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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934
For the Fiscal Year Ended June 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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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.)
One PEI Center, Second Floor 18711
Wilkes-Barre, Pennsylvania (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (570) 820-2400
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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The aggregate market value of the voting stock held by non-affiliates of the
registrant on September 20, 2002 was $353,459,367. The number of shares of the
registrant's Common Stock outstanding on September 20, 2002 was 55,328,534.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for the year ended
June 30, 2002, 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 5, 2002, are incorporated by reference into
Part III.
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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. The
Company's principal line of business is the distribution of natural gas as a
public utility to approximately 1.5 million customers through operating
divisions in Texas, Missouri, Pennsylvania, Rhode Island and Massachusetts.
Southern Union Gas, headquartered in Austin, Texas, serves approximately 541,000
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
157,000 customers in northeastern and central Pennsylvania (including
Wilkes-Barre, Scranton and Williamsport). New England Gas Company, headquartered
in Providence, Rhode Island, serves approximately 295,000 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 Southern Union's strategy for long-term growth includes, but is not
limited to, acquiring the right assets that will position the Company favorably
in an evolving competitive marketplace.
In September 2000, Southern Union acquired Providence Energy Corporation
(ProvEnergy), Fall River Gas Company (Fall River Gas), and Valley Resources
(Valley Resources). Collectively, these companies (hereafter referred to as the
Company's New England Operations) were acquired for approximately $422,000,000
in cash and 1,370,629 shares (before adjustment for any subsequent stock
dividends) of Southern Union common stock, as well as the assumption of
approximately $140,000,000 in long-term debt. The results of operations from
ProvEnergy and Fall River Gas have been included in the Company's consolidated
statement of operations since September 28, 2000, and the results of operations
from Valley Resources have been included in the Company's consolidated statement
of operations since September 20, 2000. Thus, the Company's consolidated results
of operations for the periods subsequent to these acquisitions are not
comparable to the same periods in prior years. These acquisitions were accounted
for using the purchase method.
The New England Operations' primary business is the distribution of natural gas
through the New England Gas Company, which serves approximately 295,000
customers throughout Rhode Island and southeastern Massachusetts. Subsidiaries
of the Company acquired with the New England Gas Company and currently operating
include ProvEnergy Power LLC, Fall River Gas Appliance Company, Valley Appliance
Merchandising Company and Alternate Energy Corporation (see Company Operations).
Subsidiaries acquired with the New England Gas Company and subsequently sold
include Morris Merchants, Inc., Valley Propane, Inc. and ProvEnergy Oil
Enterprises, Inc. (see Divestitures).
In November 1999, Southern Union acquired Pennsylvania Enterprises, Inc.
(hereafter referred to as the Company's Pennsylvania Operations) for
approximately $500,000,000, including assumption of approximately $115,000,000
of long-term debt. The Company issued approximately 16,700,000 shares (before
adjustment for any subsequent stock dividends) of common stock and paid
approximately $38,000,000 in cash to complete the transaction. The results of
operations from the Pennsylvania Operations have been included in the Company's
consolidated statement of operations since November 4, 1999. Thus, the Company's
consolidated results of operations for the periods subsequent to the acquisition
are not comparable to the same periods in prior years. The acquisition was
accounted for using the purchase method.
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The Pennsylvania Operations' primary business is the distribution of natural
gas through PG Energy, which serves approximately 157,000 customers in
northeastern and central Pennsylvania. Subsidiaries of the Company acquired with
PG Energy and currently operating include PG Energy Services Inc., (Energy
Services) and PEI Power Corporation (Power Corp.) (see Company Operations).
Subsidiaries and assets acquired with PG Energy and subsequently sold include
Energy Services' propane operations and its commercial and industrial gas
marketing contracts, Keystone Pipeline Services, Inc. and Theta Land Corporation
(see Divestitures).
Acquiring the New England Operations and Pennsylvania Operations provides
Southern Union with a strong presence in the northeastern market. These
operations provide the Company with greater geographic and weather diversity
to the Company's service areas. Going forward, Southern Union may consider
other acquisitions that will financially enhance growth and take advantage
of future market opportunities.
Divestitures In July 2001, the Company implemented a Cash Flow Improvement Plan
that was designed to increase annualized pre-tax cash flow from operations by at
least $50 million by the end of fiscal year 2002. The three-part initiative was
composed of strategies designed to achieve results enabling its operating
divisions to meet their allowed rates of return, restructure its corporate
operations, and accelerate the sale of non-core assets and use the proceeds
exclusively for debt reduction. The Company's non-core subsidiaries and assets
sold include:
Subsidiary or Asset Sold Date Sold Proceeds Pre-tax Gain (Loss)
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PG Energy Services' (Energy Ser-
vices) propane operations (a) April 2002 $ 2,300,000 $ 1,200,000
Carrizo Springs Pipeline (b) December 2001 1,000,000 561,000
South Florida Natural Gas and
Atlantic Gas Corporation (c) December 2001 10,000,000 (1,500,000)
Morris Merchants, Inc. (d) October 2001 1,586,000 --
Valley Propane, Inc. (Valley
Propane) (e) September 2001 5,301,000 --
ProvEnergy Oil Enterprises (f) August 2001 15,776,000 --
Energy Services' commercial and
industrial gas marketing
contracts July 2001 4,972,000 4,653,000
Keystone Pipeline Services,
Inc. (g) June 2001 3,300,000 707,000
Theta Land Corporation (h) January 2000 12,150,000 --
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(a) Sold liquid propane to residential, commercial and industrial customers in
northeastern and central Pennsylvania.
(b) Asset was a 43-mile pipeline operated by Southern Transmission Company.
(c) South Florida Natural Gas was a natural gas division of Southern Union and
Atlantic Gas Corporation was a propane subsidiary of the Company.
(d) Served as a manufacturers' representative agency for franchised plumbing and
heating contract supplies throughout New England.
(e) Sold liquid propane to residential, commercial and industrial customers in
Rhode Island and Massachusetts.
(f) Operated a fuel oil distribution business through its subsidiary, ProvEnergy
Fuels, Inc. for residential and commercial customers in Rhode Island and
Massachusetts.
(g) Engaged primarily in the construction, maintenance, and rehabilitation of
natural gas distribution pipelines.
(h) Owned approximately 44,000 acres of land.
The Company may sell or dispose of other non-core subsidiaries and assets if the
terms are satisfactory to the Company. Such sales may include investments in
marketable securities.
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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 New England
Gas Company divisions. The Company's gas utility operations are generally
seasonal in nature, with a significant percentage of its annual revenues and
earnings occurring in the traditional winter heating season. The Company's
management is committed to achieving profitable growth of its utility divisions
in an increasingly competitive business environment and to enhance shareholder
value. Management's strategies for achieving these objectives principally
consist of: (i) to focus the Company's divisions in meeting their allowable
rates of returns; (ii) manage capital spending and operating costs without
sacrificing customer safety or quality service; (iii) expanding the Company
through development of existing utility businesses and possibly by acquiring of
selective new utility businesses; and (iv) solidify the Company's relationships
with regulatory bodies that oversee the various operations. Management develops
and continually evaluates these strategies and their implementation 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 were 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 and distribute
propane. Additionally, the Company owns or holds 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.
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 that 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 that
sells electricity to the broad mid-Atlantic wholesale energy market administered
by PJM Interconnection, L.L.C.
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 17,000 customers 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 Appliance and Merchandising Company (VAMCO), a wholly-owned subsidiary of
Southern Union, rents natural gas burning appliances and offers appliance
service contract programs to residential customers. In fiscal 2002, VAMCO
provided construction management services for natural gas-related projects
to commercial and industrial customers.
Mercado Gas Services, Inc. (Mercado), a wholly-owned subsidiary of Southern
Union, markets natural gas to commercial 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.
PG Energy Services, Inc. (Energy Services), a wholly-owned subsidiary of
Southern Union, offers the inspection, maintenance and servicing of
residential and small commercial gas-fired equipment to 17,300 residential
and commercial users primarily in central and northeastern Pennsylvania.
SUPro Energy Company (SUPro), a wholly-owned subsidiary of Southern Union,
provides propane gas services to 4,000 customers located principally in
Austin, El Paso and Alpine, Texas as well as Las Cruces, New Mexico and
surrounding communities. SUPro sold 5,434,000 and 5,859,000 gallons of
propane for the years ended June 30, 2002 and 2001.
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Southern Transmission Company (STC), a wholly-owned subsidiary of Southern
Union, owns and operates 118.8 miles of intrastate pipeline that serves
commercial, industrial and utility customers in central, south and coastal
Texas.
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, has a 43% equity ownership in a natural gas
distribution company, along with other related operations, which currently
serves 23,000 customers in Piedras Negras, Mexico, across the border from
Southern Union Gas' Eagle Pass, Texas service area.
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.
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 and conditioned air.
Alternate Energy Corporation (AEC), a wholly-owned subsidiary of Southern Union,
is an energy consulting firm that also 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. Additionally, through the acquisition of the
Pennsylvania Operations and New England Operations, the Company owns several
tracts of land, certain of which has been 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.
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 maintenance.
In late June 2000, Capstone completed its initial public offering (IPO). The
Company sold Capstone shares during fiscal year 2002 and 2001, realizing pre-tax
gains of $1,004,000 and $74,582,000, respectively. As of June 30, 2002, the
Company's 700,400 remaining shares of Capstone common stock were worth
$1,163,000 based on the closing price for Capstone shares that day.
The Company had invested $14,586,000 in PointServe, Inc. (PointServe), a
business-to-business online scheduling solution. The Company recorded a non-cash
charge of $10,380,000 in the fourth quarter of fiscal year 2002 to recognize the
decrease in fair value of its non-utility investment in PointServe. The Company
recognized this valuation adjustment to reflect significant lower private equity
valuation metrics and changes in the business outlook of PointServe. PointServe
is a closely held, privately owned company and, as such, has no published market
value.
As of June 30, 2002, Southern Union had a $5,433,000 equity interest in Advent
Networks, Inc. (Advent) and held $2,750,000 of convertible notes receivable from
Advent. 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. Subsequent to June 30, 2002, the
Company invested an additional $2,000,000 in convertible notes receivable to
Advent. All of the convertible notes convert into equity upon the next
equity financing of Advent or
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upon a change of control of Advent. Certain Southern Union executive management,
Board of Directors and employees have an equity ownership in Advent.
The Company reviews its portfolio of investment securities on a quarterly basis
to determine whether a decline in value is other than temporary. Factors
that are considered in assessing whether a decline in value is other than
temporary include, but are not limited to: earnings trends and asset
quality; near term prospects and financial condition of the issuer;
financial condition and prospects of the issuer's region and industry; and
Southern Union's intent and ability to retain the investment. If Southern
Union determines that the decline in value of an investment security is
other than temporary, the Company will record a charge on its consolidated
statement of operations to reduce the carrying value of the security to its
estimated fair value.
Competition
As energy providers, Southern Union Gas, Missouri Gas Energy, PG Energy, and
New England Gas Company have historically 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.
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 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. 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 under regulated transportation service
rates (with PG Energy serving as supplier of last resort). Customers can also
choose to remain with PG Energy as their supplier under regulated natural gas
sales rates. In either case, the applicable rate results in the same operating
margin to PG Energy. Despite customers' acquired right to choose,
higher-than-normal wholesale prices for natural gas have prevented suppliers
from offering competitive rates.
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 contracts.
The Company has been directly acquiring its gas supplies since the mid-1980s
when interstate pipeline systems 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 Federal Energy Regulatory Commission (FERC) required the "unbundling" of
services offered by interstate pipeline companies beginning in 1992. As a
result, gas purchasing and transportation decisions and associated
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risks have been shifted from the pipeline companies 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 2002 gas requirements for the utility operations of Southern
Union Gas, Missouri Gas Energy and PG Energy were delivered under short- and
long-term transportation contracts through five, four and four major pipeline
companies, respectively. The majority of 2002 gas requirements for the utility
operations of New England Gas Company were delivered under long-term
transportation contracts through four major pipeline companies. These contracts
have various expiration dates ranging from calendar year 2002 through 2023.
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, PG Energy,
and New England Gas Company all have firm supply commitments for all areas that
are supplied with gas purchased under short-term arrangements. Southern Union
Gas, Missouri Gas Energy, PG Energy and New England Gas Company hold contract
rights to over 4 Bcf, 17 Bcf, 11 Bcf and 7 Bcf of storage capacity,
respectively, to assist in meeting peak demands. Storage capacity in 2002
approximated 24% 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, or New England Gas Company 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, 2002, the Company has purchase commitments
for certain quantities of gas at variable, market-based prices that have an
annual value of $157,929,000. 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.
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 Missouri
Public Service Commission (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, the Rhode Island Public Utilities Commission (RIPUC) approves
natural gas rates for the New England Gas Company. In Massachusetts natural gas
rates for the New England Gas Company are subject to the regulatory authority of
the Massachusetts Department of Telecommunications and Energy (MDTE). 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 these 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
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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 an 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,
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. Southern Union Gas has weather normalization
clauses in 23 Texas towns and cities, including Austin, Andrews and various El
Paso service areas, Galveston, Port Arthur and Mineral Wells. New England Gas
Company has a weather normalization clause in the tariff covering its Rhode
Island operations.
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 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 resulted in
the 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.
The MPSC approval of the January 31, 1994 acquisition of Missouri Gas Energy by
the Company 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 On May 24, 2002, the RIPUC approved a settlement agreement between
the New England Gas Company and the RIPUC. The settlement agreement resulted in
a $3,900,000 decrease in base revenues for New England Gas Company's Rhode
Island operations, a unified rate structure ("One State; One Rate") and an
integration/merger savings mechanism. The settlement agreement also allows New
England Gas Company to retain $2,049,000 of merger savings and to share
incremental earnings with customers when the division's Rhode Island operations
return on equity exceeds 11.25%. Included in the settlement agreement was a
conversion to therm billing and the approval of a reconciling Distribution
Adjustment Clause (DAC). The DAC allows New England Gas Company to continue its
low income assistance and weatherization programs, to recover environmental
response costs over a 10-year period, puts into place a new weather
normalization clause and allows for the sharing of nonfirm margins (non-firm
margin is margin earned from interruptible customers with the ability to switch
to alternative fuels). The weather normalization 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. New England Gas
Company 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 2% warmer-than-normal. The non-firm margin incentive mechanism allows New
England Gas Company to retain 25% of all non-firm margins earned in excess of
$1,600,000.
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 provided 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
contained a weather mitigation clause
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and a non-firm margin incentive mechanism. The weather mitigation clause
allowed Providence Gas to defer the margin impact of weather that was greater
than 2% colder-than-normal and to recover the margin impact of weather that was
greater than 3% warmer-than-normal by making the corresponding adjustment to the
deferred revenue account (DRA). The non-firm margin incentive mechanism allowed
Providence Gas to retain 25% of all non-firm margins earned in excess of
$1,200,000. Under the settlement agreement, Providence Gas was able to 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 approved a settlement agreement between
Providence Gas, the RIPUC, 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.
Pennsylvania In December 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 Effective September 24, 2002, Southern Union Gas received a
$2,000,000 revenue increase for the El Paso service area, and a rate design that
continues to increase the proportion of the Company's revenue stream collected
through the monthly customer charge.
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.
Galveston Texas Effective July 1, 2002, Southern Union Gas received approval of
a $323,000 revenue increase for the Galveston service area, along with
continuation of weather normalization and annual cost of service adjustment
clauses.
North Texas Southern Union Gas received annual rate increases in Jacksboro,
Weatherford and Mineral Wells, Texas in May 2000, September 2000 and May 2001,
respectively, totaling $600,000, that collect a greater portion of the Company's
revenue stream from the monthly customers' charge. In addition, weather
normalization clauses were implemented in Weatherford and Mineral Wells.
Other During the three-year period ended June 30, 2002, 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.
In addition to the regulation of its utility and pipeline businesses, the
Company is affected by numerous other regulatory controls, including, among
others, pipeline safety requirements of the United States Department of
Transportation, 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
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
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.
- --------------------------------------------------------------------------------
8
Real Estate
The Company owns certain real estate which is neither material nor critical to
its operations.
Employees
As of July 31, 2002, the Company had 2,662 employees, of whom 1,995 are paid on
an hourly basis, 664 are paid on a salary basis and three are paid on a
commission basis. Of the 1,995 hourly paid employees, unions represent 55%. Of
those employees represented by unions, Missouri Gas Energy employs 44%, PG
Energy employs 16% and New England Gas Company employs 40%.
In August 2001, the Company implemented a corporate reorganization and
restructuring which was initially announced in July 2001 as part of the Cash
Flow Improvement Plan. 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 offices. ERPs,
providing for increased benefits for those electing retirement, were offered to
approximately 400 eligible employees across the Company's operating divisions,
with approximately 60% of such eligible employees accepting. The RIF was limited
solely to certain corporate employees in the Company's Austin and Kansas City
offices where forty-eight employees were offered severance packages.
During fiscal year 2002, the Company agreed to five-year contracts with two
bargaining units representing employees of New England Gas Company's Providence
operations (formerly ProvEnergy), which were effective May 2002; a four-year
contract with one bargaining unit representing employees of New England Gas
Company's Cumberland operations (formerly Valley Resources), effective May 2002;
a four-year contract with one bargaining unit representing employees of New
England Gas Company's Fall River operations (formerly Fall River Gas), effective
April 2002; and a one year extension of a contract with one bargaining unit
representing employees of New England Gas Company's Cumberland operations, which
was effective May 2002.
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.
The Company believes that its relations with its employees are good. From time
to time, however, the Company may be subject to labor disputes. During fiscal
2002, the Company and one of five bargaining units representing New England Gas
Company employees (comprising approximately 8% of Southern Union's total
workforce) were unable to reach agreement on the renewal of a contract that
expired in January 2002. The resulting work stoppage, which did not have a
material adverse effect on the Company's results of operations, financial
condition or cash flows for the year ended June 30, 2002, was settled in May
2002 when the Company and the bargaining unit agreed to a new five-year
contract.
- --------------------------------------------------------------------------------
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,
----------------------------
2002 2001 2000
-------- -------- --------
Southern Union Gas:
Average number of gas sales customers served:
Residential................................... 496,543 491,086 483,220
Commercial.................................... 33,948 32,762 31,860
Industrial and irrigation..................... 249 251 253
Public authorities and other.................. 2,827 2,818 2,862
------- ------- -------
Total average customers served.............. 533,567 526,917 518,195
======= ======= =======
Gas sales in millions of cubic feet (MMcf):
Residential................................... 21,477 24,260 19,524
Commercial.................................... 9,303 10,069 8,677
Industrial and irrigation..................... 802 1,103 969
Public authorities and other.................. 2,492 2,855 2,377
------- ------- -------
Gas sales billed............................ 34,074 38,287 31,547
Net change in unbilled gas sales.............. (4) (97) 137
------- ------- -------
Total gas sales............................. 34,070 38,190 31,684
======= ======= =======
Weather:
Degree days (a)............................... 1,945 2,380 1,516
Percent of 10-year measure (b)................ 105% 130% 83%
Percent of 30-year measure (b)................ 93% 112% 71%
Gas transported in MMcf......................... 17,711 18,425 17,472
Missouri Gas Energy:
Average number of gas sales customers served:
Residential................................... 428,215 428,971 424,771
Commercial.................................... 59,060 59,742 58,323
Industrial.................................... 327 310 309
------- ------- -------
Total average customers served.............. 487,602 489,023 483,403
======= ======= =======
Gas sales in MMcf:
Residential................................... 35,039 44,011 34,999
Commercial.................................... 15,686 19,828 15,640
Industrial.................................... 417 598 412
------- ------- -------
Gas sales billed............................ 51,142 64,437 51,051
Net change in unbilled gas sales.............. (16) (64) 37
------- ------- -------
Total gas sales............................. 51,126 64,373 51,088
======= ======= =======
Weather:
Degree days (a)............................... 4,419 5,541 4,176
Percent of 10-year measure (b)................ 85% 107% 80%
Percent of 30-year measure (b)................ 85% 106% 80%
Gas transported in MMcf......................... 27,324 30,921 31,644
- -------------------------
(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
Eight
Year Ended Months
June 30, Ended
------------------ June 30,
2002 2001 2000(a)
-------- -------- ---------
PG Energy:
Average number of gas sales customers served:
Residential.................................. 141,223 140,815 140,019
Commercial................................... 14,108 13,991 13,872
Industrial................................... 218 206 209
Public authorities and other................. 321 310 314
------- ------- --------
Total average customers served............. 155,870 155,322 154,414
======= ======= ========
Gas sales in millions of cubic feet (MMcf):
Residential.................................. 15,053 17,965 14,830
Commercial................................... 5,325 6,561 4,969
Industrial .................................. 277 535 215
Public authorities and other................. 145 368 213
------- ------- --------
Gas sales billed........................... 20,800 25,429 20,227
Net change in unbilled gas sales............. (22) 40 (314)
------- ------- --------
Total gas sales............................ 20,778 25,469 19,913
======= ======= ========
Weather:
Degree days (b).............................. 5,373 6,621 5,287
Percent of 10-year measure (c)............... 89% 108% 86%
Percent of 30-year measure (c)............... 86% 105% 92%
Gas transported in MMcf........................ 26,976 25,430 19,403
Nine Months
Year Ended Ended
June 30, 2002 June 30, 2001(d)
------------- ----------------
New England Gas Company:
Average number of gas sales customers served:
Residential.................................. 265,206 264,349
Commercial................................... 21,696 21,634
Industrial and irrigation.................... 3,472 3,570
Public authorities and other................. 43 45
------- -------
Total average customers served............. 290,417 289,598
======= =======
Gas sales in millions of cubic feet (MMcf):
Residential.................................. 19,975 21,690
Commercial................................... 6,196 7,293
Industrial and irrigation.................... 3,271 2,721
Public authorities and other................. 23 22
------- -------
Gas sales billed........................... 29,465 31,726
Net change in unbilled gas sales............. (333) 286
------- -------
Total gas sales............................ 29,132 32,012
======= =======
Weather:
Degree days (b).............................. 4,980 5,273
Percent of 10-year measure (c)............... 88% 105%
Percent of 30-year measure (c).............. 85% 102%
Gas transported in MMcf........................ 11,457 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,
---------------------------------
2002 2001 2000
---------- ---------- ----------
Southern Union Gas:
Austin and other central and south
Texas communities...................... 192,992 190,696 183,872
El Paso and other west Texas communities. 194,373 189,134 187,189
Galveston and Port Arthur................ 49,026 49,292 50,237
Panhandle and north Texas communities.... 23,973 24,046 24,584
Rio Grande Valley communities and
Eagle Pass............................. 74,149 74,641 75,608
---------- ---------- ----------
534,513 527,809 521,490
---------- ---------- ----------
Missouri Gas Energy:
Kansas City, Missouri Metropolitan Area.. 384,222 379,057 379,804
St. Joseph, Joplin, Monett and others.... 103,797 103,469 104,432
---------- ---------- ----------
488,019 482,526 484,236
---------- ---------- ----------
PG Energy.................................. 156,313 155,439 154,399
New England Gas Company.................... 293,613 289,048 --
Other (a).................................. 14,375 44,103 25,971
---------- ---------- ----------
Total...................................... 1,486,833 1,498,925 1,186,096
========== ========== ==========
- -----------------------------
(a) Includes Mercado, South Florida Natural Gas and Atlantic Gas Corporation
(which the Company sold in December 2001), SUPro Energy Services, PG Energy
Services Inc., Valley Propane and ProvEnergy Fuels (which were sold in
September and August of 2001, respectively) 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 8,158 miles of mains, 4,493 miles of service lines and 98
miles of transmission lines. STC and Norteno have 118.8 miles and 8 miles,
respectively, of transmission lines. Missouri Gas Energy has 7,850 miles of
mains, 4,856 miles of service lines and 47 miles of transmission lines. PG
Energy has 2,487 miles of mains, 1,488 miles of service lines and 29 miles of
transmission lines. New England Gas Company has 3,627 miles of mains, 4,289
miles of service lines and no transmission lines. The Company considers its
systems to be in good condition and well-maintained, and it has continuing
replacement programs based on historical performance and system surveillance.
Power Corp. retains ownership of two electric power plants that 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 that is in service and selling
electricity to the broad mid-Atlantic wholesale energy market administered by
PJM Interconnection, L.L.C.
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, 2002.
- --------------------------------------------------------------------------------
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, 2000
are set forth below:
$/Share
High Low
July 1 to September 20, 2002............................. $17.06 $10.20
(Quarter Ended)
June 30, 2002............................................ 18.90 14.11
March 31, 2002........................................... 19.23 15.81
December 31, 2001........................................ 21.33 15.81
September 30, 2001....................................... 23.03 16.67
(Quarter Ended)
June 30, 2001............................................ 20.33 15.91
March 31, 2001........................................... 23.92 17.24
December 31, 2000........................................ 25.34 15.42
September 30, 2000....................................... 18.82 14.51
Holders
As of September 20, 2002, there were 7,404 holders of record of Southern
Union's common stock and 55,328,534 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, 2002, 31,267,952 shares of Southern Union's common stock were held
by non-affiliates (any director or executive officer, any of their immediate
family members, or any holder known to be the beneficial owner 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 July 15, 2002, August 30, 2001, June 30, 2000 and
August 6, 1999, the Company distributed its annual 5% common stock dividend to
stockholders of record on July 1, 2002, August 16, 2001, June 19, 2000 and
July 23, 1999, respectively. A portion of each of the 5% stock dividends
distributed above 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,
------------------------------------------------------
2002(a) 2001(b) 2000(c) 1999 1998(d)
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per share amounts)
Total operating revenues. $1,290,550 $1,932,813 $ 831,704 $ 605,231 $ 669,304
Earnings from continuing
operations (e)......... 19,624 57,285 9,845 10,445 12,229
Earnings per common and
common share
equivalents (f)........ .35 .99 .20 .28 .34
Total assets............. 2,676,467 2,907,299 2,021,460 1,087,348 1,047,764
Common stockholders'
equity................. 685,364 721,857 735,455 301,058 296,834
Short-term debt and
capital lease
obligation............. 108,203 5,913 2,193 2,066 1,777
Long-term debt and
capital lease
obligation, excluding
current portion........ 1,082,210 1,329,631 733,774 390,931 406,407
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trust....... 100,000 100,000 100,000 100,000 100,000
Average customers served. 1,480,739 1,506,371 1,132,699 998,476 979,186
- -----------------------------
(a) Effective July 1, 2001, the Company has ceased amortization of goodwill
pursuant to the Financial Accounting Standards Board Standard Accounting
for Goodwill and Other Intangible Assets. Goodwill, which was previously
classified on the consolidated balance sheet as additional purchase cost
assigned to utility plant and amortized on a straight-line basis over forty
years, is now subject to at least an annual assessment for impairment by
applying a fair-value based test. Additionally, during fiscal year 2002,
the Company recorded an after-tax restructuring charge of $17,692,000. See
Goodwill and Employee Benefits in the Notes to Consolidated Financial
Statements.
(b) 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.
(c) 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.
(d) On December 31, 1997, Southern Union acquired Atlantic Utilities for
755,650 pre-split and pre-stock dividend shares of common stock valued at
$18,041,000 and cash of $4,436,000. Atlantic Utilities was sold in December
2001.
(e) 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.
(f) 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 July 15, 2002, August 30, 2001, June 30, 2000,
August 6, 1999 and December 9, 1998, 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 its four operating divisions. Southern Union Gas
serves 541,000 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 (acquired in November 1999) serves 157,000
customers in northeastern and central Pennsylvania (including Wilkes-Barre,
Scranton and Williamsport). New England Gas Company (acquired in September 2000)
serves 295,000 customers in Rhode Island and Massachusetts (including
Providence, Newport and Cumberland, Rhode Island, and Fall River, North
Attleboro and Somerset, Massachusetts). South Florida Natural Gas, which was
sold in December 2001, served 4,500 customers in central Florida (including New
Smyrna Beach, Edgewater and areas of Volusia County, Florida).
In September 2000, Southern Union acquired Providence Energy Corporation
(ProvEnergy), Fall River Gas Company (Fall River Gas), and Valley Resources
(Valley Resources). Collectively, these companies (hereafter referred to as the
Company's New England Operations) were acquired for approximately $422,000,000
in cash and 1,370,629 shares (before adjustment for any subsequent stock
dividends) of Southern Union common stock, as well as the assumption of
approximately $140,000,000 in long-term debt. The results of operations from
ProvEnergy and Fall River Gas have been included in the Company's consolidated
statement of operations since September 28, 2000, and the results of operations
from Valley Resources have been included in the Company's consolidated statement
of operations since September 20, 2000. Thus, the Company's consolidated results
of operations for the periods subsequent to these acquisitions are not
comparable to the same periods in prior years. These acquisitions were accounted
for using the purchase method.
The New England Operations' primary business is the distribution of natural gas
through the New England Gas Company. Subsidiaries of the Company acquired with
the New England Gas Company and currently operating include ProvEnergy Power LLC
(ProvEnergy Power), Fall River Gas Appliance Company (Fall River Appliance),
Valley Appliance Merchandising Company (VAMCO) and Alternate Energy Corporation
(AEC). ProvEnergy Power 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 and conditioned air.
Fall River Appliance rents water heaters and conversion burners, primarily to
residential customers. VAMCO rents natural gas burning appliances and offers
appliance service contract programs to residential customers. In fiscal 2002,
VAMCO also provided construction management services for natural gas-related
projects to commercial and industrial customers. AEC is an energy consulting
firm.
Subsidiaries acquired with the New England Gas Company and subsequently sold
include Morris Merchants, Inc. (Morris Merchants), Valley Propane, Inc. (Valley
Propane) and ProvEnergy Oil Enterprises, Inc. (ProvEnergy Oil). In October 2001,
Morris Merchants, which served as a manufacturers' representative agency for
franchised plumbing and heating contract supplies throughout New England, was
sold for $1,586,000. In September 2001, Valley Propane, which sold liquid
propane to residential, commercial and industrial customers, was sold for
$5,301,000. In August 2001, ProvEnergy Oil, which operated a fuel oil
distribution business through its subsidiary, ProvEnergy Fuels, Inc. for
residential and commercial customers, was sold for $15,776,000. No financial
gain or loss was recognized on any of these sales transactions.
In November 1999, Southern Union acquired Pennsylvania Enterprises, Inc.
(hereafter referred to as the Company's Pennsylvania Operations) for
approximately $500,000,000, including assumption of approximately $115,000,000
of long-term debt. The Company issued approximately 16,700,000 shares (before
adjustment for any subsequent stock dividends) of common stock and paid
approximately $38,000,000 in cash to complete the transaction. The results of
operations from the Pennsylvania Operations have been included in the Company's
consolidated statement of operations since November 4, 1999. Thus, the Company's
consolidated results of operations for the periods subsequent to the acquisition
are not comparable to the same periods in prior years. The acquisition was
accounted for using the purchase method.
The Pennsylvania Operations' primary business is the distribution of natural gas
through PG Energy. Subsidiaries of the Company acquired with PG Energy and
currently operating include PG Energy Services Inc., (Energy Services) and PEI
Power Corporation (Power Corp.). Energy Services offers the inspection,
maintenance and
- --------------------------------------------------------------------------------
15
servicing of residential and small commercial gas-fired equipment to residential
and commercial users. Power Corp., an exempt wholesale generator (within the
meaning of the Public Utility Holding Company Act of 1935), sells electricity
services to the broad mid-Atlantic wholesale energy market administered by PJM
Interconnection, L.L.C.
Subsidiaries and assets acquired with PG Energy and subsequently sold include
Energy Services' propane operations and its commercial and industrial gas
marketing contracts, Keystone Pipeline Services, Inc. (Keystone) and Theta
Land Corporation. In April 2002, Energy Services' propane operations, which
sold liquid propane to residential, commercial and industrial customers,
were sold for $2,300,000, resulting in a pre-tax gain of $1,200,000. In July
2001, Energy Services' commercial and industrial gas marketing contracts
were sold for $4,972,000, resulting in a pre-tax gain of $4,653,000. In June
2001, the Company sold Keystone, which engaged primarily in the construction,
maintenance, and rehabilitation of natural gas distribution pipelines, for
$3,300,000, resulting in a pre-tax gain of $707,000. In January 2000, Theta Land
Corporation, which owned approximately 44,000 acres of land, was sold for
$12,150,000. No financial gain or loss was recognized on this transaction.
Results of Operations
Net Earnings Southern Union Company's 2002 (fiscal year ended June 30) net
earnings were $19,624,000 ($.35 per common share, diluted for outstanding
options and warrants -- hereafter referred to as per share), compared with
$57,285,000 ($.99 per share) in 2001. Net earnings for the year ended June 30,
2002, were impacted by lower operating margin resulting from unusually mild
weather that was 19% warmer than in 2001, an after-tax restructuring charge of
$17,692,000 and a non-cash charge to reserve for the impairment of the Company's
investment in a technology company of $5,865,000, net of tax. These items were
partially offset by $9,699,000 in after-tax gains generated from the settlement
of interest rate swaps. Net earnings in 2002 also reflect the absence of
significant sales of the Company's holdings in Capstone Turbine Corporation and
real estate, which generated after-tax gains of $51,659,000 in 2001. In
addition, net earnings in 2001 reflect goodwill amortization of $17,463,000
while goodwill amortization ceased in 2002 as a result of the adoption of a new
accounting pronouncement. Average common and common share equivalents
outstanding decreased 2% in 2002 due to the repurchase of 2,115,916 shares of
the Company's common stock. Substantially all of these repurchases occurred in
private off-market large-block transactions.
The Company's 2001 net earnings were $57,285,000 ($.99 per share), compared with
$9,845,000 ($.20 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 that contributed $6,074,000 in net earnings. While operating
margin benefited from weather that was 36% colder than 2000, purchased 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.
Operating Revenues Operating revenues in 2002 compared with 2001 decreased
$642,263,000, or 33%, to $1,290,550,000 while gas purchase and other energy
costs decreased $611,183,000, or 44%, to $763,567,000.
The decrease in both operating revenues and gas purchase and other energy costs
between periods was primarily due to a 15% decrease in gas sales volumes to
150,227 MMcf in 2002 from 176,654 MMcf in 2001 and by a 28% decrease in the
average cost of gas from $6.98 per Mcf in 2001 to $5.04 per Mcf in 2002. The
decrease in gas sales volumes is primarily due to warmer-than-normal weather in
all of the Company's service territories as compared to colder-than-normal
weather in 2001. The decrease in the average cost of gas is due to decreases 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. Additionally
impacting operating revenues in 2002 was a $21,676,000 decrease in gross receipt
taxes primarily due to a decrease in gas purchase and other energy costs. Gross
receipt taxes are levied on sales revenues billed to the customers and remitted
to the various taxing authorities. The decrease in operating revenues in 2002
was partially offset by the timing of the acquisition of the New England
Operations in September 2000, as well as
- --------------------------------------------------------------------------------
16
the $10,973,000 annual revenue increase granted to Missouri Gas Energy effective
August 2001 and the $10,800,000 annual revenue increase granted to PG Energy
effective January 2001.
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 2002 increased 934 MMcf to 91,446 MMcf at an
average transportation rate per Mcf of $.50 in both 2002 and 2001.
Operating revenues in 2001 compared with 2000 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.
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 was 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. The acquisition of 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. 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 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 Gas Company contributed an increase of 7,399 MMcf, while PG Energy
experienced a net increase of 6,027 MMcf in 2001.
Operating Margin Operating margin in 2002 (operating revenues less gas purchase
and other energy costs and revenue-related taxes) decreased by $9,404,000,
compared with an increase of $190,152,000, in 2001. Operating margins and
earnings are primarily dependent upon gas sales volumes and gas service rates.
The level of gas sales volumes is sensitive to the variability of the weather as
well as the timing of acquisitions and divestitures. Sales volumes, which
benefited from colder-than-normal weather in 2001, were negatively impacted by
unusually mild temperatures throughout fiscal year 2002 as well as in 2000. If
normal weather had been present throughout the Company's service territories in
2002 and 2000, operating margin would have increased by approximately
$28,794,000 and $21,214,000, respectively. Texas, Missouri, Pennsylvania and New
England accounted for 21%, 29%, 19% and 30%, respectively, of the Company's
operating margin in 2002 and 21%, 29%, 18% and 30%, respectively, in 2001.
Weather Weather in the Missouri Gas Energy service territories in 2002 was 85%
of a 30-year measure, 20% warmer than in 2001. Weather in the Southern Union Gas
service territories in 2002 was 93% of a 30-year measure, 18% warmer than in
2001. About half of the customers served by Southern Union Gas are weather
normalized. Weather in the PG Energy service territories in 2002 was 86% of a
30-year measure, 19% warmer than in 2001. Weather in the New England service
territories in 2002 was 85% of a 30-year measure, 17% warmer than the nine
months ended June 30, 2001.
Weather in Missouri in 2001 was 106% of a 30-year measure, 33% colder than in
2000. Weather in Texas in 2001 was 112% of a 30-year measure, 58% colder than in
2000. Weather in Pennsylvania in 2001 was 105% of a 30-year measure, 14% colder
than for the eight months ended June 30, 2000. Weather in New England was 102%
of a 30-year measure for the nine months ended June 30, 2001.
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17
Customers The average number of customers served in 2002, 2001 and 2000 was
1,480,739, 1,506,371 and 1,132,699, respectively. These customer totals exclude
Southern Union's 43% equity ownership in a natural gas distribution company in
Piedras Negras, Mexico that currently serves 23,000 customers. Changes in
customer totals between years primarily reflect the impact of acquisitions and
divestitures. Southern Union Gas served 533,567 customers in Texas during 2002.
Missouri Gas Energy served 487,602 customers in central and western Missouri. PG
Energy served 155,870 customers in northeastern and central Pennsylvania, and
New England Gas Company served 290,417 customers in Rhode Island and
Massachusetts during 2002. SUPro Energy Company (SUPro), a propane subsidiary of
the Company, served 3,451 customers in Texas. South Florida Natural Gas and
Atlantic Gas Corporation, a propane subsidiary of the Company, served 4,376 and
661 customers, respectively, until their sale in December 2001. In Rhode Island
and Massachusetts, Valley Propane, which was sold in September 2001, served
2,800 propane customers while ProvEnergy Fuels, Inc., served 14,900 fuel oil
customers until its sale in August 2001. Energy Services served 2,600 propane
customers until April 2002, when the propane operations were sold.
Operating Expenses Operating, maintenance and general expenses in 2002
decreased $18,311,000, or 8%, to $221,243,000. A decrease in bad debt expense of
$19,853,000 resulted from a decrease in delinquent customer receivables as a
result of lower gas prices and warmer weather in 2002 as compared with 2001.
Additionally, in connection with the Company's Cash Flow Improvement Plan
announced in July 2001 and discussed below, the Company realized savings of
approximately $10,600,000 during 2002 primarily due to the acceptance of
voluntary Early Retirement Programs ("ERPs") in certain of its operating
divisions and a limited reduction in force ("RIF") within its corporate offices.
In connection with the Cash Flow Improvement Plan, the Company divested of
certain non-core assets in fiscal year 2002 which contributed $5,557,000 more in
operating expenses in 2001 as compared with 2002. Southern Union has begun to
recover certain amounts from various insurance carriers for past and future
environmental expenditures. To the extent that such related past expenditures
had been expensed by the Company, a portion of these recoveries are recorded as
a reduction to operating expenses. During 2002, the Company recognized a
reduction in operating expenses of $2,591,000 for past environmental
expenditures. See Commitments and Contingencies in the Notes to the Consolidated
Financial Statements. These items were partially offset by $12,931,000 of
increased operating expenses in 2002 due to the timing of the acquisition of the
New England Operations, and $7,762,000 of increased pension and other
postretirement benefits expense, primarily due to volatility in the stock
markets.
Depreciation and amortization expense in 2002 decreased $9,809,000 to
$77,176,000. The decrease was primarily due to the elimination of goodwill
amortization resulting from the Company's adoption of Goodwill and Other
Intangible Assets effective July 1, 2001. In accordance with this Standard, the
Company has ceased the amortization of goodwill, which generated $17,463,000 of
expense in 2001, and currently accounts for goodwill on an impairment-only
approach. See Other Matters - Critical Accounting Policies and Goodwill in the
Notes to the Consolidated Financial Statements. The decrease in 2002 also
reflects $5,941,000 of reduced depreciation expense from reduced depreciation
rates in Missouri as a result of changes in the previously mentioned rate
settlement. These items were partially offset by $5,845,000 of increased
depreciation expense in 2002, due to the timing of the acquisition of the New
England Operations, and normal growth in plant. Additionally, in connection with
the previously mentioned Cash Flow Improvement Plan, the Company began the
divestiture of certain non-core subsidiaries and assets. As a result of prices
of comparable businesses for various non-core properties, a goodwill impairment
loss of $3,358,000 and an asset impairment loss of $569,000 were recognized in
depreciation and amortization on the consolidated statement of operations in
2002. See Goodwill in the Notes to the Consolidated Financial Statements
included herein.
Taxes other than on income and revenues, principally consisting of property,
payroll and state franchise taxes decreased $1,302,000 to $28,558,000 in 2002.
Taxes decreased due to a reduction in employees resulting from the Company's
reorganization and restructuring initiatives as well as from the sale of
non-core subsidiaries and assets and reduced provisions for state franchise
taxes.
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
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18
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 as a result of the acquisition of the New England Operations and the
Pennsylvania Operations and normal growth in plant. Taxes other than on income
and revenues 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.
Business Restructuring Charges Business reorganization and restructuring
initiatives were commenced in August 2001 as part of a previously announced 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
by the Company included (i) the offering of voluntary ERPs in certain of its
operating divisions and (ii) a limited RIF within its corporate offices. ERPs,
providing for increased benefits for those electing retirement, were offered to
approximately 400 eligible employees across the Company's operating divisions,
with approximately 60% of such eligible employees accepting. The RIF was limited
solely to certain corporate employees in the Company's Austin and Kansas City
offices where forty-eight employees were offered severance packages. As a result
of actions associated with the business reorganization and restructuring, the
Company expects an annual cost savings in a range of $30 million to $35 million.
In connection with the corporate reorganization and restructuring efforts, the
Company recorded a one-time charge of $32,706,000 during the quarter ended
September 30, 2001. This charge was reduced by $1,394,000 during the quarter
ended June 30, 2002, as a result of the Company's ability to negotiate more
favorable terms on certain of its restructuring liabilities. The charge
included: $17.7 million of voluntary and accepted ERP's, primarily through
enhanced benefit plan obligations, and other employee benefit plan obligations;
$7.6 million of RIF within the corporate offices and related employee separation
benefits; and $6.0 million connected with various business realignment and
restructuring initiatives. All restructuring actions have been completed as of
June 30, 2002. See Business Restructuring Charges in the Notes to the
Consolidated Financial Statements included herein.
Employees The Company employed 2,625, 3,092 and 2,285 individuals as of
June 30, 2002, 2001 and 2000, 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.
During fiscal year 2002, the Company agreed to five-year contracts with two
bargaining units representing employees of New England Gas Company's Providence
operations (formerly ProvEnergy), which were effective May 2002; a four-year
contract with one bargaining unit representing employees of New England Gas
Company's Cumberland operations (formerly Valley Resources), effective May 2002;
a four-year contract with one bargaining unit representing employees of New
England Gas Company's Fall River operations (formerly Fall River Gas), effective
April 2002; and a one year extension of a contract with one bargaining unit
representing employees of New England Gas Company's Cumberland operations, which
was effective May 2002.
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.
Interest Expense and Dividends on Preferred Securities Total interest expense in
2002 decreased by $11,794,000, or 11%, to $91,725,000. Interest expense
decreased by $11,299,000 in 2002 on the $485,000,000 bank note (the Term Note)
entered into by the Company 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.
This decrease in Term Note interest was due to significant reductions in LIBOR
rates during 2002 and the principal repayment of $135,000,000 of the Term Note
during 2002.
Interest expense on short-term debt in 2002 decreased from $7,913,000 to
$7,187,000, primarily due to the significant decrease in LIBOR rates during
2002, which was partially offset by an increase in the average amount of
short-term debt outstanding from $123,829,000 to $176,600,000 during the
year. The increase in the average
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19
amount of short-term debt outstanding during 2002 was primarily due to (i)
higher than normal beginning short-term debt outstanding due to high gas costs
and accounts receivable in 2001, (ii) an increase in the Company's seasonal
borrowing requirements due to the acquisition of the New England Operations, and
(iii) the repayment of various principal amounts of the Term Note with
borrowings under the Company's credit facilities. Draws on short-term debt 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 decreased from 6.4% to 3.2% in 2002.
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 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 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 assumed $113,321,000 in long-tem debt of the New England
Operations and $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 2001. The average rate of
interest on short-term debt increased from 6% in 2000 to 6.4% in 2001.
Other Income (Expense), Net Other income, net, in 2002 was $14,368,000,
compared with $76,819,000 in 2001. Other income in 2002 includes gains of
$17,166,000 generated through the settlement of several interest rate swaps, the
recognition of $6,204,000 in previously recorded deferred income related to
financial derivative energy trading activity of a wholly-owned subsidiary, a
gain of $4,653,000 realized through the sale of marketing contracts held by PG
Energy Services Inc., income of $2,369,000 generated from the sale and/or rental
of gas-fired equipment and appliances by various operating subsidiaries, a gain
of $1,200,000 realized through the sale of the propane assets of PG Energy
Services Inc., $1,004,000 of realized gains on the sale of a portion of Southern
Union's holdings in Capstone Turbine Corporation (Capstone), and power
generation and sales income of $971,000 primarily from PEI Power Corporation.
These items were partially offset by a non-cash charge of $10,380,000 to reserve
for the impairment of the Company's investment in a technology company,
$9,100,000 of legal costs associated with ongoing litigation from the
unsuccessful acquisition of Southwest Gas Corporation (Southwest), and a
$1,500,000 loss on the sale of South Florida Natural Gas, a natural gas division
of Southern Union, and Atlantic Gas Corporation, a Florida propane subsidiary of
the Company.
Other income in 2001 included realized gains on the sale of investment
securities of $74,582,000, a $13,532,000 gain on the sale of non-core real
estate and $7,643,000 of interest and dividend income. These items were
partially offset by $12,855,000 of legal costs associated with 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 of $9,708,000 included $10,363,000 of legal costs
associated with Southwest and $2,236,000 of non-cash trading losses. These
items were offset by net rental income of Lavaca Realty Company of
$1,757,000.
Federal and State Income Taxes Federal and state income tax expense in 2002,
2001 and 2000 was $15,108,000, $40,000,000 and $9,589,000, respectively. The
Company's consolidated federal and state effective income tax rate was 43%, 41%
and 49% in 2002, 2001 and 2000, respectively. The fluctuation in the effective
federal and state income tax rate is a result of non-tax deductible amortization
and write-off of goodwill, along with the level of pre-tax earnings.
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20
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, debt service and certain tax payments.
To provide these funds, as well as funds for its continuing construction and
maintenance programs, the Company has historically used cash flows from
operations and its credit facilities. Because of available credit and the
ability to obtain various types of market financing, combined with anticipated
cash flows from operations, management believes it has adequate financial
flexibility to meet its short-term cash needs.
The Company has increased the scale of its natural gas distribution operations
and the size of its customer base by pursuing and consummating 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 a substantial
increase in expenditures that 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 the 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 2002 were $150,030,000 compared with $123,260,000 and
$74,050,000 for 2001 and 2000, respectively. After changes in operating assets
and liabilities, cash flows from operating activities were $273,616,000 in 2002
compared with cash flows used in operating activities of $147,099,000 in 2001
and cash flows from operating activities of $66,865,000 for 2000. Changes in
operating assets and liabilities provided cash of $123,586,000 in 2002. Changes
in operating assets and liabilities used cash of $270,359,000 and $7,185,000 in
2001 and 2000, respectively. The current year changes in operating assets and
liabilities reflect the collection of the unusually high accounts receivable
balance that occurred due to the high gas costs during the winter season of 2001
that negatively impacted the Company's collection efforts and the recovery of
over $70 million in deferred purchased gas costs that the Company incurred
during 2001 due to the regulatory lag in passing along such increased purchased
gas costs to customers. The timing of acquisitions and the timing of natural gas
purchases stored in inventory also impacted operating activities in prior years.
At June 30, 2002, 2001 and 2000, the Company's primary source of liquidity
included borrowings available under the Company's credit facilities. On June 10,
2002, the Company entered into a short-term credit facility in the amount of
$150,000,000 (the "Short-Term Facility") that matures on June 9, 2003. The
Short-Term Facility replaced another short-term credit facility for the same
principal amount that expired on May 28, 2002. Also on June 10, 2002, the
Company amended the terms and conditions of its $225,000,000 long-term credit
facility (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 Short-Term
Facility and Long-Term Facility (together, the "Facilities") are available for
Southern Union's working capital, letter of credit requirements and other
general corporate purposes. The Facilities are subject to a commitment fee based
on the rating of the Senior Notes. As of June 30, 2002, the commitment fees were
an annualized 0.13% on the Short-Term Facility and 0.15% on the Long-Term
Facility. The Facilities require the Company to meet certain covenants in order
for the Company to be able to borrow under those agreements. A balance of
$131,800,000 and $190,600,000 was outstanding under the Facilities at June 30,
2002 and 2001, respectively. As of August 31, 2002 there was a balance of
$227,500,000 outstanding under these Facilities.
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: 2003 --
$7,379,000; 2004 -- $6,514,000; 2005 -- $5,491,000; 2006 -- $4,816,000; 2007 --
$4,647,000 and thereafter $19,708,000. The Company is also committed under
various agreements to purchase certain quantities of gas in
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21
the future. At June 30, 2002, the Company has purchase commitments for certain
quantities of gas at variable, market-based prices that have an annual value of
$157,929,000. The Company's purchase commitments may be extended over 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 and the
Company believes that all costs incurred under such commitments will be
recovered through its purchase gas tariffs.
Investing Activities Cash flow used in investing activities in 2002 decreased
$395,527,000 to $39,226,000. Cash flow used in investing activities increased by
$283,887,000 to $434,753,000 in 2001. 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, the sale of non-core
real estate and other assets, and the settlement of interest rate swaps.
During 2002, 2001 and 2000, the Company expended $93,279,000, $123,776,000 and
$100,446,000, respectively, for capital expenditures excluding acquisitions.
These expenditures primarily related to distribution system replacement and
expansion. Included in these capital expenditures were $7,860,000, $14,040,000
and $14,286,000 for the Missouri Gas Energy Safety Program in 2002, 2001 and
2000, respectively. Cash flow from operations has historically been utilized to
finance capital expenditures and is expected to be the primary source for future
capital expenditures.
During 2002, the Company sold non-core subsidiaries and
assets, which generated proceeds of $40,935,000, resulting in net pre-tax gains
of $4,914,000. In 2001, Southern Union sold its Austin, Texas headquarters
building, Lavaca Plaza, for $20,638,000, resulting in a pre-tax gain of
$13,532,000 and also disposed of a former subsidiary of the Pennsylvania
Operations, which generated proceeds of $3,300,000 resulting in a pre-tax gain
of $707,000. In January 2000, a former subsidiary of the Pennsylvania Operations
was sold for $12,150,000. No financial gain or loss was recognized on this
transaction.
In September 2001, the settlement of three interest rate swaps which the Company
had negotiated in July and August of 2001 and which were not designated as
hedges, resulted in a pre-tax gain and cash flow of $17,166,000.
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. In November 1999, Southern Union acquired the Pennsylvania
Operations for 16,713,735 pre-stock dividend shares of common stock and
$38,366,000 in cash. On the date of acquisition, Pennsylvania Operations had
$576,000 in cash and cash equivalents.
During 2002 and 2001, the Company sold a portion of its investment holdings in
Capstone for $1,213,000 and $84,762,000, respectively, resulting in pre-tax
gains of $1,004,000 and $74,582,000, respectively. During 2002, 2001 and 2000,
the Company purchased investment securities of $938,000, $12,495,000 and
$21,001,000, respectively.
Pursuant to a 1989 MPSC order, Missouri Gas Energy is
engaged in a major gas safety program in its service territories ("Missouri Gas
Energy Safety Program"). 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 $9,602,000 in 2003 related
to this program and up to $170 million over the remaining life of the program of
17 years.
Financing Activities Cash flow used in financing activities was
$235,609,000 in 2002 compared to cash flow from financing activities of
$555,242,000 and $111,830,000 in 2001 and 2000, 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 and
purchase of treasury stock. As a result of these financing transactions, the
Company's total debt to total capital ratio at June 30, 2002 was 60.3%, compared
with 61.9% and 46.8% at
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22
June 30, 2001 and 2000, respectively. The Company's effective debt cost rate
under the current debt structure is 6.60% (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, 2002, a balance of $350,000,000 was outstanding on this
Term Note. The Term Note, which initially expired on August 27, 2001, was
extended through August 26, 2002. On July 16, 2002, the Company repaid the Term
Note with the proceeds from the issuance of a $311,087,000 Term Note dated July
15, 2002 (the "2002 Term Note") and borrowings under the Facilities. The 2002
Term Note requires semi-annual principal repayments on February 15th and August
15th of each year, with payments of $25,000,000 each being due February 15,
2003, August 15, 2003, February 15, 2004, and August 15, 2004 and payments of
$35,000,000 each being due February 15, 2005 and August 15, 2005. The remaining
principal amount of $141,087,000 is due August 26, 2005. No additional draws can
be made on the 2002 Term Note. The interest rate on borrowings under the 2002
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 on November 4,
1999, 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 rank equally in right of payment with each other and with the
Company's other unsecured and unsubordinated 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.
On December 6, 2001 and October 19, 2001, respectively, the Company filed shelf
registrations for $200,000,000 of subordinated debt securities and preferred
securities of financing trusts and $400,000,000 of senior debt securities.
Southern Union may sell such securities up to such amounts from time to
time, at prices determined at the time of any such offering. The Company
currently has regulatory approval to issue up to $88,900,000 of these
securities for certain uses.
The Company's ability to arrange financing, including refinancing, and its cost
of capital are dependent on various factors and conditions, including: general
economic and capital market conditions; maintenance of acceptable credit
ratings; credit availability from banks and other financial institutions;
investor confidence in the Company, its competitors and peer companies in the
energy industry; market expectations regarding the Company's future earnings and
probable cash flows; market perceptions of the Company's ability to access
capital markets on reasonable terms; and provisions of relevant tax and
securities laws.
On June 6, 2002, Moody's Investor Service, Inc. ("Moody's") reduced its credit
rating on the Company's senior unsecured debt to Baa3 with a stable outlook from
Baa2 with a negative outlook. The Company's senior unsecured debt is currently
rated BBB+ by Standard and Poor's Rating Information Service ("S&P"), a rating
that it has held since April 1998. Although no further downgrades are
anticipated, such an event would not have a material impact on the Company. The
Company is not party to any lending agreements that would accelerate the
maturity date of any obligation due to a failure to maintain any specific credit
ratings.
The Company had standby letters of credit outstanding of $30,541,000 at June 30,
2002 and $2,716,000 at June 30, 2001, which guarantee payment of natural gas
purchases, insurance claims and other various commitments.
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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, 2002, the Company had issued fixed-rate long-term debt, capital
lease and Preferred Securities aggregating $940,413,000 in principal amount and
having a fair value of $924,647,000. 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 $59,335,000 if interest and dividend rates were to
decline by 10% from their levels at June 30, 2002. 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 $481,800,000 at June 30, 2002
and primarily consisted of the Term Note entered into by the Company for the
acquisition of the New England Operations and amounts borrowed under the
Facilities of the Company. The floating-rate obligations under the Term Note and
the 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, 2002 levels, the Company's consolidated
interest expense would increase by a total of approximately $112,000 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 (FASB) Accounting for
the Effects of Certain Types of Regulation as a regulatory asset/liability.
The change in exposure to loss in earnings and cash flow related to interest
rate risk from June 30, 2001 to June 30, 2002 is not material to the Company.
See Preferred Securities of Subsidiary Trust and Debt and Capital Lease in the
Notes to the Consolidated Financial Statements.
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), which was refinanced in January 2002. The TIF Debt bears interest at a
floating rate with a floor of 6.0% and a ceiling of 7.75% and matures on June
30, 2011. The loan requires interest-only payments until June 30, 2003, and
semi-annual interest and principal payments thereafter. As of June 30, 2002, the
interest rate on the TIF Debt is 6.0% and estimated incremental tax revenues are
expected to cover approximately 45% of the fiscal year 2003 annual debt service.
The balance outstanding on the TIF Debt was $9,710,000 as of June 30, 2002.
In accordance with adoption of 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 2002, the Company was party to three interest rate swaps that
were created to manage exposure against volatility in interest payments on
variable rate debt and which qualify for hedge accounting. As of June 30, 2002,
$954,000 in after-tax comprehensive income generated through the expiration of
two of these swaps was partially offset by the fair value of the Company's
remaining obligation under one swap which resulted
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24
in $150,000 of unrealized losses, net of tax. For the fiscal year ended June 30,
2002, the Company recorded net settlement payments of $1,408,000 on these swaps
through interest expense. Hedge ineffectiveness, which is recorded in interest
expense, was immaterial for fiscal 2002. No component of the swaps' gain or loss
was excluded from the assessment of hedge effectiveness. At June 30, 2002, the
fair value of the remaining interest rate swap was a liability of $519,000 and
is offset by a matching adjustment to other comprehensive income. The Company
expects to reclassify as interest expense $291,000 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 17 months.
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.
Beginning 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, 2002, the Company owned
contracts representing 699,375 MMBtu of natural gas at an average strike price
of $3.97 per MMBtu. The fair value of the contracts, which expire at various
times through May 2003, are included in the consolidated financial statements as
an asset and a matching adjustment to deferred cost of gas of $100,000 at
June 30, 2002, and as a liability and a matching adjustment to deferred cost of
gas of $1,701,000 at June 30, 2001.
In March 2001, the Company discovered unauthorized financial derivative energy
trading activity by a non-regulated, wholly-owned subsidiary. All unauthorized
trading activity was subsequently closed in March and April of 2001 resulting in
a cumulative cash expense of $191,000, net of taxes, and a deferred liability of
$7,921,000 at June 30, 2001. For the fiscal year ended June 30, 2002, the
Company recorded $6,204,000 through other income relating to the expiration of
contracts resulting from this trading activity. The majority of the remaining
deferred liability of $1,717,000 at June 30, 2002 related to these derivative
instruments will be recognized as income in the Consolidated Statement of
Operations over the next three years based on the related contracts. The
Company established new limitations on trading activities, as well as new
compliance controls and procedures that are intended to make it easier to
identify quickly any unauthorized trading activities.
Other Matters
Foreign Operations 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 Company, have a
$4,200,000 equity ownership in a natural gas distribution company and other
operations which currently serves 23,000 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 2002, 2001 and 2000.
Stock Splits and Dividends On July 15, 2002, August 30, 2001, June 30, 2000 and
August 6, 1999, Southern Union distributed a 5% common stock dividend to
stockholders of record on July 1, 2002, August 16, 2001, June 19, 2000 and
July 23, 1999, respectively. 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
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25
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.
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, commencing February 15, 2000, until closing. Southwest's
Board of Directors rejected Southern Union's revised proposal. On January 21,
2000, ONEOK announced that it was withdrawing from the Southwest merger
agreement.
There were several actions commenced by parties involved in efforts to acquire
Southwest. All of these actions eventually were transferred to the District of
Arizona, consolidated and lodged with Judge Roslyn Silver. As a result of
summary judgments granted, there are no claims remaining against Southern Union.
On August 6, 2002, Southwest and Southern Union settled their claims against
each other in consideration of a payment to be made to Southern Union by
Southwest Gas of $17,500,000. On August 9, 2002, ONEOK and Southwest settled all
claims asserted against each other in consideration of a $3,000,000 payment to
be made to Southwest by ONEOK.
The remaining issues to be resolved at trial involve claims by the Company
against ONEOK and certain individuals. Southern Union's damage claims have been
limited to its out-of-pocket costs and punitive damages. Trial is scheduled to
commence October 15, 2002.
In August 1998, the City of Edinburg obtained a jury verdict totaling
approximately $13,000,000 jointly and severally 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 for
the alleged underpayment of franchise fees. (Southern Union purchased RGV from
Valero in 1993.) The trial court reduced the jury award to approximately
$8,500,000. Subsequently, the Texas (13th District) Court of Appeals further
reduced the award to $4,085,000. The Court of Appeals also remanded a portion of
the case to the trial court with instructions to retry certain issues. The
Company continues to pursue reversal on appeal. In August 2002, the Supreme
Court of Texas granted the Company's petition for review. Oral arguments have
been scheduled for November 20, 2002. The Company believes that the outcome of
the matter will not have a material adverse impact on the Company's results of
operations, financial position or cash flows.
On May 31, 2002, the staff of the MPSC recommended that the Commission disallow
approximately $15 million in gas costs incurred during the period July 1, 2000
through June 30, 2001. Missouri Gas Energy filed its response in opposition to
the Staff's recommendation on July 11, 2002, vigorously disputing the Commission
staff's assertions. Missouri Gas Energy intends to vigorously defend itself in
this proceeding. As of September 20, 2002, the Commission had not yet adopted a
procedural schedule or set the matter for hearing.
On November 27, 2001, August 1, 2000 and August 12, 1999, the staff of the MPSC
recommended that the Commission disallow approximately $5.9 million, $5.9
million and $4.3 million, respectively, in gas costs incurred during the
period July 1, 1999 through June 30, 2000, July 1, 1998 through June 30,
1999, and July 1, 1997 through June 30, 1998, respectively. The basis of
these proposed disallowances appears to be the same as was rejected by the
Commission through an order dated March 12, 2002, applicable to the period
July 1, 1996 through June 30, 1997. MGE intends to vigorously defend itself
in these proceedings. As of September 20, 2002, the Commission had not yet
adopted a procedural schedule or set the matter for hearing.
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26
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 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.
Effective September 24, 2002, Southern Union Gas received a $2,000,000 revenue
increase for the El Paso service area, and a rate design that continues to
increase the proportion of the Company's revenue stream collected through the
monthly customer charge.
Effective July 1, 2002, Southern Union Gas received approval of a $323,000
revenue increase for the Galveston service area, along with continuation of
weather normalization and annual cost of service adjustment clauses.
On May 24, 2002, the Rhode Island Public Utilities Commission (RIPUC) approved a
settlement agreement between the New England Gas Company and the RIPUC. The
settlement agreement resulted in a $3,900,000 decrease in base revenues for New
England Gas Company's Rhode Island operations, a unified rate structure ("One
State; One Rate") and an integration/merger savings mechanism. The settlement
agreement also allows New England Gas Company to retain $2,049,000 of merger
savings and to share incremental earnings with customers when the division's
Rhode Island operations return on equity exceeds 11.25%. Included in the
settlement agreement was a conversion to therm billing and the approval of a
reconciling Distribution Adjustment Clause (DAC). The DAC allows New England Gas
Company to continue its low income assistance and weatherization programs, to
recover environmental response costs over a 10-year period, puts into place a
new weather normalization clause and allows for the sharing of nonfirm margins
(non-firm margin is margin earned from interruptible customers with the ability
to switch to alternative fuels). The weather normalization 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. New England
Gas Company 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 2% warmer-than-normal. The non-firm margin incentive mechanism allows New
England Gas Company to retain 25% of all non-firm margins earned in excess of
$1,600,000.
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 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 resulted in the 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 RIPUC's Written Order issued April 30, 2001, Providence Gas'
Price Stabilization Plan was extended through June 2002. The related settlement
agreement provided 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
contained a weather mitigation clause and a non-firm margin incentive mechanism.
The weather mitigation clause allowed Providence Gas to defer the margin impact
of
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27
weather that was greater than 2% colder-than-normal and to recover the margin
impact of weather that was greater than 3% warmer-than-normal by making the
corresponding adjustment to the deferred revenue account (DRA). The non-firm
margin incentive mechanism allowed Providence Gas to retain 25% of all non-firm
margins earned in excess of $1,200,000. Under the settlement agreement,
Providence Gas was able to 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 approved a settlement agreement between
Providence Gas, the RIPUC, 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 December 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.
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.
Southern Union Gas received annual rate increases in Jacksboro, Weatherford and
Mineral Wells, Texas in May 2000, September 2000 and May 2001, respectively,
totaling $600,000, that collect a greater portion of the Company's revenue
stream from the monthly customers' charge. In addition, weather normalization
clauses were implemented in Weatherford and Mineral Wells.
The Company continues to pursue certain changes to rates and rate structures
that are intended to reduce the sensitivity of earnings to weather including
weather normalization clauses and higher monthly fixed customer charges.
Southern Union Gas has weather normalization clauses in 23 Texas towns and
cities, including Austin, Andrews and various El Paso service areas, Galveston,
Port Arthur and Mineral Wells. New England Gas Company has a weather
normalization clause in the tariff covering its Rhode Island operations. These
clauses allow for the adjustments that help stabilize customers' monthly bills
and the Company's earnings from the varying effects of weather.
Critical Accounting Policies A critical accounting policy is one that is both
important to portrayal of the Company's financial condition and results, and
requires management's most difficult, subjective or complex judgments, often as
a result of the need to make estimates about the effect of matters that are
inherently uncertain. Estimates and assumptions about future events and their
effects cannot be perceived with certainty. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments. These estimates may change as new events occur, as more
experience is acquired, as additional information is obtained and as the
Company's operating environment changes. The Company believes the following are
the most significant estimates used in the preparation of its consolidated
financials statements.
Accounting for Rate Regulation -- The FASB Standard, Accounting for the Effects
of Certain Types of Regulation, provides that rate-regulated entities account
for and report assets and liabilities consistent with the recovery of those
costs in rates if the rates established are designed to recover the costs of
providing the regulated service. The Company's gas utility operations adhere to
the accounting and reporting requirements of this Statement. Certain expenses
and revenues dependent on utility regulation or rate determination that would
customarily be reflected in income are deferred on the balance sheet and
recognized in income as the applicable amounts are included in service rates and
recovered from or refunded to customers. The aggregate amount of regulatory
assets and liabilities reflected in the consolidated balance sheets are $95.5
million and $6.7 million at June 30, 2002, and $91.6 million and $4.5 million at
June 30, 2001, respectively.
Impairment of Long-Lived Assets and Assets Held for Sale -- Long-lived assets,
which principally include property, plant and equipment, goodwill and equity
investments comprise a significant amount of the Company's total assets. The
Company makes judgments and estimates about the carrying value of these assets,
including amounts to be capitalized, depreciation methods and useful lives. The
Company periodically reviews the carrying values of these assets for impairment
or whenever events or changes in circumstances indicate that the carrying
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28
amounts may not be recoverable. An impairment loss is recorded in the period in
which it is determined that the carrying amount is not recoverable. This
requires the Company to make long-term forecasts of future revenues and costs
related to the assets subject to review. These forecasts require assumptions
about future demand, future market conditions and regulatory developments.
Significant and unanticipated changes to these assumptions could require a
provision for impairment in a future period.
During June 2002, the Company evaluated goodwill for impairment. The
determination of whether an impairment has occurred is based on an estimate of
discounted cash flows attributable to the Company's reporting units that have
goodwill, as compared to the carrying value of those reporting units' net
assets. As of June 30, 2002, pursuant to the FASB Standard, Goodwill and Other
Intangible Assets, no impairment had been indicated.
In connection with the Company's Cash Flow Improvement Plan announced in July
2001, the Company began the divestiture of certain non-core assets. As a result
of prices of comparable businesses for various non-core properties and pursuant
to the FASB Standard, Impairment of Long-Lived Assets and Assets to be Disposed
Of, a goodwill impairment loss of $3,358,000 was recognized in depreciation and
amortization on the consolidated statement of operations for the quarter ended
September 30, 2001, and an asset impairment loss of $569,000 was recognized on
the consolidated statement of operations for the quarter ended June 30, 2002.
Accounting for Investments in Equity Securities -- The Company holds securities
of Capstone Turbine Corporation (Capstone), which are classified as "available
for sale" under the FASB Standard Accounting for Certain Investments in Debt and
Equity Securities. Accordingly, these securities are stated at fair value, based
on quoted market price, with unrealized gains and losses recorded in a separate
component of common stockholders' equity. All other securities owned by the
Company are accounted for under the cost method. The Company's other investments
in securities consist of common and preferred stock in non-public companies
whose value is not readily determinable. The Company reviews its portfolio of
other investment securities on a quarterly basis to determine whether a decline
in value is other than temporary. Factors that are considered in assessing
whether a decline in value is other than temporary include, but are not limited
to: earnings trends and asset quality; near term prospects and financial
condition of the issuer; financial condition and prospects of the issuer's
region and industry; and Southern Union's intent and ability to retain the
investment. If the Company determines that the decline in value of an investment
security is other than temporary, the Company will record a charge on its
consolidated statement of operations to reduce the carrying value of the
security to its estimated fair value.
In June 2002, Southern Union determined that the decline in value of its
investment in PointServe was other than temporary. Accordingly, the Company
recorded a non-cash charge of $10,380,000, to reduce the carrying value of
this investment to its estimated fair value. The Company recognized this
valuation adjustment to reflect significant lower private equity valuation
metrics and changes in the business outlook of PointServe. PointServe is a
closely held, privately owned company and, as such, has no published market
value. The Company's remaining investment of $4,206,000 at June 30, 2002 may
be subject to future market value risk. The Company will continue to monitor
the value of its investment and periodically assess the impact, if any, on
reported earnings in future periods.
Pensions and Other Postretirement Benefits - The Company accounts for pension
costs and other postretirement benefit costs in accordance with the FASB
Standards Employers' Accounting for Pensions and Employers' Accounting for
Postretirement Benefits Other Than Pensions, respectively. These Statements
require liabilities to be recorded on the balance sheet at the present value
of these future obligations to employees net of any plan assets. The
calculation of these liabilities and associated expenses require the
expertise of actuaries and are subject to many assumptions including life
expectancies, present value discount rates, expected long-term rate of
return on plan assets, rate of compensation increase and anticipated health
care costs. Any change in these assumptions can significantly change the
liability and associated expenses recognized in any given year.
Accounting Pronouncements In June 2001, the FASB issued Accounting for Asset
Retirement Obligations. The Statement requires the fair value of a liability for
an asset retirement legal obligation to be recognized in the period in which it
is incurred and when the amount of the liability can be reasonably estimated.
When the liability is initially recorded, associated costs are capitalized by
increasing the carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. The Statement is
effective for fiscal years beginning after June 15, 2002,
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29
with earlier application encouraged. The Statement requires entities to record a
cumulative effect of change in accounting principle in the income statement in
the period of adoption. The Company intends to adopt this Statement during the
quarter ended September 30, 2002. Based on analysis completed to date, the
Company does not expect the Statement will have a material effect on its
financial position, results of operations or cash flows. The Company
anticipates completing its analysis by the end of the first quarter of fiscal
year 2003. In certain rate jurisdictions, the Company is permitted to include
annual charges for cost of removal in its regulated cost of service rates
charged to customers.
In August 2001, the FASB issued Accounting for the Impairment or Disposal of
Long-lived Assets. The Statement provides new guidance on the recognition of
impairment losses on long-lived assets to be held and used or to be disposed of
and also broadens the definition of what constitutes a discontinued operation
and how the results of a discontinued operation are to be measured and
presented. The Statement replaces the FASB Statement, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of and
the Accounting Principles Board Opinion, Reporting Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business. Under
the Statement, assets held for sale that are a component of an entity will be
included in discontinued operations if the operations and cash flows will be or
have been eliminated from the ongoing operations of the entity and the entity
will not have any significant continuing involvement in the operations
prospectively. The Statement is effective for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with early
adoption encouraged. The Statement is not expected to materially change the
methods the Company uses to measure impairment losses on long-lived assets, but
may result in additional future dispositions being reported as discontinued
operations than was previously permitted. The Company intends to adopt the
Statement during the quarter ended September 30, 2002.
In June 2002, the FASB issued Accounting for Costs Associated with Exit or
Disposal Activities. The Statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies the Emerging
Issues Task Force issue, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). The Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. The Statement is
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Statement is not expected to
materially change the methods the Company uses to measure exit or disposal
costs, but may result in liabilities for such costs relating to future
dispositions being reported in periods subsequent to the Company's commitment to
an exit plan.
See the Notes to Consolidated Financial Statements for the Company's adoption of
Goodwill and Other Intangible Assets on July 1, 2001, and 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 gas; 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 that the businesses acquired
and any other businesses or investments that Southern Union has acquired or may
- --------------------------------------------------------------------------------
30
acquire may not be successfully integrated with the businesses of Southern
Union; the impairment or sale of investment securities; ability to access
capital markets on reasonable terms; 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.
- --------------------------------------------------------------------------------
31
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
There is incorporated in this Item 10 by reference the information in the
Company's definitive proxy statement for the 2002 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 2002 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 2002 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 2002 Annual Meeting of Stockholders
under the caption Certain Relationships.
ITEM 14. Controls and Procedures.
Not applicable.
PART IV
ITEM 15. 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.)
- --------------------------------------------------------------------------------
32
Exhibit No. Description
- ---------- -----------
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.)
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 Registration
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
Registration 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.)
- --------------------------------------------------------------------------------
33
Exhibit No. Description
- ---------- -----------
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.)
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 June 10, 2002.
10(b) Revolving Credit Agreement (Short-Term Credit Facility) between
Southern Union Company and the Banks named therein dated June 10,
2002.
10(c) Amended and Restated Term Loan Credit Agreement between Southern
Union Company and the Banks named therein dated July 15, 2002.
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 May 27, 1999 and incorporated herein by reference.)(*)
- --------------------------------------------------------------------------------
34
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) Promissory Note between Dennis K. Morgan and Southern Union Company
dated January 28, 2000.
10(l) 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(m) 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.
99.1-A Statement Under Oath of Principal Executive Officer and Principal
Financial Officer Regarding Facts and Circumstances Relating to
Exchange Act Filings -- Chief Executive Officer.
99.1-B Statement Under Oath of Principal Executive Officer and Principal
Financial Officer Regarding Facts and Circumstances Relating to
Exchange Act Filings -- Chief Financial Officer.
99.2-A Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -- Chief
Executive Officer.
99.2-B Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -- Chief
Financial Officer.
(b) Reports on Form 8-K. Southern Union filed the following report on Form
-------------------
8-K during the three months ended June 30, 2002.
Date
Filed Description of Filing
--------- ----------------------------------------------------------
05/01/02 Announcement of operating performance for the quarter
and nine months ended March 31, 2002 and 2001 and
filing, under Item 9, summary statements of income of
the Company for the quarter and nine months ended
March 31, 2002 and 2001 (unaudited) and notes
thereto.
- ----------------------------
(*) Indicates Management Compensation Plan.
- --------------------------------------------------------------------------------
35
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 27, 2002.
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 27, 2002.
Signature/Name Title
-------------- -----
GEORGE L. LINDEMANN* Chairman of the Board, Chief Executive Officer
and Director
JOHN E. BRENNAN* Director
DAVID BRODSKY* Director
FRANK W. DENIUS* Director
KURT A. GITTER, M.D. Director
THOMAS F. KARAM Director
- ---------------------
Thomas F. Karam
ADAM M. LINDEMANN* Director
GEORGE ROUNTREE, III Director
RONALD W. SIMMS* Director
DAN K. WASSONG* Director
DAVID J. KVAPIL Executive Vice President and Chief Financial Officer
- -------------------- (Principal Accounting Officer)
David J. Kvapil
*By THOMAS F. KARAM
-----------------
Thomas F. Karam
Attorney-in-fact
- --------------------------------------------------------------------------------
CERTIFICATIONS
(1) I have reviewed this annual report on Form 10-K;
(2) based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
(3) based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition results
of operations and cash flows of the Issuer as of, and for, the
periods presented in this annual report;
GEORGE L. LINDEMANN
- -------------------
George L. Lindemann
Chairman of the Board and
Chief Executive Officer
September 27, 2002
(1) I have reviewed this annual report on Form 10-K;
(2) based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
(3) based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition results
of operations and cash flows of the Issuer as of, and for, the
periods presented in this annual report;
DAVID J. KVAPIL
- ---------------
David J. Kvapil
Executive Vice President and
Chief Financial Officer
September 27, 2002
- --------------------------------------------------------------------------------
SOUTHERN UNION COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
-----------
Financial Statements:
Consolidated statement of operations -- years ended June 30,
2002, 2001 and 2000........................................... F-2
Consolidated balance sheet -- June 30, 2002 and 2001............ F-3 to F-4
Consolidated statement of cash flows -- years ended June 30,
2002, 2001 and 2000........................................... F-5
Consolidated statement of common stockholders' equity -- years
ended June 30, 2002, 2001 and 2000............................ F-6
Notes to consolidated financial statements...................... F-7 to F-33
Report of independent accountants............................... F-34
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,
----------------------------------------
2002 2001 2000
------------ ------------ ------------
(thousands of dollars, except
shares and per share amounts)
Operating revenues................... $ 1,290,550 $ 1,932,813 $ 831,704
Cost of gas and other energy......... (763,567) (1,374,750) (497,698)
Revenue-related taxes................ (47,125) (68,801) (34,896)
----------- ----------- -----------
Operating margin................... 479,858 489,262 299,110
Operating expenses:
Operating, maintenance and general. 221,243 239,554 136,587
Business restructuring charges..... 31,312 -- --
Depreciation and amortization...... 77,176 86,985 55,140
Taxes, other than on income and
revenues......................... 28,558 29,860 17,269
----------- ----------- -----------
Total operating expenses......... 358,289 356,399 208,996
----------- ----------- -----------
Net operating revenues........... 121,569 132,863 90,114
----------- ----------- -----------
Other income (expenses):
Interest .......................... (91,725) (103,519) (51,492)
Dividends on preferred securities
of subsidiary trust.............. (9,480) (9,480) (9,480)
Other, net......................... 14,368 76,819 (9,708)
----------- ----------- -----------
Total other expenses, net........ (86,837) (36,180) (70,680)
----------- ----------- -----------
Earnings before income taxes and
cumulative effect of change in
accounting principle............... 34,732 96,683 19,434
Federal and state income taxes....... 15,108 40,000 9,589
----------- ----------- -----------
Earnings before cumulative effect of
change in accounting principle.... 19,624 56,683 9,845
Cumulative effect of change in
accounting principle, net of tax.. -- 602 --
----------- ----------- -----------
Net earnings available for common
stock............................. $ 19,624 $ 57,285 $ 9,845
=========== =========== ===========
Net earnings per share:
Basic
Before cumulative effect of
change in accounting
principle..................... $ .36 $ 1.04 $ .21
Cumulative effect of change in
accounting principle, net
of tax........................ -- .01 --
----------- ----------- -----------
$ .36 $ 1.05 $ .21
=========== =========== ===========
Diluted
Before cumulative effect of
change in accounting
principle..................... $ .35 $ .98 $ .20
Cumulative effect of change in
accounting principle, net
of tax........................ -- .01 --
----------- ----------- -----------
$ .35 $ .99 $ .20
=========== =========== ===========
Weighted average shares outstanding:
Basic............................. 53,886,998 54,680,807 47,840,785
=========== =========== ===========
Diluted........................... 56,770,235 57,716,973 50,053,017
=========== =========== ===========
See accompanying notes.
- --------------------------------------------------------------------------------
F-2
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
June 30,
----------------------
2002 2001
---------- ----------
(thousands of dollars)
Property, plant and equipment:
Plant in service................................... $2,265,747 $2,201,975
Construction work in progress...................... 12,152 25,520
---------- ----------
2,277,899 2,227,495
Less accumulated depreciation and amortization..... (821,539) (771,170)
---------- ----------
Net property, plant and equipment................ 1,456,360 1,456,325
Current assets:
Cash and cash equivalents.......................... -- 1,219
Accounts receivable, billed and unbilled, net...... 122,224 218,912
Inventories, principally at average cost........... 103,001 106,505
Deferred gas purchase costs........................ -- 65,171
Investment securities available for sale........... 1,163 29,447
Prepayments and other.............................. 14,091 19,823
---------- ----------
Total current assets............................. 240,479 441,077
Goodwill, net of accumulated amortization of
$58,056,000 and $57,014,000, respectively.......... 713,390 724,620
Deferred charges..................................... 210,263 226,863
Investment securities, at cost....................... 9,786 19,081
Real estate.......................................... -- 2,506
Other................................................ 46,189 36,827
---------- ----------
Total assets..................................... $2,676,467 $2,907,299
========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
F-3
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
STOCKHOLDERS' EQUITY AND LIABILITIES
June 30,
----------------------
2002 2001
---------- ----------
(thousands of dollars)
Common stockholders' equity:
Common stock, $1 par value; authorized 200,000,000
shares; issued 58,055,436 shares at June 30, 2002. $ 58,055 $ 54,553
Premium on capital stock............................ 707,930 676,324
Less treasury stock: 3,125,993 and 1,046,617
shares, respectively, at cost..................... (57,673) (15,869)
Less common stock held in Trust: 1,138,821 and
1,184,857 shares, respectively.................... (17,821) (19,196)
Deferred compensation plans......................... 9,373 7,499
Accumulated other comprehensive income (loss)....... (14,500) 13,443
Retained earnings................................... -- 5,103
---------- ----------
685,364 721,857
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........... 1,082,210 1,329,631
---------- ----------
Total capitalization.............................. 1,867,574 2,151,488
Current liabilities:
Long-term debt and capital lease obligation due
within one year................................... 108,203 5,913
Notes payable....................................... 131,800 190,600
Accounts payable.................................... 86,540 103,623
Federal, state and local taxes...................... 9,212 32,342
Accrued interest.................................... 17,415 16,105
Accrued dividends on preferred securities of
subsidiary trust.................................. 2,370 2,370
Customer deposits................................... 19,808 20,285
Deferred gas purchases.............................. 4,924 --
Other............................................... 46,080 67,383
---------- ----------
Total current liabilities......................... 426,352 438,621
Deferred credits and other ........................... 165,889 113,899
Accumulated deferred income taxes..................... 216,652 203,291
---------- ----------
Total stockholders' equity and liabilities........ $2,676,467 $2,907,299
========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
F-4
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended June 30,
-------------------------------
2002 2001 2000
--------- --------- ---------
(thousands of dollars)
Cash flows from (used in) operating
activities:
Net earnings.............................. $ 19,624 $ 57,285 $ 9,845
Adjustments to reconcile net earnings to
net cash flows from (used in) operating
activities:
Depreciation and amortization......... 77,176 86,985 55,140
Deferred income taxes................. 28,397 27,778 435
Provision for bad debts............... 12,853 32,706 4,998
Provision for investment impairment... 10,380 -- --
Financial derivative trading (gains)
losses.............................. (6,204) 5,684 2,236
Amortization of debt expense.......... 2,936 3,118 1,242
Gain on sale of investment securities. (1,004) (74,582) --
Gain on sale of subsidiaries and other
assets.............................. (6,414) (14,239) --
Loss on sale of subsidiaries.......... 1,500 -- --
Gain on settlement of interest rate
swaps............................... (17,166) -- --
Cumulative effect of change in
accounting principle................ -- (602) --
Business restructuring charges........ 26,593 -- --
Other................................. 1,359 (873) 154
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable, billed and
unbilled........................ 82,660 (129,175) (3,830)
Accounts payable.................. (15,701) (14,944) 22,602
Customer deposits................. (213) (1,151) (3,407)
Deferred gas purchase costs....... 70,095 (67,876) (15,114)
Inventories ...................... 1,327 (31,545) 91
Deferred charges and credits...... 19,507 (11,922) (3,657)
Prepaids and other current assets. (2,899) (6,967) 1,766
Taxes and other current
liabilities..................... (31,190) (6,779) (5,636)
--------- --------- ---------
Net cash flows from (used in)
operating activities................ 273,616 (147,099) 66,865
--------- --------- ---------
Cash flows (used in) from investing
activities:
Additions to property, plant and
equipment............................... (93,279) (123,776) (100,446)
Acquisition of operations, net of cash
received................................ -- (414,497) (38,366)
Notes receivable.......................... (2,750) -- --
Purchase of investment securities......... (938) (12,495) (21,001)
Customer advances......................... 452 1,198 1,350
Proceeds from sale of investment
securities.............................. 1,213 85,761 --
Proceeds from sale of subsidiaries and
other assets............................ 40,935 23,938 12,150
Proceeds from sale of interest rate swaps. 17,166 -- --
Other..................................... (2,025) 5,118 (4,553)
--------- --------- ---------
Net cash flows used in investing
activities............................ (39,226) (434,753) (150,866)
--------- --------- ---------
Cash flows (used in) from financing
activities:
Issuance of long-term debt................ -- 535,000 300,000
Issuance cost of debt..................... (921) (3,474) (7,292)
Purchase of treasury stock................ (41,632) -- (14,425)
Repayment of debt and capital lease
obligation.............................. (145,131) (167,270) (138,791)
Net (payments) borrowings under revolving
credit facilities....................... (58,800) 190,597 (21,000)
Proceeds from exercise of stock options... 8,346 707 680
Cash overdrafts........................... 123 -- (6,655)
Other..................................... 2,406 (318) (687)
--------- --------- ---------
Net cash flows (used in) from financing
activities............................ (235,609) 555,242 111,830
--------- --------- ---------
Change in cash and cash equivalents........... (1,219) (26,610) 27,829
Cash and cash equivalents at beginning of
year........................................ 1,219 27,829 --
--------- --------- ---------
Cash and cash equivalents at end of year...... $ -- $ 1,219 $ 27,829
========= ========= =========
Cash paid for interest, net of amounts capitalized, in 2002, 2001 and 2000 was
$100,272,000, $107,870,000 and $57,735,000, respectively. Cash refunded for
income taxes in 2002 was $4,066,000, while cash paid for income taxes in
2001 and 2000 was $21,052,000 and $4,311,000, 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, 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
Comprehensive
income:
Net earn-
ings....... -- -- -- -- -- 19,624 19,624
Unrealized
loss in
investment
securi-
ties, net
of tax..... -- -- -- -- (18,249) -- (18,249)
Minimum
pension
liability
adjustment;
net of tax. -- -- -- -- (10,498) -- (10,498)
Unrealized
gain on
hedging
activities,
net of tax
benefit.... -- -- -- -- 804 -- 804
--------
Comprehen-
sive
income
(loss)..... (8,319)
--------
Payment on
note re-
ceivable..... -- 202 -- -- -- -- 202
Purchase of
treasury
stock........ -- -- (41,632) -- -- -- (41,632)
5% stock divi-
dend......... 2,618 22,109 -- -- -- (24,727) --
Stock com-
pensation
plan......... -- 1,248 -- 1,257 -- -- 2,505
Sale of common
stock held in
trust........ -- 26 -- 1,945 -- -- 1,971
Exercise of
stock
options...... 884 8,021 (172) 47 -- -- 8,780
------- -------- -------- -------- -------- -------- --------
Balance
June 30, 2002. $58,055 $707,930 $(57,673) $ (8,448) $(14,500)$ -- $685,364
======= ======== ======== ======== ======== ======== ========
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 and distribute propane. 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. Unbilled revenues, net of
related gas purchase costs and revenue-related taxes, were $11,601,000 and
$12,122,000 at June 30, 2002 and 2001, respectively. The distribution and sale
of natural gas in Texas, Missouri, Pennsylvania, Rhode Island and Massachusetts
contributed in excess of 95% of the Company's total revenue, net earnings and
identifiable assets in 2002, 2001 and 2000. Four suppliers provided 53%, 59% and
55% of the Company's gas purchases in 2002, 2001 and 2000, 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
appropriately restated for all stock dividends and stock splits distributed
through July 15, 2002 unless otherwise noted.
Accumulated Other Comprehensive Income The Company reports comprehensive income
and its components in accordance with the FASB standard, Reporting Comprehensive
Income. 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.
Unrealized holding gains on investment securities were $603,000, $18,852,000 and
$115,175,000 in 2002, 2001 and 2000, respectively. The reclassification
adjustment for gains included in net income, net of tax, for reporting other
comprehensive income was $567,000, $43,726,000 and nil in 2002, 2001 and 2000,
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 $17,603,000,
$31,163,000, $7,503,000 and $6,588,000 at June 30, 2002, 2001, 2000 and 1999,
respectively. The allowance for doubtful accounts is adjusted for changes in
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 equivalents, 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 $92,448,000 and
$101,549,000 at June 30, 2002 and 2001, respectively, consists of 23,166,000 and
20,535,000 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, as amended, which was adopted on July 1,
2001. Under this Statement, the Company recognizes derivatives on the
consolidated balance sheet at their fair value. On the date that the Company
enters into a derivative contract, it designates the derivative as: (i) a hedge
of the fair value of a recognized asset or liability or of an unrecognized firm
commitment (a "fair value" hedge); (ii) a hedge of a forecasted transaction or
of the variability of cash flows to be received or paid in connection with a
recognized asset or liability (a "cash flow" hedge), or (iii) an instrument that
is held for trading or non-hedging purposes (a "trading" or "non-hedging"
instrument.) 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, to the extent that the hedge is
effective, are recorded in other comprehensive income, until earnings are
affected by the variability of cash flows of the hedged transaction (e.g., until
periodic settlements of a variable-rate asset or liability are recorded in
earnings). Hedge ineffectiveness is recorded through earnings immediately.
Lastly, changes in the fair value of derivative trading and non-hedging
instruments are reported in current-period earnings.
The Company formally assesses (both at the hedge's inception and on an ongoing
basis) whether the derivatives that are used in hedging transactions have been
highly effective in offsetting changes in the fair value or cash flows of hedged
items and whether those derivatives may be expected to remain highly effective
in future periods ("Highly effective" means that cumulative changes in the value
of the hedging instrument are between 80% to 125% of the inverse cumulative
changes in the fair value or cash flows of the hedged item). The Company
discontinues hedge accounting when: (i) it determines that the derivative is no
longer effective in offsetting changes in the fair value or cash flows of a
hedged item; (ii) the derivative expires or is sold, terminated, or exercised;
(iii) it is no longer probable that the forecasted transaction will occur; or
(iv) management determines that designating the derivative as a hedging
instrument is no longer appropriate. In all situations in which hedge accounting
is discontinued and the derivative remains outstanding, the Company will carry
the derivative at its fair value on the consolidated balance sheet, recognizing
changes in the fair value in current-period earnings. See Note XI -- 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.
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.
- --------------------------------------------------------------------------------
F-8
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill and Other Intangible Assets The Company accounts for its goodwill and
other intangible assets in accordance with the FASB Standard, Accounting for
Goodwill and Other Intangible Assets, which was adopted at the beginning of
fiscal year 2002. Under this Statement, the Company has ceased amortization of
goodwill. Goodwill, which was previously classified on the consolidated balance
sheet as additional purchase cost assigned to utility plant and amortized on a
straight-line basis over forty years, is now subject to at least an annual
assessment for impairment by applying a fair-value based test. See Note VII --
Goodwill.
New Pronouncements In June 2001, the FASB issued Accounting for Asset Retirement
Obligations. The Statement requires the fair value of a liability for an asset
retirement legal obligation to be recognized in the period in which it is
incurred and when the amount of the liability can be reasonably estimated. When
the liability is initially recorded, associated costs are capitalized by
increasing the carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. The Statement is
effective for fiscal years beginning after June 15, 2002, with earlier
application encouraged. The Statement requires entities to record a cumulative
effect of change in accounting principle in the income statement in the period
of adoption. The Company intends to adopt this Statement during the quarter
ending September 30, 2002. Based on analysis completed to date, the Company
does not expect the Statement will have a material effect on its financial
position, results of operations or cash flows. The Company anticipates
completing its analysis by the end of the first quarter of fiscal year 2003. In
certain rate jurisdictions, the Company is permitted to include annual charges
for cost of removal in its regulated cost of service rates charged to customers.
In August 2001, the FASB issued Accounting for the Impairment or Disposal of
Long-lived Assets. The Statement provides new guidance on the recognition of
impairment losses on long-lived assets to be held and used or to be disposed of
and also broadens the definition of what constitutes a discontinued operation
and how the results of a discontinued operation are to be measured and
presented. The Statement replaces the FASB Statement, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of and
the Accounting Principles Board Opinion, Reporting Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business. Under
the Statement, assets held for sale that are a component of an entity will be
included in discontinued operations if the operations and cash flows will be or
have been eliminated from the ongoing operations of the entity and the entity
will not have any significant continuing involvement in the operations
prospectively. The Statement was effective for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with early
adoption encouraged. The Statement is not expected to materially change the
methods the Company uses to measure impairment losses on long-lived assets, but
may result in additional future dispositions being reported as discontinued
operations than was previously permitted. The Company intends to adopt the
Statement during the quarter ending September 30, 2002.
In June 2002, the FASB issued Accounting for Costs Associated with Exit or
Disposal Activities. The Statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies the Emerging
Issues Task Force issue, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). The Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. The Statement is
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Statement is not expected to
materially change the methods the Company uses to measure exit or disposal
costs, but may result in liabilities for such costs relating to future
dispositions being reported in periods subsequent to the Company's commitment to
an exit plan.
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 statements and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
- --------------------------------------------------------------------------------
F-9
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
II Acquisitions and Divestitures
In September 2000, Southern Union acquired Providence Energy Corporation
(ProvEnergy), Fall River Gas Company (Fall River Gas), and Valley Resources
(Valley Resources). Collectively, these companies (hereafter referred to as the
Company's New England Operations) were acquired for approximately $422,000,000
in cash and 1,370,629 shares (before adjustment for any subsequent stock
dividends) of Southern Union common stock, as well as the assumption of
approximately $140,000,000 in long-term debt. The results of operations from
ProvEnergy and Fall River Gas have been included in the Company's consolidated
statement of operations since September 28, 2000, and the results of operations
from Valley Resources have been included in the Company's consolidated statement
of operations since September 20, 2000. Thus, the Company's consolidated results
of operations for the periods subsequent to these acquisitions are not
comparable to the same periods in prior years. These acquisitions were accounted
for using the purchase method with related goodwill of approximately
$355,000,000. Effective July 1, 2001, goodwill, which was previously amortized
on a straight-line basis over forty years, is now accounted for on an
impairment-only approach. See Note VII - Goodwill.
The New England Operations' primary business is the distribution of natural gas
through the New England Gas Company. Subsidiaries of the Company acquired
with the New England Gas Company and currently operating include ProvEnergy
Power LLC (ProvEnergy Power), Fall River Gas Appliance Company (Fall River
Appliance), Valley Appliance Merchandising Company (VAMCO) and Alternate
Energy Corporation (AEC). ProvEnergy Power 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 and conditioned air. Fall River Appliance rents water heaters
and conversion burners, primarily to residential customers. VAMCO rents
natural gas burning appliances and offers appliance service contract
programs to residential customers. In fiscal 2002, VAMCO also provided
construction management services for natural gas-related projects to
commercial and industrial customers. AEC is an energy consulting firm.
Subsidiaries acquired with the New England Gas Company and subsequently sold
include Morris Merchants, Inc. (Morris Merchants), Valley Propane, Inc. (Valley
Propane) and ProvEnergy Oil Enterprises, Inc. (ProvEnergy Oil). In October 2001,
Morris Merchants, which served as a manufacturers' representative agency for
franchised plumbing and heating contract supplies throughout New England, was
sold for $1,586,000. In September 2001, Valley Propane, which sold liquid
propane to residential, commercial and industrial customers, was sold for
$5,301,000. In August 2001, ProvEnergy Oil, which operated a fuel oil
distribution business through its subsidiary, ProvEnergy Fuels, Inc. for
residential and commercial customers, was sold for $15,776,000. No financial
gain or loss was recognized on any of these sales transactions.
In November 1999, Southern Union acquired Pennsylvania Enterprises, Inc.
(hereafter referred to as the Company's Pennsylvania Operations) for
approximately $500,000,000, including assumption of approximately $115,000,000
of long-term debt. The Company issued approximately 16,700,000 shares (before
adjustment for any subsequent stock dividends) of common stock and paid
approximately $38,000,000 in cash to complete the transaction. The results of
operations from the Pennsylvania Operations have been included in the Company's
consolidated statement of operations since November 4, 1999. Thus, the Company's
consolidated results of operations for the periods subsequent to the acquisition
are not comparable to the same periods in prior years. The acquisition was
accounted for using the purchase method with related goodwill of approximately
$261,000,000. Effective July 1, 2001, goodwill, which was previously amortized
on a straight-line basis over forty years, is now accounted for on an
impairment-only approach. See Note VII - Goodwill.
The Pennsylvania Operations' primary business is the distribution of natural gas
through PG Energy. Subsidiaries of the Company acquired with PG Energy and
currently operating include PG Energy Services Inc., (Energy Services) and PEI
Power Corporation (Power Corp.). Energy Services offers the inspection,
maintenance and servicing of residential and small commercial gas-fired
equipment to residential and commercial users. Power Corp., an exempt wholesale
generator (within the meaning of the Public Utility Holding Company Act of
1935), sells electricity to the broad mid-Atlantic wholesale energy market
administered by PJM Interconnection, L.L.C.
- --------------------------------------------------------------------------------
F-10
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsidiaries and assets acquired with PG Energy and subsequently sold include
Energy Services' propane operations and its commercial and industrial gas
marketing contracts, Keystone Pipeline Services, Inc. (Keystone) and Theta
Land Corporation. In April 2002, Energy Services' propane operations, which
sold liquid propane to residential, commercial and industrial customers,
were sold for $2,300,000, resulting in a pre-tax gain of $1,200,000. In July
2001, Energy Services' commercial and industrial gas marketing contracts
were sold for $4,972,000, resulting in a pre-tax gain of $4,653,000. In June
2001, the Company sold Keystone, which engaged primarily in the
construction, maintenance, and rehabilitation of natural gas distribution
pipelines, for $3,300,000, resulting in a pre-tax gain of $707,000. In
January 2000, Theta Land Corporation, which owned approximately 44,000 acres
of land, was sold for $12,150,000. No financial gain or loss was recognized
on this transaction.
In December 2001, Southern Transmission Company, a wholly-owned subsidiary of
Southern Union, sold its 43-mile Carrizo Springs Pipeline for $1,000,000,
resulting in a pre-tax gain of $561,000. Also in December 2001, the Company sold
South Florida Natural Gas, a natural gas division of Southern Union, and
Atlantic Gas Corporation, a Florida propane subsidiary of the Company
(collectively, the Florida Operations), for $10,000,000, resulting in a pre-tax
loss of $1,500,000.
Pro Forma Financial Information
The following unaudited pro forma financial information for the year ended June
30, 2001 is presented as though the following events had occurred at the
beginning of the period presented: (i) acquisition of the New England
Operations; (ii) the issuance of the Term Note; 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, the issuance of the Term Note, or the refinancings been
completed as of the assumed date for the period presented or which may be
obtained in the future.
Year Ended
June 30, 2001
-------------
Operating revenue....................................... $ 1,976,473
Income before extraordinary item........................ 35,751
Net earnings available for common stock................. 35,751
Net earnings per common stock:
Basic................................................. .65
Diluted............................................... .62
III Other Income (Expense), Net
Other income in 2002 of $14,368,000 includes gains of $17,166,000 generated
through the settlement of several interest rate swaps, the recognition of
$6,204,000 in previously recorded deferred income related to financial
derivative energy trading activity of a wholly-owned subsidiary, a gain of
$4,653,000 realized through the sale of marketing contracts held by PG Energy
Services Inc., income of $2,369,000 generated from the sale and/or rental of
gas-fired equipment and appliances by various operating subsidiaries, a gain of
$1,200,000 realized through the sale of the propane assets of PG Energy Services
Inc., $1,004,000 of realized gains on the sale of a portion of Southern Union's
holdings in Capstone Turbine Corporation (Capstone), and power generation and
sales income of $971,000 primarily from PEI Power Corporation. These items were
partially offset by a non-cash charge of $10,380,000 to reserve for the
impairment of the Company's investment in a technology company, $9,100,000 of
legal costs associated with ongoing litigation from the unsuccessful acquisition
of Southwest Gas Corporation (Southwest), and a $1,500,000 loss on the sale of
the Florida Operations. See Note XVIII -- Commitments and Contingencies.
- --------------------------------------------------------------------------------
F-11
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other income of $76,819,000 in 2001 included realized gains on the sale of
Capstone of $74,582,000, a $13,532,000 gain on the sale of non-core real estate
and $7,643,000 of interest and dividend income. These items were partially
offset by $12,855,000 of legal costs associated with Southwest and $5,684,000 of
non-cash trading losses. See Note XI - Derivative Instruments and Hedging
Activities.
Other expense of $9,708,000 in 2000 included $10,363,000 of legal costs
associated with Southwest and $2,236,000 of non-cash trading losses. These
items were offset by net rental income of Lavaca Realty Company of
$1,757,000.
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 investments 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, 2002, 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
53,886,998, 54,680,807 and 47,840,785 for the years ended June 30, 2002, 2001
and 2000, respectively. Diluted earnings per share include average shares
outstanding as well as common stock equivalents from stock options and warrants.
Common stock equivalents were 1,660,711, 1,908,564 and 1,519,387 for the years
ended June 30, 2002, 2001 and 2000, respectively. During 2002, the Company
repurchased 2,115,916 shares of its common stock outstanding at prices ranging
from $16.50 to $21.57 per share. Substantially all of these repurchases occurred
in private off-market large-block transactions.
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 Note XIII -- Debt and Capital Lease.
- --------------------------------------------------------------------------------
F-12
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30,
------------------------
2002 2001
---------- ----------
Distribution plant............................... $2,053,698 $1,969,103
General plant.................................... 200,230 156,502
Other............................................ 77,027 136,654
---------- ----------
Total plant.................................... 2,330,955 2,262,259
Less contributions in aid of construction........ (65,208) (60,284)
---------- ----------
Plant in service............................... 2,265,747 2,201,975
Construction work in progress.................... 12,152 25,520
---------- ----------
2,277,899 2,227,495
Less accumulated depreciation and amortization... (821,539) (771,170)
---------- ----------
Net property, plant and equipment.............. $1,456,360 $1,456,325
========== ==========
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.
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.
Depreciation of property, plant and equipment in 2002, 2001 and 2000 was
$73,818,000, $69,523,000 and $46,757,000, respectively.
VII Goodwill
Effective July 1, 2001, the Company adopted Goodwill and Other Intangible Assets
which was issued by the FASB in June 2001. In accordance with this Statement,
the Company has ceased amortization of goodwill. Goodwill, which was previously
classified on the consolidated balance sheet as additional purchase cost
assigned to utility plant and amortized on a straight-line basis over forty
years, is now subject to at least an annual assessment for impairment by
applying a fair-value based test.
- --------------------------------------------------------------------------------
F-13
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reflects the Company's comparative net income before the
change in accounting principle and goodwill amortization under Goodwill and
Other Intangible Assets:
Year Ended June 30,
----------------------------
2002 2001 2000
-------- -------- --------
Reported net income before change in accounting
principle...................................... $ 19,624 $ 56,683 $ 9,845
Goodwill amortization, net of taxes.............. -- 17,463 8,382
-------- -------- --------
Adjusted net income before change in accounting
principle...................................... $ 19,624 $ 74,146 $ 18,227
======== ======== ========
Basic earnings per share:
Reported income before change in accounting
principle.................................... $ .36 $ 1.04 $ .21
Goodwill amortization, net of taxes............ -- .32 .17
-------- -------- --------
Adjusted net income before change in
accounting principle......................... $ .36 $ 1.36 $ .38
======== ======== ========
Diluted earnings per share:
Reported income before change in accounting
principle.................................... $ .35 $ .98 $ .20
Goodwill amortization, net of taxes............ -- .30 .16
-------- -------- --------
Adjusted net income before change in
accounting principle......................... $ .35 $ 1.28 $ .36
======== ======== ========
The following displays changes in the carrying amount of goodwill for the year
ended June 30, 2002:
Total
----------
Balance as of July 1, 2001........................................ $ 724,620
Impairment losses................................................. (3,358)
Sale of subsidiaries and other operations......................... (7,872)
---------
Balance as of June 30, 2002....................................... $ 713,390
=========
In connection with the Company's Cash Flow Improvement Plan announced in July
2001, the Company began the divestiture of certain non-core assets. As a result
of prices of comparable businesses for various non-core properties, a goodwill
impairment loss of $3,358,000 was recognized in depreciation and amortization on
the consolidated statement of operations for the quarter ended September 30,
2001. As a result of the sale of the Carrizo Springs Pipeline and the Florida
Operations, goodwill of $7,872,000 was eliminated during the quarter ended
December 31, 2001.
VIII Deferred Charges and Deferred Credits
June 30,
------------------
2002 2001
-------- --------
Deferred Charges
Pensions................................................ $ 65,454 $ 56,749
Income taxes............................................ 30,605 33,872
Unamortized debt expense................................ 33,897 36,010
Retirement costs other than pensions.................... 33,032 36,078
Service Line Replacement program........................ 21,360 23,765
Environmental........................................... 16,646 16,566
Other................................................... 9,269 23,823
-------- --------
Total Deferred Charges................................ $210,263 $226,863
======== ========
The Company's deferred charges include regulatory assets in the aggregate amount
of $95,546,000 and $91,619,000, respectively, at June 30, 2002 and 2001. These
regulatory assets primarily relate to pensions, retirement costs other than
pensions, income taxes, Year 2000 costs, Missouri Gas Energy's Service Line
- --------------------------------------------------------------------------------
F-14
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Replacement program and environmental remediation costs. The Company records
regulatory assets in accordance with the FASB Standard Accounting for the
Effects of Certain Types of Regulation.
June 30,
------------------
2002 2001
-------- --------
Deferred Credits
Pensions............................................... $ 43,562 $ 9,394
Retirement costs other than pensions................... 35,657 34,460
Customer advances for construction..................... 25,262 24,193
Environmental.......................................... 7,206 1,832
Investment tax credit.................................. 6,663 7,307
Operating reserves..................................... 6,255 8,432
Other.................................................. 41,284 28,281
-------- --------
Total Deferred Credits............................... $165,889 $113,899
======== ========
The Company's deferred credits include regulatory liabilities in the aggregate
amount of $6,701,000 and $4,504,000, respectively, at June 30, 2002 and 2001.
These regulatory liabilities primarily relate to retirement benefits other than
pensions and income taxes. The Company records regulatory liabilities in
accordance with the FASB Standard Accounting for the Effects of Certain Types of
Regulation.
IX Investment Securities
At June 30, 2002, the Company held securities of Capstone Turbine Corporation
(Capstone). This investment is classified as "available for sale" under the FASB
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 component 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, 2002 and 2001, the Company's investment in
Capstone had a fair value of $1,163,000 and $29,447,000, respectively, and an
unrealized holding gain, net of tax, of $603,000 and $18,852,000, respectively.
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, 2002 and 2001, all other securities owned by the Company are
accounted for under the cost method. The Company's other investments in
securities consist of common and 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. Various Southern Union
executive management, Board of Directors and employees also have an equity
ownership in certain of these investments.
The Company reviews its portfolio of investment securities on a quarterly basis
to determine whether a decline in value is other than temporary. Factors
that are considered in assessing whether a decline in value is other than
temporary include, but are not limited to: earnings trends and asset
quality; near term prospects and financial condition of the issuer,
including the availability and terms of any additional financing
requirements; financial condition and prospects of the issuer's region and
industry, customers and markets and Southern Union's intent and ability to
retain the investment. If Southern Union determines that the decline in
value of an investment security is other than temporary, the Company will
record a charge on its consolidated statement of operations to reduce the
carrying value of the security to its estimated fair value.
In June 2002, Southern Union determined that the decline in value of its
investment in PointServe was other than temporary. Accordingly, the Company
recorded a non-cash charge of $10,380,000 to reduce the carrying value of
this investment to its estimated fair value. The Company recognized this
valuation adjustment to reflect significant lower private equity valuation
metrics and changes in the business outlook of PointServe. PointServe
- --------------------------------------------------------------------------------
F-15
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
is a closely held, privately owned company and, as such, has no published market
value. The Company's remaining investment of $4,206,000 at June 30, 2002 may
be subject to future market value risk. The Company will continue to monitor
the value of its investment and periodically assess the impact, if any, on
reported earnings in future periods.
X Stockholders' Equity
Stock Splits and Dividends On July 15, 2002, August 30, 2001, June 30, 2000 and
August 6, 1999 Southern Union distributed its annual 5% common stock dividend to
stockholders of record on July 1, 2002, August 16, 2001, June 19, 2000 and
July 23, 1999, 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 7,702,077 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, until July 1, 2002. The 1992 Plan allowed 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) that 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 a particular option grant.
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
(Pennsylvania Incentive Plan). Under the terms of the Pennsylvania Option
Plan, a total of 416,747 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 under the Pennsylvania Option Plan. Under the terms of the
Pennsylvania Incentive Plan, a total of 200,120 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 aggregate value and the aggregate spread of
the pre-acquisition options. During 2000, 13,892 options were granted to a
Director of the Company at an exercise price of $15.63. 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
2002, 2001 and 2000. 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 $17,894,000 and $.32 respectively, in 2002, $55,043,000 and $.95,
respectively, in 2001 and $8,190,000 and $.16, respectively, in 2000. 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.
- --------------------------------------------------------------------------------
F-16
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2002, 2001 and 2000, respectively: dividend yield of nil for all
three years; volatility of 33.5% in 2002 and 27.5% for 2001 and 2000;
risk-free interest rate of 3.75% in 2002, 5% in 2001 and 6% in 2000; and
expected life outstanding of 7 years for 2002, 5.5 years for 2001 and 7.2
years for 2000.
1992 Plan 1982 Plan
--------------------- -------------------
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
--------- -------- --------- --------
Outstanding July 1, 1999........ 2,813,846 $ 9.46 373,928 $ 2.66
Granted ..................... 1,131,957 15.65 -- --
Exercised..................... (129,693) 6.27 (238,559) 2.68
Canceled ..................... (33,406) 14.72 -- --
--------- ---------
Outstanding June 30, 2000....... 3,782,704 11.37 135,369 2.63
Granted....................... 844,119 16.96 -- --
Exercised..................... (90,203) 8.44 (135,369) 2.63
Canceled ..................... (40,145) 14.83 -- --
--------- ---------
Outstanding June 30, 2001....... 4,496,475 12.45 -- --
--------- =========
Granted ..................... 21,001 16.90
Exercised..................... (925,637) 10.53
Canceled ..................... (146,518) 15.78
---------
Outstanding June 30, 2002....... 3,445,321 12.85
=========
The following table summarizes information about stock options outstanding under
the 1992 Plan at June 30, 2002:
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 - $ 3.56 317,101 .3 years $ 3.31 317,101 $ 3.31
3.57 - 7.12 281,749 1.8 years 5.96 281,749 5.96
7.13 - 8.90 233,966 3.4 years 7.45 180,095 7.46
8.91 - 12.47 363,355 4.9 years 11.29 362,550 11.28
12.48 - 16.02 1,415,573 6.9 years 15.23 714,598 15.02
16.03 - 17.81 833,577 8.3 years 16.96 89,659 16.96
---------- ----------
3,445,321 1,945,752
========== ==========
- --------------------------------------------------------------------------------
F-17
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The shares exercisable under the various plans and corresponding weighted
average exercise price for the past three years are as follows:
Pennsylvania Pennsylvania
1992 1982 Option Incentive
Plan Plan Plan Plan
---------- -------- ------------- ------------
Shares exercisable at:
June 30, 2002............ 1,945,752 -- 416,747 191,784
June 30, 2001............ 2,286,834 -- 416,747 189,004
June 30, 2000............ 1,815,402 135,369 416,747 186,227
Weighted average exercise
price at:
June 30, 2002.......... $ 10.49 $ -- $ 10.04 $ 11.63
June 30, 2001.......... 9.44 -- 10.04 11.57
June 30, 2000.......... 8.17 2.63 10.04 11.49
The weighted average remaining contractual life of options outstanding under the
Pennsylvania Option Plan and the Pennsylvania Incentive Plan at June 30,
2002 was 4 and 5.9 years, respectively. There were 2,726,053 shares
available for future option grants under the 1992 Plan at June 30, 2002. No
shares were available for future option grants under the 1982 Plan at June 30,
2002.
On February 10, 1994, Southern Union granted a warrant which expires on
February 10, 2004, to purchase up to 116,348 shares of Common Stock at an
exercise price of $5.96 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.
Currently, the Company is in compliance with the restrictive provisions in the
indenture governing the Senior Notes.
XI Derivative Instruments and Hedging Activities
Cash Flow Hedges During fiscal year 2002, the Company was party to three
interest rate swaps that were created to manage exposure against volatility in
interest payments on variable rate debt and which qualify for hedge accounting.
As of June 30, 2002, $954,000 in after-tax comprehensive income generated
through the expiration of two of these swaps was partially offset by the fair
value of the Company's remaining obligation under one swap which resulted in
$150,000 of unrealized losses, net of tax. For the fiscal year ended June 30,
2002, the Company recorded net settlement payments of $1,408,000 on these swaps
through interest expense. Hedge ineffectiveness, which is recorded in interest
expense, was immaterial for fiscal 2002. No component of the swaps' gain or loss
was excluded from the assessment of hedge effectiveness.
As of June 30, 2002 and 2001, the Company's derivative liabilities that are
designated and qualify as cash flow hedges have a fair value of $519,000 and
$2,009,000, respectively, and are offset by matching adjustments to other
comprehensive income. The derivative liabilities are classified as other current
liabilities in the Consolidated Balance Sheet. As of June 30, 2002, the Company
expects to reclassify as interest expense $291,000 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 length of time over
which the Company is hedging its exposure to the payment of variable interest
rates is 17 months.
- --------------------------------------------------------------------------------
F-18
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value 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.
Trading and Non-Hedging Activities Beginning 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, 2002, the Company owned contracts representing 699,375 MMBtu of natural
gas at an average strike price of $3.97 per MMBtu. The fair value of the
contracts, which expire at various times through May 2003, are included in the
consolidated financial statements as an asset and a matching adjustment to
deferred cost of gas of $100,000 at June 30, 2002, and as a liability and a
matching adjustment to deferred cost of gas of $1,701,000 at June 30, 2001.
In March 2001, the Company discovered unauthorized financial derivative energy
trading activity by a non-regulated, wholly-owned subsidiary. All
unauthorized trading activity was subsequently closed in March and April of
2001 resulting in a cumulative cash expense of $191,000, net of taxes, and
deferred income of $7,921,000 at June 30, 2001. For the fiscal year ended
June 30, 2002, the Company recorded $6,204,000 through other income relating to
the expiration of contracts resulting from this trading activity. The majority
of the remaining deferred liability of $1,717,000 at June 30, 2002 related to
these derivative instruments will be recognized as income in the Consolidated
Statement of Operations over the next three years based on the related
contracts.
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 in November 1999. These two
contracts were not designated as hedges and therefore did not qualify to
receive hedge accounting treatment. 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.
XII 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 Common 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,
2002, the quoted market price per Preferred Security was $25.00. As of June 30,
2002 and 2001, 4,000,000 shares of Preferred Securities were outstanding.
- --------------------------------------------------------------------------------
F-19
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XIII Debt and Capital Lease
June 30,
----------------------
2002 2001
---------- ----------
7.60% Senior Notes due 2024.......................... $ 362,515 $ 364,515
8.25% Senior Notes due 2029.......................... 300,000 300,000
Term Note, due 2005.................................. 350,000 485,000
8.375% First Mortgage Bonds, due 2002................ 30,000 30,000
5.62% First Mortgage Bonds, due 2003................. 3,082 4,800
10.25% First Mortgage Bonds, due 2008................ 1,909 2,182
6.82% First Mortgage Bonds, due 2018................. 14,464 15,000
9.34% First Mortgage Bonds, due 2019................. 15,000 15,000
9.63% First Mortgage Bonds, due 2020................. 10,000 10,000
9.44% First Mortgage Bonds, due 2020................. 6,500 6,500
8.09% First Mortgage Bonds, due 2022................. 12,500 12,500
8.46% First Mortgage Bonds, due 2022................. 12,500 12,500
7.50% First Mortgage Bonds, due 2025................. 15,000 15,000
7.99% First Mortgage Bonds, due 2026................. 7,000 7,000
7.24% First Mortgage Bonds, due 2027................. 6,000 6,000
6.50% First Mortgage Bonds, due 2029................. 13,933 14,333
7.70% Debentures, due 2022........................... 6,776 6,806
Capital lease and other, due 2003 to 2007............ 23,234 28,408
---------- ----------
Total debt and capital lease......................... 1,190,413 1,335,544
Less current portion............................... 108,203 5,913
---------- ----------
Total long-term debt and capital lease............... $1,082,210 $1,329,631
========== ==========
The maturities of long-term debt and capital lease payments for each of the next
five years ending June 30 are: 2003 -- $108,203,000; 2004 -- $62,361,000;
2005 -- $61,264,000; 2006 -- $177,283,000; 2007 -- $1,820,000 and thereafter
$779,482,000.
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 $1,007 and $951 (per $1,000
note), respectively on June 30, 2002, as quoted by a major brokerage firm.
The carrying amount of long-term debt at June 30, 2002 and 2001 was
$1,190,413,000 and $1,335,544,000, respectively. The fair value of long-term
debt at June 30, 2002 and 2001 was $1,174,647,000 and $1,317,667,000,
respectively.
Term Note On August 28, 2000 the Company entered into the Term Note to fund (i)
the cash portion of the consideration 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, 2002, a balance of $350,000,000 was
outstanding under this Term Note. The Term Note, which initially expired on
August 27, 2001, was extended through August 26, 2002 for a fee. On July 16,
2002, the Company repaid the Term Note with the proceeds from the issuance of a
$311,087,000 Term Note dated July 15, 2002 (the "2002 Term Note") and
- --------------------------------------------------------------------------------
F-20
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
borrowings under the Company's lines of credit. The 2002 Term Note requires
semi-annual principal repayments on February 15th and August 15th of each year,
with payments of $25,000,000 each being due February 15, 2003, August 15, 2003,
February 15, 2004, and August 15, 2004 and payments of $35,000,000 each being
due February 15, 2005 and August 15, 2005. The remaining principal amount of
$141,087,000 is due August 26, 2005. No additional draws can be made on the Term
Note.
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.
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, 2002, the capital lease obligation outstanding was $21,177,000
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 June 10, 2002, the Company entered into an amended
short-term credit facility in the amount of $150,000,000 (the "Short-Term
Facility"), that matures on June 9, 2003. Also on June 10, 2002, the Company
amended the terms and conditions of its $225,000,000 long-term credit facility
(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 Short-Term Facility and the Long-Term Facility
(together, the "Facilities") are subject to a commitment fee based on the rating
of the Senior Notes. As of June 30, 2002, the commitment fees were an annualized
0.14% on the Facilities. The interest rate on borrowings on the Facilities is
calculated based upon a formula using the LIBOR or prime interest rates. The
average interest rate under the Facilities was 3.2% for the year ended June 30,
2002 and 6.4% for the year ended June 30, 2001. A $131,800,000 and $190,600,000
balance was outstanding under the Facilities at June 30, 2002 and 2001,
respectively. A balance of $227,500,000 was outstanding under the Facilities at
August 31, 2002.
XIV 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 requirements 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 two supplemental non-contributory retirement
plans for certain executive employees and other post-retirement benefit
plans for its employees.
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 Company's retirement and
other post-retirement benefit plans at June 30, 2002 and 2001.
- --------------------------------------------------------------------------------
F-21
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2002 2001
---------- ----------
Change in Benefit Obligation
Benefit obligation at beginning of year........... $ 420,906 $ 247,103
Acquisitions...................................... -- 150,764
Service cost...................................... 7,011 4,680
Interest cost..................................... 31,467 25,479
Benefits paid..................................... (35,704) (27,387)
Actuarial loss.................................... 6,207 18,847
Plan amendments................................... (1,340) 2,325
Curtailments...................................... 1,495 --
Special termination benefits...................... 11,546 --
Settlement recognition............................ (11) (905)
--------- ---------
Benefit obligation at end of year................. $ 441,577 $ 420,906
========= =========
Change in Plan Assets
Fair value of plan assets at beginning of year.... $ 365,604 $ 224,424
Acquisitions...................................... -- 172,019
Return on plan assets............................. 1,597 (16,362)
Employer contributions............................ 9,180 12,910
Benefits paid..................................... (35,704) (27,387)
--------- ---------
Fair value of plan assets at end of year.......... $ 340,677 $ 365,604
========= =========
Funded Status
Funded status at end of year...................... $(100,900) $ (55,302)
Unrecognized transition obligation................ 2,348 2,511
Unrecognized net actuarial loss................... 70,951 33,054
Unrecognized prior service cost................... 6,771 17,730
--------- ---------
Accrued benefit cost.............................. $ (20,830) $ (2,007)
========= =========
Amounts Recognized in the Consolidated Balance Sheet
Prepaid benefit cost.............................. $ 38,574 $ 57,145
Accrued benefit liability......................... (85,946) (76,330)
Intangible asset.................................. 2,920 12,854
Accumulated other comprehensive loss.............. 23,622 4,324
--------- ---------
Net liability recognized.......................... $ (20,830) $ (2,007)
========= =========
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, 2002 were $238,322,000, $221,904,000,
and $183,007,000, respectively, and for those same plans were $83,773,000,
$81,103,000, and $53,745,000 as of June 30, 2001.
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, 2002 were
$82,576,000 and $24,163,000 respectively, and for those same plans were
$74,250,000 and $22,058,000 respectively as of June 30, 2001.
An additional minimum pension liability of $10,201,000 was recorded as of June
30, 2002, as a result of the combination of decreases in the fair value of
plan assets due to volatility in the stock markets and increases in
liabilities due to early retirement programs.
- --------------------------------------------------------------------------------
F-22
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted-average assumptions used for the year ended June 30, 2002, 2001 and
2000 were:
2002 2001 2000
-------- -------- --------
Discount rate
Beginning of year............................. 7.50% 8.00% 7.00%
End of year................................... 7.50% 7.50% 8.00%
Expected return on assets - tax exempt accounts. 9.00% 9.00% 8.00%
Expected return on assets - taxable accounts.... 5.50% 5.40% 5.25%
Rate of compensation increase (average)......... 4.90% 5.00% 5.62%
Health care cost trend rate..................... 12.00% 12.00% 9.00%
Net periodic benefit cost for the year ended June 30, 2002, 2001 and 2000
includes the following components:
2002 2001 2000
-------- -------- --------
Service cost.................................... $ 7,011 $ 4,680 $ 2,251
Interest cost................................... 31,467 25,484 16,265
Expected return on plan assets.................. (30,838) (26,954) (14,554)
Amortization of transition amount............... 163 127 127
Amortization of prior service cost.............. 914 1,675 948
Recognized actuarial gain....................... (400) (3,539) (2,704)
Curtailment..................................... 10,105 -- --
Special termination benefits.................... 11,546 -- --
Settlement recognition.......................... 340 (178) --
-------- -------- -------
Net periodic pension cost....................... $ 30,308 $ 1,295 $ 2,333
======== ======== =======
Curtailment and special termination benefit charges were recognized during 2002
in connection with the Company's corporate reorganization and restructuring
initiatives (see Corporate Restructuring). The Company has deferred, as a
regulatory asset, certain of these charges that have historically been
recoverable in rates.
The assumed rate of compensation increase of 4.90% (average) used in measuring
the accumulated post-retirement benefit obligation during 2002 consisted of a
rate of 5.0% for the plans of Missouri Gas Energy, PG Energy and ProvEnergy, and
rates of 4.22%, 5.50% and 4.25%, respectively, for the plans of Southern Union
Gas, Valley Resources, and Fall River Gas.
The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 12.00% during 2002. This rate was
assumed to decrease gradually each year to a rate of 6.0% for 2006 and
remain at that level thereafter.
Amortization of unrecognized actuarial gains and losses for Missouri Gas Energy
plans were recognized using a rolling five year average gain or loss position
with a five year amortization period pursuant to a stipulation agreement with
the MPSC. The Company has deferred, as a regulatory asset, the difference in
amortization of unrecognized actuarial losses recognized under such method and
that amount determined and reported as net periodic pension cost in accordance
with the applicable FASB standards.
Effect of assumed 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............................... $ 325 $ (262)
Effect on post-retirement benefit
obligation............................... 2,969 (2,407)
- --------------------------------------------------------------------------------
F-23
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 Gas; and (ix) non-union
employees of Fall River Gas. 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 Securities rates.
Defined Contribution Plan The Company provides a Savings Plan available to all
employees. For Texas, Missouri Gas Energy non-union and corporate employees, the
Company contributes 50% and 75% of the first 5% and second 5%, respectively, of
the participant's compensation paid into the Savings Plan. For Missouri Gas
Energy union employees, the Company contributes 50% of the first 7% of the
participant's compensation paid into the Savings Plan. In Pennsylvania, the
Company contributes 50% of the first 4% of the participant's compensation paid
into the Savings Plan. For New England Gas Company's Fall River operations, 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 New England Gas Company's Providence operations,
the Company contributes 50% of the first 10% of the participant's compensation
paid into the Savings Plan. For New England Gas Company's Cumberland operations
(formerly 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 for all plans other than
Missouri Gas Energy union and New England Gas Company's Cumberland operations,
which are 100% vested after six years of continuous service. Company
contributions to the plan during 2002, 2001 and 2000 were $3,638,000, $3,696,000
and $2,034,000, 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, referred 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 2002, 2001 and
2000 were $1,897,000, $2,029,000 and $2,281,000, respectively.
Corporate Restructuring In August 2001, the Company implemented 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 Early Retirement
Programs ("ERPs") in certain of its operating divisions and (ii) a limited
reduction in force ("RIF") within its corporate offices. ERPs, providing for
increased benefits for those electing retirement, were offered to approximately
400 eligible employees across the Company's operating divisions, with
approximately 60% of such eligible employees accepting. The RIF was limited
solely to certain corporate employees in the Company's Austin and Kansas City
offices where forty-eight employees were offered severance packages. As a result
of actions associated with the business reorganization and restructuring, the
Company expects an annual cost savings in a range of $30 million to $35 million.
- --------------------------------------------------------------------------------
F-24
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the corporate reorganization and restructuring efforts, the
Company recorded a one-time charge of $32,706,000 during the quarter ended
September 30, 2001. This charge was reduced by $1,394,000 during the quarter
ended June 30, 2002, as a result of the Company's ability to negotiate more
favorable terms on certain of its restructuring liabilities. The charge
included: $17.7 million of voluntary and accepted ERP's, primarily through
enhanced benefit plan obligations, and other employee benefit plan obligations;
$7.6 million of RIF within the corporate offices and related employee separation
benefits; and $6.0 million connected with various business realignment and
restructuring initiatives. All restructuring actions have been completed as of
June 30, 2002.
During the year ended June 30, 2002, the Company paid approximately $5.8 million
and $3.2 million in employee separation and other restructuring costs,
respectively. The balance sheet carries a remaining liability of approximately
$4.6 million for various long-term leases as of June 30, 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, 2002 and 2001, 989,143 and 933,191
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 2002 and 2001 certain employees deferred receipt of
Company shares for stock options exercised. At June 30, 2002, 149,678 shares
were held in a rabbi trust for these employees.
XV Taxes on Income
Year Ended June 30,
----------------------------------
2002 2001 2000
---------- ---------- ----------
Current:
Federal.............................. $ (11,484) $ 11,818 $ 6,640
State................................ (1,805) 404 345
---------- ---------- ---------
(13,289) 12,222 6,985
---------- ---------- ---------
Deferred:
Federal.............................. 27,149 27,026 1,857
State................................ 1,248 752 747
---------- ---------- ---------
28,397 27,778 2,604
---------- ---------- ---------
Total provision........................ $ 15,108 $ 40,000 $ 9,589
========== ========== =========
Deferred credits and other liabilities also include $6,663,000 and $7,307,000 of
unamortized deferred investment tax credit as of June 30, 2002 and 2001.
- --------------------------------------------------------------------------------
F-25
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,
----------------------
2002 2001
---------- ----------
Deferred tax assets:
Estimated alternative minimum tax credit............ $ 3,764 $ 12,606
Insurance accruals.................................. 1,995 663
Bad debt reserves................................... 4,229 5,045
Post-retirement benefits............................ 1,506 6,941
Restructuring charges............................... 8,287 --
Other............................................... 17,454 19,412
--------- ---------
Total deferred tax assets......................... 37,235 44,667
--------- ---------
Deferred tax liabilities:
Property, plant and equipment....................... (178,089) (183,361)
Unamortized debt expense............................ (5,489) (4,906)
Regulatory liability................................ (14,746) (9,006)
Unrealized holding gain on securities............... (325) (5,638)
Other............................................... (51,009) (40,002)
--------- ---------
Total deferred tax liabilities.................... (249,658) (242,913)
--------- ---------
Net deferred tax liability............................ (212,423) (198,246)
Less current tax assets............................... 4,229 5,045
--------- ---------
Accumulated deferred income taxes..................... $(216,652) $(203,291)
========= =========
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,
----------------------------
2002 2001 2000
-------- -------- --------
Computed statutory tax expense at 35%........... $ 12,156 $ 33,839 $ 6,802
Changes in taxes resulting from:
State income taxes, net of federal income
tax benefit................................. 1,454 751 710
Amortization/write-down of goodwill........... 3,793 5,277 2,311
Internal Revenue Service audit settlement..... (1,570) -- --
Investment Tax Credit amortization............ (644) -- --
Other......................................... (81) 133 (234)
-------- -------- -------
Actual tax expense.............................. $ 15,108 $ 40,000 $ 9,589
======== ======== =======
XVI 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 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 resulted in the 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.
- --------------------------------------------------------------------------------
F-26
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 On May 24, 2002, the Rhode Island Public Utilities Commission
(RIPUC) approved a settlement agreement between the New England Gas Company and
the RIPUC. The settlement agreement resulted in a $3,900,000 decrease in base
revenues for New England Gas Company's Rhode Island operations, a unified rate
structure ("One State; One Rate") and an integration/merger savings mechanism.
The settlement agreement also allows New England Gas Company to retain
$2,049,000 of merger savings and to share incremental earnings with customers
when the division's Rhode Island operations return on equity exceeds 11.25%.
Included in the settlement agreement was a conversion to therm billing and the
approval of a reconciling Distribution Adjustment Clause (DAC). The DAC allows
New England Gas Company to continue its low income assistance and weatherization
programs, to recover environmental response costs over a 10-year period, puts
into place a new weather normalization clause and allows for the sharing of
nonfirm margins (non-firm margin is margin earned from interruptible customers
with the ability to switch to alternative fuels). The weather normalization
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. New England Gas Company 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 2% warmer-than-normal. The non-firm margin incentive
mechanism allows New England Gas Company to retain 25% of all non-firm margins
earned in excess of $1,600,000.
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 provided 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
contained a weather mitigation clause and a non-firm margin incentive mechanism.
The weather mitigation clause allowed Providence Gas to defer the margin impact
of weather that was greater than 2% colder-than-normal and to recover the margin
impact of weather that was greater than 3% warmer-than-normal by making the
corresponding adjustment to the deferred revenue account (DRA). The non-firm
margin incentive mechanism allowed Providence Gas to retain 25% of all non-firm
margins earned in excess of $1,200,000. Under the settlement agreement,
Providence Gas was able 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 approved a settlement agreement between
Providence Gas, the RIPUC, 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.
Pennsylvania In December 2000, the Pennsylvania Public Utility Commission
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 Effective September 2002, Southern Union Gas received a
$2,000,000 revenue increase for the El Paso service area, and a rate design that
continues to increase the proportion of the Company's revenue stream collected
through the monthly customer charge.
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.
- --------------------------------------------------------------------------------
F-27
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Galveston, Texas Effective July 1, 2002, Southern Union Gas received approval of
a $323,000 revenue increase for the Galveston service area, along with
continuation of weather normalization and annual cost of service adjustment
clauses.
North Texas Southern Union Gas received annual rate increases in Jacksboro,
Weatherford and Mineral Wells, Texas in May 2000, September 2000 and May 2001,
respectively, totaling $600,000, that collect a greater portion of the Company's
revenue stream from the monthly customers' charge. In addition, weather
normalization clauses were implemented in Weatherford and Mineral Wells.
XVII 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: 2003-- $7,379,000; 2004-- $6,514,000; 2005-- $5,491,000; 2006--
$4,816,000; 2007-- $4,647,000 and thereafter $19,708,000. Rental expense was
$9,148,000, $10,353,000 and $10,384,000 for the years ended June 30, 2002,
2001 and 2000, respectively.
XVIII 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 control
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 ("MGP") 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"). 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, and MGE
subsequently performed environmental assessments of Stations A and B and
submitted the results of these assessments to MDNR. On September 6, 2002, MGE
submitted a work plan for the remediation of Station A to MDNR. Following the
approval of the Station A work plan by MDNR, the Company will select a qualified
contractor in a competitive bidding process. The Company anticipates beginning
remediation of Station A in the first calendar quarter of 2003.
In August 2001, MGE received a demand from the Port Authority for MGE to assume
responsibility for remediation of soil and groundwater at property owned by the
Port Authority adjacent to MGE's Stations A and B. The Port Authority intends to
develop its property adjacent to MGE as a commercial and residential area (the
"Riverfront Redevelopment Site"), and seeks to have MGE and other parties who
may be responsible remediate
- --------------------------------------------------------------------------------
F-28
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contamination on the Port Authority property
allegedly resulting from the historic manufactured gas plant operations.
Honeywell International Inc. has also been identified as a potentially
responsible party, as the alleged successor to a tar manufacturing operation
formerly located on a portion of the Port Authority property known as the
Riverfront Development. MGE and other parties owning property in the area have
performed assessments in 2001 and early 2002 of their own and of the alleged
contaminated portions of the Port Authority property.
In a letter dated July 24, 2002, the Port Authority demanded that the Company
assume full financial responsibility for the design and implementation of a
remedial action plan on the Riverfront Redevelopment Site allowing the Port
Authority to obtain an "unrestricted" clearance for redevelopment of the site.
The Port Authority provided MGE with several proposed remedial options and
preliminary cost estimates for those options. The worst-case and most expensive
proposed remedial option is currently estimated by the Port Authority to cost
$48.9 million. MGE currently disputes the Port Authority's estimates and
proposals, and believes that the cost of remediation of the Port Authority
property could be significantly lower, pending further investigation, analysis
and determination of appropriate soil and groundwater remedial standards.
Accordingly, the Company sent the Port Authority a letter dated August 27, 2002,
containing an alternative proposal for the remediation of a portion of the Port
Authority's property. MGE's own estimate of the cost to perform its alternative
proposal and obtain a "no further action" letter from MDNR for the portion of
the Riverfront Redevelopment Site for which it is potentially responsible is $4
million. MGE continues to work with the Port Authority and MDNR toward
resolution of the appropriate scope of investigation and remediation at the
Riverfront Redevelopment Site.
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 $8.9 million 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, on January 15,
2002, the Company requested and subsequently received authorization from RIDEM
to make certain specific modifications to the 1999 Remedial Action Work Plan. On
April 17, 2002, RIDEM issued a Temporary Remedial Action Permit for Phase 1
remediation at the site. At the completion of a competitive bidding process, a
contractor was selected by the Company, and work on Phase 1 of the site
remediation was initiated on April 17, 2002. The Company has reserved $5.8
million for completion of this phase of the site remediation. Remediation of the
remaining 37.5 acres of the site (known as the "Phase 2" remediation project) is
not scheduled at this time.
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 operator of the property at that time, Cargill,
Inc., 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 investigation. Costs of testing at
this site as of June 30, 2002 were approximately $300,000. Until RIDEM provides
its final response to the investigation, and the Company knows it's ultimate
responsibility respective to other potentially responsible parties with respect
to the site, the Company cannot offer any conclusions as to its ultimate
financial responsibility with respect to the site.
Tiverton, Rhode Island Site Fall River Gas Company was a defendant in a civil
action seeking to recover anticipated remediation costs associated with
contamination found at property owned by the plaintiffs. This claim was based on
alleged dumping of material by Fall River Gas Company trucks at the site in the
1930s and 1940s. In a settlement agreement effective December 3, 2001, the
Company agreed to perform all assessment, remediation and monitoring activities
at the site sufficient to obtain a final letter of compliance from the Rhode
Island Department of Environmental Management.
- --------------------------------------------------------------------------------
F-29
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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,
the New England Division has reached agreement with its Rhode Island rate
regulators on a regulatory plan that creates a mechanism for the recovery of
environmental costs over a 10-year period. This plan, effective July 1, 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.
In certain of the Company's jurisdictions the Company is allowed to recover
environmental remediation expenditures through rates. Although significant
charges to earnings could be required prior to rate recovery for jurisdictions
that do not have rate recovery mechanisms, 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, the City of Edinburg obtained a jury verdict totaling
approximately $13,000,000 jointly and severally 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 for
the alleged underpayment of franchise fees. (Southern Union purchased RGV from
Valero in 1993.) The trial court reduced the jury award to approximately
$8,500,000. Subsequently, the Texas (13th District) Court of Appeals further
reduced the award to $4,085,000. The Court of Appeals also remanded a portion of
the case to the trial court with instructions to retry certain issues. The
Company continues to pursue reversal on appeal. In August 2002, the Supreme
Court of Texas granted the Company's petition for review. Oral arguments have
been scheduled for November 20, 2002. The Company
- --------------------------------------------------------------------------------
F-30
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
believes that the outcome of the matter will not have a material adverse impact
on the Company's results of operations, financial position or cash flows.
On May 31, 2002, the staff of the MPSC recommended that the Commission disallow
approximately $15 million in gas costs incurred during the period July 1, 2000
through June 30, 2001. Missouri Gas Energy filed its response in opposition to
the Staff's recommendation on July 11, 2002, vigorously disputing the Commission
staff's assertions. Missouri Gas Energy intends to vigorously defend itself in
this proceeding. As of September 20, 2002, the Commission had not yet adopted a
procedural schedule or set the matter for hearing.
On November 27, 2001, August 1, 2000 and August 12, 1999, the staff of the MPSC
recommended that the Commission disallow approximately $5.9 million, $5.9
million and $4.3 million, respectively, in gas costs incurred during the
period July 1, 1999 through June 30, 2000, July 1, 1998 through June 30,
1999, and July 1, 1997 through June 30, 1998, respectively. The basis of
these proposed disallowances appears to be the same as was rejected by the
Commission through an order dated March 12, 2002, applicable to the period
July 1, 1996 through June 30, 1997. MGE intends to vigorously defend itself
in these proceedings. As of September 20, 2002, the Commission had not yet
adopted a procedural schedule or set the matter for hearing.
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 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. Southwest's Board of Directors rejected Southern Union's
revised proposal. On January 21, 2000, ONEOK announced that it was withdrawing
from the Southwest merger agreement.
There were several actions commenced by parties involved in efforts to acquire
Southwest. All of these actions eventually were transferred to the District of
Arizona, consolidated and lodged with Judge Roslyn Silver. As a result of
summary judgments granted, there are no claims remaining against Southern Union.
On August 6, 2002, Southwest and Southern Union settled their claims against
each other in consideration of a payment to be made to Southern Union by
Southwest Gas of $17,500,000. On August 9, 2002, ONEOK and Southwest settled all
claims asserted against each other in consideration of a $3,000,000 payment to
be made to Southwest by ONEOK.
The remaining issues to be resolved at trial involve claims by the Company
against ONEOK and certain individuals. Southern Union's damage claims have been
limited to its out-of-pocket costs and punitive damages. Trial is scheduled to
commence October 15, 2002.
With the exception of ongoing legal fees associated with the aforementioned
litigation, the Company believes that the results of the above-noted Southwest
litigation and any related appeals will not have a materially adverse effect on
the Company's financial condition, results of operations or 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.
- --------------------------------------------------------------------------------
F-31
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments The Company is committed under various agreements to purchase
certain quantities of gas in the future. At June 30, 2002, the Company has
purchase commitments for certain quantities of gas at variable, market-based
prices that have an annual value of $157,929,000. 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 1999, the Redevelopment Authority of
Lackawanna County borrowed $10,600,000 from a bank under a promissory note (TIF
Debt), which was refinanced in January 2002. The TIF Debt bears interest at a
floating rate with a floor of 6.0% and a ceiling of 7.75% and matures on
June 30, 2011. The loan requires interest-only payments until June 30, 2003, and
semi-annual interest and principal payments thereafter. As of June 30, 2002, the
interest rate on the TIF Debt is 6.0% and estimated incremental tax revenues are
expected to cover approximately 45% of the fiscal year 2003 annual debt service.
The balance outstanding on the TIF Debt was $9,710,000 as of June 30, 2002.
During fiscal year 2002, the Company agreed to five-year contracts with two
bargaining units representing employees of New England Gas Company's Providence
operations (formerly ProvEnergy), which were effective May 2002; a four-year
contract with one bargaining unit representing employees of New England Gas
Company's Cumberland operations (formerly Valley Resources), effective May 2002;
a four-year contract with one bargaining unit representing employees of New
England Gas Company's Fall River operations (formerly Fall River Gas), effective
April 2002; and a one year extension of a contract with one bargaining unit
representing employees of New England Gas Company's Cumberland operations, which
was effective May 2002.
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.
Of the Company's employees represented by unions, 44% are employed by Missouri
Gas Energy, 40% are employed by the New England Division and 16% are
employed by PG Energy.
The Company had standby letters of credit outstanding of $30,541,000 at June 30,
2002 and $2,716,000 at June 30, 2001, which guarantee payment of natural gas
purchases, insurance claims and other various commitments.
- --------------------------------------------------------------------------------
F-32
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XVIX Quarterly Operations (Unaudited)
Quarter Ended
Year Ended ------------------------------------------------
June 30, 2002 September 30(1) December 31 March 31 June 30 Total
- ----------------- --------------- ----------- ---------- --------- -----------
Total operating
revenues........ $ 173,969 $ 376,441 $ 528,298 $ 211,842 $1,290,550
Operating margin. 74,950 135,940 176,047 92,921 479,858
Net operating
revenues (loss). (41,046) 56,547 96,094 9,974 121,569
Net earnings
(loss) available
for common
stock........... (30,403) 19,750 43,788 (13,511) 19,624
Earnings (loss)
per share --
diluted(2)...... (.55) .35 .78 (.25) .35
Quarter Ended
Year Ended --------------------------------------------------
June 30, 2001 September 30 December 31(3) March 31(4) June 30(4) 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(2)..... (.26) .33 .70 .19 .99
- --------------------
(1) Net loss for the three-month period ended September 30, 2001, was impacted
by a $32,706,000 business restructuring charge, which was partially offset
by $17,166,000 in gains generated through the settlement of several
interest rate swaps. Excluding the effect of these items, net loss for the
three-month period ended September 30, 2001 was $20,346,000 or $.37 per
share.
(2) 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.
(3) 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 $.21 per share. Excluding the effect of
these items, net earnings for the three-month period ended December 31,
2000 were $7,272,000 or $.12 per share.
(4) 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 $.58 per share, and the net loss for the quarter ended
June 30, 2001 was $20,800,000 or $.38 per share.
- --------------------------------------------------------------------------------
F-33
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 subsidiaries at June 30, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 2002, 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.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 17, 2002
- --------------------------------------------------------------------------------
F-34
Exhibit 10(a)
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(LONG-TERM CREDIT FACILITY)
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT (LONG-TERM CREDIT FACILITY) (the "Amendment") is made effective as of
June 10, 2002, by and among SOUTHERN UNION COMPANY, a Delaware corporation (the
"Borrower"), the financial institutions listed on the signature pages of the
Credit Agreement (as hereinafter defined) (individually the "Bank" and
collectively the "Banks") and JPMORGAN CHASE BANK, a New York banking
corporation formerly known as THE CHASE MANHATTAN BANK, successor by merger to
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION ("Chase"), in its capacity as agent
(the "Agent") for the Banks.
RECITALS:
WHEREAS, the Borrower, the Banks and the Agent have executed a certain
Second Amended and Restated Revolving Credit Agreement (Long-Term Credit
Facility) dated effective May 29, 2001 (the "Credit Agreement"); and
WHEREAS, the Banks, the Agent and the Borrower desire to amend the
Credit Agreement in certain respects.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other
goods and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENTS:
1. Amendment of Definitions. The definition of "L/C Subfacility" contained in
------------------------
Section 1 of the Credit Agreement is hereby amended and restated in its
---------
entirety to hereafter be and read as follows:
"L/C Subfacility" shall mean that portion of the Commitments equal to
$40,000,000.00.
2. Amendment of Utilization Fee. Section 5.4 of the Credit Agreement is
---------------------------- -----------
hereby amended and restated in its entirety to hereafter be and read as
follows:
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 June 10, 2002 to, but not
including, the Maturity Date (or such earlier date as of which the
Commitments have been terminated), on the daily average of the
aggregate principal amount of the Loans outstanding on those days when
such aggregate principal amount of the Loans outstanding exceeds
thirty-three percent (33%) of the aggregate amount of the Commitments,
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, 2002, and (b) the Maturity Date.
3. Amendment of Capital Requirements Negative Covenants. Sections 10.1(a) and
---------------------------------------------------- ----------------
10.1(d) of the Credit Agreement are hereby amended and restated in their
-------
entirety to hereafter be and read as follows:
(a) permit its Consolidated Net Worth at the end of any fiscal quarter
to be less than the sum of (i) $741,887,000, (ii) 40% of Consolidated
Net Income (if positive) for the period commencing on January 1, 2002
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, 2001; 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.
(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 2.00 to 1.00 at all times.
4. Amendment to Debt Negative Covenant. Section 10.3(g) of the Credit
----------------------------------- ---------------
Agreement is hereby amended and restated in its entirety to hereafter be
and read as follows:
(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 2.00 to 1.0
at all times; 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 One Hundred Million Dollars
($100,000,000.00) 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,
the Short-Term Credit Facility Agreement or the Term Loan Facility or
shall be borrowed from a financial institution that is not a Bank under
this Agreement, the Short-Term Credit Facility Agreement or the Term
Loan Facility.
5. Modifications to Default Provisions. Sections 11.3 and 11.8 are hereby
----------------------------------- ------------- ----
amended and restated in their entirety to hereafter be and read as
follows:
11.3 Failure to Pay Other Debt. The Borrower or any Subsidiary fails to
pay principal or interest aggregating more than $3,000,000.00 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.
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
$5,000,000.00 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
6. Addition to Sale and Assignment Provisions. A new subparagraph (g) is
------------------------------------------
hereby added to Section 13.13 of the Credit Agreement to hereafter be and
-------------
read as follows:
(g) Notwithstanding anything herein to the contrary, each Bank may
assign all or a portion of its interests, rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitments and the Note held by it) to one or more Bank Affiliates
without the prior written consent of the Borrower. For purposes of this
Section 12.13, "Bank Affiliate" shall mean (a) with respect to any
Bank, (i) an Affiliate of such Bank or (ii) any entity (whether a
corporation, partnership, trust or otherwise) that is engaged in
making, purchasing, holding or otherwise investing in bank loans and
similar extensions of credit in the ordinary course of its business and
is administered or managed by a Bank or an Affiliate of such Bank and
(b) with respect to any Bank that is a fund which invests in bank loans
and similar extensions of credit, any other fund that invests in bank
loans and similar extensions of credit and is managed by the same
investment advisor as such Bank or by an Affiliate of such investment
advisor. Each Bank Affiliate shall be deemed for purposes hereof to be
an "Eligible Assignee."
7. Other Sections. Except as expressly amended by this Amendment, the
--------------
provisions of the Agreement and the Notes shall remain in full force and
effect, and the Borrower acknowledges and reaffirms its liability to the
Banks thereunder. In the event of any inconsistency between this Amendment
and the terms of the Agreement or the Notes, this Amendment shall govern.
8. Representations and Warranties. The Borrower represents and warrants to
------------------------------
the Banks as of the Borrower's execution of this Amendment and as of the
effective date hereof that:
a. Representations and Warranties. The representations and warranties
------------------------------
contained in Section 7 of the Credit Agreement, as amended hereby,
---------
are true and correct.
b. Corporate Power and Authorization. The Borrower is duly authorized
---------------------------------
and empowered to execute, deliver and perform its obligations under
this Amendment and to make the borrowings provided for in the
Credit Agreement, and all requisite corporate action on the
Borrower's part for the due execution, delivery and performance of
this Amendment has been duly and effectively taken.
c. Binding Obligations. This Amendment constitutes the legal, valid
-------------------
and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, except as limited by Debtor
Laws.
d. No Conflict or Resultant Lien. The execution, delivery and
-----------------------------
performance of this Amendment and the consummation of the
transactions contemplated herein do not and will not violate any
provision of, or result in a default under, the certificate of
incorporation or bylaws of the Borrower, or any contract, agreement
or instrument or any governmental requirement to which the Borrower
is subject, or result in the creation or imposition of any Lien
upon any property of the Borrower (other than as contemplated or
permitted by the Credit Agreement).
e. No Consent. The Borrower's execution, delivery and performance of
----------
this Amendment does not require the consent or approval of any
Person.
- --------------------------------------------------------------------------------
9. Miscellaneous.
-------------
a. In accordance with the terms of Section 13.2 of the Credit
Agreement, this Amendment shall become effective when executed and
delivered by the Borrower, the Agent and the Banks.
b. No Bank, by its execution of this Amendment, waives any rights it
may have against any person not a party hereto.
c. This Amendment may be executed in multiple counterparts, each of
which shall constitute an original instrument, but all of which
shall constitute one and the same Amendment.
d. All capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to such terms in the Credit Agreement.
e. The invalidity of any one or more covenants, phrases, clauses,
sentences or paragraphs of this Amendment shall not affect the
remaining portion of this Amendment, or any part thereof, and in
case of any such invalidity, this Amendment shall be construed as
if such invalid covenants, phrases, clauses, sentences or
paragraphs had not been inserted. The section headings in this
Amendment are for convenience only and shall not limit or in any
way affect the meaning of the terms and provisions of this
Amendment.
f. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF
AMERICA.
THIS WRITTEN AMENDMENT, TOGETHER WITH THE CREDIT AGREEMENT, THE NOTES
AND THE LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENT OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
be effective as of the date first above written.
SOUTHERN UNION COMPANY
By: Richard N. Marshall
-------------------
Name: Richard N. Marshall
-------------------
Title: Treasurer and Director of Investor Relations
--------------------------------------------
JPMORGAN CHASE BANK, FORMERLY KNOWN AS THE CHASE
MANHATTAN BANK, SUCCESSOR BY MERGER TO CHASE BANK
OF TEXAS, NATIONAL ASSOCIATION, for itself and as
Agent for the Banks
By: Ken Sample
----------
Name: Ken Sample
----------
Title: Senior Vice President
---------------------
- --------------------------------------------------------------------------------
BANK ONE, NA
By: Sharon K. Webb
--------------
Name: Sharon K. Webb
--------------
Title: Associate Director
------------------
WACHOVIA BANK, NATIONAL ASSOCIATION (SUCCESSOR TO
FIRST UNION NATIONAL BANK)
By: C. Reid Harden
--------------
Name: C. Reid Harden
--------------
Title: Vice President
--------------
FLEET NATIONAL BANK
By: Stephen J. Hoffman
------------------
Name: Stephen J. Hoffman
------------------
Title: Vice President
--------------
THE FUJI BANK, LIMITED
By: Toru Maeda
----------
Name: Toru Maeda
----------
Title: General Manager - Houston Office
--------------------------------
THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY
By: Toru Maeda
----------
Name: Toru Maeda
----------
Title: General Manager - Houston Office
--------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: Bernard Weymuller
-----------------
Name: Bernard Weymuller
-----------------
Title: Senior Vice President
---------------------
THE BANK OF TOKYO-MITSUBISHI, LTD.
By: K. Glasscock
------------
Name: K. Glasscock
------------
Title: VP & Manager
------------
US BANK, NATIONAL ASSOCIATION (FORMERLY KNOWN AS
FIRSTAR BANK, N.A.)
By: Jennifer Thurston
-----------------
Name: Jennifer Thurston
-----------------
Title: Corporate Banks Admin
---------------------
- --------------------------------------------------------------------------------
NATIONAL AUSTRALIA BANK LIMITED,
A.C.N. 0040444937
By: Mike Lorusso
------------
Name: Mike Lorusso
------------
Title: Head of Energy Finance, US
--------------------------
THE NORINCHUKIN BANK,
NEW YORK BRANCH
By: Fumiaki Ono
-----------
Name: Fumiaki Ono
-----------
Title: General Manager
---------------
CITIZENS BANK OF RHODE ISLAND
By: Marian L. Barrette
------------------
Name: Marian L. Barrette
------------------
Title: Vice President
--------------
- --------------------------------------------------------------------------------
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By: Duncan M. Robertson
-------------------
Name: Duncan M. Robertson
-------------------
Title: Director
--------
KBC BANK, N.V.
By: Eric Raskin
-----------
Name: Eric Raskin
-----------
Title: Vice President
--------------
UMB BANK, N.A.
By: David A. Proffitt
-----------------
Name: David A. Proffitt
-----------------
Title: Senior Vice President
---------------------
SUNTRUST BANK
By: Linda L. Stanley
----------------
Name: Linda L. Stanley
----------------
Title: Director
--------
WELLS FARGO BANK TEXAS,
NATIONAL ASSOCIATION
By: Andrew J. Watson
----------------
Name: Andrew J. Watson
----------------
Title: Vice President
--------------
- --------------------------------------------------------------------------------
Exhibit 10(b)
REVOLVING CREDIT AGREEMENT
(SHORT-TERM CREDIT FACILITY)
DATED AS OF JUNE 10, 2002
BY AND AMONG
SOUTHERN UNION COMPANY
as the Borrower
AND
THE BANKS NAMED HEREIN
as the Banks
AND
JPMORGAN CHASE BANK
as the Agent
AND
J.P. MORGAN SECURITIES INC.
as the Sole Book Runner and Lead Arranger
REVOLVING CREDIT AGREEMENT
(SHORT-TERM CREDIT FACILITY)
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"), and JPMORGAN CHASE BANK, a New York banking corporation formerly known
as The Chase Manhattan Bank ("JPMorgan") in its capacity as administrative agent
(the "Agent") 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 28, 2002.
- --------------------------------------------------------------------------------
"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:
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=========================================================================
Additional
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 0.775%
-------------------------------------------------------------------------
Baa1 by Moody's Investor Service, Inc. or BBB+ by
--
Standard and Poor's Ratings Group 0.875%
-------------------------------------------------------------------------
Baa2 by Moody's Investor Service, Inc. or BBB by
--
Standard and Poor's Ratings Group 0.925%
-------------------------------------------------------------------------
Baa3 by Moody's Investor Service, Inc. or BBB- by
--
Standard and Poor's Ratings Group 1.000%
-------------------------------------------------------------------------
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 1.500%
=========================================================================
In the event that Borrower withdraws from having its unsecured, non-credit
enhanced Senior Funded Debt being rated by Moody's Investor Service, Inc. or
Standard and Poor's Ratings Group, so that one or both of such ratings services
fails to rate the Borrower's unsecured, non-credit enhanced Senior Funded Debt,
the component of pricing from the grid set forth above for purposes of
determining the applicable Eurodollar Rate for all Rate Periods commencing
thereafter shall be 1.500% until such time as Borrower subsequently causes its
unsecured, non-credit enhanced Senior Funded Debt to be rated by both of said
ratings services.
"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.
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"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 Second Amended
and Restated Revolving Credit Agreement dated May 29, 2001, executed by and
among the Borrower, the Banks, and the Agent in connection with the Long-Term
Credit Facility, as amended pursuant to the terms of that certain First
Amendment of Second Amended and Restated Revolving Credit Agreement of even
effective date herewith, executed by and among the Borrower, the Banks, and the
Agent, and as the same may hereafter may be further 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 Banks" 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 June 9, 2003.
"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
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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
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, JPMorgan Chase Bank, formerly known as 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
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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 JPMorgan 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 JPMorgan (of funds received from the Agent)
pursuant to a request (whether written or oral) believed by the Agent or by
JPMorgan 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
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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 respective Note of each Bank may be held by the applicable
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 or maintaining 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.
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(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 IMITATION, 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
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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 Increase of Commitments
(a) At any time after the Closing Date, the Agent may arrange for
an existing Bank or another bank or financial institution, with the consent
of the Borrower as to any such bank or financial institution that is not at
such time a Bank (which consent shall not be unreasonably withheld or
delayed so long as such bank or financial institution is an Eligible
Assignee) to participate in a possible increase in the Commitments pursuant
to the other terms and conditions of this Section 2.4;
(b) Any such bank or financial institution that so 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
$2,500,000;
(c) If an existing Bank accepts an offer to increase its Commitment
pursuant to this Section 2.4, such Bank shall 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 2.4(b) or if any Bank's Commitment is increased
pursuant to Section 2.4(c), additional loans 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 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
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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
2.4,(i) no Bank shall have any obligation to increase its Commitment under
this Section 2.4 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 2.4, (iii) the Agent shall have no obligation to
arrange, 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 $2,500,000, and (v) after giving effect to any increase in the
Commitments pursuant to this Section 2.4, the sum of the Commitments shall
not exceed $150,000,000; 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. The Borrower agrees to make prepayments of the
Loans as follows:
(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, the Long-Term Credit Facility Notes and the
Term Loan Facility has exceeded the Borrower's Available Senior Funded Debt
Capacity outstanding under the Senior Notes, the Borrower will prepay
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the Notes, the Long-Term Credit Facility Notes and/or the Term Loan
Facility 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 Rate 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 provisions 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 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.
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.
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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, 2002 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%
===================================================================
- --------------------------------------------------------------------------------
In the event that Borrower withdraws from having its unsecured, non-credit
enhanced Senior Funded Debt being rated by Moody's Investor Service, Inc. or
Standard and Poor's Ratings Group, so that one or both of such ratings services
fails to rate the Borrower's unsecured, non-credit enhanced Senior Funded Debt,
the component of pricing from the grid set forth above for purposes of
determining the applicable commitment fee for all applicable periods commencing
thereafter shall be 0.230% until such time as Borrower subsequently causes its
unsecured, non-credit enhanced Senior Funded Debt to be rated by both of said
ratings services.
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 of the aggregate principal amount of the Loans outstanding on
those days when such aggregate principal amount of the Loans outstanding exceeds
thirty-three percent (33%) of the aggregate amount of the Commitments, 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, 2002, 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, 2001,
accompanied by the certificate of Price Waterhouse Coopers and (b) the
Borrower's unaudited financial report as of the fiscal quarter ending
December 31, 2001. 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 December 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, law, 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 December 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; and (d) 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 December 31, 2001 (copies of such unaudited 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.
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 and
(b) all closing, structuring and other invoiced fees owed as of the Closing Date
to the Agent, any of the Banks and/or J.P. Morgan Securities Inc. by the
Borrower under this Agreement or any other written agreement between the
Borrower and the Agent, the applicable Bank(s) or J.P. Morgan Securities Inc.
The Borrower hereby agrees to fully pay on the Closing Date all of such
expenses, closing, structuring and other fees described in the preceding
sentence that are then owing on the Closing Date, to the extent that Borrower
has been presented an invoice for the same on or before the Closing Date.
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 in accordance
with the terms of this Agreement; 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 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 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.
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) $741,887,000, (ii) 40% of
Consolidated Net Income (if positive) for the period commencing on
January 1, 2002 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,
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2001; 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 2.00 to 1.00 at all times; or
(e) permit the aggregate outstanding principal amount of the Notes,
the Long-Term Credit Facility Notes and the Term Loan Facility 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, including without limitation, any
property acquired by the Borrower in consummating and finalizing any of the
Prior Acquisitions, or purchase money Liens placed on an item of real or
personal property purchased by the Borrower or any Subsidiary to
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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 December 31, 2002 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; and
(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 2.00 to 1.0 at all
times; provided, however, that if the additional Debt for which the
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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 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
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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 One Hundred Million Dollars
($100,000,000.00) 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
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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, the Long-Term Credit Facility Agreement or
the Term Loan Facility or shall be borrowed from a financial institution
that is not a Bank under this Agreement, the Long-Term Credit Facility
Agreement or the Term Loan Facility.
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
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(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); 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
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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) 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
(d) 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) 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 as of the date of such transfer
or disposition (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 December 31, 2001; (iii) the Borrower may
dispose of its 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; (iv) 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
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statement hereafter filed with the Securities and Exchange Commission in
connection with any other Structured Securities issued in connection with the
Prior Acquisitions; (v) 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 as
of the date of disposition 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 December 31, 2001; (vi) 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 (vii) 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
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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 Majority Banks, (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
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10.3 Failure to Pay Other Debt. The Borrower or any Subsidiary fails to
pay principal or interest aggregating more than $3,000,000.00 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 Agent or any
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 Agent or the holder of any 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 final 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 $5,000,000.00 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
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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 JPMorgan 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
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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.
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11.4 JPMorgan and Affiliates. With respect to its Commitment, any Loan
made by it, and the Note issued to it, JPMorgan 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 JPMorgan in its individual capacity.
JPMorgan 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
JPMorgan 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 disbursements 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
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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
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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 (a) the
Agent for its reasonable out-of-pocket expenses (including (i) due diligence
expenses, syndication expenses and travel expenses incurred prior to the Closing
date not to exceed $15,000 in the aggregate and (ii) the reasonable fees and
expenses of counsel to the Agent) 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 and
modification and (b) the Agent and each Bank for all reasonable fees incurred by
the Agent or any Bank in connection with the enforcement of this Agreement after
the occurrence of any Event of Default which is then continuing, including the
reasonable fees and expenses of counsel to the Agent and each Bank related
thereto, (c) the Agent for costs and expenses of the Agent for environmental
consultants related to the transactions contemplated and governed by this
Agreement, and (d) the Agent and each Bank for 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.
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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
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Attention: Mr. Richard N. Marshall
Fax: (570) 820-2401
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with copies to: Southern Union Company
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Attention: Dennis K. Morgan, Esq.
Fax: (570) 820-2402
(b) If to the Agent,
to it at: JPMorgan Chase Bank
700 Lavaca, 2nd Floor
Austin, Texas 78701
Attention: Manager/Commercial Lending
Fax: (512) 479-2853
with a copy to: JPMorgan Chase Bank
Loan and Agency Services
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Mr. Muniram Appanna
Fax: (212) 552-2261
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.
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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) Each Bank may assign to one or more Banks, Bank Affiliates or
other Eligible Assignees all or a portion of its interests, 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) with respect to any assignment to any Eligible Assignee (other
than another Bank or a Bank Affiliate), the Agent and Borrower must give
their respective prior written consent, such consent not to be unreasonably
withheld; (ii) 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; (iii) the amount of the Commitments so assigned shall
equal or exceed $5,000,000.00; (iv) 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); (v) 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 $3,500.00; (vi) 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 (vii) 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.
(g) For purposes of this Section 12.13, "Bank Affiliate" shall
mean (a) with respect to any Bank, (i) an Affiliate of such Bank or (ii)
any entity (whether a corporation, partnership, trust or otherwise) that
is engaged in making, purchasing, holding or otherwise investing in bank
loans and similar extensions of credit in the ordinary course of its
business and is administered or managed by a Bank or an Affiliate of such
Bank and (b) with respect to any Bank that is a fund which invests in bank
loans and similar extensions of credit, any
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other fund that invests in bank loans and similar extensions of credit and
is managed by the same investment advisor as such Bank or by an Affiliate
of such investment advisor. Each Bank Affiliate shall be deemed for
purposes hereof to be an "Eligible Assignee."
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 TRANSACTIONS 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, PRODUCING 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 HAZARDOUS
MATERIALS WAS CAUSED BY THE BORROWER, ANY SUBSIDIARY, A TENANT, OR SUBTENANT 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, TRANSPORTATION, 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 REPAYMENT 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 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.
12.22 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 June 10, 2002.
SOUTHERN UNION COMPANY
By: Richard N. Marshall
-------------------
Name: Richard N. Marshall
-------------------
Title: Treasurer & Director of Investor Relations
------------------------------------------
Commitment: JPMORGAN Chase Bank,
$15,000,000 for itself and as Agent for the Banks
By: Ken M. Sample
-------------
Name: Ken M. Sample
-------------
Title: Senior Vice President
---------------------
- --------------------------------------------------------------------------------
Commitment: BANK ONE, NA
$15,000,000 (Main Office-Chicago)
By: Sharon K. Webb
--------------
Name: Sharon K. Webb
--------------
Title: Associate Director
------------------
Address for Notices:
Bank One, NA
1 Bank One Plaza, Suite IL1-0363
Chicago, Illinois 60670
Attention: Ms. Sharon K. Webb
Fax No.: (312) 732-5435
Separate Domestic and Eurodollar Lending Office:
Bank One, NA
1 Bank One Plaza, Suite IL1-0634
Chicago, Illinois 60670
Commitment: WACHOVIA BANK, NATIONAL ASSOCIATION
$15,000,000
By: Rotcher Watkins
---------------
Name: Rotcher Watkins
---------------
Title: Managing Director
-----------------
Address for Notices:
Wachovia Bank, National Association
191 Peachtree St. NE, 28th Floor
Atlanta, Georgia 30303
Attention: Mr. Reid Harden
Fax No.: (404) 332-3580
Separate Domestic and Eurodollar Lending Office:
Wachovia Bank, National Association
201 South College St.
Charlotte North Carolina 28288
- --------------------------------------------------------------------------------
Commitment: FLEET NATIONAL BANK
$15,000,000
By: Stephen J. Hoffman
------------------
Name: Stephen J. Hoffman
------------------
Title: Vice President
--------------
Address for Notices:
Fleet National Bank
Global Energy
100 Federal Street, MA DE 10008A
Boston, Massachusetts 02110
Attention: Mr. Stephen Hoffman
Fax No.: (617) 434-3652
Commitment: THE BANK OF TOKYO-MITSUBISHI, LTD.
$10,000,000
By: K. Glasscock
------------
Name: K. Glasscock
------------
Title: VP & Manager
------------
Address for Notices:
The Bank of Tokyo-Mitsubishi, Ltd.
1100 Louisiana Street, Suite 2800
Houston, Texas 77002
Attention: Ms. Joan Stanton
Fax No.: (713) 658-0116
- --------------------------------------------------------------------------------
Commitment: CHANG HWA COMMERCIAL BANK, LTD.
$10,000,000
By: James Lin
---------
Name: James Lin
---------
Title: SVP & General Manager
---------------------
Address for Notices:
Chang Hwa Commercial Bank, Ltd.
333 S. Grand, Suite 600
Los Angeles, California 90071
Attention: Mr. George Wang
Fax No.: (213) 620-7227
Commitment: CREDIT LYONNAIS NEW YORK BANK
$10,000,000
By: Bernard Weymuller
-----------------
Name: Bernard Weymuller
-----------------
Title: Senior Vice President
---------------------
Address for Notices:
Credit Lyonnais New York Branch
1301 Travis, Suite 2100
Houston, Texas 77002
Attention: Mr. Darrell Stanley
Fax No.: (713) 890-8602
- --------------------------------------------------------------------------------
Commitment: MIZUHO CORPORATE BANK, LTD.
$10,000,000
By: Toru Maeda
----------
Name: Toru Maeda
----------
Title: General Manager - Houston Office
--------------------------------
Address for Notices:
Mizuho Corporate Bank, Ltd.
One Houston Center
1221 McKinney Street, Suite 4100
Houston, Texas 77010
Attention: Mr. Lynn Williford
Fax No.: (713) 759-0717
Separate Domestic and Eurodollar Lending Office:
Mizuho Corporate Bank, Ltd.
1251 Avenue of the Americas
New York, New York 10020-1104
Commitment: UMB BANK, N.A.
$8,000,000
By: David A. Proffitt
-----------------
Name: David A. Proffitt
-----------------
Title: Senior Vice President
---------------------
Address for Notices:
UMB Bank, n.a.
1010 Grand Blvd.
Kansas City, Missouri 64106
Attention: Mr. David A. Proffitt
Fax No.: (816) 860-7143
- --------------------------------------------------------------------------------
Commitment: CITIZENS BANK OF RHODE ISLAND
$7,600,000
By: Marian L. Barrette
------------------
Name: Marian L. Barrette
------------------
Title: Vice President
--------------
Address for Notices:
Citizens Bank of Rhode Island
One Citizens Plaza
Mail Stop RC0480
Providence, Rhode Island 02903
Attention: Ms. Marian L. Barrette
Fax No.: (401) 455-5404
Commitment: MANUFACTURERS & TRADERS TRUST CO.
$6,450,000
By: Thomas V. Amico
---------------
Name: Thomas V. Amico
---------------
Title: Vice President
--------------
Address for Notices:
Manufacturers & Traders Trust Co.
1 Fountain Plaza
Buffalo, New York 14203
Attention: Mr. Clayton Salzman
Fax No.: (716) 848-7881
- --------------------------------------------------------------------------------
Commitment: KBC BANK, N.V.
$6,000,000
By: Rik Scheerlinck
---------------
Name: Rik Scheerlinck
---------------
Title: Sr. Vice President & General Manager
------------------------------------
Address for Notices:
KBC Bank N.V.
New York Branch
Atlanta Representative Office
245 Peachtree Center Avenue, Suite 2550
Atlanta, Georgia 30303
Attention: Mr. Filip Fefrante
Fax No.: (212) 584-5465
Separate Domestic and Eurodollar Lending Office:
KBC Bank N.V.
New York Branch
125 West 55th Street
New York, New York 10019
- --------------------------------------------------------------------------------
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 (as defined in the Credit Agreement),
the principal sum of Million and No/ 100ths Dollars
----------------
($ ,000,000.00) in accordance with the terms and provisions of that certain
-
Revolving Credit Agreement (Short-Term Credit Facility) dated June 10, 2002, by
and among the Borrower, the Bank, the other banks named on the signature pages
thereof, and JPMORGAN Chase 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 JPMorgan
Chase 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 Revolving Credit Agreement (Short-Term
Credit Facility) dated June 10, 2002 (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, JPMORGAN Chase 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 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 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 JPMorgan Chase 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 Restated Revolving Credit Agreement
(Short-Term Credit Facility)
Ladies and Gentlemen:
We have entered into a Restated Revolving Credit Agreement (Short-Term
Credit Facility) dated as of June 10, 2002 (the "Credit Agreement"), among
certain banks (including us), JPMorgan Chase 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 JPMORGAN CHASE BANK, AGENT
By: By:
------------------------ ---------------------------
Name: Name:
------------------------ ---------------------------
Title: Title:
----------------------- ---------------------------
- --------------------------------------------------------------------------------
SCHEDULE 6.1
SUBSIDIARIES
Subsidiary State of Organization
Alternate Energy Corporation Rhode Island
Atlantic Utilities Corporation* Florida
Capital Center Energy Company, L.L.C. Rhode Island
Capital Center Generating Company, L.L.C. Rhode Island
CCEI, L.L.C. Rhode Island
Contigo, Inc. * Delaware
Delaware Business Trust
Delaware Business Trust
Delaware Business Trust
DownCity Energy Company, L.L.C. Rhode Island
Energia Estrella del Sur, S.A. de C.V. Mexico
Energy Worx, Inc. Delaware
Enhanced Service Systems, Inc. Delaware
Fall River Gas Appliance Company, Inc. Massachusetts
Honesdale Gas Company* Pennsylvania
Mercado Gas Services Inc. Delaware
Newport America Corporation Rhode Island
Norteno Pipeline Company Delaware
P.E.C./S.O.C. Massachusetts Acquisition Co., Inc.* Massachusetts
Patience Realty Corp. Rhode Island
PEI Power Corporation Pennsylvania
Penn Gas Development Co.* Pennsylvania
Pennsylvania Energy Resources, Inc.* Pennsylvania
PG Energy Services Inc.* Pennsylvania
ProvEnergy Fuels, Inc.* Rhode Island
ProvEnergy HomeWorks, Inc.* Rhode Island
ProvEnergy Power Company, L.L.C.* Rhode Island
Providence Energy Oil Enterprises, Inc.* Rhode Island
Providence Energy Services, Inc.* Rhode Island
Prudence Corporation Rhode Island
Rhode Island Development & Exploration Company* Rhode Island
Southern Transmission Company Delaware
Southern Union Energy International, Inc. Delaware
Southern Union Financial I Delaware
Southern Union Financial II Delaware
Southern Union Financial III Delaware
Southern Union Gas Company, Inc.* Delaware
- --------------------------------------------------------------------------------
Subsidiary State of Organization
Southern Union Gas Company, Inc. Texas* Texas
Southern Union International Investments, Inc. Delaware
Southern Union Technology Partners, L.P. Texas
Southern Union Total Energy Systems, Inc. Delaware
SU Acquisition Corporation* California
SUGAir Aviation Company Delaware
SUGAir NC Aviation Company North Carolina
Super Service Motor Oil Company, Inc.* Rhode Island
Super Service Oil Co.* Rhode Island
Super Service Realty Co., Inc. Rhode Island
SUPro Energy Company Delaware
Sygent, Inc.* Delaware
Valley Appliance and Merchandising Company Rhode Island
Valley Propane, Inc.* Rhode Island
Western Utilities, Inc. Delaware* Delaware
Western Utilities, Inc. New Mexico* New Mexico
RI Development & Exploration Co. Rhode Island
* Inactive
- --------------------------------------------------------------------------------
SCHEDULE 6.3
MATERIAL LITIGATION
Municipal Franchise Litigation
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 Company 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
Company and $7,800,000 against Valero and Southern Union Company together. The
trial court's decision was appealed to the Thirteenth District of the Texas
Court of Appeals ("Court of Appeals"). The Court of Appeals reversed and
modified the trial court's judgment and awarded the City of Edinburg $585,000,
plus pre-judgment interest of $190,000, against RGV, Southern Union Company 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 Company. Southern Union Company has appealed this decision to the Supreme
Court of Texas. Southern Union Company will continue to monitor its position in
this case.
Other
Southern Union Company 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 Company's overall business or
financial conditions, results of operations or cash flows.
- --------------------------------------------------------------------------------
SCHEDULE 6.6
TAX CLAIMS
Missouri Sales Tax Audit - no assessments made to-date
Texas Sales Tax Audit - no assessments made to-date
Florida Sales Tax Audit - $12,560 (partially in dispute)
Internal Revenue Service - $10,400 for calendar year 1999 (disputed)
- --------------------------------------------------------------------------------
SCHEDULE 6.16
ENVIRONMENTAL MATTERS
None
- --------------------------------------------------------------------------------
Exhibit 10(c)
AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT
DATED AS OF JULY 15, 2002
BY AND AMONG
SOUTHERN UNION COMPANY
as the Borrower,
THE BANKS NAMED HEREIN
as the Banks,
JPMORGAN CHASE BANK
as the Administrative Agent,
AND
J.P. MORGAN SECURITIES INC.
as the Sole Book Manager and Lead Arranger
AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT
Reference is hereby made to that certain Term Loan Credit Agreement
(Short-Term Credit Facility) dated as of August 28, 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 Term Loan Credit Agreement (each of said financial institutions
now or hereafter a party to said Term Loan Credit Agreement being hereinafter
referred to collectively as "Banks" and individually as a "Bank"), and THE CHASE
MANHATTAN BANK, a New York banking corporation which is now known as JPMorgan
Chase Bank, in its capacity as agent (the "Agent") for the Banks. Said Term Loan
Credit Agreement 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"), JPMORGAN CHASE BANK, a New York banking corporation formerly known as
The Chase Manhattan Bank ("JPMorgan") in its capacity as administrative agent
(the "Agent") 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 Amended and Restated Term Loan 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 (or if applicable, the rollover or conversion of the principal
balance of any outstanding Loan hereunder for any subsequent Rate Period) 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 July 15, 2002.
"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, including
without limitation, all Revolving Facility Letters of Credit.
"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:
=========================================================================
Additional
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 0.90%
-------------------------------------------------------------------------
Baa1 by Moody's Investor Service, Inc. or BBB+ by
--
Standard and Poor's Ratings Group 1.00%
-------------------------------------------------------------------------
Baa2 by Moody's Investor Service, Inc. or BBB by
--
Standard and Poor's Ratings Group 1.05%
-------------------------------------------------------------------------
Baa3 by Moody's Investor Service, Inc. or BBB- by
--
Standard and Poor's Ratings Group 1.125%
-------------------------------------------------------------------------
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 1.625%
=========================================================================
In the event that Borrower withdraws from having its unsecured, non-credit
enhanced Senior Funded Debt being rated by Moody's Investor Service, Inc. or
Standard and Poor's Ratings Group, so that one or both of such ratings services
fails to rate the Borrower's unsecured, non-credit enhanced Senior Funded Debt,
the component of pricing from the grid set forth above for purposes of
determining the applicable Eurodollar Rate for all Rate Periods commencing
thereafter shall be 1.625% until such time as Borrower subsequently causes its
unsecured, non-credit enhanced Senior Funded Debt to be rated by both of said
ratings services.
"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.
"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
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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)
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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.
"Majority Banks" 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 August 26, 2005, as the same may be extended
pursuant to the provisions of Section 2.4 hereof.
"Non-Revolving Credit Facility Letter of Credit" shall mean any Letter
of Credit which is not a Revolving Credit 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 Banks
under this Agreement, the Notes and all other Loan Documents to which it is a
party.
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"Officer's Certificate" shall mean a certificate signed in the name of
the Borrower 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.
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"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
rollover borrowing 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.
"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.
"Revolving Credit Facilities" shall mean (a) that certain
$150,000,000.00 revolving credit facility provided to the Borrower under the
terms of that certain Revolving Credit Agreement (Short-Term Credit Facility)
dated effective June 10, 2002 by and among the Borrower, JPMorgan, as
administrative agent, and the banks or financial institutions now or hereafter a
party thereto, (b) that certain $225,000,000.00 revolving credit facility
provided to the Borrower under the terms of that certain Second Amended and
Restated Revolving Credit Agreement (Long-Term Credit Facility) dated effective
May 29, 2001 by and among the Borrower, The Chase Manhattan Bank, now known as
JPMorgan), as administrative agent, and the banks or financial institutions now
or hereafter a party thereto, and (c) any and all amendments, modifications,
increases, supplements and/or restatements of either of said revolving credit
facilities now or hereafter existing from time to time.
"Revolving Credit Facility Letter(s) of Credit" shall mean, in the
singular form, any Standby Letter of Credit issued for the account of the
Borrower under either of the Revolving Credit Facilities and, in the plural
form, all such Standby Letters of Credit issued for the account of the Borrower.
"Securities Act" shall have the meaning set forth in Section 12.1.
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"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
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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.
"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 a single advance Loan to the Borrower on the Closing
Date in a principal amount not exceeding the amount set opposite such Bank's
name on the signature pages hereof (such Bank's "Commitment"). The Borrower may
not borrow, repay and reborrow any Loan advanced hereunder. However, prior to
the Maturity Date, the Borrower shall be entitled to request and receive
"rollover" borrowings in accordance with the other provisions of this Agreement
for purposes of continuing or converting the applicable rate of interest to
accrue on the principal balance of any outstanding Loan hereunder for any
subsequent Rate Period in accordance with the other terms of this Agreement, but
such rollover borrowings alone shall not change the outstanding principal
balance of the Loans or be construed to make this Agreement or the credit
facility evidenced hereby a revolving credit facility.
(b) The Borrower shall execute and deliver to the Agent for each Bank
to evidence the Loan 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 (or if applicable, the rollover of the principal balance
of any outstanding Loan hereunder for any subsequent Rate Period) 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 (including the rollover of the principal balance of any Loan hereunder
for any subsequent Rate Period) 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
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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; and
(iv) the Rate Period with respect to each such Loan and the Expiration Date of
each such Rate Period. The Borrower may give the Agent telephonic notice by the
required time of any proposed borrowing under this Section 2.1(c) (or if
applicable, the rollover of the principal balance of any outstanding Loan
hereunder for any subsequent Rate Period); provided that such telephonic notice
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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 (or if applicable, the rollover of the principal balance of any
outstanding Loan hereunder for any subsequent Rate Period), the Agent shall
promptly notify each Bank of the applicable interest rate under Section 2.2.
With respect to the initial Loan to be advanced by each Bank as of the Closing
Date, each Bank shall, before 11:00 am (Houston time) on the Closing 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 Closing
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: (i) the date and principal amount of the
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
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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
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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 JPMorgan (of
funds received from the Agent) pursuant to a request (whether written or oral)
believed by the Agent or by JPMorgan 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 Closing Date that such Bank will not make available to the Agent such Bank's
Pro Rata Percentage of the initial Loan to be made by such Bank hereunder, the
Agent may assume that such Bank has made such portion available to the Agent on
the Closing Date in accordance with this Section 2.1 and the Agent may, in
reliance upon such assumption, make available to the Borrower on the Closing
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
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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 initial Loan to be made by it
on the Closing Date shall not relieve any other Bank of its obligation, if
any, hereunder to make its Loan on the Closing Date, 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 Closing Date.
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 respective Note of each Bank may be held by the applicable 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 or maintaining 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.
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(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
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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 payable under Section 4.1 hereof,
-----------
and notwithstanding the provisions set forth in the definitions of
Eurodollar Rate, 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 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
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such definitions 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.
3. PAYMENTS AND PREPAYMENTS
3.1 Required Prepayments. The Borrower agrees to make prepayments
of the Loans as follows:
(a) If at any time 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 Revolving Credit Facilities has exceeded the
Borrower's Available Senior Funded Debt Capacity outstanding under the
Senior Notes, the Borrower will prepay the Notes and/or the Revolving
Credit Facilities 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); and
(d) If any stock or other equity securities in Capstone Turbine Corporation
now or hereafter owned by the Borrower or any of its Subsidiaries is
sold or otherwise liquidated at any time after the Closing Date by the
Borrower or its applicable Subsidiary, the Loans then outstanding
shall be prepaid by the Borrower in an amount equal to (i) the net
proceeds (i.e., gross proceeds received less (1) ordinary and customary
----
commissions and other related sales costs and (2) the tax liability
of the Borrower or its Subsidiary, as applicable, resulting from such
sale or disposition) received by the Borrower or its applicable
Subsidiary from such sale or other disposition of the applicable
Capstone Turbine Corporation stock or other equity securities less (ii)
----
$10,000,000.00, with such prepayment to be made in full on or before
five (5) Business Days after the date of the applicable sale or
disposition of such stock or other equity securities.
3.2 Repayment of the Loans.
(a) The aggregate principal balance of the Loans, as evidenced
by the Notes, shall be due and payable as follows: (i) equal
consecutive semi-annual installments of $25,000,000 each shall be due
and payable on February 15, 2003 and on the 15th day of each subsequent
August and February thereafter until and including August 15, 2004; and
(ii) equal consecutive semi-annual installments of $35,000,000 each
shall be due and payable on February 15, 2005 and on the 15th day of
each subsequent August and February thereafter prior to the Maturity
Date. To the extent not previously paid, the aggregate outstanding
principal balance of the Loans shall be finally due and payable on the
Maturity Date.
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(b) In addition to the regularly scheduled principal payments
under the Loans required under the terms of the preceding subparagraph,
Borrower shall repay the principal amount of each Loan, on the last day
of the Rate 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; provided, however, that in
lieu of such repayment of the principal amount of the applicable Loan
on the last day of the Rate Period for such Loan, the Borrower may, to
the extent otherwise permitted hereunder, rollover the outstanding
principal balance of such applicable Loan for an additional Rate Period
pursuant to a Notice of Borrowings submitted by the Borrower under the
terms of Section 2.1(c).
3.3 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 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.
3.4 No Prepayment Premium or Penalty; Application of Voluntary Prepayments. 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). Additionally, any and all voluntary prepayments made by the Borrower
shall be applied initially to the next regularly scheduled installment of
principal due under the terms of Section 3.2 after the date of such voluntary
prepayment, with the balance of such voluntary prepayment, if any, being applied
pro rata to each of the remaining regularly scheduled installment of principal
due under the terms of Section 3.2.
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
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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. FEES NOT INTEREST. 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.
5. APPLICATION OF PROCEEDS. The Borrower agrees that the proceeds of the
Loans shall be used to refinance the Borrower's existing term loan facility
evidenced and governed by the Original Agreement described in the initial
paragraph of this Agreement.
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
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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 report containing the Borrower's consolidated balance
sheet, statements of income and stockholder's equity and a cash flow statement
as at and for the twelve month period ending June 30, 2001, accompanied by the
certificate of Price Waterhouse Coopers and (b) the Borrower's unaudited
financial report as of the fiscal quarter ending December 31, 2001. 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 December 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, law, 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 December 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,
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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. 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 this Agreement and the restrictions on disposition of assets set
forth in Section 9.8 of this 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 all applicable provisions of ERISA, and the Borrower and each Subsidiary
have filed all reports required by ERISA and the Code
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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 toss.13 orss.14 of the Securities Exchange Act of 1934, as amended.
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
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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 December 31, 2001 (copies of such unaudited 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
and the issuance of the Notes to evidence such borrowings.
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.
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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 and (b) all
closing, structuring and other invoiced fees owed as of the Closing Date to the
Agent, any of the Banks and/or J.P. Morgan Securities Inc. by the Borrower under
this Agreement or any other written agreement between the Borrower and the
Agent, the applicable Bank(s) or J.P. Morgan Securities Inc. The Borrower hereby
agrees to fully pay on the Closing Date all of such expenses, closing,
structuring and other fees described in the preceding sentence that are then
owing on the Closing Date, to the extent that Borrower has been presented an
invoice for the same on or before the Closing Date.
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 in accordance
with the terms of this Agreement; 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 (including rollover borrowings discussed under Section 2.1(a))
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
-------------
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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 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 listing all debt exceeding $200,000.00 in
principal amount outstanding and equity owned or held by the Borrower
or any Subsidiary containing all
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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
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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;
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(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) $741,887,000; (ii) 40% of Consolidated Net
Income (if positive) for the period commencing on January 1, 2002 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, 2001; 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
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(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 2.00 to 1.00 at all times; or
(e) permit the aggregate outstanding principal amount of the Notes and the
Revolving Credit Facilities 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, including without limitation, any property
acquired by the Borrower in consummating and finalizing any of the
Prior Acquisitions, 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 or outstanding under either of the
Revolving Credit Facilities not in default;
(b) Debt of any Subsidiary to the Borrower or any other Subsidiary;
(c) Debt existing as of December 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 either of
the Revolving Credit Facilities;
(d) endorsements in the ordinary course of business of negotiable
instruments in the course of collection;
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(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; and
(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 2.00 to
1.0 at all times; 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 and shall mature or be subject to mandatory redemption or
mandatory defeasance no earlier than the Maturity Date 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; or (B) (x) such
additional Debt shall have a final maturity date prior to the Maturity
Date, (y) such additional Debt shall not exceed One Hundred Million
Dollars ($100,000,000.00) in the aggregate plus Twenty Million Dollars
($20,000,000.00) of reimbursement obligations incurred in connection
with Non-Revolving Credit Facility Letters of Credit issued by a Bank
or Banks or by any other financial institution; provided, however,
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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 Loans 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 either of the Revolving
Credit Facilities or shall be borrowed from a financial institution
that is not a Bank under this Agreement or either of the Revolving
Credit Facilities.
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):
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(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
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less than $2,000,000.00 to any one customer (or group of affiliated
customers, shown on the Borrower's records to be Affiliates); 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.
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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 as
of the date of such transfer or disposition (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 December 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 hereafter 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 as of the date of disposition 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 December 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
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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.
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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 Majority Banks, (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 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 or the Notes within two (2) Business 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 $3,000,000.00 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 Agent or any 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
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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 Agent or the holder of any 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 $5,000,000.00 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;
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(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; or
10.11 Default under Revolving Credit Facilities. An Event of Default (as defined
under either of the credit agreements evidencing the Revolving Credit
Facilities) shall occur under either of the Revolving Credit Facilities.
10.12 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 any of the Notes.
10.13 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. THE AGENT
11.1 Authorization and Action. Each Bank hereby appoints JPMorgan 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
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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 JPMorgan and Affiliates. With respect to its Commitment, any Loan made by
it, and the Note issued to it, JPMorgan 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 JPMorgan in its individual capacity. JPMorgan 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
JPMorgan 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
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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 disbursements 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
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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
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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. Other than expenses provided in Section 8.7, any
provision hereof to the contrary notwithstanding, and whether or not the
transactions contemplated by this Agreement shall be consummated, the Borrower
agrees to reimburse (a) the Agent for its reasonable out-of-pocket expenses,
including the reasonable fees and expenses of counsel to the Agent, in
connection with such transactions, or any of them, or otherwise in connection
with this Agreement, including its negotiation, preparation, execution,
administration and modification, (b) the Agent and each Bank for all reasonable
fees incurred by the Agent or any Bank in connection with the enforcement of
this Agreement after the occurrence of any Event of Default which is then
continuing, including the reasonable fees and expenses of counsel to the Agent
and each Bank related thereto, (c) the Agent for costs and expenses of the Agent
for environmental consultants related to the transactions contemplated and
governed by this Agreement, and (d) the Agent and each Bank for 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
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Attention: Mr. Richard N. Marshall
Fax: (570) 820-2401
with copies to: Southern Union Company
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Attention: Dennis K. Morgan, Esq.
Fax: (570) 820-2402
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(b) If to the Agent,
to it at: JPMorgan Chase Bank
700 Lavaca, 2nd Floor
Austin, Texas 78701
Attention: Manager/Commercial Lending
Fax: (512) 479-2853
with a copy to: JPMorgan Chase Bank
Loan and Agency Services
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Mr. Muniram Appanna
Fax: (212) 552-2261
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
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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
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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) Each Bank may assign to one or more Banks, Bank Affiliates or other
Eligible Assignees all or a portion of its interests, 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) with respect to any assignment to any Eligible
-------
Assignee (other than another Bank or a Bank Affiliate), the Agent and
Borrower must give their respective prior written consent, such consent
not to be unreasonably withheld; (ii) 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; (iii) the amount of the
Commitments so assigned shall equal or exceed $5,000,000.00; (iv) 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); (v) 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 $3,500.00; (vi) 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
(vii) 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.
(g) For purposes of this Section 12.13, "Bank Affiliate" shall mean (a)
with respect to any Lender, (i) an Affiliate of such Bank or (ii) any
entity (whether a corporation, partnership, trust or otherwise) that is
engaged in making, purchasing, holding or otherwise investing in bank
loans and similar extensions of credit in the ordinary course of its
business and is administered or managed by a Bank or an Affiliate of
such Bank and (b) with respect to any Bank that is a fund which invests
in bank loans and similar extensions of credit, any other fund that
invests in bank loans and similar extensions of credit and is managed
by the same investment advisor as such Bank or by an Affiliate of such
investment advisor. Each Bank Affiliate shall be deemed for purposes
hereof to be an "Eligible Assignee."
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 TRANSACTIONS 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, PRODUCING 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 HAZARDOUS MATERIALS WAS CAUSED BY THE BORROWER, ANY SUBSIDIARY,
A TENANT, OR SUBTENANT 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,
TRANSPORTATION, 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 REPAYMENT 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 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.
12.22 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 July 15, 2002.
SOUTHERN UNION COMPANY
By: Richard N. Marshall
-------------------
Name: Richard N. Marshall
-------------------
Title: Treasurer & Director of Investor Relations
------------------------------------------
Commitment: JPMORGAN Chase Bank,
$35,000,000 for itself and as Agent for the Banks
By: Ken M. Sample
-------------
Name: Ken M. Sample
-------------
Title: Senior Vice President
---------------------
- --------------------------------------------------------------------------------
Commitment: BAYERISCHE HYPO-AND VEREINSBANK AG,
$40,000,000 NEW YORK BRANCH
By: Steven Atwell
-------------
Name: Steven Atwell
-------------
Title: Director
--------
By: Shannon Batchman
----------------
Name: Shannon Batchman
----------------
Title: Director
--------
Address for Notices:
Bayerische Hypo-and Vereinsbank, AG,
New York Bank
150 East 42nd Street
New York, New York 10017
Attention: Yoram Dankner
Fax No.: (212) 672-5530
Separate Eurodollar Lending Office:
Bayerische Hypo-and Vereinsbank, AG,
Grand Cayman Branch
c/o Bayerische Hypo-and Vereinsbank AG
150 East 42nd Street
New York, New York 10017
- --------------------------------------------------------------------------------
Commitment: BANK ONE, NA
$35,000,000 (Main Office-Chicago)
By: Sharon K. Webb
--------------
Name: Sharon K. Webb
--------------
Title: Associate Director
------------------
Address for Notices:
Bank One, NA
1 Bank One Plaza, Suite IL1-0363
Chicago, Illinois 60670
Attention: Ms. Sharon K. Webb
Fax No.: (312) 732-5435
Separate Domestic and Eurodollar Lending Office:
Bank One, NA
1 Bank One Plaza, Suite IL1-0634
Chicago, Illinois 60670
- --------------------------------------------------------------------------------
Commitment: WACHOVIA BANK, NATIONAL ASSOCIATION
$35,000,000
By: C. Reid Harden
--------------
Name: C. Reid Harden
--------------
Title: Vice President
--------------
Address for Notices:
Wachovia Bank, National Association
191 Peachtree St. NE, 28th Floor
Atlanta, Georgia 30303
Attention: Mr. Reid Harden
Fax No.: (404) 332-3580
Separate Domestic and Eurodollar Lending Office:
Wachovia Bank, National Association
201 South College St.
Charlotte North Carolina 28288
- --------------------------------------------------------------------------------
Commitment: FLEET NATIONAL BANK
$35,000,000
By: Stephen J. Hoffman
------------------
Name: Stephen J. Hoffman
------------------
Title: Vice President
--------------
Address for Notices:
Fleet National Bank
Global Energy
100 Federal Street, MA DE 10008A
Boston, Massachusetts 02110
Attention: Mr. Stephen Hoffman
Fax No.: (617) 434-3652
- --------------------------------------------------------------------------------
Commitment: ALLFIRST BANK
$15,000,000
By: Theodore K. Oswald
------------------
Name: Theodore K. Oswald
------------------
Title: Vice President
--------------
Address for Notices:
Allfirst Bank
2055 S. Queen Street
York, Pennsylvania 17403
Attention: Ms. Kellie M. Matthews
Fax No.: (717) 771-4914
Commitment: THE BANK OF TOKYO-MITSUBISHI, LTD.
$15,000,000
By: John McGhee
-----------
Name: JOhn McGhee
-----------
Title: Vice President & Manager
------------------------
Address for Notices:
The Bank of Tokyo-Mitsubishi, Ltd.
1100 Louisiana Street, Suite 2800
Houston, Texas 77002
Attention: Ms. Joan Stanton
Fax No.: (713) 658-0116
- --------------------------------------------------------------------------------
Commitment: CHANG HWA COMMERCIAL BANK, LTD.
$15,000,000
By: Jim Chen
--------
Name: Jim Chen
--------
Title: VP & General Manager
--------------------
Address for Notices:
Chang Hwa Commercial Bank, Ltd.
333 S. Grand, Suite 600
Los Angeles, California 90071
Attention: Mr. George Wang
Fax No.: (213) 620-7227
Commitment: KBC BANK, N.V.
$15,000,000
By: Jean-Pierre Diels
-----------------
Name: Jean-Pierre Diels
-----------------
Title: First Vice President
--------------------
Address for Notices:
KBC Bank N.V.
Atlanta 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: PNC BANK, NATIONAL ASSOCIATION
$15,000,000
By: R. Kane Kiester
---------------
Name: R. Kane Kiester
---------------
Title: CBO
---
Address for Notices:
PNC Bank, National Association
One PNC Plaza, Fifth & Woods Street
Pittsburgh, Pennsylvania 15222-2707
Attention: Mr. Kane Kiester
Fax No.: (412) 705-3232
Separate Domestic and Eurodollar Lending Office:
PNC Bank, National Association
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Commitment: MANUFACTURERS & TRADERS TRUST CO.
$15,000,000
By: Thomas V. Amico
---------------
Name: Thomas V. Amico
---------------
Title: Vice President
--------------
Address for Notices:
Manufacturers & Traders Trust Co.
1 Fountain Plaza
Buffalo, New York 14203
Attention: Mr. Clayton Salzman
Fax No.: (716) 848-7881
- --------------------------------------------------------------------------------
Commitment: CREDIT LYONNAIS NEW YORK BANK
$10,000,000
By: Bernard Weymuller
-----------------
Name: Bernard Weymuller
-----------------
Title: Senior Vice President
---------------------
Address for Notices:
Credit Lyonnais New York Branch
1301 Travis, Suite 2100
Houston, Texas 77002
Attention: Mr. Darrell Stanley
Fax No.: (713) 890-8602
Commitment: MIZUHO CORPORATE BANK, LTD.
$10,000,000
By: Toru Maeda
----------
Name: Toru Maeda
----------
Title: General Manager - Houston Office
--------------------------------
Address for Notices:
Mizuho Corporate Bank, Ltd.
One Houston Center
1221 McKinney Street, Suite 4100
Houston, Texas 77010
Attention: Mr. Lynn Williford
Fax No.: (713) 759-0717
Separate Domestic and Eurodollar Lending Office:
Mizuho Corporate Bank, Ltd.
1251 Avenue of the Americas
New York, New York 10020-1104
- --------------------------------------------------------------------------------
Commitment: THE NORINCHUKIN BANK,
$10,000,000 NEW YORK BRANCH
By: Toshiyuki Futaoka
-----------------
Name: Toshiyuki Futaoka
-----------------
Title: Joint General Manager
---------------------
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
$6,086,000
By: Marian L. Barrette
------------------
Name: Marian L. Barrette
------------------
Title: Vice President
--------------
Address for Notices:
Citizens Bank of Rhode Island
One Citizens Plaza
Mail Stop RC0480
Providence, Rhode Island 02903
Attention: Ms. Marian L. Barrette
Fax No.: (401) 455-5404
- --------------------------------------------------------------------------------
Commitment: BANK OF COMMUNICATIONS, NEW YORK BRANCH
$5,000,000
By: De Cai Li
---------
Name: De Cai Li
---------
Title: General Manager
---------------
Address for Notices:
Bank of Communications, New York Branch
One Exchanges Plaza
55 Broadway, 31st Floor
New York, New York 10006-3008
Attention: Mr. Anders Lai
Fax No.: (212) 376-8089
- --------------------------------------------------------------------------------
EXHIBIT A
TERM NOTE
$ , 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 (as defined in the Credit Agreement),
the principal sum of Million and No/ 100ths Dollars
----------------
($ ,000,000.00) in accordance with the terms and provisions of that certain
---
Amended and Restated Term Loan Credit Agreement dated , 2002, by
-------------
and among the Borrower, the Bank, the other banks named on the signature pages
thereof, and JPMORGAN CHASE 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 Term Note shall be payable at
the Maturity Date. The Borrower promises to pay interest on the unpaid principal
balance of this Term Note from the date of any Loan evidenced by this Term Note
until the principal balance thereof is paid in full. Interest shall accrue on
the outstanding principal balance of this Term Note from and including the date
of any Loan evidenced by this Term 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 JPMorgan
Chase 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 Term Note may at its option, by
notice to the Borrower, declare the unpaid, principal balance of this Term Note,
all accrued and unpaid interest thereon and all other amounts payable under this
Term Note to be forthwith due and payable, whereupon this Term 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 Term 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 Term Note,
the Borrower agrees to pay (a) all reasonable costs and expenses incurred by the
Agent and all owners and holders of this Term Note in collecting this Term Note
through any probate, reorganization bankruptcy or any other proceeding and (b)
reasonable attorneys' fees when and if this Term 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 Term 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 Term Note or otherwise
or for the payment or performance of any covenant or obligation contained in the
Credit Agreement or this Term 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
Term 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 Term 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 Term Note, all interest at any time contracted for,
charged, received or reserved in connection with the indebtedness evidenced by
this Term Note.
This Term 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 Term 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 Term 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 TERM 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 Term 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
(Term Loan 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 Amended and Restated Term Loan Credit Agreement
dated , 2002 (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, JPMORGAN CHASE 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 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 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) [ of new funds are to be advanced to refinance the
---------------
amounts outstanding under Borrower's existing term loan facility in accordance
with Section 5.1 of the Credit Agreement] [$ of rollover borrowings
-----------
is hereby requested for the purposes of continuing Loans currently outstanding
under the Credit Agreement].
(c) The Expiration Date of each Rate Period specified in (a) above
shall be the last day of such Rate Period.
(d) 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.
(e) 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 (or
if applicable, the rollover of the above-described principal balance(s) of Loans
currently outstanding under the Credit Agreement), with the same force and
effect as though made on and as of the date hereof and thereof.
(f) 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 Credit Agreement (Term Loan Credit
Facility)
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Term Loan Credit
Agreement dated as of , 2002 (the "Credit Agreement"), by and among
------------
those certain financial institutions that are now or hereafter a party to said
Credit Agreement, JPMorgan Chase Bank, as agent for such financial institutions
(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:
-------------------------
-------------------------
-------------------------
-------------------------
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 JPMORGAN CHASE BANK, AGENT
By: By:
------------------------ ---------------------------
Name: Name:
------------------------ ---------------------------
Title: Title:
----------------------- ---------------------------
- --------------------------------------------------------------------------------
SCHEDULE 6.1
SUBSIDIARIES
Subsidiary State of Organization
Alternate Energy Corporation Rhode Island
Atlantic Utilities Corporation* Florida
Capital Center Energy Company, L.L.C. Rhode Island
Capital Center Generating Company, L.L.C. Rhode Island
CCEI, L.L.C. Rhode Island
Contigo, Inc. * Delaware
Delaware Business Trust
Delaware Business Trust
Delaware Business Trust
DownCity Energy Company, L.L.C. Rhode Island
Energia Estrella del Sur, S.A. de C.V. Mexico
Energy Worx, Inc. Delaware
Enhanced Service Systems, Inc. Delaware
Fall River Gas Appliance Company, Inc. Massachusetts
Honesdale Gas Company* Pennsylvania
Mercado Gas Services Inc. Delaware
Newport America Corporation Rhode Island
Norteno Pipeline Company Delaware
P.E.C./S.O.C. Massachusetts Acquisition Co., Inc.* Massachusetts
Patience Realty Corp. Rhode Island
PEI Power Corporation Pennsylvania
Penn Gas Development Co.* Pennsylvania
Pennsylvania Energy Resources, Inc.* Pennsylvania
PG Energy Services Inc.* Pennsylvania
ProvEnergy Fuels, Inc.* Rhode Island
ProvEnergy HomeWorks, Inc.* Rhode Island
ProvEnergy Power Company, L.L.C.* Rhode Island
Providence Energy Oil Enterprises, Inc.* Rhode Island
Providence Energy Services, Inc.* Rhode Island
Prudence Corporation Rhode Island
Rhode Island Development & Exploration Company* Rhode Island
Southern Transmission Company Delaware
Southern Union Energy International, Inc. Delaware
Southern Union Financial I Delaware
Southern Union Financial II Delaware
Southern Union Financial III Delaware
Southern Union Gas Company, Inc.* Delaware
- --------------------------------------------------------------------------------
Subsidiary State of Organization
Southern Union Gas Company, Inc. Texas* Texas
Southern Union International Investments, Inc. Delaware
Southern Union Technology Partners, L.P. Texas
Southern Union Total Energy Systems, Inc. Delaware
SU Acquisition Corporation* California
SUGAir Aviation Company Delaware
SUGAir NC Aviation Company North Carolina
Super Service Motor Oil Company, Inc.* Rhode Island
Super Service Oil Co.* Rhode Island
Super Service Realty Co., Inc. Rhode Island
SUPro Energy Company Delaware
Sygent, Inc.* Delaware
Valley Appliance and Merchandising Company Rhode Island
Valley Propane, Inc.* Rhode Island
Western Utilities, Inc. Delaware* Delaware
Western Utilities, Inc. New Mexico* New Mexico
RI Development & Exploration Co. Rhode Island
* Inactive
- --------------------------------------------------------------------------------
SCHEDULE 6.3
MATERIAL LITIGATION
Municipal Franchise Litigation
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 Company 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
Company and $7,800,000 against Valero and Southern Union Company together. The
trial court's decision was appealed to the Thirteenth District of the Texas
Court of Appeals ("Court of Appeals"). The Court of Appeals reversed and
modified the trial court's judgment and awarded the City of Edinburg $585,000,
plus pre-judgment interest of $190,000, against RGV, Southern Union Company 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 Company. Southern Union Company has appealed this decision to the Supreme
Court of Texas. Southern Union Company will continue to monitor its position in
this case.
Other
Southern Union Company 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 Company's overall business or
financial conditions, results of operations or cash flows.
- --------------------------------------------------------------------------------
SCHEDULE 6.6
TAX CLAIMS
Missouri Sales Tax Audit - no assessments made to-date
Texas Sales Tax Audit - no assessments made to-date
Florida Sales Tax Audit - $12,560 (partially in dispute)
Internal Revenue Service - $10,400 for calendar year 1999 (disputed)
- --------------------------------------------------------------------------------
SCHEDULE 6.16
ENVIRONMENTAL MATTERS
None
- --------------------------------------------------------------------------------
Exhibit 10(k)
PROMISSORY NOTE
$308,000.00 January 28, 2000, Austin, Texas
FOR VALUE RECEIVED, the undersigned hereby promisses to pay to the order of
Southern Union Company the principal sum of Three Hundred Eight Thousand and
00/100 Dollars ($308,000.00), together with interest thereon at the rate
hereafter specified, payable as follows:
Interest will be charged on the unpaid principal balance of this Note at
the rate equal to the higher of: (a) the Applicable Federal Rate or (b)
five basis points (.05%) plus the Eurodollar Rate. The "Eurodollar Rate"
is the interest rate on the second day of the calendar month for 30-day
Eurodollar Loans, as defined in that certain Revolving Credit Agreement
(Short-Term Credit Facility) dated November 10, 1998, between Southern
Union Company as borrower and Chase Bank of Texas, N.A., for itself and as
agent, as lender (the "Loan Agreement"). The "Applicable Federal Rate" is
the lower of: (i) the Federal statutory short-term interest rate,
compounded annually; or (ii) the alternative Federal short-term interest
rate, compounded annually, as defined in U. S. Treasury Regulation
1.78-3(b)(2). The interest rate of this Note will be adjusted monthly on
the second day of the month beginning on February 2, 2000, and on the
second day of each month thereafter.
Commencing on February 15, 2000, and on the 15th day of each month
thereafter until this Note is paid in full, the undersigned will pay to the
holder of this Note the sum of One Thousand Five Hundred Dollars
($1,500.00). Such payments shall be applied first to interest, and the
remainder, if any, shall be applied to principal. All principal and
interest owing under this Note will be due and payable on January 27, 2010.
Absent any default hereunder, during the term of this Note, the accrued
interest, if any, not paid in full by the scheduled monthly payments and
any unscheduled prepayments (the "Deferred Interest") shall not be added
to the principal balance of this Note.
In the event the undersigned fails to make any payment when due hereunder,
at the option of the holder, the entire unpaid indebtedness evidenced by this
Note may become due, payable and collectible then or thereafter, as such holder
may elect, regardless of the maturity date thereof. Upon such acceleration, the
Deferred Interest shall be added to the principal amount then due, and the
principal due will be calculated by subtracting all principal payments made to
such date from the original principal sum of Three Hundred Eight Thousand and
00/100 Dollars ($308,000.00), plus all Deferred Interest.
The undersigned will have the right at any time and from time to time to
prepay all or any portion of the principal of this Note without premium or
penalty, but with interest to the date of prepayment on the amount prepaid. All
prepayment of principal will be applied to payments due in the inverse order of
maturity. Any such prepayment under this Note shall be applied first to accrued
interest and the balance to principal, but no part prepayment shall delay or
otherwise affect the maturity date of this Note with respect to the unpaid
balance thereof.
In the event the Loan Agreement is terminated, the Eurodollar Rate will be
determined by reference to any successor revolving credit agreement executed
by Southern Union Company.
The maker, endorsers, sureties, guarantors and all other persons who may
become liable for all or any portion of this obligation severally waive
presentment for payment, protest and notice of nonpayment. Said parties consent
to any extension of time (whether one or more) of payment hereof, release of all
or any part of the security for the payment hereof, or release of any party
liable for payment of this obligation. Any such extension or release may be
made without notice to any such party and without discharging said party's
liability hereunder.
IN WITNESS WHEREOF, the undersigned has executed this instrument effective
on the date first above written.
DENNIS K. MORGAN
----------------
Dennis K. Morgan
- --------------------------------------------------------------------------------
SUBSIDIARIES OF THE COMPANY Exhibit 21
Name State or Country of Incorporation
- -------------------------------------------- ---------------------------------
Alternate Energy Corporation Rhode Island
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. 333-74696, 333-71988, 333-02965 and 333-10585)
and Form S-8 (File Nos. 33-37261, 33-69596, 33-69598, 33-61558, 333-79443,
333-08994, 333-42635, 333-89971, 333-36146, 333-36150, and 333-47144) of
Southern Union Company of our report dated September 17, 2002, relating to the
consolidated financial statements, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 27, 2002
- --------------------------------------------------------------------------------
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, 2002 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 27, 2002
GEORGE L. LINDEMANN ADAM M. LINDEMANN
- ------------------- -----------------
George L. Lindemann Adam M. Lindemann
JOHN E. BRENNAN RONALD W. SIMMS
- --------------- ---------------
John E. Brennan Ronald W. Simms
THOMAS F. KARAM DAVID BRODSKY
- --------------- -------------
Thomas F. Karam David Brodsky
FRANK W. DENIUS DAN K. WASSONG
- --------------- --------------
Frank W. Denius Dan K. Wassong
- --------------------------------------------------------------------------------
Exhibit 99.1-A
STATEMENT UNDER OATH OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
FINANCIAL OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO
EXCHANGE ACT FILINGS
I, George L. Lindemann, Chairman of the Board and Chief Executive Officer, state
and attest that:
1. To the best of my knowledge, based upon a review of the covered reports
of Southern Union Company, and, except as corrected or supplemented in a
subsequent covered report:
o no covered report contained an untrue statement of a material
fact as of the end of the period covered by such report (or in
the case of a report on Form 8-K or definitive proxy materials,
as of the date on which it was filed); and
o no covered report omitted to state a material fact necessary to
make the statements in the covered report, in light of the
circumstances under which they were made, not misleading as of
the end of the period covered by such report (or in the case of a
report on Form 8-K or definitive proxy materials, as of the date
on which it was filed).
2. I have reviewed the contents of this statement with the Company's audit
committee.
3. In this statement under oath, each of the following, if filed on or
before the date of this statement, is a "covered report":
o Annual Report on Form 10-K filed with the Commission on
September 27, 2002 of Southern Union Company;
o all reports on Form 10-Q, all reports on Form 8-K and all
definitive proxy materials of Southern Union Company filed with
the Commission subsequent to the filing of the Form 10-K
identified above; and
o any amendments to any of the foregoing.
GEORGE L. LINDEMANN Subscribed and sworn to before me this 27 day of
- ------------------- September, 2002
George L. Lindemann
Chairman of the Board and JOANNE ZERILLO
Chief Executive Officer --------------------------------
September 27, 2002 Notary Public
My Commission Expires: JULY 2, 2007
-----------------
- --------------------------------------------------------------------------------
Exhibit 99.1-B
STATEMENT UNDER OATH OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
FINANCIAL OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO
EXCHANGE ACT FILINGS
I, David J. Kvapil, Executive Vice President and Chief Financial Officer, state
and attest that:
1. To the best of my knowledge, based upon a review of the covered reports
of Southern Union Company, and, except as corrected or supplemented in a
subsequent covered report:
o no covered report contained an untrue statement of a material
fact as of the end of the period covered by such report (or in
the case of a report on Form 8-K or definitive proxy materials,
as of the date on which it was filed); and
o no covered report omitted to state a material fact necessary to
make the statements in the covered report, in light of the
circumstances under which they were made, not misleading as of
the end of the period covered by such report (or in the case of a
report on Form 8-K or definitive proxy materials, as of the date
on which it was filed).
2. I have reviewed the contents of this statement with the Company's audit
committee.
3. In this statement under oath, each of the following, if filed on or
before the date of this statement, is a "covered report":
o Annual Report on Form 10-K filed with the Commission on
September 27, 2002 of Southern Union Company;
o all reports on Form 10-Q, all reports on Form 8-K and all
definitive proxy materials of Southern Union Company filed with
the Commission subsequent to the filing of the Form 10-K
identified above; and
o any amendments to any of the foregoing.
DAVID J. KVAPIL Subscribed and sworn to before me this 27 day of
- --------------- September 27, 2002.
David J. Kvapil
Executive Vice President and BONNY M. NALLON
Chief Financial Officer ------------------------------
September 27, 2002 Notary Public
My Commission Expires: JUNE 1, 2006
------------------
- --------------------------------------------------------------------------------
Exhibit 99.2-A
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Southern Union Company
("Company") on Form 10-K for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
George L. Lindemann, Chairman of the Board and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of
operations of the Company.
GEORGE L. LINDEMANN
- -------------------
George L. Lindemann
Chairman of the Board and
Chief Executive Officer
September 27, 2002
- --------------------------------------------------------------------------------
Exhibit 99.2-B
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Southern Union Company
("Company") on Form 10-K for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
David J. Kvapil, Executive Vice President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of
operations of the Company.
DAVID J. KVAPIL
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David J. Kvapil
Executive Vice President and
Chief Financial Officer
September 27, 2002
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