, Structured
Securities and issuing the Preferred Securities and Common Securities also
constituting a portion of, and described in the definition of, Structured
Securities, and having no assets other than the Borrower's Subordinated
Debt Securities, the Guaranties (as described in the definition of
Structured Securities) and the proceeds thereof. Southern Union Trusts
shall be considered to be Subsidiaries for purposes hereof so long as their
affairs are consolidated under GAAP and for federal income tax purposes
with the affairs of the Borrower.
--------------------------------------------------------------------------------
"Standby Letter of Credit" shall mean any standby letter of credit issued
to support obligations (contingent or otherwise) of the Borrower.
"Structured Securities" shall mean collectively (a) the Subordinated Debt
Securities, the Guaranties, the Com mon Securities and the Preferred
Securities of the Southern Union Trusts, all as described and defined in
the Registration Statement on Form S-3 filed by the Borrower with the
Securities and Exchange Commission on March 25, 1995, and (b) subordinated
debt securities, guaranties, common securities and/or preferred securities
issued in connection with the consummation of the Prior Acquisitions in an
aggregate face amount of not more than $150,000,000 upon terms and
conditions substantially similar in all material respects to the terms and
condi tions described and defined in such Registration Statement on Form
S-3 filed by the Borrower with the Securities and Exchange Commission on
March 25, 1995. For all purposes of this Agreement, the amounts payable by
Southern Union Trusts under the Preferred Securities and Common Securities
(or similar securities provided for under subclause (b) above) and the
amounts payable by the Borrower under the Subordinated Debt Securities or
the Guaranties (or similar securities provided for under subclause (b)
above) shall be treated without duplica tion, it being recognized that the
amounts payable by Southern Union Trusts are funded with payments made or
to be made by the Borrower to Southern Union Trusts and are also guaranteed
by the Borrower under the Guaranties described in the S-3 mentioned above
(or similar guaranties provided for under subclause (b) above).
"Subsidiary" or "Subsidiaries" shall mean any corporation or corporations
organized under the laws of any state of the United States of America,
Canada, or any province of Canada, which conduct(s) the major portion of
business in the United States of America or Canada and of which not less
than 50% of the voting stock of every class (except for directors'
qualifying shares), at the time as of which any determination is being
made, is owned by the Borrower either directly or indirectly through other
Subsidiaries.
"Term Loan Facility" shall mean (a) that certain term loan facility to be
provided to the Borrower in an aggregate amount of $575,000,000.00 under
the terms of that certain Term Loan Credit Agreement dated August 28, 2000
by and among the Borrower, The Chase Manhattan Bank, as administrative
agent, and the banks or financial institutions now or hereafter a party
thereto, and (b) any and all amendments, modifications, increases,
supplements and/or restatements of said credit facility hereafter existing
from time to time.
"Type" shall mean, with respect to any Loan, any Alternate Base Rate Loan
or any Eurodollar Rate Loan.
"Unused L/C Subfacility" shall mean, at any time, the amount, if any, by
which the L/C Subfacility then in effect exceeds the aggregate outstanding
amount of all Facility Letter of Credit Obligations.
2. THE LOANS
2.1 The Loans
(a) Subject to the terms and conditions and relying upon the
representations and warranties of the Borrower herein set
forth, each Bank severally agrees to make Loans to the
Borrower on any one or more Business Days prior to the
Maturity Date, up to an aggregate principal amount of Loans
not exceeding at any time outstanding: (i) the amount set
opposite such Banks name on the signature pages hereof (such
Bank's "Commitment"); minus (ii) such Bank's Pro Rata
Percentage of the Facility Letter of Credit Obligations.
Within such limits and during such period and subject to the
terms and conditions of this Agreement, the Borrower may
borrow, repay and reborrow hereunder.
(b) The Borrower shall execute and deliver to the Agent for each
Bank to evidence the Loans made by each Bank under such Bank's
Commitment, a Note, which shall be: (i) dated the date of the
Closing Date; (ii) in the principal amount of such Bank's
maximum Commitment; (iii) in substantially the form attached
hereto as Exhibit A, with blanks appropriately filled; (iv)
---------
payable to the order of such Bank on the Maturity Date; and
(v) subject to acceleration upon the occurrence of an Event of
Default. Each Note shall bear interest on the unpaid
principal amount thereof from time to time outstanding at the
rate per annum determined as specified in Sections 2.2(a),
2.2(b), 2.3(b) and 2.3(c), payable on each Interest Payment
Date and at maturity, commencing with the first Interest
Payment Date following the date of each Note.
--------------------------------------------------------------------------------
(c) Each Loan shall be: (i) in the case of any Eurodollar Rate
Loan, in an amount of not less than $1,000,000.00 or an
integral multiple of $1,000,000.00 in excess thereof; or (ii)
in the case of any Alternate Base Rate Loan, in an amount of
not less than $500,000.00 or an integral multiple of
$100,000.00 in excess thereof and, at the option of the
Borrower, any borrowing under this Section 2.1(c) may be
comprised of two or more such Loans bearing different rates of
interest. Each such borrowing shall be made upon prior notice
from the Borrower to the Agent in the form attached hereto as
Exhibit B (the "Notice of Borrowing") delivered to the Agent
---------
not later than 11:00 am (Houston time): (i) on the third
Business Day prior to the Borrowing Date, if such borrowing
consists of Eurodollar Rate Loans; and (ii) on the Borrowing
Date, if such borrowing consists of Alternate Base Rate Loans.
Each Notice of Borrowing shall be irrevocable and shall
specify: (i) the amount of the proposed borrowing and of each
Loan comprising a part thereof; (ii) the Borrowing Date; (iii)
the rate of interest that each such Loan shall bear; (iv) the
Rate Period with respect to each such Loan and the Expiration
Date of each such Rate Period; and (v) the demand deposit
account of the Borrower at The Chase Manhattan Bank into which
the proceeds of the borrowing are to be deposited by the
Agent. The Borrower may give the Agent telephonic notice by
the required time of any proposed borrowing under this Section
2.1(c); provided that such telephonic notice shall be
-------- ----
confirmed in writing by delivery to the Agent promptly (but in
no event later than the Borrowing Date relating to any such
borrowing) of a Notice of Borrowing. Neither the Agent nor
any Bank shall incur any liability to the Borrower in acting
upon any telephonic notice referred to above which the Agent
believes in good faith to have been given by the Borrower, or
for otherwise acting in good faith under this Section 2.1(c).
(d) In the case of a proposed borrowing comprised of Eurodollar
Rate Loans, the Agent shall promptly notify each Bank of the
applicable interest rate under Section 2.2. Each Bank shall,
before 11:00 am (Houston time) on the Borrowing Date, make
available for the account of its Applicable Lending Office to
the Agent at the Agent's address set forth in Section 13.4, in
same day funds, its Pro Rata Percentage of such borrowing.
After the Agent's receipt of such funds and upon fulfillment
of the applicable conditions set forth in Section 8, on the
Borrowing Date, the Agent shall make the Borrowing available
to the Borrower at its Applicable Lending Office in
immediately available funds. Each Bank shall post on a
schedule attached to its Note(s): (i) the date and principal
amount of each Loan made under such Note; (ii) the rate of
interest each such Loan will bear; and (iii) each payment of
principal thereon; provided, however, that any failure of such
-------- -------
Bank so to mark such Note shall not affect the Borrower's
obligations thereunder; and provided further that such Bank's
-------- -------
records as to such matters shall be controlling whether or not
such Bank has so marked such Note. Any deposit to the
Borrower's demand deposit account by the Agent or by The Chase
Manhattan Bank (of funds received from the Agent) pursuant to
a request (whether written or oral) believed by the Agent or
by The Chase Manhattan Bank to be an authorized request by the
Borrower for a Loan hereunder shall be deemed to be a Loan
hereunder for all purposes with the same effect as if the
Borrower had in fact requested the Agent to make such Loan.
(e) Unless the Agent shall have received notice from a Bank prior
to the date of any borrowing that such Bank will not make
available to the Agent such Bank's Pro Rata Percentage of such
borrowing, the Agent may assume that such Bank has made such
portion available to the Agent on the date of such borrowing
in accordance with this Section 2.1 and the Agent may, in
reliance upon such assumption, make available to the Borrower
on such date a corresponding amount. If and to the extent
that such Bank shall not have so made such Pro Rata Percentage
available to the Agent, such Bank and the 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 the
Borrower until the date such amount is repaid to the Agent,
(i) in the case of the Borrower, at the interest rate
applicable at the time to the Loans comprising such borrowing,
and (ii) in the case of such Bank, at the Federal Funds Rate.
If such Bank shall repay to the Agent such corresponding
amount, such amount so repaid shall constitute such Bank's
Loan as part of such borrowing for purposes of this Agreement.
(f) The failure of any Bank to make the Loan to be made by it as
part of any borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its Loan on the date of
such borrowing,
--------------------------------------------------------------------------------
but no Bank shall be responsible for the failure of any other
Bank to make the Loan to be made by such other Bank on the
date of any borrowing.
2.2 Interest Rate Determination
(a) Except as specified in Sections 2.3(b) and 2.3(c), the Loans
shall bear interest on the unpaid princi pal amount thereof
from time to time outstanding, until maturity, at a rate per
annum (calculated based on a year of 360 days in the case of
the Eurodollar Rate or the Alternate Base Rate based on the
Federal Funds Rate and a year of 365 or 366 days, as the case
may be, in the case of the Alternate Base Rate based on the
Prime Rate) equal to the lesser of (A) the rate specified in
the Notice of Borrowing with respect thereto or (B) the
Highest Lawful Rate from the first day to, but not including,
the Expiration Date of the Rate Period then in effect with
respect thereto.
(b) Any principal, interest, fees or other amount owing hereunder,
under any Note or under any other Loan Document that is not
paid when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest at a rate per annum equal to
the lesser of (i) two percent (2%) above the Alternate Base
Rate in effect from time to time or (ii) the Highest Lawful
Rate.
2.3 Additional Interest Rate Provisions
(a) The Note may be held by each Bank for the account of its
respective Domestic Lending Office or its respective
Eurodollar Lending Office, and may be transferred from one to
the other from time to time as each Bank may determine.
(b) If the Borrower shall have chosen the Eurodollar Rate in a
Notice of Borrowing and prior to the Borrowing Date, any Bank
in good faith determines (which determination shall be
conclusive) that (i) deposits in Dollars in the principal
amount of such Eurodollar Rate Loan are not being offered to
the Eurodollar Lending Office of such Bank in the Eurodollar
interbank market selected by such Bank in its sole discretion
in good faith or (ii) adequate and reasonable means do not
exist for ascertaining the chosen Eurodollar Rate in respect
of such Eurodollar Rate Loan or (iii) the Eurodollar Rate for
any Rate Period for such Eurodollar Rate Loan will not
adequately reflect the cost to such Bank of making such
Eurodollar Rate Loan for such Rate Period, then such Bank will
so notify the Borrower and the Agent and such Eurodollar Rate
shall not become effective as to such Eurodollar Rate Loan on
such Borrowing Date or at any time thereafter until such time
thereafter as the Borrower receives notice from the Agent that
the circumstances giving rise to such determination no longer
apply.
(c) Anything in this Agreement to the contrary notwithstanding, if
at any time any Bank in good faith determines (which
determination shall be conclusive) that the introduction of or
any change in any applicable law, rule or regulation or any
change in the interpretation or administration thereof by any
governmental or other regulatory authority charged with the
interpretation or administration thereof shall make it
unlawful for the Bank (or the Eurodollar Lending Office of
such Bank) to maintain or fund any Eurodollar Rate Loan, such
Bank shall give notice thereof to the Borrower and the Agent.
With respect to any Eurodollar Rate Loan which is outstanding
when such Bank so notifies the Borrower, upon such date as
shall be specified in such notice the Rate Period shall end
and the lesser of (i) the Alternate Base Rate or (ii) the
Highest Lawful Rate shall commence to apply in lieu of the
Eurodollar Rate in respect of such Eurodollar Rate Loan and
shall continue to apply unless and until the Borrower changes
the rate as provided in Section 2.2(a). No more than five (5)
Business Days after such specified date, the Borrower shall
pay to such Bank (x) accrued and unpaid interest on such
Eurodollar Rate Loan at the Eurodollar Rate in effect at the
time of such notice to but not including such specified date
plus (y) such amount or amounts (to the extent that such
----
amount or amounts would not be usurious under applicable law)
as may be necessary to compensate such Bank for any direct or
indirect costs and losses incurred by it (to the extent that
such amounts have not been included in the Additional Costs in
calculating such Eurodollar Rate), but otherwise without
penalty. If notice has been given by such Bank pursuant to
the foregoing provisions of this Section 2.3(c), then, unless
and until such Bank notifies the Borrower that the
circumstances giving rise to such notice no longer apply, such
Eurodollar Rate shall not again apply
--------------------------------------------------------------------------------
to such Loan or any other Loan and the obligation of such Bank
to continue any Eurodollar Rate Loan as a Eurodollar Rate Loan
shall be suspended. Any such claim by such Bank for
compensation under clause (y) above shall be accompanied by a
certificate setting forth the computation upon which such
claim is based, and such certificate shall be conclusive and
binding for all purposes, absent manifest error.
(d) THE BORROWER WILL INDEMNIFY EACH BANK AGAINST, AND REIMBURSE
EACH BANK ON DEMAND FOR, ANY LOSS (INCLUDING LOSS OF
REASONABLY ANTICIPATED PROFITS DETERMINED USING REASONABLE
ATTRIBUTION AND ALLOCATION METHODS), OR REASONABLE COST OR
EXPENSE INCURRED OR SUSTAINED BY SUCH BANK (INCLUDING WITHOUT
LIMITATION, ANY LOSS OR EXPENSE INCURRED BY REASON OF THE
LIQUIDATION OR REEMPLOYMENT OF DEPOSITS OR OTHER FUNDS
ACQUIRED BY SUCH BANK TO FUND OR MAINTAIN ANY EURODOLLAR RATE
LOAN) AS A RESULT OF (i) ANY ADDITIONAL COSTS INCURRED BY SUCH
BANK; (ii) ANY PAYMENT OR REPAYMENT (WHETHER AUTHORIZED OR
REQUIRED HEREUNDER OR OTHERWISE) OF ALL OR A PORTION OF ANY
LOAN ON A DAY OTHER THAN THE EXPIRATION DATE OF A RATE PERIOD
FOR SUCH LOAN; (iii) ANY PAYMENT OR PREPAYMENT (WHETHER
REQUIRED HEREUNDER OR OTHERWISE) OF ANY LOAN MADE AFTER THE
DELIVERY OF A NOTICE OF BORROWING BUT BEFORE THE APPLICABLE
BORROWING DATE IF SUCH PAYMENT OR PREPAYMENT PREVENTS THE
PROPOSED BORROWING FROM BECOMING FULLY EFFECTIVE; OR (iv)
AFTER RECEIPT BY THE AGENT OF A NOTICE OF BORROWING, THE
FAILURE OF ANY LOAN TO BE MADE OR EFFECTED BY SUCH BANK DUE TO
ANY CONDITION PRECEDENT TO A BORROWING NOT BEING SATISFIED BY
THE BORROWER OR DUE TO ANY OTHER ACTION OR INACTION OF THE
BORROWER. ANY BANK DEMANDING PAYMENT UNDER THIS SECTION
2.3(d) SHALL DELIVER TO THE BORROWER AND THE AGENT A STATEMENT
REASONABLY SETTING FORTH THE AMOUNT AND MANNER OF DETERMINING
SUCH LOSS, COST OR EXPENSE. THE FACTS SET FORTH IN SUCH
STATEMENT SHALL BE CONCLUSIVE AND BINDING FOR ALL PURPOSES,
ABSENT MANIFEST ERROR.
(e) If, after the date of this Agreement, any Bank shall have
determined that the adoption of any applicable law, rule,
guideline, interpretation or regulation regarding capital
adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by
such Bank with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Bank's
capital as a consequence of its obligations hereunder and
under similar lending arrangements to a level below that which
such Bank could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies
with respect to capital adequacy) by an amount deemed by such
Bank to be material then the Borrower shall pay to such Bank
such additional amount or amounts as will compensate such Bank
for such reduction.
(f) A certificate of such Bank setting forth such amount or
amounts as shall be necessary to compensate such Bank as
specified in subparagraph (e) above shall be delivered as soon
as practicable to the Borrower (with a copy thereof to the
agent) and to the extent determined in accordance with
subparagraph (e) above shall be conclusive and binding, absent
manifest error. The Borrower shall pay such Bank the amount
shown as due on any such certificate within fifteen (15) days
after such Bank delivers such certificate. In preparing such
certificate, such Bank may employ such assumptions and
allocations (consistently applied with respect to advances
made by such Bank or commitments by such Bank to make
advances) of costs and expenses as it shall in good faith deem
reasonable and may use any reasonable averaging and
attribution method (consistently applied with respect to
advances made by such Bank or commitments by such Bank to make
advances).
(g) In calculating the Eurodollar Rate, the Facility Letter of
Credit Fee Percentage and the commitment fee payable under
Section 5.1 hereof, and notwithstanding the provisions set
forth in the definitions
--------------------------------------------------------------------------------
of Eurodollar Rate and Facility Letter of Credit Fee
Percentage or in the pricing grid established for the
commitment fee in Section 5.1 hereof, in the event that
ratings of the Borrower's unsecured, non-credit enhanced
Senior Funded Debt under Standard & Poor's Ratings Group and
under Moody's Investor Service, Inc. fall within different
rating categories which are not functional equivalents, the
Eurodollar Rate, the Facility Letter of Credit Fee Percentage
and the commitment fee payable under Section 5.1 hereof shall
be based on the higher of such ratings if there is only one
category differential between the functional equivalents of
such ratings, and if there is a two category differential
between the functional equivalents of such ratings, the
component of pricing from the grid set forth in such
definitions or in Section 5.1 shall be based on the rating
category which is then in the middle of or between the two
category ratings which are then in effect.
2.4 Extension of Maturity Date. On a Business Day no less than sixty (60)
and no more than ninety (90) days prior to May 29, 2003, and during
such period in each year thereafter during which this Agreement is in
effect, the Borrower may elect to notify the Agent, in writing, of
its request for an extension of the maturity date of each Banks
Commitment (on the terms and conditions set forth herein) for a
period of up to one (1) year from the date of the then current
Maturity Date. Promptly after receipt of such request, the Agent
shall notify the Banks of such request. Each Bank shall notify the
Agent in writing of its consent to, or rejection of, such request on
or prior to April 30 of each such year. In the event that any Bank
fails to so notify the Agent, that request shall be deemed to have
been rejected by such Bank. The Commitments shall be extended
hereunder only upon the consent of each Bank, whereupon the Maturity
Date of each Note shall be deemed to be extended to the agreed date
of extension, but in no event later than the date which is one (1)
year after the date of the Maturity Date in effect prior to such
extension. In the event of the renewal and extension of the
Commitments and the maturity date of the Notes pursuant to this
Section 2.4, the terms and conditions of this Agreement will apply
during such renewal and extension period and, from and after the date
of such extension, the term "Maturity Date" shall mean such date as
so renewed and extended.
2.5 Increase of Commitments
(a) At any time after the Closing Date, provided that no Default
or Event of Default shall have occurred and be continuing, the
Borrower may request from time to time one or more increases
of the Commitments by notice to the Agent in writing of the
amount of each such proposed increase (each such notice, a
"Commitment Increase Notice"). Any such Commitment Increase
--------------------------
Notice must offer each Bank the opportunity to subscribe for
its pro rata share of the requested increase in the
Commitments, and the Agent shall promptly provide to each Bank
a copy of any Commitment Increase Notice received by the
Agent. Within 10 Business Days after receipt by the Agent of
the applicable Commitment Increase Notice, each Bank wishing
to subscribe for its pro rata share of the requested increase
in the Commitments must deliver written notice of such fact to
the Agent. If any portion of the requested increase in the
Commitments is not subscribed for by the Banks within such
10-day period, the Borrower may, in its sole discretion, but
with the consent of the Agent as to any Person that is not at
such time a Bank (which consent shall not be unreasonably
withheld or delayed so long as such Person is an Eligible
Assignee), offer to any existing Bank or to one or more
additional banks or financial institutions the opportunity to
participate in all or a portion of such unsubscribed portion
of the requested increase in the Commitments pursuant to
Section 2.5 (b) or (c) below, as applicable;
(b) Any additional bank or financial institution that the Borrower
selects to offer a participation in the unsubscribed portion
of the increased Commitments, and that elects to become a
party to this Agreement and obtain a Commitment, shall execute
an agreement (a "New Bank Agreement"), in the form required by
------------------
the Agent, with the Borrower and the Agent, whereupon such
bank or financial institution (a "New Bank") shall become a
--------
Bank for all purposes hereunder to the same extent as if
originally a party hereto and shall be bound by and entitled
to the benefits of this Agreement, and the signature pages
hereof shall be deemed to add the name and Commitment of such
New Bank, provided that the Commitment of any such New Bank
shall be in an amount not less than $5,000,000;
--------------------------------------------------------------------------------
(c) Any Bank that accepts an offer by the Borrower to increase its
Commitment pursuant to this Section 2.5 shall, in each case,
execute a commitment increase agreement (a "Commitment
Increase Agreement"), in the form required by the Agent, with
the Borrower and the Agent, whereupon such Bank shall be bound
by and entitled to the benefits of this Agreement with respect
to the full amount of its Commitment as so increased, and the
signature pages hereof shall be deemed to be amended to
reflect such increase in the Commitment of such Bank;
(d) The effectiveness of any New Bank Agreement or Commitment
Increase Agreement shall be contingent upon receipt by the
Agent of such corporate resolutions of the Borrower and legal
opinions of in-house counsel to the Borrower, if any, as the
Agent shall reasonably request with respect thereto;
(e) If any bank or financial institution becomes a New Bank
pursuant to Section 2.5(b) or if any Bank's Commitment is
increased pursuant to Section 2.5(c), additional Loans and
additional liability for Facility Letters of Credit made or
issued on or after the effectiveness thereof (the
"Re-Allocation Date") shall be made pro rata based on each
------------------
Bank's (including each New Bank's) respective Commitment in
effect on and after such Re-Allocation Date (except to the
extent that any such pro rata borrowings or incurring of
liability would result in any Bank making an aggregate
principal amount of Loans and incurring liability for the
Facility Letters of Credit in excess of its Commitment, in
which case such excess amount will be allocated to, and made
or incurred by, such New Bank and/or Banks with such increased
Commitments to the extent of, and pro rata based on, their
respective Commitments), and continuations of Eurodollar Rate
Loans outstanding on such Re-Allocation Date shall be effected
by repayment of such Eurodollar Rate Loans on the last day of
the Rate Period applicable thereto and the extension of new
Eurodollar Rate Loans pro rata based on the Banks' respective
Commitments in effect on and after such Re-Allocation Date.
In the event that on any such Re-Allocation Date there are
Alternate Base Rate Loans outstanding, the Borrower shall make
prepayments thereof and borrow new Alternate Base Rate Loans
so that, after giving effect thereto, the Alternate Base Rate
Loans outstanding are held pro rata based on the Banks'
respective Commitments in effect on and after such
Re-Allocation Date. In the event that on any such
Re-Allocation Date there are Eurodollar Rate Loans
outstanding, such Eurodollar Rate Loans shall remain
outstanding with the respective holders thereof until the
expiration of their respective Rate Periods (unless the
Borrower elects to prepay any thereof in accordance with the
applicable provisions of this Agreement), and interest on and
repayments of such Eurodollar Rate Loans will be paid thereon
to the respective Banks holding such Eurodollar Rate Loans pro
rata based on the respective principal amounts thereof
outstanding;
(f) Notwithstanding anything to the contrary in this Section 2.5,
(i) no Bank shall have any obligation to increase its
Commitment under this Section 2.5 unless it agrees in writing
to do so in its sole discretion, (ii) no Bank shall have any
right to decrease the amount of its Commitment as a result
of any requested increase of the Commitments pursuant to this
Section 2.5, (iii) the Agent shall have no obligation to find
or locate any New Bank to participate in any unsubscribed
portion of any increase in the Commitments requested by the
Borrower, (iv) each increase in the Commitments requested by
the Borrower shall not be less than $10,000,000, (v) after
giving effect to any increase in the Commitments pursuant to
this Section 2.5, the sum of the Commitments and the aggregate
commitments of the lenders under the Short-Term Credit
Facility shall not exceed $425,000,000, and (vi) in the event
the Borrower reduces the Commitments pursuant to Section 4.6
or any other provision of this Agreement more than one time
during the term of this Agreement, the ability of the
Borrower to request increases in the Commitments pursuant to
this Section 2.5 shall automatically terminate; and
(g) The Borrower shall execute and deliver to the Agent (for
delivery by the Agent to each applicable Bank) a new Note
payable to each applicable Bank (including each New Bank)
participating in any increase of the Commitments in the
original principal amount of such Bank's Commitment after
giving effect to any such increase of the Commitments.
--------------------------------------------------------------------------------
3. LETTERS OF CREDIT
3.1 Obligation to Issue. Subject to the terms and conditions of this
Agreement, and in reliance upon the representations and warranties of
the Borrower set forth herein or in any other Loan Document, each
Issuing Bank hereby severally agrees to issue, from time to time
during the period commencing on the Closing Date and ending on the
Business Day immediately prior to the Maturity Date, for the account
of the Borrower through such of the Issuing Bank's branches as it and
the Borrower may jointly agree, one or more Facility Letters of
Credit in accordance with this Section 3. Notwithstanding the
foregoing, no Issuing Bank shall have any obligation to issue, and
shall not issue, any Facility Letter of Credit at any time if:
(a) the aggregate undrawn face amount of Facility Letters of
Credit theretofore issued by such Issuing Bank, after giving
effect to all requested but unissued Facility Letters of
Credit, exceeds any limit imposed by law or regulation upon
such Issuing Bank;
(b) after taking into account the face amount of the requested
Facility Letter of Credit the aggregate principal amount of
Facility Letter of Credit Obligations with respect to Facility
Letters of Credit issued by such Issuing Bank for the account
of the Borrower (which amount shall be calculated without
giving effect to the participation of the Banks pursuant to
Section 3.5) would exceed such Issuing Bank's Letter of Credit
Commitment;
(c) immediately after giving effect to the issuance of such
Facility Letter of Credit, the aggregate Facility Letter of
Credit Obligations would exceed the L/C Subfacility;
(d) immediately after giving effect to the issuance of such
Facility Letter of Credit, the aggregate of outstanding Loans,
would exceed the Banks' aggregate Commitments; or
(e) such Facility Letter of Credit has an expiry date (i) more
than one year after the date of issuance; or (ii) after the
Business Day immediately preceding the Maturity Date.
3.2 Conditions. The obligation of an Issuing Bank to issue any Facility
Letter of Credit, and of each Bank to participate therein as provided
in Section 3.5 is subject to the satisfaction in full of the
applicable conditions precedent set forth in Section 8 and each of
the following conditions:
(a) the Borrower shall have delivered to the Issuing Bank, at such
times and in such manner as such Issuing Bank may prescribe, a
Letter of Credit application, a Letter of Credit Reimbursement
Agree ment, and such other documents and materials as may be
required pursuant to the terms thereof;
(b) the terms of the proposed Facility Letter of Credit shall not
be inconsistent with any term or provision of this Agreement
and otherwise shall be satisfactory to such Issuing Bank; and
(c) as of the date of issuance of such Facility Letter of Credit,
no order, judgment, or decree of any court, arbitrator, or
governmental authority shall purport by its terms to enjoin or
restrain the Issuing Bank from issuing such Facility Letter of
Credit, and no law, rule, or regulation applicable to such
Issuing Bank, and no request or directive (whether or not
having the force of law) from any governmental authority
having jurisdiction over such Issuing Bank, shall prohibit or
request that such Issuing Bank refrain from the issuance of
Letters of Credit, generally or the issuance of such Facility
Letter of Credit.
3.3 Issuance of Facility Letters of Credit
(a) The Borrower shall give the Agent written notice (or
telephonic notice confirmed in writing by the Borrower not
later than the requested issuance date of the Facility Letter
of Credit) of its request for the issuance of a Facility
Letter of Credit no later than 11:00 a.m. four (4) Business
Days prior to the date such Facility Letter of Credit is
requested to be issued. Such notice shall be irrevocable and
shall specify, with respect to such requested Facility Letter
of Credit, the face amount, beneficiary,
--------------------------------------------------------------------------------
effective date of issuance, expiry date (which effective date
and expiry date shall be a Business Day and, with respect to
the expiry date, shall be no later than the Business Day
immediately preceding the Maturity Date), the identity of the
Issuing Bank selected by the Borrower, and the purpose for
which such Facility Letter of Credit is to be issued. At the
time a request for the issuance of a Facility Letter of Credit
is made, the Borrower shall also provide the Agent with a copy
of the form of Letter of Credit that the proposed Issuing Bank
has agreed to issue. If the face amount of the requested
Facility Letter of Credit is less than or equal to the Unused
L/C Subfacility, as determined by the Agent as of the close of
business on the date of its receipt of written notice of the
requested issuance, the Agent shall so notify the proposed
Issuing Bank in writing (or by telephonic notice promptly
confirmed thereafter in writing) not later than the close of
business on the second Business Day following the Agent's
receipt of the Borrower's written notice. The Issuing Bank
shall issue such Facility Letter of Credit on the date
requested by the Borrower, unless (i) on or before the
Business Day prior to such issuance date, such Issuing Bank
shall have received written notice from the Agent or any Bank
that the conditions precedent to the issuance of a Facility
Letter of Credit as set forth in Section 3.2 have not been
met; or (ii) on the requested issuance date, such Issuing Bank
has actual knowledge that such conditions precedent have not
been met. If an Issuing Bank receives written notice, or has
actual knowledge, that the conditions precedent to the
issuance of a Facility Letter of Credit have not been met,
then such Issuing Bank shall have no obligation to issue, and
shall not issue, any Facility Letter of Credit until (i) such
notice is withdrawn; or (ii) such Issuing Bank receives a
notice from the Agent that the condition(s) described in such
notice have been waived in accordance with the provisions of
this Agreement. The Issuing Bank shall give the Agent prompt
written notice (or telephonic notice promptly confirmed in
writing) of the issuance of any Facility Letter of Credit. Any
Letter of Credit issued by an Issuing Bank in compliance with
the provisions of this Section 3.3 shall be a Facility Letter
of Credit.
(b) An Issuing Bank shall not extend or amend any Facility Letter
of Credit unless the requirements of this Section 3.3 are met
as though a new Facility Letter of Credit was being requested
and issued.
(c) An Issuing Bank or any Bank may issue Non-Facility Letters of
Credit for its own account, and at its own risk. None of the
provisions of this Section 3 shall apply to any Non-Facility
Letter of Credit.
3.4 Reimbursement Obligations; Duties of Issuing Bank
(a) Notwithstanding any provisions to the contrary in any Letter
of Credit Reimbursement Agreement:
(1) the Borrower shall reimburse the applicable Issuing Bank
for a drawing under a Facility Letter of Credit issued by
such Issuing Bank no later than the earlier of (A) the
time specified in the related Letter of Credit
Reimbursement Agreement; or (B) one (1) Business Day after
the payment of such drawing by such Issuing Bank; and
(2) the Borrower's Reimbursement Obligations with respect to a
drawing under a Facility Letter of Credit shall bear
interest from the date of such drawing to the date paid in
full at the higher of (A) the interest rate specified in
the applicable Letter of Credit Reimbursement Agreement;
or (B) the interest rate for past due Alternate Base Rate
Loans; but not greater than the Highest Lawful Rate.
(b) No action taken or omitted to be taken by an Issuing Bank in
connection with any Facility Letter of Credit shall (i) result
in any liability on the part of such Issuing Bank to any Bank,
unless such Issuing Bank's action or omission constitutes
willful misconduct or gross negligence; or (ii) relieve any
Bank of any of its obligations to such Issuing Bank hereunder,
unless the Facility Letter of Credit in question was issued in
contravention of the provisions of Section 3.3 or at a time
during which a notice, described in Section 3.3, from such
Bank to such Issuing Bank remained in effect. Each Bank
agrees that, prior to making any payment to a beneficiary with
respect to a drawing under a Facility Letter of Credit, the
Issuing Bank shall be responsible only to confirm that
documents required by the terms of such Facility Letter of
Credit to be delivered as a condition precedent to such
drawing have been delivered and that the same appear on their
face to conform with the requirements thereof. Each Bank
further agrees that such Issuing Bank may assume that
--------------------------------------------------------------------------------
documents appearing on their face to be the documents required
to be delivered as a condition precedent to a drawing do in
fact comply.
3.5 Participations
(a) Immediately upon the issuance by an Issuing Bank of any
Facility Letter of Credit in compliance with the provisions of
Section 3.3, and immediately upon conversion of a Letter of
Credit of an Issuing Bank to a Facility Letter of Credit
pursuant to Section 3.10, each Bank shall be deemed to have
irrevocably and unconditionally purchased and received from
such Issuing Bank, without recourse or warranty, an undivided
interest and participation to the extent of such Bank's Pro
Rata Percentage in such Facility Letter of Credit, including
without limitation, all obligations of the Borrower with
respect thereto and any security therefor or guaranty
pertaining thereto.
(b) An Issuing Bank shall promptly notify the Agent, and the Agent
shall promptly notify the other Banks, if the Borrower fails
to reimburse such Issuing Bank for payments made by such
Issuing Bank in respect of drawings by a beneficiary under a
Facility Letter of Credit. Upon each such other Banks receipt
of such notice, such Bank shall unconditionally pay to the
Agent, for the account of such Issuing Bank, an amount equal
to such Bank's Pro Rata Percentage of the unreimbursed payment
made by such Issuing Bank under the Facility Letter of Credit.
Such payment shall be made by such Bank in Dollars and in same
day funds on the day such Bank receives notice from the Agent
that such payment is owing, if such notice is received by such
Bank prior to 11:00 a.m. (Houston time) on a Business Day; if
such notice is not received by such time, then such Bank shall
remit its payment on the next Business Day following the day
such notice is received. Any amount payable by a Bank under
this Section 3.5(b) which is not paid when due pursuant to the
terms hereof shall be payable on demand, together with
interest thereon at the Federal Funds Rate from the date such
payment was due until paid in full. The failure of any Bank
to make any payment owing by it under this Section 3.5(b)
shall neither relieve nor increase the obligation of any other
Bank to make any payment owing by it under this Section
3.5(b). The Agent shall promptly remit to the applicable
Issuing Bank all amounts received by the Agent, for the
account of such Issuing Bank, from each Bank pursuant to this
Section 3.5(b). No payment made by a Bank pursuant to this
Section 3.5(b) shall prejudice the ability of such Bank to
claim that the Issuing Bank to which such payment is made
is subject to liability under Section 3.4(b).
(c) Whenever an Issuing Bank receives a payment with respect to a
Reimbursement Obligation (including any interest thereon) for
which such Issuing Bank has received payments from a Bank
pursuant to Section 3.5(b), such Issuing Bank shall promptly
remit to the Agent and the Agent shall promptly remit to each
Bank which has funded its participating interest therein, in
Dollars and in the kind of funds so received, an amount equal
to each Bank's Pro Rata Percentage thereof. Each such payment
shall be made by the Issuing Bank or the Agent, as the case
may be, on the Business Day on which such Person receives the
funds paid to such Person pursuant to the preceding sentence,
if received prior to 11:00 a.m. (Houston time) on such
Business Day, and otherwise on the next succeeding Business
Day.
(d) Upon the request of the Agent or any Bank, an Issuing Bank
shall furnish to the Agent or each Bank copies of any Facility
Letter of Credit, Letter of Credit Reimbursement Agreement, or
Letter of Credit application to which Issuing Bank is party,
and such other documentation as may reasonably be requested by
the Agent or such Bank with respect to a Facility Letter of
Credit issued by such Issuing Bank.
(e) The obligations of a Bank under Section 3.5(b) to make
payments to the Agent for the account of an Issuing Bank with
respect to a Facility Letter of Credit shall be irrevocable,
not subject to any qualification or exception whatsoever, and
shall be made in accordance with, but not subject to, the
terms and conditions of this Agreement under all circumstances
(assuming that such Issuing Bank has issued such Facility
Letter of Credit in compliance with the provisions of Section
3.3), including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement
or any other Loan Document;
--------------------------------------------------------------------------------
(ii) the existence of any claim, set off, defense, or other
right which the Borrower may have at any time against a
beneficiary named in a Facility Letter of Credit or any
transferee of any Facility Letter of Credit (or any
Person for whom any such transferee may be acting), the
Agent, any Bank, the Issuing Bank, or any Person,
whether in connection with this Agreement, any Facility
Letter of Credit, the transactions contemplated herein,
or any unrelated transactions (including any underlying
transactions between the Borrower and the beneficiary
named in any Facility Letter of Credit);
(iii) any draft, certificate, of any other document presented
under the Facility Letter of Credit proving to be
forged, fraudulent, invalid, or insufficient in any
respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any
Loan Document;
(v) any failure by the Agent or an Issuing Bank to make any
reports required pursuant to Section 3.8; or
(vi) the occurrence of any Default or Event of Default.
3.6 Payment of Reimbursement Obligations
(a) The Borrower agrees to pay to each Issuing Bank the amount of
all Reimbursement Obligations, interest, and other amounts
payable to such Issuing Bank under or in connection with any
Facility Letter of Credit immediately when due, irrespective
of any claim, set off, defense, or other right which the
Borrower may have at any time against any Issuing Bank or any
other Person.
(b) In the event any payment by the Borrower received by an
Issuing Bank with respect to a Facility Letter of Credit and
distributed to Banks on account of their respective
participation is thereafter set aside, avoided, or recovered
from such Issuing Bank in connection with any Debtor Laws,
each Bank which received such distribution shall, upon demand
by such Issuing Bank, contribute each Bank's Pro Rata
Percentage of the amount set aside, avoided, or recovered
together with interest at the rate required to be paid by the
Issuing Bank upon the amount required to be repaid by it.
3.7 Exoneration. As between the Borrower, each Bank, and each Issuing
Bank, the Borrower assumes all risks of the acts and omissions of, or
misuse of the Facility Letter of Credit issued by such Issuing Bank
by, the respective beneficiaries of such Facility Letter of Credit.
In furtherance and not in limitation of the foregoing, subject to the
provisions of the Letter of Credit applications, the Issuing Bank and
the Banks shall not be responsible for:
(a) the form, validity, sufficiency, accuracy, genuineness, or
legal effect of any document submitted by any party in
connection with the application for and issuance of a Facility
Letter of Credit, even if it should in fact prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent,
or forged;
(b) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign a Facility
Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason;
(c) failure of the beneficiary of a Facility Letter of Credit to
comply duly with conditions required in order to draw upon
such Facility Letter of Credit, provided that the Issuing Bank
complies with the provisions of Section 3.4(b);
(d) errors, omissions, interruptions, or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex, or
otherwise, whether or not they be in cipher;
(e) errors in interpretation of technical terms;
--------------------------------------------------------------------------------
(f) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any
Facility Letter of Credit or of the proceeds thereof;
(g) the misapplication by the beneficiary of a Facility Letter of
Credit; or
(h) any consequences arising from causes beyond the control of the
Agent, any Bank, or any Issuing Bank, including, without
limitation, any act or omission, whether rightful or wrongful,
of any present or future de jure or de facto government or
Governmental Authority. In furtherance and extension and not
in limitation of the specific provisions hereinabove set
forth, any action taken or omitted by an Issuing Bank under or
in connection with the Facility Letters of Credit or any
related certificates, if taken or omitted in good faith and
not constituting gross negligence or willful misconduct, shall
not put the Issuing Bank, the Agent, or any Bank under any
resulting liability to the Borrower or relieve the Borrower of
any of its obligations hereunder to any such Person.
3.8 Issuing Bank's Reporting Requirements. In addition to the reports
required by Section 3.5, each Issuing Bank shall, no later than the
tenth (10th) Business Day following the last day of each quarter of
such Issuing Bank's fiscal year, provide to the Agent and the
Borrower a schedule for Standby Letters of Credit issued as Facility
Letters of Credit, in form and substance reasonably satisfactory to
the Agent, showing the date of issue, beneficiary, face amount,
expiration date, and the reference number of each Facility Letter of
Credit issued by such Issuing Bank which was outstanding at any time
during such quarter and the aggregate amount payable by the Borrower
during the quarter pursuant to Section 3.9.
3.9 Compensation for Facility Letters of Credit
(a) Facility Letter of Credit Fee. The Borrower agrees to pay to
-----------------------------
the Agent, for the account of each Bank, in the case of each
Letter of Credit issued as, or converted to (for transactions
which convert Letters of Credit in existence on the Closing
Date to Facility Letters of Credit pursuant to Section 3.10),
a Facility Letter of Credit, a facility letter of credit fee
(the "Facility Letter of Credit Fee") payable quarterly in
arrears equal to the applicable Facility Letter of Credit Fee
Percentage of the average amount available to be drawn under
such Letter of Credit during the quarter then ending
multiplied by the actual number of days during such quarter on
which such Letter of Credit was outstanding, divided by 360
but no less than $500.00 per Facility Letter of Credit per
year. The Borrower shall also pay to the Agent in the event
of any extension or modification of a Facility Letter of
Credit which extends the expiration date or increases the
maximum amount available for drawing thereunder an additional
fee calculated and payable on the same basis as that set forth
in the first sentence of this Section 3.9(a) with respect to
any such extension or additional amount. Whenever an Issuing
Bank receives a payment from the Borrower with respect to any
fees incurred in connection with any Facility Letter of Credit
issued by such Issuing Bank, such Issuing Bank shall promptly
remit to the Agent, and the Agent shall promptly remit to each
Bank which has funded its participation in such Facility
Letter of Credit, in Dollars and in same day funds, an amount
equal to such Bank's Pro Rata Percentage of such fees.
(b) Issuing Bank's Charges. Each Issuing Bank shall have the right
----------------------
to receive, solely for its own account, such amounts as it and
the Borrower may agree, in writing, to compensate such Issuing
Bank with respect to issuance fees and such Issuing Bank's
out-of-pocket costs of issuing and servicing Facility Letters
of Credit.
(c) Increased Capital. If either (i) the introduction of or any
-----------------
change in or in the interpretation of any law or regulation,
or (ii) compliance by any Issuing Bank or any Bank with any
guideline or request from any central bank or other
Governmental Authority (whether or not having the force of
law) affects or would affect (by an amount deemed by such
Issuing Bank to be material) the capital required or expected
to be maintained by it or any corporation controlling it, and
such Bank or such Issuing Bank determines, on the basis of
reasonable allocations, that the amount of such capital is
increased by (an amount deemed by such Issuing Bank to be
material) or is based (to a degree deemed by such Issuing Bank
to be material) upon its issuance or maintenance of or
participation in, or commitment to issue or to participate in,
the Facility Letters of Credit then, upon demand by such Bank
or such Issuing Bank, the Borrower shall immediately pay to
the Agent (for the account of each Bank) or
--------------------------------------------------------------------------------
such Issuing Bank, from time to time as specified by such Bank
or such Issuing Bank, additional amounts sufficient to
compensate such Bank or such Issuing Bank therefor. A
certificate as to such amounts submitted to the Borrower by
such Bank or such Issuing Bank shall, in the absence of
manifest error, be conclusive and binding for all purposes.
3.10 Transitional Provisions. Schedule 3.10 contains a schedule of certain
-------------
Letters of Credit issued for the account of the Borrower prior to the
Closing Date by one or more of the Issuing Banks. Subject to the
satisfaction of the conditions precedent contained in Section 8, on
the Closing Date (a) such Letters of Credit shall be deemed to be
converted into Facility Letters of Credit issued pursuant to Section
3.3; and (b) the face amount of such Letters of Credit shall be
included in the calculation of the Facility Letter of Credit
Obligations.
4. PAYMENTS AND PREPAYMENTS
4.1 Required Prepayments
(a) The Borrower agrees that if at any time it or the Agent
determines that the sum of (i) the aggregate principal amount
of Loans outstanding and (ii) the face amount of Facility
Letters of Credit issued hereunder exceeds the Commitments,
then the Borrower shall make a prepayment of principal of the
Loans in an amount at least equal to such excess.
(b) Upon the Borrower's reduction or termination of the
Commitments under Section 4.6, the Borrower shall make such
prepayments as are required by the terms of Section 4.6.
(c) Immediately upon the termination of any period of 180
consecutive calendar days in which the aggregate principal
amount outstanding under the Notes and the Short-Term Credit
Facility Notes has exceeded the Borrower's Available Senior
Funded Debt Capacity outstanding under the Senior Notes, the
Borrower will prepay the Notes and/or the Short-Term Credit
Facility Notes by the amount of such excess, together with all
interest accrued on such prepaid amount and such other amounts
that may be required to be paid in consequence of such
prepayment under Section 2.3(d).
4.2 Repayment of the Loans. Borrower shall repay the principal amount of
each Loan, on the last day of the Interest Period for such Loan,
together with all accrued and unpaid interest thereon as of such
date, irrespective of any claim, set off, defense, or other right
which the Borrower may have at any time against any Bank, the Agent
or any other Person.
4.3 Place of Payment or Prepayment. All payments and prepayments made in
accordance with the provisions of this Agreement or of the Notes or
of any other Loan Document or of the Letter of Credit Reimbursement
Agreements in respect of commitment fees or of principal or interest
on the Notes shall be made to the Agent for the account of the Banks
at its Domestic Lending Office, no later than noon, Houston time, in
immediately available funds. Unless the Agent shall have received
notice from the Borrower prior to the date on which any payment is
due to the Banks hereunder that the Borrower will not make any
payment due hereunder in full, the Agent may assume that the 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 to
such Bank. If and to the extent the 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. If and to the extent that
the Agent receives any payment or prepayment from the Borrower and
fails to distribute such payment or prepayment to the Banks ratably
on the basis of their respective Pro Rata Percentage on the day the
Agent receives such payment or prepayment, and such distribution
shall not be so made by the Agent in full on the required day, the
Agent shall pay to each Bank such Bank's Pro Rata Percentage thereof
together with interest thereon at the Federal Funds Rate for each day
from the date such amount is paid to the Agent by the Borrower until
the date the Agent pays such amount to such Bank.
--------------------------------------------------------------------------------
4.4 No Prepayment Premium or Penalty. Each prepayment pursuant to Section
4.1 or 4.3 shall be without premium or penalty, subject in the case
of Eurodollar Rate Loans to the provisions of Section 2.3(d).
4.5 Taxes. All payments (whether of principal, interest, reimbursements
or otherwise) under this Agreement or on the Notes or in respect of
Facility Letter of Credit Obligations shall be made by the Borrower
without set off or counterclaim and shall be made free and clear of
and without deduction for any present or future tax, levy, impost or
any other charge, if any, of any nature whatsoever now or hereafter
imposed by any taxing authority. If the making of such payments is
prohibited by law, unless such a tax, levy, impost or other charge is
deducted or withheld therefrom, the Borrower shall pay to the Banks,
on the date of each such payment, such additional amounts as may be
necessary in order that the net amounts received by the Banks after
such deduction or withholding shall equal the amounts which would
have been received if such deduction or withholding were not
required.
4.6 Reduction or Termination of Commitments. The Borrower may at any time
or from time to time reduce or terminate the Commitment of each Bank
by giving not less than ten (10) full Business Days' prior written
notice to such effect to the Agent, provided that any partial
reduction shall be in the amount of $1,000,000.00 or an integral
multiple thereof. Concurrently with each such reduction or
termination, all amounts in excess of the reduced Commitments shall
be automatically due and payable and it is a condition to the
effectiveness of such reduction that the Borrower shall immediately
prepay the entire amount of such excess together with all accrued
interest thereon and such other amounts that may be required to be
paid in consequence of such prepayment under Section 2.3(d). Promptly
after the Agent's receipt of such notice of reduction, the Agent
shall notify each Bank of the proposed reduction and such reduction
shall be effective on the date specified in the Borrower's notice
with respect to such reduction and shall reduce the Commitment of
each Bank proportionately in accordance with its Pro Rata Percentage
(and such reduction shall also ratably reduce the Commitments related
to Facility Letters of Credit). After each such reduction, the
commitment fee shall be calculated upon the Commitments as so
reduced. The Commitment of each Bank shall automatically terminate on
the Maturity Date or in the event of acceleration of the maturity
date of the Notes. Each reduction of the Commitment hereunder shall
be irrevocable.
5. COMMITMENT FEE AND OTHER FEES
5.1 Commitment Fee. The Borrower agrees to pay to the Agent for the
account of each Bank a commitment fee based on a year of 360 days,
from the Closing Date to, but not including, the Maturity Date (or
such earlier date as of which all Commitments shall have terminated),
on the daily average unused amount of each Bank's Commitment, such
commitment fee to be payable quarterly in arrears on (a) the last day
of each March, June, September, and December, commencing on June 30,
2001 and (b) the Maturity Date, at a rate per annum changing with the
rating of the Borrower's unsecured, non-credit enhanced Senior Funded
Debt, and determined in accordance with the following grid:
Rating of the Borrower's unsecured, non-credit Percentage
enhanced Senior Funded Debt Per Annum
----------------------------------------------------- ------------
Equal to or greater than A3 by Moody's Investor
Service, Inc. and equal to or greater than A- by
---
Standard and Poor's Ratings Group 0.125%
----------------------------------------------------- ------------
Baa1 by Moody's Investor Service, Inc. or BBB+ by
--
Standard and Poor's Ratings Group 0.150%
----------------------------------------------------- ------------
Baa2 by Moody's Investor Service, Inc. or BBB by
--
Standard and Poor's Ratings Group 0.150%
----------------------------------------------------- ------------
Baa3 by Moody's Investor Service, Inc. or BBB-
--
by Standard and Poor's Ratings Group 0.150%
----------------------------------------------------- ------------
Equal to or less than Ba1 by Moody's Investor
Service, Inc. and equal to or less than BB+ by
---
Standard and Poor's Ratings Group 0.250%
===================================================== ============
5.2 Facility Letter of Credit Fee. The Borrower shall pay to the Agent,
for the account of each Issuing Bank, the Facility Letter of Credit
Fees as set forth in Section 3.9.
--------------------------------------------------------------------------------
5.3 Fees Not Interest; Nonpayment. The fees described in this Agreement
represent compensation for services rendered and to be rendered
separate and apart from the lending of money or the provision of
credit and do not constitute compensation for the use, detention, or
forbearance of money, and the obligation of the Borrower to pay each
fee described herein shall be in addition to, and not in lieu of, the
obligation of the Borrower to pay interest, other fees described in
this Agreement, and expenses otherwise described in this Agreement.
Fees shall be payable when due in Dollars and in immediately
available funds. The commitment fee referred to in Section 5.1 shall
be non-refundable, and shall, to the fullest extent permitted by law,
bear interest, if not paid when due, at a rate per annum equal to the
lesser of (a) five percent (5%) above the Alternate Base Rate as in
effect from time to time or (b) the Highest Lawful Rate.
5.4 Utilization Fee. The Borrower agrees to pay to Agent, for the
account of each Bank, a utilization fee at a rate per annum equal to
0.125%, based on a year of 360 days, from the Closing Date to, but
not including, the Maturity Date (or such earlier date as of which
the Commitments have been terminated), on the daily average amount by
which the sum of the aggregate principal amount of the Loans, the
aggregate principal balance of the Short-Term Credit Facility Notes
and the Facility Letter of Credit Obligations exceeds thirty-three
percent (33%) of the sum of the aggregate amount of the Commitments
hereunder and the aggregate amount of the Commitments (as defined in
the Short-Term Credit Facility Agreement), such utilization fee to be
payable quarterly in arrears on (a) the last day of each March, June,
September, and December, commencing on June 30, 2001, and (b) the
Maturity Date.
6. APPLICATION OF PROCEEDS
6.1 Application of Proceeds. The Borrower agrees that the proceeds of
the Loans shall be used:
(a) to provide working capital and for general corporate purposes;
(b) to finance the acquisition of Qualifying Assets, which
Qualifying Assets may be acquired on a revolving basis as long
as at any one time the amount of the Borrower's investment in
Qualifying Assets does not exceed the amounts set forth in
clause (i) and clause (ii) of the definition of Qualifying
Assets as applicable; provided, however, that the prior
written consent of the Majority Banks shall be required for
the use of Loan proceeds to finance any portion of any such
acquisition described in clause (i) of the definition of
Qualifying Assets requiring the payment of more than
$60,000,000;
(c) to finance the Borrower's open market acquisition of its own
7.60% Senior Notes due 2024; provided, however, that such use,
-------- -------
together with the use of proceeds of the Short-Term Credit
Facility for such purpose, if any, shall be limited to an
aggregate amount advanced to $60,000,000; and
(d) to finance the Borrower's repurchase of its own common stock
and preferred equity securities; provided, however, that such
-------- -------
use, together with the use of proceeds of the Short-Term
Credit Facility for such purpose, if any, shall be limited to
an aggregate amount advanced to $50,000,000.
7. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
7.1 Organization and Qualification. The Borrower and each Subsidiary: (a)
are corporations duly organized, validly existing, and in good
standing under the laws of their respective states of incorporation;
(b) have the corporate or organizational power to own their
respective properties and to carry on their respective businesses as
now conducted; and (c) are duly qualified as foreign corporations
(or, in the case of any Southern Union Trust, trusts) to do business
and are in good standing in every jurisdiction where such
qualification is necessary except when the failure to so qualify
would not or does not have a Material Adverse Effect. The Borrower is
a corporation organized under the laws of Delaware and has the
Subsidiaries listed on Schedule 7.1 attached hereto and made a part
hereof for all purposes, and no others, each of which is a Delaware
corporation unless otherwise noted on Schedule 7.1. None of the
--------------------------------------------------------------------------------
Subsidiaries listed on Schedule 7.1 as "Inactive Subsidiaries"
conducts or will conduct any business, and none of such Subsidiaries
has any assets other than minimum legal capitalization.
7.2 Financial Statements. The Borrower has furnished the Banks with (a)
the Borrower's annual audit reports containing the Borrower's
consolidated balance sheets, statements of income and stockholder's
equity and a cash flow statements as at and for the twelve month
period ending June 30, 2000, accompanied by the certificate of Price
Waterhouse Coopers and (b) the Borrower's unaudited financial report
as of the fiscal quarter ending December 31, 2000. These statements
are complete and correct and present fairly in accordance with GAAP,
consistently applied throughout the periods involved, the
consolidated financial position of the Borrower and the Subsidiaries
and the results of its and their operations as at the dates and for
the periods indicated subject, as to interim statements only, to
changes resulting from customary end- of-year credit adjustments
which in the aggregate will not be material. There has been no
material adverse change in the condition, financial or otherwise, of
the Borrower or any Subsidiary since March 31, 2001.
7.3 Litigation. Except as disclosed on Schedule 7.3 or pursuant to
------------
Section 7.16, there is no: (a) action or proceeding pending or, to
the knowledge of the Borrower, threatened against the Borrower or any
Subsidiary before any court, administrative agency or arbitrator
which is reasonably expected to have a Material Adverse Effect; (b)
judgment outstanding against the Borrower for the payment of money;
or (c) other outstanding judgment, order or decree affecting the
Borrower or any Subsidiary before or by any administrative or
governmental authority, compliance with or satisfaction of which may
reasonably be expected to have a Material Adverse Effect.
7.4 Default. Neither the Borrower nor any Subsidiary is in default under
or in violation of the provisions of any instrument evidencing any
Debt or of any agreement relating thereto or any judgment, order,
writ, injunction or decree of any court or any order, regulation or
demand of any administrative or governmental instrumentality which
default or violation might have a Material Adverse Effect.
7.5 Title to Assets. The Borrower and each Subsidiary have good and
marketable title to their respective assets, subject to no Liens
except those permitted in Section 10.2.
7.6 Payment of Taxes. The Borrower and each Subsidiary have filed all tax
returns required to be filed and have paid all taxes shown on said
returns and all assessments which are due and payable (except such as
are being contested in good faith by appropriate proceedings for
which adequate reserves for their payment have been provided in a
manner consistent with the accounting practices followed by the
Borrower as of March 31, 2001). The Borrower is not aware of any
pending investigation by any taxing authority or of any claims by any
governmental authority for any unpaid taxes, except as disclosed on
Schedule 7.6.
------------
7.7 Conflicting or Adverse Agreements or Restrictions. Neither the
Borrower nor any Subsidiary is a party to any contract or agreement
or subject to any restriction which would have a Material Adverse
Effect. Neither the execution and delivery of this Agreement or the
Notes or any other Loan Document nor the consummation of the
transactions contemplated hereby nor fulfillment of and compliance
with the respective terms, conditions and provisions hereof or of the
Notes or of any instruments required hereby will conflict with or
result in a breach of any of the terms, conditions or provisions of,
or constitute a default under, or result in any violation of, or
result in the creation or imposition of any lien (other than as
contemplated or permitted by this Agreement) on any of the property
of the Borrower or any Subsidiary pursuant to (a) the charter or
bylaws applicable to the Borrower or any Subsidiary; (b) any law or
any regulation of any administrative or governmental instrumentality;
(c) any order, writ, injunction or decree of any court; or (d) the
terms, conditions or provisions of any agreement or instrument to
which the Borrower or any Subsidiary is a party or by which it is
bound or to which it is subject.
7.8 Authorization, Validity, Etc. The Borrower has the corporate power
and authority to make, execute, deliver and carry out this Agreement
and the transactions contemplated herein, to make the borrowings
provided for herein, to execute and deliver the Notes and to perform
its obligations hereunder and under the Notes and the other Loan
Documents to which it is a party and all such action has been duly
authorized by all necessary corporate proceedings on its part. This
Agreement has been duly and validly executed
--------------------------------------------------------------------------------
and delivered by the Borrower and constitutes the valid and legally
binding agreement of the Borrower enforceable in accordance with its
terms, except as limited by Debtor Laws; and the Notes and the other
Loan Documents, when duly executed and delivered by the Borrower
pursuant to the provisions hereof, will constitute the valid and
legally binding obligation of the Borrower enforceable in accordance
with the terms thereof and of this Agreement, except as limited by
Debtor Laws.
7.9 Investment Company Act Not Applicable. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company
Act of 1940, as amended.
7.10 Public Utility Holding Company Act Not Applicable. Neither the
Borrower nor any Subsidiary is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding
company", or an affiliate of a "subsidiary company" of a "holding
company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
7.11 Regulations G, T, U and X. No Loan shall be a "purpose credit secured
directly or indirectly by margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System
("margin stock"); none of the proceeds of any Loan will be used to
extend credit to others for the purpose of purchasing or carrying any
margin stock, or for any other purpose which would constitute this
transaction a "purpose credit secured directly or indirectly by
margin stock" within the meaning of said Regulation U, as now in
effect or as the same may hereafter be in effect. Neither the
Borrower nor any Subsidiary will take or permit any action which
would involve the Banks in a violation of Regulation G, Regulation T,
Regulation U, Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System or a violation of the
Securities Exchange Act of 1934, in each case as now or hereafter in
effect. After applying proceeds of the Loans and the Short-Term
Credit Facility used to acquire the equity interests described in the
definition of "Qualifying Assets", not more than twenty-five percent
(25%) of the value (as determined by any reasonable method) of the
assets subject to the negative pledge set forth in Section 10.2 of
the Credit Agreement and the restrictions on disposition of assets
set forth in Section 10.8 of the Credit Agreement is represented by
margin stock.
7.12 ERISA. No Reportable Event (as defined in ss. 4043(b) of ERISA) has
occurred with respect to any Plan. Each Plan complies in all material
respects with a applicable provisions of ERISA, and the Borrower and
each Subsidiary have filed all reports required by ERISA and the Code
to be filed with respect to each Plan. The Borrower has no knowledge
of any event which could result in a liability of the Borrower or any
Subsidiary to the Pension Benefit Guaranty Corporation. The Borrower
and each Subsidiary have met all requirements with respect to funding
the Plans imposed by ERISA or the Code. Since the effective date of
Title IV of ERISA, there have not been any, nor are there now
existing any, events or conditions that would permit any Plan to be
terminated under circumstances which would cause the lien provided
under ss. 4068 of ERISA to attach to any property of the Borrower or
any Subsidiary. The value of the Plans' benefits guaranteed under
Title IV of ERISA on the date hereof does not exceed the value of
such Plans' assets allocable to such benefits as of the date of this
Agreement and shall not be permitted to do so hereafter.
7.13 No Financing of Certain Security Acquisitions. None of the proceeds
of any Loan will be used to acquire any security in any transaction
that is subject to ss.13 or ss.14 of the Securities Exchange Act of
1934, as amended, except the equity interests described in
subparagraph (ii) of the definition of "Qualifying Assets".
7.14 Franchises, Co-Licenses, Etc. The Borrower and each Subsidiary own or
have obtained all the material governmental permits, certificates of
authority, leases, patents, trademarks, service marks, trade names,
copyrights, franchises and licenses, and rights with respect thereto,
required or necessary (or, in the sole and independent judgment of
the Borrower, prudent) in connection with the conduct of their
respective businesses as presently conducted or as proposed to be
conducted.
7.15 Lines of Business. The nature of the Borrower's lines of business
are predominately the following: (a) the operation of energy
distribution and transportation services, including without
limitation, natural gas
--------------------------------------------------------------------------------
sales and transportation and distribution, propane sales and
distribution and promotion, marketing and sale of compressed natural
gas and liquified natural gas; (b) the development and marketing of
fuel cell and distributive energy options; (c) electric
marketing/generation; (d) the operation of fuel oil distribution and
transportation networks; and (e) sales and rentals of appliances
utilizing one or more of the fuel or energy options specified in this
Section 7.15.
7.16 Environmental Matters. Except as disclosed in Schedule 7.16, all
facilities and property owned or leased by the Borrower or any
Subsidiary have been and continue to be, owned or leased and operated
by the Borrower and each Subsidiary in material compliance with all
Environmental Laws; (i) there has not been (during the period of the
Borrower's, or a Subsidiary's ownership or lease) any Release of
Hazardous Materials at, on or under any property now (or, to the
Borrower's knowledge, previously) owned or leased by the Borrower or
any Subsidiary (A) in quantities that would be required to be
reported under any Environmental Law, (B) that required, or may
reasonably be expected to require, the Borrower to expend funds on
remediation or cleanup activities pursuant to any Environmental Law
except for remediation or clean-up activities that would not be
reasonably expected to have a Material Adverse Effect, or (C) that
otherwise, singly or in the aggregate, has, or may reasonably be
expected to have, a Material Adverse Effect; (ii) the Borrower and
each Subsidiary have been issued and are in material compliance with
all permits, certificates, approvals, orders, licenses and other
authorizations relating to environmental matters necessary for their
respective businesses; and (iii) there are no polychlorinated
biphenyls (PCB's) or asbestos-containing materials or surface
impoundments in any of the facilities now (or, to the knowledge of
the Borrower, previously) owned or leased by the Borrower or any
Subsidiary, except for asbestos- containing materials of the type and
in quantities that, to the knowledge of the borrower, do not
currently require remediation, and if remediation of such
asbestos-containing materials is hereafter required for any reason,
such remediation activities would not reasonably be expected to have
a Material Adverse Effect; (iv) Hazardous Materials have not been
generated, used, treated, recycled, stored or disposed of in any of
the facilities or on any of the property now (or, to the knowledge of
the Borrower, previously) owned or leased by the Borrower or any
Subsidiary during the time of the Borrower's or such Subsidiary's
ownership or leased by the Borrower or any Subsidiary during the time
of the Borrower's or such Subsidiary's ownership except in material
compliance with all applicable Environmental Laws; and (v) all
underground storage tanks located on the property now (or, to the
knowledge of the Borrower, previously) owned or leased by the
Borrower or any Subsidiary have been (and to the extent currently
owned or leased are) operated in material compliance with all
applicable Environmental Laws.
8. CONDITIONS
The obligation of the Banks to make any Loans or issue any Facility Letters
of Credit is subject to the following conditions:
8.1 Representations True and No Defaults
(a) The representations and warranties contained in Section 7
shall be true and correct on and as of the particular
Borrowing Date as though made on and as of such date;
(b) The Borrower shall not be in default in the due performance of
any covenant on its part contained in this Agreement;
(c) no material adverse change shall have occurred with respect to
the business, assets, properties or condition (financial or
otherwise) of the Borrower reflected in the quarterly
financial statements of the Borrower dated March 31, 2001
(copies of such audited financial statements having been
supplied to the Agent and each Bank); and
(d) no Event of Default or Default shall have occurred and be
continuing.
8.2 Governmental Approvals. The Borrower shall have obtained all orders,
approvals or consents of all public regulatory bodies required for
the making and carrying out of this Agreement, the making of the
borrowings pursuant hereto, the issuance of the Notes to evidence
such borrowings, and the execution and delivery of the Security
Documents.
--------------------------------------------------------------------------------
8.3 Compliance With Law. The business and operations of the Borrower and
each Subsidiary as conducted at all times relevant to the
transactions contemplated by this Agreement to and including the
close of business on the particular Borrowing Date shall have been
and shall be in compliance in all material respects with all
applicable State and Federal laws, regulations and orders affecting
the Borrower and each Subsidiary and the business and operations of
any of them.
8.4 Notice of Borrowing and Other Documents. On each Borrowing Date, the
Banks shall have received (a) a Notice of Borrowing; and (b) such
other documents and certificates relating to the transactions herein
contemplated as the Banks may reasonably request.
8.5 Payment of Fees and Expenses. The Borrower shall have paid (a) all
expenses of the type described in Section 13.3 through the date of
such Loan or the issuance of such Facility Letter of Credit and (b)
all closing, structuring and other invoiced fees owed as of the
Closing Date to the Agent, any of the Banks and/or Chase Securities
Inc. by the Borrower under this Agreement or any other written
agreement between the Borrower and the Agent, the applicable Bank(s)
or Chase Securities Inc.
8.6 Loan Documents, Opinions and Other Instruments. As of the Closing
Date, the Borrower shall have delivered to the Agent the following:
(a) this Agreement, each of the Notes and all other Loan Documents
required by the Agent and the Banks to be executed and delivered by
the Borrower in connection with this Agreement; (b) a certificate
from the Secretary of State of the State of Delaware as to the
continued existence and good standing of the Borrower in the State of
Delaware; (c) a certificate from Secretary of State of the State of
Texas as to the continued qualification of the Borrower to do
business in the State of Texas; (d) a current certificate from the
Office of the Comptroller of the State of Texas as to the good
standing of the Borrower in the State of Texas; (e) a Secretary's
Certificate executed by the duly elected Secretary or a duly elected
Assistant Secretary of the Borrower, in a form acceptable to the
Agent, whereby such Secretary or Assistant Secretary certifies that
one or more corporate resolutions adopted by the Board of Directors
of the Borrower remain in full force and effect authorizing the
Borrower to secure Loans and Facility Letters of Credit in accordance
with the terms of this Agreement and the Short-Term Credit Facility;
and (f) a legal opinion from in-house counsel for the Borrower, dated
as of the Closing Date, addressed to the Agent and the Lenders and
otherwise acceptable in all respects to the Agent in its discretion.
9. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as the Borrower may borrow
hereunder and until payment in full of the Notes, and its other obligations
under this Agreement and the other Loan Documents the Borrower will:
9.1 Financial Statements and Information. Deliver to the Banks:
(a) as soon as available, and in any event within 120 days after
the end of each fiscal year of the Borrower, a copy of the
annual audit report of the Borrower and the Subsidiaries for
such fiscal year containing a balance sheet, statements of
income and stockholders equity and a cash flow statement, all
in reasonable detail and certified by Price Waterhouse Coopers
or another independent certified public accountant of
recognized standing satisfactory to the Banks. The Borrower
will obtain from such accountants and deliver to the Banks at
the time said financial statements are delivered the written
statement of the accountants that in making the examination
necessary to said certification they have obtained no
knowledge of any Event of Default or Default, or if such
accountants shall have obtained knowledge of any such Event of
Default or Default, they shall state the nature and period of
existence thereof in such statement; provided that such
-------------
accountants shall not be liable directly or indirectly to the
Banks for failure to obtain knowledge of any such Event of
Default or Default; and
(b) as soon as available, and in any event within sixty (60) days
after the end of each quarterly accounting period in each
fiscal year of the Borrower (excluding the fourth quarter), an
unaudited financial report of the Borrower and the
Subsidiaries as at the end of such quarter and for the period
then ended, containing a balance sheet, statements of income
and stockholders equity and a cash
--------------------------------------------------------------------------------
flow statement, all in reasonable detail and certified by a
financial officer of the Borrower to have been prepared in
accordance with GAAP, except as may be explained in such
certificate; and
(c) copies of all statements and reports sent to stockholders of
the Borrower or filed with the Securities and Exchange
Commission; and
(d) such additional financial or other information as the Banks
may reasonably request including, without limitation, copies
of such monthly, quarterly, and annual reports of gas
purchases and sales that the Borrower is required to deliver
to or file with governmental bodies pursuant to tariffs and/or
franchise agreements.
All financial statements specified in clauses (a) and (b) above shall
be furnished in consolidated and consolidating form for the Borrower
and all Subsidiaries with comparative consolidated figures for the
corresponding period in the preceding year. Together with each
delivery of financial statements required by clauses (a) and (b)
above, the Borrower will deliver to the Banks (i) such schedules,
computations and other information as may be required to demonstrate
that the Borrower is in compliance with its covenants in Section 10.1
or reflecting any noncompliance therewith as at the applicable date
and (ii) an Officer's Certificate stating that there exists no Event
of Default or Default, or, if any such Event of Default or Default
exists, stating the nature thereof, the period of existence thereof
and what action the Borrower has taken or proposes to take with
respect thereto. The Banks are authorized to deliver a copy of any
financial statement delivered to it to any regulatory body having
jurisdiction over them, and to disclose same to any prospective
assignees or participant Lenders.
9.2 Lease and Investment Schedules. Deliver to the Banks:
(a) from time to time and, in any event, with each delivery of
annual financial statements under Section 9.1(a), a current,
complete schedule (in the form of Schedule 9.2) of all
------------
agreements to rent or lease any property (personal, real or
mixed, but not including oil and gas leases) to which the
Borrower or any Subsidiary is a party lessee and which,
considered independently or collectively with other leases
with the same lessor, involve an obligation by the Borrower or
a Subsidiary to make payments of at least $250,000.00 in any
year, showing the total amounts payable under each such
agreement, the amounts and due dates of payments thereunder
and containing a description of the rented or leased property,
and all other information the Majority Banks may request; and
(b) with each delivery of annual financial statements under
Section 9.1(a) a current complete schedule (in the form of
Schedule 9.2) listing all debt exceeding $200,000.00 in
------------
principal amount outstanding and equity owned or held by the
Borrower or any Subsidiary containing all information required
by, and in a form satisfactory to, the Banks, except for such
debt or equity of Subsidiaries.
9.3 Books and Records. Maintain, and cause each Subsidiary to maintain,
proper books of record and account in accordance with sound
accounting practices in which true, full and correct entries will be
made of all their respective dealings and business affairs.
9.4 Insurance. Maintain, and cause each Subsidiary to maintain, insurance
with financially sound, responsible and reputable companies in such
types and amounts and against such casualties, risks and
contingencies as is customarily carried by owners of similar
businesses and properties, and furnish to the Banks, together with
each delivery of annual financial statements under Section 9.1(a), an
Officer's Certificate containing full information as to the insurance
carried.
9.5 Maintenance of Property. Cause its Significant Property and the
Significant Property of each Subsidiary to be maintained, preserved,
protected and kept in good repair, working order and condition so
that the business carried on in connection therewith may be conducted
properly and efficiently, except for normal wear and tear; provided,
however, that the improved properties of Lavaca Realty Company should
be maintained, preserved and protected in a manner consistent with
the maintenance, preservation and protection of improved real
property held for sale.
--------------------------------------------------------------------------------
9.6 Inspection of Property and Records. Permit any officer, director or
agent of the Agent or any Bank, on written notice and at such Banks
expense, to visit and inspect during normal business hours any of the
properties, corporate books and financial records of the Borrower and
each Subsidiary and discuss their respective affairs and finances
with their principal officers, all at such times as the Agent or any
Bank may reasonably request.
9.7 Existence, Laws, Obligations. Maintain, and cause each Subsidiary to
maintain, its corporate existence and franchises, and any license
agreements and tariffs that permit the recovery of a return that the
Bor rower considers to be fair (and as to licenses, franchises, and
tariffs that are subject to regulatory determinations of recovery of
returns, the Borrower has presented or is presenting favorable
defense thereof); and to comply, and cause each Subsidiary to comply,
with all statutes and governmental regula tions noncompliance with
which might have a Material Adverse Effect, and pay, and cause each
Subsidiary to pay, all taxes, assessments, governmental charges,
claims for labor, supplies, rent and other obligations which if
unpaid might become a lien against the property of the Borrower or
any Subsidiary except liabilities being contested in good faith.
Notwithstanding the foregoing, the Borrower may dissolve those
certain inactive and minimally capitalized Subsidiaries designated as
such on Schedule 7.1.
9.8 Notice of Certain Matters. Notify the Agent Bank immediately upon
acquiring knowledge of the occur rence of any of the following
events: (a) the institution or threatened institution of any lawsuit
or adminis trative proceeding affecting the Borrower or any
Subsidiary that is not covered by insurance (less applicable
deductible amounts) and which, if determined adversely to the
Borrower or such Subsidiary, could reasonably be expected to have a
Material Adverse Effect; (b) the occurrence of any material ad verse
change, or of any event that in the good faith opinion of the
Borrower is likely, to result in a material adverse change, in the
assets, liabilities, financial condition, business or affairs of the
Borrower or any Subsidiary; (c) the occurrence of any Event of
Default or any Default; or (d) a change by Moody's Investors Service,
Inc. or by Standard and Poor's Ratings Group in the rating of the
Borrower's Funded Debt.
9.9 ERISA. At all times:
(a) maintain and keep in full force and effect each Plan;
(b) make contributions to each Plan in a timely manner and in an
amount sufficient to comply with the minimum funding standards
requirements of ERISA;
(c) immediately upon acquiring knowledge of any "reportable event"
or of any "prohibited transaction" (as such terms are defined
in the Code ss. 4043) in connection with any Plan, furnish the
Banks with a statement executed by the president or chief
financial officer of the Borrower setting forth the details
thereof and the action which the Borrower proposes to take
with respect thereto and, when known, any action taken by the
Internal Revenue Service with respect thereto;
(d) notify the Banks promptly upon receipt by the Borrower or any
Subsidiary of any notice of the institution of any proceeding
or other action which may result in the termination of any
Plan and furnish to the Banks copies of such notice;
(e) acquire and maintain in amounts satisfactory to the Banks from
either the Pension Benefit Guaranty Corporation or authorized
private insurers, when available, the contingent employer
liability coverage insurance required under ERISA;
(f) furnish the Banks with copies of the summary annual report for
each Plan filed with the Internal Revenue Service as the Agent
or the Banks may request; and
(g) furnish the Banks with copies of any request for waiver of the
funding standards or extension of the amortization periods
required by ss. 303 and ss. 304 of ERISA or ss. 412 of the
Code promptly after the request is submitted to the Secretary
of the Treasury, the Department of Labor or the Internal
Revenue Service, as the case may be.
--------------------------------------------------------------------------------
9.10 Compliance with Environmental Laws. At all times:
(a) use and operate, and cause each Subsidiary to use and operate,
all of their respective facilities and properties in material
compliance with all Environmental Laws; keep, and cause each
Subsidiary to keep, all necessary permits, approvals, orders,
certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material
compliance therewith; handle, and cause each Subsidiary to
handle, all Hazardous Materials in material compliance with
all applicable Environmental Laws; and dispose, and cause each
Subsidiary to dispose, of all Hazardous Materials generated by
the Borrower or any Subsidiary or at any property owned or
leased by them at facilities or with carriers that maintain
valid permits, approvals, certificates, licenses or other
authorizations for such disposal under applicable
Environmental Laws;
(b) promptly notify the Agent and provide copies upon receipt of
all written claims, complaints, notices or inquiries relating
to the condition of the facilities and properties of the
Borrower and each Subsidiary under, or their respective
compliance with, applicable Environmental Laws wherein the
condition or the noncompliance that is the subject of such
claim, complaint, notice, or inquiry involves, or could
reasonably be expected to involve, liability of or
expenditures by the Borrower and its Subsidiaries of
$10,000,000.00 or more; and
(c) provide such information and certifications which the Banks
may reasonably request from time to time to evidence
compliance with this Section 9.10.
9.11 PGA Clauses. The Borrower will use its best efforts to maintain in
force provisions in all of its tariffs and franchise agreements that
permit the Borrower to recover from customers substantially all of
the amount by which the cost of gas purchases exceeds the amount
currently billed to customers for the delivery of such gas (sometimes
referred to as PGA clauses).
10. NEGATIVE COVENANTS
So long as the Borrower may borrow hereunder and until payment in full of
the Notes, except with the written consent of the Banks:
10.1 Capital Requirements. The Borrower will not:
(a) permit its Consolidated Net Worth at the end of any fiscal
quarter to be less than the sum of (i) $698,603,000; (ii) 40%
of Consolidated Net Income (if positive) for the period
commencing on January 1, 2000 and ending on the date of
determination, and treated as a single accounting period;
(iii) the difference between (A) 100% of the net proceeds of
any issuance of capital or preferred stock by the Borrower or
any consolidated Subsidiary received by the Borrower or such
consolidated Subsidiary at any time after December 31, 1999;
and (B) the aggregate amount of all redemption or repurchase
payments hereafter made, if any, by the Borrower and any such
consolidated Subsidiary in connection with the repurchase by
the Borrower or any such consolidated Subsidiary of any of
their respective capital or preferred stock; and (iv) without
duplication, the difference between (A) 100% of the net
proceeds heretofore and hereafter received by the Borrower and
any consolidated Subsidiary in respect of the issuance by the
Borrower or such consolidated Subsidiary of the Structured
Securities, and (B) the aggregate amount of all redemption
payments hereafter made, if any, by the Borrower and any such
consolidated Subsidiary in connection with the redemption of
any of the Structured Securities; or
(b) permit the ratio of its Consolidated Total Indebtedness to its
Consolidated Total Capitalization to be greater than (i) 0.70
to 1.00 at the end of any fiscal quarter ending prior to or on
June 30, 2002 and (ii) 0.65 to 1.00 at the end of any fiscal
quarter ending after June 30, 2002; or
(c) acquire, or permit any Subsidiary to acquire, any assets other
than (i) investments permitted under Section 10.4, or (ii)
Qualifying Assets; or
--------------------------------------------------------------------------------
(d) permit the ratio of EBDIT to Cash Interest Expense for the
four fiscal quarters most recently ended (considered as a
single accounting period) at any time to be less than (i) 2.00
to 1.00 at all times during the period ending June 30, 2002,
and (ii) 2.25 to 1.00 at all times thereafter; or
(e) permit the aggregate outstanding principal amount of the Notes
and the Short-Term Credit Facility Notes to exceed for a
period of 180 consecutive days the Borrower's Available Senior
Funded Debt Capacity.
10.2 Mortgages, Liens, Etc. The Borrower will not, and will not permit any
Subsidiary to, create or permit to exist any Lien (including the
charge upon assets purchased under a conditional sales agreement,
purchase money mortgage, security agreement or other title retention
agreement) upon any of its respective assets, whether now owned or
hereafter acquired, or assign or otherwise convey any right to
receive income, except:
(a) Liens for taxes not yet due or that are being contested in
good faith by appropriate proceedings;
(b) other Liens incidental to the conduct of its business or the
ownership of its assets that were not incurred in connection
with the borrowing of money or the obtaining of advances or
credit, and that do not in the aggregate materially detract
from the value of such assets or materially impair the use
thereof in the operation of such business;
(c) Liens on assets of a Subsidiary to secure obligations of such
Subsidiary to the Borrower or another Subsidiary; and
(d) Liens on property existing at the time of acquisition thereof
by the Borrower or any Subsidiary, or purchase money Liens
placed on an item of real or personal property purchased by
the Borrower or any Subsidiary to secure a portion of the
purchase price of such property, provided that no such Lien
may encumber or cover any other property of the Borrower or
any Subsidiary.
10.3 Debt. The Borrower will not, and will not permit any Subsidiary to,
incur or permit to exist any Debt, except:
(a) Debt evidenced by the Notes, the Short-Term Credit Facility
Notes, the Facility Letter of Credit Obligations or
outstanding under the Term Loan Facility not in default;
(b) Debt of any Subsidiary to the Borrower or any other
Subsidiary;
(c) Debt existing as of March 31, 2001 as reflected on financial
statements delivered under Section 7.2(b) and refinancings
thereof other than Debt that has been refinanced by the
proceeds of Loans or the proceeds of the Short-Term Credit
Facility;
(d) endorsements in the ordinary course of business of negotiable
instruments in the course of collection;
(e) Debt of the Borrower or any Subsidiary representing the
portion of the purchase price of property acquired by the
Borrower or such Subsidiary that is secured by Liens permitted
by the provisions of Section 10.2(d); provided, however, that
at no time may the aggregate principal amount of such Debt
outstanding exceed thirty percent (30%) of the Consolidated
Net Worth of the Borrower and its Subsidiaries as of the
applicable determination date;
(f) Debt evidenced by Senior Notes;
(g) additional Debt of the Borrower and Structured Securities of
the Borrower and the Southern Union Trusts provided that after
giving effect to the issuance thereof, there shall exist no
Default or Event of Default; and: (i) the ratio of
Consolidated Total Indebtedness to Consolidated Total
Capitalization shall be no greater than (A) 0.70 to 1.00 at
all times during the period ending June 30, 2002, and (B) 0.65
to 1.00 at all times thereafter; (ii) the ratio of EBDIT for
the four fiscal quarters most recently
--------------------------------------------------------------------------------
ended to pro forma Cash Interest Expense for the following
four fiscal quarters shall be no less than (A) 2.00 to 1.0 at
all times during the period ending June 30, 2002, and (B) 2.25
to 1.0 at all times thereafter; provided, however, that if the
additional Debt for which the determinations required to be
made by this subparagraph (g) will be used to finance in whole
or in part the consideration to be paid by the Borrower for
the acquisition of any entity otherwise permitted under the
terms of this Agreement, the determination of EBDIT for
purposes of this ratio shall include not only the EBDIT of the
Borrower and its Subsidiaries for the four fiscal quarters
most recently ended, but shall also include the EBDIT of such
entity to be acquired for such four fiscal quarters most
recently ended; and (iii) (A) such Debt and Structured
Securities shall have a final maturity or mandatory redemption
date, as the case may be, no earlier than the Maturity Date
(as the same may be extended pursuant to Section 2.4) and
shall mature or be subject to mandatory redemption or
mandatory defeasance no earlier than the Maturity Date (as so
extended) and shall be subject to no mandatory redemption or
"put" to the Borrower or any Southern Union Trust exercisable,
or sinking fund or other similar mandatory principal payment
provisions that require payments to be made toward principal,
prior to such Maturity Date (as so extended); or (B) (x) such
additional Debt shall have a final maturity date prior to the
Maturity Date, (y) such additional Debt shall not exceed
Eighty Million Dollars ($80,000,000.00) in the aggregate plus
Twenty Million Dollars ($20,000,000.00) of reimbursement
obligations incurred in connection with Non-Facility Letters
of Credit issued by a Bank or Banks or by any other financial
institution; provided, however, that for purposes of
determining the aggregate amount of such additional Debt for
purposes of this subclause (y), neither the $30,000,000 of
8.375% mortgage notes of PG Energy maturing December 1, 2002
nor the Debt of the Borrower under the Term Loan Facility
shall be included, and such Debt outstanding under said 8.375%
mortgage notes of PG Energy and under the Term Loan Facility
shall be deemed to be permitted Debt for purposes of this
subclause (y), and (z) such additional Debt shall be borrowed
from a Bank or Banks as a loan or loans arising independent of
this Agreement or the Short-Term Credit Facility Agreement or
shall be borrowed from a financial institution that is not a
Bank under this Agreement or the Short-Term Credit Facility
Agreement; and
10.4 Loans, Advances and Investments. The Borrower will not, and will not
permit any Subsidiary to, make or have outstanding any loan or
advance to, or own or acquire any stock or securities of or equity
interest or other Investment in, any Person, except (without
duplication):
(a) stock of (i) the Subsidiaries named in Section 7.1; (ii) other
entities that are acquired by the Borrower or any Subsidiary
but that are promptly merged with and into the Borrower; and
(iii) the same Qualifying Entities as the Qualifying Entities
under subparagraph (ii) of the definition of "Qualifying
Assets," provided that at any one time the aggregate purchase
price paid for such stock in such Qualifying Entities,
including the aggregate amount of Debt assumed or deemed
incurred by Borrower in connection with the purchase of such
stock, is not more than ten percent (10%) of the Consolidated
Net Worth of the Borrower and its Subsidiaries as of the
applicable determination date;
(b) loans or advances to a Subsidiary;
(c) Securities maturing no more than 180 days after Borrower's
purchase that are either:
(i) readily marketable securities issued by the United
States or its agencies or instrumentalities; or
(ii) commercial paper rated "Prime 2" by Moody's Investors
Service, Inc. ("Moody's") or A-2 by Standard and Poor's
Ratings Group ("S&P"); or
(iii) certificates of deposit or repurchase contracts on
customary terms with financial institutions in which
deposits are insured by any agency or instrumentality of
the United States; or
(iv) readily marketable securities received in settlement of
liabilities created in the ordinary course of business;
or
(v) obligations of states, agencies, counties, cities and
other political subdivisions of any state rated at lest
MIG2, VMIG2 or Aa by Moody's or AA by S&P; or
--------------------------------------------------------------------------------
(vi) loan participations in credits in which the borrower's
debt is rated at least Aa or Prime 2 by Moody's or AA or
A-2 by S&P; or
(vii) money market mutual funds that are regulated by the
Securities and Exchange Commission, have a
dollar-weighted average stated maturity of 90 days or
fewer on their investments and include in their
investment objectives the maintenance of a stable net
asset value of $1 for each share.
(d) other equity interests owned by a Subsidiary on the date of
this Agreement and such additional equity interests to the
extent (but only to the extent) that such Subsidiary is
legally obligated to acquire those interests on the date of
this Agreement, in each case as disclosed to the Banks in
writing;
(e) loans or advances by the Borrower to customers in connection
with and pursuant to marketing and merchandising products that
the Borrower reasonably expects to increase sales of the
Borrower or Subsidiaries, provided that: (i) such loans must
be either less than $2,000,000.00 to any one customer (or
group of affiliated customers, shown on the Borrower's records
to be Affiliates) or must be disclosed on Schedule 9.2 hereof;
and (ii) all such loans must not exceed $24,000,000.00 in the
aggregate outstanding at any time;
(f) travel and expense advances in the ordinary course of business
to officers and employees;
(g) stock or securities of or equity interests in, any Person
provided that, after giving effect to the acquisition and
ownership thereof, the Borrower is in compliance with the
provisions of Section 10.1(c) of this Agreement; and
(h) loans, advances or other Investments by the Borrower or any
Subsidiary not otherwise permitted under the other provisions
of this Section 10.4, so long as the sum of the outstanding
balance of all of such loans and advances and the purchase
price paid for all of such other Investments does not exceed
in the aggregate seven percent (7%) of the Consolidated Net
Worth of the Borrower and its Subsidiaries as of the
applicable determination date.
10.5 Stock and Debt of Subsidiaries. The Borrower will not, and will not
permit any Subsidiary to, sell or otherwise dispose of any shares of
stock or Debt of any Subsidiary, or permit any Subsidiary to issue or
dispose of its stock (other than directors' qualifying shares),
except to the Borrower or another Subsidiary, and except that
Southern Union Trusts may issue preferred beneficial interests in
public offerings of Borrower's Structured Securities.
10.6 Merger, Consolidation, Etc. The Borrower will not, and will not
permit any Subsidiary to, merge or consolidate with any other Person
or sell, lease, transfer or otherwise dispose of (whether in one
transaction or a series of transactions) all or a substantial part of
its assets or acquire (whether in one transaction or a series of
transactions) all or a substantial part of the assets of any Person,
except that:
(a) any Subsidiary may merge or consolidate with the Borrower
(provided that the Borrower shall be the continuing or
surviving corporation) or with any one or more Subsidiaries;
(b) any Subsidiary may sell, lease, transfer or otherwise dispose
of any of its assets to the Borrower or another Subsidiary;
(c) subject to Section 10.14, Lavaca Realty Company may dispose of
all or a substantial part of its assets to any Person, whether
in one transaction or a series of transactions, for a price or
prices that do not result in a Material Adverse Effect;
(d) the Borrower may acquire the assets of any Person, provided
that, after giving effect to such acquisition, the Borrower is
in compliance with the provisions of Sections 10.1(c); and
--------------------------------------------------------------------------------
(e) the Borrower or any Subsidiary may sell, lease, assign or
otherwise dispose of assets as otherwise permitted under
Section 10.8.
10.7 Supply and Purchase Contracts. The Borrower will not, and will not
permit any Subsidiary to, enter into or be a party to any contract
for the purchase of materials, supplies or other property if such
contract requires that payment for such materials, supplies or other
property shall be made regardless of whether or not delivery is ever
made or tendered of such materials, supplies and other property,
except in those circumstances and involving those supply or purchase
contracts that the Borrower reasonably considers to be necessary or
helpful in its operations in the ordinary course of business and that
the Borrower reasonably considers not to be unnecessarily burdensome
on the Borrower or its Subsidiaries.
10.8 Sale or Other Disposition of Assets. The Borrower will not, and will
not permit any Subsidiary to, except as permitted under this Section
10.8, sell, assign, lease, or otherwise dispose of (whether in one
transaction or in a series of transactions) all or any part of its
Property (whether now owned or hereafter acquired); provided,
however, that (i) the Borrower or any Subsidiary may in the ordinary
course of business dispose of (a) Property consisting of Inventory;
and (b) Property consisting of goods or equipment that are, in the
opinion of the Borrower or any Subsidiary, obsolete or unproductive,
but if in the good faith judgment of the Borrower or any Subsidiary
such disposition without replacement thereof would have a Material
Adverse Effect, such goods and equipment shall be replaced, or their
utility and function substituted, by new or existing goods or
equipment; (ii) Lavaca Realty Company may dispose of its Property on
the terms set forth in Section 10.6(c); (iii) the Borrower may
transfer or dispose of any of its Significant Property (in any
transaction or series of transactions) to any Subsidiary or
Subsidiaries only if such Property so transferred or disposed of
after the Closing Date has an aggregate value (determined after
depreciation and in accordance with GAAP) of not more than ten
percent (10%) of the aggregate value of all of the Borrower's and its
Subsidiaries' real property and tangible personal property other than
Inventory considered on a consolidated basis and determined after
depreciation and in accordance with GAAP, as of March 31, 2001; (iv)
the Borrower and Lavaca Realty Company may dispose of their real
property in one or more sale/leaseback transactions, provided that
any Debt incurred in connection with such transaction does not create
a Default as defined herein; (v) a Southern Union Trust may
distribute the Borrower's subordinated debt securities constituting a
portion of the Structured Securities, on the terms and under the
conditions set out in the registration statement therefor filed with
the Securities and Exchange Commission on March 25, 1995 or any
similar registration statement filed with the Securities and Exchange
Commission in connection with any other Structured Securities issued
in connection with the Prior Acquisitions; (vi) the Borrower or any
Subsidiary may dispose of real property or tangible personal property
other than Inventory (in consideration of such amount as in the good
faith judgment of the Borrower or such Subsidiary represents a fair
consideration therefor), provided that the aggregate value of such
property disposed of (determined after depreciation and in accordance
with GAAP) after the Closing Date does not exceed ten percent (10%)
of the aggregate value of all of the Borrower's and its Subsidiaries'
real property and tangible personal property other than Inventory
considered on a consolidated basis and determined after depreciation
and in accordance with GAAP, as of March 31, 2001; (vii) the Borrower
may dispose of Qualifying Assets of the type described in clause (ii)
of the definition of Qualifying Assets, provided that the Borrower
make a payment on the Loan in an amount equal to the lesser of (a)
the net sales proceeds from such disposition, and (b) the amount of
Loan proceeds used to acquire such clause (ii) Qualifying Assets; and
(viii) the Borrower may dispose of other Investments of the type
acquired under the terms of Section 10.4(h), provided that the
Borrower make a payment on the Loan in an amount equal to the lesser
of (a) the net sales proceeds from such disposition, and (b) the
amount of Loan proceeds used to acquire such other Investments.
10.9 Discount or Sale of Receivables. The Borrower will not, and will not
permit any Subsidiary, other than Southern Union Total Energy
Services, Inc., to discount or sell with recourse, or sell for less
than the face value thereof (including any accrued interest) any of
its notes receivable, receivables under leases or other accounts
receivable.
10.10 Change in Accounting Method. The Borrower will not, and will not
permit any Subsidiary to, make any change in the method of computing
depreciation for either tax or book purposes or any other material
change in accounting method representing any departure from GAAP
without the Majority Banks' prior written approval.
--------------------------------------------------------------------------------
10.11 Restricted Payment. The Borrower will not pay or declare any
Restricted Payment unless immediately prior to such payment and after
giving effect to such payment, the Borrower could incur at least $1
of additional Debt without violating the provisions of Section
10.3(g) and after giving effect thereto no Default or Event of
Default exists hereunder.
10.12 Securities Credit Regulations. Neither the Borrower nor any
Subsidiary will take or permit any action which might cause the Loans
or the Facility Letter of Credit Obligations or this Agreement to
violate Regulation G, Regulation T, Regulation U, Regulation X or any
other regulation of the Board of Governors of the Federal Reserve
System or a violation of the Securities Exchange Act of 1934, in each
case as now or hereafter in effect.
10.13 Nature of Business; Management. The Borrower will not, and will not
permit any Subsidiary to: (a) change its principal line of business;
or (b) enter into any business not within the scope of Section 7.15
and the definition of Qualifying Assets; or (c) permit any material
overall change in the management of the Borrower.
10.14 Transactions with Related Parties. The Borrower will not, and will
not permit any Subsidiary to, enter into any transaction or agreement
with any officer, director or holder of ten percent (10%) or more of
any class of the outstanding capital stock of the Borrower or any
Subsidiary (or any Affiliate of any such Person) unless the same is
upon terms substantially similar to those obtainable from wholly
unrelated sources.
10.15 Hazardous Materials. The Borrower will not, and will not permit any
Subsidiary to (a) cause or permit any Hazardous Materials to be
placed, held, used, located, or disposed of on, under or at any of
such Person's property or any part thereof by any Person in a manner
which could reasonably be expected to have a Material Adverse Effect;
(b) cause or permit any part of any of such Person's property to be
used as a manufacturing, storage, treatment or disposal site for
Hazardous Materials, where such action could reasonably be expected
to have a Material Adverse Effect; or (c) cause or suffer any liens
to be recorded against any of such Person's property as a consequence
of, or in any way related to, the presence, remediation, or disposal
of Hazardous Materials in or about any of such Person's property,
including any so-called state, federal or local "superfund" lien
relating to such matters, where such recordation could reasonably be
expected to have a Material Adverse Effect.
10.16 Limitations on Payments on Subordinated Debt. The Borrower will not,
and will not permit any Subsidiary to, make any payment in respect of
interest on, principal of, or otherwise relating to, the borrower's
subordinated debt securities issued in connection with the Structured
Securities if, after giving effect to such payment, a Default or
Event of Default would exist.
11. EVENTS OF DEFAULT; REMEDIES
If any of the following events shall occur, then the Agent shall at the
request, or may with the consent, of the holders of more than fifty percent
(50%) in principal amount of the Notes then outstanding or, if no Note is
then outstanding, Banks having more than fifty percent (50%) of the
Commitments, (a) by notice to the Borrower, declare the Commitment of each
Bank and the several obligation of each Bank to make Loans hereunder to be
terminated, whereupon the same shall forthwith terminate, and (b) declare
the Notes and all interest accrued and unpaid thereon, and all other
amounts payable under the Notes, this agreement and the other Loan
Documents, to be forthwith due and payable, whereupon the Notes, all such
interest and all such other amounts, shall become and be forthwith due and
payable without presentment, demand, protest, or further notice of any kind
(including, without limitation, notice of default, notice of intent to
accelerate and notice of acceleration), all of which are hereby expressly
waived by the Borrower; provided, however, that with respect to any Event
of Default described in Sections 11.7 or 11.8 hereof, (i) the Commitment of
each Bank and the obligation of the Banks to make Loans shall automatically
be terminated and (ii) the entire unpaid principal amount of the Notes, all
interest accrued and unpaid thereon, and all such other amounts payable
under the Notes, this Agreement and the other Loan Documents, shall
automatically become immediately due and payable, without presentment
demand, protest, or any notice of any kind (including, without limitation,
notice of default, notice of intent to accelerate and notice of
acceleration), all of which are hereby expressly waived by the Borrower:
--------------------------------------------------------------------------------
11.1 Failure to Pay Principal or Interest. The Borrower does not pay,
repay or prepay any principal of or interest on any Note or any
Short-Term Credit Facility Note when due; or
11.2 Failure to Pay Commitment Fee or Other Amounts. The Borrower does not
pay any commitment fee or any other obligation or amount payable
under this Agreement, the Short-Term Credit Facility Agreement, the
Notes, the Short-Term Credit Facility Notes, or any Letter of Credit
Reimbursement Agreement within two (2) calendar days after the same
shall have become due; or
11.3 Failure to Pay Other Debt. The Borrower or any Subsidiary fails to
pay principal or interest aggregating more than $2,000,000.00 on any
other Debt when due and any related grace period has expired, or the
holder of any of such other Debt declares such Debt due prior to its
stated maturity because of the Borrower's or any Subsidiary's default
thereunder and the expiration of any related grace period; or
11.4 Misrepresentation or Breach of Warranty. Any representation or
warranty made by the Borrower herein or otherwise furnished to the
Bank in connection with this Agreement or any other Loan Document
shall be incorrect, false or misleading in any material respect when
made; or
11.5 Violation of Negative Covenants. The Borrower violates any covenant,
agreement or condition contained in Sections 10.2, 10.3, 10.5, 10.6,
10.9, 10.10, 10.11, or 10.15; or
11.6 Violation of Other Covenants, Etc. The Borrower violates any other
covenant, agreement or condition contained herein (other than the
covenants, agreements and conditions set forth or described in
Sections 11.1, 11.2, 11.3, 11.4, and 11.5 above) or in any other Loan
Document and such violation shall not have been remedied within (30)
days after written notice has been received by the Borrower from the
Bank or the holder of the Note; or
11.7 Bankruptcy and Other Matters. The Borrower or any Subsidiary (a)
makes an assignment for the benefit of creditors; or (b) admits in
writing its inability to pay its debts generally as they become due;
or (c) generally fails to pay its debts as they become due; or (d)
files a petition or answer seeking for itself, or consenting to or
acquiescing in, any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any
applicable Debtor Law (including, without limitation, the Federal
Bankruptcy Code); or (i) there is appointed a receiver, custodian,
liquidator, fiscal agent, or trustee of the Borrower or any
Subsidiary or of the whole or any substantial part of their
respective assets; or (ii) any court enters an order, judgment or
decree approving a petition filed against the Borrower or any
Subsidiary seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any
Debtor Law and either such order, decree or judgment so filed against
it is not dismissed or stayed (unless and until such stay is no
longer in effect) within thirty (30) days of entry thereof or an
order for relief is entered pursuant to any such law; or
11.8 Dissolution. Any order is entered in any proceeding against the
Borrower or any Subsidiary decreeing the dissolution, liquidation,
winding-up or split-up of the Borrower or such Subsidiary, and such
order remains in effect for thirty (30) days; or
11.9 Undischarged Judgment. Final Judgment or judgments in the aggregate,
that might be or give rise to Liens on any property of the Borrower
or any Subsidiary, for the payment of money in excess of
$1,000,000.00 shall be rendered against the Borrower or any
Subsidiary and the same shall remain undischarged for a period of
thirty (30) days during which execution shall not be effectively
stayed; or
11.10 Environmental Matters. The occurrence of any of the following events
that could result in liability to the Borrower or any Subsidiary
under any Environmental Law or the creation of a Lien on any property
of the Borrower or any Subsidiary in favor of any governmental
authority or any other Person for any liability under any
Environmental Law or for damages arising from costs incurred by such
Person in response to a Release or threatened Release of Hazardous
Materials into the environment if any such asserted liability or Lien
exceeds $10,000,000.00 and if any such lien would cover any property
of the Borrower or any Subsidiary which property is or would
reasonably be considered to be integral to the operations of the
Borrower or any Subsidiary in the ordinary course of business:
--------------------------------------------------------------------------------
(a) the Release of Hazardous Materials at, upon, under or within
the property owned or leased by the Borrower or any Subsidiary
or any contiguous property;
(b) the receipt by the Borrower or any Subsidiary of any summons,
claim, complaint, judgment, order or similar notice that it is
not in compliance with or that any governmental authority is
investigating its compliance with any Environmental Law;
(c) the receipt by the Borrower or any Subsidiary of any notice or
claim to the effect that it is or may be liable for the
Release or threatened Release of Hazardous Materials into the
environment; or
(d) any governmental authority incurs costs or expenses in
response to the Release of any Hazardous Material which
affects in any way the properties of the Borrower or any
Subsidiary.
11.11 Other Remedies. In addition to and cumulative of any rights or
remedies expressly provided for in this Section 11, if any one or
more Events of Default shall have occurred, the Agent shall at the
request, and may with the consent, of the Majority Banks proceed to
protect and enforce the rights of the Banks hereunder by any
appropriate proceedings. The Agent shall at the request, and may with
the consent, of the Majority Banks also proceed either by the
specific performance of any covenant or agreement contained in this
Agreement or by enforcing the payment of the Notes or by enforcing
any other legal or equitable right provided under this Agreement or
the Notes or otherwise existing under any law in favor of the holder
of the Notes.
11.12 Remedies Cumulative. No remedy, right or power conferred upon the
Banks is intended to be exclusive of any other remedy, right or power
given hereunder or now or hereafter existing at law, in equity, or
otherwise, and all such remedies, rights and powers shall be
cumulative.
11.13 Default under Term Loan Facility. The occurrence of an Event of
Default (as defined under the credit agreement evidencing the Term
Loan Facility) shall also constitute an Event of Default under this
Agreement.
12. THE AGENT
12.1 Authorization and Action. Each Bank hereby appoints Chase as its
Agent under and irrevocably authorizes the Agent (subject to Sections
12.1 and 12.7) to take such action as the Agent on its behalf and to
exercise such powers under this Agreement and the Notes as are
delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto. Without limitation of
the foregoing, each Bank expressly authorizes the Agent to execute,
deliver, and perform its obligations under this Agreement, and to
exercise all rights, powers, and remedies that the Agent may have
hereunder. 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 the Majority Banks,
and such instructions shall be binding upon all the Banks and all
holders of any Note; 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 this Agreement or applicable law.
The Agent agrees to give to each Bank prompt notice of each notice
given to it by the Borrower pursuant to the terms of this Agreement.
12.2 Agent's Reliance, Etc. Neither the Agent nor any of its directors,
officers, agents, or employees shall be liable to any Bank for any
action taken or omitted to be taken by it or them under or in
connection with this Agreement, the Notes and the other Loan
Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing,
the Agent: (a) may treat the original or any successor holder of any
Note as the holder thereof until the Agent receives notice from the
Bank which is the payee of such Note concerning the assignment of
such Note; (b) may employ and consult with legal counsel (including
counsel for the Borrower), independent public accountants, and other
experts selected by it and shall not be liable to any Bank for any
action taken, or omitted to be taken, in good faith by it or them in
accordance with the advice of such counsel, accountants, or experts
received in such
--------------------------------------------------------------------------------
consultations and shall not be liable for any negligence or
misconduct of any such counsel, accountants, or other experts; (c)
makes no warranty or representation to any Bank and shall not be
responsible to any Bank for any opinions, certifications, statements,
warranties, or representations made in or in connection with this
Agreement; (d) shall not have any duty to any Bank to ascertain or to
inquire as to the performance or observance of any of the terms,
covenants, or conditions of this Agreement or any other instrument or
document furnished pursuant thereto or to satisfy itself that all
conditions to and requirements for any Loan have been met or that the
Borrower is entitled to any Loan or to inspect the property
(including the books and records) of the Borrower or any Subsidiary;
(e) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, sufficiency, or
value of this Agreement or any other instrument or document furnished
pursuant thereto; and (f) shall incur no liability under or in
respect of this Agreement by acing upon any notice, consent,
certificate, or other instrument or writing (which may be by
telegram, cable, telex, or otherwise) believed by it to be genuine
and signed or sent by the proper party or parties.
12.3 Defaults. The Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the nonpayment of principal of or
interest hereunder or of any fees) unless the Agent has received
notice from a Bank or the Borrower specifying such Default and
stating that such notice is a Notice of Default. In the event that
the Agent receives such a notice of the occurrence of a Default, the
Agent shall give prompt notice thereof to the Banks (and shall give
each Bank prompt notice of each such nonpayment). The Agent shall
(subject to Section 12.7) take such action with respect to such
Default; provided that, unless and until the Agent shall have
received the directions referred to in Sections 12.1 or 12.7, the
Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it
shall deem advisable and in the best interest of the Banks.
12.4 Chase and Affiliates. With respect to its Commitment, any Loan made
by it, and the Note issued to it, Chase shall have the same rights
and powers under this Agreement as any other Bank and may exercise
the same as though it were not the Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include Chase in
its individual capacity. Chase and its respective Affiliates may
accept deposits from, lend money to, act as trustee under indentures
of, and generally engage in any kind of business with, the Borrower,
any of its respective Affiliates and any Person who may do business
with or own securities of the Borrower or any such Affiliate, all as
if Chase were not the Agent and without any duty to account therefor
to the Banks.
12.5 Non-Reliance on Agent and Other Banks. Each Bank agrees that it has,
independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and each
Subsidiary and its decision to enter into the transactions
contemplated by this Agreement and 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 analysis and decisions in taking or not
taking action under this Agreement. The Agent shall not be required
to keep itself informed as to the performance or observance by the
Borrower of this Agreement or to inspect the properties or books of
the Borrower or any Subsidiary. Except for notices, reports, and
other documents and information expressly required to be furnished to
the Banks by the Agent hereunder, the Agent shall not have any duty
or responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition, or business
of the Borrower or any Subsidiary (or any of their Affiliates) which
may come into the possession of the Agent or any of its Affiliates.
12.6 Indemnification. Notwithstanding anything to the contrary herein
contained, the Agent shall be fully justified in failing or refusing
to take any action hereunder unless it shall first be indemnified to
its satisfaction by the Banks against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, and 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 its taking or continuing to
take any action. Each Bank agrees to indemnify the Agent (to the
extent not reimbursed by the Borrower), according to such Bank's
Commitment, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs,
expenses, and 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 this Agreement or the Notes
or any action taken or omitted by the Agent under this Agreement or
the Notes; provided that no Bank shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, or disburse ments resulting from
the gross negligence or willful misconduct of the person being
indemnified; and provided further that it is the intention of each
Bank to indemnify the Agent against the consequences of the Agent's
own negligence, whether such negligence be sole, joint, concurrent,
active or passive. Without limitation of the foregoing, each Bank
agrees to reimburse the Agent promptly upon demand for its Pro Rata
Percentage of any out-of-pocket expenses (including attorneys' fees)
incurred by the Agent in connection with the preparation,
administration, or enforcement of, or legal advice in respect of
rights or responsibilities under, this Agreement and the Notes, to
the extent that the Agent is not reimbursed for such expenses by the
Borrower.
12.7 Successor Agent. The Agent may resign at any time as Agent under this
Agreement by giving written notice thereof to the Banks and the
Borrower 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 a successor Agent. If no
successor Agent shall have been so appointed by the Majority Banks or
shall have accepted such appointment within thirty (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
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 $500,000,000.00. Upon the acceptance of any
appointment as Agent hereunder 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 the
retiring Agent shall be discharged from its duties and obligations
under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Section 12 shall
inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under this Agreement.
12.8 Agent's Reliance. The Borrower shall notify the Agent in writing of
the names of its officers and employees authorized to request a Loan
on behalf of the Borrower and shall provide the Agent with a specimen
signature of each such officer or employee. The Agent shall be
entitled to rely conclusively on such officer's or employee's
authority to request a Loan on behalf of the Borrower until the Agent
receives written notice from the Borrower to the contrary. The Agent
shall have no duty to verify the authenticity of the signature
appearing on any Notice of Borrowing, and, with respect to any oral
request for a Loan, the Agent shall have no duty to verify the
identity of any Person representing himself as one of the officers or
employees authorized to make such request on behalf of the Borrower.
Neither the Agent nor any Bank shall incur any liability to the
Borrower in acting upon any telephonic notice referred to above which
the Agent or such Bank believes in good faith to have been given by a
duly authorized officer or other Person authorized to borrow on
behalf of the Borrower or for otherwise acting in good faith.
13. MISCELLANEOUS
13.1 Representation by the Banks. Each Bank represents that it is the
intention of such Bank, as of the date of its acquisition of its
Note, to acquire the Note for its account or for the account of its
Affiliates, and not with a view to the distribution or sale thereof,
and, subject to any applicable laws, the disposition of such Bank's
property shall at all times be within its control. The Notes have not
been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be transferred, sold or otherwise
disposed of except (a) in a registered Offering under the Securities
Act; (b) pursuant to an exemption from the registration provisions of
the Securities Act; or (c) if the Securities Act shall not apply to
the Notes or the transactions contemplated hereunder as commercial
lending transactions.
13.2 Amendments, Waivers, Etc. No amendment or waiver of any provision of
any Loan Document, nor con sent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Borrower and 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 each Bank, do any of the
--------------------------------------------------------------------------------
following: (a) waive any of the conditions specified in Section 8;
(b) increase the Commitment of any Bank or alter the term thereof, or
subject any Bank to any additional or extended obligations; (c)
change the principal of, or rate of interest on, any Note, or any
fees or other amounts payable hereunder; (d) postpone any date fixed
for any payment of principal of, or interest on, any Note, or any
fees (including, without limitation, any fee) or other amounts
payable hereunder; (e) change the percentage of the Commitments or of
the aggregate unpaid principal amount of any Note, or the number of
Banks which shall be required for Banks, or any of them, to take any
action hereunder; or (f) amend this Section 13.2; and provided,
further, that no amendment, waiver, or consent shall, unless in
writing and signed by the Agent in addition to each Bank, affect the
rights or duties of the Agent under any Loan Document. No failure or
delay on the part of any Bank or the Agent in exercising any power or
right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise of any such right or power, or any
abandonment or discon tinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise
of any other right or power. No course of dealing between the
Borrower and any Bank or the Agent shall operate as a waiver of any
right of any Bank or the Agent. No modification or waiver of any
provision of this Agreement or the Note nor consent to any departure
by the Borrower therefrom shall in any event be effective unless the
same shall be in writing, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which
given. No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
13.3 Reimbursement of Expenses. The Borrower agrees to reimburse the Bank
for its reasonable out-of- pocket expenses, including the reasonable
fees and expenses of counsel to the Bank, in connection with the
transactions contemplated by this Agreement, whether or not such
contemplated transactions shall be consummated, or any of them, or
otherwise in connection with this Agreement, including its
negotiation, preparation, execution, administration, modification and
enforcement, and all reasonable fees, including the reasonable fees
and expenses of counsel to the Agent and each Bank, costs and
expenses of the Agent for environmental consultants and costs and
expenses of the Agent and each Bank in connection with due diligence,
transportation, computer time and research and duplication. The
Borrower agrees to pay any and all stamp and other taxes which may be
payable or determined to be payable in connection with the execution
and delivery of this Agreement or the Notes, and to save any holder
of any Note harmless from any and all liabilities with respect to or
resulting from any delay or omission to pay any such taxes. The
obligations of the Borrower under this Section 13.3 shall survive the
termination of this Agreement and/or the payment of the Notes.
13.4 Notices. All notices and other communications provided for herein
shall be in writing (including telex, facsimile, or cable
communication) and shall be mailed, telecopied, telexed, cabled or
delivered addressed as follows:
(a) If to the Borrower, to it at: Southern Union Company
504 Lavaca, Suite 800
Austin, Texas 78701
Attention: Mr. Ronald J. Endres
Fax: (512) 370-8253
with copies to: Susan Westbrook, Esq.
Ms. Cheryl Yager
Southern Union Company
504 Lavaca, Suite 800
Austin, Texas 78701
Fax: (512) 370-8253
(b) If to the Agent, to it at: The Chase Manhattan Bank
700 Lavaca, 2nd Floor
Austin, Texas 78701
Attention: Manager/Commercial
Lending
Fax: (512) 479-2853
--------------------------------------------------------------------------------
with a copy to: Chase Securities Inc.
707 Travis Street, 8th Floor
Houston, Texas 77002
Attention: Gina Hardwick
Fax: (713) 216-2291
and if to any Bank, at the address specified below its name on the
signature pages hereof, or as to the Borrower or the Agent, to such
other address as shall be designated by such party in a written
notice to the other party and, as to each other party, at such other
address as shall be designated by such party in a written notice to
the Borrower and the Agent. All such notices and communications
shall, when mailed, telecopied, telexed, transmitted, or cabled,
become effective when deposited in the mail, confirmed by telex
answer back, transmitted to the telecopier, or delivered to the cable
company, except that notices and communications to the Agent under
Sections 2.1(c) or 2.2 shall not be effective until actually received
by the Agent.
13.5 Governing Law; Venue. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
AND THE UNITED STATES OF AMERICA; provided, however, that Chapter 346
-------- -------
of the Texas Finance Code, as amended, shall not apply to this
Agreement and the Notes issued hereunder. Travis County, Texas shall
be a proper place of venue to enforce payment or performance of this
Agreement and the other Loan Documents by the Borrower, unless the
Agent shall give its prior written consent to a different venue. The
Borrower hereby irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or
relating to any of the Loan Documents in the District Courts of
Travis County, Texas, or in the United States District Court for the
Western District of Texas, Austin Division, and hereby further
irrevocably waives any claims that any such suit, action or
proceeding brought in any such court has been brought in an
inconvenient forum. The Borrower hereby irrevocably agrees that,
provided that the Borrower can obtain personal jurisdiction over and
service of process upon the Agent or the applicable Bank, any legal
proceeding against the Agent or any Bank arising out of or in
connection with this Agreement or the other Loan Documents shall be
brought in the district courts of Travis County, Texas, or in the
United States District Court for the Western District of Texas,
Austin Division. Nothing contained in this Section or in any other
provision of any Loan Document (unless expressly provided otherwise)
shall be deemed or construed as an agreement by any Bank to be
subject to the jurisdiction of such courts.
13.6 Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants contained herein or made in
writing by the Borrower in connection herewith shall survive the
execution and delivery of this Agreement and the Notes, and will bind
and inure to the benefit of the respective successors and assigns of
the parties hereto, whether so expressed or not, provided that the
undertaking of the Banks to make the Loans to the Borrower shall not
inure to the benefit of any successor or assign of the Borrower. No
investigation at any time made by or on behalf of the Banks shall
diminish the Banks' rights to rely on any representations made herein
or in connection herewith. All statements contained in any
certificate or other written instrument delivered by the Borrower or
by any Person authorized by the Borrower under or pursuant to this
Agreement or in connection with the transactions contemplated hereby
shall constitute representations and warranties hereunder as of the
time made by the Borrower.
13.7 Counterparts. This Agreement may be executed in several counterparts,
and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an
original instrument and all such separate counterparts shall
constitute but one and the same instrument.
13.8 Separability. Should any clause, sentence, paragraph or section of
this Agreement be judicially declared to be invalid, unenforceable or
void, such decision shall not have the effect of invalidating or
voiding the remainder of this Agreement, and the parties hereto agree
that the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom
and the remainder will have the same force and effectiveness as if
such part or parts had never been included herein. Each covenant
contained in this Agreement shall be construed (absent an express
contrary provision herein)
--------------------------------------------------------------------------------
as being independent of each other covenant contained herein, and
compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with one or more
other covenants.
13.9 Descriptive Headings. The section headings in this Agreement have
been inserted for convenience only and shall be given no substantive
meaning or significance whatsoever in construing the terms and
provisions of this Agreement.
13.10 Accounting Terms. All accounting terms used herein which are not
expressly defined in the Agreement, or the respective meanings of
which are not otherwise qualified, shall have the respective meanings
given to them in accordance with GAAP.
13.11 Limitation of Liability. No claim may be made by the Borrower or any
other Person against the Agent or any Bank or the Affiliates,
directors, officers, employees, attorneys, or agents of the Agent or
any Bank for any special, indirect, consequential, or punitive
damages in respect to any claim for breach of contract arising out of
or related to the transactions contemplated by this Agreement, or any
act, omission, or event occurring in connection herewith and the
Borrower hereby waives, releases, and agrees not to sue upon any
claim for any such damages, whether or not accrued and whether or not
known or suspected to exist in its favor.
13.12 Set-Off. The Borrower hereby gives and confirms to each Bank a right
of set-off of all moneys, securities and other property of the
Borrower (whether special, general or limited) and the proceeds
thereof, now or hereafter delivered to remain with or in transit in
any manner to such Bank, its Affiliates, correspondents or agents
from or for the Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise or coming into possession of
such Bank, its Affiliates, correspondents or agents in any way, and
also, any balance of any deposit accounts and credits of the Borrower
with, and any and all claims of security for the payment of the Notes
and of all other liabilities and obligations now or hereafter owed by
the Borrower to such Bank, contracted with or acquired by such Bank,
whether such liabilities and obligations be joint, several, absolute,
contingent, secured, unsecured, matured or unmatured, and the
Borrower hereby authorizes each Bank, its Affiliates, correspondents
or agents at any time or times, without prior notice, to apply such
money, securities, other property, proceeds, balances, credits of
claims, or any part of the foregoing, to such liabilities in such
amounts as it may select, whether such liabilities be contingent,
unmatured or otherwise, and whether any collateral security therefor
is deemed adequate or not. The rights described herein shall be in
addition to any collateral security, if any, described in any
separate agreement executed by the Borrower.
13.13 Sale or Assignment
(a) Subject to the prior written consent of the Agent and the
Borrower, such consent not to be unreasonably withheld, each
Bank may assign to an Eligible Assignee all or a portion of
its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitments and
the Note held by it); provided, however, that: (i) each such
-------- -------
assignment shall be of a constant, and not a varying,
percentage of all of the assigning Banks rights and
obligations under this Agreement; (ii) the amount of the
Commitments so assigned shall equal or exceed $5,000,000.00;
(iii) the Commitment of each Bank shall be not less than
$5,000,000.00 (subject only to reductions pursuant to Sections
4.6 and 11 hereof); (iv) the parties to each such assignment
shall execute and deliver to the Agent, for its acceptance and
recording in the Register (as hereinafter defined), an
Assignment and Acceptance in the form of Exhibit C attached
---------
hereto and made a part hereof (the "Assignment and
Acceptance"), together with any Note subject to such
assignment and a processing and recordation fee of $2,000.00;
(v) any such assignment from one Bank to another Bank shall
not require the consent of the Agent or the Borrower if such
assignment does not result in any Bank holding more than 60%
of the aggregate outstanding Commitments; and (vi) any such
assignment shall not require the consent of the Borrower if a
Default or Event of Default shall have occurred and is then
continuing. Upon such execution, delivery, acceptance, and
recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be the
date on which such Assignment and Acceptance is accepted by
the Agent, (A) the Eligible Assignee
--------------------------------------------------------------------------------
thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights
and obligations of a Bank under the Loan Documents, and (B)
the Bank assignor thereunder shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to
such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Documents (and,
in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Bank's rights and
obligations under the Loan Documents, such Bank shall cease to
be a party thereto).
(b) By executing and delivering an Assignment and Acceptance, the
Bank assignor thereunder and the Eligible Assignee thereunder
confirm to and agree with each other and the other parties
hereto as follows: (i) other than as provided in such
Assignment and Acceptance, such assigning Bank makes no
representation or warranty and assumes no responsibility with
respect to any statements, warranties, or representations made
in or in connection with any Loan Document or the execution,
legality, validity, enforceability, genuineness, sufficiency,
or value of any Loan Document or any other instrument or
document furnished pursuant thereto; (ii) such assigning Bank
makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the
Borrower or any Subsidiary or the performance or observance by
the Borrower of any of its obligations under any Loan Document
or any other instrument or document furnished pursuant
thereto; (iii) such Eligible Assignee confirms that it has
received a copy of the Loan Documents, together with copies of
the financial statements referred to in Section 7.2 and such
other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such Eligible Assignee,
independently and without reliance upon the Agent, such
assigning Bank, or any Bank and based on such documents and
information as it shall deem appropriate at the time, will
continue to make its own credit decisions in taking or not
taking action under this Agreement; (v) such Eligible Assignee
appoints and authorizes the Agent to take such action as agent
on its behalf and to exercise such powers under any Loan
Document as are delegated to the Agent by the terms thereof,
together with such powers as are reasonably incidental
thereto; and (vi) such Eligible Assignee agrees that it will
perform in accordance with their terms all of the obligations
which by the terms of any Loan Document are required to be
performed by it as a Bank.
(c) The Agent shall maintain at its address referred to in Section
13.4 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names
and addresses of Banks and the Commitment of, and principal
amount of the Loans owing to, each Bank from time to time (the
"Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the
Borrower, the Agent, and Banks may treat each Person whose
name is recorded in the Register as Bank hereunder for all
purposes of the Loan Documents. The Register shall be
available for inspection by the Borrower or any Bank at any
reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of an Assignment and Acceptance executed by
an assigning Bank, together with any Note subject to such
assignment, the Agent, if such Assignment and Acceptance has
been completed and is in substantially the form of Exhibit C,
---------
shall (i) accept such Assignment and Acceptance; (ii) record
the information contained therein in the Register; and (iii)
give prompt notice thereof to the Borrower. Within three (3)
Business Days after its receipt of such notice, the Borrower
at its own expense, shall execute and deliver to the Agent in
exchange for each surrendered Note a new Note to the order of
such Eligible Assignee in an amount equal to the Commitment
assumed by it pursuant to such Assignment and Acceptance and,
if the assigning Bank has retained a Commitment hereunder, a
new Note to the order of the assigning Bank in an amount equal
to the Commitment retained by it hereunder. The new Notes
shall be in an aggregate principal amount equal to the
aggregate principal amount of the surrendered Notes, shall be
dated the effective date of such Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit C
---------
attached hereto and made a part hereof. Upon receipt by the
Agent of each such new Note conforming to the requirements set
forth in the preceding sentences, the Agent shall return to
the Borrower each such surrendered Note marked to show that
each such surrendered Note has been replaced, renewed, and
extended by such new Note.
--------------------------------------------------------------------------------
(e) Each Bank may sell participations to one or more banks or
other entities in or to all or a portion of its rights and/or
obligations under this Agreement (including, without
limitation, all or a portion of its Commitment and the Note
held by it); provided, however, that (i) each Bank's
-------- -------
obligations under this Agreement (including, without
limitation, its Commitment to the Borrower hereunder) shall
remain unchanged; (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of
such obligations; (iii) except as provided below, such Bank
shall remain the holder of any such Note for all purposes of
this Agreement; and (iv) the participating banks or other
entities shall be entitled to the benefits of Sections 2.3 and
4.6 to recover costs, losses and expenses in the
circumstances, and to the extent provided in Section 2.3, as
though such participant were a Bank; provided, however, the
-------- -------
amounts to which a participant shall be entitled to obtain
pursuant to Sections 2.3 and 4.6 shall be determined by
reference to such participant's selling Bank and shall be
recoverable solely from such selling Bank and (v) the
Borrower, the Agent and the other Banks shall continue to deal
solely and directly with the selling Bank in connection with
such Bank's rights and obligations under this Agreement and
the other Loan Documents; provided, however, the selling Bank
-------- -------
may grant a participant rights with respect to amendments,
modification or waivers with respect to any fees payable
hereunder to such Bank (including the amount and the dates
fixed for the payment of any such fees) or the amount of
principal or the rate of interest payable on, the dates fixed
for any payment of principal or interest on, the Loans, or the
release of any obligations of the Borrower hereunder and under
the other Loan Documents, or the release of any security for
any of the Obligations. Except with respect to cost
protections contained in Sections 2.3 and 4.6, no participant
shall be a third party beneficiary of this Agreement and shall
not be entitled to enforce any rights provided to its selling
Bank against the Company under this Agreement.
(f) Notwithstanding anything herein to the contrary, each Bank may
pledge and assign all or any portion of its rights and
interests under the Loan Documents to any Federal Reserve
Bank.
13.14 Non U.S. Banks. Prior to the date of the initial Borrowings
hereunder, and from time to time thereafter if requested by the
Borrower or the Agent, each Bank organized under the laws of a
jurisdiction outside the United States of America shall provide the
Agent and the Borrower with the forms prescribed by the Internal
Revenue Service of the United States of America certifying such Banks
exemption from United States withholding taxes with respect to all
payments to be made to such Bank hereunder or under such Bank's Note.
Unless the Borrower and the Agent have received forms or other
documents satisfactory to them indicating that payments hereunder or
under such Bank's Note are not subject to United States withholding
tax or are subject to such tax at a rate reduced by an applicable tax
treaty, the Borrower or the Agent shall withhold taxes from such
payments at the applicable statutory rate in the case of payments to
or for any Bank organized under the laws of a jurisdiction outside
the United States.
13.15 Interest. All agreements between the Borrower, the Agent or any Bank,
whether now existing or hereafter arising and whether written or
oral, are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of demand being made on any Note or
otherwise, shall the amount paid, or agreed to be paid, to the Agent
or any Bank for the use, forbearance, or detention of the money to be
loaned under this Agreement or otherwise or for the payment or
performance of any covenant or obligation contained herein or in any
document related hereto exceed the amount permissible at the Highest
Lawful Rate. If, as a result of any circumstances whatsoever,
fulfillment of any provision hereof or of any of such documents, at
the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by applicable usury
law, then, ipso facto, the obligation to be filled shall be reduced
to the limit of such validity, and if, from any such circumstance,
the Agent or any Bank shall ever receive interest or anything which
might be deemed interest under applicable law which would exceed the
amount permissible at the Highest Lawful Rate, such amount which
would be excessive interest shall be applied to the reduction of the
principal amount owing on account of the Notes or the amounts owing
on other obligations of the Borrower to the Agent or any Bank under
this Agreement or any document related hereto and not to the payment
of interest, or if such excessive interest exceeds the unpaid
principal balance of the Notes and the amounts owing on other
obligations of the Borrower to the Agent or any Bank under this
Agreement or any document related hereto, as the case may be, such
excess shall be refunded to the Borrower. All sums paid or agreed to
be paid to the Agent or any Bank for the use, forbearance, or
detention of the indebtedness of the Borrower to the Agent or any
Bank shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term of such
indebtedness
--------------------------------------------------------------------------------
until payment in full of the principal thereof (Including the period
of any renewal or extension thereof) so that the interest on account
of such indebtedness shall not exceed the Highest Lawful Rate. The
terms and provisions of this Section 13.15 shall control and
supersede every other provision of all agreements between the
Borrower and the Banks.
13.16 Indemnification. THE BORROWER AGREES TO INDEMNIFY, DEFEND, AND SAVE
HARMLESS THE AGENT, EACH BANK AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, AND ATTORNEYS, AND EACH OF THEM (THE
"INDEMNIFIED PARTIES"), FROM AND AGAINST ALL CLAIMS, ACTIONS, SUITS,
AND OTHER LEGAL PROCEEDINGS, DAMAGES, COSTS, IN TEREST, CHARGES,
TAXES, COUNSEL FEES, AND OTHER EXPENSES AND PENALTIES (INCLUDING
WITHOUT LIMITATION ALL ATTORNEY FEES AND COSTS OR EXPENSES OF SET
TLEMENT) WHICH ANY OF THE INDEMNIFIED PARTIES MAY SUSTAIN OR INCUR BY
REASON OF OR ARISING OUT OF (a) THE MAKING OF ANY LOAN HEREUNDER, THE
EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE NOTES AND THE
CONSUMMATION OF THE TRANS ACTIONS CONTEMPLATED THEREBY AND THE
EXERCISE OF ANY OF THE BANKS' RIGHTS UNDER THIS AGREEMENT AND THE
NOTES OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, DAMAGES, COSTS,
AND EXPENSES INCURRED BY ANY OF THE INDEMNIFIED PARTIES IN
INVESTIGATING, PREPARING FOR, DEFENDING AGAINST, OR PROVIDING
EVIDENCE, PRO DUCING DOCUMENTS, OR TAKING ANY OTHER ACTION IN RESPECT
OF ANY COMMENCED OR THREATENED LITIGATION UNDER ANY FEDERAL
SECURITIES LAW OR ANY SIMILAR LAW OF ANY JURISDICTION OR AT COMMON
LAW OR (b) ANY AND ALL CLAIMS OR PROCEEDINGS (WHETHER BROUGHT BY A
PRIVATE PARTY, GOVERNMENTAL AUTHORITY OR OTHERWISE) FOR BODILY
INJURY, PROPERTY DAMAGE, ABATEMENT, REMEDIATION, ENVIRONMENTAL
DAMAGE, OR IMPAIRMENT OR ANY OTHER INJURY OR DAMAGE RESULTING FROM OR
RE LATING TO THE RELEASE OF ANY HAZARDOUS MATERIALS LOCATED UPON,
MIGRATING INTO, FROM, OR THROUGH OR OTHERWISE RELATING TO ANY
PROPERTY OWNED OR LEASED BY THE BORROWER OR ANY SUBSIDIARY (WHETHER
OR NOT THE RELEASE OF SUCH HAZARD OUS MATERIALS WAS CAUSED BY THE
BORROWER, ANY SUBSIDIARY, A TENANT, OR SUB TENANT OF THE BORROWER OR
ANY SUBSIDIARY, A PRIOR OWNER, A TENANT, OR SUBTENANT OF ANY PRIOR
OWNER OR ANY OTHER PARTY AND WHETHER OR NOT THE ALLEGED LIABILITY IS
ATTRIBUTABLE TO THE HANDLING, STORAGE, GENERATION, TRANS PORTATION,
OR DISPOSAL OF ANY HAZARDOUS MATERIALS OR THE MERE PRESENCE OF ANY
HAZARDOUS MATERIALS ON SUCH PROPERTY; PROVIDED THAT THE BORROWER
SHALL NOT BE LIABLE TO THE INDEMNIFIED PARTIES WHERE THE RELEASE OF
SUCH HAZARDOUS MATERIALS OCCURS AT ANY TIME AT WHICH THE BORROWER OR
ANY SUBSIDIARY CEASES TO OWN OR LEASE SUCH PROPERTY); AND PROVIDED
FURTHER THAT NO INDEMNIFIED PARTY SHALL BE ENTITLED TO THE BENEFITS
OF THIS SECTION 13.16 TO THE EXTENT ITS OWN GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT CONTRIBUTED TO ITS LOSS; AND PROVIDED FURTHER THAT
IT IS THE INTENTION OF THE BORROWER TO INDEMNIFY THE INDEMNIFIED
PARTIES AGAINST THE CONSEQUENCES OF THEIR OWN NEGLIGENCE. THIS
AGREEMENT IS INTENDED TO PROTECT AND INDEMNIFY THE INDEMNIFIED
PARTIES AGAINST ALL RISKS HEREBY ASSUMED BY THE BORROWER. FOR
PURPOSES OF THE FOREGOING SECTION 13.16, THE PHRASE "CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED THEREBY" SET FORTH IN SUBPARAGRAPH (a)
ABOVE SHALL INCLUDE, BUT NOT BE LIMITED TO, THE FINANCING OF ANY
CORPORATE TAKEOVER PERMITTED HEREUNDER AND THE BORROWER'S USE OF THE
LOAN PROCEEDS FOR THE PURPOSE OF ACQUIRING ANY EQUITY INTERESTS
DESCRIBED IN SUBPARAGRAPH (ii) OF THE DEFINITION OF "QUALIFYING
ASSETS" SET FORTH IN THIS AGREEMENT (AS AMENDED). THE OBLIGATIONS OF
THE BORROWER UNDER THIS SECTION 13.16 SHALL SURVIVE ANY TERMINATION
OF THIS AGREEMENT AND THE REPAYMENT OF THE NOTES.
13.17 Payments Set Aside. To the extent that the Borrower makes a payment
or payments to the Agent or any Bank or the Agent or any Bank
exercises its right of set off, and such payment or payments or the
proceeds of such set off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other
Person under any
--------------------------------------------------------------------------------
Debtor Law or equitable cause, then, to the extent of such recovery,
the obligation or part thereof originally intended to be satisfied,
and all rights and remedies therefor, shall be revived and shall
continue in full force and effect as if such payment had not been
made or set off had not occurred.
13.18 Loan Agreement Controls. If there are any conflicts or
inconsistencies among this Agreement and any other document executed
in connection with the transactions connected herewith, the
provisions of this Agreement shall prevail and control.
13.19 Obligations Several. The obligations of each Bank under this
Agreement and the Note to which it is a party are several, and no
Bank shall be responsible for any obligation or Commitment of any
other Bank under this Agreement and the Note to which it is a party.
Nothing contained in this Agreement or the Note to which it is a
party, and no action taken by any Bank pursuant thereto, shall be
deemed to constitute the Banks to be a partnership, an association, a
joint venture, or any other kind of entity.
13.20 Pro Rata Treatment. All Loans under, and all payments and other
amounts received in connection with this Agreement (including,
without limitation, amounts received as a result of the exercise by
any Bank of any right of set off) shall be effectively shared by the
Banks ratably in accordance with the respective Pro Rata Percentages
of the Banks. If any Bank shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set off,
or otherwise) on account of the principal of, or interest on, or fees
in respect of, any Note held by it (other than pursuant to Section
2.3(d)) in excess of its Pro Rata Percentage of payments on account
of similar Notes obtained by all the Banks, such Bank shall forthwith
purchase from the other Banks such participations in the Notes or
Loans made by 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 recovery
together with an amount equal to such Bank's ratable share (according
to the proportion of (a) the amount of such Bank's required repayment
to (b) 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. Disproportionate payments
of interest shall be shared by the purchase of separate
participations in unpaid interest obligations, disproportionate
payments of fees shall be shared by the purchase of separate
participations in unpaid fee obligations, and disproportionate
payments of principal shall be shared by the purchase of separate
participations in unpaid principal obligations. The Borrower agrees
that any Bank so purchasing a participation from another Bank
pursuant to this Section 13.20 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 the Borrower in the amount of such
participation. Notwith standing the foregoing, a Bank may receive and
retain an amount in excess of its Pro Rata Percentage to the extent
but only to the extent, that such excess results from such Bank's
Highest Lawful Rate exceeding another Bank's Highest Lawful Rate.
13.21 No Rights, Duties or Obligations of Co-Syndication Agent or
Co-Documentation Agent. The Borrower, the Agent and each Bank
acknowledge and agree that except for the rights, powers, obligations
and liabilities under this Agreement and the other Loan Documents as
a Bank, Bank One, NA and Fleet National Bank, as Co-Syndication
Agents, and First Union National Bank, as a Co-Documentation Agents,
shall have no additional rights, powers, obligations or liabilities
under this Agreement or any other Loan Documents in their capacities
as Co-Syndication Agents or as a Co-Documentation Agent,
respectively. The Mizuho Financial Group shall have no rights,
powers, obligations or liabilities under this Agreement or any other
Loan Documents in its capacity as a Co-Documentation Agent.
13.22 Final Agreement. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT'S OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
13.23 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO
A TRIAL BY JURY IN ANY LEGAL
--------------------------------------------------------------------------------
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
--------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto, by their respective officers thereunto
duly authorized, have executed this Agreement on the dates set forth below to be
effective as of May 29, 2001.
SOUTHERN UNION COMPANY
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Commitment: THE CHASE MANHATTAN BANK,
$19,200,000 for itself and as Agent for the Banks
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Commitment : BANK ONE, NA
$19,200,000
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
Bank One, NA
1 Bank One Plaza, Suite IL1-0363
Chicago, Illinois 60670
Attention: Ken Fecko
Fax No.: (312) 732-3055
Commitment: FIRST UNION NATIONAL BANK
$19,200,000
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
First Union National Bank
301 S. College Street
Charlotte, North Carolina 28288-0735
Attention: Mitch Wilson
Fax No.: (704) 383-7611
--------------------------------------------------------------------------------
Commitment: FLEET NATIONAL BANK
$19,200,000
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
Address for Notices:
Fleet National Bank
100 Federal Street
Boston, Massachusetts 02110
Attention: Stephen Hoffman
Fax No.: (617) 434-3652
Commitment: THE FUJI BANK, LIMITED
$13,680,000
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
The Fuji Bank, Limited
1221 McKinney Street, Suite 4100
Houston, Texas 77010
Attention: Kim Wood
Fax No.: (713) 759-0048
Separate Domestic and Eurodollar Lending Office:
The Fuji Bank, Limited
Two World Trade Center, 79th Floor
New York, New York 10048-0042
--------------------------------------------------------------------------------
Commitment: THE INDUSTRIAL BANK OF JAPAN
$5,520,000 TRUST COMPANY
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
The Industrial Bank of Japan Trust Company
Three Allen Center, Suite 3030
333 Clay Street
Houston, Texas 77002
Attention: Lynn Williford
Fax No.: (713) 651-9209
Separate Domestic and Eurodollar Lending Office:
The Industrial Bank of Japan Trust Company
1251 Avenue of the Americas
New York, New York 10020
Commitment: CREDIT LYONNAIS NEW YORK BRANCH
$15,000,000
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
Credit Lyonnais New York Branch
1000 Louisiana, Suite 5360
Houston, Texas 77002
Attention: Darrell Stanley
Fax No.: (713) 751-0307
Separate Domestic and Eurodollar Lending Office:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
--------------------------------------------------------------------------------
Commitment: THE BANK OF TOKYO-MITSUBISHI, LTD.
$13,800,000
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
The Bank of Tokyo-Mitsubishi, Ltd.
1100 Louisiana Street, Suite 2800
Houston, Texas 77002
Attention: Iris Munoz
Fax No.: (713) 655-3855
Commitment: FIRSTAR BANK, N.A.
$13,800,000
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
Firstar Bank, N.A.
One Firstar Plaza, 12th Floor
St. Louis, Missouri 63101
Attention: Greg Dryden
Fax No.: (314) 418-2203
Commitment: NATIONAL AUSTRALIA BANK LIMITED,
$13,800,000 A.C.N. 004044937
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
National Australia Bank Limited
200 Park Avenue, 34th Floor
New York, New York 10166
Attention: Frank Campiglia
Fax No.: (212) 983-1969
--------------------------------------------------------------------------------
Commitment: THE NORINCHUKIN BANK,
$13,800,000 NEW YORK BRANCH
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
The Norinchukin Bank, New York Branch
245 Park Avenue, 29th Floor
New York, New York 10167
Attention: Keisuke Ishii
Fax No.: (212) 697-5754
Commitment: CITIZENS BANK OF RHODE ISLAND
$11,400,000
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
Citizens Bank of Rhode Island
One Citizens Plaza, Mail Stop RC 0480
Providence, Rhode Island 02903
Attention: Marian L. Barrette
Fax No.: (401) 455-5404
Commitment: WESTDEUTSCHE LANDESBANK
$11,400,000 GIROZENTRALE, NEW YORK BRANCH
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
Westdeutsche Landesbank Girozentrale,
New York Branch
1211 Avenues of the Americas
New York, New York 10036
Attention: Anthony Alessandro
Fax No.: (212) 852-6148
--------------------------------------------------------------------------------
Commitment: KBC BANK N.V.
$9,000,000
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
KBC Bank N.V.
Atlantic Representative Office
245 Peachtree Center Avenue, Suite 2550
Atlanta, Georgia 30303
Attention: Filip Ferrante
Fax No.: (404) 584-5466
Separate Domestic and Eurodollar Lending Office:
KBC Bank N.V.
New York Branch
125 West 55th Street
New York, New York 10019
Commitment: UMB BANK, N.A.
$9,000,000
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
UMB Bank, N.A.
1010 Grand Boulevard
Kansas City, Missouri 64106
Attention: David Proffitt
Fax No.: (816) 860-7143
Commitment: SUNTRUST BANK
$9,000,000
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
SunTrust Bank
303 Peachtree Street NE, 3rd Floor, M.C. 1929
Atlanta, Georgia 30308
Attention: Linda Stanley
Fax No.: (404) 827-6270
--------------------------------------------------------------------------------
Commitment: WELLS FARGO BANK TEXAS,
$9,000,000 NATIONAL ASSOCIATION
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
Address for Notices:
Wells Fargo Bank Texas, National Association
1000 Louisiana, 3rd Floor - Energy Department
Houston, Texas 77002
Attention: Alan Smith
Fax No.: (713) 739-1087
Separate Domestic and Eurodollar Lending Office:
Wells Fargo Bank Loan Center
1740 Broadway
Denver, Colorado 80274
--------------------------------------------------------------------------------
EXHIBIT A
REVOLVING NOTE
(Long-Term Credit Facility)
$___________ ____________, 200__
FOR VALUE RECEIVED, the undersigned, SOUTHERN UNION COMPANY, a corporation
organized under the laws of Delaware (the "Borrower"), HEREBY PROMISES TO PAY
to the order of (the "Bank"), on or before _______________________ (the
"Maturity Date"), the principal sum of ________________ Million and No/100ths
Dollars ($_,000,000.00) in accordance with the terms and provisions of that
certain Second Amended and Restated Revolving Credit Agreement (Long-Term Credit
Facility) dated May 29, 2001, by and among the Borrower, the Bank, the other
banks named on the signature pages thereof, and THE CHASE MANHATTAN, as Agent
(the "Credit Agreement"). Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to such terms in the Credit Agreement.
The outstanding principal balance of this Revolving Note shall be payable at the
Maturity Date. The Borrower promises to pay interest on the unpaid principal
balance of this Revolving Note from the date of any Loan evidenced by this
Revolving Note until the principal balance thereof is paid in full. Interest
shall accrue on the outstanding principal balance of this Revolving Note from
and including the date of any Loan evidenced by this Revolving Note to but not
including the Maturity Date at the rate or rates, and shall be due and payable
on the dates, set forth in the Credit Agreement. Any amount not paid when due
with respect to principal (whether at stated maturity, by acceleration or
otherwise), costs or expenses, or, to the extent permitted by applicable law,
interest, shall bear interest from the date when due to and excluding the date
the same is paid in full, payable on demand, at the rate provided for in Section
2.2(b) of the Credit Agreement.
Payments of principal and interest, and all amounts due with respect to costs
and expenses, shall be made in lawful money of the United States of America in
immediately available funds, without deduction, set off or counterclaim to the
account of the Agent at the principal office of The Chase Manhattan Bank in
Houston, Texas (or such other address as the Agent under the Credit Agreement
may specify) not later than noon (Houston time) on the dates on which such
payments shall become due pursuant to the terms and provisions set forth in the
Credit Agreement.
If any payment of interest or principal herein provided for is not paid when
due, then the owner or holder of this Revolving Note may at its option, by
notice to the Borrower, declare the unpaid, principal balance of this Revolving
Note, all accrued and unpaid interest thereon and all other amounts payable
under this Revolving Note to be forthwith due and payable, whereupon this
Revolving Note, all such interest and all such amounts shall become and be
forthwith due and payable in full, without presentment, demand, protest, notice
of intent to accelerate, notice of actual acceleration or further notice of any
kind, all of which are hereby expressly waived by the Borrower.
If any payment of principal or interest on this Revolving Note shall become due
on a Saturday, Sunday, or public holiday on which the Agent is not open for
business, such payment shall be made on the next succeeding Business Day and
such extension of time shall in such case be included in computing interest in
connection with such payment.
In addition to all principal and accrued interest on this Revolving Note, the
Borrower agrees to pay (a) all reasonable costs and expenses incurred by the
Agent and all owners and holders of this Revolving Note in collecting this
Revolving Note through any probate, reorganization bankruptcy or any other
proceeding and (b) reasonable attorneys' fees when and if this Revolving Note is
placed in the hands of an attorney for collection after default.
All agreements between the Borrower and the Bank, whether now existing or
hereafter arising and whether written or oral, are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of demand being
made on this Revolving Note or otherwise, shall the amount paid, or agreed to be
paid, to the Bank for the use, forbearance, or detention of the money to be
loaned under the Credit Agreement and evidenced by this Revolving Note or
otherwise or for the payment or performance of any covenant or obligation
contained in the Credit Agreement or this Revolving Note exceed the amount
permissible at Highest Lawful Rate. If as a result of any circumstances
whatsoever, fulfillment of any provision hereof or of the Credit Agreement at
the time performance of such provision
--------------------------------------------------------------------------------
shall be due, shall involve transcending the limit of validity prescribed by
applicable usury law, then, ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any such circumstance, the
Bank shall ever receive interest or anything which might be deemed interest
under applicable law which would exceed the amount permissible at the Highest
Lawful Rate, such amount which would be excessive interest shall be applied to
the reduction of the principal amount owing on account of this Revolving Note or
the amounts owing on other obligations of the Borrower to the Bank under the
Credit Agreement and not to the payment of interest, or if such excessive
interest exceeds the unpaid principal balance of this Revolving Note and the
amounts owing on other obligations of the Borrower to the Bank under the Credit
Agreement, as the case may be, such excess shall be refunded to the Borrower. In
determining whether or not the interest paid or payable under any specific
contingencies exceeds the Highest Lawful Rate, the Borrower and the Bank shall,
to the maximum extent permitted under applicable law, (a) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest; (b)
exclude voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate and spread in equal parts during the period of the full stated
term of this Revolving Note, all interest at any time contracted for, charged,
received or reserved in connection with the indebtedness evidenced by this
Revolving Note.
This Revolving Note is one of the Notes provided for in, and is entitled to the
benefits of, the Credit Agreement, which Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events, for prepayments on account of principal hereof prior
to the maturity hereof upon the terms and conditions and with the effect therein
specified, and provisions to the effect that no provision of the Credit
Agreement or this Revolving Note shall require the payment or permit the
collection of interest in excess of the Highest Lawful Rate. It is contemplated
that by reason of prepayments or repayments hereon prior to the Maturity Date,
there may be times when no indebtedness is owing hereunder prior to such date;
but notwithstanding such occurrence this Revolving Note shall remain valid and
shall be in full force and effect as to Loans made pursuant to the Credit
Agreement subsequent to each such occurrence.
Except as otherwise specifically provided for in the Credit Agreement, the
Borrower and any and all endorsers, guarantors and sureties severally waive
grace, demand, presentment for payment, notice of dishonor or default, protest,
notice of protest, notice of intent to accelerate, notice of acceleration and
diligence in collecting and bringing of suit against any party hereto, and agree
to all renewals, extensions or partial payments hereon and to any release or
substitution of security hereof, in whole or in part, with or without notice,
before or after maturity.
THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW.
IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be executed
and delivered by its officer thereunto duly authorized effective as of the date
first above written.
SOUTHERN UNION COMPANY
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
--------------------------------------------------------------------------------
EXHIBIT B
NOTICE OF BORROWING
(Long-Term Credit Facility)
The undersigned hereby certifies that s/he is an officer of SOUTHERN UNION
COMPANY, a corporation organized under the laws of Delaware (the "Borrower"),
authorized to execute this Notice of Borrowing on behalf of the Borrower. With
reference to that certain Second Amended and Restated Revolving Credit Agreement
(Long-Term Credit Facility) dated May 29, 2001 (as same may be amended,
modified, increased, supplemented and/or restated from time to time, the "Credit
Agreement") entered into by and between the Borrower, THE CHASE MANHATTAN BANK,
as Agent, and the Banks identified therein, the undersigned further certifies,
represents and warrants to Banks on behalf of the Borrower that to his best
knowledge and belief after reasonable and due investigation and review, all of
the following statements are true and correct (each capitalized term used herein
having the same meaning given to it in the Credit Agreement unless otherwise
specified):
(a) Borrower requests that the Banks advance to the Borrower the aggregate sum
of $__________by no later than ____________, 200__ (the "Borrowing Date").
Immediately following such Loan, the aggregate outstanding balance of Loans
shall equal $__________. Borrower requests that the Loans bear interest as
follows:
(i) The principal amount of the Loans, if any, which shall bear interest
at the Alternate Base Rate requested to be made by the Banks is
$________. The initial Rate Period for such Loans shall be 90 days.
(ii) The principal amount of the Loans, if any, which shall bear interest
at the Eurodollar Rate for which the Rate Period shall be fifteen
days requested to be made by the Banks is $________________.
(iii) The principal amount of the Loans, if any, which shall bear interest
at the Eurodollar Rate for which the Rate Period shall be one month
requested to be made by the Banks is $__________.
(iv) The principal amount of the Loans, if any, which shall bear interest
at the Eurodollar Rate for which the Rate Period shall be two months
requested to be made by the Banks is $_________.
(v) The principal amount of the Revolving Loans, if any, which shall bear
interest at the Eurodollar Rate for which the Rate Period shall be
three months requested to be made by the Banks is $_________.
(vi) The principal amount of the Revolving Loans, if any, which shall bear
interest at the Eurodollar Rate for which the Rate Period shall be
six months requested to be made by the Banks is $__________.
(b) The proceeds of the borrowing shall be deposited into Borrower's demand
deposit account at The Chase Manhattan Bank more fully described as
follows:
Account No. 09916100522, styled Southern Union Company.
(c) Of the aggregate sum to be advanced, $_____________ will be advanced to
provide working capital pursuant to Section 6.1(a) of the Credit Agreement
and $__________will be advanced for the purposes set forth in Section
6.1(b) of the Credit Agreement; and $__________ will be advanced for the
purposes set forth in Section 6.1(c) of the Credit Agreement; and
$___________ will be advanced for the purposes of replacing Loans currently
outstanding under the Credit Agreement.
(d) The Expiration Date of each Rate Period specified in (a) above shall be the
last day of such Rate Period.
(e) As of the date hereof, and as a result of the making of the requested
Loans, there does not and will not exist any Default or Event of Default.
--------------------------------------------------------------------------------
(f) The representations and warranties contained in Section 7 of the Credit
Agreement are true and correct in all material respects as of the date
hereof and shall be true and correct upon the making of the requested Loan,
with the same force and effect as though made on and as of the date hereof
and thereof.
(g) No change that would cause a material adverse effect on the business,
operations or condition (financial or otherwise) of the Borrower has
occurred since the date of the most recent financial statements provided to
the Banks dated as of , 200 .
EXECUTED AND DELIVERED this _____ day of _______________, 200__.
SOUTHERN UNION COMPANY
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
--------------------------------------------------------------------------------
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
[NAME AND ADDRESS OF ASSIGNING BANK]
_______________, 200__
------------------
------------------
------------------
------------------
Re: Southern Union Company Amended and Restated Revolving Credit Agreement
(Long-Term Credit Facility)
Ladies and Gentlemen:
We have entered into a Second Amended and Restated Revolving Credit Agreement
(Long-Term Credit Facility) dated as of May 29, 2001 (the "Credit Agreement"),
among certain banks (including us), The Chase Manhattan Bank (the "Agent") and
Southern Union Company (the "Company"). Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in the Credit
Agreement.
Each reference to the Credit Agreement, the Notes, or any other document
evidencing or governing the Loans (all such documents collectively, the
"Financing Documents") includes each such document as amended, modified,
extended or replaced from time to time. All times are Houston times.
1. ASSIGNMENT. We hereby sell you and assign to you without recourse, and you
hereby unconditionally and irrevocably acquire for your own account and
risk, a percent ( %) undivided interest ("your assigned share") in each of
the following (the "Assigned Obligations"):
a. our Note;
b. all Loans and interest thereon as provided in Section 2 of the Credit
Agreement [,except that interest shall accrue on your assigned share
in the principal of Alternate Base Rate Loans and Eurodollar Rate
Loans at an annual rate equal to the rate provided in the Credit
Agreement minus _____%]; and
c. commitment fees payable pursuant to Section 5 of the Credit
Agreement[, except that your assigned share in such fees shall be at
an annual rate equal to the rate provided in the Credit Agreement
minus ____%].
2. MATERIALS PROVIDED ASSIGNEE
a. We will promptly request that the Company issue new Notes to us and
to you in substitution for our Note to reflect the assignment set
forth herein. Upon issuance of such substitute Notes, (i) you will
become a Bank under the Credit Agreement, (ii) you will assume our
obligations under the Credit Agreement to the extent of your assigned
share, and (iii) the Company will release us from our obligations
under the Credit Agreement to the extent, but only to the extent, of
your assigned share. The Company consents to such release by signing
this Agreement where indicated below. As a Bank, you will be
entitled to the benefits and subject to the obligations of a "Bank",
as set forth in the Credit Agreement, and your rights and liabilities
with respect to the other Banks and the Agent will be governed by the
Credit Agreement, including without limitation Section 12 thereof.
--------------------------------------------------------------------------------
b. We have furnished you copies of the Credit Agreement, our Note and
each other Financing Document you have requested. We do not
represent or warrant (i) the priority, legality, validity, binding
effect or enforceability of any Financing Document or any security
interest created thereunder, (ii) the truthfulness and accuracy of
any representation contained in any Financing Document, (iii) the
filing or recording of any Financing Document necessary to perfect
any security interest created thereunder, (iv) the financial
condition of the Company or any other Person obligated under any
Financing Document, any financial or other information, certificate,
receipt or other document furnished or to be furnished under any
Financing Document or (v) any other matter not specifically set forth
herein having any relation to any Financing Document, your interest
in one Note, the Company or any other Person. You represent to us
that you are able to make, and have made, your own independent
investigation and determination of the foregoing matters, including,
without limitation, the credit worthiness of the Company and the
structure of the transaction.
3. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas. You
irrevocably submit to the jurisdiction of any State or Federal court
sitting in Austin, Texas in any suit, action or proceeding arising out of
or relating to this Agreement and irrevocably waive any objection you may
have to this laying of venue of any such suit, action or proceeding brought
in any such court and any claim that any such suit, action or proceeding
has been brought in an inconvenient forum. We may serve process in any
manner permitted by law and may bring proceedings against you in any other
jurisdiction.
4. NOTICES. All notices and other communications given hereunder to a party
shall be given in writing (including bank wire, telecopy, telex or similar
writing) at such party's address set forth on the signature pages hereof or
such other address as such party may hereafter specify by notice to the
other party. Notice may also be given by telephone to the Person, or any
other officer in the office, listed on the signature pages hereof if
confirmed promptly by telex or telecopy. Notices shall be effective
immediately, if given by telephone; upon transmission, if given by bank
wire, telecopy or telex; five days after deposit in the mails, if mailed;
and when delivered, if given by other means.
5. AUTHORITY. Each of us represents and warrants that the execution and
delivery of this Agreement have been validly authorized by all necessary
corporate action and that this Agreement constitutes a valid and legally
binding obligation enforceable against it in accordance with its terms.
6. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
and by each party on separate counterparts, each of which shall be an
original but all of which taken together shall be but one instrument.
7. AMENDMENTS. No amendment modification or waiver of any provision of this
Agreement shall be effective unless in writing and signed by the party
against whom enforcement is sought.
--------------------------------------------------------------------------------
If the foregoing correctly sets forth our agreement, please so indicate by
signing the enclosed copy of this Agreement and returning it to us.
Very truly yours,
By:
------------------------------------------------
Name:
------------------------------------------------
Title:
------------------------------------------------
[Street Address]
------------------------------------------------
[City, State, Zip Code]
------------------------------------------------
Telephone:
------------------------------------------------
Telecopy:
------------------------------------------------
AGREED AND ACCEPTED:
-------------------------------
By:
----------------------------
----------------------------
----------------------------
Attention:
-----------------------
Telephone:
-----------------------
Telecopy:
-----------------------
Account for Payments:
----------------------
ASSIGNMENT APPROVED PURSUANT TO SECTION 13.13 OF THE CREDIT AGREEMENT AND
RELEASE APPROVED IN SECTION 2 OF THIS AGREEMENT:
SOUTHERN UNION COMPANY
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
--------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED Exhibit 10(b)
REVOLVING CREDIT AGREEMENT
(SHORT-TERM CREDIT FACILITY)
DATED AS OF MAY 29, 2001
BY AND AMONG
SOUTHERN UNION COMPANY
as the Borrower
AND
THE BANKS NAMED HEREIN
as the Banks
AND
THE CHASE MANHATTAN BANK
as the Administrative Agent
AND
BANK ONE, NA and FLEET NATIONAL BANK
as Co-Syndication Agents
AND
FIRST UNION NATIONAL BANK and THE MIZUHO FINANCIAL GROUP
as Co-Documentation Agents
AND
JPMORGAN SECURITIES INC.
as the Sole Book Runner and Lead Arranger
--------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(SHORT-TERM CREDIT FACILITY)
Reference is hereby made to that certain Amended and Restated Revolving Credit
Agreement (Short-Term Credit Facility) dated as of May 31, 2000, executed by and
between SOUTHERN UNION COMPANY, a corporation organized under the laws of
Delaware (the "Borrower"), the financial institutions listed on the signature
pages of said Revolving Credit Agreement (each of said financial institutions
now or hereafter a party to said Revolving Credit Agreement being hereinafter
referred to collectively as "Banks" and individually as a "Bank"), and CHASE
BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association, which has
been succeeded through merger by THE CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), in its capacity as agent (the "Agent") for the Banks.
The Borrower, the Banks and the Agent have previously amended said Amended and
Restated Revolving Credit Agreement pursuant to the terms of a First Amendment
to Amended and Restated Revolving Credit Agreement (Short-Term Credit Facility)
dated as of August 4, 2000 (the "First Amendment"). Said Revolving Credit
Agreement, as previously amended by the First Amendment, is referred to herein
as the "Original Agreement."
As a result of certain discussions between the Borrower, the Agent and the
Banks, the parties to the Original Agreement now desire to amend and restate the
Original Agreement in its entirety. Accordingly, the Original Agreement is
hereby amended and restated in its entirety to hereafter be and read as follows:
SOUTHERN UNION COMPANY, a corporation organized under the laws of Delaware
(hereinafter called the "Borrower"), the financial institutions listed on the
signature pages hereof (collectively, the "Banks" and individually, a "Bank"),
THE CHASE MANHATTAN BANK, a New York banking corporation ("Chase"), in its
capacity as administrative agent (the "Agent") for the Banks hereunder, BANK
ONE, NA and FLEET NATIONAL BANK, in their capacity as co-syndication agents
("Co-Syndication Agents") for the Banks hereunder, and FIRST UNION NATIONAL BANK
and THE MIZUHO FINANCIAL GROUP, in their capacity as co-documentation agents
("Co-Documentation Agents") for the Banks hereunder, hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
"Additional Costs" shall mean, with respect to any Rate Period in the case
of any Eurodollar Rate Loan, all costs, losses or payments, as determined
by any Bank in its sole and absolute discretion (which determination shall
be conclusive in the absence of manifest error) that such Bank or its
Domestic Lending Office or its Eurodollar Lending Office does, or would, if
such Eurodollar Rate Loan were funded during such Rate Period by the
Domestic Lending Office or the Eurodollar Lending Office of such Bank,
incur, suffer or make by reason of:
(a) any and all present or future taxes (including, without limitation,
any interest equalization tax or any similar tax on the acquisition
of debt obligations, or any stamp or registration tax or duty or
official or sealed papers tax), levies, imposts or any other charge
of any nature whatsoever imposed by any taxing authority on or with
regard to any aspect of the transactions contemplated by this
Agreement, except such taxes as may be measured by the overall net
income of such Bank or its Domestic Lending Office or its Eurodollar
Lending Office and imposed by the jurisdiction, or any political
subdivision or taxing authority thereof, in which such Bank's
Domestic Lending Office or its Eurodollar Lending Office is located;
and
(b) any increase in the cost to such Bank of agreeing to make or making,
funding or maintaining any Eurodollar Rate Loan because of or arising
from (i) the introduction of, or any change (other than any change by
way of imposition or increase of reserve requirements, in the case of
any Eurodollar Rate Loan, included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation or administration of, any law
or regulation or (ii) the compliance with any request from any
central bank or other governmental authority (whether or not having
the force of law).
"Affiliate" shall mean any Person controlling, controlled by or under
common control with any other Person. For purposes of this definition,
"control" (including "controlled by" and "under common control with") means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies
--------------------------------------------------------------------------------
of such Person, whether through the ownership of voting securities or
otherwise. If any Person shall own, directly or indirectly, beneficially or
of record, twenty percent (20%) or more of the voting equity (whether
outstanding capital stock, partnership interests or otherwise) of another
Person, such Person shall be deemed to be an Affiliate.
"Agent" shall have the meaning set forth in the preamble hereto.
"Agreement" shall mean this Revolving Credit Agreement, as the same may be
amended, modified, supplemented or restated from time to time.
"Alternate Base Rate" shall mean, for any day, a rate, per annum (rounds
upward to the nearest 1/16 of 1%) equal to: (a) the greatest of (i) the
Prime Rate (computed on the basis of the actual number of days elapsed over
a year of 365 or 366 days, as the case may be) in effect on such day; or
(ii) the Federal Funds Rate in effect for such day plus one-half of one
percent (1/2%) (computed on the basis of the actual number of days elapsed
over a year of 360 days).
"Alternate Base Rate Loan" shall mean any Loan which bears interest at the
Alternate Base Rate.
"Applicable Lending Office" shall mean, with respect to each Bank, such
Bank's (a) Domestic Lending Office in the case of an Alternate Base Rate
Loan; and (b) Eurodollar Lending Office in the case of a Eurodollar Rate
Loan.
"Assignment and Acceptance" shall have the meaning set forth in Section
12.13.
"Available Senior Funded Debt Capacity" for any period shall mean, as of
the first day of that period, the principal amount of additional Senior
Funded Debt that the Borrower would be permitted to issue under the then
existing indentures, note purchase agreements and credit agreements (other
than the Agreement and other revolving credit agreements).
"Bank" shall have the meaning set forth in the preamble hereto and shall
include the Agent, in its individual capacity.
"Borrower" shall have the meaning set forth in the preamble hereto.
"Borrowing Date" shall mean a date upon which the Borrower has requested a
Loan is to be made in a Notice of Borrowing delivered pursuant to Section
2.1.
"Business Day" shall mean a day when the Agent is open for business,
provided that, if the applicable Business Day relates to any Eurodollar
Rate Loan, it shall mean a day when the Agent is open for business and
banks are open for business in the London interbank market and in New York
City.
"Capital Lease" shall mean any lease of any Property (whether real,
personal, or mixed) which, in conformity with GAAP, is accounted for as a
capital lease on the balance sheet of the lessee.
"Capitalized Lease Obligations" shall mean, for the Borrower and its
Subsidiaries, any of their obligations that should, in accordance with
GAAP, be recorded as Capital Leases.
"Cash Interest Expense" shall mean, for any period, total interest expense
to the extent paid in cash (including the interest component of Capitalized
Lease Obligations and capitalized interest and all dividends and interest
paid on or with respect to Borrower's Structured Securities) of the
Borrower and any Subsidiary for such period all as determined in conformity
with GAAP.
"Closing Date" shall mean May 29, 2001.
"Code" shall mean the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and
interpretations thereof or thereunder issued by the Internal Revenue
Service.
--------------------------------------------------------------------------------
"Commitment" shall have the meaning set forth in Section 2.1(a) and
"Commitments" shall mean, collectively, the Commitments of all of the
Banks.
"Consolidated Net Income" shall mean for any period the consolidated net
income of the Borrower and all Subsidiaries, determined in accordance with
GAAP, for such period.
"Consolidated Net Worth" shall mean, for any period for the Borrower and
all Subsidiaries, (a) the consolidated stockholders' equity of the Borrower
and its Subsidiaries, and preferred securities of the Borrower's
Subsidiaries, all determined in accordance with GAAP, less (b) the sum of
the following consolidated items, without duplication: the book amount of
any deferred charges (including, but not limited to, unamortized debt
discount and expenses, organization expenses, experimental and development
expenses, but excluding prepaid expenses) that are not permitted to be
recovered by the Borrower under rates permitted under rate tariffs, plus
(c) the sum of all amounts contributed or paid by the Borrower to the Rabbi
Trusts for purposes of funding the same, but only to the extent such
contributions and payments are required to be deducted from the
consolidated stockholders' equity of the Borrower and its Subsidiaries in
accordance with GAAP.
"Consolidated Total Capitalization" shall mean at any time the sum of: (a)
Consolidated Net Worth at such time; plus (b) the principal amount of
outstanding Debt of the Borrower and its Subsidiaries.
"Consolidated Total Indebtedness" shall mean all Debt of the Borrower and
all Subsidiaries including any current maturities thereof, plus, without
duplication, all amounts outstanding under Standby Letters of Credit and,
without duplication, all Facility Letter of Credit Obligations.
"Debt" means (without duplication), for any Person indebtedness for money
borrowed determined in accordance with GAAP but in any event including, (a)
indebtedness of such Person for borrowed money or arising out of any
extension of credit to or for the account of such Person (including,
without limitation, extensions of credit in the form of reimbursement or
payment obligations of such Person relating to letters of credit issued for
the account of such Person) or for the deferred purchase price of property
or services, except indebtedness which is owing to trade creditors in the
ordinary course of business and which is due within thirty (30) days after
the original invoice date; (b) indebtedness of the kind described in clause
(a) of this definition which is secured by (or for which the holder of such
Debt has any existing right, contingent or otherwise, to be secured by) any
Lien upon or in Property (including, without limitation, accounts and
contract rights) owned by such Person, whether or not such Person has
assumed or become liable for the payment of such indebtedness or
obligations; (c) Capitalized Lease Obligations of such Person; (d)
obligations under direct or indirect Guaranties other than Guaranties
issued by the Borrower covering obligations of the Southern Union Trusts
under the Structured Securities. Whenever the definition of Debt is being
used herein in order to compute a financial ratio or covenant applicable to
the consolidated business of the Borrower and its Subsidiaries, Debt which
is already included in such computation by virtue of the fact that it is
owed by a Subsidiary of the Borrower will not also be added by virtue of
the fact that the Borrower has executed a guaranty with respect to such
Debt that would otherwise require such guaranteed indebtedness to be
considered Debt hereunder. Nothing contained in the foregoing sentence is
intended to limit the other provisions of this Agreement which contain
limitations on the amount and types of Debt which may be incurred by the
Borrower or its Subsidiaries.
"Debtor Laws" shall mean all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency,
reorganization, or similar laws, or general equitable principles from time
to time in effect affecting the rights of creditors generally.
"Default" shall mean any of the events specified in Section 10, whether or
not there has been satisfied any requirement in connection with such event
for the giving of notice, or the lapse of time, or the happening of any
further condition, event or act.
"Dollars" and "$" shall mean lawful currency of the United States of
America.
"Domestic Lending Office" shall mean, with respect to each Bank, the office
of such Bank located at its "Address for Notices" set forth below the name
of such Bank on the signature pages hereof or such other office of such
Bank as such Bank may from time to time specify to the Borrower and the
Agent.
--------------------------------------------------------------------------------
"EBDIT" shall mean for any period the sum of (a) consolidated net earnings
for the Borrower and its Subsidiaries (excluding for all purposes hereof
all extraordinary items), plus (b) each of the following to the extent
actually deducted in deriving such net earnings: (i) depreciation and
amortization expense; (ii) interest expense; (iii) federal and state income
taxes; and (iv) dividends charged against income on or with respect to
Structured Securities, in each case before adjustment for extraordinary
items, as shown in the financial statements of Borrower and its
Subsidiaries referred to in Section 6.2 hereof (excluding for all purposes
hereof all extraordinary items), and determined in accordance with GAAP,
and (c) plus (or minus, if applicable) the net amount of non- cash
deductions from (or additions to, if applicable) such net earnings for such
period attributable to fluctuations in the market price(s) of securities
which the Borrower is obligated to purchase in future periods under any of
the Rabbi Trusts, but only to the extent that such deductions (or
additions, if applicable) are required to be taken in accordance with GAAP.
"Eligible Assignee" shall mean: (i) any Bank, or any Affiliate of any Bank,
or any institution 100% of the voting stock of which is directly, or
indirectly owned by such Bank or by the immediate or remote parent of such
Bank; or (ii) a commercial bank, a foreign branch of a United States
commercial bank, a domestic branch of a foreign commercial bank or other
financial institution having in each case assets in excess of
$1,000,000,000.00.
"Environmental Law" shall mean (a) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (as amended by the
Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.A. ss. 9601
et seq.), as amended from time to time, and any and all rules and
regulations issued or promulgated thereunder ("CERCLA"); (b) the Resource
Conservation and Recovery Act (as amended by the Hazardous and Solid Waste
Amendment of 1984, 42 U.S.C.A. ss. 6901 et seq.), as amended from time to
time, and any and all rules and regulations promulgated thereunder
("RCRA"); (c) the Clean Air Act, 42 U.S.C.A. ss. 7401 et seq., as amended
from time to time, and any and all rules and regulations promulgated
thereunder; (d) the Clean Water Act of 1977, 33 U.S.CA ss. 1251 et seq., as
amended from time to time, and any and all rules and regulations
promulgated thereunder; (e) the Toxic Substances Control Act, 15 U.S.C.A.
ss. 2601 et seq., as amended from time to time, and any and all rules and
regulations promulgated thereunder; or (f) any other federal or state law,
statute, rule, or emulation enacted in connection with or relating to the
protection or regulation of the environment (including, without limitation,
those laws, statutes, rules, and regulations regulating the disposal,
removal, production, storing, refining, handling, transferring, processing,
or transporting of Hazardous Materials) and any rules and regulations
issued or promulgated in connection with any of the foregoing by any
governmental authority, and "Environmental Laws" shall mean each of the
foregoing.
"EPA" shall mean the Environmental Protection Agency, or any successor
organization.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations thereof issued by the Internal Revenue Service or the
Department of Labor thereunder.
"Eurocurrency Liabilities" shall have 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" shall mean, with respect to each Bank, the
office of such Bank located at its "Address for Notices" set forth below
the name of such Bank on the signature pages hereof, or such other office
of such Bank as such Bank may from time to time specify to the Borrower and
the Agent.
"Eurodollar Rate" shall mean with respect to the applicable Rate Period in
effect for each Eurodollar Rate Loan, the sum of (a) the quotient obtained
by dividing (i) the annual rate of interest determined by the Agent, at or
before 11:00 a.m. Houston time (or as soon thereafter as practicable), on
the second Business Day prior to the first day of such Rate Period, to be
the annual rate of interest at which deposits of Dollars are offered to the
Agent by prime banks in whatever Eurodollar interbank market may be
selected by the Agent in its sole discretion, acting in good faith, at the
time of determination and in accordance with then existing practice in such
market for delivery on the first day of such Rate Period in immediately
available funds and having a maturity equal to such Rate Period in an
amount substantially equal to the amount of such Eurodollar Rate Loan by
(ii) a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage for such Rate Period, plus (b) an
--------------------------------------------------------------------------------
additional percentage per annum changing with the rating of the Borrower's
unsecured, non-credit enhanced Senior Funded Debt and determined in
accordance with the following grid:
Rating of the Borrower's unsecured, non-credit Additional Per-
enhanced Senior Funded Debt centage Per Annum
------------------------------------------------ ---------------------
Equal to or greater than A3 by Moody's Investor
Service, Inc. and equal to or greater than A- by
---
Standard and Poor's Ratings Group 0.650%
------------------------------------------------ ---------------------
Baa1 by Moody's Investor Service, Inc. or BBB+
--
by Standard and Poor's Ratings Group 0.750%
------------------------------------------------ ---------------------
Baa2 by Moody's Investor Service, Inc. or BBB by
--
Standard and Poor's Ratings Group 0.800%
------------------------------------------------ ---------------------
Baa3 by Moody's Investor Service, Inc. or BBB-
--
by Standard and Poor's Ratings Group 0.850%
------------------------------------------------ ---------------------
Equal to or less than Ba1 by Moody's Investor
Service, Inc. and equal to or less than BB+ by
---
Standard and Poor's Ratings Group 1.350%
================================================ ====================
"Eurodollar Rate Loan" shall mean any Loan that bears interest at the
Eurodollar Rate.
"Eurodollar Rate Reserve Percentage" of the Agent for any Rate Period for
any Eurodollar Rate Loan shall mean the reserve percentage applicable
during such Rate Period (or if more than one such percentages shall be so
applicable, the daily average of such percentages for those days in such
Rate 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 member banks of
the Federal Reserve System with deposits exceeding $1,000,000,000 with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Rate Period.
"Event of Default" shall mean any of the events specified in Section 10,
provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening
of any further condition, event or act.
"Expiration Date" shall mean the last day of a Rate Period.
"Facility Letter(s) of Credit" shall mean, in the singular form, any
Standby Letter of Credit issued for the account of the Borrower under the
Long-Term Credit Facility and, in the plural form, all such Standby Letters
of Credit issued for the account of the Borrower.
"Facility Letter of Credit Obligations" shall mean, at any particular time,
the sum of (a) the Reimbursement Obligations, plus (b) the aggregate
undrawn face amount of all outstanding Facility Letters of Credit, in each
case as determined by the Agent.
"Federal Funds Rate" shall mean, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates (rounded to the nearest 1/100 of 1%) on overnight
federal fund 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 such transactions received by the Agent from Fulton Prebon and Garvin
Guy Butler or two other federal funds brokers of recognized standing
selected by the Agent.
"Funded Debt" means all Debt of a Person which matures more than one year
from the date of creation or matures within one year from such date but is
renewable or extendible, at the option of such Person, by its terms or by
the terms of any instrument or agreement relating thereto, to a date more
than one year from such date or arises under a revolving credit or similar
agreement which obligates Banks to extend credit during a period of more
than one year from such date, including, without limitation, all amounts of
any Funded Debt required to be paid or prepaid within one year from the
date of determination of the existence of any such Funded Debt.
--------------------------------------------------------------------------------
"GAAP" shall mean generally accepted accounting principles, applicable to
the circumstances as of the date of determination, applied consistently
with such principles as applied in the preparation of the Borrowers audited
financial statements referred to in Section 6.2.
"General Intangibles" shall mean all of the Borrower's contract rights now
existing or hereafter acquired, arising or created under contracts or
arrangements for the purchase, sale, storage or transportation of gas or
other Inventory.
"Governmental Authority" shall mean any (domestic or foreign) federal,
state, county, municipal, parish, provincial, or other government, or any
department, commission, board, court, agency (including, without
limitation, the EPA), or any other instrumentality of any of them or any
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of, or
pertaining to, government, including, without limitation, any arbitration
panel, any court, or any commission.
"Governmental Requirement" means any Order, Permit, law, statute
(including, without limitation, any Environmental Protection Statute),
code, ordinance, rule, regulation, certificate, or other direction or
requirement of any Governmental Authority.
"Guaranty" means, with respect to any Person, any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of
another Person, including, without limitation, by means of an agreement to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt or to maintain financial covenants, or to assure the payment of
such Debt by an agreement to make payments in respect of goods or services
regardless of whether delivered or to purchase or acquire the Debt of
another, or otherwise, provided that the term "Guaranty" shall not include
endorsements for deposit or collection in the ordinary course of business.
"Hazardous Materials" shall mean any substance which, pursuant to any
Environmental Laws, requires special handling in its collection, use,
storage, treatment or disposal, including but not limited to any of the
following: (a) any "hazardous waste" as defined by RCRA; (b) any "hazardous
substance" as defined by CERCLA; (c) asbestos; (d) polychlorinated
biphenyls; (e) any flammables, explosives or radioactive materials; and (f)
any substance, the presence of which on any of the Borrower's or any
Subsidiary's properties is prohibited by any Governmental Authority.
"Highest Lawful Rate" shall mean, with respect to each Bank, the maximum
nonusurious interest rate, if any, that at any time or from time to time
may be contracted for, taken, reserved, charged, or received with respect
to the Notes or on other amounts, if any, due to such Bank pursuant to this
Agreement, under laws applicable to such Bank which are presently in
effect, or, to the extent allowed by law, under such applicable laws which
may hereafter be in effect and which allow a higher maximum nonusurious
interest rate than applicable laws now allow.
"Indemnified Parties" shall have the meaning set forth in Section 12.16.
"Interest Payment Date" shall mean (a) as to any Eurodollar Rate Loan in
which the Rate Period with respect thereto is not greater than three (3)
months, the date on which such Rate Period ends; (b) as to any Eurodollar
Rate Loan in which the Rate Period with respect thereto is greater than
three (3) months, the date on which the third month of such Rate Period
ends, and the date on which each such Rate Period ends; (c) as to any
Alternate Base Rate Loan in which the Rate Period with respect thereto is
not greater than ninety (90) days, the date on which such Rate Period ends;
(d) as to any Alternate Base Rate Loan in which the Rate Period with
respect thereto is greater than ninety (90) days, the ninetieth (90th) day
of such Rate Period, and the date on which each such Rate Period ends; and
(e) as to all Loans, such time as the principal of and interest on the
Notes shall have been paid in full.
"Inventory" means, with respect to Borrower or any Subsidiary, all of such
Person's now owned or hereafter acquired or created inventory in all of its
forms and of every nature, wherever located, whether acquired by purchase,
merger, or otherwise, and all raw materials, work in process therefor and
finished goods thereof, and all supplies, materials, and products of every
nature and description used, usable, or consumed in connection
--------------------------------------------------------------------------------
with the manufacture, packing, shipping, advertising, selling, leasing,
furnishing, or production of such goods, and shall include, in any event,
all "inventory" (within the meaning of such term in the Uniform Commercial
Code in effect in any applicable jurisdiction), whether in mass or joint,
or other interest or right of any kind in goods which are returned to,
repossessed by, or stopped in transit by such Person, and all accessions to
any of the foregoing and all products of any of the foregoing.
"Investment" of any Person means any investment so classified under GAAP,
and, whether or not so classified, includes (a) any direct or indirect loan
advance made by it to any other Person; (b) any direct or indirect Guaranty
for the benefit of such Person; provided, however, that for purposes of
determining Investments of Borrower hereunder, the existing Guaranty by
Borrower of certain tax increment financing extended by The Fidelity
Deposit and Discount Bank to The Redevelopment Authority of the County of
Lackawanna shall be deemed to not be an Investment; (c) any capital
contribution to any other Person; and (d) any ownership or similar interest
in any other Person; and the amount of any Investment shall be the original
principal or capital amount thereof (plus any subsequent principal or
capital amount) minus all cash returns of principal or capital thereof.
"Letter(s) of Credit" shall mean, in the singular form, any letter of
credit issued by any Person for the account of the Borrower and, in the
plural form, all such letters of credit issued by any Person for the
account of the Borrower.
"Lien" shall mean any mortgage, deed of trust, pledge, security interest,
encumbrance, lien (including without limitation, any such interest arising
under any Environmental Law), or similar charge of any kind (including
without limitation, any agreement to give any of the foregoing, any
conditional sale or other title retention agreement or any lease in the
nature thereof), or the interest of the lessor under any Capital Lease.
"Loan" or "Loans" shall mean a loan or loans, respectively, from the Banks
to the Borrower made under Section 2.1.
"Loan Document" shall mean this Agreement, any Note, or any other document,
agreement or instrument now or hereafter executed and delivered by the
Borrower or any other Person in connection with any of the transactions
contemplated by any of the foregoing, as any of the foregoing may hereafter
be amended, modified, or supplemented, and "Loan Documents" shall mean,
collectively, each of the foregoing.
"Long-Term Credit Facility" means that certain $225,000,000.00 credit
facility provided to the Borrower by the Banks, as evidenced and governed
by the Long-Term Credit Facility Agreement.
"Long-Term Credit Facility Agreement" means that certain Revolving Credit
Agreement of even effective date herewith, executed by and among the
Borrower, the Banks, and the Agent in connection with the Long-Term Credit
Facility, as the same may be amended, modified, supplemented, or restated
from time to time.
"Long-Term Credit Facility Notes" means the promissory notes of the
Borrower executed and delivered under the Long-Term Credit Facility
Agreement.
"Majority Bank" shall mean at any time Banks holding more than 50% of the
unpaid principal amounts outstanding under the Notes, or, if no such
amounts are outstanding, more than 50% of the Pro Rata Percentages.
"Material Adverse Effect" shall mean any material adverse effect on (a) the
financial condition, business, properties, assets, prospects or operations
of the Borrower and its Subsidiaries taken as a whole, or (b) the ability
of the Borrower to perform its obligations under this Agreement, any Note
or any other Loan Document on a timely basis.
"Maturity Date" shall mean May 28, 2002, as modified pursuant to the
provisions of Section 2.4 hereof.
"Non-Facility Letter of Credit" shall mean any Letter of Credit which is
not a Facility Letter of Credit.
--------------------------------------------------------------------------------
"Note" or "Notes" shall mean a promissory note or notes, respectively, of
the Borrower, executed and delivered under this Agreement.
"Notice of Borrowing" shall have the meaning set forth in Section 2.1(c).
"Obligations" shall mean all obligations of the Borrower to the Bank under
this Agreement, the Notes and all other Loan Documents to which it is a
party.
"Officer's Certificate" shall mean a certificate signed in the name of the
Borrower or a Subsidiary, as the case may be, by either its President, one
of its Vice Presidents, its Treasurer, its Secretary, or one of its
Assistant Treasurers or Assistant Secretaries.
"Person" shall mean an individual, partnership, joint venture, corporation,
joint stock company, bank, trust, unincorporated organization and/or a
government or any department or agency thereof.
"Plan" shall mean any plan subject to Title IV of ERISA and maintained for
employees of the Borrower or of any member of a "controlled group of
corporations," as such term is defined in the Code, of which the Borrower
or any Subsidiary is a member, or any such plan to which the Borrower or
any Subsidiary is required to contribute on behalf of its employees.
"Prime Rate" shall mean, on any day, the rate determined by the Agent as
being its prime rate for that day. Without notice to the Borrower or any
other Person, the Prime Rate shall change automatically from time to time
as and in the amount by which said Prime Rate shall fluctuate, with each
such change to be effective as of the date of each change in such Prime
Rate. The Prime Rate is a reference rate and does not necessarily represent
the lowest or best rate actually charged to any customer. The Agent may
make commercial or other loans at rates of interest at, above or below the
Prime Rate.
"Prior Acquisitions" shall mean collectively the Borrower's previous
acquisitions of and mergers with Fall River Gas Company, Providence Energy
Corporation and Valley Resources, Inc.
"Pro-Rata Percentage" shall mean with respect to any Bank, a fraction
(expressed as a percentage), the numerator of which shall be the amount of
such Bank's Commitment and the denominator of which shall be the aggregate
amount of all the Commitments of the Banks, as adjusted from time to time
in accordance with Section 3.6.
"Property" shall mean any interest or right in any kind of property or
asset, whether real, personal, or mixed, owned or leased, tangible or
intangible, and whether now held or hereafter acquired.
"Qualifying Assets" shall mean (i) equity interests owned one hundred
percent (100%) by the Borrower in entities engaged primarily in one or more
of the Borrower's lines of business described in Section 6.15 (singly, a
"Qualified Entity," collectively, "Qualified Entities"), or productive
assets used in one or more of such lines of business; provided, however,
that as to any related group of such Assets acquired for a purchase price
of more than Sixty Million Dollars ($60,000,000.00) (including the amount
of any Debt assumed or deemed incurred in connection with such
acquisition), the Majority Banks shall have delivered to the Borrower their
prior written consent; and (ii) equity interests of less than one hundred
percent (100%) owned by the Borrower in one or more Qualifying Entities,
provided that at any one time the amount of the Borrower's investment in
Qualifying Assets described in clause (ii) (measured by the aggregate
purchase price paid therefor, including the aggregate amount of Debt
assumed or deemed incurred by Borrower in connection with such
acquisitions) does not exceed ten percent (10%) of the Consolidated Net
Worth of the Borrower and its Subsidiaries as of the applicable
determination date.
"Rabbi Trusts" shall mean those four (4) certain non-qualified deferred
compensation irrevocable trusts existing as of the Closing Date, previously
established by the Borrower for the benefit of its executive employees, so
long as the assets in each of such trusts which have not yet been
distributed to one or more executive employees of the Borrower remain
subject to the claims of the Borrower's general creditors.
--------------------------------------------------------------------------------
"Rate Period" shall mean the period of time for which the Alternate Base
Rate or the Eurodollar Rate shall be in effect as to any Alternate Base
Rate Loan or Eurodollar Rate Loan, as the case may be, commencing with the
Borrowing Date or the Expiration Date of the immediately preceding Rate
Period, as the case may be, applicable to and ending on the effective date
of any reborrowing made as provided in Section 2.2(a) as the Borrower may
specify in the related Notice of Borrowing, subject, however, to the early
termination provisions of the second sentence of Section 2.3(c) relating to
any Eurodollar Rate Loan; provided, however, that any Rate Period that
would otherwise end on a day which is not a Business Day shall be extended
to the next succeeding Business Day unless such Business Day falls in
another calendar month, in which case such Rate Period shall end on the
next preceding Business Day. For any Alternate Base Rate Loan, the Rate
Period shall be 90 days; and for any Eurodollar Rate Loan the Rate Period
may be 15 days, 1, 2, 3, or 6 months, in each case as specified in the
applicable Notice of Borrowing, subject to the provisions of Sections 2.2
and 2.3.
"Reimbursement Obligations" shall mean the reimbursement or repayment
obligations of the Borrower with respect to Facility Letters of Credit
issued for the account of the Borrower.
"Release" shall mean a "release", as such term is defined in CERCLA.
"Restricted Payment" shall mean the Borrower's declaration or payment of
any dividend on, or purchase or agreement to purchase any of, or making of
any other distribution with respect to, any of its capital stock, except
any such dividend, purchase or distribution consisting solely of capital
stock of the Borrower, and except any dividend or interest paid on or with
respect to the Borrower's Structured Securities to the extent that such
amounts are included in Cash Interest Expense.
"Securities Act" shall have the meaning set forth in Section 12.1.
"Senior Funded Debt" shall mean Funded Debt of the Borrower excluding Debt
that is contractually subordinated in right of payment to any other Debt.
"Senior Notes" means (a) the $475,000,000 of 7.6% Senior Notes of the
Borrower previously placed with investors on or about January 31, 1994, and
(b) the $300,000,000 of 8.25% Senior Notes of the Borrower previously
placed with investors on or about November 3, 1999, as such Senior Notes
may be amended, modified, or supplemented from time to time in accordance
with the terms of this Agreement; and "Senior Note" means each such note
individually.
"Significant Property" shall mean at any time property or assets of the
Borrower or any Subsidiary having a book value (net of accumulated
depreciation taken in accordance with GAAP) of at least $5,000,000.00 or
that contributed (or is an integrated physical portion of an assemblage of
assets that contributed) at least 5% of the gross income of the owner
thereof for the fiscal quarter most recently ended.
"Southern Union Trust" means any of those certain Delaware business trusts
organized for the sole purpose of purchasing Subordinated Debt Securities
constituting a portion of, and described in the definition of, Structured
Securities and issuing the Preferred Securities and Common Securities also
constituting a portion of, and described in the definition of, Structured
Securities, and having no assets other than the Borrower's Subordinated
Debt Securities, the Guaranties (as described in the definition of
Structured Securities) and the proceeds thereof. Southern Union Trusts
shall be considered to be Subsidiaries for purposes hereof so long as their
affairs are consolidated under GAAP and for federal income tax purposes
with the affairs of the Borrower.
"Standby Letter of Credit" shall mean any standby letter of credit issued
to support obligations (contingent or otherwise) of the Borrower
.
"Structured Securities" shall mean collectively (a) the Subordinated Debt
Securities, the Guaranties, the Common Securities and the Preferred
Securities of the Southern Union Trusts, all as described and defined in
the Registration Statement on Form S-3 filed by the Borrower with the
Securities and Exchange Commission on March 25, 1995, and (b) subordinated
debt securities, guaranties, common securities and/or preferred securities
issued in connection with the consummation of the Prior Acquisitions in an
aggregate face amount of not more than $150,000,000 upon terms and
conditions substantially similar in all material respects to the terms
--------------------------------------------------------------------------------
and conditions described and defined in such Registration Statement on Form
S-3 filed by the Borrower with the Securities and Exchange Commission on
March 25, 1995. For all purposes of this Agreement, the amounts payable by
Southern Union Trusts under the Preferred Securities and Common Securities
(or similar securities provided for under subclause (b) above) and the
amounts payable by the Borrower under the Subordinated Debt Securities or
the Guaranties (or similar securities provided for under subclause (b)
above) shall be treated without duplication, it being recognized that the
amounts payable by Southern Union Trusts are funded with payments made or
to be made by the Borrower to Southern Union Trusts and are also guaranteed
by the Borrower under the Guaranties described in the S-3 mentioned above
(or similar guaranties provided for under subclause (b) above).
"Subsidiary" or "Subsidiaries" shall mean any corporation or corporations
organized under the laws of any state of the United States of America,
Canada, or any province of Canada, which conduct(s) the major portion of
business in the United States of America or Canada and of which not less
than 50% of the voting stock of every class (except for directors'
qualifying shares), at the time as of which any determination is being
made, is owned by the Borrower either directly or indirectly through other
Subsidiaries.
"Term Loan Facility" shall mean (a) that certain term loan facility to be
provided to the Borrower in an aggregate amount of $575,000,000.00 under
the terms of that certain Term Loan Credit Agreement dated August 28, 2000
by and among the Borrower, The Chase Manhattan Bank, as administrative
agent, and the banks or financial institutions now or hereafter a party
thereto, and (b) any and all amendments, modifications, increases,
supplements and/or restatements of said credit facility hereafter existing
from time to time.
"Type" shall mean, with respect to any Loan, any Alternate Base Rate Loan
or any Eurodollar Rate Loan.
2. THE LOANS
2.1 The Loans
(a) Subject to the terms and conditions and relying upon the
representations and warranties of the Borrower herein set
forth, each Bank severally agrees to make Loans to the
Borrower on any one or more Business Days prior to the
Maturity Date, up to an aggregate principal amount of Loans
not exceeding at any time outstanding the amount set opposite
such Banks name on the signature pages hereof (such Bank's
"Commitment"). Within such limits and during such period and
subject to the terms and conditions of this Agreement, the
Borrower may borrow, repay and reborrow hereunder.
(b) The Borrower shall execute and deliver to the Agent for each
Bank to evidence the Loans made by each Bank under such Bank's
Commitment, a Note, which shall be: (i) dated the date of the
Closing Date; (ii) in the principal amount of such Bank's
maximum Commitment; (iii) in substantially the form attached
hereto as Exhibit A, with blanks appropriately filled; (iv)
---------
payable to the order of such Bank on the Maturity Date; and
(v) subject to acceleration upon the occurrence of an Event of
Default. Each Note shall bear interest on the unpaid
principal amount thereof from time to time outstanding
at the rate per annum determined as specified in Sections
2.2(a), 2.2(b), 2.3(b) and 2.3(c), payable on each Interest
Payment Date and at maturity, commencing with the first
Interest Payment Date following the date of each Note.
(c) Each Loan shall be: (i) in the case of any Eurodollar Rate
Loan, in an amount of not less than $1,000,000.00 or an
integral multiple of $1,000,000.00 in excess thereof; or (ii)
in the case of any Alternate Base Rate Loan, in an amount of
not less than $500,000.00 or an integral multiple of
$100,000.00 in excess thereof and, at the option of the
Borrower, any borrowing under this Section 2.1(c) may be
comprised of two or more such Loans bearing different rates of
interest. Each such borrowing shall be made upon prior notice
from the Borrower to the Agent in the form attached hereto as
Exhibit B (the "Notice of Borrowing") delivered to the Agent
---------
not later than 11:00 am (Houston time): (i) on the third
Business Day prior to the Borrowing Date, if such borrowing
consists of Eurodollar Rate Loans; and (ii) on the Borrowing
Date, if such borrowing consists of Alternate Base Rate Loans.
Each Notice of Borrowing shall be irrevocable and shall
specify: (i) the amount
--------------------------------------------------------------------------------
of the proposed borrowing and of each Loan comprising a part
thereof; (ii) the Borrowing Date; (iii) the rate of interest
that each such Loan shall bear; (iv) the Rate Period with
respect to each such Loan and the Expiration Date of each such
Rate Period; and (v) the demand deposit account of the
Borrower at The Chase Manhattan Bank into which the proceeds
of the borrowing are to be deposited by the Agent. The
Borrower may give the Agent telephonic notice by the required
time of any proposed borrowing under this Section 2.1(c);
provided that such telephonic notice shall be confirmed in
writing by delivery to the Agent promptly (but in no event
later than the Borrowing Date relating to any such borrowing)
of a Notice of Borrowing. Neither the Agent nor any Bank shall
incur any liability to the Borrower in acting upon any
telephonic notice referred to above which the Agent believes
in good faith to have been given by the Borrower, or for
otherwise acting in good faith under this Section 2.1(c).
(d) In the case of a proposed borrowing comprised of Eurodollar
Rate Loans, the Agent shall promptly notify each Bank of the
applicable interest rate under Section 2.2. Each Bank shall,
before 11:00 am (Houston time) on the Borrowing Date, make
available for the account of its Applicable Lending Office to
the Agent at the Agent's address set forth in Section 12.4,
in same day funds, its Pro Rata Percentage of such borrowing.
After the Agent's receipt of such funds and upon fulfillment
of the applicable conditions set forth in Section 7, on the
Borrowing Date, the Agent shall make the borrowing available
to the Borrower at its Applicable Lending Office in
immediately available funds. Each Bank shall post on a
schedule attached to its Note(s): (i) the date and principal
amount of each Loan made under such Note; (ii) the rate of
interest each such Loan will bear; and (iii) each payment of
principal thereon; provided, however, that any failure of such
-------- -------
Bank so to mark such Note shall not affect the Borrower's
obligations thereunder; and provided further that such Bank's
-------- -------
records as to such matters shall be controlling whether or not
such Bank has so marked such Note. Any deposit to the
Borrower's demand deposit account by the Agent or by The Chase
Manhattan Bank (of funds received from the Agent) pursuant to
a request (whether written or oral) believed by the Agent or
by The Chase Manhattan Bank to be an authorized request by the
Borrower for a Loan hereunder shall be deemed to be a Loan
hereunder for all purposes with the same effect as if the
Borrower had in fact requested the Agent to make such Loan.
(e) Unless the Agent shall have received notice from a Bank prior
to the date of any borrowing that such Bank will not make
available to the Agent such Bank's Pro Rata Percentage of such
borrowing, the Agent may assume that such Bank has made such
portion available to the Agent on the date of such borrowing
in accordance with this Section 2.1 and the Agent may, in
reliance upon such assumption, make available to the Borrower
on such date a corresponding amount. If and to the extent
that such Bank shall not have so made such Pro Rata Percentage
available to the Agent, such Bank and the 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 the
Borrower until the date such amount is repaid to the Agent,
(i) in the case of the Borrower, at the interest rate
applicable at the time to the Loans comprising such borrowing,
and (ii) in the case of such Bank, at the Federal Funds Rate.
If such Bank shall repay to the Agent such corresponding
amount, such amount so repaid shall constitute such Bank's
Loan as part of such borrowing for purposes of this Agreement.
(f) The failure of any Bank to make the Loan to be made by it as
part of any borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its Loan on the date of
such borrowing, but no Bank shall be responsible for the
failure of any other Bank to make the Loan to be made by such
other Bank on the date of any borrowing.
2.2 Interest Rate Determination
(a) Except as specified in Sections 2.3(b) and 2.3(c), the Loans
shall bear interest on the unpaid principal amount thereof
from time to time outstanding, until maturity, at a rate per
annum (calculated based on a year of 360 days in the case of
the Eurodollar Rate or the Alternate Base Rate based on the
Federal Funds Rate and a year of 365 or 366 days, as the case
may be, in the case of the Alternate Base Rate based on the
Prime Rate) equal to the lesser of (A) the rate
--------------------------------------------------------------------------------
specified in the Notice of Borrowing with respect thereto or
(B) the Highest Lawful Rate from the first day to, but not
including, the Expiration Date of the Rate Period then in
effect with respect thereto.
(b) Any principal, interest, fees or other amount owing hereunder,
under any Note or under any other Loan Document that is not
paid when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest at a rate per annum equal to
the lesser of (i) two percent (2%) above the Alternate Base
Rate in effect from time to time or (ii) the Highest Lawful
Rate.
2.3 Additional Interest Rate Provisions
(a) The Note may be held by each Bank for the account of its
respective Domestic Lending Office or its respective
Eurodollar Lending Office, and may be transferred from one to
the other from time to time as each Bank may determine.
(b) If the Borrower shall have chosen the Eurodollar Rate in a
Notice of Borrowing and prior to the Borrowing Date, any Bank
in good faith determines (which determination shall be
conclusive) that (i) deposits in Dollars in the principal
amount of such Eurodollar Rate Loan are not being offered to
the Eurodollar Lending Office of such Bank in the Eurodollar
interbank market selected by such Bank in its sole discretion
in good faith or (ii) adequate and reasonable means do not
exist for ascertaining the chosen Eurodollar Rate in respect
of such Eurodollar Rate Loan or (iii) the Eurodollar Rate for
any Rate Period for such Eurodollar Rate Loan will not
adequately reflect the cost to such Bank of making such
Eurodollar Rate Loan for such Rate Period, then such Bank will
so notify the Borrower and the Agent and such Eurodollar Rate
shall not become effective as to such Eurodollar Rate Loan on
such Borrowing Date or at any time thereafter until such time
thereafter as the Borrower receives notice from the Agent that
the circumstances giving rise to such determination no longer
apply.
(c) Anything in this Agreement to the contrary notwithstanding, if
at any time any Bank in good faith determines (which
determination shall be conclusive) that the introduction of or
any change in any applicable law, rule or regulation or any
change in the interpretation or administration thereof by any
governmental or other regulatory authority charged with the
interpretation or administration thereof shall make it
unlawful for the Bank (or the Eurodollar Lending Office of
such Bank) to maintain or fund any Eurodollar Rate Loan, such
Bank shall give notice thereof to the Borrower and the Agent.
With respect to any Eurodollar Rate Loan which is outstanding
when such Bank so notifies the Borrower, upon such date as
shall be specified in such notice the Rate Period shall end
and the lesser of (i) the Alternate Base Rate or (ii) the
Highest Lawful Rate shall commence to apply in lieu of the
Eurodollar Rate in respect of such Eurodollar Rate Loan and
shall continue to apply unless and until the Borrower changes
the rate as provided in Section 2.2(a). No more than five (5)
Business Days after such specified date, the Borrower shall
pay to such Bank (x) accrued and unpaid interest on such
Eurodollar Rate Loan at the Eurodollar Rate in effect at the
time of such notice to but not including such specified date
plus (y) such amount or amounts (to the extent that such
----
amount or amounts would not be usurious under applicable law)
as may be necessary to compensate such Bank for any direct or
indirect costs and losses incurred by it (to the extent that
such amounts have not been included in the Additional Costs in
calculating such Eurodollar Rate), but otherwise without
penalty. If notice has been given by such Bank pursuant to
the foregoing provisions of this Section 2.3(c), then, unless
and until such Bank notifies the Borrower that the
circumstances giving rise to such notice no longer apply, such
Eurodollar Rate shall not again apply to such Loan or any
other Loan and the obligation of such Bank to continue any
Eurodollar Rate Loan as a Eurodollar Rate Loan shall be
suspended. Any such claim by such Bank for compensation under
clause (y) above shall be accompanied by a certificate setting
forth the computation upon which such claim is based, and such
certificate shall be conclusive and binding for all purposes,
absent manifest error.
(d) THE BORROWER WILL INDEMNIFY EACH BANK AGAINST, AND REIMBURSE
EACH BANK ON DEMAND FOR, ANY LOSS (INCLUDING LOSS OF
REASONABLY ANTICIPATED PROFITS DETERMINED USING REASONABLE
ATTRIBUTION AND ALLOCATION METHODS), OR
--------------------------------------------------------------------------------
REASONABLE COST OR EXPENSE INCURRED OR SUSTAINED BY SUCH BANK
(INCLUDING WITHOUT LIMITATION, ANY LOSS OR EXPENSE INCURRED BY
REASON OF THE LIQUIDA TION OR REEMPLOYMENT OF DEPOSITS OR
OTHER FUNDS ACQUIRED BY SUCH BANK TO FUND OR MAINTAIN ANY
EURODOLLAR RATE LOAN) AS A RESULT OF (i) ANY ADDI TIONAL COSTS
INCURRED BY SUCH BANK; (ii) ANY PAYMENT OR REPAYMENT (WHETHER
AUTHORIZED OR REQUIRED HEREUNDER OR OTHERWISE) OF ALL OR A
PORTION OF ANY LOAN ON A DAY OTHER THAN THE EXPIRATION DATE OF
A RATE PERIOD FOR SUCH LOAN; (iii) ANY PAYMENT OR PREPAYMENT
(WHETHER REQUIRED HEREUNDER OR OTHERWISE) OF ANY LOAN MADE
AFTER THE DELIVERY OF A NOTICE OF BORROWING BUT BEFORE THE
APPLICABLE BORROWING DATE IF SUCH PAYMENT OR PREPAYMENT
PREVENTS THE PROPOSED BORROWING FROM BECOMING FULLY EFFECTIVE;
OR (iv) AFTER RECEIPT BY THE AGENT OF A NOTICE OF BORROWING,
THE FAILURE OF ANY LOAN TO BE MADE OR EFFECTED BY SUCH BANK
DUE TO ANY CONDITION PRECEDENT TO A BORROWING NOT BEING
SATISFIED BY THE BORROWER OR DUE TO ANY OTHER ACTION OR
INACTION OF THE BORROWER. ANY BANK DEMANDING PAYMENT UNDER
THIS SECTION 2.3(d) SHALL DELIVER TO THE BORROWER AND THE
AGENT A STATEMENT REASONABLY SETTING FORTH THE AMOUNT AND
MANNER OF DETERMINING SUCH LOSS, COST OR EXPENSE. THE FACTS
SET FORTH IN SUCH STATEMENT SHALL BE CONCLUSIVE AND BINDING
FOR ALL PURPOSES, ABSENT MANIFEST ERROR.
(e) If, after the date of this Agreement, any Bank shall have
determined that the adoption of any applicable law, rule,
guideline, interpretation or regulation regarding capital
adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by
such Bank with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Bank's
capital as a consequence of its obligations hereunder and
under similar lending arrangements to a level below that which
such Bank could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies
with respect to capital adequacy) by an amount deemed by such
Bank to be material then the Borrower shall pay to such Bank
such additional amount or amounts as will compensate such Bank
for such reduction.
(f) A certificate of such Bank setting forth such amount or
amounts as shall be necessary to compensate such Bank as
specified in subparagraph (e) above shall be delivered as soon
as practicable to the Borrower (with a copy thereof to the
agent) and to the extent determined in accordance with
subparagraph (e) above shall be conclusive and binding, absent
manifest error. The Borrower shall pay such Bank the amount
shown as due on any such certificate within fifteen (15) days
after such Bank delivers such certificate. In preparing such
certificate, such Bank may employ such assumptions and
allocations (consistently applied with respect to advances
made by such Bank or commitments by such Bank to make
advances) of costs and expenses as it shall in good faith deem
reasonable and may use any reasonable averaging and
attribution method (consistently applied with respect to
advances made by such Bank or commitments by such Bank to make
advances).
(g) In calculating the Eurodollar Rate and the commitment fee
payable under Section 4.1 hereof, and notwithstanding the
-----------
provisions set forth in the definitions of Eurodollar Rate or
in the pricing grid established for the commitment fee in
Section 4.1 hereof, in the event that the ratings for
-----------
Borrower's unsecured, non-credit enhanced Senior Funded Debt
under Standard & Poor's Ratings Group and under Moody's
Investor Service, Inc. fall within different rating categories
which are not functional equivalents, the Eurodollar Rate and
the commitment fee payable under Section 4.1 hereof shall be
-----------
based on the higher of such ratings if there is only one
category difference between the functional equivalents of such
ratings, and if there is a two category difference between the
functional equivalents of such ratings, the component of
pricing from the grid set forth in such definitions or in
Section 4.1 shall be based on the rating category which is
-----------
then in the middle of or between the two category ratings
which are then in effect.
--------------------------------------------------------------------------------
2.4 Extension of Maturity Date. On a Business Day no less than sixty (60)
and no more than ninety (90) days prior to May 28, 2002, and during
such period in each year thereafter during which this Agreement is in
effect, the Borrower may elect to notify the Agent, in writing, of
its request for an extension of the maturity date of each Banks
Commitment (on the terms and conditions set forth herein) for a
period of up to 364 days from the date of the then current Maturity
Date. Promptly after receipt of such request, the Agent shall notify
the Banks of such request. Each Bank shall notify the Agent in
writing of its consent to, or rejection of, such request on or prior
to April 30 of each such year. In the event that any Bank fails to so
notify the Agent, that request shall be deemed to have been rejected
by such Bank. The Commitments shall be extended hereunder only upon
the consent of each Bank, whereupon the Maturity Date of each Note
shall be deemed to be extended to the agreed date of extension, but
in no event later than the date which is 364 days after the date of
the Maturity Date in effect prior to such extension. In the event of
the renewal and extension of the Commitments and the maturity date of
the Notes pursuant to this Section 2.4, the terms and conditions of
this Agreement will apply during such renewal and extension period
and, from and after the date of such extension, the term "Maturity
Date" shall mean such date as so renewed and extended.
2.5 Increase of Commitments
(a) At any time after the Closing Date, provided that no Default
or Event of Default shall have occurred and be continuing, the
Borrower may request from time to time one or more increases
of the Commitments by notice to the Agent in writing of the
amount of each such proposed increase (each such notice, a
"Commitment Increase Notice"). Any such Commitment Increase
--------------------------
Notice must offer each Bank the opportunity to subscribe for
its pro rata share of the requested increase in the
Commitments, and the Agent shall promptly provide to each Bank
a copy of any Commitment Increase Notice received by the
Agent. Within 10 Business Days after receipt by the Agent of
the applicable Commitment Increase Notice, each Bank wishing
to subscribe for its pro rata share of the requested increase
in the Commitments must deliver written notice of such fact to
the Agent. If any portion of the requested increase in the
Commitments is not subscribed for by the Banks within such
10-day period, the Borrower may, in its sole discretion, but
with the consent of the Agent as to any Person that is not at
such time a Bank (which consent shall not be unreasonably
withheld or delayed so long as such Person is an Eligible
Assignee), offer to any existing Bank or to one or more
additional banks or financial institutions the opportunity to
participate in all or a portion of such unsubscribed portion
of the requested increase in the Commitments pursuant to
Section 2.5 (b) or (c) below, as applicable;
(b) Any additional bank or financial institution that the Borrower
selects to offer a participation in the unsubscribed portion
of the increased Commitments, and that elects to become a
party to this Agreement and obtain a Commitment, shall execute
an agreement (a "New Bank Agreement"), in the form required by
------------------
the Agent, with the Borrower and the Agent, whereupon such
bank or financial institution (a "New Bank") shall become a
--------
Bank for all purposes hereunder to the same extent as if
originally a party hereto and shall be bound by and entitled
to the benefits of this Agreement, and the signature pages
hereof shall be deemed to add the name and Commitment of such
New Bank, provided that the Commitment of any such New Bank
shall be in an amount not less than $5,000,000;
(c) Any Bank that accepts an offer by the Borrower to increase its
Commitment pursuant to this Section 2.5 shall, in each case,
execute a commitment increase agreement (a "Commitment
Increase Agreement"), in the form required by the Agent, with
the Borrower and the Agent, whereupon such Bank shall be bound
by and entitled to the benefits of this Agreement with respect
to the full amount of its Commitment as so increased, and the
signature pages hereof shall be deemed to be amended to
reflect such increase in the Commitment of such Bank;
(d) The effectiveness of any New Bank Agreement or Commitment
Increase Agreement shall be contingent upon receipt by the
Agent of such corporate resolutions of the Borrower and legal
opinions of in-house counsel to the Borrower, if any, as the
Agent shall reasonably request with respect thereto;
--------------------------------------------------------------------------------
(e) If any bank or financial institution becomes a New Bank
pursuant to Section 2.5(b) or if any Bank's Commitment is
increased pursuant to Section 2.5(c), additional Loans and
additional liability for Facility Letters of Credit made or
issued on or after the effectiveness thereof (the
"Re-Allocation Date") shall be made pro rata based on each
------------------
Bank's (including each New Bank's) respective Commitment in
effect on and after such Re-Allocation Date (except to the
extent that any such pro rata borrowings or incurring of
liability would result in any Bank making an aggregate
principal amount of Loans and incurring liability for the
Facility Letters of Credit in excess of its Commitment, in
which case such excess amount will be allocated to, and made
or incurred by, such New Bank and/or Banks with such increased
Commitments to the extent of, and pro rata based on, their
respective Commitments), and continuations of Eurodollar Rate
Loans outstanding on such Re-Allocation Date shall be effected
by repayment of such Eurodollar Rate Loans on the last day of
the Rate Period applicable thereto and the extension of new
Eurodollar Rate Loans pro rata based on the Banks' respective
Commitments in effect on and after such Re-Allocation Date.
In the event that on any such Re-Allocation Date there are
Alternate Base Rate Loans outstanding, the Borrower shall make
prepayments thereof and borrow new Alternate Base Rate Loans
so that, after giving effect thereto, the Alternate Base Rate
Loans outstanding are held pro rata based on the Banks'
respective Commitments in effect on and after such
Re-Allocation Date. In the event that on any such
Re-Allocation Date there are Eurodollar Rate Loans
outstanding, such Eurodollar Rate Loans shall remain
outstanding with the respective holders thereof until the
expiration of their respective Rate Periods (unless the
Borrower elects to prepay any thereof in accordance with the
applicable provisions of this Agreement), and interest on and
repayments of such Eurodollar Rate Loans will be paid thereon
to the respective Banks holding such Eurodollar Rate Loans pro
rata based on the respective principal amounts thereof
outstanding;
(f) Notwithstanding anything to the contrary in this Section 2.5,
(i) no Bank shall have any obligation to increase its
Commitment under this Section 2.5 unless it agrees in writing
to do so in its sole discretion, (ii) no Bank shall have any
right to decrease the amount of its Commitment as a result
of any requested increase of the Commitments pursuant to this
Section 2.5, (iii) the Agent shall have no obligation to find
or locate any New Bank to participate in any unsubscribed
portion of any increase in the Commitments requested by the
Borrower, (iv) each increase in the Commitments requested by
the Borrower shall not be less than $10,000,000, (v) after
giving effect to any increase in the Commitments pursuant to
this Section 2.5, the sum of the Commitments and the aggregate
commitments of the lenders under the Long-Term Credit Facility
shall not exceed $425,000,000, and (vi) in the event the
Borrower reduces in the Commitments pursuant to Section 3.6 or
any other provision of this Agreement more than one time
during the term of this Agreement, the ability of the Borrower
to request increases in the Commitments pursuant to this
Section 2.5 shall automatically terminate; and
(g) The Borrower shall execute and deliver to the Agent (for
delivery by the Agent to each applicable Bank) a new Note
payable to each applicable Bank (including each New Bank)
participating in any increase of the Commitments in the
original principal amount of such Bank's Commitment after
giving effect to any such increase of the Commitments.
3. PAYMENTS AND PREPAYMENTS
3.1 Required Prepayments
(a) The Borrower agrees that if at any time it or the Agent
determines that the aggregate principal amount of Loans
outstanding exceeds the Commitments, then the Borrower shall
make a prepayment of principal of the Loans in an amount at
least equal to such excess.
(b) Upon the Borrower's reduction or termination of the
Commitments under Section 3.6, the Borrower shall make such
prepayments as are required by the terms of Section 3.6.
(c) Immediately upon the termination of any period of 180
consecutive calendar days in which the aggregate principal
amount outstanding under the Notes and the Long-Term Credit
Facility Notes
--------------------------------------------------------------------------------
has exceeded the Borrower's Available Senior Funded Debt
Capacity outstanding under the Senior Notes, the Borrower will
prepay the Notes and/or the Long-Term Credit Facility Notes by
the amount of such excess, together with all interest accrued
on such prepaid amount and such other amounts that may be
required to be paid in consequence of such prepayment under
Section 2.3(d).
3.2 Repayment of the Loans. Borrower shall repay the principal amount of
each Loan, on the last day of the Interest Period for such Loan,
together with all accrued and unpaid interest thereon as of such
date, irrespective of any claim, set off, defense, or other right
which the Borrower may have at any time against any Bank, the Agent
or any other Person.
3.3 Place of Payment or Prepayment. All payments and prepayments made in
accordance with the pro visions of this Agreement or of the Notes or
of any other Loan Document in respect of commitment fees or of
principal or interest on the Notes shall be made to the Agent for the
account of the Banks at its Domestic Lending Office, no later than
noon, Houston time, in immediately available funds. Unless the Agent
shall have received notice from the Borrower prior to the date on
which any payment is due to the Banks hereunder that the Borrower
will not make any payment due hereunder in full, the Agent may assume
that the 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 to such Bank. If and to the extent the 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 dis tributed to such Bank until the date such Bank
repays such amount to the Agent, at the Federal Funds Rate. If and to
the extent that the Agent receives any payment or prepayment from the
Borrower and fails to distribute such payment or prepayment to the
Banks ratably on the basis of their respective Pro Rata Percentage on
the day the Agent receives such payment or prepayment, and such
distribution shall not be so made by the Agent in full on the
required day, the Agent shall pay to each Bank such Bank's Pro Rata
Percentage thereof together with interest thereon at the Federal
Funds Rate for each day from the date such amount is paid to the
Agent by the Borrower until the date the Agent pays such amount to
such Bank.
3.4 No Prepayment Premium or Penalty. Each prepayment pursuant to Section
3.1 or 3.3 shall be without premium or penalty, subject in the case
of Eurodollar Rate Loans to the provisions of Section 2.3(d).
3.5 Taxes. All payments (whether of principal, interest, reimbursements
or otherwise) under this Agreement or on the Notes shall be made by
the Borrower without set off or counterclaim and shall be made free
and clear of and without deduction for any present or future tax,
levy, impost or any other charge, if any, of any nature whatsoever
now or hereafter imposed by any taxing authority. If the making of
such payments is prohibited by law, unless such a tax, levy, impost
or other charge is deducted or withheld therefrom, the Borrower shall
pay to the Banks, on the date of each such payment, such additional
amounts as may be necessary in order that the net amounts received by
the Banks after such deduction or withholding shall equal the amounts
which would have been received if such deduction or withholding were
not required.
3.6 Reduction or Termination of Commitments. The Borrower may at any time
or from time to time reduce or terminate the Commitment of each Bank
by giving not less than ten (10) full Business Days' prior written
notice to such effect to the Agent, provided that any partial
reduction shall be in the amount of $1,000,000.00 or an integral
multiple thereof. Concurrently with each such reduction or
termination, all amounts in excess of the reduced Commitments shall
be automatically due and payable and it is a condition to the
effectiveness of such reduction that the Borrower shall immediately
prepay the entire amount of such excess together with all accrued
interest thereon and such other amounts that may be required to be
paid in consequence of such prepayment under Section 2.3(d). Promptly
after the Agent's receipt of such notice of reduction, the Agent
shall notify each Bank of the proposed reduction and such reduction
shall be effective on the date specified in the Borrower's notice
with respect to such reduction and shall reduce the Commitment of
each Bank proportionately in accordance with its Pro Rata Percentage.
After each such reduction, the commitment fee shall be calculated
upon the Commitments as so reduced. The Commitment of each Bank shall
automatically terminate on the Maturity Date or in
--------------------------------------------------------------------------------
the event of acceleration of the maturity date of the Notes. Each
reduction of the Commitment hereunder shall be irrevocable.
4. COMMITMENT FEE AND OTHER FEES
4.1 Commitment Fee. The Borrower agrees to pay to the Agent for the
account of each Bank a commitment fee based on a year of 360 days,
from the Closing Date to, but not including, the Maturity Date (or
such earlier date as of which all Commitments shall have terminated),
on the daily average unused amount of each Bank's Commitment, such
commitment fee to be payable quarterly in arrears on (a) the last day
of each March, June, September, and December, commencing on June 30,
2001 and (b) the Maturity Date, at a rate per annum changing with the
rating of the Borrower's unsecured, non-credit enhanced Senior Funded
Debt, and determined in accordance with the following grid:
Rating of the Borrower's unsecured, non-credit Percentage
enhanced Senior Funded Debt Per Annum
------------------------------------------------ -------------
Equal to or greater than A3 by Moody's Investor
Service, Inc. and equal to or greater than A- by
---
Standard and Poor's Ratings Group 0.105%
------------------------------------------------ -------------
Baa1 by Moody's Investor Service, Inc. or BBB+
--
by Standard and Poor's Ratings Group 0.130%
------------------------------------------------ -------------
Baa2 by Moody's Investor Service, Inc. or BBB by
--
Standard and Poor's Ratings Group 0.130%
------------------------------------------------ -------------
Baa3 by Moody's Investor Service, Inc. or BBB-
--
by Standard and Poor's Ratings Group 0.130%
------------------------------------------------ -------------
Equal to or less than Ba1 by Moody's Investor
Service, Inc. and equal to or less than BB+ by
---
Standard and Poor's Ratings Group 0.230%
================================================ =============
4.2 Fees Not Interest; Nonpayment. The fees described in this Agreement
represent compensation for services rendered and to be rendered
separate and apart from the lending of money or the provision of
credit and do not constitute compensation for the use, detention, or
forbearance of money, and the obligation of the Borrower to pay each
fee described herein shall be in addition to, and not in lieu of, the
obligation of the Borrower to pay interest, other fees described in
this Agreement, and expenses otherwise described in this Agreement.
Fees shall be payable when due in Dollars and in immediately
available funds. The commitment fee referred to in Section 4.1 shall
be non-refundable, and shall, to the fullest extent permitted by law,
bear interest, if not paid when due, at a rate per annum equal to the
lesser of (a) five percent (5%) above the Alternate Base Rate as in
effect from time to time or (b) the Highest Lawful Rate.
4.3 Utilization Fee. The Borrower agrees to pay to Agent, for the
account of each Bank, a utilization fee at a rate per annum equal to
0.125%, based on a year of 360 days, from the Closing Date to, but
not including, the Maturity Date (or such earlier date as of which
the Commitments have been terminated), on the daily average amount by
which the sum of the aggregate principal amount of the Loans, the
aggregate principal balance of the Long-Term Credit Facility Notes
and the Facility Letter of Credit Obligations exceeds thirty-three
percent (33%) of the sum of the aggregate amount of the Commitments
hereunder and the aggregate amount of the Commitments (as defined in
the Long-Term Credit Facility Agreement), such utilization fee to be
payable quarterly in arrears on (a) the last day of each March, June,
September, and December, commencing on June 30, 2001, and (b) the
Maturity Date.
5. APPLICATION OF PROCEEDS
5.1 Application of Proceeds. The Borrower agrees that the proceeds of
the Loans shall be used:
(a) to provide working capital and for general corporate purposes;
(b) to finance the acquisition of Qualifying Assets, which
Qualifying Assets may be acquired on a revolving basis as long
as at any one time the amount of the Borrower's investment in
Qualifying Assets does not exceed the amounts set forth in
clause (i) and clause (ii) of the definition of Qualifying
Assets as applicable; provided, however, that the prior
written consent of the Majority Banks shall be required for
the use of Loan proceeds to finance any portion of any such
acquisition
--------------------------------------------------------------------------------
described in clause (i) of the definition of Qualifying Assets
requiring the payment of more than $60,000,000;
(c) to finance the Borrower's open market acquisition of its own
7.60% Senior Notes due 2024; provided, however, that such use,
together with the use of proceeds of the Long-Term Credit
Facility for such purpose, if any, shall be limited to an
aggregate amount advanced to $40,000,000; and
(d) to finance the Borrower's repurchase of its own common stock
and preferred equity securities; provided, however, that such
use, together with the use of proceeds of the Long-Term Credit
Facility for such purpose, if any, shall be limited to an
aggregate amount advanced to $50,000,000.
6. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
6.1 Organization and Qualification. The Borrower and each Subsidiary: (a)
are corporations duly organized, validly existing, and in good
standing under the laws of their respective states of incorporation;
(b) have the corporate or organizational power to own their
respective properties and to carry on their respective businesses as
now conducted; and (c) are duly qualified as foreign corporations
(or, in the case of any Southern Union Trust, trusts) to do business
and are in good standing in every jurisdiction where such
qualification is necessary except when the failure to so qualify
would not or does not have a Material Adverse Effect. The Borrower is
a corporation organized under the laws of Delaware and has the
Subsidiaries listed on Schedule 6.1 attached hereto and hereby made a
part hereof for all purposes, and no others, each of which is a
Delaware corporation unless otherwise noted. None of the Subsidiaries
listed on Schedule 6.1 as "Inactive Subsidiaries," conducts or will
conduct any business, and none of such Subsidiaries has any assets
other than minimum legal capitalization.
6.2 Financial Statements. The Borrower has furnished the Banks with (a)
the Borrower's annual audit reports containing the Borrower's
consolidated balance sheets, statements of income and stockholder's
equity and a cash flow statements as at and for the twelve month
period ending June 30, 2000, accompanied by the certificate of Price
Waterhouse Coopers and (b) the Borrower's unaudited financial report
as of the fiscal quarter ending December 31, 2000. These statements
are complete and correct and present fairly in accordance with GAAP,
consistently applied throughout the periods involved, the
consolidated financial position of the Borrower and the Subsidiaries
and the results of its and their operations as at the dates and for
the periods indicated subject, as to interim statements only, to
changes resulting from customary end-of-year credit adjustments which
in the aggregate will not be material. There has been no material
adverse change in the condition, financial or otherwise, of the
Borrower or any Subsidiary since March 31, 2001.
6.3 Litigation. Except as disclosed on Schedule 6.3 or pursuant to
Section 6.16, there is no: (a) action or proceeding pending or, to
the knowledge of the Borrower, threatened against the Borrower or any
Subsidiary before any court, administrative agency or arbitrator
which is reasonably expected to have a Material Adverse Effect; (b)
judgment outstanding against the Borrower for the payment of money;
or (c) other outstanding judgment, order or decree affecting the
Borrower or any Subsidiary before or by any administrative or
governmental authority, compliance with or satisfaction of which may
reasonably be expected to have a Material Adverse Effect.
6.4 Default. Neither the Borrower nor any Subsidiary is in default under
or in violation of the provisions of any instrument evidencing any
Debt or of any agreement relating thereto or any judgment, order,
writ, injunction or decree of any court or any order, regulation or
demand of any administrative or governmental instrumentality which
default or violation might have a Material Adverse Effect.
6.5 Title to Assets. The Borrower and each Subsidiary have good and
marketable title to their respective assets, subject to no Liens
except those permitted in Section 9.2.
--------------------------------------------------------------------------------
6.6 Payment of Taxes. The Borrower and each Subsidiary have filed all tax
returns required to be filed and have paid all taxes shown on said
returns and all assessments which are due and payable (except such as
are being contested in good faith by appropriate proceedings for
which adequate reserves for their payment have been provided in a
manner consistent with the accounting practices followed by the
Borrower as of March 31, 2001). The Borrower is not aware of any
pending investigation by any taxing authority or of any claims by any
governmental authority for any unpaid taxes, except as disclosed on
Schedule 6.6.
6.7 Conflicting or Adverse Agreements or Restrictions. Neither the
Borrower nor any Subsidiary is a party to any contract or agreement
or subject to any restriction which would have a Material Adverse
Effect. Neither the execution and delivery of this Agreement or the
Notes or any other Loan Document nor the consummation of the
transactions contemplated hereby nor fulfillment of and compliance
with the respective terms, conditions and provisions hereof or of the
Notes or of any instruments required hereby will conflict with or
result in a breach of any of the terms, conditions or provisions of,
or constitute a default under, or result in any violation of, or
result in the creation or imposition of any lien (other than as
contemplated or permitted by this Agreement) on any of the property
of the Borrower or any Subsidiary pursuant to (a) the charter or
bylaws applicable to the Borrower or any Subsidiary; (b) any law or
any regulation of any administrative or governmental instrumentality;
(c) any order, writ, injunction or decree of any court; or (d) the
terms, conditions or provisions of any agreement or instrument to
which the Borrower or any Subsidiary is a party or by which it is
bound or to which it is subject.
6.8 Authorization, Validity, Etc. The Borrower has the corporate power
and authority to make, execute, deliver and carry out this Agreement
and the transactions contemplated herein, to make the borrowings
provided for herein, to execute and deliver the Notes and to perform
its obligations hereunder and under the Notes and the other Loan
Documents to which it is a party and all such action has been duly
authorized by all necessary corporate proceedings on its part. This
Agreement has been duly and validly executed and delivered by the
Borrower and constitutes the valid and legally binding agreement of
the Borrower enforceable in accordance with its terms, except as
limited by Debtor Laws; and the Notes and the other Loan Documents,
when duly executed and delivered by the Borrower pursuant to the
provisions hereof, will constitute the valid and legally binding
obligation of the Borrower enforceable in accordance with the terms
thereof and of this Agreement, except as limited by Debtor Laws.
6.9 Investment Company Act Not Applicable. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company
Act of 1940, as amended.
6.10 Public Utility Holding Company Act Not Applicable. Neither the
Borrower nor any Subsidiary is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding
company", or an affiliate of a "subsidiary company" of a "holding
company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
6.11 Regulations G, T, U and X. No Loan shall be a "purpose credit secured
directly or indirectly by margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System
("margin stock"); none of the proceeds of any Loan will be used to
extend credit to others for the purpose of purchasing or carrying any
margin stock, or for any other purpose which would constitute this
transaction a "purpose credit secured directly or indirectly by
margin stock" within the meaning of said Regulation U, as now in
effect or as the same may hereafter be in effect. Neither the
Borrower nor any Subsidiary will take or permit any action which
would involve the Banks in a violation of Regulation G, Regulation T,
Regulation U, Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System or a violation of the
Securities Exchange Act of 1934, in each case as now or hereafter in
effect. After applying proceeds of the Loans and the Long-Term Credit
Facility used to acquire the equity interests described in the
definition of "Qualifying Assets", not more than twenty-five percent
(25%) of the value (as determined by any reasonable method) of the
assets subject to the negative pledge set forth in Section 9.2 of the
Credit Agreement and the restrictions on disposition of assets set
forth in Section 9.8 of the Credit Agreement is represented by margin
stock.
--------------------------------------------------------------------------------
6.12 ERISA. No Reportable Event (as defined in ss. 4043(b) of ERISA) has
occurred with respect to any Plan. Each Plan complies in all material
respects with a applicable provisions of ERISA, and the Borrower and
each Subsidiary have filed all reports required by ERISA and the Code
to be filed with respect to each Plan. The Borrower has no knowledge
of any event which could result in a liability of the Borrower or any
Subsidiary to the Pension Benefit Guaranty Corporation. The Borrower
and each Subsidiary have met all requirements with respect to funding
the Plans imposed by ERISA or the Code. Since the effective date of
Title IV of ERISA, there have not been any, nor are there now
existing any, events or conditions that would permit any Plan to be
terminated under circumstances which would cause the lien provided
under ss. 4068 of ERISA to attach to any property of the Borrower or
any Subsidiary. The value of the Plans' benefits guaranteed under
Title IV of ERISA on the date hereof does not exceed the value of
such Plans' assets allocable to such benefits as of the date of this
Agreement and shall not be permitted to do so hereafter.
6.13 No Financing of Certain Security Acquisitions. None of the proceeds
of any Loan will be used to acquire any security in any transaction
that is subject to ss.13 or ss.14 of the Securities Exchange Act of
1934, as amended, except the equity interests described in
subparagraph (ii) of the definition of "Qualifying Assets".
6.14 Franchises, Co-Licenses, Etc. The Borrower and each Subsidiary own or
have obtained all the material governmental permits, certificates of
authority, leases, patents, trademarks, service marks, trade names,
copyrights, franchises and licenses, and rights with respect thereto,
required or necessary (or, in the sole and independent judgment of
the Borrower, prudent) in connection with the conduct of their
respective businesses as presently conducted or as proposed to be
conducted.
6.15 Lines of Business. The nature of the Borrower's lines of business are
predominately the following: (a) the operation of energy distribution
and transportation services, including without limitation, natural
gas sales and transportation and distribution, propane sales and
distribution and promotion, marketing and sale of compressed natural
gas and liquified natural gas; (b) the development and marketing of
fuel cell and distributive energy options; (c) electric
marketing/generation; (d) the operation of fuel oil distribution and
transportation networks; and (e) sales and rentals of appliances
utilizing one or more of the fuel or energy options specified in this
Section 6.15.
6.16 Environmental Matters. Except as disclosed in Schedule 6.16, all
facilities and property owned or leased by the Borrower or any
Subsidiary have been and continue to be, owned or leased and operated
by the Borrower and each Subsidiary in material compliance with all
Environmental Laws; (i) there has not been (during the period of the
Borrower's, or a Subsidiary's ownership or lease) any Release of
Hazardous Materials at, on or under any property now (or, to the
Borrower's knowledge, previously) owned or leased by the Borrower or
any Subsidiary (A) in quantities that would be required to be
reported under any Environmental Law, (B) that required, or may
reasonably be expected to require, the Borrower to expend funds on
remediation or cleanup activities pursuant to any Environmental Law
except for remediation or clean-up activities that would not be
reasonably expected to have a Material Adverse Effect, or (C) that
otherwise, singly or in the aggregate, has, or may reasonably be
expected to have, a Material Adverse Effect; (ii) the Borrower and
each Subsidiary have been issued and are in material compliance with
all permits, certificates, approvals, orders, licenses and other
authorizations relating to environmental matters necessary for their
respective businesses; and (iii) there are no polychlorinated
biphenyls (PCB's) or asbestos-containing materials or surface
impoundments in any of the facilities now (or, to the knowledge of
the Borrower, previously) owned or leased by the Borrower or any
Subsidiary, except for asbestos- containing materials of the type and
in quantities that, to the knowledge of the borrower, do not
currently require remediation, and if remediation of such
asbestos-containing materials is hereafter required for any reason,
such remediation activities would not reasonably be expected to have
a Material Adverse Effect; (iv) Hazardous Materials have not been
generated, used, treated, recycled, stored or disposed of in any of
the facilities or on any of the property now (or, to the knowledge of
the Borrower, previously) owned or leased by the Borrower or any
Subsidiary during the time of the Borrower's or such Subsidiary's
ownership or leased by the Borrower or any Subsidiary during the time
of the Borrower's or such Subsidiary's ownership except in material
compliance with all applicable Environmental Laws; and (v) all
underground storage tanks located on the property now (or, to the
knowledge of the Borrower, previously) owned or
--------------------------------------------------------------------------------
leased by the Borrower or any Subsidiary have been (and to the extent
currently owned or leased are) operated in material compliance with
all applicable Environmental Laws.
7. CONDITIONS
The obligation of the Banks to make any Loans is subject to the following
conditions:
7.1 Representations True and No Defaults
(a) The representations and warranties contained in Section 6
shall be true and correct on and as of the particular
Borrowing Date as though made on and as of such date;
(b) The Borrower shall not be in default in the due performance of
any covenant on its part contained in this Agreement;
(c) no material adverse change shall have occurred with respect to
the business, assets, properties or condition (financial or
otherwise) of the Borrower reflected in the quarterly
financial statements of the Borrower dated March 31, 2001
(copies of such audited financial statements having been
supplied to the Agent and each Bank); and
(d) no Event of Default or Default shall have occurred and be
continuing.
7.2 Governmental Approvals. The Borrower shall have obtained all orders,
approvals or consents of all public regulatory bodies required for
the making and carrying out of this Agreement, the making of the
borrowings pursuant hereto, the issuance of the Notes to evidence
such borrowings, and the execution and delivery of the Security
Documents.
7.3 Compliance With Law. The business and operations of the Borrower and
each Subsidiary as conducted at all times relevant to the
transactions contemplated by this Agreement to and including the
close of business on the particular Borrowing Date shall have been
and shall be in compliance in all material respects with all
applicable State and Federal laws, regulations and orders affecting
the Borrower and each Subsidiary and the business and operations of
any of them.
7.4 Notice of Borrowing and Other Documents. On each Borrowing Date, the
Banks shall have received (a) a Notice of Borrowing; and (b) such
other documents and certificates relating to the transactions herein
contemplated as the Banks may reasonably request.
7.5 Payment of Fees and Expenses. The Borrower shall have paid (a) all
expenses of the type described in Section 12.3 through the date of
such Loan or the issuance of such Facility Letter of Credit and (b)
all closing, structuring and other invoiced fees owed as of the
Closing Date to the Agent, any of the Banks and/or Chase Securities
Inc. by the Borrower under this Agreement or any other written
agreement between the Borrower and the Agent, the applicable Bank(s)
or Chase Securities Inc.
7.6 Loan Documents, Opinions and Other Instruments. As of the Closing
Date, the Borrower shall have delivered to the Agent the following:
(a) this Agreement, each of the Notes and all other Loan Documents
required by the Agent and the Banks to be executed and delivered by
the Borrower in connection with this Agreement; (b) a certificate
from the Secretary of State of the State of Delaware as to the
continued existence and good standing of the Borrower in the State of
Delaware; (c) a certificate from Secretary of State of the State of
Texas as to the continued qualification of the Borrower to do
business in the State of Texas; (d) a current certificate from the
Office of the Comptroller of the State of Texas as to the good
standing of the Borrower in the State of Texas; (e) a Secretary's
Certificate executed by the duly elected Secretary or a duly elected
Assistant Secretary of the Borrower, in a form acceptable to the
Agent, whereby such Secretary or Assistant Secretary certifies that
one or more corporate resolutions adopted by the Board of Directors
of the Borrower remain in full force and effect authorizing the
Borrower to secure Loans and Facility Letters of Credit in accordance
with the terms of this Agreement and the Long-Term Credit Facility;
and (f) a legal opinion from in-house counsel for the Borrower, dated
as of the Closing Date,
--------------------------------------------------------------------------------
addressed to the Agent and the Lenders and otherwise acceptable in
all respects to the Agent in its discretion.
8. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as the Borrower may borrow
hereunder and until payment in full of the Notes, and its other obligations
under this Agreement and the other Loan Documents the Borrower will:
8.1 Financial Statements and Information. Deliver to the Banks:
(a) as soon as available, and in any event within 120 days after
the end of each fiscal year of the Borrower, a copy of the
annual audit report of the Borrower and the Subsidiaries for
such fiscal year containing a balance sheet, statements of
income and stockholders equity and a cash flow statement, all
in reasonable detail and certified by Price Waterhouse Coopers
or another independent certified public accountant of
recognized standing satisfactory to the Banks. The Borrower
will obtain from such accountants and deliver to the Banks at
the time said financial statements are delivered the written
statement of the accountants that in making the examination
necessary to said certification they have obtained no
knowledge of any Event of Default or Default, or if such
accountants shall have obtained knowledge of any such Event of
Default or Default, they shall state the nature and period of
existence thereof in such statement; provided that such
-------------
accountants shall not be liable directly or indirectly to the
Banks for failure to obtain knowledge of any such Event of
Default or Default; and
(b) as soon as available, and in any event within sixty (60) days
after the end of each quarterly accounting period in each
fiscal year of the Borrower (excluding the fourth quarter), an
unaudited financial report of the Borrower and the
Subsidiaries as at the end of such quarter and for the period
then ended, containing a balance sheet, statements of income
and stockholders equity and a cash flow statement, all in
reasonable detail and certified by a financial officer of the
Borrower to have been prepared in accordance with GAAP, except
as may be explained in such certificate; and
(c) copies of all statements and reports sent to stockholders of
the Borrower or filed with the Securities and Exchange
Commission; and
(d) such additional financial or other information as the Banks
may reasonably request including, without limitation, copies
of such monthly, quarterly, and annual reports of gas
purchases and sales that the Borrower is required to deliver
to or file with governmental bodies pursuant to tariffs and/or
franchise agreements.
All financial statements specified in clauses (a) and (b) above shall
be furnished in consolidated and consolidating form for the Borrower
and all Subsidiaries with comparative consolidated figures for the
corresponding period in the preceding year. Together with each
delivery of financial statements required by clauses (a) and (b)
above, the Borrower will deliver to the Banks (i) such schedules,
computations and other information as may be required to demonstrate
that the Borrower is in compliance with its covenants in Section 9.1
or reflecting any noncompliance therewith as at the applicable date
and (ii) an Officer's Certificate stating that there exists no Event
of Default or Default, or, if any such Event of Default or Default
exists, stating the nature thereof, the period of existence thereof
and what action the Borrower has taken or proposes to take with
respect thereto. The Banks are authorized to deliver a copy of any
financial statement delivered to it to any regulatory body having
jurisdiction over them, and to disclose same to any prospective
assignees or participant Lenders.
8.2 Lease and Investment Schedules. Deliver to the Banks:
(a) from time to time and, in any event, with each delivery of
annual financial statements under Section 8.1(a), a current,
complete schedule (in the form of Schedule 8.2) of all
agreements to rent or lease any property (personal, real or
mixed, but not including oil and gas leases) to which the
Borrower or any Subsidiary is a party lessee and which,
considered independently or collectively with other leases
with the same lessor, involve an obligation by the Borrower or
a Subsidiary to make
--------------------------------------------------------------------------------
payments of at least $250,000.00 in any year, showing the
total amounts payable under each such agreement, the amounts
and due dates of payments thereunder and containing a
description of the rented or leased property, and all other
information the Majority Banks may request; and
(b) with each delivery of annual financial statements under
Section 8.1(a) a current complete schedule (in the form of
Schedule 8.2) listing all debt exceeding $200,000.00 in
principal amount outstanding and equity owned or held by the
Borrower or any Subsidiary containing all information required
by, and in a form satisfactory to, the Banks, except for such
debt or equity of Subsidiaries.
8.3 Books and Records. Maintain, and cause each Subsidiary to maintain,
proper books of record and account in accordance with sound
accounting practices in which true, full and correct entries will be
made of all their respective dealings and business affairs.
8.4 Insurance. Maintain, and cause each Subsidiary to maintain, insurance
with financially sound, responsible and reputable companies in such
types and amounts and against such casualties, risks and
contingencies as is customarily carried by owners of similar
businesses and properties, and furnish to the Banks, together with
each delivery of annual financial statements under Section 8.1(a), an
Officer's Certificate containing full information as to the insurance
carried.
8.5 Maintenance of Property. Cause its Significant Property and the
Significant Property of each Subsidiary to be maintained, preserved,
protected and kept in good repair, working order and condition so
that the business carried on in connection therewith may be conducted
properly and efficiently, except for normal wear and tear; provided,
however, that the improved properties of Lavaca Realty Company should
be maintained, preserved and protected in a manner consistent with
the maintenance, preservation and protection of improved real
property held for sale.
8.6 Inspection of Property and Records. Permit any officer, director or
agent of the Agent or any Bank, on written notice and at such Banks
expense, to visit and inspect during normal business hours any of the
properties, corporate books and financial records of the Borrower and
each Subsidiary and discuss their respective affairs and finances
with their principal officers, all at such times as the Agent or any
Bank may reasonably request.
8.7 Existence, Laws, Obligations. Maintain, and cause each Subsidiary to
maintain, its corporate existence and franchises, and any license
agreements and tariffs that permit the recovery of a return that the
Borrower considers to be fair (and as to licenses, franchises, and
tariffs that are subject to regulatory determinations of recovery of
returns, the Borrower has presented or is presenting favorable
defense thereof); and to comply, and cause each Subsidiary to comply,
with all statutes and governmental regulations noncompliance with
which might have a Material Adverse Effect, and pay, and cause each
Subsidiary to pay, all taxes, assessments, governmental charges,
claims for labor, supplies, rent and other obligations which if
unpaid might become a lien against the property of the Borrower or
any Subsidiary except liabilities being contested in good faith.
Notwithstanding the foregoing, the Borrower may dissolve those
certain inactive and minimally capitalized Subsidiaries designated as
such on Schedule 6.1.
------------
8.8 Notice of Certain Matters. Notify the Agent Bank immediately upon
acquiring knowledge of the occurrence of any of the following events:
(a) the institution or threatened institution of any lawsuit or
administrative proceeding affecting the Borrower or any Subsidiary
that is not covered by insurance (less applicable deductible amounts)
and which, if determined adversely to the Borrower or such
Subsidiary, could reasonably be expected to have a Material Adverse
Effect; (b) the occurrence of any material adverse change, or of any
event that in the good faith opinion of the Borrower is likely, to
result in a material adverse change, in the assets, liabilities,
financial condition, business or affairs of the Borrower or any
Subsidiary; (c) the occurrence of any Event of Default or any
Default; or (d) a change by Moody's Investors Service, Inc. or by
Standard and Poor's Ratings Group in the rating of the Borrower's
Funded Debt.
--------------------------------------------------------------------------------
8.9 ERISA. At all times:
(a) maintain and keep in full force and effect each Plan;
(b) make contributions to each Plan in a timely manner and in an
amount sufficient to comply with the minimum funding standards
requirements of ERISA;
(c) immediately upon acquiring knowledge of any "reportable event"
or of any "prohibited transaction" (as such terms are defined
in the Code ss. 4043) in connection with any Plan, furnish the
Banks with a statement executed by the president or chief
financial officer of the Borrower setting forth the details
thereof and the action which the Borrower proposes to take
with respect thereto and, when known, any action taken by the
Internal Revenue Service with respect thereto;
(d) notify the Banks promptly upon receipt by the Borrower or any
Subsidiary of any notice of the institution of any proceeding
or other action which may result in the termination of any
Plan and furnish to the Banks copies of such notice;
(e) acquire and maintain in amounts satisfactory to the Banks from
either the Pension Benefit Guaranty Corporation or authorized
private insurers, when available, the contingent employer
liability coverage insurance required under ERISA;
(f) furnish the Banks with copies of the summary annual report for
each Plan filed with the Internal Revenue Service as the Agent
or the Banks may request; and
(g) furnish the Banks with copies of any request for waiver of the
funding standards or extension of the amortization periods
required by ss. 303 and ss. 304 of ERISA or ss. 412 of the
Code promptly after the request is submitted to the Secretary
of the Treasury, the Department of Labor or the Internal
Revenue Service, as the case may be.
8.10 Compliance with Environmental Laws. At all times:
(a) use and operate, and cause each Subsidiary to use and operate,
all of their respective facilities and properties in material
compliance with all Environmental Laws; keep, and cause each
Subsidiary to keep, all necessary permits, approvals, orders,
certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material
compliance therewith; handle, and cause each Subsidiary to
handle, all Hazardous Materials in material compliance with
all applicable Environmental Laws; and dispose, and cause each
Subsidiary to dispose, of all Hazardous Materials generated by
the Borrower or any Subsidiary or at any property owned or
leased by them at facilities or with carriers that maintain
valid permits, approvals, certificates, licenses or other
authorizations for such disposal under applicable
Environmental Laws;
(b) promptly notify the Agent and provide copies upon receipt of
all written claims, complaints, notices or inquiries relating
to the condition of the facilities and properties of the
Borrower and each Subsidiary under, or their respective
compliance with, applicable Environmental Laws wherein the
condition or the noncompliance that is the subject of such
claim, complaint, notice, or inquiry involves, or could
reasonably be expected to involve, liability of or
expenditures by the Borrower and its Subsidiaries of
$10,000,000.00 or more; and
(c) provide such information and certifications which the Banks
may reasonably request from time to time to evidence
compliance with this Section 8.10.
8.11 PGA Clauses. The Borrower will use its best efforts to maintain in
force provisions in all of its tariffs and franchise agreements that
permit the Borrower to recover from customers substantially all of
the amount by which the cost of gas purchases exceeds the amount
currently billed to customers for the delivery of such gas (sometimes
referred to as PGA clauses).
--------------------------------------------------------------------------------
9. NEGATIVE COVENANTS
So long as the Borrower may borrow hereunder and until payment in full of
the Notes, except with the written consent of the Banks:
9.1 Capital Requirements. The Borrower will not:
(a) permit its Consolidated Net Worth at the end of any fiscal
quarter to be less than the sum of (i) $698,603,000; (ii) 40%
of Consolidated Net Income (if positive) for the period
commencing on January 1, 2000 and ending on the date of
determination, and treated as a single accounting period;
(iii) the difference between (A) 100% of the net proceeds of
any issuance of capital or preferred stock by the Borrower or
any consolidated Subsidiary received by the Borrower or such
consolidated Subsidiary at any time after December 31, 1999;
and (B) the aggregate amount of all redemption or repurchase
payments hereafter made, if any, by the Borrower and any such
consolidated Subsidiary in connection with the repurchase by
the Borrower or any such consolidated Subsidiary of any of
their respective capital or preferred stock; and (iv) without
duplication, the difference between (A) 100% of the net
proceeds heretofore and hereafter received by the Borrower and
any consolidated Subsidiary in respect of the issuance by the
Borrower or such consolidated Subsidiary of the Structured
Securities, and (B) the aggregate amount of all redemption
payments hereafter made, if any, by the Borrower and any such
consolidated Subsidiary in connection with the redemption of
any of the Structured Securities; or
(b) permit the ratio of its Consolidated Total Indebtedness to its
Consolidated Total Capitalization to be greater than (i) 0.70
to 1.00 at the end of any fiscal quarter ending prior to or on
June 30, 2002 and (ii) 0.65 to 1.00 at the end of any fiscal
quarter ending after June 30, 2002. or
(c) acquire, or permit any Subsidiary to acquire, any assets other
than (i) investments permitted under Section 9.4, or (ii)
Qualifying Assets; or
(d) permit the ratio of EBDIT to Cash Interest Expense for the
four fiscal quarters most recently ended (considered as a
single accounting period) at any time to be less than (i) 2.00
to 1.00 at all times during the period ending June 30, 2002,
and (ii) 2.25 to 1.00 at all times thereafter; or
(e) permit the aggregate outstanding principal amount of the Notes
and the Long-Term Credit Facility Notes to exceed for a period
of 180 consecutive days the Borrower's Available Senior Funded
Debt Capacity.
9.2 Mortgages, Liens, Etc. The Borrower will not, and will not permit any
Subsidiary to, create or permit to exist any Lien (including the
charge upon assets purchased under a conditional sales agreement,
purchase money mortgage, security agreement or other title retention
agreement) upon any of its respective assets, whether now owned or
hereafter acquired, or assign or otherwise convey any right to
receive income, except:
(a) Liens for taxes not yet due or that are being contested in
good faith by appropriate proceedings;
(b) other Liens incidental to the conduct of its business or the
ownership of its assets that were not incurred in connection
with the borrowing of money or the obtaining of advances or
credit, and that do not in the aggregate materially detract
from the value of such assets or materially impair the use
thereof in the operation of such business;
(c) Liens on assets of a Subsidiary to secure obligations of such
Subsidiary to the Borrower or another Subsidiary; and
(d) Liens on property existing at the time of acquisition thereof
by the Borrower or any Subsidiary, or purchase money Liens
placed on an item of real or personal property purchased by
the Borrower or any Subsidiary to secure a portion of the
purchase price of such property, provided that no such Lien
may encumber or cover any other property of the Borrower or
any Subsidiary.
--------------------------------------------------------------------------------
9.3 Debt. The Borrower will not, and will not permit any Subsidiary to,
incur or permit to exist any Debt, except:
(a) Debt evidenced by the Notes, the Long-Term Credit Facility
Notes, the Facility Letter of Credit Obligations or
outstanding under the Term Loan Facility not in default;
(b) Debt of any Subsidiary to the Borrower or any other
Subsidiary;
(c) Debt existing as of March 31, 2001 as reflected on financial
statements delivered under Section 6.2(b) and refinancings
thereof other than Debt that has been refinanced by the
proceeds of Loans or the proceeds of the Long-Term Credit
Facility;
(d) endorsements in the ordinary course of business of negotiable
instruments in the course of collection;
(e) Debt of the Borrower or any Subsidiary representing the
portion of the purchase price of property acquired by the
Borrower or such Subsidiary that is secured by Liens permitted
by the provisions of Section 9.2(d); provided, however, that
at no time may the aggregate principal amount of such Debt
outstanding exceed thirty percent (30%) of the Consolidated
Net Worth of the Borrower and its Subsidiaries as of the
applicable determination date;
(f) Debt evidenced by Senior Notes;
(g) additional Debt of the Borrower and Structured Securities of
the Borrower and the Southern Union Trusts provided that after
giving effect to the issuance thereof, there shall exist no
Default or Event of Default; and: (i) the ratio of
Consolidated Total Indebtedness to Consolidated Total
Capitalization shall be no greater than (A) 0.70 to 1.00 at
all times during the period ending June 30, 2002, and (B) 0.65
to 1.00 at all times thereafter; (ii) the ratio of EBDIT for
the four fiscal quarters most recently ended to pro forma Cash
Interest Expense for the following four fiscal quarters shall
be no less than (A) 2.00 to 1.0 at all times during the period
ending June 30, 2002, and (B) 2.25 to 1.0 at all times
thereafter; provided, however, that if the additional Debt for
-------- -------
which the determinations required to be made by this
subparagraph (g) will be used to finance in whole or in part
the consideration to be paid by the Borrower for the
acquisition of any entity otherwise permitted under the terms
of this Agreement, the determination of EBDIT for purposes of
this ratio shall include not only the EBDIT of the Borrower
and its Subsidiaries for the four fiscal quarters most
recently ended, but shall also include the EBDIT of such
entity to be acquired for such four fiscal quarters most
recently ended; and (iii) (A) such Debt and Structured
Securities shall have a final maturity or mandatory redemption
date, as the case may be, no earlier than the Maturity Date
(as the same may be extended pursuant to Section 2.4) and
shall mature or be subject to mandatory redemption or
mandatory defeasance no earlier than the Maturity Date (as so
extended) and shall be subject to no mandatory redemption or
"put" to the Borrower or any Southern Union Trust exercisable,
or sinking fund or other similar mandatory principal payment
provisions that require payments to be made toward principal,
prior to such Maturity Date (as so extended); or (B) (x) such
additional Debt shall have a final maturity date prior to the
Maturity Date, (y) such additional Debt shall not exceed
Eighty Million Dollars ($80,000,000.00) in the aggregate plus
Twenty Million Dollars ($20,000,000.00) of reimbursement
obligations incurred in connection with Non-Facility Letters
of Credit issued by a Bank or Banks or by any other financial
institution; provided, however, that for purposes of
-------- -------
determining the aggregate amount of such additional Debt for
purposes of this subclause (y), neither the $30,000,000 of
8.375% mortgage notes of PG Energy maturing December 1, 2002
nor the Debt of the Borrower under the Term Loan Facility
shall be included, and such Debt outstanding under said 8.375%
mortgage notes of PG Energy and under the Term Loan Facility
shall be deemed to be permitted Debt for purposes of this
subclause (y), and (z) such additional Debt shall be borrowed
from a Bank or Banks as a loan or loans arising independent of
this Agreement or the Long-Term Credit Facility Agreement or
shall be borrowed from a financial institution that is not a
Bank under this Agreement or the Long-Term Credit Facility
Agreement; and
--------------------------------------------------------------------------------
9.4 Loans, Advances and Investments. The Borrower will not, and will not
permit any Subsidiary to, make or have outstanding any loan or
advance to, or own or acquire any stock or securities of or equity
interest or other Investment in, any Person, except (without
duplication):
(a) stock of (i) the Subsidiaries named in Section 6.1; (ii) other
entities that are acquired by the Borrower or any Subsidiary
but that are promptly merged with and into the Borrower; and
(iii) the same Qualifying Entities as the Qualifying Entities
under subparagraph (ii) of the definition of "Qualifying
Assets," provided that at any one time the aggregate purchase
price paid for such stock in such Qualifying Entities,
including the aggregate amount of Debt assumed or deemed
incurred by Borrower in connection with the purchase of such
stock, is not more than ten percent (10%) of the Consolidated
Net Worth of the Borrower and its Subsidiaries as of the
applicable determination date;
(b) loans or advances to a Subsidiary;
(c) Securities maturing no more than 180 days after Borrower's
purchase that are either:
(i) readily marketable securities issued by the United
States or its agencies or instrumentalities; or
(ii) commercial paper rated "Prime 2" by Moody's Investors
Service, Inc. ("Moody's") or A-2 by Standard and Poor's
Ratings Group ("S&P"); or
(iii) certificates of deposit or repurchase contracts on
customary terms with financial institutions in which
deposits are insured by any agency or instrumentality of
the United States; or
(iv) readily marketable securities received in settlement of
liabilities created in the ordinary course of business;
or
(v) obligations of states, agencies, counties, cities and
other political subdivisions of any state rated at lest
MIG2, VMIG2 or Aa by Moody's or AA by S&P; or
(vi) loan participations in credits in which the borrower's
debt is rated at least Aa or Prime 2 by Moody's or AA or
A-2 by S&P; or
(vii) money market mutual funds that are regulated by the
Securities and Exchange Commission, have a
dollar-weighted average stated maturity of 90 days or
fewer on their investments and include in their
investment objectives the maintenance of a stable net
asset value of $1 for each share.
(d) other equity interests owned by a Subsidiary on the date of
this Agreement and such additional equity interests to the
extent (but only to the extent) that such Subsidiary is
legally obligated to acquire those interests on the date of
this Agreement, in each case as disclosed to the Banks in
writing;
(e) loans or advances by the Borrower to customers in connection
with and pursuant to marketing and merchandising products that
the Borrower reasonably expects to increase sales of the
Borrower or Subsidiaries, provided that: (i) such loans must
be either less than $2,000,000.00 to any one customer (or
group of affiliated customers, shown on the Borrower's records
to be Affiliates) or must be disclosed on Schedule 8.2 hereof;
and (ii) all such loans must not exceed $24,000,000.00 in the
aggregate outstanding at any time;
(f) travel and expense advances in the ordinary course of business
to officers and employees;
(g) stock or securities of or equity interests in, any Person
provided that, after giving effect to the acquisition and
ownership thereof, the Borrower is in compliance with the
provisions of Section 9.1(c) of this Agreement; and
--------------------------------------------------------------------------------
(h) loans, advances or other Investments by the Borrower or any
Subsidiary not otherwise permitted under the other provisions
of this Section 9.4, so long as the sum of the outstanding
balance of all of such loans and advances and the purchase
price paid for all of such other Investments does not exceed
in the aggregate seven percent (7%) of the Consolidated Net
Worth of the Borrower and its Subsidiaries as of the
applicable determination date.
9.5 Stock and Debt of Subsidiaries. The Borrower will not, and will not
permit any Subsidiary to, sell or otherwise dispose of any shares of
stock or Debt of any Subsidiary, or permit any Subsidiary to issue or
dispose of its stock (other than directors' qualifying shares),
except to the Borrower or another Subsidiary, and except that
Southern Union Trusts may issue preferred beneficial interests in
public offerings of Borrower's Structured Securities.
9.6 Merger, Consolidation, Etc. The Borrower will not, and will not
permit any Subsidiary to, merge or consolidate with any other Person
or sell, lease, transfer or otherwise dispose of (whether in one
transaction or a series of transactions) all or a substantial part of
its assets or acquire (whether in one transaction or a series of
transactions) all or a substantial part of the assets of any Person,
except that:
(a) any Subsidiary may merge or consolidate with the Borrower
(provided that the Borrower shall be the continuing or
surviving corporation) or with any one or more Subsidiaries;
(b) any Subsidiary may sell, lease, transfer or otherwise dispose
of any of its assets to the Borrower or another Subsidiary;
(c) subject to Section 9.14, Lavaca Realty Company may dispose of
all or a substantial part of its assets to any Person, whether
in one transaction or a series of transactions, for a price or
prices that do not result in a Material Adverse Effect;
(d) the Borrower may acquire the assets of any Person, provided
that, after giving effect to such acquisition, the Borrower is
in compliance with the provisions of Sections 9.1(c); and
(e) the Borrower or any Subsidiary may sell, lease, assign or
otherwise dispose of assets as otherwise permitted under
Section 9.8.
9.7 Supply and Purchase Contracts. The Borrower will not, and will not
permit any Subsidiary to, enter into or be a party to any contract
for the purchase of materials, supplies or other property if such
contract requires that payment for such materials, supplies or other
property shall be made regardless of whether or not delivery is ever
made or tendered of such materials, supplies and other property,
except in those circumstances and involving those supply or purchase
contracts that the Borrower reasonably considers to be necessary or
helpful in its operations in the ordinary course of business and that
the Borrower reasonably considers not to be unnecessarily burdensome
on the Borrower or its Subsidiaries.
9.8 Sale or Other Disposition of Assets. The Borrower will not, and will
not permit any Subsidiary to, except as permitted under this Section
9.8, sell, assign, lease, or otherwise dispose of (whether in one
transaction or in a series of transactions) all or any part of its
Property (whether now owned or hereafter acquired); provided,
however, that (i) the Borrower or any Subsidiary may in the ordinary
course of business dispose of (a) Property consisting of Inventory;
and (b) Property consisting of goods or equipment that are, in the
opinion of the Borrower or any Subsidiary, obsolete or unproductive,
but if in the good faith judgment of the Borrower or any Subsidiary
such disposition without replacement thereof would have a Material
Adverse Effect, such goods and equipment shall be replaced, or their
utility and function substituted, by new or existing goods or
equipment; (ii) Lavaca Realty Company may dispose of its Property on
the terms set forth in Section 9.6(c); (iii) the Borrower may
transfer or dispose of any of its Significant Property (in any
transaction or series of transactions) to any Subsidiary or
Subsidiaries only if such Property so transferred or disposed of
after the Closing Date has an aggregate value (determined after
depreciation and in accordance with GAAP) of not more than ten
percent (10%) of the aggregate value of all of the Borrower's and its
Subsidiaries' real property and tangible personal property other than
Inventory considered on a consolidated basis and determined after
depreciation and in accordance with GAAP, as of March 31, 2001; (iv)
the Borrower and Lavaca Realty Company may dispose of their real
property in
--------------------------------------------------------------------------------
one or more sale/leaseback transactions, provided that any Debt
incurred in connection with such transaction does not create a
Default as defined herein; (v) a Southern Union Trust may distribute
the Borrower's subordinated debt securities constituting a portion of
the Structured Securities, on the terms and under the conditions set
out in the registration statement therefor filed with the Securities
and Exchange Commission on March 25, 1995 or any similar registration
statement filed with the Securities and Exchange Commission in
connection with any other Structured Securities issued in connection
with the Prior Acquisitions; (vi) the Borrower or any Subsidiary may
dispose of real property or tangible personal property other than
Inventory (in consideration of such amount as in the good faith
judgment of the Borrower or such Subsidiary represents a fair
consideration therefor), provided that the aggregate value of such
property disposed of (determined after depreciation and in accordance
with GAAP) after the Closing Date does not exceed ten percent (10%)
of the aggregate value of all of the Borrower's and its Subsidiaries'
real property and tangible personal property other than Inventory
considered on a consolidated basis and determined after depreciation
and in accordance with GAAP, as of March 31, 2001; (vii) the Borrower
may dispose of Qualifying Assets of the type described in clause (ii)
of the definition of Qualifying Assets, provided that the Borrower
make a payment on the Loan in an amount equal to the lesser of (a)
the net sales proceeds from such disposition, and (b) the amount of
Loan proceeds used to acquire such clause (ii) Qualifying Assets; and
(viii) the Borrower may dispose of other Investments of the type
acquired under the terms of Section 9.4(h), provided that the
Borrower make a payment on the Loan in an amount equal to the lesser
of (a) the net sales proceeds from such disposition, and (b) the
amount of Loan proceeds used to acquire such other Investments.
9.9 Discount or Sale of Receivables. The Borrower will not, and will not
permit any Subsidiary, other than Southern Union Total Energy
Services, Inc., to discount or sell with recourse, or sell for less
than the face value thereof (including any accrued interest) any of
its notes receivable, receivables under leases or other accounts
receivable.
9.10 Change in Accounting Method. The Borrower will not, and will not
permit any Subsidiary to, make any change in the method of computing
depreciation for either tax or book purposes or any other material
change in accounting method representing any departure from GAAP
without the Majority Banks' prior written approval.
9.11 Restricted Payment. The Borrower will not pay or declare any
Restricted Payment unless immediately prior to such payment and after
giving effect to such payment, the Borrower could incur at least $1
of additional Debt without violating the provisions of Section 9.3(g)
and after giving effect thereto no Default or Event of Default exists
hereunder.
9.12 Securities Credit Regulations. Neither the Borrower nor any
Subsidiary will take or permit any action which might cause the Loans
or the Facility Letter of Credit Obligations or this Agreement to
violate Regulation G, Regulation T, Regulation U, Regulation X or any
other regulation of the Board of Governors of the Federal Reserve
System or a violation of the Securities Exchange Act of 1934, in each
case as now or hereafter in effect.
9.13 Nature of Business; Management. The Borrower will not, and will not
permit any Subsidiary to: (a) change its principal line of business;
or (b) enter into any business not within the scope of Section 6.15
and the definition of Qualifying Assets; or (c) permit any material
overall change in the management of the Borrower.
9.14 Transactions with Related Parties. The Borrower will not, and will
not permit any Subsidiary to, enter into any transaction or agreement
with any officer, director or holder of ten percent (10%) or more of
any class of the outstanding capital stock of the Borrower or any
Subsidiary (or any Affiliate of any such Person) unless the same is
upon terms substantially similar to those obtainable from wholly
unrelated sources.
9.15 Hazardous Materials. The Borrower will not, and will not permit any
Subsidiary to (a) cause or permit any Hazardous Materials to be
placed, held, used, located, or disposed of on, under or at any of
such Person's property or any part thereof by any Person in a manner
which could reasonably be expected to have a
--------------------------------------------------------------------------------
Material Adverse Effect; (b) cause or permit any part of any of such
Person's property to be used as a manufacturing, storage, treatment
or disposal site for Hazardous Materials, where such action could
reasonably be expected to have a Material Adverse Effect; or (c)
cause or suffer any liens to be recorded against any of such Person's
property as a consequence of, or in any way related to, the presence,
remediation, or disposal of Hazardous Materials in or about any of
such Person's property, including any so-called state, federal or
local "superfund" lien relating to such matters, where such
recordation could reasonably be expected to have a Material Adverse
Effect.
9.16 Limitations on Payments on Subordinated Debt. The Borrower will not,
and will not permit any Subsidiary to, make any payment in respect of
interest on, principal of, or otherwise relating to, the borrower's
subordinated debt securities issued in connection with the Structured
Securities if, after giving effect to such payment, a Default or
Event of Default would exist.
10. EVENTS OF DEFAULT; REMEDIES
If any of the following events shall occur, then the Agent shall at the
request, or may with the consent, of the holders of more than fifty percent
(50%) in principal amount of the Notes then outstanding or, if no Note is
then outstanding, Banks having more than fifty percent (50%) of the
Commitments, (a) by notice to the Borrower, declare the Commitment of each
Bank and the several obligation of each Bank to make Loans hereunder to be
terminated, whereupon the same shall forthwith terminate, and (b) declare
the Notes and all interest accrued and unpaid thereon, and all other
amounts payable under the Notes, this agreement and the other Loan
Documents, to be forthwith due and payable, whereupon the Notes, all such
interest and all such other amounts, shall become and be forthwith due and
payable without presentment, demand, protest, or further notice of any kind
(including, without limitation, notice of default, notice of intent to
accelerate and notice of acceleration), all of which are hereby expressly
waived by the Borrower; provided, however, that with respect to any Event
of Default described in Sections 10.7 or 10.8 hereof, (i) the Commitment of
each Bank and the obligation of the Banks to make Loans shall automatically
be terminated and (ii) the entire unpaid principal amount of the Notes, all
interest accrued and unpaid thereon, and all such other amounts payable
under the Notes, this Agreement and the other Loan Documents, shall
automatically become immediately due and payable, without presentment
demand, protest, or any notice of any kind (including, without limitation,
notice of default, notice of intent to accelerate and notice of
acceleration), all of which are hereby expressly waived by the Borrower:
10.1 Failure to Pay Principal or Interest. The Borrower does not pay,
repay or prepay any principal of or interest on any Note or any
Long-Term Credit Facility Note when due; or
10.2 Failure to Pay Commitment Fee or Other Amounts. The Borrower does not
pay any commitment fee or any other obligation or amount payable
under this Agreement, the Long-Term Credit Facility Agreement, the
Notes, the Long-Term Credit Facility Notes, or any Reimbursement
Obligation within two (2) calendar days after the same shall have
become due; or
10.3 Failure to Pay Other Debt. The Borrower or any Subsidiary fails to
pay principal or interest aggregating more than $2,000,000.00 on any
other Debt when due and any related grace period has expired, or the
holder of any of such other Debt declares such Debt due prior to its
stated maturity because of the Borrower's or any Subsidiary's default
thereunder and the expiration of any related grace period; or
10.4 Misrepresentation or Breach of Warranty. Any representation or
warranty made by the Borrower herein or otherwise furnished to the
Bank in connection with this Agreement or any other Loan Document
shall be incorrect, false or misleading in any material respect when
made; or
10.5 Violation of Negative Covenants. The Borrower violates any covenant,
agreement or condition contained in Sections 9.2, 9.3, 9.5, 9.6,
9.9, 9.10, 9.11, or 9.15; or
10.6 Violation of Other Covenants, Etc. The Borrower violates any other
covenant, agreement or condition contained herein (other than the
covenants, agreements and conditions set forth or described in
Sections 10.1, 10.2, 10.3, 10.4, and 10.5 above) or in any other Loan
Document and such violation shall not have
--------------------------------------------------------------------------------
been remedied within (30) days after written notice has been received
by the Borrower from the Bank or the holder of the Note; or
10.7 Bankruptcy and Other Matters. The Borrower or any Subsidiary (a)
makes an assignment for the benefit of creditors; or (b) admits in
writing its inability to pay its debts generally as they become due;
or (c) generally fails to pay its debts as they become due; or (d)
files a petition or answer seeking for itself, or consenting to or
acquiescing in, any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any
applicable Debtor Law (including, without limitation, the Federal
Bankruptcy Code); or (i) there is appointed a receiver, custodian,
liquidator, fiscal agent, or trustee of the Borrower or any
Subsidiary or of the whole or any substantial part of their
respective assets; or (ii) any court enters an order, judgment or
decree approving a petition filed against the Borrower or any
Subsidiary seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any
Debtor Law and either such order, decree or judgment so filed against
it is not dismissed or stayed (unless and until such stay is no
longer in effect) within thirty (30) days of entry thereof or an
order for relief is entered pursuant to any such law; or
10.8 Dissolution. Any order is entered in any proceeding against the
Borrower or any Subsidiary decreeing the dissolution, liquidation,
winding-up or split-up of the Borrower or such Subsidiary, and such
order remains in effect for thirty (30) days; or
10.9 Undischarged Judgment. Final Judgment or judgments in the aggregate,
that might be or give rise to Liens on any property of the Borrower
or any Subsidiary, for the payment of money in excess of
$1,000,000.00 shall be rendered against the Borrower or any
Subsidiary and the same shall remain undischarged for a period of
thirty (30) days during which execution shall not be effectively
stayed; or
10.10 Environmental Matters. The occurrence of any of the following events
that could result in liability to the Borrower or any Subsidiary
under any Environmental Law or the creation of a Lien on any property
of the Borrower or any Subsidiary in favor of any governmental
authority or any other Person for any liability under any
Environmental Law or for damages arising from costs incurred by such
Person in response to a Release or threatened Release of Hazardous
Materials into the environment if any such asserted liability or Lien
exceeds $10,000,000.00 and if any such lien would cover any property
of the Borrower or any Subsidiary which property is or would
reasonably be considered to be integral to the operations of the
Borrower or any Subsidiary in the ordinary course of business:
(a) the Release of Hazardous Materials at, upon, under or within
the property owned or leased by the Borrower or any Subsidiary
or any contiguous property;
(b) the receipt by the Borrower or any Subsidiary of any summons,
claim, complaint, judgment, order or similar notice that it is
not in compliance with or that any governmental authority is
investigating its compliance with any Environmental Law;
(c) the receipt by the Borrower or any Subsidiary of any notice or
claim to the effect that it is or may be liable for the
Release or threatened Release of Hazardous Materials into the
environment; or
(d) any governmental authority incurs costs or expenses in
response to the Release of any Hazardous Material which
affects in any way the properties of the Borrower or any
Subsidiary.
10.11 Other Remedies. In addition to and cumulative of any rights or
remedies expressly provided for in this Section 10, if any one or
more Events of Default shall have occurred, the Agent shall at the
request, and may with the consent, of the Majority Banks proceed to
protect and enforce the rights of the Banks hereunder by any
appropriate proceedings. The Agent shall at the request, and may with
the consent, of the Majority Banks also proceed either by the
specific performance of any covenant or agreement contained in this
Agreement or by enforcing the payment of the Notes or by enforcing
any other legal or equitable right provided under this Agreement or
the Notes or otherwise existing under any law in favor of the holder
of the Notes.
--------------------------------------------------------------------------------
10.12 Remedies Cumulative. No remedy, right or power conferred upon the
Banks is intended to be exclusive of any other remedy, right or power
given hereunder or now or hereafter existing at law, in equity, or
otherwise, and all such remedies, rights and powers shall be
cumulative.
10.13 Default under Term Loan Facility. The occurrence of an Event of
Default (as defined under the credit agreement evidencing the Term
Loan Facility) shall also constitute an Event of Default under this
Agreement.
11. THE AGENT
11.1 Authorization and Action. Each Bank hereby appoints Chase as its
Agent under and irrevocably authorizes the Agent (subject to Sections
11.1 and 11.7) to take such action as the Agent on its behalf and to
exercise such powers under this Agreement and the Notes as are
delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto. Without limitation of
the foregoing, each Bank expressly authorizes the Agent to execute,
deliver, and perform its obligations under this Agreement, and to
exercise all rights, powers, and remedies that the Agent may have
hereunder. 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 the Majority Banks,
and such instructions shall be binding upon all the Banks and all
holders of any Note; 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 this Agreement or applicable law.
The Agent agrees to give to each Bank prompt notice of each notice
given to it by the Borrower pursuant to the terms of this Agreement.
11.2 Agent's Reliance, Etc. Neither the Agent nor any of its directors,
officers, agents, or employees shall be liable to any Bank for any
action taken or omitted to be taken by it or them under or in
connection with this Agreement, the Notes and the other Loan
Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing,
the Agent: (a) may treat the original or any successor holder of any
Note as the holder thereof until the Agent receives notice from the
Bank which is the payee of such Note concerning the assignment of
such Note; (b) may employ and consult with legal counsel (including
counsel for the Borrower), independent public accountants, and other
experts selected by it and shall not be liable to any Bank for any
action taken, or omitted to be taken, in good faith by it or them in
accordance with the advice of such counsel, accountants, or experts
received in such consultations and shall not be liable for any
negligence or misconduct of any such counsel, accountants, or other
experts; (c) makes no warranty or representation to any Bank and
shall not be responsible to any Bank for any opinions,
certifications, statements, warranties, or representations made in or
in connection with this Agreement; (d) shall not have any duty to any
Bank to ascertain or to inquire as to the performance or observance
of any of the terms, covenants, or conditions of this Agreement or
any other instrument or document furnished pursuant thereto or to
satisfy itself that all conditions to and requirements for any Loan
have been met or that the Borrower is entitled to any Loan or to
inspect the property (including the books and records) of the
Borrower or any Subsidiary; (e) shall not be responsible to any Bank
for the due execution, legality, validity, enforceability,
genuineness, sufficiency, or value of this Agreement or any other
instrument or document furnished pursuant thereto; and (f) shall
incur no liability under or in respect of this Agreement by acing
upon any notice, consent, certificate, or other instrument or writing
(which may be by telegram, cable, telex, or otherwise) believed by it
to be genuine and signed or sent by the proper party or parties.
11.3 Defaults. The Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the nonpayment of principal of or
interest hereunder or of any fees) unless the Agent has received
notice from a Bank or the Borrower specifying such Default and
stating that such notice is a Notice of Default. In the event that
the Agent receives such a notice of the occurrence of a Default, the
Agent shall give prompt notice thereof to the Banks (and shall give
each Bank prompt notice of each such nonpayment). The Agent shall
(subject to Section 11.7) take such action with respect to such
Default; provided that, unless and until the Agent shall have
-------- ----
received the directions referred to in Sections 11.1 or 11.7, the
Agent
--------------------------------------------------------------------------------
may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem
advisable and in the best interest of the Banks.
11.4 Chase and Affiliates. With respect to its Commitment, any Loan made
by it, and the Note issued to it, Chase shall have the same rights
and powers under this Agreement as any other Bank and may exercise
the same as though it were not the Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include Chase in
its individual capacity. Chase and its respective Affiliates may
accept deposits from, lend money to, act as trustee under indentures
of, and generally engage in any kind of business with, the Borrower,
any of its respective Affiliates and any Person who may do business
with or own securities of the Borrower or any such Affiliate, all as
if Chase were not the Agent and without any duty to account therefor
to the Banks.
11.5 Non-Reliance on Agent and Other Banks. Each Bank agrees that it has,
independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and each
Subsidiary and its decision to enter into the transactions
contemplated by this Agreement and 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 analysis and decisions in taking or not
taking action under this Agreement. The Agent shall not be required
to keep itself informed as to the performance or observance by the
Borrower of this Agreement or to inspect the properties or books of
the Borrower or any Subsidiary. Except for notices, reports, and
other documents and information expressly required to be furnished to
the Banks by the Agent hereunder, the Agent shall not have any duty
or responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition, or business
of the Borrower or any Subsidiary (or any of their Affiliates) which
may come into the possession of the Agent or any of its Affiliates.
11.6 Indemnification. Notwithstanding anything to the contrary herein
contained, the Agent shall be fully justified in failing or refusing
to take any action hereunder unless it shall first be indemnified to
its satisfaction by the Banks against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, and 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 its taking or continuing to
take any action. Each Bank agrees to indemnify the Agent (to the
extent not reimbursed by the Borrower), according to such Bank's
Commitment, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs,
expenses, and 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 this Agreement or the Notes or any
action taken or omitted by the Agent under this Agreement or the
Notes; provided that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, or disburse ments resulting from
the gross negligence or willful misconduct of the person being
indemnified; and provided further that it is the intention of each
Bank to indemnify the Agent against the consequences of the Agent's
own negligence, whether such negligence be sole, joint, concurrent,
active or passive. Without limitation of the foregoing, each Bank
agrees to reimburse the Agent promptly upon demand for its Pro Rata
Percentage of any out-of-pocket expenses (including attorneys' fees)
incurred by the Agent in connection with the preparation,
administration, or enforcement of, or legal advice in respect of
rights or responsibilities under, this Agreement and the Notes, to
the extent that the Agent is not reimbursed for such expenses by the
Borrower.
11.7 Successor Agent. The Agent may resign at any time as Agent under this
Agreement by giving written notice thereof to the Banks and the
Borrower 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 a successor Agent. If no
successor Agent shall have been so appointed by the Majority Banks or
shall have accepted such appointment within thirty (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
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 $500,000,000.00. Upon the
acceptance of any appointment as Agent hereunder 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 the retiring Agent shall be discharged from its
duties and obligations under this Agreement. After any retiring
Agent's resignation or removal hereunder as Agent, the provisions of
this Section 11 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement.
11.8 Agent's Reliance. The Borrower shall notify the Agent in writing of
the names of its officers and employees authorized to request a Loan
on behalf of the Borrower and shall provide the Agent with a specimen
signature of each such officer or employee. The Agent shall be
entitled to rely conclusively on such officer's or employee's
authority to request a Loan on behalf of the Borrower until the Agent
receives written notice from the Borrower to the contrary. The Agent
shall have no duty to verify the authenticity of the signature
appearing on any Notice of Borrowing, and, with respect to any oral
request for a Loan, the Agent shall have no duty to verify the
identity of any Person representing himself as one of the officers or
employees authorized to make such request on behalf of the Borrower.
Neither the Agent nor any Bank shall incur any liability to the
Borrower in acting upon any telephonic notice referred to above which
the Agent or such Bank believes in good faith to have been given by a
duly authorized officer or other Person authorized to borrow on
behalf of the Borrower or for otherwise acting in good faith.
12. MISCELLANEOUS
12.1 Representation by the Banks. Each Bank represents that it is the
intention of such Bank, as of the date of its acquisition of its
Note, to acquire the Note for its account or for the account of its
Affiliates, and not with a view to the distribution or sale thereof,
and, subject to any applicable laws, the disposition of such Bank's
property shall at all times be within its control. The Notes have not
been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be transferred, sold or otherwise
disposed of except (a) in a registered Offering under the Securities
Act; (b) pursuant to an exemption from the registration provisions of
the Securities Act; or (c) if the Securities Act shall not apply to
the Notes or the transactions contemplated hereunder as commercial
lending transactions.
12.2 Amendments, Waivers, Etc. No amendment or waiver of any provision of
any Loan Document, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Borrower and 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 each Bank, do any of the following: (a) waive
any of the conditions specified in Section 7; (b) increase the
Commitment of any Bank or alter the term thereof, or subject any Bank
to any additional or extended obligations; (c) change the principal
of, or rate of interest on, any Note, or any fees or other amounts
payable hereunder; (d) postpone any date fixed for any payment of
principal of, or interest on, any Note, or any fees (including,
without limitation, any fee) or other amounts payable hereunder; (e)
change the percentage of the Commitments or of the aggregate unpaid
principal amount of any Note, or the number of Banks which shall be
required for Banks, or any of them, to take any action hereunder; or
(f) amend this Section 12.2; and provided, further, that no
amendment, waiver, or consent shall, unless in writing and signed by
the Agent in addition to each Bank, affect the rights or duties of
the Agent under any Loan Document. No failure or delay on the part of
any Bank or the Agent in exercising any power or right hereunder
shall operate as a waiver thereof nor shall any single or partial
exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude
any other or further exercise thereof or the exercise of any other
right or power. No course of dealing between the Borrower and any
Bank or the Agent shall operate as a waiver of any right of any Bank
or the Agent. No modification or waiver of any provision of this
Agreement or the Note nor consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in
writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice
to or demand on the Borrower in any case shall entitle the Borrower
to any other or further notice or demand in similar or other
circumstances.
--------------------------------------------------------------------------------
12.3 Reimbursement of Expenses. The Borrower agrees to reimburse the Bank
for its reasonable out-of- pocket expenses, including the reasonable
fees and expenses of counsel to the Bank, in connection with the
transactions contemplated by this Agreement, whether or not such
contemplated transactions shall be consummated, or any of them, or
otherwise in connection with this Agreement, including its
negotiation, preparation, execution, administration, modification and
enforcement, and all reasonable fees, including the reasonable fees
and expenses of counsel to the Agent and each Bank, costs and
expenses of the Agent for environmental consultants and costs and
expenses of the Agent and each Bank in connection with due diligence,
transportation, computer time and research and duplication. The
Borrower agrees to pay any and all stamp and other taxes which may be
payable or determined to be payable in connection with the execution
and delivery of this Agreement or the Notes, and to save any holder
of any Note harmless from any and all liabilities with respect to or
resulting from any delay or omission to pay any such taxes. The
obligations of the Borrower under this Section 12.3 shall survive the
termination of this Agreement and/or the payment of the Notes.
12.4 Notices. All notices and other communications provided for herein
shall be in writing (including telex, facsimile, or cable
communication) and shall be mailed, telecopied, telexed, cabled or
delivered addressed as follows:
(a) If to the Borrower, to it at: Southern Union Company
504 Lavaca, Suite 800
Austin, Texas 78701
Attention: Mr. Ronald J. Endres
Fax: (512) 370-8253
with copies to: Susan Westbrook, Esq.
Ms. Cheryl Yager
Southern Union Company
504 Lavaca, Suite 800
Austin, Texas 78701
Fax: (512) 370-8253
(b) If to the Agent, to it at: The Chase Manhattan Bank
700 Lavaca, 2nd Floor
Austin, Texas 78701
Attention: Manager/Commercial
Lending
Fax: (512) 479-2853
with a copy to: Chase Securities Inc.
707 Travis Street, 8th Floor
Houston, Texas 77002
Attention: Gina Hardwick
Fax: (713) 216-2291
and if to any Bank, at the address specified below its name on the
signature pages hereof, or as to the Borrower or the Agent, to such
other address as shall be designated by such party in a written
notice to the other party and, as to each other party, at such other
address as shall be designated by such party in a written notice to
the Borrower and the Agent. All such notices and communications
shall, when mailed, telecopied, telexed, transmitted, or cabled,
become effective when deposited in the mail, confirmed by telex
answer back, transmitted to the telecopier, or delivered to the cable
company, except that notices and communications to the Agent under
Sections 2.1(c) or 2.2 shall not be effective until actually received
by the Agent.
12.5 Governing Law; Venue. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
AND THE UNITED STATES OF AMERICA; provided, however, that Chapter 346
-------- -------
of the Texas Finance Code, as amended, shall not apply to this
Agreement and the Notes issued hereunder. Travis County, Texas shall
be a proper
--------------------------------------------------------------------------------
place of venue to enforce payment or performance of this Agreement
and the other Loan Documents by the Borrower, unless the Agent shall
give its prior written consent to a different venue. The Borrower
hereby irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to
any of the Loan Documents in the District Courts of Travis County,
Texas, or in the United States District Court for the Western
District of Texas, Austin Division, and hereby further irrevocably
waives any claims that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum. The
Borrower hereby irrevocably agrees that, provided that the Borrower
can obtain personal jurisdiction over and service of process upon the
Agent or the applicable Bank, any legal proceeding against the Agent
or any Bank arising out of or in connection with this Agreement or
the other Loan Documents shall be brought in the district courts of
Travis County, Texas, or in the United States District Court for the
Western District of Texas, Austin Division. Nothing contained in this
Section or in any other provision of any Loan Document (unless
expressly provided otherwise) shall be deemed or construed as an
agreement by any Bank to be subject to the jurisdiction of such
courts.
12.6 Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants contained herein or made in
writing by the Borrower in connection herewith shall survive the
execution and delivery of this Agreement and the Notes, and will bind
and inure to the benefit of the respective successors and assigns of
the parties hereto, whether so expressed or not, provided that the
undertaking of the Banks to make the Loans to the Borrower shall not
inure to the benefit of any successor or assign of the Borrower. No
investigation at any time made by or on behalf of the Banks shall
diminish the Banks' rights to rely on any representations made herein
or in connection herewith. All statements contained in any
certificate or other written instrument delivered by the Borrower or
by any Person authorized by the Borrower under or pursuant to this
Agreement or in connection with the transactions contemplated hereby
shall constitute representations and warranties hereunder as of the
time made by the Borrower.
12.7 Counterparts. This Agreement may be executed in several counterparts,
and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an
original instrument and all such separate counterparts shall
constitute but one and the same instrument.
12.8 Separability. Should any clause, sentence, paragraph or section of
this Agreement be judicially declared to be invalid, unenforceable or
void, such decision shall not have the effect of invalidating or
voiding the remainder of this Agreement, and the parties hereto agree
that the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom
and the remainder will have the same force and effectiveness as if
such part or parts had never been included herein. Each covenant
contained in this Agreement shall be construed (absent an express
contrary provision herein) as being independent of each other
covenant contained herein, and compliance with any one covenant shall
not (absent such an express contrary provision) be deemed to excuse
compliance with one or more other covenants.
12.9 Descriptive Headings. The section headings in this Agreement have
been inserted for convenience only and shall be given no substantive
meaning or significance whatsoever in construing the terms and
provisions of this Agreement.
12.10 Accounting Terms. All accounting terms used herein which are not
expressly defined in the Agreement, or the respective meanings of
which are not otherwise qualified, shall have the respective meanings
given to them in accordance with GAAP.
12.11 Limitation of Liability. No claim may be made by the Borrower or any
other Person against the Agent or any Bank or the Affiliates,
directors, officers, employees, attorneys, or agents of the Agent or
any Bank for any special, indirect, consequential, or punitive
damages in respect to any claim for breach of contract arising out of
or related to the transactions contemplated by this Agreement, or any
act, omission, or event occurring in connection herewith and the
Borrower hereby waives, releases, and agrees not to sue upon any
claim for any such damages, whether or not accrued and whether or not
known or suspected to exist in its favor.
--------------------------------------------------------------------------------
12.12 Set-Off. The Borrower hereby gives and confirms to each Bank a right
of set-off of all moneys, securities and other property of the
Borrower (whether special, general or limited) and the proceeds
thereof, now or hereafter delivered to remain with or in transit in
any manner to such Bank, its Affiliates, correspondents or agents
from or for the Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise or coming into possession of
such Bank, its Affiliates, correspondents or agents in any way, and
also, any balance of any deposit accounts and credits of the Borrower
with, and any and all claims of security for the payment of the Notes
and of all other liabilities and obligations now or hereafter owed by
the Borrower to such Bank, contracted with or acquired by such Bank,
whether such liabilities and obligations be joint, several, absolute,
contingent, secured, unsecured, matured or unmatured, and the
Borrower hereby authorizes each Bank, its Affiliates, correspondents
or agents at any time or times, without prior notice, to apply such
money, securities, other property, proceeds, balances, credits of
claims, or any part of the foregoing, to such liabilities in such
amounts as it may select, whether such liabilities be contingent,
unmatured or otherwise, and whether any collateral security therefor
is deemed adequate or not. The rights described herein shall be in
addition to any collateral security, if any, described in any
separate agreement executed by the Borrower.
12.13 Sale or Assignment
(a) Subject to the prior written consent of the Agent and the
Borrower, such consent not to be unreasonably withheld, each
Bank may assign to an Eligible Assignee all or a portion of
its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitments and
the Note held by it); provided, however, that: (i) each such
-------- -------
assignment shall be of a constant, and not a varying,
percentage of all of the assigning Banks rights and
obligations under this Agreement; (ii) the amount of the
Commitments so assigned shall equal or exceed $5,000,000.00;
(iii) the Commitment of each Bank shall be not less than
$5,000,000.00 (subject only to reductions pursuant to Sections
3.6 and 10 hereof); (iv) the parties to each such assignment
shall execute and deliver to the Agent, for its acceptance and
recording in the Register (as hereinafter defined), an
Assignment and Acceptance in the form of Exhibit C attached
---------
hereto and made a part hereof (the "Assignment and
Acceptance"), together with any Note subject to such
assignment and a processing and recordation fee of $2,000.00;
(v) any such assignment from one Bank to another Bank shall
not require the consent of the Agent or the Borrower if such
assignment does not result in any Bank holding more than 60%
of the aggregate outstanding Commitments; and (vi) any such
assignment shall not require the consent of the Borrower if a
Default or Event of Default shall have occurred and is then
continuing. Upon such execution, delivery, acceptance, and
recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be the
date on which such Assignment and Acceptance is accepted by
the Agent, (A) the Eligible Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment
and Acceptance, have the rights and obligations of a Bank
under the Loan Documents, and (B) the Bank assignor thereunder
shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its
obligations under the Loan Documents (and, in the case of an
Assignment and Acceptance covering all or the remaining
portion of an assigning Bank's rights and obligations under
the Loan Documents, such Bank shall cease to be a party
thereto).
(b) By executing and delivering an Assignment and Acceptance, the
Bank assignor thereunder and the Eligible Assignee thereunder
confirm to and agree with each other and the other parties
hereto as follows: (i) other than as provided in such
Assignment and Acceptance, such assigning Bank makes no
representation or warranty and assumes no responsibility with
respect to any statements, warranties, or representations made
in or in connection with any Loan Document or the execution,
legality, validity, enforceability, genuineness, sufficiency,
or value of any Loan Document or any other instrument or
document furnished pursuant thereto; (ii) such assigning Bank
makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the
Borrower or any Subsidiary or the performance or observance by
the Borrower of any of its obligations under any Loan Document
or any other instrument or document furnished pursuant
thereto; (iii) such Eligible Assignee confirms that it has
received a copy of the Loan Documents, together with copies of
the financial statements referred to in Section 6.2 and such
other documents
--------------------------------------------------------------------------------
and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such Eligible Assignee, independently and
without reliance upon the Agent, such assigning Bank, or any
Bank and based on such documents and information as it shall
deem appropriate at the time, will continue to make its own
credit decisions in taking or not taking action under this
Agreement; (v) such Eligible Assignee appoints and authorizes
the Agent to take such action as agent on its behalf and to
exercise such powers under any Loan Document as are delegated
to the Agent by the terms thereof, together with such powers
as are reasonably incidental thereto; and (vi) such Eligible
Assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of any Loan
Document are required to be performed by it as a Bank.
(c) The Agent shall maintain at its address referred to in Section
12.4 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names
and addresses of Banks and the Commitment of, and principal
amount of the Loans owing to, each Bank from time to time (the
"Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the
Borrower, the Agent, and Banks may treat each Person whose
name is recorded in the Register as Bank hereunder for all
purposes of the Loan Documents. The Register shall be
available for inspection by the Borrower or any Bank at any
reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of an Assignment and Acceptance executed by
an assigning Bank, together with any Note subject to such
assignment, the Agent, if such Assignment and Acceptance has
been completed and is in substantially the form of Exhibit C,
---------
shall (i) accept such Assignment and Acceptance; (ii) record
the information contained therein in the Register; and (iii)
give prompt notice thereof to the Borrower. Within three (3)
Business Days after its receipt of such notice, the Borrower
at its own expense, shall execute and deliver to the Agent in
exchange for each surrendered Note a new Note to the order of
such Eligible Assignee in an amount equal to the Commitment
assumed by it pursuant to such Assignment and Acceptance and,
if the assigning Bank has retained a Commitment hereunder, a
new Note to the order of the assigning Bank in an amount equal
to the Commitment retained by it hereunder. The new Notes
shall be in an aggregate principal amount equal to the
aggregate principal amount of the surrendered Notes, shall be
dated the effective date of such Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit C
---------
attached hereto and made a part hereof. Upon receipt by the
Agent of each such new Note conforming to the requirements set
forth in the preceding sentences, the Agent shall return to
the Borrower each such surrendered Note marked to show that
each such surrendered Note has been replaced, renewed, and
extended by such new Note.
(e) Each Bank may sell participations to one or more banks or
other entities in or to all or a portion of its rights and/or
obligations under this Agreement (including, without
limitation, all or a portion of its Commitment and the Note
held by it); provided, however, that (i) each Bank's
-------- -------
obligations under this Agreement (including, without
limitation, its Commitment to the Borrower hereunder) shall
remain unchanged; (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of
such obligations; (iii) except as provided below, such Bank
shall remain the holder of any such Note for all purposes of
this Agreement; and (iv) the participating banks or other
entities shall be entitled to the benefits of Sections 2.3 and
3.6 to recover costs, losses and expenses in the
circumstances, and to the extent provided in Section 2.3, as
though such participant were a Bank; provided, however, the
-------- -------
amounts to which a participant shall be entitled to obtain
pursuant to Sections 2.3 and 3.6 shall be determined by
reference to such participant's selling Bank and shall be
recoverable solely from such selling Bank and (v) the
Borrower, the Agent and the other Banks shall continue to deal
solely and directly with the selling Bank in connection with
such Bank's rights and obligations under this Agreement and
the other Loan Documents; provided, however, the selling Bank
-------- -------
may grant a participant rights with respect to amendments,
modification or waivers with respect to any fees payable
hereunder to such Bank (including the amount and the dates
fixed for the payment of any such fees) or the amount of
principal or the rate of interest payable on, the dates fixed
for any payment of principal or interest on, the Loans, or the
release of any obligations of the Borrower hereunder and under
the other Loan Documents, or the release of any security for
any of the Obligations. Except with respect to cost
protections contained in Sections 2.3 and 3.6, no
--------------------------------------------------------------------------------
participant shall be a third party beneficiary of this
Agreement and shall not be entitled to enforce any rights
provided to its selling Bank against the Company under this
Agreement.
(f) Notwithstanding anything herein to the contrary, each Bank may
pledge and assign all or any portion of its rights and
interests under the Loan Documents to any Federal Reserve
Bank.
12.14 Non U.S. Banks. Prior to the date of the initial Borrowings
hereunder, and from time to time thereafter if requested by the
Borrower or the Agent, each Bank organized under the laws of a
jurisdiction outside the United States of America shall provide the
Agent and the Borrower with the forms prescribed by the Internal
Revenue Service of the United States of America certifying such Banks
exemption from United States withholding taxes with respect to all
payments to be made to such Bank hereunder or under such Bank's Note.
Unless the Borrower and the Agent have received forms or other
documents satisfactory to them indicating that payments hereunder or
under such Bank's Note are not subject to United States withholding
tax or are subject to such tax at a rate reduced by an applicable tax
treaty, the Borrower or the Agent shall withhold taxes from such
payments at the applicable statutory rate in the case of payments to
or for any Bank organized under the laws of a jurisdiction outside
the United States.
12.15 Interest. All agreements between the Borrower, the Agent or any Bank,
whether now existing or hereafter arising and whether written or
oral, are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of demand being made on any Note or
otherwise, shall the amount paid, or agreed to be paid, to the Agent
or any Bank for the use, forbearance, or detention of the money to be
loaned under this Agreement or otherwise or for the payment or
performance of any covenant or obligation contained herein or in any
document related hereto exceed the amount permissible at the Highest
Lawful Rate. If, as a result of any circumstances whatsoever,
fulfillment of any provision hereof or of any of such documents, at
the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by applicable usury
law, then, ipso facto, the obligation to be filled shall be reduced
to the limit of such validity, and if, from any such circumstance,
the Agent or any Bank shall ever receive interest or anything which
might be deemed interest under applicable law which would exceed the
amount permissible at the Highest Lawful Rate, such amount which
would be excessive interest shall be applied to the reduction of the
principal amount owing on account of the Notes or the amounts owing
on other obligations of the Borrower to the Agent or any Bank under
this Agreement or any document related hereto and not to the payment
of interest, or if such excessive interest exceeds the unpaid
principal balance of the Notes and the amounts owing on other
obligations of the Borrower to the Agent or any Bank under this
Agreement or any document related hereto, as the case may be, such
excess shall be refunded to the Borrower. All sums paid or agreed to
be paid to the Agent or any Bank for the use, forbearance, or
detention of the indebtedness of the Borrower to the Agent or any
Bank shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term of such
indebtedness until payment in full of the principal thereof
(Including the period of any renewal or extension thereof) so that
the interest on account of such indebtedness shall not exceed the
Highest Lawful Rate. The terms and provisions of this Section 12.15
shall control and supersede every other provision of all agreements
between the Borrower and the Banks.
12.16 Indemnification. THE BORROWER AGREES TO INDEMNIFY, DEFEND, AND SAVE
HARMLESS THE AGENT, EACH BANK AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, AND ATTORNEYS, AND EACH OF THEM (THE
"INDEMNIFIED PARTIES"), FROM AND AGAINST ALL CLAIMS, ACTIONS, SUITS,
AND OTHER LEGAL PROCEEDINGS, DAMAGES, COSTS, INTEREST, CHARGES,
TAXES, COUNSEL FEES, AND OTHER EXPENSES AND PENALTIES (INCLUDING
WITHOUT LIMITATION ALL ATTORNEY FEES AND COSTS OR EXPENSES OF
SETTLEMENT) WHICH ANY OF THE INDEMNIFIED PARTIES MAY SUSTAIN OR INCUR
BY REASON OF OR ARISING OUT OF (a) THE MAKING OF ANY LOAN HEREUNDER,
THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE NOTES AND THE
CONSUMMATION OF THE TRANS ACTIONS CONTEMPLATED THEREBY AND THE
EXERCISE OF ANY OF THE BANKS' RIGHTS UNDER THIS AGREEMENT AND THE
NOTES OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, DAMAGES, COSTS,
AND EXPENSES INCURRED BY ANY OF THE INDEMNIFIED PARTIES IN
INVESTIGATING, PREPARING FOR, DEFENDING AGAINST, OR PROVIDING
EVIDENCE, PRO DUCING DOCUMENTS, OR TAKING ANY OTHER ACTION IN RESPECT
OF ANY COMMENCED OR
--------------------------------------------------------------------------------
THREATENED LITIGATION UNDER ANY FEDERAL SECURITIES LAW OR ANY SIMILAR
LAW OF ANY JURISDICTION OR AT COMMON LAW OR (b) ANY AND ALL CLAIMS OR
PROCEEDINGS (WHETHER BROUGHT BY A PRIVATE PARTY, GOVERNMENTAL
AUTHORITY OR OTHERWISE) FOR BODILY INJURY, PROPERTY DAMAGE,
ABATEMENT, REMEDIATION, ENVIRONMENTAL DAMAGE, OR IMPAIRMENT OR ANY
OTHER INJURY OR DAMAGE RESULTING FROM OR RELATING TO THE RELEASE OF
ANY HAZARDOUS MATERIALS LOCATED UPON, MIGRATING INTO, FROM, OR
THROUGH OR OTHERWISE RELATING TO ANY PROPERTY OWNED OR LEASED BY THE
BORROWER OR ANY SUBSIDIARY (WHETHER OR NOT THE RELEASE OF SUCH HAZARD
OUS MATERIALS WAS CAUSED BY THE BORROWER, ANY SUBSIDIARY, A TENANT,
OR SUB TENANT OF THE BORROWER OR ANY SUBSIDIARY, A PRIOR OWNER, A
TENANT, OR SUBTENANT OF ANY PRIOR OWNER OR ANY OTHER PARTY AND
WHETHER OR NOT THE ALLEGED LIABILITY IS ATTRIBUTABLE TO THE HANDLING,
STORAGE, GENERATION, TRANS PORTATION, OR DISPOSAL OF ANY HAZARDOUS
MATERIALS OR THE MERE PRESENCE OF ANY HAZARDOUS MATERIALS ON SUCH
PROPERTY; PROVIDED THAT THE BORROWER SHALL NOT BE LIABLE TO THE
INDEMNIFIED PARTIES WHERE THE RELEASE OF SUCH HAZARDOUS MATERIALS
OCCURS AT ANY TIME AT WHICH THE BORROWER OR ANY SUBSIDIARY CEASES TO
OWN OR LEASE SUCH PROPERTY); AND PROVIDED FURTHER THAT NO INDEMNIFIED
PARTY SHALL BE ENTITLED TO THE BENEFITS OF THIS SECTION 12.16 TO THE
EXTENT ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT CONTRIBUTED TO
ITS LOSS; AND PROVIDED FURTHER THAT IT IS THE INTENTION OF THE
BORROWER TO INDEMNIFY THE INDEMNIFIED PARTIES AGAINST THE
CONSEQUENCES OF THEIR OWN NEGLIGENCE. THIS AGREEMENT IS INTENDED TO
PROTECT AND INDEMNIFY THE INDEMNIFIED PARTIES AGAINST ALL RISKS
HEREBY ASSUMED BY THE BORROWER. FOR PURPOSES OF THE FOREGOING SECTION
12.16, THE PHRASE "CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
THEREBY" SET FORTH IN SUBPARAGRAPH (a) ABOVE SHALL INCLUDE, BUT NOT
BE LIMITED TO, THE FINANCING OF ANY CORPORATE TAKEOVER PERMITTED
HEREUNDER AND THE BORROWER'S USE OF THE LOAN PROCEEDS FOR THE PURPOSE
OF ACQUIRING ANY EQUITY INTERESTS DESCRIBED IN SUBPARAGRAPH (ii) OF
THE DEFINITION OF "QUALIFYING ASSETS" SET FORTH IN THIS AGREEMENT (AS
AMENDED). THE OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 12.16
SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT AND THE REPAY MENT OF
THE NOTES.
12.17 Payments Set Aside. To the extent that the Borrower makes a payment
or payments to the Agent or any Bank or the Agent or any Bank
exercises its right of set off, and such payment or payments or the
proceeds of such set off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other
Person under any Debtor Law or equitable cause, then, to the extent
of such recovery, the obligation or part thereof originally intended
to be satisfied, and all rights and remedies therefor, shall be
revived and shall continue in full force and effect as if such
payment had not been made or set off had not occurred.
12.18 Loan Agreement Controls. If there are any conflicts or
inconsistencies among this Agreement and any other document executed
in connection with the transactions connected herewith, the
provisions of this Agreement shall prevail and control.
12.19 Obligations Several. The obligations of each Bank under this
Agreement and the Note to which it is a party are several, and no
Bank shall be responsible for any obligation or Commitment of any
other Bank under this Agreement and the Note to which it is a party.
Nothing contained in this Agreement or the Note to which it is a
party, and no action taken by any Bank pursuant thereto, shall be
deemed to constitute the Banks to be a partnership, an association, a
joint venture, or any other kind of entity.
12.20 Pro Rata Treatment. All Loans under, and all payments and other
amounts received in connection with this Agreement (including,
without limitation, amounts received as a result of the exercise by
any Bank of any right of set off) shall be effectively shared by the
Banks ratably in accordance with the respective Pro Rata Percentages
of the Banks. If any Bank shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set off,
or otherwise) on account of the principal of, or interest on, or
--------------------------------------------------------------------------------
fees in respect of, any Note held by it (other than pursuant to
Section 2.3(d)) in excess of its Pro Rata Percentage of payments on
account of similar Notes obtained by all the Banks, such Bank shall
forthwith purchase from the other Banks such participations in the
Notes or Loans made by 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
recovery together with an amount equal to such Bank's ratable share
(according to the proportion of (a) the amount of such Bank's
required repayment to (b) 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.
Disproportionate payments of interest shall be shared by the purchase
of separate participations in unpaid interest obligations,
disproportionate payments of fees shall be shared by the purchase of
separate participations in unpaid fee obligations, and
disproportionate payments of principal shall be shared by the
purchase of separate participations in unpaid principal obligations.
The Borrower agrees that any Bank so purchasing a participation from
another Bank pursuant to this Section 12.20 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 the Borrower in
the amount of such participation. Notwithstanding the foregoing, a
Bank may receive and retain an amount in excess of its Pro Rata
Percentage to the extent but only to the extent, that such excess
results from such Bank's Highest Lawful Rate exceeding another Bank's
Highest Lawful Rate.
12.21 No Rights, Duties or Obligations of Co-Syndication Agent or
Co-Documentation Agent. The Borrower, the Agent and each Bank
acknowledge and agree that except for the rights, powers, obligations
and liabilities under this Agreement and the other Loan Documents as
a Bank, Bank One, NA and Fleet National Bank, as Co-Syndication
Agents, and First Union National Bank, as a Co-Documentation Agents,
shall have no additional rights, powers, obligations or liabilities
under this Agreement or any other Loan Documents in their capacities
as Co-Syndication Agents or as a Co-Documentation Agent,
respectively. The Mizuho Financial Group shall have no rights,
powers, obligations or liabilities under this Agreement or any other
Loan Documents in its capacity as a Co-Documentation Agent.
12.22 Final Agreement. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT'S OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
12.23 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
(WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHER WISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES
HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
--------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto, by their respective officers thereunto
duly authorized, have executed this Agreement on the dates set forth below to be
effective as of May 29, 2001.
SOUTHERN UNION COMPANY
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Commitment: THE CHASE MANHATTAN BANK,
$12,800,000 for itself and as Agent for the Banks
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Commitment : BANK ONE, NA
$12,800,000
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
Bank One, NA
1 Bank One Plaza, Suite IL1-0363
Chicago, Illinois 60670
Attention: Ken Fecko
Fax No.: (312) 732-3055
Commitment: FIRST UNION NATIONAL BANK
$12,800,000
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
First Union National Bank
301 S. College Street
Charlotte, North Carolina 28288-0735
Attention: Mitch Wilson
Fax No.: (704) 383-7611
--------------------------------------------------------------------------------
Commitment: FLEET NATIONAL BANK
$12,800,000
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
Fleet National Bank
100 Federal Street
Boston, Massachusetts 02110
Attention: Stephen Hoffman
Fax No.: (617) 434-3652
Commitment: THE FUJI BANK, LIMITED
$9,120,000
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
The Fuji Bank, Limited
1221 McKinney Street, Suite 4100
Houston, Texas 77010
Attention: Kim Wood
Fax No.: (713) 759-0048
Separate Domestic and Eurodollar Lending Office:
The Fuji Bank, Limited
Two World Trade Center, 79th Floor
New York, New York 10048-0042
--------------------------------------------------------------------------------
Commitment: THE INDUSTRIAL BANK OF JAPAN
$3,680,000 TRUST COMPANY
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
The Industrial Bank of Japan Trust Company
Three Allen Center, Suite 3030
333 Clay Street
Houston, Texas 77002
Attention: Lynn Williford
Fax No.: (713) 651-9209
Separate Domestic and Eurodollar Lending Office:
The Industrial Bank of Japan Trust Company
1251 Avenue of the Americas
New York, New York 10020
Commitment: CREDIT LYONNAIS NEW YORK BRANCH
$10,000,000
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
Credit Lyonnais New York Branch
1000 Louisiana, Suite 5360
Houston, Texas 77002
Attention: Darrell Stanley
Fax No.: (713) 751-0307
Separate Domestic and Eurodollar Lending Office:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
--------------------------------------------------------------------------------
Commitment: THE BANK OF TOKYO-MITSUBISHI, LTD.
$9,200,000
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
The Bank of Tokyo-Mitsubishi, Ltd.
1100 Louisiana Street, Suite 2800
Houston, Texas 77002
Attention: Iris Munoz
Fax No.: (713) 655-3855
Commitment: FIRSTAR BANK, N.A.
$9,200,000
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
Firstar Bank, N.A.
One Firstar Plaza, 12th Floor
St. Louis, Missouri 63101
Attention: Greg Dryden
Fax No.: (314) 418-2203
Commitment: NATIONAL AUSTRALIA BANK LIMITED,
$9,200,000 A.C.N. 004044937
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
National Australia Bank Limited
200 Park Avenue, 34th Floor
New York, New York 10166
Attention: Frank Campiglia
Fax No.: (212) 983-1969
--------------------------------------------------------------------------------
Commitment: THE NORINCHUKIN BANK,
$9,200,000 NEW YORK BRANCH
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
The Norinchukin Bank, New York Branch
245 Park Avenue, 29th Floor
New York, New York 10167
Attention: Keisuke Ishii
Fax No.: (212) 697-5754
Commitment: CITIZENS BANK OF RHODE ISLAND
$7,600,000
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
Citizens Bank of Rhode Island
One Citizens Plaza, Mail Stop 0480
Providence, Rhode Island 02903
Attention: Marian L. Barrette
Fax No.: (401) 455-5404
Commitment: WESTDEUTSCHE LANDESBANK
$7,600,000 GIROZENTRALE, NEW YORK BRANCH
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
Westdeutsche Landesbank Girozentrale,
New York Branch
1211 Avenues of the Americas
New York, New York 10036
Attention: Anthony Alessandro
Fax No.: (212) 852-6148
--------------------------------------------------------------------------------
Commitment: KBC BANK N.V.
$6,000,000
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
KBC Bank N.V.
Atlantic Representative Office
245 Peachtree Center Avenue, Suite 2550
Atlanta, Georgia 30303
Attention: Filip Ferrante
Fax No.: (404) 584-5466
Separate Domestic and Eurodollar Lending Office:
KBC Bank N.V.
New York Branch
125 West 55th Street
New York, New York 10019
Commitment: UMB BANK, N.A.
$6,000,000
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
UMB Bank, N.A.
1010 Grand Boulevard
Kansas City, Missouri 64106
Attention: David Proffitt
Fax No.: (816) 860-7143
Commitment: SUNTRUST BANK
$6,000,000
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
SunTrust Bank
303 Peachtree Street NE, 3rd Floor, M.C. 1929
Atlanta, Georgia 30308
Attention: Linda Stanley
Fax No.: (404) 827-6270
--------------------------------------------------------------------------------
Commitment: WELLS FARGO BANK TEXAS,
$6,000,000 NATIONAL ASSOCIATION
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
Address for Notices:
Wells Fargo Bank Texas, National Association
1000 Louisiana, 3rd Floor - Energy Department
Houston, Texas 77002
Attention: Alan Smith
Fax No.: (713) 739-1087
Separate Domestic and Eurodollar Lending Office:
Wells Fargo Bank Loan Center
1740 Broadway
Denver, Colorado 80274
--------------------------------------------------------------------------------
EXHIBIT A
REVOLVING NOTE
(Short-Term Credit Facility)
$___________ ____________, 200__
FOR VALUE RECEIVED, the undersigned, SOUTHERN UNION COMPANY, a corporation
organized under the laws of Delaware (the "Borrower"), HEREBY PROMISES TO PAY to
the order of (the "Bank"), on or before _______________________ (the "Maturity
Date"), the principal sum of ________________ Million and No/ 100ths Dollars
($_,000,000.00) in accordance with the terms and provisions of that certain
Second Amended and Restated Revolving Credit Agreement (Short-Term Credit
Facility) dated May 29, 2001, by and among the Borrower, the Bank, the other
banks named on the signature pages thereof, and THE CHASE MANHATTAN BANK, as
Agent (the "Credit Agreement"). Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to such terms in the Credit Agreement.
The outstanding principal balance of this Revolving Note shall be payable at the
Maturity Date. The Borrower promises to pay interest on the unpaid principal
balance of this Revolving Note from the date of any Loan evidenced by this
Revolving Note until the principal balance thereof is paid in full. Interest
shall accrue on the outstanding principal balance of this Revolving Note from
and including the date of any Loan evidenced by this Revolving Note to but not
including the Maturity Date at the rate or rates, and shall be due and payable
on the dates, set forth in the Credit Agreement. Any amount not paid when due
with respect to principal (whether at stated maturity, by acceleration or
otherwise), costs or expenses, or, to the extent permitted by applicable law,
interest, shall bear interest from the date when due to and excluding the date
the same is paid in full, payable on demand, at the rate provided for in Section
2.2(b) of the Credit Agreement.
Payments of principal and interest, and all amounts due with respect to costs
and expenses, shall be made in lawful money of the United States of America in
immediately available funds, without deduction, set off or counterclaim to the
account of the Agent at the principal office of The Chase Manhattan Bank in
Houston, Texas (or such other address as the Agent under the Credit Agreement
may specify) not later than noon (Houston time) on the dates on which such
payments shall become due pursuant to the terms and provisions set forth in the
Credit Agreement.
If any payment of interest or principal herein provided for is not paid when
due, then the owner or holder of this Revolving Note may at its option, by
notice to the Borrower, declare the unpaid, principal balance of this Revolving
Note, all accrued and unpaid interest thereon and all other amounts payable
under this Revolving Note to be forthwith due and payable, whereupon this
Revolving Note, all such interest and all such amounts shall become and be
forthwith due and payable in full, without presentment, demand, protest, notice
of intent to accelerate, notice of actual acceleration or further notice of any
kind, all of which are hereby expressly waived by the Borrower.
If any payment of principal or interest on this Revolving Note shall become due
on a Saturday, Sunday, or public holiday on which the Agent is not open for
business, such payment shall be made on the next succeeding Business Day and
such extension of time shall in such case be included in computing interest in
connection with such payment.
In addition to all principal and accrued interest on this Revolving Note, the
Borrower agrees to pay (a) all reasonable costs and expenses incurred by the
Agent and all owners and holders of this Revolving Note in collecting this
Revolving Note through any probate, reorganization bankruptcy or any other
proceeding and (b) reasonable attorneys' fees when and if this Revolving Note is
placed in the hands of an attorney for collection after default.
All agreements between the Borrower and the Bank, whether now existing or
hereafter arising and whether written or oral, are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of demand being
made on this Revolving Note or otherwise, shall the amount paid, or agreed to be
paid, to the Bank for the use, forbearance, or detention of the money to be
loaned under the Credit Agreement and evidenced by this Revolving Note or
otherwise or for the payment or performance of any covenant or obligation
contained in the Credit Agreement or this Revolving Note exceed the amount
permissible at Highest Lawful Rate. If as a result of any circumstances
whatsoever, fulfillment of any provision hereof or of the Credit Agreement at
the time performance of such provision
--------------------------------------------------------------------------------
shall be due, shall involve transcending the limit of validity prescribed by
applicable usury law, then, ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any such circumstance, the
Bank shall ever receive interest or anything which might be deemed interest
under applicable law which would exceed the amount permissible at the Highest
Lawful Rate, such amount which would be excessive interest shall be applied to
the reduction of the principal amount owing on account of this Revolving Note or
the amounts owing on other obligations of the Borrower to the Bank under the
Credit Agreement and not to the payment of interest, or if such excessive
interest exceeds the unpaid principal balance of this Revolving Note and the
amounts owing on other obligations of the Borrower to the Bank under the Credit
Agreement, as the case may be, such excess shall be refunded to the Borrower. In
determining whether or not the interest paid or payable under any specific
contingencies exceeds the Highest Lawful Rate, the Borrower and the Bank shall,
to the maximum extent permitted under applicable law, (a) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest; (b)
exclude voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate and spread in equal parts during the period of the full stated
term of this Revolving Note, all interest at any time contracted for, charged,
received or reserved in connection with the indebtedness evidenced by this
Revolving Note.
This Revolving Note is one of the Notes provided for in, and is entitled to the
benefits of, the Credit Agreement, which Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events, for prepayments on account of principal hereof prior
to the maturity hereof upon the terms and conditions and with the effect therein
specified, and provisions to the effect that no provision of the Credit
Agreement or this Revolving Note shall require the payment or permit the
collection of interest in excess of the Highest Lawful Rate. It is contemplated
that by reason of prepayments or repayments hereon prior to the Maturity Date,
there may be times when no indebtedness is owing hereunder prior to such date;
but notwithstanding such occurrence this Revolving Note shall remain valid and
shall be in full force and effect as to Loans made pursuant to the Credit
Agreement subsequent to each such occurrence.
Except as otherwise specifically provided for in the Credit Agreement, the
Borrower and any and all endorsers, guarantors and sureties severally waive
grace, demand, presentment for payment, notice of dishonor or default, protest,
notice of protest, notice of intent to accelerate, notice of acceleration and
diligence in collecting and bringing of suit against any party hereto, and agree
to all renewals, extensions or partial payments hereon and to any release or
substitution of security hereof, in whole or in part, with or without notice,
before or after maturity.
THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW.
IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be executed
and delivered by its officer thereunto duly authorized effective as of the date
first above written.
SOUTHERN UNION COMPANY
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
--------------------------------------------------------------------------------
EXHIBIT B
NOTICE OF BORROWING
(Short-Term Credit Facility)
The undersigned hereby certifies that s/he is an officer of SOUTHERN UNION
COMPANY, a corporation organized under the laws of Delaware (the "Borrower"),
authorized to execute this Notice of Borrowing on behalf of the Borrower. With
reference to that certain Second Amended and Restated Revolving Credit Agreement
(Short-Term Credit Facility) dated May 29, 2001 (as same may be amended,
modified, increased, supplemented and/or restated from time to time, the "Credit
Agreement") entered into by and between the Borrower, THE CHASE MANHATTAN BANK,
as Agent, and the Banks identified therein, the undersigned further certifies,
represents and warrants to Banks on behalf of the Borrower that to his best
knowledge and belief after reasonable and due investigation and review, all of
the following statements are true and correct (each capitalized term used herein
having the same meaning given to it in the Credit Agreement unless otherwise
specified):
(a) Borrower requests that the Banks advance to the Borrower the aggregate sum
of $__________by no later than ____________, 200__ (the "Borrowing Date").
Immediately following such Loan, the aggregate outstanding balance of Loans
shall equal $__________. Borrower requests that the Loans bear interest as
follows:
(i) The principal amount of the Loans, if any, which shall bear interest
at the Alternate Base Rate requested to be made by the Banks is
$________. The initial Rate Period for such Loans shall be 90 days.
(ii) The principal amount of the Loans, if any, which shall bear interest
at the Eurodollar Rate for which the Rate Period shall be fifteen
days requested to be made by the Banks is $________________.
(iii) The principal amount of the Loans, if any, which shall bear interest
at the Eurodollar Rate for which the Rate Period shall be one month
requested to be made by the Banks is $__________.
(iv) The principal amount of the Loans, if any, which shall bear interest
at the Eurodollar Rate for which the Rate Period shall be two months
requested to be made by the Banks is $_________.
(v) The principal amount of the Revolving Loans, if any, which shall bear
interest at the Eurodollar Rate for which the Rate Period shall be
three months requested to be made by the Banks is $_________.
(vi) The principal amount of the Revolving Loans, if any, which shall bear
interest at the Eurodollar Rate for which the Rate Period shall be
six months requested to be made by the Banks is $__________.
(b) The proceeds of the borrowing shall be deposited into Borrower's demand
deposit account at The Chase Manhattan Bank more fully described as
follows:
Account No. 09916100522, styled Southern Union Company.
(c) Of the aggregate sum to be advanced, $_____________ will be advanced to
provide working capital pursuant to Section 5.1(a) of the Credit Agreement
and $__________will be advanced for the purposes set forth in Section
5.1(b) of the Credit Agreement; and $__________ will be advanced for the
purposes set forth in Section 5.1(c) of the Credit Agreement; and
$___________ will be advanced for the purposes of replacing Loans currently
outstanding under the Credit Agreement.
(d) The Expiration Date of each Rate Period specified in (a) above shall be the
last day of such Rate Period.
(e) As of the date hereof, and as a result of the making of the requested
Loans, there does not and will not exist any Default or Event of Default.
--------------------------------------------------------------------------------
(f) The representations and warranties contained in Section 6 of the Credit
Agreement are true and correct in all material respects as of the date
hereof and shall be true and correct upon the making of the requested Loan,
with the same force and effect as though made on and as of the date hereof
and thereof.
(g) No change that would cause a material adverse effect on the business,
operations or condition (financial or otherwise) of the Borrower has
occurred since the date of the most recent financial statements provided to
the Banks dated as of , 200 .
EXECUTED AND DELIVERED this _____ day of _______________, 200__.
SOUTHERN UNION COMPANY
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
--------------------------------------------------------------------------------
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
[NAME AND ADDRESS OF ASSIGNING BANK]
_______________, 200__
------------------------
------------------------
------------------------
------------------------
Re: Southern Union Company Amended and Restated Revolving Credit Agreement
(Short-Term Credit Facility)
Ladies and Gentlemen:
We have entered into a Second Amended and Restated Revolving Credit Agreement
(Short-Term Credit Facility) dated as of May 29, 2001 (the "Credit Agreement"),
among certain banks (including us), The Chase Manhattan Bank, which has been
succeeded through merger by The Chase Manhattan Bank (the "Agent") and Southern
Union Company (the "Company"). Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to such terms in the Credit Agreement.
Each reference to the Credit Agreement, the Notes, or any other document
evidencing or governing the Loans (all such documents collectively, the
"Financing Documents") includes each such document as amended, modified,
extended or replaced from time to time. All times are Houston times.
1. ASSIGNMENT. We hereby sell you and assign to you without recourse, and you
hereby unconditionally and irrevocably acquire for your own account and
risk, a percent ( %) undivided interest ("your assigned share") in each of
the following (the "Assigned Obligations"):
a. our Note;
b. all Loans and interest thereon as provided in Section 2 of the Credit
Agreement [,except that interest shall accrue on your assigned share
in the principal of Alternate Base Rate Loans and Eurodollar Rate
Loans at an annual rate equal to the rate provided in the Credit
Agreement minus _____%]; and
c. commitment fees payable pursuant to Section 4 of the Credit
Agreement[, except that your assigned share in such fees shall be at
an annual rate equal to the rate provided in the Credit Agreement
minus ____%].
2, MATERIALS PROVIDED ASSIGNEE
a. We will promptly request that the Company issue new Notes to us and
to you in substitution for our Note to reflect the assignment set
forth herein. Upon issuance of such substitute Notes, (i) you will
become a Bank under the Credit Agreement, (ii) you will assume our
obligations under the Credit Agreement to the extent of your assigned
share, and (iii) the Company will release us from our obligations
under the Credit Agreement to the extent, but only to the extent, of
your assigned share. The Company consents to such release by signing
this Agreement where indicated below. As a Bank, you will be
entitled to the benefits and subject to the obligations of a "Bank",
as set forth in the Credit Agreement, and your rights and liabilities
with respect to the other Banks and the Agent will be governed by the
Credit Agreement, including without limitation Section 11 thereof.
--------------------------------------------------------------------------------
b. We have furnished you copies of the Credit Agreement, our Note and
each other Financing Document you have requested. We do not
represent or warrant (i) the priority, legality, validity, binding
effect or enforceability of any Financing Document or any security
interest created thereunder, (ii) the truthfulness and accuracy of
any representation contained in any Financing Document, (iii) the
filing or recording of any Financing Document necessary to perfect
any security interest created thereunder, (iv) the financial
condition of the Company or any other Person obligated under any
Financing Document, any financial or other information, certificate,
receipt or other document furnished or to be furnished under any
Financing Document or (v) any other matter not specifically set forth
herein having any relation to any Financing Document, your interest
in one Note, the Company or any other Person. You represent to us
that you are able to make, and have made, your own independent
investigation and determination of the foregoing matters, including,
without limitation, the credit worthiness of the Company and the
structure of the transaction.
3. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas. You
irrevocably submit to the jurisdiction of any State or Federal court
sitting in Austin, Texas in any suit, action or proceeding arising out of
or relating to this Agreement and irrevocably waive any objection you may
have to this laying of venue of any such suit, action or proceeding brought
in any such court and any claim that any such suit, action or proceeding
has been brought in an inconvenient forum. We may serve process in any
manner permitted by law and may bring proceedings against you in any other
jurisdiction.
4. NOTICES. All notices and other communications given hereunder to a party
shall be given in writing (including bank wire, telecopy, telex or similar
writing) at such party's address set forth on the signature pages hereof or
such other address as such party may hereafter specify by notice to the
other party. Notice may also be given by telephone to the Person, or any
other officer in the office, listed on the signature pages hereof if
confirmed promptly by telex or telecopy. Notices shall be effective
immediately, if given by telephone; upon transmission, if given by bank
wire, telecopy or telex; five days after deposit in the mails, if mailed;
and when delivered, if given by other means.
5. AUTHORITY. Each of us represents and warrants that the execution and
delivery of this Agreement have been validly authorized by all necessary
corporate action and that this Agreement constitutes a valid and legally
binding obligation enforceable against it in accordance with its terms.
6. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
and by each party on separate counterparts, each of which shall be an
original but all of which taken together shall be but one instrument.
7. AMENDMENTS. No amendment modification or waiver of any provision of this
Agreement shall be effective unless in writing and signed by the party
against whom enforcement is sought.
--------------------------------------------------------------------------------
If the foregoing correctly sets forth our agreement, please so indicate by
signing the enclosed copy of this Agreement and returning it to us.
Very truly yours,
--------------------------------------------------
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
[Street Address]:
-----------------------------------------------
[City, State, Zip Code]:
-----------------------------------------------
Telephone:
-----------------------------------------------
Telecopy:
-----------------------------------------------
AGREED AND ACCEPTED:
-------------------------------
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
--------------------------------
Attention:
--------------------------------
Telephone:
--------------------------------
Telecopy:
--------------------------------
Account for Payments:
--------------------------------
ASSIGNMENT APPROVED PURSUANT TO SECTION 12.13 OF THE CREDIT AGREEMENT AND
RELEASE APPROVED IN SECTION 2 OF THIS AGREEMENT:
SOUTHERN UNION COMPANY THE CHASE MANHATTAN BANK, AGENT
By: By:
------------------------------------- ----------------------------------
Name: Name:
------------------------------------- ----------------------------------
Title: Title:
------------------------------------- ----------------------------------
--------------------------------------------------------------------------------