-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A8vD4EAVZl5N+BJ4MtYtMVlOAC9XQxC5AwIrNg66RpcbjvZ9tzvo32JzaUv2b7cn 1Fifycx97aVZuyK+TcE6FA== 0000950129-01-000918.txt : 20010223 0000950129-01-000918.hdr.sgml : 20010223 ACCESSION NUMBER: 0000950129-01-000918 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010214 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EL PASO CORP/DE CENTRAL INDEX KEY: 0001066107 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 760568816 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-14365 FILM NUMBER: 1546836 BUSINESS ADDRESS: STREET 1: 1001 LOUISIANA ST STREET 2: EL PASCO ENERGY BLDG CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7134202131 MAIL ADDRESS: STREET 1: 1001 LOUISIANA ST CITY: HOUSTON STATE: TX ZIP: 77002 FORMER COMPANY: FORMER CONFORMED NAME: EL PASO ENERGY CORP/DE DATE OF NAME CHANGE: 19980716 8-K 1 h84209e8-k.txt EL PASO CORPORATION - DATED FEBRUARY 14, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: February 14, 2001 (Date of Earliest Event Reported: November 13, 2000) Commission File Number 1-14365 ---------- EL PASO CORPORATION (Formerly El Paso Energy Corporation) DELAWARE 76-0568816 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) EL PASO BUILDING 1001 LOUISIANA STREET HOUSTON, TEXAS 77002 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (713) 420-2131 2 Item 5. Other Events Over the past several months, we have completed several transactions and encountered a series of events, each of which has impacted our business and operations. Each of these transactions and events is discussed below. Opening of New European Trading Floor In November 2000, we announced that we would begin trading natural gas in Europe from our offices in London. We also announced we would be completing our London trading floor in the first quarter of 2001. Purchase of Texas Midstream Operations On December 22, 2000, we completed the purchase of the natural gas and natural gas liquids businesses of PG&E Gas Transmission, Texas Corporation and PG&E Gas Transmission Teco, Inc. The value of the transaction was approximately $840 million, including assumed debt of $561 million. We will account for the transaction as a purchase and will include the acquired assets and operations in our Field Services segment. Some of these acquired operations may be appropriate for acquisition by El Paso Energy Partners L.P., the master limited partnership of which we are the general partner. In connection with this acquisition, we sold our interest in Oasis Pipeline for approximately $22 million, incurring an after tax loss of approximately $20 million.The businesses we are acquiring consist of 8,500 miles of intrastate natural gas transmission pipelines, nine natural gas processing plants that currently process 1.5 billion cubic feet per day, and a 7.2 Bcf natural gas storage field. They also own significant natural gas liquids pipelines and fractionation facilities. Developments in California The State of California has experienced sharp increases in wholesale power prices and natural gas prices due to energy shortages resulting from of the concurrence of a variety of circumstances, including unusually warm summer weather followed by high winter demand, low gas storage levels, poor hydro-electric power conditions, maintenance downtime of significant generating facilities, and price caps that discouraged power movement from out-of-state into California. The increase in power prices resulted in large cash deficits to the two major California utilities, Southern California Edison and Pacific Gas and Electric. These increased wholesale power prices far exceeded the rates the utilities were allowed to charge their customers. As a result, both utilities accumulated substantial losses and suffered credit downgrades. The utilities filed for emergency rate increases with the California Public Utilities Commission and are working with the state authorities to restore the companies' financial viability. Our primary exposure to the California utilities lies in our Merchant Energy segment. Through late January 2001, Merchant Energy's net receivables from these two utilities, including receivables related to its interests in California power plant investments, were approximately $50 million dollars. Also in connection with the events in California, several consumer groups filed class action suits against shippers, marketers, utility companies and others asserting various claims, including an alleged conspiracy to restrict the flow of natural gas or power into the state. El Paso has been named in several of these suits. We deny both the factual and legal basis of these claims and believe these suits are without merit. Approval of Dividend Increase On January 26, 2001, we announced that our Board of Directors had approved a 3-percent increase to our dividend to $0.2125 per share on our outstanding common stock. The dividend will be payable on April 2, 2001 to shareholders of record on March 2, 2001. 3 Announcement of Record Earnings On January 29, 2001, we announced record 2000 earnings of $644 million, or $2.69 per diluted share, up from $421 million, or $1.80 per diluted share in 1999. The 2000 amounts excluded extraordinary gains on sales of assets and merger-related and asset impairment charges. The 1999 amounts excluded merger-related, asset impairment and other non-recurring charges. Including these charges, our earnings for 2000 were $652 million, or $2.73 per diluted share versus a loss of $255 million, or $1.12 per diluted share in 1999. Revenues for 2000 were $21.9 billion compared to $10.7 billion in 1999. For the fourth quarter 2000, earnings were $456 million, or $0.73 per share, compared to $295 million, or $0.48 per share in the fourth quarter of 1999. Revenue in the quarter increased to $7.5 billion from $2.5 billion for the same period in 1999. Also on January 29, 2001, the Coastal Corporation, the company with whom we recently merged, announced record 2000 net earnings of $2.96 per diluted share, up 29 percent from comparable 1999 earnings of $2.30 per diluted share. Coastal's fourth quarter earnings were $208.3 million, or $0.93 per share, on revenue of $6.1 billion, as compared to earnings of $169 million, or $0.78 per share, on revenue of $3.2 billion for the fourth quarter of 1999. Completion of our Merger with The Coastal Corporation On January 29, 2001, The Coastal Corporation merged with one of our subsidiaries and became a wholly owned subsidiary of El Paso. In the merger, we issued approximately 271 million shares of our common stock in exchange for outstanding shares of Coastal's common stock, Class A common stock and convertible preferred stock. We also issued approximately 4 million shares of our common stock in exchange for Coastal stock options. We have valued the transaction at approximately $24 billion, based on the closing price of our common stock on the New York Stock Exchange on January 29, 2001, including approximately $7 billion of assumed debt and preferred equity. We have accounted for the transaction as a pooling of interests. As part of the FTC approval of the merger, we have agreed to divest our ownership in five pipeline systems-El Paso's Midwestern Gas Transmission system, Coastal's 50% stake in the Empire State pipeline, Coastal's 16% stake in the Iroquois pipeline, Coastal's 50% interest in the Stingray pipeline system, and Coastal's 50% ownership in the UTOS pipeline system. El Paso also divested Coastal's ownership of the Gulfstream natural gas pipeline project. The proceeds from these sales, expected to total approximately $243 million, will be used to pay down debt and to fund growth opportunities for the company. The net earnings impact from these sales is expected to be neutral. Additionally, El Paso Energy Partners, the publicly traded master limited partnership of which we are the general partner, will divest certain offshore assets including its 50% ownership in the UTOS and Stingray pipeline systems, its 100% ownership in the Green Canyon and Tarpon gathering systems, its 25.67% ownership in the Nautilus pipeline systems, its 25.67% ownership in the Manta Ray Offshore gathering system, and its 33.92% interest in the Nemo gathering project, which is currently under construction. Proceeds from the sale of these assets, together with a $29 million cash infusion from El Paso, will be reinvested into new businesses and assets. Coastal is a diversified energy holding company with business operations which include natural gas transmission, storage, gathering, processing and marketing natural gas and oil exploration and production; and petroleum refining, marketing and distribution. Coastal owns interests in approximately 18,000 miles of natural gas pipelines extending across the midwestern and the Rocky Mountain areas of the United States and has proved reserves of 3.6 Tcfe. We have completed a comprehensive review of Coastal's business operations, and will integrate, as much as possible, their operations with ours to increase operating and administrative efficiencies through facilities consolidation and re-engineering, workforce reductions and coordinating purchasing and marketing activities. We have attached as an exhibits 99.1 and 99.2 to this Current Report on Form 8-K, summarized and detailed discussions of our combined businesses and operations. These discussions outline the manner in which we will operate the combined businesses prospectively. 4 Completion of Post-Merger Restructuring On January 30, 2001 we announced the restructuring of our combined workforce following the Coastal merger. In the restructuring, we reduced our combined workforce by approximately 3,285 employees across all locations and across all business units. Attached as an exhibit to this Current Report on Form 8-K is our press release related to this announcement. Corporate Name Change On February 5, 2001 we announced that we changed our name to El Paso Corporation from El Paso Energy Corporation, with the legal name change effective February 7, 2001. Our New York Stock Exchange stock symbol continues to be "EPG." In connection with this announcement, we also introduced our new logo. Analyst Meetings On February 5 and 6, 2001, we conducted meetings with the analyst community in our new 80,000 square foot energy trading floor. At these meetings, we outlined our initiatives for achieving earnings growth in 2001, and discussed strategies to achieve these targets within each of our business units; Merchant Energy, our Pipeline group, Production, and Field Services. At these meetings, we also outlined our telecommunications strategy. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS We have made statements in this document that constitute forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations of El Paso, the Coastal Corporation or the combined company. These statements may relate to, but are not limited to, information or assumptions about earnings per share, capital and other expenditures, dividends, financing plans, capital structure, cash flow, pending legal proceedings and claims, including environmental matters, future economic performance, operating income, cost savings, management's plans, goals and objectives for future operations and growth and markets for the stock of El Paso, Coastal and the combined company. These forward-looking statements generally are accompanied by words such as "intend," "anticipate," "believe," "estimate," "expect," "should" or similar expressions. You should understand that these forward-looking statements are estimates reflecting the best judgment of senior management of El Paso and Coastal, not guarantees of future performance. They are subject to a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from estimates or projections contained in forward-looking statements include, among others, the following: o the risk that earnings may be adversely affected by fluctuating energy prices; o the risk that rates charged to customers may be reduced by governmental authorities; o the highly competitive nature of the natural gas transportation, gathering, processing and storage businesses, the oil and gas exploration and production business, the energy marketing and power generation industries, the crude oil refining and chemical production businesses and the coal mining business; o the risk of favorable customer contracts expiring or being renewed on less attractive terms; o the timing and success of our exploration and development drilling programs, which would affect production levels and reserves; o changes to our estimates of oil, gas and coal reserves; o the risk of financial losses arising out of derivative transactions; o risks incident to the drilling and operation of oil and gas wells; o risks incident to operating crude oil refineries, chemical plants and coal mines; o future drilling, production and development costs, including drilling rig rates; o the costs of environmental liabilities, regulations and litigation; o the impact of operational hazards; o the risk that required regulatory approvals for proposed pipeline, storage and power generation projects may be delayed or may only be granted on terms that are unacceptable or significantly less favorable than anticipated; o the risks associated with future weather conditions; o the risk that Coastal's businesses may not be successfully integrated with El Paso's businesses; o the risk that we may not fully realize the benefits expected to result from the merger; o the impact of the loss of key employees; and o the risk that other firms will further expand into markets in which we operate. 5 In addition, we can give you no assurance that: o we have correctly identified and assessed all of the factors affecting El Paso's or Coastal's businesses; o the publicly available and other information with respect to these factors on which we have based our analysis is complete or correct; o our analysis is correct; or o our strategies, which are based in part on this analysis, will be successful. Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of the date of this Current Report on 8-K. All subsequent written and oral forward-looking statements attributable to El Paso, Coastal, the combined company or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Neither El Paso nor Coastal undertakes any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this confidential offering circular or to reflect the occurrence of unanticipated events. Item 7. Financial Statements and Exhibit Each Exhibit identified below is filed as part of this report. Exhibit Number 3.A - Restated Certificate of Incorporation of El Paso Corporation effective February 7, 2001. 3.B - By-laws of El Paso Corporation currently in effect as amended February 7, 2001. 99.1 - Summarized discussions of our combined businesses and operations 99.2 - Detailed discussions of our combined businesses and operations 6 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. El Paso Corporation Date: February 14, 2001 By: /s/ JEFFREY I. BEASON ------------------------------------ Jeffrey I. Beason Senior Vice President and Controller (Chief Accounting Officer) 7 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.A - Restated Certificate of Incorporation of El Paso Corporation effective February 7, 2001. 3.B - By-laws of El Paso Corporation currently in effect as amended February 7, 2001. 99.1 - Summarized discussions of our combined businesses and operations 99.2 - Detailed discussions of our combined businesses and operations
EX-3.A 2 h84209ex3-a.txt RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.A RESTATED CERTIFICATE OF INCORPORATION OF EL PASO CORPORATION PURSUANT TO SECTION 245 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE El Paso Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify: 1. The original Certificate of Incorporation was filed with the Office of the Secretary of State of the State of Delaware on April 17, 1998. The name under which it was originally incorporated is El Paso Energy Corporation (the "Corporation"). 2. This Restated Certificate of Incorporation has been adopted and approved in accordance with Section 245 of the Delaware General Corporation Law, and pursuant to Section 245 of the Delaware General Corporation Law, this Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Corporation's Restated Certificate of Incorporation as theretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. 3. The text of the Restated Certificate of Incorporation is hereby restated and integrated to read in its entirety as follows: ARTICLE 1. NAME The name of this corporation is El Paso Corporation. ARTICLE 2. REGISTERED OFFICE AND AGENT The address of the registered office of this corporation is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware 19801, and the name of its registered agent at such address is The Corporation Trust Company. 2 ARTICLE 3. PURPOSES The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE 4. SHARES 4.1 The total number of authorized shares of all classes of stock of this corporation consist of 750,000,000 shares of common stock having a par value of $3.00 per share (the "Common Stock") and 50,000,000 shares of preferred stock having a par value of $0.01 per share ("Preferred Stock"). Authority is hereby expressly granted to the Board of Directors to fix by resolution or resolutions any of the designations and the powers, preferences and rights, and the qualifications, limitations or restrictions which are permitted by the General Corporation Law of the State of Delaware in respect of any class or classes of stock or any series of any class of stock of the corporation. 4.2 There shall be designated a series of the corporation's Preferred Stock, as follows: 4.2.1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock," par value $.01 per share, and the number of shares constituting such series shall be 7,500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Junior Participating Preferred Stock to a number less than that of the shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the corporation. 4.2.2. Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock in preference to the holders of shares of Common Stock and any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of January, April, July, and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock in an amount per share (rounded to 2 3 the nearest cent) equal to the greater of (a) $25, or (b) subject to the provision for adjustment hereinafter set forth, 200 times the aggregate per share amount of all cash dividends, and 200 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the corporation shall at any time after July 22, 1998 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $25 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount 3 4 less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. 4.2.3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to 200 votes on all matters submitted to a vote of the stockholders of the corporation. In the event the corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the corporation. (C) (i) If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors. 4 5 (ii) During any default period, such voting right of the holders of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this subsection 4.2.3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chairman of the Board, the President or the Chief Executive Officer of the corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting 5 6 shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this subsection 4.2.3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the Restated Certificate of Incorporation or By-laws irrespective of any increase made pursuant to the provisions of paragraph (C) (ii) of this subsection 4.2.3 (such number being subject, however, to change thereafter in any manner provided by law or in the Restated Certificate of Incorporation or By-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) Except as set forth herein, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 4.2.4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in subsection 4.2.2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the corporation shall not: 6 7 (i) Declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) Declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) Redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock provided that the corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; or (iv) Purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The corporation shall not permit any subsidiary of the corporation to purchase or otherwise acquire for consideration any shares of stock of the corporation unless the corporation could, under paragraph (A) of this subsection 4.2.4, purchase or otherwise acquire such shares at such time and in such manner. 4.2.5. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. 7 8 4.2.6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received per share, the greater of 200 times $75 or 200 times the payment made per share of Common Stock, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 200 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Junior Participating Preferred Stock then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after 8 9 such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 4.2.7. Consolidation, Merger, etc. If the corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property then in any such event the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 200 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event. 4.2.8. Redemption. The shares of Series A Junior Participating Preferred Stock shall not be redeemable. 4.2.9. Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. 4.2.10. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. 4.3 There shall be designated a series of the corporation's Preferred Stock, as follows: Section 1. Designation and Amount. There shall be a series of Preferred Stock of the Company which shall be designated as "Series B Mandatorily Convertible Single Reset Preferred Stock", par value $.01 per share, and the number of shares initially constituting such series shall be 200,000. Such number of shares may be increased by resolution of the Board of Directors to the extent necessary to fulfill 9 10 the Company's obligations to issue additional shares of Series B Mandatorily Convertible Single Reset Preferred Stock pursuant to the Remarketing Agreement (as defined in Section 2 hereof). Such number of shares may be decreased by resolution of the Board of Directors, provided that no decrease shall reduce the number of shares of Series B Mandatorily Convertible Single Reset Preferred Stock to a number less than that of the number of shares then outstanding. Section 2. Definitions. Capitalized terms used herein which are not otherwise defined herein shall have the meaning ascribed thereto in the Company's Restated Certificate of Incorporation. In addition, the following terms shall have the following meanings when used herein: "Average Trading Price" for a security for any given period means an amount equal to (i) the sum of the Closing Price for such security on each Trading Day in such period divided by (ii) the total number of Trading Days in such period. "Board of Directors" shall mean the Board of Directors of the Company. "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which commercial banking institutions in the State of New York or the State of Texas are authorized or obligated by law or executive order to close. "Closing Price" for a security means the closing price for such security on the Trading Day in question (or if such day is not a Trading Day then as of the Trading Day next preceding such day) as reported by Bloomberg L.P., or if not so reported by Bloomberg L.P., as reported by another recognized source selected by the Board of Directors. "Common Stock" shall have the meaning specified in Subsection 6(9) hereof. "Dividend Payment Date" shall have the meaning specified in Subsection 3(1) hereof. "Failed Remarketing" shall have the meaning ascribed to such term in the Remarketing Agreement. "Final Sale Date" shall have the meaning ascribed to such term in the Remarketing Agreement. "junior stock" shall mean (and references to shares ranking "junior to" the Series B Mandatorily Convertible Single Reset Preferred Stock shall refer to), 10 11 with respect to Sections 3 and 7 hereof, the Series A Junior Participating Preferred Stock of the Company, the Common Stock and any other class or series of stock of the Company which by its terms is not entitled to receive any dividends unless all dividends required to have been paid or declared and set apart for payment on the Series B Mandatorily Convertible Single Reset Preferred Stock shall have been so paid or declared and, with respect to Sections 4 and 7 hereof, the Series A Junior Participating Preferred Stock of the Company, the Common Stock and any other class or series of stock of the Company which by its terms is not entitled to receive any assets upon the liquidation, dissolution or winding up of the affairs of the Company until holders of the Series B Mandatorily Convertible Single Reset Preferred Stock shall have received the entire amount to which such holders are entitled upon liquidation, dissolution or winding up. "Limestone Note Trigger Event" shall have the meaning ascribed to such term in the Remarketing Agreement. "Mandatory Conversion" shall have the meaning specified in Subsection 6(1) hereof. "Mandatory Conversion Date" shall have the meaning specified in Subsection 6(1) hereof. "Mandatory Conversion Date Market Price" shall have the meaning specified in Subsection 6(1) hereof. "Mandatory Conversion Rate" shall have the meaning specified in Subsection 6(1) hereof. "Optional Conversion" shall have the meaning specified in Subsection 6(2) hereof. "Optional Conversion Rate" shall have the meaning specified in Subsection 6(2) hereof. "parity stock" shall mean (and references to shares ranking "on a parity with" the Series B Mandatorily Convertible Single Reset Preferred Stock shall refer to), with respect to Sections 3 and 7 hereof, any class or series of stock of the Company which by its terms is entitled to receive payment of dividends on a parity with the Series B Mandatorily Convertible Single Reset Preferred Stock and, with respect to Sections 4 and 7 hereof, any class or series of stock of the Company the holders of which by its terms are entitled to receive assets upon the liquidation, dissolution or winding up of the affairs of the Company on a parity 11 12 with the holders of Series B Mandatorily Convertible Single Reset Preferred Stock. "Principal Market" shall have the meaning ascribed to such term in the Remarketing Agreement. "Rate Reset Date" means the earlier to occur of (A) the consummation of the remarketing of the Initial Shares (as such term is defined in the Remarketing Agreement), which is expected to be on or about the third Trading Day following the Successful Repricing Date, and (B) the date of a Failed Remarketing. "Redemption Event" means the occurrence of any of the following: (i) any consolidation or merger of the Company with or into another corporation or entity, unless in connection with such consolidation or merger the outstanding shares of Common Stock immediately preceding the consummation of such consolidation or merger are converted into, exchanged for or otherwise represent a majority of the outstanding shares of common stock of the surviving or resulting corporation or entity immediately succeeding the consummation of such consolidation or merger or (ii) the Company sells or conveys to another entity (other than a Subsidiary) all or substantially all of the assets of the Company. "Remarketing Agent" shall have the meaning ascribed to such term in the Remarketing Agreement. "Remarketing Agreement" shall mean the El Paso Preferred Stock Remarketing and Registration Rights Agreement dated as of March 27, 2000 among the Company, El Paso Electron Share Trust, Limestone Electron Trust, United States Trust Company of New York, as Indenture Trustee, and Donaldson, Lufkin & Jenrette Securities Corporation, as Initial Remarketing Agent. "Reset Common Yield" shall mean the quotient of (i) the product of (x) 4 and (y) the amount of the ordinary quarterly cash dividend on one share of Common Stock most recently declared prior to the Trigger Date (as appropriately adjusted for the events referred to in Subsection 6(3)(a)), unless subsequent to such declaration and prior to the Trigger Date, the Company has publicly announced a change to, or elimination of, its ordinary quarterly cash dividend (including a filing with the Securities and Exchange Commission including such change or elimination), in which case clause (y) above shall be the amount of such proposed ordinary quarterly cash dividend (or $0.00 if such dividend is to be eliminated), divided by (ii) the Reset Price (provided, however, that if as of the Trigger Date there is more than one class of Common Stock, then the Reset Common Yield shall be calculated with respect to each then outstanding class of Common Stock, and the Reset Common Yield (as used herein) shall be the 12 13 amount calculated with respect to the class of Common Stock resulting in the greatest Reset Common Yield). "Reset Dividend Rate" shall mean an amount per annum per share equal to the product of (i) the sum of (x) the Reset Common Yield (expressed as a percentage), plus (y) 7% and (ii) $5,000.00 (rounded to the nearest cent). "Reset Price" shall mean the higher of (i) the Closing Price of a share of Common Stock on the Trigger Date or (ii) the quotient (rounded up to the nearest cent) of $1,000,000,000 divided by the number, as of the Trigger Date, of the authorized but unissued shares of Common Stock that have not been reserved as of the Trigger Date by the Board of Directors for other purposes, subject to adjustment as provided in Subsection 6(3)(a) hereof. "Rights" means rights or warrants distributed by the Company under a shareholder rights plan or agreement to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Rights Events"), (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock. "Rights Events" shall have the meaning ascribed to such term in the definition of Rights. "senior stock" shall mean (and references to shares ranking "senior to" or "prior to" the Series B Mandatorily Convertible Single Reset Preferred Stock shall refer to), with respect to Sections 3 and 7 hereof, any class or series of stock of the Company by its terms ranking senior to the Series B Mandatorily Convertible Single Reset Preferred Stock in respect of the right to receive dividends and, with respect to Sections 4 and 7 hereof, any class or series of stock of the Company by its terms ranking senior to the Series B Mandatorily Convertible Single Reset Preferred Stock with respect to the right of the holders thereof to receive assets upon the liquidation, dissolution or winding up of the affairs of the Company. "Subsidiary" means any corporation or other entity of which the Company owns, directly or indirectly sufficient securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other individuals performing similar functions. "Successful Repricing Date" shall have the meaning ascribed to such term in the Remarketing Agreement. 13 14 "Threshold Appreciation Price" means the product of (i) the Reset Price as of the time in question and (ii) 1.10. "Trading Day" means a day on which the Principal Market with respect to a security is regularly scheduled to be open for trading. For purposes of this definition, a day on which any such exchange is scheduled to close (as opposed to unexpectedly closing) prior to its regular closing time shall not constitute a Trading Day. "Trigger Date" shall mean the earlier to occur of (A) the Successful Repricing Date and (B) the date of a Failed Remarketing. Section 3. Dividends. (1) The holders of the Series B Mandatorily Convertible Single Reset Preferred Stock shall not be entitled to receive any dividends (nor shall dividends commence to accrue) prior to, or with respect to any period ending prior to, the Rate Reset Date. The holders of the Series B Mandatorily Convertible Single Reset Preferred Stock, in preference to the rights of holders of any junior stock but subject to the rights of holders of any senior stock and parity stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of any funds legally available therefor cumulative cash dividends from the Rate Reset Date at the Reset Dividend Rate, and no more, payable on the dates as set forth in this Section 3. Dividends shall accrue on the Series B Mandatorily Convertible Single Reset Preferred Stock from the Rate Reset Date. Dividends shall be payable quarterly in arrears on each January 1, April 1, July 1, and October 1 commencing on the first such date following the Rate Reset Date (each such date being hereinafter referred to as a "Dividend Payment Date"); provided, that if any such Dividend Payment Date is not a Business Day, then any payment with respect to such Dividend Payment Date shall be payable on the next succeeding Business Day. Each such dividend shall be payable to holders of record as they appear on the books of the Company or any transfer agent for the Series B Mandatorily Convertible Single Reset Preferred Stock on such record dates as shall be fixed by the Board of Directors subject to applicable law (which record date shall be no more than 60 days prior to the date fixed for the payment thereof). Dividends on the Series B Mandatorily Convertible Single Reset Preferred Stock shall accrue on a daily basis commencing on and including the Rate Reset Date, and accrued dividends for each dividend period or portion thereof shall cumulate, to the extent not paid, as of the date on which such dividends were to have been paid. A dividend period shall commence on a Dividend Payment Date or the Rate Reset Date, as the case may be, and continue to the day next preceding the next succeeding Dividend Payment Date. Accumulated unpaid dividends shall not accrue interest. Dividends (or cash amounts equal to accrued and unpaid 14 15 dividends) payable on the Series B Mandatorily Convertible Single Reset Preferred Stock for any period less than or more than a full quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in any period less than one month. Dividends on the Series B Mandatorily Convertible Single Reset Preferred Stock shall accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Dividends in arrears for any past dividend periods or portions thereof may be declared and paid at any time without reference to any regular Dividend Payment Date to holders of record on such date as shall be fixed by the Board of Directors subject to applicable law. As provided in Subsection 6(1), dividends on the Series B Mandatorily Convertible Single Reset Preferred Stock shall cease to accrue on the day immediately preceding the Mandatory Conversion Date and, in the case of an Optional Redemption of the Series B Mandatorily Convertible Single Reset Preferred Stock, dividends shall accrue only to the extent provided in Subsection 6(2). (2) As long as any shares of Series B Mandatorily Convertible Single Reset Preferred Stock are outstanding, no dividends or other distributions for any dividend period (other than dividends or other distributions payable in shares of, or warrants, rights or options exercisable for or convertible into, junior stock, and cash in lieu of fractional shares of such junior stock in connection with any such dividend or distribution) will be paid on any junior stock unless: (i) full dividends, if any, on all outstanding shares of senior stock, parity stock and Series B Mandatorily Convertible Single Reset Preferred Stock have been paid, or declared and set aside for payment, for all dividend periods terminating on or prior to the payment date of such junior stock dividend or distribution, to the extent such dividends on senior stock, parity stock or Series B Mandatorily Convertible Single Reset Preferred Stock are cumulative; (ii) the Company has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement, and sinking funds, if any, for any outstanding shares of senior stock or parity stock; and (iii) the Company is not in default on any of its obligations to redeem any outstanding shares of senior stock or parity stock. In addition, as long as any Series B Mandatorily Convertible Single Reset Preferred Stock is outstanding, no shares of any junior stock may be purchased, redeemed, or otherwise acquired by the Company or any Subsidiary (except in connection with a reclassification or exchange of any junior stock through the issuance of other junior stock and cash in lieu of fractional shares of such junior stock in connection therewith) and except for the acquisition of shares of any junior stock pursuant to contractual obligations binding against the Company or any Subsidiary that were entered into prior to the date of the first issuance of shares of Series B Mandatorily Convertible Single Reset Preferred Stock or 15 16 pursuant to contractual obligations that are entered into at a time subsequent thereto when such acquisitions of shares could be made pursuant to this Subsection 6(2) nor may any funds be set aside or made available for any sinking fund for the purchase or redemption of any junior stock unless: (i) full dividends, if any, on all outstanding shares of senior stock, parity stock and Series B Mandatorily Convertible Single Reset Preferred Stock have been paid, or declared and set aside for payment, for all dividend periods terminating on or prior to the date of such purchase, redemption or acquisition, to the extent dividends on such senior stock, parity stock or Series B Mandatorily Convertible Single Reset Preferred Stock dividends are cumulative, (ii) the Company has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement, and sinking funds, if any, for any outstanding shares of senior stock or parity stock; and (iii) the Company is not in default on any of its obligations to redeem any outstanding shares of senior stock or parity stock. Subject to the provisions described above, such dividends or other distributions (payable in cash, property, or junior stock) as may be determined from time to time by the Board of Directors may be declared and paid on the shares of any junior stock and from time to time junior stock may be purchased, redeemed or otherwise acquired by the Company or any Subsidiary. In the event of the declaration and payment of any such dividends or other distributions, the holders of such junior stock will be entitled, to the exclusion of holders of any outstanding senior stock or parity stock, to share therein according to their respective interests. (3) As long as any Series B Mandatorily Convertible Single Reset Preferred Stock is outstanding, dividends or other distributions for any dividend period may not be paid on any outstanding shares of parity stock (other than dividends or other distributions payable in shares of, or warrants, rights or options exercisable for or convertible into, parity stock or junior stock and cash in lieu of fractional shares of such parity stock or junior stock in connection with any such dividend), unless either: (a)(i) full dividends, if any, on all outstanding shares of senior stock, parity stock and Series B Mandatorily Convertible Single Reset Preferred Stock have been paid, or declared and set aside for payment, for all dividend periods terminating on or prior to the payment date of such dividend or distribution with respect to such senior stock, parity stock or Series B Mandatorily Convertible Single Reset Preferred Stock, to the extent dividends on such senior stock, parity stock or Series B Mandatorily Convertible Single Reset Preferred Stock are cumulative; (ii) the Company has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement and sinking funds, if any, for any outstanding shares of senior stock or parity stock; and (iii) the Company is not in default on any of its obligations to redeem any outstanding shares of senior stock or parity stock; or (b) any such dividends are declared and paid pro rata so that the amounts of any dividends declared and paid per share on outstanding Series B Mandatorily Convertible Single Reset Preferred 16 17 Stock and each share of such parity stock will in all cases bear to each other the same ratio that accrued and unpaid dividends (including any accumulation with respect to unpaid dividends for prior dividend periods, if such dividends are cumulative) per share of outstanding Series B Mandatorily Convertible Single Reset Preferred Stock and such outstanding shares of parity stock bear to each other. In addition, as long as any Series B Mandatorily Convertible Single Reset Preferred Stock is outstanding, no shares of any parity stock may be purchased, redeemed or otherwise acquired by the Company or any Subsidiary (except with any parity stock, junior stock and cash in lieu of fractional shares of such parity stock or junior stock in connection therewith and except for the acquisition of shares of any parity stock pursuant to contractual obligations binding against the Company or any Subsidiary that were entered into prior to the date of the first issuance of shares of Series B Mandatorily Convertible Single Reset Preferred Stock or pursuant to contractual obligations that are entered into at a time subsequent thereto when such acquisitions of shares could be made pursuant to this Subsection 6(3)) unless: (i) full dividends, if any, on all outstanding shares of senior stock, parity stock and Series B Mandatorily Convertible Single Reset Preferred Stock have been paid, or declared and set aside for payment, for all dividend periods terminating on or prior to the date of such purchase, redemption or other acquisition, to the extent dividends on such senior stock, parity stock or Series B Mandatorily Convertible Single Reset Preferred Stock are cumulative; (ii) the Company has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement, and sinking funds, if any, for any outstanding shares of senior stock or parity stock; and (iii) the Company is not in default of any of its obligations to redeem any outstanding shares of senior stock or parity stock. (4) Any dividend payment made on the Series B Mandatorily Convertible Single Reset Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to the Series B Mandatorily Convertible Single Reset Preferred Stock. (5) All dividends paid with respect to the Series B Mandatorily Convertible Single Reset Preferred Stock shall be paid pro rata to the holders entitled thereto. Section 4. Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, then, before any distribution or payments shall be made to the holders of any junior stock, but subject to the rights of any senior stock or parity stock, the holders of the Series B Mandatorily Convertible Single Reset Preferred Stock shall be entitled to be paid in full in cash the amount of $5,000.00 per share, together with, to the extent 17 18 lawful, accrued dividends to the date of such distribution or payment, whether or not earned or declared. If such payment shall have been made in full to the holders of the Series B Mandatorily Convertible Single Reset Preferred Stock and all preferential payments or distributions to be made with respect to senior stock and parity stock have been made in full, the remaining assets and funds of the Company shall be distributed among the holders of the junior stock, according to their respective rights and preferences and in each case according to their respective shares. If, upon any liquidation, dissolution or winding up of the affairs of the Company, the amounts so payable are not paid in full to the holders of all shares of the Series B Mandatorily Convertible Single Reset Preferred Stock and parity stock, the holders of the Series B Mandatorily Convertible Single Reset Preferred Stock, together with holders of parity stock, shall share ratably in any distribution of assets in proportion to the full amounts to which they would otherwise be respectively entitled. Neither the consolidation or merger of the Company with another entity, nor the sale, lease, transfer, exchange or conveyance of all or a part of its assets, shall be deemed a liquidation, dissolution or winding up of the affairs of the Company within the meaning of the foregoing provisions of this Section 4. Section 5. Redemption. The Company shall have the right to redeem all, but not less than all, of the outstanding Series B Mandatorily Convertible Single Reset Preferred Stock (x) at any time following a Redemption Event and prior to a Trigger Date and (y) at any time prior to a Limestone Note Trigger Event, in each case in cash at the redemption price of $5,000.00 per share (the "Redemption Price"). Except as set forth in the preceding sentence and to the extent contemplated by Section 6(1)(y), the Company shall not have the right to redeem any or all of the Series B Mandatorily Convertible Single Reset Preferred Stock at any other time. Notice of a redemption of the Series B Mandatorily Convertible Single Reset Preferred Stock shall be provided in writing to the holders of record of such shares at their respective addresses as they shall appear on the books of the Company at least two Business Days and not more than 60 calendar days prior to the date fixed for redemption. Each such notice of redemption shall specify the date fixed for redemption and the Redemption Price. On or after the date fixed for redemption as stated in such notice, each holder of the shares called for redemption shall surrender the certificate evidencing such shares to the Company and shall thereupon be entitled to receive payment of the Redemption Price. If, on the date fixed for redemption, funds necessary for the redemption shall be available therefor and shall have been irrevocably deposited or set aside, then, notwithstanding that the certificates evidencing any shares so called for redemption shall not have been surrendered, the shares shall no longer be deemed outstanding, and all rights whatsoever with respect to the shares so called for redemption (except the right of the holders to receive the Redemption Price without interest upon surrender of their certificates therefor) shall terminate. 18 19 Section 6. Conversion. (1) Unless previously converted at the option of the holder in accordance with the provisions hereof, on the earlier to occur of (i) the third anniversary of the Rate Reset Date and (ii) March 15, 2006, or if such date is not a Business Day, the next succeeding day that is a Business Day (the "Mandatory Conversion Date"), each outstanding share of Series B Mandatorily Convertible Single Reset Preferred Stock shall, without additional notice to holders thereof, convert automatically (the "Mandatory Conversion") into (x) a number of fully paid and non-assessable shares of Common Stock at the Mandatory Conversion Rate (as defined herein) in effect on the Mandatory Conversion Date; and (y) the right to receive an amount in cash equal to all accrued and unpaid dividends on such share of Series B Mandatorily Convertible Single Reset Preferred Stock (other than previously declared dividends payable to a holder of record as of a prior date) to and including the day immediately prior to the Mandatory Conversion Date, whether or not earned or declared, out of funds legally available therefor (and if sufficient funds are not then legally available therefor, the Company shall pay such amount, if any, pro rata (based on the amounts so owing) to the holders of the Series B Mandatorily Convertible Single Reset Preferred Stock and any parity stock then entitled to similar payment as is then legally available therefor and shall pay any deficiency thereafter as soon as funds are legally available therefor). The "Mandatory Conversion Rate" is equal to the following number of shares of Common Stock per share of Series B Mandatorily Convertible Single Reset Preferred Stock: (a) if the Mandatory Conversion Date Market Price is greater than or equal to the Threshold Appreciation Price, the quotient of (i) $5,000.00 divided by (ii) the Threshold Appreciation Price, (b) if the Mandatory Conversion Date Market Price is less than the Threshold Appreciation Price but is greater than the Reset Price, the quotient of $5,000.00 divided by the Mandatory Conversion Date Market Price and (c) if the Mandatory Conversion Date Market Price is less than or equal to the Reset Price, the quotient of $5,000.00 divided by the Reset Price, subject to adjustment as provided in this Section 6. "Mandatory Conversion Date Market Price" shall mean the Average Trading Price per share of Common Stock for the 20 consecutive Trading Days immediately prior to, but not including, the Mandatory Conversion Date; provided, however, that if an event occurs during such 20 consecutive Trading Days that would require an adjustment to the Mandatory Conversion Rate pursuant to Subsections 6(3) or 6(5), the Board of Directors may make such adjustments to the Average Trading Price for shares of Common Stock for such 20 Trading Day period as it reasonably deems appropriate to effectuate the intent of the adjustments in Subsections 6(3) and 6(5), in which case any such determination by the Board of Directors shall be set forth in a resolution of the Board of Directors and shall be conclusive absent manifest error. 19 20 Dividends on the Series B Mandatorily Convertible Single Reset Preferred Stock shall cease to accrue on the day immediately preceding, and the Series B Mandatorily Convertible Single Reset Preferred Stock shall cease to be outstanding on, the Mandatory Conversion Date. The Company shall make arrangements as it deems appropriate for the issuance of certificates representing Common Stock and for the payment of cash in respect of such accrued and unpaid dividends, if any, or cash in lieu of fractional shares, if any, in exchange for and contingent upon surrender of certificates representing the Series B Mandatorily Convertible Single Reset Preferred Stock, and the Company may defer the payment of dividends on such Common Stock and the voting thereof until, and make such payment and voting contingent upon, the surrender of such certificates representing the Series B Mandatorily Convertible Single Reset Preferred Stock, provided that the Company shall give the holders of the Series B Mandatorily Convertible Single Reset Preferred Stock such notice of any such actions as the Company deems appropriate and upon such surrender such holders shall be entitled to receive such dividends declared and paid on such Common Stock subsequent to the Mandatory Conversion Date. Amounts payable in cash in respect of the Series B Mandatorily Convertible Single Reset Preferred Stock or in respect of such Common Stock shall not bear interest. (2) Shares of Series B Mandatorily Convertible Single Reset Preferred Stock shall be convertible, at the option of the holders thereof ("Optional Conversion") at any time on or after the Rate Reset Date and before the Mandatory Conversion Date, into Common Stock at a rate equal to the number of shares of Common Stock per share of Series B Mandatorily Convertible Single Reset Preferred Stock (the "Optional Conversion Rate") equal to the quotient of (i) $5,000.00 divided by (ii) the Threshold Appreciation Price, subject to adjustment as set forth in this Section 6. Prior to the Rate Reset Date, the Optional Conversion Rate shall be 122.231 shares of Common Stock for each share of Series B Mandatorily Convertible Single Reset Preferred Stock, subject to adjustment as set forth in this Section 6. Optional Conversion of shares of Series B Mandatorily Convertible Single Reset Preferred Stock may be effected by delivering certificates evidencing such shares of Series B Mandatorily Convertible Single Reset Preferred Stock, together with written notice of conversion and, if required by the Company, a proper assignment of such certificates to the Company or in blank (and, if applicable as provided in the following paragraph, cash payment of an amount equal to the dividends attributable to the current dividend period payable on such shares), to the office of the transfer agent for the shares of Series B Mandatorily Convertible Single Reset Preferred Stock or to any other office or agency maintained by the Company for that purpose and otherwise in accordance with Optional Conversion procedures established by the Company. Each Optional Conversion shall be deemed to have been effected immediately before the close of 20 21 business on the date on which the foregoing requirements shall have been satisfied. The Optional Conversion shall be at the Optional Conversion Rate in effect at such time and on such date. Holders of shares of Series B Mandatorily Convertible Single Reset Preferred Stock at the close of business on a record date for any payment of declared dividends shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date or other date fixed for payment of dividends notwithstanding the Optional Conversion of such shares following such record date and on or prior to such Dividend Payment Date or other date fixed for payment of dividends. However, shares of Series B Mandatorily Convertible Single Reset Preferred Stock surrendered for Optional Conversion after the close of business on a record date for any payment of declared dividends and before the opening of business on the next succeeding Dividend Payment Date or other date fixed for payment of dividends must be accompanied by payment in cash of an amount equal to the dividends attributable to the current dividend period payable on such shares on such next succeeding Dividend Payment Date or other date fixed for payment of dividends. Except as provided in this Subsection 6(2), upon any Optional Conversion, the Company shall make no payment of or allowance for unpaid dividends, whether or not in arrears, on such converted shares of Series B Mandatorily Convertible Single Reset Preferred Stock as to which Optional Conversion has been effected or for previously declared dividends or distributions on the shares of Common Stock issued upon such Optional Conversion. (3) The Optional Conversion Rate shall be adjusted from time to time and the Mandatory Conversion Rate shall be adjusted from time to time after the Rate Reset Date in respect of events occurring after the Rate Reset Date, as follows: (a) In case the Company shall (i) pay a dividend on its Common Stock in other Common Stock, (ii) subdivide or split its outstanding Common Stock into a greater number of shares, (iii) combine its outstanding Common Stock into a smaller number of Common Stock, or (iv) issue by reclassification of its Common Stock any other Common Stock (including in connection with a merger in which the Company is a surviving corporation), then, in any such event, (1) the Mandatory Conversion Rate in effect immediately prior to such event shall be adjusted such that the Reset Price shall be adjusted by multiplying it by a fraction (which fraction and all other fractions referred to herein may be improper fractions), the numerator of which is one and the denominator of which is the number of shares of Common Stock that a holder of one share of Common Stock prior to any event described above would hold after such event (assuming the issuance of fractional shares) (the "Recapitalization Adjustment Ratio"), and (2) the Optional Conversion Rate in effect immediately prior to such event shall be adjusted by multiplying it by a fraction, the numerator of which is one and the 21 22 denominator of which is the Recapitalization Adjustment Ratio. Such adjustment shall become effective immediately after the effective date of any such event (or the earlier record date in the case of any such dividend) whenever any of the events listed above shall occur. (b) In case the Company shall issue rights or warrants to all holders of its Common Stock entitling them (for a period, except in the case of Rights, expiring within 45 days after the record date for determination of the shareholders entitled to receive such rights or warrants) to subscribe for or purchase Common Stock at a price per share of Common Stock less than the current market price per share of Common Stock (as defined in Subsection 6(4)) on such record date, then in each such case the Mandatory Conversion Rate on the date of such issuance shall be adjusted such that the Reset Price shall be adjusted by multiplying it by a fraction the numerator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (y) the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at the Average Trading Price for a share of Common Stock on the record date for such issuance, and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (y) the number of additional shares of Common Stock offered for subscription or purchase pursuant to such rights or warrants (the "Anti-Dilution Adjustment Ratio"); and (B) the Optional Conversion Rate in effect on the record date described below shall be adjusted by multiplying it by a fraction, the numerator of which is one and the denominator of which is the Anti-Dilution Adjustment Ratio. For purposes of this Subsection 6(3)(b), the issuance of rights or warrants to subscribe for or purchase securities exercisable for, convertible into, or exchangeable for, shares of Common Stock shall be deemed to be the issuance of rights or warrants to purchase the shares of Common Stock into which such securities are exercisable, convertible or exchangeable at an aggregate offering price equal to the aggregate offering price of such securities plus the minimum aggregate amount (if any) payable upon the exercise, conversion or exchange of such securities. Such adjustment shall become effective at the opening of business on the Business Day next following the record date for such rights or warrants. To the extent that any shares of Common Stock, or securities exercisable for, convertible into, or exchangeable for, shares of Common Stock so offered for subscription or purchase are not so subscribed or purchased by the expiration of such rights or warrants, the Mandatory Conversion Rate and the Optional Conversion Rate shall each be readjusted to the rates or amounts, respectively, which would then be in effect, had the adjustment made upon the issuance of such rights or warrants been made upon the basis of the issuance of rights or warrants in respect of only the number of shares of Common Stock and 22 23 securities exercisable for, convertible into, or exchangeable for, shares of Common Stock actually issued upon exercise of such rights or warrants. (c) If the Company shall pay a dividend or make a distribution to all holders of its Common Stock consisting of evidences of its indebtedness or other assets (including capital shares of the Company other than Common Stock but excluding any Ordinary Cash Dividends (as defined below)), or shall issue to all holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (other than those referred to in Subsection 6(b)), then in each such case the Mandatory Conversion Rate in effect immediately prior to such event shall be adjusted such that the Reset Price shall be adjusted by multiplying it by a fraction, the numerator of which shall be the Average Trading Price for a share of Common Stock on such record date, minus the fair market value as of such record date of the portion of evidences of indebtedness or other assets so distributed, or of such subscription rights or warrants, applicable to one share of Common Stock (provided that such numerator shall never be less than $1.00) and the denominator of which shall be the Average Trading Price for a share of Common Stock on such record date (the "Distribution Adjustment Ratio"); and (B) the Optional Conversion Rate in effect immediately prior to such event shall be adjusted by multiplying it by a fraction, the numerator of which is one and the denominator of which is the Distribution Adjustment Ratio. Such adjustment shall become effective on the opening of business on the Business Day next following the record date for such dividend or distribution or the determination of shareholders entitled to receive such dividend or distribution or rights or warrants, as the case may be. "Ordinary Cash Dividends" shall mean (i) any regular cash dividend on the Common Stock that does not exceed the per share amount of immediately preceding regular cash dividend on the Common Stock (as adjusted to appropriately reflect any of the events referred to in Subsection 6(3)(a)) and (ii) any other cash dividend or distribution which, when combined on a per share basis with the per share amount of all other cash dividends and distributions paid on the Common Stock during the 365-day period ending on the date of declaration of such dividend or distribution (as adjusted to appropriately reflect any of the events referred to in Subsection 6(3)(a) and excluding cash dividends or distributions that resulted in an adjustment to the Mandatory Conversion Rate or the Optional Conversion Rate), does not exceed 10% of the current market price per Common Stock (determined pursuant to Subsection 6(4)) on the Trading Day immediately preceding the date of declaration of such dividend or distribution. (4) For the purpose of any computation under Subsection 6(3), the "current market price per share of Common Stock" on any date in question shall mean the Average Trading Price for shares of Common Stock for the 15 consecutive Trading Days ending on the earlier of the day in question and, if applicable, the day before the "ex" date with respect to the issuance or distribution requiring such 23 24 computation; provided, however, that if another event occurs that would require an adjustment pursuant to Subsection 6(3), the Board of Directors may make such adjustments to the Average Trading Price for shares of Common Stock during such 15 Trading Day period as it reasonably deems appropriate to effectuate the intent of the adjustments in Subsection 6(3), in which case any such determination by the Board of Directors shall be set forth in a Board resolution and shall be conclusive absent manifest error. For purposes of this Subsection, the term "ex" date, when used with respect to any issuance or distribution, means the first date on which the shares of Common Stock trade regular way on the relevant exchange or in the relevant market from which the Average Trading Price was obtained without the right to receive such issuance or distribution. For the purpose of any computation under Subsection 6(3), the "fair market value" of any assets, evidences of indebtedness, subscription rights or warrants on any date in question: (i) in the event any such item is a publicly traded security ("Publicly Traded Security"), shall be determined for such date pursuant to the provisions of this Subsection 6(4) for determination of the "current market price per share of Common Stock", except that (x) each reference therein to "Common Stock" shall be deemed to mean such Publicly Traded Security, and (y) if such Publicly Traded Security does not trade on a "when issued" basis for the 15 consecutive Trading Days preceding the "ex" date, such determination shall be made for the period of 15 consecutive Trading Days commencing on the "ex" date; and (ii) in the event any such item is not a Publicly Traded Security, shall be reasonably determined in good faith for such date by the Board of Directors, as evidenced by a resolution of the Board, whose determination shall be conclusive absent manifest error. (5) In any case of any reclassification of Common Stock (other than a reclassification of the Common Stock referred to in Subsection 6(3)(a)); any consolidation or merger of the Company with or into another company or other entity (other than a merger resulting in a reclassification of the Common Stock referred to in Subsection 6(3)(a)); or any sale or conveyance to another entity (other than a Subsidiary) of all or substantially all of the assets of the Company (any such event referred to herein as a "Transaction"), then the Optional Conversion Rate and Mandatory Conversion Rate shall be adjusted so that after consummation of such a Transaction the holders of shares of Series B Mandatorily Convertible Single Reset Preferred Stock will receive, in lieu of the number of shares of Common Stock which such holder would have received upon conversion but for such Transaction, the kind and amount of securities, cash and other property receivable upon consummation of such Transaction by a holder of such number of shares of Common Stock, subject to further adjustment as provided in this Section 6, including without limitation, an adjustment to the Optional Conversion Rate on the Rate Reset Date if such Transaction occurs prior to the Rate Reset Date. On and after the consummation of any such Transaction, the Mandatory Conversion Date Market Price, which shall be used for purposes of 24 25 the determination as to which of clauses (a), (b) or (c) of the definition of Mandatory Conversion Rate applies, shall mean the sum of (i) the product of the Average Trading Price of any Publicly Traded Security received upon consummation of such Transaction for the 20 consecutive Trading Days immediately prior to, but not including, the Mandatory Conversion Date multiplied by the fraction of such security received in such Transaction per share of Common Stock (assuming the issuance of fractional shares) plus (ii) the fair market value of the cash and other property received upon consummation of such Transaction per share of Common Stock as of the day preceding the Mandatory Conversion Date as determined in accordance with Subsection 6(4). In determining the kind and amount of securities, cash or other property receivable upon consummation of such Transaction by a holder of shares of Common Stock, it shall be assumed that such holder is not a person or entity with which the Company consolidated or into which the Company was merged or which merged into the Company, as the case may be, or an affiliate of any such Person and that such holder of Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash, or other property receivable upon consummation of such transaction (provided that, if the kind or amount of securities, cash, or other property receivable upon consummation of such Transaction is not the same for each non-electing share, then the kind and amount of securities, cash, or other property receivable upon consummation of such transaction for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). In the event of such a reclassification, consolidation, merger, sale or conveyance, effective provisions shall be made in the certificate of incorporation or similar document of the resulting or surviving Company or entity so that the conversion rate applicable to any securities or property into which the shares of the Series B Mandatorily Convertible Single Reset Preferred Stock shall then be convertible shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections 6(3)(a), 6(3)(b) and 6(3)(c) inclusive, and the other provisions of this Section 6 with respect to the Common Stock shall apply on terms as nearly equivalent as practicable to any such other securities and property deliverable upon conversion of shares of Series B Mandatorily Convertible Single Reset Preferred Stock. (6) Whenever any adjustments are required in the shares of Common Stock into which each share of Series B Mandatorily Convertible Single Reset Preferred Stock is convertible, the Company shall forthwith (a) compute the adjusted Mandatory Conversion Rate and Optional Conversion Rate in accordance herewith and prepare a certificate signed by an officer of the Company setting forth the adjusted Mandatory Conversion Rate and the Optional Conversion Rate, describing in reasonable detail the method of calculation used and the facts 25 26 requiring such adjustment and upon which such adjustment is based, which certificate shall be conclusive, final and binding evidence of the correctness of the adjustment and file with the transfer agent of the Series B Mandatorily Convertible Single Reset Preferred Stock such certificate and (b) cause a copy of such certificate to be mailed to each holder of record of the Series B Mandatorily Convertible Single Reset Preferred Stock as of or promptly after the effective date of such adjustment and, with respect to adjustments applicable after the Rate Reset Date, make a prompt public announcement of such adjustment. (7) The Company shall at all times reserve and keep available, free from preemptive rights out of its authorized but unissued shares of Common Stock for the purpose of issuance upon conversion of the Series B Mandatorily Convertible Single Reset Preferred Stock a number of shares of Common Stock equal to the product of (i) the number of shares of Common Stock then deliverable at such time upon an Optional Conversion of all shares of the Series B Mandatorily Convertible Single Reset Preferred Stock multiplied by (ii) 1.10. (8) The Company will pay any and all documentary stamp or similar issue or transfer taxes that may be payable in respect of the issuance or delivery of shares of Common Stock on conversion of shares of the Series B Mandatorily Convertible Single Reset Preferred Stock pursuant to this Section 6. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involving the issue and delivery of shares of Common Stock in the name other than in that which the shares of Series B Mandatorily Convertible Single Reset Preferred Stock so converted were registered and no such issue and delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company, that such tax has been paid. (9) For the purpose of this Section 6, the term "Common Stock" shall include any shares of the Company of any class or series which has no preference or priority in the payment of dividends or in the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. However, Common Stock issuable upon conversion of the Series B Mandatorily Convertible Single Reset Preferred Stock shall include only shares of the class designated as Common Stock as of the original date of issuance of the Series B Mandatorily Convertible Single Reset Preferred Stock, or shares of the Company of any classes or series resulting from any reclassification or reclassifications thereof (including reclassifications referred to in clause (iv) of Subsection 6(3)(a)) and which have no preference or priority in the payment of dividends or in the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company, provided 26 27 that, if at any time, there shall be more than one such resulting class or series, the shares of such class and series then so issuable shall be in the same proportion, if possible, or if not possible, in substantially the same proportion which the total number of shares of such class and series resulting from all such reclassifications bears to the total number of shares of all classes and series resulting from all such reclassifications. (10) No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series B Mandatorily Convertible Single Reset Preferred Stock. If any such conversion would otherwise require the issuance of a fractional share, an amount equal to such fraction multiplied by the current market price per share of Common Stock (determined as provided in Subsection 6(4)) of the Common Stock on the date of conversion shall be paid to the holder in cash by the Company. If on such date there is no current market price per share of Common Stock, the fair market value of a share of Common Stock (determined as provided in Subsection 6(4)) on such date, shall be used. If more than one share of Series B Mandatorily Convertible Single Reset Preferred Stock shall be surrendered for conversion at one time or for the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series B Mandatorily Convertible Single Reset Preferred Stock so surrendered. (11) All shares of the Series B Mandatorily Convertible Single Reset Preferred Stock purchased or otherwise acquired by the Company (including shares surrendered for conversion) shall be canceled and thereupon restored to the status of authorized but unissued shares of Preferred Stock undesignated as to series. (12) No adjustment in the Mandatory Conversion Rate and the Optional Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this Subsection 6(12)) would require an increase or decrease of at least 1% in the number of shares of Common Stock into which each share of the Series B Mandatorily Convertible Single Reset Preferred Stock is then convertible; provided, however, that any adjustments which by reason of this Subsection 6(12) are not required to be made shall be carried forward and taken into account in any subsequent adjustment and provided further that any adjustment shall be required and made in accordance with the provisions of Subsection 6(3) not later than such time as may be required in order to preserve the tax free nature of a distribution to the holders of shares of Common Stock. If any action or transaction would require adjustment to the Mandatory Conversion Rate or the Optional Conversion Rate pursuant to this Section 6, only one adjustment shall be made and such adjustment shall be the amount of the adjustment that has the highest absolute value. All calculations under this Section 6 shall be made to the nearest one-hundredth of a share of Common Stock. 27 28 (13) The Board of Directors may make such upward adjustments in the Mandatory Conversion Rate and the Optional Conversion Rate, in addition to those required by this Section 6, as shall be determined by the Board of Directors, as evidenced by a resolution of the Board of Directors, to be advisable in order that any stock dividends, subdivisions of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock (or any transaction that could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal Revenue Code of 1986, as amended) made by the Company to its stockholders after the Rate Reset Date shall not be taxable. The determination of the Board of Directors as to whether an adjustment should be made pursuant to the provisions of this Subsection 6(13), and if so, as to what adjustment should be made and when, shall be conclusive, final and binding on the Company and all stockholders of the Company. (14) In any case in which Section 6 shall require that an adjustment as a result of any event become effective at the opening of business on the Business Day next following a record date and the date fixed for conversion occurs after such record date, but before the occurrence of such event, the Company may, in its sole discretion, elect to defer (A) issuing to the holder of any converted Series B Mandatorily Convertible Single Reset Preferred Stock the additional shares of Common Stock issuable upon such conversion over the shares of Common Stock issuable before giving effect to such adjustments and (B) paying to such holder any amount in cash in lieu of a fractional share of Common Stock pursuant to Subsection 6(10), in each case until after the occurrence of such event. (15) Notwithstanding the foregoing provisions of this Section 6, no adjustment of the Optional Conversion Rate or the Mandatory Conversion Rate shall be required to be made upon the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any such plan or upon the issuance of shares of Common Stock (or securities, rights, warrants, options or similar rights, which are convertible or exercisable for shares of Common Stock) pursuant to any compensatory plan of the Company. (16) Notwithstanding any other provision of this Section 6, the issuance or distribution of Rights shall not be deemed to constitute an issuance or a distribution or dividend of rights, warrants, or other securities to which any of the adjustment provisions described above applies until the occurrence of the earliest Rights Event. 28 29 (17) For purposes of this Section 6, shares of Common Stock owned by, or held for the account of, the Company, a Subsidiary or another entity of which a majority of the common stock or common equity interests are owned, directly or indirectly, by the Company shall be deemed to be not outstanding. Section 7. Voting Rights. The holders of Series B Mandatorily Convertible Single Reset Preferred Stock shall have no right to vote except as otherwise specifically provided herein, in the Company's Restated Certificate of Incorporation or as required by statute. (1) So long as any shares of Series B Mandatorily Convertible Single Reset Preferred Stock are outstanding, in addition to any other vote or consent of shareholders required in the Company's Restated Certificate of Incorporation by law, the affirmative vote of the holders of at least a majority of the Series B Mandatorily Convertible Single Reset Preferred Stock, given in person or by proxy, either pursuant to a consent in writing without a meeting (if permitted by law) and the Company's Restated Certificate of Incorporation or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (a) any amendment, alteration or repeal of any of the provisions of the Company's Restated Certificate of Incorporation which affects adversely the powers, rights or preferences of the holders of the Series B Mandatorily Convertible Single Reset Preferred Stock or reduces the minimum time required for any notice to which holders of Series B Mandatorily Convertible Single Reset Preferred Stock then outstanding may be entitled; provided, that the amendment of the provisions of the Company's Restated Certificate of Incorporation so as to authorize or create, or to increase the authorized amount of any junior stock or parity stock (including additional shares of Series B Mandatorily Convertible Single Reset Preferred Stock) shall not be deemed to affect adversely the powers, rights or preferences of the holders of the Series B Mandatorily Convertible Single Reset Preferred Stock and shall not be subject to approval by the holders of the Series B Mandatorily Convertible Single Reset Preferred Stock and such holders shall not be entitled to vote thereon to the fullest extent permitted by law. (b) the authorization, creation or issuance of, or the increase in the authorized amount of, any stock of any class or series, or any security convertible into stock of any class or series, ranking senior to the Series B Mandatorily Convertible Single Reset Preferred Stock; or (c) the merger or consolidation of the Company with or into any other corporation or other entity, unless in connection with such merger or consolidation each holder of shares of Series B Mandatorily Convertible Single Reset Preferred Stock immediately preceding such merger or consolidation shall 29 30 either (I) with respect to a merger or consolidation consummated prior to, on or after the Rate Reset Date, receive or continue to hold in the surviving or resulting corporation or other entity the same number of shares, with substantially the same rights and preferences (except as contemplated by Subsection 6(5) and except for those rights and preferences that could be affected without the vote of the holders of the Series B Mandatorily Convertible Single Reset Preferred Stock, such as the authorization and issuance of parity stock or junior stock), as correspond to the shares of Series B Mandatorily Convertible Single Reset Preferred Stock held immediately prior to such merger or consolidation or (II) with respect to a merger or consolidation consummated after the Rate Reset Date, receive the kind and amount of securities, cash and other property that would have been receivable upon consummation of such merger or consolidation by such holder (subject to the assumptions set forth in Subsection 6(5)) if the Mandatory Conversion had occurred immediately prior to the consummation of such merger or consolidation and the Mandatory Conversion Rate was determined as of such time (and if clause (I) or (II) are applicable, then such merger or consolidation or shall not be subject to approval by the holders of the Series B Mandatorily Convertible Single Reset Preferred Stock and such holders shall not be entitled to vote thereon). (2) (a) In the event that full cumulative dividends on the Series B Mandatorily Convertible Single Reset Preferred Stock are not paid and are in arrears for six consecutive quarterly dividend periods following the Rate Reset Date, the number of directors of the Company constituting the entire Board of Directors shall be increased by two persons and the holders of shares of the Series B Mandatorily Convertible Single Reset Preferred Stock, voting separately as a class (together with the holders of shares of all other series of capital stock of the Company, including the Series A Junior Participating Preferred Stock, having the then present right to elect one or more directors as a result of a dividend arrearage but not then entitled to other separate voting rights to elect one or more directors in the event of such an arrearage (herein referred to as "Class Voting Stock")), shall have the right to elect such additional two directors to fill such positions at any regular meeting of shareholders or special meeting held in place thereof, or at a special meeting called as provided in Subsection 7(2)(c). Whenever all arrearages of dividends on the Series B Mandatorily Convertible Single Reset Preferred Stock then outstanding shall have been paid or declared and irrevocably set apart for payment, then the right of the holders of shares of the Series B Mandatorily Convertible Single Reset Preferred Stock to elect such additional two directors shall cease (but subject always to the same provisions for the vesting of such voting rights in the case of any similar future arrearages in dividends), and the terms of office of all persons previously elected as directors by the holders of shares of the Series B Mandatorily Convertible Single Reset Preferred Stock and such other Class Voting Stock shall forthwith terminate and the number of the Board of Directors shall be reduced accordingly. 30 31 (b) At any time after the voting power referred to in Subsection 7(2)(a) shall have been so vested in the holders of shares of the Series B Mandatorily Convertible Single Reset Preferred Stock, the Secretary of the Company may, and upon the written request of any holder or the holders of at least 10% of the number of shares of Series B Mandatorily Convertible Single Reset Preferred Stock then outstanding (addressed to the Secretary at the principal executive office of the Company) shall, call a special meeting of the holders of shares of the Series B Mandatorily Convertible Single Reset Preferred Stock and all other Class Voting Stock for the election of the directors to be elected by them pursuant to Subsection 7(2)(a); provided that the Secretary shall not be required to call such special meeting if the request for such meeting is received less than 45 calendar days before the date fixed for the next ensuing annual meeting of shareholders. Such call shall be made by notice similar to that provided in the bylaws of the Company for a special meeting of the shareholders or as required by law. Subject to the foregoing provisions, if any such special meeting required to be called as above provided shall not be called by the Secretary within 20 calendar days after receipt of an appropriate request, then any holder of shares of Series B Mandatorily Convertible Single Reset Preferred Stock may call such meeting, upon the notice above provided, and for that purpose shall have access to the stock books and records of the Company. Except as otherwise provided by law, at any such meeting, the holders of a majority of the number of shares of Series B Mandatorily Convertible Single Reset Preferred Stock and such other Class Voting Stock then outstanding shall constitute a quorum for the purpose of electing directors as contemplated in Subsection 7(2)(a). If at any such meeting or adjournment thereof, a quorum of such holders of Series B Mandatorily Convertible Single Reset Preferred Stock and, if applicable, such other Class Voting Stock shall not be present, no election of directors by the Series B Mandatorily Convertible Single Reset Preferred Stock and, if applicable, such other Class Voting Stock shall take place, and any such meeting may be adjourned from time to time for periods not exceeding 30 calendar days until a quorum of the Series B Mandatorily Convertible Single Reset Preferred Stock and, if applicable, the Class Voting Stock is present at such adjourned meeting. Unless otherwise provided by law or the Company's Restated Certificate of Incorporation, directors to be elected by the holders of shares of Series B Mandatorily Convertible Single Reset Preferred Stock and, if applicable, such other Class Voting Stock shall be elected by a plurality of the votes cast by such holders at a meeting at which a quorum is present. Notwithstanding the foregoing, the absence of a quorum of the Series B Mandatorily Convertible Single Reset Preferred Stock and, if applicable, such other Class Voting Stock shall not prevent the voting of, including the election of, directors by the holders of Common Stock and other classes of capital stock at such meeting. 31 32 (c) Any director who shall have been elected by holders of shares of Series B Mandatorily Convertible Single Reset Preferred Stock voting separately as a class, together, if applicable, with the holders of one or more other series of Class Voting Stock, or any director so elected as provided below, may be removed at any time during a class voting period, either for or without cause, by, and only by, the affirmative vote of the holders of a majority of the number of shares of Series B Mandatorily Convertible Single Reset Preferred Stock then outstanding, voting separately as a class, together, if applicable, with the holders of all other series of Class Voting Stock then outstanding, given at a special meeting of such shareholders called for such purpose, and any vacancy thereby created may be filled during such class voting period only by the holder of shares of Series B Mandatorily Convertible Single Reset Preferred Stock and, if applicable the other series, if any, of Class Voting Stock. In case any vacancy (other than as provided in the preceding sentence) shall occur among the directors elected by the holders of shares of the Series B Mandatorily Convertible Single Reset Preferred Stock (and, if applicable, such other Class Voting Stock), a successor shall be elected by the Board of Directors to serve until the next annual meeting of the shareholders or special meeting held in place thereof upon the nomination of the then remaining director elected by the holders of the Series B Mandatorily Convertible Single Reset Preferred Stock (and, if applicable, such other Class Voting Stock) or the successor of such remaining director. (3) Holders of Series B Mandatorily Convertible Single Reset Preferred Stock shall not be entitled to receive notice of any meeting of shareholders at which they are not entitled to vote or consent except as otherwise provided by applicable law. Section 8. Other Rights. Shares of Series B Mandatorily Convertible Single Reset Preferred Stock shall not have any relative, participating, optional or other special rights or powers other than as set forth herein, in the Company's Restated Certificate of Incorporation or as required by law. Section 9. Notices. Subsequent to the Rate Reset Date, at any time while any shares of Series B Mandatorily Convertible Single Reset Preferred Stock are outstanding, (i) the Company shall declare a dividend (or any other distribution) on its Common Stock, excluding any cash dividends, (ii) the Company shall authorize the issuance to all holders of its Common Stock of rights or warrants to subscribe for or purchase shares of Common Stock or of securities exercisable for, convertible into, or exchangeable for, shares of Common Stock or (iii) the Company shall authorize any reclassification of its Common Stock (other than a subdivision or combination thereof) or any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required (except for a merger of the Company into one of its subsidiaries solely for the purpose of changing the corporate name or corporate domicile of the 32 33 Company to another state of the United States and in connection with which there is no substantive change in the rights or privileges of any securities of the Company other than changes resulting from differences in the corporate statutes of the then existing and the new state of domicile), or the sale or transfer to another corporation of the property of the Company as an entirety or substantially as an entirety, then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of the Series B Mandatorily Convertible Single Reset Preferred Stock, and shall cause to be mailed to the holders of Series B Mandatorily Convertible Single Reset Preferred Stock at their last addresses as they shall appear on the stock register, at least 10 days before the date hereinafter specified (or the earlier of the dates hereinafter specified, in the event that more than one date is specified), a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (B) the date on which any such reclassification, consolidation, merger, sale or transfer is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property (including cash), if any, deliverable upon such reclassification, consolidation, merger, sale or transfer. The failure to give or receive the notice required hereby or any defect therein shall not affect the legality or validity of such dividend, distribution, right or warrant or other action. ARTICLE 5. BY-LAWS The Board of Directors shall have the power to adopt, amend or repeal the By-laws of this corporation, subject to the power of the stockholders to amend or repeal such By-laws. The stockholders having voting power shall also have the power to adopt, amend or repeal the By-laws of this corporation. ARTICLE 6. ELECTION OF DIRECTORS Except as may be otherwise required by the By-laws, written ballots are not required in the election of Directors. ARTICLE 7. PREEMPTIVE RIGHTS Preemptive rights shall not exist with respect to shares of stock or securities convertible into shares of stock of this corporation. 33 34 ARTICLE 8. CUMULATIVE VOTING The right to cumulate votes in the election of Directors shall not exist with respect to shares of stock of this corporation. ARTICLE 9. AMENDMENTS TO RESTATED CERTIFICATE OF INCORPORATION This corporation reserves the right to amend or repeal any of the provisions contained in this Restated Certificate of Incorporation in any manner now or hereafter permitted by law, and the rights of the stockholders of this corporation are granted subject to this reservation. ARTICLE 10. LIMITATION OF DIRECTOR LIABILITY To the full extent that the General Corporation Law of the State of Delaware, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of Directors, a Director of this corporation shall not be liable to this corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director. Any amendment to or repeal of this Article 10 shall not adversely affect any right or protection of a Director of this corporation for or with respect to any acts or omissions of such Director occurring prior to such amendment or repeal. ARTICLE 11. ACTION BY STOCKHOLDERS WITHOUT A MEETING Any action by the stockholders of this corporation shall be taken at a meeting of stockholders and no action may be taken by written consent of stockholders entitled to vote on such action. ARTICLE 12. SPECIAL VOTING REQUIREMENTS In addition to any affirmative vote required by law, by this Restated Certificate of Incorporation, by any agreement with any national securities exchange, or as may be otherwise required, any "Business Combination" (as hereinafter defined) involving this corporation shall be subject to approval in the manner set forth in this Article 12. 12.1 Definitions. For the purposes of this Article 12: (a) "Affiliate" and "beneficial owner" are used herein as defined in Rule 12b-2 and Rule 13d-3, respectively, under the Securities Exchange Act of 1934 as in effect on January 1, 1992 (the"1934 Act"). The term "Affiliate" as used herein shall exclude this corporation, but shall include the definition of "Associate" as contained in said Rule 12b-2. 34 35 (b) An "Interested Stockholder" is a person other than (i) the corporation or (ii) Burlington Resources Inc., a Delaware corporation ("BRI"), as long as BRI continues to own at least a majority of the stock of this corporation entitled to vote for the election of Directors ("Voting Stock") and there has been no Change in Control of BRI since January 1, 1992, who is (A) the beneficial owner of ten percent or more of the Voting Stock or (B) an Affiliate of this corporation which (1) at any time within a two-year period prior to the record date for the vote on a Business Combination was the beneficial owner of ten percent or more of the Voting Stock, or (2) at the completion of the Business Combination will be the beneficial owner of ten percent or more of the Voting Stock. (c) A "Person" is a natural person or a legal entity of any kind, together with any Affiliate of such person or entity, or any person or entity with whom such person, entity or any Affiliate has any agreement or understanding relating to acquiring, voting or holding Voting Stock. (d) A "Disinterested Director" is a member of the Board of Directors of this corporation (other than the Interested Stockholder) who was a Director prior to the time the Interested Stockholder became an Interested Stockholder, or any Director who was recommended for election by the Disinterested Directors. Any action to be taken by the Disinterested Directors shall require the affirmative vote of at least two-thirds of the Disinterested Directors. (e) A "Business Combination" is (i) a merger or consolidation of this corporation or any of its subsidiaries with an Interested Stockholder; (ii) the sale, lease, exchange, pledge, transfer or other disposition (A) by this corporation or any of its subsidiaries of all or a Substantial Part of the corporation's Assets to an Interested Stockholder, or (B) by an Interested Stockholder of any of its assets, except in the ordinary course of business, to this corporation or any of its subsidiaries; (iii) the issuance of stock or other securities of this corporation or any of its subsidiaries to an Interested Stockholder, other than on a pro rata basis to all holders of Voting Stock of the same class held by the Interested Stockholder pursuant to a stock spilt, stock dividend or distribution of warrants or rights; (iv) the adoption of any plan or proposal for the liquidation or dissolution of this corporation proposed by or on behalf of an Interested Stockholder; (v) any reclassification of securities, recapitalization, merger or consolidation or other transaction which has the effect, directly or indirectly, of increasing the proportionate share of any Voting Stock beneficially owned by an Interested Stockholder; or (vi) any agreement, contract or other arrangement providing for any of the foregoing transactions. (f) A "Substantial Part of the corporation's Assets" shall mean assets of 35 36 this corporation or any of its subsidiaries in an amount equal to twenty percent or more of the fair market value, as determined by the Disinterested Directors, of the total consolidated assets of this corporation and its subsidiaries taken as a whole as of the end of its most recent fiscal year ended prior to the time the determination is made. (g) A "Change in Control" shall be deemed to occur (i) if any Person is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the 1934 Act), directly or indirectly, of securities of BRI representing twenty percent or more of the stock of BRI entitled to vote for Directors of BRI, (ii) upon the first purchase of BRI's common stock pursuant to a tender or exchange offer (other than a tender or exchange offer made by BRI), (iii) upon the approval by BRI's stockholders of a merger or consolidation, a sale or disposition of all or substantially all of BRI's assets or a plan of liquidation or dissolution of BRI, or (iv) if, during any period of two consecutive years, individuals who at the beginning of such period constitute the BRI Board of Directors cease for any reason to constitute at least a majority thereof, unless the election or nomination of the election by BRI's stockholders of each new Director was approved by a vote of at least two-thirds of the Directors then still in office who were Directors at the beginning of the period. 12.2 Vote Required for Business Combinations. The affirmative vote of not less than fifty-one percent of the Voting Stock, excluding the Voting Stock of an Interested Stockholder who is a party to the Business Combination, shall be required for the adoption or authorization of a Business Combination, unless the Disinterested Directors determine that: (a) The Interested Stockholder is the beneficial owner of not less than eighty percent of the Voting Stock and has declared its intention to vote in favor of or to approve such Business Combination; or (b) (i) The fair market value of the consideration per share to be received or retained by the holders of each class or series of stock of this corporation in a Business Combination is equal to or greater than the consideration per share (including brokerage commissions and soliciting dealer's fees) paid by such Interested Stockholder in acquiring the largest number of shares of such class of stock previously acquired in any one transaction or series of related transactions, whether before or after the Interested Stockholder became an Interested Stockholder and (ii) the Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance provided by this corporation, whether in anticipation of or in connection with such Business Combination or otherwise. 36 37 12.3 Information Requirements. In the event any vote of holders of Voting Stock is required for the adoption or approval of any Business Combination, a proxy or information statement describing the Business Combination and complying with the requirements of the 1934 Act shall be mailed at a date determined by the Disinterested Directors to all stockholders of this corporation whether or not such statement is required under the 1934 Act. The statement shall contain any recommendations as to the advisability of the Business Combination which the Disinterested Directors, or any of them, may choose to state and, if deemed advisable by the Disinterested Directors, an opinion of an investment banking firm as to the fairness of the terms of such Business Combination. Such firm shall be selected by the Disinterested Directors and be paid a fee for its services by this corporation as approved by the Disinterested Directors. 12.4 Amendment. No amendment to this Restated Certificate of Incorporation shall amend, alter, change or repeal any of the provisions of Article 11 or of this Article 12 unless such amendment shall receive the affirmative vote of not less than fifty-one percent of the Voting Stock, excluding the Voting Stock of any Interested Stockholder as defined in Section 12.1 of this Article 12. 37 38 IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been executed by El Paso Corporation this 7th day of February 2001. El Paso Corporation By: /s/ MARGARET E. ROARK --------------------------------------- Margaret E. Roark Assistant Secretary 38 EX-3.B 3 h84209ex3-b.txt BY-LAW 1 EXHIBIT 3.B BY-LAWS OF EL PASO CORPORATION As amended January 29, 2001 Name Change effective February 7, 2001 2 TABLE OF CONTENTS
Page ARTICLE I. OFFICES.........................................................................................1 Section 1 - Registered Office and Agent........................................................1 Section 2 - Other Offices......................................................................1 ARTICLE II. STOCKHOLDERS....................................................................................1 Section 1 - Annual Meetings....................................................................1 Section 2 - Special Meetings...................................................................1 Section 3 - Place of Meetings..................................................................2 Section 4 - Notice of Meetings.................................................................2 Section 5 - Fixing of Record Date for Determining Stockholders.................................2 Section 6 - Quorum.............................................................................3 Section 7 - Organization.......................................................................3 Section 8 - Voting.............................................................................4 Section 9 - Inspectors.........................................................................5 Section 10 - List of Stockholders...............................................................5 Section 11 - Stockholder Proposals..............................................................5 ARTICLE III. BOARD OF DIRECTORS..............................................................................6 Section 1 - Number, Qualification and Term of Office...........................................6 Section 2 - Vacancies..........................................................................7 Section 3 - Nominations of Directors...........................................................7 Section 4 - Resignations.......................................................................8 Section 5 - Removals...........................................................................8 Section 6 - Place of Meetings; Books and Records...............................................8 Section 7 - Annual Meeting of the Board........................................................8 Section 8 - Regular Meetings...................................................................9 Section 9 - Special Meetings...................................................................9 Section 10 - Quorum and Manner of Acting........................................................9 Section 11 - Organization.......................................................................9 Section 12 - Consent of Directors in Lieu of Meeting...........................................10 Section 13 - Telephonic Meetings...............................................................10 Section 14 - Compensation......................................................................10 Section 15 - Interested Directors..............................................................10
3 ARTICLE IV. COMMITTEES OF THE BOARD OF DIRECTORS..........................................................11 Section 1 - Executive Committee...............................................................11 Section 2 - Finance Committee.................................................................11 Section 3 - Audit Committee...................................................................11 Section 4 - Compensation Committee............................................................12 Section 5 - Committee Chairman, Books and Records.............................................12 Section 6 - Alternates........................................................................12 Section 7 - Other Committees..................................................................12 Section 8 - Quorum and Manner of Acting.......................................................13 ARTICLE V. OFFICERS......................................................................................13 Section 1 - Number............................................................................13 Section 2 - Election..........................................................................13 Section 3 - Resignations......................................................................13 Section 4 - Removals..........................................................................14 Section 5 - Vacancies.........................................................................14 Section 6 - Chairman of the Board.............................................................14 Section 7 - Chief Executive Officer...........................................................16 Section 8 - President.........................................................................16 Section 9 - Vice Chairman of the Board........................................................17 Section 10 - Chief Operating Officer...........................................................17 Section 11 - Chief Financial Officer...........................................................17 Section 12 - Vice Presidents...................................................................17 Section 13 - General Counsel...................................................................18 Section 14 - Secretary.........................................................................18 Section 15 - Treasurer.........................................................................18 Section 16 - Controller........................................................................19 Section 17 - Absence or Disability of Officers.................................................19 ARTICLE VI. STOCK CERTIFICATES AND TRANSFER THEREOF.......................................................19 Section 1 - Stock Certificates................................................................19 Section 2 - Transfer of Stock.................................................................19 Section 3 - Transfer Agents and Registrars....................................................20 Section 4 - Additional Regulations............................................................20 Section 5 - Lost, Stolen or Destroyed Certificates............................................20 ARTICLE VII. DIVIDENDS, SURPLUS, ETC.......................................................................20 ARTICLE VIII. SEAL..........................................................................................20 ARTICLE IX. FISCAL YEAR...................................................................................21 ARTICLE X. INDEMNIFICATION...............................................................................21 Section 1 - Right to Indemnification..........................................................21 Section 2 - Right of Indemnitee to Bring Suit.................................................22
4 Section 3 - Nonexclusivity of Rights..........................................................22 Section 4 - Insurance, Contracts and Funding..................................................22 Section 5 - Wholly Owned Subsidiaries.........................................................23 Section 6 - Indemnification of Agents of the Corporation......................................23 ARTICLE XI. CHECKS, DRAFTS, BANK ACCOUNTS, ETC............................................................23 Section 1 - Checks, Drafts, Etc.; Loans.......................................................23 Section 2 - Deposits..........................................................................23 ARTICLE XII. AMENDMENTS....................................................................................23 ARTICLE XIII. MISCELLANEOUS.................................................................................24 ARTICLE XIV. SPECIAL PROVISIONS............................................................................24 Section 1 - Board of Directors; Nominating Committees.........................................24 Section 2 - Certain Officers..................................................................25 Section 3 - Superceding Effect; Amendments....................................................26
5 BY-LAWS OF EL PASO CORPORATION ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE AND AGENT The registered office of the corporation is located at Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, State of Delaware, and the name of its registered agent at such address is The Corporation Trust Company. SECTION 2. OTHER OFFICES The corporation may have offices at such other places both within and without the State of Delaware as the Board of Directors (the "Board") may from time to time determine or the business of the corporation may require. ARTICLE II STOCKHOLDERS SECTION 1. ANNUAL MEETINGS A meeting of the stockholders for the purpose of electing Directors and for the transaction of such other business as may properly be brought before the meeting shall be held annually at 9:00 a.m., on the third Thursday of April, or at such other time and/or such other date as shall be fixed by resolution of the Board. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. SECTION 2. SPECIAL MEETINGS Special meetings of the stockholders for any purpose or purposes may be called only by a majority of the Board, the Chairman of the Board, the Chief Executive Officer, the President or the Vice Chairman of the Board. 6 SECTION 3. PLACE OF MEETINGS The annual meeting of the stockholders of the corporation shall be held at the general offices of the corporation in the City of Houston, State of Texas, or at such other place in the United States as may be stated in the notice of the meeting. All other meetings of the stockholders shall be held at such places within or without the State of Delaware as shall be stated in the notice of the meeting. SECTION 4. NOTICE OF MEETINGS 4.1 GIVING OF NOTICE. Except as otherwise provided by statute, written notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice shall be given when deposited in the United States mails, postage prepaid, directed to such stockholder at his address as it appears in the stock ledger of the corporation. Each such notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 4.2 NOTICE OF ADJOURNED MEETINGS. When a meeting is adjourned to another time and place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is given. If the adjournment is for more than thirty days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 4.3 WAIVER OF NOTICE. 4.3.1 Whenever any notice is required to be given to any stockholder under the provisions of these By-laws, the Restated Certificate of Incorporation or the General Corporation Law of the State of Delaware, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. 4.3.2 The attendance of a stockholder at a meeting shall constitute a waiver of notice of such meeting, except when a stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 5. FIXING OF RECORD DATE FOR DETERMINING STOCKHOLDERS 5.1 MEETINGS. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board, the record date for 2 7 determining stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at the meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. 5.2 DIVIDENDS, DISTRIBUTIONS AND OTHER RIGHTS. For the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. SECTION 6. QUORUM A majority of the outstanding shares of stock of the corporation entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of the stockholders; provided that where a separate vote by a class or classes or by a series of a class is required, a majority of the outstanding shares of such class or classes or of such series of a class, present in person or represented by proxy at the meeting, shall constitute a quorum entitled to take action with respect to the vote on that matter. Shares of stock will be counted toward a quorum if they are either (i) present in person at the meeting or (ii) represented at the meeting by a valid proxy, whether the instrument granting such proxy is marked as casting a vote or abstaining, is left blank or does not empower such proxy to vote with respect to some or all matters to be voted upon at the meeting. If less than a majority of the outstanding shares entitled to vote are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. If a quorum is present or represented at a reconvened meeting following such an adjournment, any business may be transacted that might have been transacted at the meeting as originally called. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 7. ORGANIZATION At each meeting of the stockholders, the Chairman of the Board, or in his absence the Chief Executive Officer, the President or the Vice Chairman of the Board, or if all of the said persons are absent, a person designated by the Board, the Chairman of the Board, the Chief Executive Officer, the President or the Vice Chairman of the Board, or in the absence of such designated person, a person elected by the holders of a majority in number of shares of stock present in person or represented by proxy and entitled to vote, shall act as chairman of the meeting. 3 8 The Secretary, or in his absence or in the event he shall be presiding over the meeting in accordance with the provisions of this Section, an Assistant Secretary or, in the absence of the Secretary and all of the Assistant Secretaries, any person appointed by the chairman of the meeting, shall act as secretary of the meeting. SECTION 8. VOTING 8.1 GENERAL PROVISIONS. Unless otherwise provided in the Restated Certificate of Incorporation or a resolution of the Board creating a series of stock, at each meeting of the stockholders, each holder of any share of any series or class of stock entitled to vote at such meeting shall be entitled to one vote for each share of stock having voting power in respect of each matter upon which a vote is to be taken, standing in his name on the stock ledger of the corporation on the record date fixed as provided in these By-laws for determining the stockholders entitled to vote at such meeting. In all matters other than the election of Directors, if a quorum is present, the affirmative vote of the majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the vote of a greater number is required by these By-laws, the Restated Certificate of Incorporation or the General Corporation Law of the State of Delaware. In determining the number of votes cast for or against a proposal, shares abstaining from voting on a matter (including elections) will not be treated as a vote for or against the proposal. A non-vote by a broker will be treated as if the broker never voted, but a non-vote by a stockholder will be counted as a vote "for" the management's position. Where a separate vote by a class or classes or by a series of a class is required, if a quorum is present, the affirmative vote of the majority of shares of such class or classes or series of a class present in person or represented by proxy at the meeting shall be the act of such class or classes or series of a class. The provisions of this Section will govern with respect to all votes of stockholders except as otherwise provided for in these By-laws, the Restated Certificate of Incorporation or the General Corporation Law of the State of Delaware. 8.2 VOTING FOR DIRECTORS. At each election of Directors the voting shall be by written ballot. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of Directors. 8.3 SHARES HELD OR CONTROLLED BY THE CORPORATION. Shares of its own capital stock belonging to the corporation, or to another corporation if a majority of the shares entitled to vote in the election of Directors of such other corporation is held by the corporation, shall neither be entitled to vote nor counted for quorum purposes. 8.4 PROXIES. A stockholder may vote by a proxy which is in writing or is transmitted electronically, including but not limited to, via telegram, cablegram, internet, interactive voice response system, or other means of electronic transmission executed or authorized by the stockholder or by his attorney-in-fact. Any electronic transmission must set forth information from which it can be determined by the Company or the Inspector that such electronic transmission was authorized by the stockholder. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in 4 9 writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the corporation. A proxy shall become invalid three years after the date of its execution, unless otherwise provided in the proxy. A proxy with respect to a specified meeting shall entitle the holder thereof to vote at any reconvened meeting following adjournment of such meeting but shall not be valid after the final adjournment thereof. SECTION 9. INSPECTORS Prior to each meeting of stockholders, the Board shall appoint at least one Inspector who is not a Director, candidate for Director or officer of the corporation, who shall receive and determine the validity of proxies and the qualifications of voters, and receive, inspect, count and report to the meeting in writing the votes cast on all matters submitted to a vote at such meeting. In case of failure of the Board to make such appointments or in case of failure of any Inspector so appointed to act, the Chairman of the Board shall make such appointment or fill such vacancies. Each Inspector, immediately before entering upon his duties, shall subscribe to an oath or affirmation faithfully to execute the duties of Inspector at such meeting with strict impartiality and according to the best of his ability. SECTION 10. LIST OF STOCKHOLDERS The Secretary or other officer or agent having charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares of each class and series registered in the name of each such stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section, or the books of the corporation, or to vote in person or by proxy at any such meeting. SECTION 11. STOCKHOLDER PROPOSALS At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the annual meeting of stockholders (a) by, or at the direction of, the Board or (b) by a stockholder of the corporation who complies with the procedures set forth in this Section 11. For business or a proposal to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be received by the Secretary at the principal executive offices of the corporation not earlier than 120 days nor later than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the 5 10 date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be received by the Secretary not earlier than the 120th day prior to such annual meeting and not later than the 90th day prior to such annual meeting, or if later, the 10th day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before an annual meeting of stockholders (i) a description, in 500 words or less, of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the corporation which are beneficially owned by such stockholder on the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder's notice, (iv) a description, in 500 words or less, of any interest of the stockholder in such proposal, and (v) a representation that the stockholder is a holder of record of stock of the corporation and intends to appear in person or by proxy at the meeting to present the proposal specified in the notice. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at a meeting of stockholders except in accordance with the procedures set forth in this Section 11. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the procedures prescribed by this Section 11, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing, nothing in this Section 11 shall be interpreted or construed to require the inclusion of information about any such proposal in any proxy statement distributed by, at the direction of, or on behalf of, the Board. ARTICLE III BOARD OF DIRECTORS SECTION 1. NUMBER, QUALIFICATION AND TERM OF OFFICE The business, property and affairs of the corporation shall be managed by a Board consisting of not less than one Director. The Board shall from time to time by a vote of a majority of the Directors then in office fix the specific number of Directors to constitute the Board. At each annual meeting of stockholders a Board shall be elected by the stockholders for a term of one year. Each Director shall serve until his successor is duly elected and shall qualify. 6 11 SECTION 2. VACANCIES Vacancies in the Board and newly created directorships resulting from any increase in the authorized number of Directors may be filled by a vote of the majority of the Directors then in office, although less than a quorum, or by a sole remaining Director, at any regular or special meeting of the Board. SECTION 3. NOMINATIONS OF DIRECTORS Subject to the rights, if any, of the holders of any series of preferred stock then outstanding, only persons nominated in accordance with the procedures set forth in this Section 3 shall be eligible for election as Directors. Nominations of persons for election to the Board may be made at an annual meeting of stockholders or special meeting of stockholders called by the Board for the purpose of electing Directors (i) by or at the direction of the Board or (ii) by any stockholder of the corporation entitled to vote for the election of Directors at such meeting who complies with the notice procedure set forth in this Section 3. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be received by the Secretary at the principal executive offices of the corporation not earlier than 120 days nor later than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be received by the Secretary not earlier than the 120th day prior to such annual meeting and not later than the 90th day prior to such annual meeting, or if later, the 10th day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. A stockholder's notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a Director (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the corporation which are beneficially owned by such person on the date of such stockholder's notice and (d) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or any successor statute thereto (the "Exchange Act") (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); (ii) as to the stockholder giving the notice (a) the name and address, as they appear on the corporation's (or its agent's) books, of such stockholder and any other stockholders known by such stockholder to be supporting such nominee(s), (b) the class and number of shares of the corporation which are beneficially owned by such stockholder on the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such nominee(s) on the date of such stockholder's notice (c) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to 7 12 nominate the person or persons specified in the notice; and (iii) a description of all arrangements or understandings between the stockholder and each nominee and other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder. No person shall be eligible for election as a Director of the corporation unless nominated in accordance with the procedures set forth in this Section 3. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 4. RESIGNATIONS Any Director may resign at any time upon written notice to the Board, the Chairman of the Board, the Chief Executive Officer, the President, the Vice Chairman of the Board or the Secretary of the corporation. Such resignation shall take effect on the date of receipt of such notice or at any later time specified therein; and the acceptance of such resignation, unless otherwise required by the terms thereof, shall not be necessary to make it effective. SECTION 5. REMOVALS Any Director may be removed, with or without cause, at any special meeting of the stockholders called for that purpose, by the affirmative vote of the holders of a majority in number of shares of the corporation entitled to vote for the election of such Director, and the vacancy in the Board caused by any such removal may be filled by the stockholders at such a meeting. SECTION 6. PLACE OF MEETINGS; BOOKS AND RECORDS The Board may hold its meetings, and have an office or offices, at such place or places within or without the State of Delaware as the Board from time to time may determine. The Board, subject to the provisions of applicable statutes, may authorize the books and records of the corporation, and offices or agencies for the issue, transfer and registration of the capital stock of the corporation, to be kept at such place or places outside of the State of Delaware as, from time to time, may be designated by the Board. SECTION 7. ANNUAL MEETING OF THE BOARD The first meeting of each newly elected Board, to be known as the Annual Meeting of the Board, for the purpose of electing officers, designating committees and the transaction of such other business as may come before the Board, shall be held as soon as practicable after the adjournment of the annual meeting of stockholders, and no notice of such meeting shall be necessary to the newly elected Directors, provided a quorum shall be present. In the event such meeting is not held due to the absence of a quorum, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board, or as shall be specified in a written waiver signed by all of the newly elected Directors. 8 13 SECTION 8. REGULAR MEETINGS The Board shall provide for regular meetings of the Board at such times and at such places as it deems desirable. Notice of regular meetings need not be given. SECTION 9. SPECIAL MEETINGS Special meetings of the Board may be called by the Chairman of the Board, the Chief Executive Officer, the President or the Vice Chairman of the Board and shall be called by the Secretary on the written request of three Directors on such notice as the person or persons calling the meeting shall deem appropriate in the circumstances. Notice of each such special meeting shall be mailed to each Director or delivered to him by telephone, telegraph or any other means of electronic communication, in each case addressed to his residence or usual place of business, or delivered to him in person or given to him orally. The notice of meeting shall state the time and place of the meeting but need not state the purpose thereof. Whenever any notice is required to be given to any Director under the provisions of these By-laws, the Restated Certificate of Incorporation or the General Corporation Law of the State of Delaware, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board or any committee appointed by the Board need be specified in the waiver of notice of such meeting. Attendance of a Director at any meeting shall constitute a waiver of notice of such meeting except when a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. SECTION 10. QUORUM AND MANNER OF ACTING Except as otherwise provided by statute, the Restated Certificate of Incorporation, or these By-laws, the presence of a majority of the total number of Directors shall constitute a quorum for the transaction of business at any regular or special meeting of the Board, and the act of a majority of the Directors present at any such meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum, a majority of the Directors present may adjourn the meeting, from time to time, until a quorum is present. Notice of any such adjourned meeting need not be given. SECTION 11. ORGANIZATION At every meeting of the Board, the Chairman of the Board or in his absence the Chief Executive Officer, the President or the Vice Chairman of the Board, or if all of the said persons are absent, a chairman chosen by a majority of the Directors present shall act as chairman of the meeting. The Secretary, or in his absence, an Assistant Secretary, or in the absence of the Secretary and all the Assistant Secretaries, any person appointed by the chairman of the meeting, shall act as secretary of the meeting. 9 14 SECTION 12. CONSENT OF DIRECTORS IN LIEU OF MEETING Unless otherwise restricted by the Restated Certificate of Incorporation or by these By-laws, any action required or permitted to be taken at any meeting of the Board, or any committee designated by the Board, may be taken without a meeting if all members of the Board or committee consent thereto in writing, and such written consent is filed with the minutes of the proceedings of the Board or committee. SECTION 13. TELEPHONIC MEETINGS Members of the Board, or any committee designated by the Board, may participate in any meeting of the Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting. SECTION 14. COMPENSATION Each Director, who is not a full-time salaried officer of the corporation or any of its wholly owned subsidiaries, when authorized by resolution of the Board, may receive as a Director a stated salary or an annual retainer, and any other benefits as the Board may determine, and in addition may be allowed a fixed fee or reimbursement of his reasonable expenses for attendance at each regular or special meeting of the Board or any committee thereof. SECTION 15. INTERESTED DIRECTORS No contract or transaction between the corporation and one or more of its Directors or officers, or between the corporation and any other corporation, partnership, association or other organization in which one or more of its Directors or officers are Directors or officers of this corporation, or have a financial interest in such contract or transaction, shall be void or voidable solely for this reason, or solely because the Director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified by the Board, a committee thereof or the stockholders. Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction. 10 15 ARTICLE IV COMMITTEES OF THE BOARD OF DIRECTORS SECTION 1. EXECUTIVE COMMITTEE The Board may, in its discretion, designate an Executive Committee, consisting of such number of Directors as the Board may from time to time determine. The committee shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it, but the committee shall have no power or authority to amend the Restated Certificate of Incorporation (except that the committee may, to the extent authorized by the Board, fix by resolution or resolutions the designations and any of the powers, preferences or rights of shares of any series of Preferred Stock relating to voting or other powers, dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation, fix the qualifications, limitations or restrictions of shares of any such series of stock, or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series). The committee shall have such other powers as the Board may from time to time prescribe. SECTION 2. FINANCE COMMITTEE The Board may, in its discretion, designate a Finance Committee, consisting of such number of Directors as the Board may from time to time determine. The committee shall monitor, review, appraise and recommend to the Board appropriate action with respect to the corporation's capital structure, its source of funds and its financial position; review and recommend appropriate delegations of authority to management on expenditures and other financial commitments; review terms and conditions of financing plans; develop and recommend dividend policies and recommend to the Board specific dividend payments; and review the performance of the trustee of the corporation's pension trust fund, and any proposed change in the investment policy of the trustee with respect to such fund. The committee shall have such other duties, functions and powers as the Board may from time to time prescribe. SECTION 3. AUDIT COMMITTEE The Board shall designate annually an Audit Committee consisting of not less than two Directors as it may from time to time determine, none of whom shall be officers or employees of the corporation. The committee shall review with the independent accountants the corporation's financial statements, basic accounting and financial policies and practices, adequacy of controls, standard and special tests used in verifying the corporation's statements of account and in determining the soundness of the corporation's financial condition, and the committee shall report to the Board the results of such reviews; review the policies and practices pertaining to publication of quarterly and annual statements to assure consistency with audited results and the implementation of policies and practices recommended by the independent accountants; ensure that suitable independent audits are made of the operations and results of subsidiary corporations 11 16 and affiliates; and monitor compliance with the corporation's code of business conduct. The committee shall have such other duties, functions and powers as the Board may from time to time prescribe. SECTION 4. COMPENSATION COMMITTEE The Board shall designate annually a Compensation Committee consisting of not less than two Directors as it may from time to time determine, none of whom shall be officers or employees of the corporation. The committee shall administer the corporation's executive compensation plans and programs. In addition, the committee shall consider proposals with respect to the creation of and changes to executive compensation plans and will review appropriate criteria for establishing certain performance measures and determining annual corporate and executive performance ratings under applicable corporation plans and programs. The committee shall have such other duties, functions and powers as the Board may from time to time prescribe. SECTION 5. COMMITTEE CHAIRMAN, BOOKS AND RECORDS Each committee shall elect a chairman to serve for such term as it may determine, shall fix its own rules of procedure and shall meet at such times and places and upon such call or notice as shall be provided by such rules. It shall keep a record of its acts and proceedings, and all action of the committee shall be reported to the Board at the next meeting of the Board. SECTION 6. ALTERNATES Alternate members of the committees prescribed by this Article IV may be designated by the Board from among the Directors to serve as occasion may require. Whenever a quorum cannot be secured for any meeting of any such committee from among the regular members thereof and designated alternates, the member or members of such committee present at such meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of such absent or disqualified member. Alternate members of such committees shall receive a reimbursement for expenses and compensation at the same rate as regular members of such committees. SECTION 7. OTHER COMMITTEES The Board may designate such other committees, consisting of such number of Directors as the Board may from time to time determine, and each such committee shall serve for such term and shall have and may exercise, during intervals between meetings of the Board, such duties, functions and powers as the Board may from time to time prescribe. 12 17 SECTION 8. QUORUM AND MANNER OF ACTING At each meeting of any committee the presence of a majority of the members of such committee, whether regular or alternate, shall be necessary to constitute a quorum for the transaction of business, and if a quorum is present the concurrence of a majority of those present shall be necessary for the taking of any action; provided, however, that no action may be taken by the Executive Committee or the Finance Committee when one or more officers of the corporation are present as members at a meeting of either such committee unless such action shall be concurred in by the vote of at least one member of such committee who is not an officer of the corporation. ARTICLE V OFFICERS SECTION 1. NUMBER The officers of the corporation shall consist of such of the following as the Board may from time to time elect or appoint, or as the Chairman of the Board may from time to time appoint pursuant to Section 6 of this Article V: a Chairman of the Board, a Chief Executive Officer, a President, a Vice Chairman of the Board, a Chief Operating Officer, a Chief Financial Officer, a General Counsel, a Secretary, a Treasurer, a Controller and one or more of the following: Executive Vice President, Senior Vice President, Vice President, Assistant Vice President, Associate or Assistant General Counsel, Assistant Secretary, Assistant Treasurer, Assistant Controller and such other officers with such titles and powers and/or duties as the Board or the Chairman of the Board, as the case may be, shall from time to time determine. Officers of the corporation may simultaneously serve as officers of subsidiaries or divisions thereof. Any number of offices may be held by the same person. SECTION 2. ELECTION The officers of the corporation, except those who may be appointed by the Chairman of the Board as provided in Section 6 of this Article V, shall be elected or appointed as soon as practicable after the annual meeting of stockholders in each year to hold office until the first meeting of the Board after the annual meeting of stockholders next succeeding his election, or until his successor is elected and qualified or until his earlier death, resignation or removal. SECTION 3. RESIGNATIONS Any elected or appointed officer may resign at any time upon written notice to the Chairman of the Board or the Secretary of the corporation. Such resignation shall take effect upon the date of its receipt or at such later time as may be specified therein, and unless otherwise required by the terms thereof, no acceptance of such resignation shall be necessary to make it effective. 13 18 SECTION 4. REMOVALS Any elected or appointed officer may be removed, with or without cause, by the Board at any regular or special meeting of the Board, and in the case of an officer appointed pursuant to Section 6 of this Article V, may be so removed by the Chairman of the Board. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the corporation, but the election or appointment of any officer shall not of itself create contractual rights. SECTION 5. VACANCIES Any vacancy occurring in any office by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board at any regular or special meeting or as otherwise provided in these By-laws. SECTION 6. CHAIRMAN OF THE BOARD The Chairman of the Board shall, when present, preside at all meetings of the stockholders and the Board; shall have authority to call special meetings of the stockholders and of the Board; and shall have such other powers and duties as are expressly provided in these By-laws. The Chairman of the Board shall have authority to sign and acknowledge in the name and on behalf of the corporation all stock certificates, contracts or other documents and instruments, except where the signing thereof shall be expressly delegated to some other officer or agent by the Board or required by law to be otherwise signed or executed and, unless otherwise provided by law or by the Board may authorize any officer, employee or agent of the corporation to sign, execute and acknowledge in his place and stead all such documents and instruments; he shall fix the compensation of officers of the corporation, other than his own compensation, and the compensation of officers of its principal operating subsidiaries reporting directly to him unless such authority is otherwise reserved to the Board or a committee thereof; and he shall approve proposed employee compensation and benefit plans of subsidiary companies not involving the issuance or purchase of capital stock of the corporation. He shall have the power to appoint and remove any Vice President, Controller, General Counsel, Secretary or Treasurer of the corporation. He shall also have the power to appoint and remove such associate or assistant officers of the corporation with such titles and duties as he may from time to time deem necessary or appropriate. He shall have such other powers and perform such other duties as from time to time may be assigned to him by the Board or the Executive Committee. The Chairman of the Board is hereby authorized, without further approval of the Finance Committee or the Board: (a) To approve individual expenditures by the corporation of up to $80 million each for individual expenditures in categories not presented to the Board in the annual budget or plan, including but not limited to individual expenditures pertaining to operating expenses, purchases, leases, options to purchase or lease assets, investments, business acquisitions, land 14 19 purchases, products or services acquisitions, bid or performance bonds (provided however, that the authority to issue such a bond shall not be deemed to authorize the activity covered thereby unless such activity would itself be authorized hereunder), litigation settlements, charitable donations and political contributions. (b) To approve expenditures by the corporation for the amounts (subject to subparagraph (c) below) presented to the Board in the annual budget or plan, including but not limited to individual expenditures pertaining to operating and capital expenses, purchases, leases, options to purchase or lease assets, investments, business acquisitions, land purchases, products or services acquisitions, bid or performance bonds (provided however, that the authority to issue such a bond shall not be deemed to authorize the activity covered thereby unless such activity would itself be authorized hereunder), litigation settlements, charitable donations and political contributions. (c) To approve individual cost overruns of up to 10% of any amounts approved by or presented to the Board. (d) To enter into leases or extensions thereof and other agreements with respect to the assets of the corporation, including interests in minerals and real estate, for a term of not more than 10 years or for an unlimited term if the aggregate initial rentals, over the term of the lease, including renewal options, do not exceed $80 million. (e) To approve capital contributions to the corporation's subsidiaries and to enter into performance and financial guarantees for the benefit of the corporation's subsidiaries. (f) To approve disposition of assets and interests in securities of subsidiaries or related commitments, provided that the aggregate market value of the assets being disposed of in any one such transaction does not exceed $80 million. (g) To approve increases in the capital budgets of the corporation's operating subsidiaries provided such increases in the aggregate do not exceed 10% of the corporation's capital budget for the fiscal year. (h) To approve in emergency situations commitments in excess of the above-described limits provided they are in the interests of the corporation. The above delegation of authority does not authorize the corporation or its subsidiaries to make a significant change in its business or to issue the corporation's capital stock without the specific approval of the Board. Notwithstanding the foregoing limitations, the Chairman of the Board 15 20 shall have such power and authority as is usual, customary and desirable to perform all the duties of the office (including, but not limited to, the approval of payments or arrangements made in connection with the corporation's debt, interest, tax, contractual, and regulatory obligations) necessary to, and consistent with, the businesses of the corporation and its subsidiaries. The Chairman of the Board (and other officers of the corporation as delegated by the Chairman of the Board or as authorized in these By-laws) may delegate the foregoing authorization to other officers, employees, and agents of the corporation by either written authorization (including powers of attorney) or otherwise, unless such authorization is expressly reserved for the Chairman of the Board or other officer, as applicable. In the absence or disability of the Chairman of the Board, or at his request, the Chief Executive Officer may preside at any meeting of the stockholders or of the Board and, in such circumstances, may exercise any of the other powers or perform any of the other duties of the Chairman of the Board. SECTION 7. CHIEF EXECUTIVE OFFICER The Chief Executive Officer shall assist the Chairman of the Board in the performance of his duties and shall perform those duties assigned to him in other provisions of the By-laws and such other duties as may from time to time be assigned to him by the Board or the Chairman of the Board. In the absence or disability of the Chairman of the Board, or at his request, the Chief Executive Officer may preside at any meeting of the stockholders or of the Board and, in such circumstances, may exercise any of the other powers or perform any of the other duties of the Chairman of the Board. Subject to delegations by the Chairman of the Board pursuant to Section 6 of this Article V, the Chief Executive Officer may sign or execute, in the name of the corporation, all stock certificates, deeds, mortgages, bonds, contracts or other documents and instruments, except in cases where the signing or execution thereof shall be required by law or shall have been expressly delegated by the Board or these By-laws to some other officer or agent of the corporation. SECTION 8. PRESIDENT The President shall have general authority over the property, business and affairs of the corporation, and over all subordinate officers, agents and employees of the corporation, subject to the control and direction of the Board, the Executive Committee and the Chairman of the Board, including the power to sign and acknowledge in the name and on behalf of the corporation all stock certificates, deeds, mortgages, bonds, contracts or other documents and instruments except when the signing thereof shall be expressly delegated to some other officer or agent by the Board or required by law to be otherwise signed or executed and, unless otherwise provided by law or by the Board, may delegate to any officer, employee or agent of the corporation authority to sign, execute and acknowledge in his place and stead all such documents and instruments. 16 21 SECTION 9. VICE CHAIRMAN OF THE BOARD In the absence or disability of the Chairman of the Board, the Chief Executive Officer or the President, or at the request of any of them, the Vice Chairman of the Board may preside at any meeting of the stockholders or of the Board. The Vice Chairman shall not be an officer of the corporation and shall not have authority to sign or acknowledge, in the name and on behalf of the corporation, stock certificates, contracts, documents or instruments. SECTION 10. CHIEF OPERATING OFFICER The Chief Operating Officer shall have direct management responsibility for the general business operations of the corporation, and he shall have such powers and perform such duties as may be incident to the office of chief operating officer of a corporation, those duties assigned to him by other provisions of the By-laws, and such other duties as may from time to time be assigned to him either directly or indirectly by the Board, the Chairman of the Board or the President. Subject to delegations by the Chairman of the Board pursuant to Section 6 of this Article V, the Chief Operating Officer may sign or execute, in the name of the corporation, all stock certificates, deeds, mortgages, bonds, contracts or other documents and instruments, except in cases where the signing or execution thereof shall be required by law or shall have been expressly delegated by the Board or these By-laws to some other officer or agent of the corporation. SECTION 11. CHIEF FINANCIAL OFFICER The Chief Financial Officer shall have responsibility for development and administration of the corporation's financial plans and all financial arrangements, its cash deposits and short term investments, its accounting policies and its federal and state tax returns. The Chief Financial Officer shall also be responsible for the corporation's internal control procedures and for its relationship with the financial community. The Chief Financial Officer shall perform all the duties incident to the office of chief financial officer of a corporation, those duties assigned to him by other provisions of these By-laws and such other duties as may be assigned to him either directly or indirectly by the Board, the Chairman of the Board, the President, or the Chief Operating Officer, or as may be provided by law. SECTION 12. VICE PRESIDENTS Each Executive Vice President, Senior Vice President and Vice President shall have such powers and perform such duties as may from time to time be assigned to him, directly or indirectly, either generally or in specific instances, by the Board, the Chairman of the Board, the President, or the Chief Operating Officer. Subject to delegations by the Chief Executive Officer pursuant to Section 6 of this Article V, each Executive Vice President, Senior Vice President and Vice President shall perform all duties incident to the office of vice president of a corporation and shall have authority to sign or execute, in the name of the corporation, all stock certificates, deeds, mortgages, bonds, contracts 17 22 or other documents or instruments, except in cases where the signing or execution thereof shall have been expressly delegated by the Board or these By-laws to some other officer or agent of the corporation. SECTION 13. GENERAL COUNSEL The General Counsel shall be the chief legal advisor of the corporation and shall have responsibility for the management of the legal affairs and litigation of the corporation and, in general, he shall perform the duties incident to the office of general counsel of a corporation and such other duties as may be assigned to him either directly or indirectly by the Board, the Chief Executive Officer, or the President, or as may be provided by law. SECTION 14. SECRETARY The Secretary shall keep the minutes of meetings of the stockholders and of the Board in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of these By-laws or as required by law; he shall be custodian of the records and of the corporate seal or seals of the corporation; he shall see that the corporate seal is affixed to all documents requiring same, the execution of which, on behalf of the corporation, under its seal, is duly authorized, and when said seal is so affixed he may attest same; and, in general, he shall perform all duties incident to the office of the secretary of a corporation, and such other duties as from time to time may be assigned to him directly or indirectly by the Board, the Chairman of the Board, the President, or the General Counsel, or as may be provided by law. Any Assistant Secretary may perform any of the duties or exercise any of the powers of the Secretary at the request of, or in the absence or disability of, the Secretary or otherwise as occasion may require in the administration of the business and affairs of the corporation. SECTION 15. TREASURER The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the corporation, and shall deposit, or cause to be deposited, in the name of the corporation, all moneys or other valuable effects in such banks, trust companies or other depositaries as shall, from time to time, be selected by or under authority of the Board; if required by the Board, he shall give a bond for the faithful discharge of his duties, with such surety or sureties as the Board may determine; he shall keep or cause to be kept full and accurate records of all receipts and disbursements in books of the corporation; and, in general, he shall perform the duties incident to the office of treasurer of a corporation and such other duties as may be assigned to him directly or indirectly by the Board, the Chairman of the Board, the President, the Chief Operating Officer or the Chief Financial Officer, or as may be provided by law. Any Assistant Treasurer may perform any of the duties or exercise any of the powers of the Treasurer at the request of, or in the absence or disability of, the Treasurer or otherwise as occasion may require in the administration of the business and affairs of the corporation. 18 23 SECTION 16. CONTROLLER The Controller shall be the chief accounting officer of the corporation. He shall keep full and accurate accounts of the assets, liabilities, commitments, receipts, disbursements and other financial transactions of the corporation; shall cause regular audits of the books and records of account of the corporation and shall supervise the preparation of the corporation's financial statements; and, in general, he shall perform the duties incident to the office of controller of a corporation and such other duties as may be assigned to him directly or indirectly by the Board, the Audit Committee, the Chairman of the Board, the President, , the Chief Operating Officer or the Chief Financial Officer, or as may be provided by law. SECTION 17. ABSENCE OR DISABILITY OF OFFICERS In the absence or disability of the Chairman of the Board, the Chief Executive Officer, the President, the Board or a committee thereof may designate individuals to perform the duties of those absent or disabled. ARTICLE VI STOCK CERTIFICATES AND TRANSFER THEREOF SECTION 1. STOCK CERTIFICATES Except as otherwise permitted by statute, the Restated Certificate of Incorporation or resolution or resolutions of the Board, every holder of stock in the corporation shall be entitled to have a certificate, signed by or in the name of the corporation by the Chairman of the Board, the President, the Chief Operating Officer, the Chief Financial Officer or any Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares, and the class and series thereof, owned by him in the corporation. Any and all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The Board or the Chief Executive Officer shall determine the form of stock certificate of the corporation. SECTION 2. TRANSFER OF STOCK Transfer of shares of the capital stock of the corporation shall be made only on the books (whether physically or electronically) of the corporation by the holder thereof, or by his attorney duly authorized, and on surrender of the certificate or certificates for such shares. A person in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof as regards the corporation, and the corporation shall not, except as expressly required by statute, be bound to recognize any equitable or other claim to, or interest in, such shares on the part of any other person whether or not it shall have express or other notice thereof. 19 24 SECTION 3. TRANSFER AGENTS AND REGISTRARS The Board or the Chairman of the Board, as appropriate, may appoint responsible banks or trust companies from time to time to act as transfer agents and registrars of the stock of the corporation, as may be required by and in accordance with applicable laws, rules and regulations. Except as otherwise provided by the Board or the Chairman of the Board, as appropriate, in respect of temporary certificates, no certificates for shares of capital stock of the corporation shall be valid unless countersigned by a transfer agent and registered by one of such registrars. SECTION 4. ADDITIONAL REGULATIONS The Board or the Chairman of the Board, as appropriate, may make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the corporation. SECTION 5. LOST, STOLEN OR DESTROYED CERTIFICATES The Board or the Chairman of the Board may provide for the issuance of new certificates of stock to replace certificates of stock lost, stolen or destroyed, or alleged to be lost, stolen or destroyed, upon such terms and in accordance with such procedures as the Board or the Chief Executive Officer shall deem proper and prescribe. ARTICLE VII DIVIDENDS, SURPLUS, ETC. Except as otherwise provided by statute or the Restated Certificate of Incorporation, the Board may declare dividends upon the shares of its capital stock either (1) out of its surplus, or (2) in case there shall be no surplus, out of its net profits for the fiscal year, whenever, and in such amounts as, in its opinion, the condition of the affairs of the corporation shall render it advisable. Dividends may be paid in cash, in property, or in shares of the capital stock of the corporation. ARTICLE VIII SEAL The corporation may have a corporate seal which shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 20 25 ARTICLE IX FISCAL YEAR The fiscal year of the corporation shall begin on the first day of January of each year, or on such other day as may be fixed from time to time by the Board. ARTICLE X INDEMNIFICATION SECTION 1. RIGHT TO INDEMNIFICATION Each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he is or was a Director (as that term is used in this Article X only, to include Directors elected or appointed pursuant to Article III of these By-laws, Advisory Directors and Emeritus Directors acting at the request of the Board), officer or employee of the corporation or is or was serving at the request of the corporation as a Director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a Director, officer, employee or agent or in any other capacity while serving as such a Director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the full extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), or by other applicable law as then in effect, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that except as provided in Section 2 of this Article with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of the corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); further provided, however, that, if the General Corporation Law of the State of Delaware requires, an advancement of expenses incurred by an indemnitee in his capacity as a Director, officer or employee (and not in any other capacity in which service was or is rendered by such indemnitee while a Director, officer or employee, including, without limitation, service to an employee benefit plan) shall be 21 26 made only upon delivery to the corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined that such indemnitee is not entitled to be indemnified under this Section 1, or otherwise. SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT If a claim under Section 1 of this Article X is not paid in full by the corporation within sixty days after a written claim has been received by the corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the indemnitee shall be entitled to be paid the expense of prosecuting such suit. The indemnitee shall be presumed to be entitled to indemnification under this Article upon submission of a written claim (and, in an action brought to enforce a claim for an advancement of expenses, where the required undertaking, if any is required, has been tendered to the corporation), and thereafter the corporation shall have the burden of proof to overcome the presumption that the indemnitee is not so entitled. Neither the failure of the corporation (including its Board, independent legal counsel, or its stockholders), to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances, nor an actual determination by the corporation (including its Board, independent legal counsel or its stockholders) that the indemnitee is not entitled to indemnification, shall be a defense to the suit or create a presumption that the indemnitee is not so entitled. SECTION 3. NONEXCLUSIVITY OF RIGHTS The rights to indemnification and to the advancement of expenses conferred in this Article X shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Restated Certificate of Incorporation, By-law, agreement, vote of stockholders or disinterested Directors or otherwise. SECTION 4. INSURANCE, CONTRACTS AND FUNDING The corporation may maintain insurance, at its expense, to protect itself and any Director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. The corporation may enter into contracts with any indemnitee in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article. 22 27 SECTION 5. WHOLLY OWNED SUBSIDIARIES Any person who is or was serving as a Director of a wholly owned subsidiary of the corporation shall be deemed, for purposes of this Article only, to be a Director, officer or employee of the corporation entitled to indemnification under this Article. SECTION 6. INDEMNIFICATION OF AGENTS OF THE CORPORATION The corporation may, by action of the Board from time to time, grant rights to indemnification and advancement of expenses to agents of the corporation with the same scope and effect as the provisions of this Article with respect to the indemnification and advancement of expenses of Directors, officers and employees of the corporation. ARTICLE XI CHECKS, DRAFTS, BANK ACCOUNTS, ETC. SECTION 1. CHECKS, DRAFTS, ETC.; LOANS All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall, from time to time, be determined by resolution of the Board. No loans shall be contracted on behalf of the corporation unless authorized by the Board. Such authority may be general or confined to specific circumstances. SECTION 2. DEPOSITS All funds of the corporation shall be deposited, from time to time, to the credit of the corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, agent or agents of the corporation to whom such power may, from time to time, be delegated by the Board; and for the purpose of such deposit, the Chairman of the Board, the President, any Executive Vice President, any Senior Vice President, any Vice President, the Treasurer or any Assistant Treasurer, or any other officer or agent to whom such power may be delegated by the Board, may endorse, assign and deliver checks, drafts and other order for the payment of money which are payable to the order of the corporation. ARTICLE XII AMENDMENTS These By-laws may be altered or repealed and new By-laws may be made by the affirmative vote, at any meeting of the Board, of a majority of the entire Board, subject to the rights of the stockholders of the corporation to amend or repeal By-laws made or amended by the 23 28 Board by the affirmative vote of the holders of record of a majority in number of shares of the outstanding stock of the corporation present or represented at any meeting of the stockholders and entitled to vote thereon, provided that notice of the proposed action be included in the notice of such meeting. ARTICLE XIII MISCELLANEOUS All references and uses herein of the masculine pronouns "he" or "his" shall have equal applicability to and shall also mean their feminine counterpart pronouns, such as "she" or "her." ARTICLE XIV SPECIAL PROVISIONS SECTION 1. BOARD OF DIRECTORS; NOMINATING COMMITTEES. Until December 31, 2002 (the "Initial Period"), the Board shall maintain the existence of two Nominating Committees, one of which shall be designated the Group One Nominating Committee and comprised at all times of all (and only) Group One Directors (defined below) and one of which shall be designated the Group Two Nominating Committee and comprised at all times of all (and only) the Group Two Directors (defined below). The Group One Nominating Committee shall be vested with the power and authority (1) to recommend to the Board up to five candidates for nomination by the Board for election at each annual meeting of the stockholders and (2) to designate persons to fill vacancies on the Board as set forth below. The Group Two Nominating Committee shall be vested with the power and authority (1) to recommend to the Board up to seven candidates for nomination by the Board for election at each annual meeting of the stockholders and (2) to designate persons to fill vacancies on the Board as set forth below. The Board shall nominate for election at each annual meeting of the stockholders, and identify as candidates for election as directors on the applicable notice of meeting given pursuant to Article II, Section 4 of these By-laws and in any accompanying document, and subject to the next sentence may nominate only: (1) up to five candidates recommended by the Group One Nominating Committee and (2) up to seven candidates recommended by the Group Two Nominating Committee. In connection with any annual meeting of the stockholders occurring after the completion of a Combination Transaction (defined below), the Board may also nominate, in addition to the candidates nominated pursuant to the prior sentence, candidates who, if elected, would be Combination Directors (defined below). For purposes of this Article XIV, the term "Group One Director" means, so long as such person is a Director, (i) any person designated by The Coastal Corporation ("Coastal") pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), dated as of January 17, 2000, between the Company, El Paso Merger Company and Coastal who became a Director at the effective time of the merger consummated pursuant to the Merger Agreement (the "Effective Time") and (ii) any person 24 29 (other than a Combination Director) who subsequently becomes a Director and was recommended or designated by the Group One Nominating Committee pursuant to this Article XIV; the term "Group Two Director" means, so long as such person is a Director, (i) any person designated by the Company pursuant to the Merger Agreement who was a Director at the Effective Time and (ii) any person (other than a Combination Director) who subsequently becomes a Director and who is recommended or designated by the Group Two Nominating Committee pursuant to this Article XIV; and the term "Combination Director" means, so long as such person is a Director, (i) any person first elected or appointed as a Director in connection with a Combination Transaction and (ii) any person who becomes a Director and was nominated or designated by the Board to replace a Combination Director. "Combination Transaction" means any merger, consolidation or other business combination transaction the definitive agreement for which is first approved by the Board after the Effective Time (including any acquisition of any business or entity pursuant to a stock or asset purchase or otherwise) by or involving the Company or any subsidiary of the Company. In the event that at any time during the Initial Period, a Group One Director shall resign from the Board, during the Initial Period, the Group One Nominating Committee shall have the sole power and authority to designate the person to fill the vacancy created by such resignation. In the event that at any time during the Initial Period a Group Two Director shall resign from the Board, during the Initial Period, the Group Two Nominating Committee shall have the sole power and authority to fill the vacancy created by such resignation. In the event that any Combination Director shall resign from the Board, the Board may designate a person to fill the vacancy created by such resignation. During the Initial Period, no special meeting of the stockholders may be called for the purpose of removing or electing one or more Directors (other than Combination Directors or candidates who, if elected, would be Combination Directors) without the approval of (1) the Board in accordance with these By-laws (other than this Article XIV) and (2) at least two-thirds of all of the Group One Directors and Group Two Directors, voting together. The provisions of Section 6 of Article IV of these By-laws (other than the first sentence) shall be applicable to the Nominating Committees. During the Initial Period, the Board shall consist of 12 Directors; provided, however, that the Board may, in accordance with Section 1 of Article III of these By-laws, increase the number of Directors to constitute the Board solely in connection with one or more Combination Transactions. SECTION 2. CERTAIN OFFICERS. William A. Wise shall be the Chairman of the Board from and after January 1, 2001 (or any earlier time at which there is no Chairman of the Board). William A. Wise shall also be the Chief Executive Officer and President after the Effective Time. During such period in which William A. Wise is to be Chairman of the Board and/or Chief Executive Officer and President, as applicable, pursuant to this Section 2, William A. Wise may not be removed from such office without the approval of (1) the Board in accordance with these By-laws (other than this Article XIV) and (2) at least two-thirds of all Group One Directors and Group Two Directors, voting together. David A. Arledge shall be the Vice Chairman of the Board after the Effective Time and may not be removed from such office during the Initial Period without the approval of (1) the Board in accordance with these By-laws (other than this Article XIV), and (2) at least two-thirds of all the Group One Directors and Group Two Directors, voting together. The provisions of the 25 30 last sentence of Section 6 of Article V of these By-laws shall not be applicable at all times during which William A. Wise is Chairman of the Board. SECTION 3. SUPERCEDING EFFECT; AMENDMENTS. During the Initial Period, the provisions of this Article XIV, Sections 6 and 7 of Article V, Section 8 of Article IV (to the extent applicable to the Nominating Committees) and Section 1 of Article III (to the extent applicable to the last sentence of Section 1 of this Article XIV) shall supercede the provisions of the other Articles and Sections of these By-laws to the extent there is a conflict between the provisions of this Article XIV, Sections 6 and 7 of Article V, Section 8 of Article IV (to the extent applicable to the Nominating Committees) and Section 1 of Article III (to the extent applicable to the last sentence of Section 1 of this Article XIV), on the one hand, and the provisions of such other Articles and Sections, on the other hand. During the Initial Period, this Article XIV, Sections 6 and 7 of Article V, Section 8 of Article IV (to the extent applicable to the Nominating Committees) and Section 1 of Article III (to the extent applicable to the last sentence of Section 1 of this Article XIV) may not be altered, repealed or superceded by action of the Board without the approval of (1) the Board in accordance with these By-laws (other than this Article XIV), and (2) at least two-thirds of all of the Group One Directors and Group Two Directors, voting together. 26 EX-99.1 4 h84209ex99-1.txt SUMMARIZED DISCUSSIONS OF BUSINESSES & OPERATIONS 1 EXHIBIT 99.1 THE ISSUER We are a global energy company with operations that span the energy value chain, from energy production and extraction to power generation. Our principal operations include: o the domestic and international transportation, gathering, processing, and storage of natural gas; o the marketing of energy and energy-related commodities and products; o the generation of power; o the refining of petroleum; o the production of chemicals; o the development and operation of energy infrastructure facilities; o the exploration and production of natural gas and oil; and o the mining of coal. Our Pipeline group owns or has interests in approximately 60,000 miles of interstate natural gas pipelines in the United States and internationally. In the U.S., our systems connect the nation's principal natural gas supply regions to the five largest consuming regions in the United States: the gulf coast, California, the Northeast, the Midwest, and the Southeast. These operations represent the largest and only integrated coast-to-coast mainline natural gas transmission system in the United States. Our U.S. system is comprised of seven wholly owned interstate pipeline systems: the Tennessee Gas pipeline, the ANR pipeline, the El Paso Natural Gas pipeline, the Southern Natural Gas pipeline, the Colorado Interstate pipeline, the Mojave pipeline, and the Wyoming Interstate pipeline systems. We also have interests in the Florida Gas Transmission pipeline, the Great Lakes Gas Transmission pipeline, the Portland Natural Gas Transmission pipeline, and the Alliance pipeline systems. In addition to providing open access transmission services, these systems own or have interests in over 425 billion cubic feet of storage capacity used to provide a variety of services to their customers. Our international pipeline operations include access from our U.S. based systems into Canada and Mexico as well as interests in three major operating natural gas transmission systems in Australia. Our Merchant Energy group is involved in a broad range of activities in the energy marketplace, including asset ownership, trading and risk management and financial services. We are one of North America's largest energy commodity marketers and traders, and buy, sell, and trade natural gas, power, crude oil, refined products, coal and other energy commodities throughout the world. We are also a significant non-utility owner of electric generating capacity with interests in 65 power generation facilities in 21 countries. Our four refineries have the capacity to process 538,000 barrels of crude oil per day and produce a variety of gasolines and diesel fuels, jet fuels, asphalt, industrial fuels, and other products. We also produce agricultural and industrial chemicals and petrochemicals at 7 facilities in the United States and Canada. Our coal operations produce high-quality, bituminous coal with reserves in Kentucky, Virginia and West Virginia. Most recently, we have announced our expansion into the liquified natural gas business, capitalizing upon the U.S. and worldwide demand for natural gas. Our financial services businesses invest in emerging businesses to finance growth in the U.S. and Canadian energy markets. As a global energy merchant, we evaluate and measure risks inherent in the markets we serve, and use sophisticated systems and integrated risk management techniques to manage those risks. Our Field Services group provides natural gas gathering, products extraction, fractionation, dehydration, purification, compression and intrastate transmission services. These services include gathering of natural gas from more than 15,000 natural gas wells with approximately 24,000 miles of gathering and NGL pipelines, and 35 natural gas processing, treating, and fractionation facilities located in some of the most prolific and active production areas in the United States, including the San Juan Basin, east and south Texas, Louisiana, the Gulf of Mexico, and the Rocky Mountains. We conduct our intrastate transmission operations through interests in 6 intrastate systems, including the El Paso Gas Transmission Texas pipeline that extends from south Texas and the Permian Basin to central and east Texas. These pipeline assets serve all major metropolitan areas and the largest industrial load centers in Texas, as well as numerous natural gas trading hubs. Our primary vehicle for the acquisition and development of midstream energy infrastructure assets is El Paso Energy Partners, L.P., a publicly traded master limited partnership of which we are the general partner. Energy Partners provides natural gas and oil gathering and transportation, midstream, storage, and other related services, principally offshore in the Gulf of Mexico. 2 Our Production group leases approximately 5.0 million net acres in 16 states, including Colorado, Kansas, Louisiana, New Mexico, Texas, Oklahoma, Utah, Wyoming, and Arkansas, as well as the Gulf of Mexico. We also have exploration and production rights in Australia, Brazil, Canada, Hungary, Indonesia, and Turkey. During 2000, daily equivalent natural gas production exceeded 1.6 billion cubic feet per day, and our reserves at December 31, 2000 were approximately 6.4 trillion cubic feet of gas equivalent. In addition to our energy activities, we have announced a telecommunications strategy that will leverage our knowledge of the commodity and capital markets into the emerging telecommunications market. Our strategy involves: o accessing fiber deep within metropolitan markets to aggregate supply in major U.S. cities; o utilizing fiber rings and key points of interconnection of major carriers and service providers to allow for liquidity to develop in major markets; and o assembling a high capacity thin fiber national long-haul backbone. We will overlay against this asset base a merchant-based operating support system and valuation models that will allow us to apply the merchant skills developed in our core commodity business to the rapidly changing telecommunications markets. 2 EX-99.2 5 h84209ex99-2.txt DETAILED DUSCUSSIONS OF BUSINESSES & OPERATIONS 1 EXHIBIT 99.2 BUSINESS AND PROPERTIES GENERAL We are a global energy company originally founded in 1928 in El Paso, Texas. For many years, we served as a regional pipeline company conducting business mainly in the western United States. However, over the past five years, we have grown into a company whose operations span the energy value chain, from energy production and extraction to power generation. Our substantial growth during this period has been accomplished through a series of strategic acquisitions,transactions, and internal growth initiatives, each of which has enhanced and improved our competitive abilities in the U.S. and global energy markets. Significant milestones in this five year period include:
YEAR TRANSACTION IMPACT ---- ----------- ------ 1995 Acquisition of Eastex Energy Signaled our entry into the wholesale energy marketing business. 1996 $4 billion acquisition of the energy businesses Expanded our U.S. interstate pipeline system of Tenneco, Inc. from coast to coast and signaled our entry into the international energy market. 1997 Acquisition of DeepTech International, Inc. Expanded our U.S. onshore and offshore gathering capacity and capabilities. 1999 $6 billion Merger with Sonat Inc. Expanded our U.S. transmission segment into the southeast portion of the United States and signaled our entrance into the exploration and production business through the addition of 1.5 trillion cubic feet of natural gas equivalent. Creation of the $1.1 billion Electron Provided the vehicle through which we have Structure become a significant non-utility generator of power. 2000 Acquisition of PG&E Texas Mid-stream Assets Expanded our mid-stream operations to cover every major metropolitan market and industrial hub in the state of Texas. 2001 Completed our $24 billion Merger with The This merger places us as a top-tier participant Coastal Corporation in every aspect of the energy marketplace.
With each of our significant mergers and acquisitions, we have evaluated our processes and organizational structure to achieve cost savings and operating efficiencies. These actions have included restructuring our workforce and consolidating our operations. These activities occurred again following the completion of our merger with Coastal in January 2001. Also during this period, we have completed numerous smaller acquisitions and transactions to enhance and expand the scope of our core operations and activities. OPERATIONS Our principal operations include: o the domestic and international transportation, gathering, processing, and storage of natural gas; o the marketing of energy and energy-related commodities and products; o the generation of power; o the refining of petroleum and production of chemicals; o the development and operation of energy infrastructure facilities; o the exploration and production of natural gas and oil; and o the mining of coal. Our Pipeline group owns or has interests in approximately 60,000 miles of interstate natural gas pipelines in the United States and internationally. In the U.S., our systems connect the nation's principal natural gas supply regions to the five largest consuming regions in the United States: the Gulf Coast, California, the Northeast, the Midwest, and the Southeast. These operations represent the largest and only integrated coast-to-coast mainline natural gas transmission system in the United States. Our U.S. pipeline systems also own or have interests in over 425 billion cubic feet of storage capacity used to provide a variety of services to their customers. Our international pipeline operations include access from our U.S. based systems into Canada and Mexico as well as interests in three major operating natural gas transmission systems in Australia. Our Merchant Energy group is involved in a broad range of activities in the energy marketplace including asset ownership, trading and risk management and financial services. We are one of North America's largest energy commodity marketers and traders, and buy, sell, and trade natural gas, power, crude oil, refined products, coal, and other energy commodities throughout the world. We are also a significant non-utility owner of electric generating capacity with 65 facilities in 21 countries. Our four refineries produce a 2 variety of gasolines and diesel fuels, jet fuels, asphalt, industrial fuels, and other products. We also produce agricultural and industrial chemicals and petrochemicals at seven facilities in the United States and Canada. Our coal operations produce high-quality, bituminous coal with reserves in Kentucky, Virginia and West Virginia. Most recently, we have announced our expansion into the liquid natural gas business, capitalizing upon the U.S and worldwide demand for natural gas. The financial services businesses of Merchant Energy invest in emerging businesses to finance growth in the U.S. and Canadian energy markets. As a global energy merchant, we evaluate and measure risks inherent in the markets we serve, and use sophisticated systems and integrated risk management techniques to manage those risks. Our Field Services group provides natural gas gathering, products extraction, fractionation, dehydration, purification, compression and intrastate transmission services. These services include gathering of natural gas from more than 15,000 natural gas wells with approximately 24,000 miles of gathering and NGL pipelines, and 35 natural gas processing, treating, and fractionation facilities located in some of the most prolific and active production areas in the United States, including the San Juan Basin, east and south Texas, Louisiana, the Gulf of Mexico, and the Rocky Mountains. We conduct our intrastate transmission operations through interests in six intrastate systems, and serve all major metropolitan areas and industrial load centers in Texas. Our primary vehicle for growth and development of midstream energy assets is El Paso Energy Partners, L.P., a publicly traded limited partnership of which we are the general partner. Through Energy Partners, we conduct natural gas and oil gathering and transportation, midstream, storage, and other related services, principally offshore in the Gulf of Mexico. Our Production group leases approximately 5.0 million net acres in 16 states, including Colorado, Kansas, Louisiana, New Mexico, Texas, Oklahoma, Utah, Wyoming, and Arkansas, as well as the Gulf of Mexico. We also have exploration and production rights in Australia, Brazil, Canada, Hungary, Indonesia, and Turkey. In addition to our energy activities, we have announced a telecommunications strategy that will leverage our knowledge of the commodity and capital markets into the emerging telecommunications market. Our strategy involves: o accessing fiber deep within metropolitan markets to aggregate supply in major U.S. cities, o utilizing fiber rings and key points of interconnection of major carriers and service providers to allow for liquidity to develop in major markets, and o assembling a high capacity thin fiber national long-haul backbone. We will overlay against this asset base a merchant-based operating support system and valuation models that will allow us to apply the merchant skills developed in our core commodity business to the rapidly changing telecommunications markets. BUSINESS UNITS Our business unit activities are segregated into four business segments: the Pipeline group, Merchant Energy, Field Services, and Production. These segments are strategic business units that provide a variety of energy products and services. We manage each segment separately, and each segment requires different technology and marketing strategies. In the discussions of our business unit activities that follows, we have excluded entities and assets sold or in the process of being sold as a result of our mergers with Coastal and the Texas Mid-stream Operations of PG&E. PIPELINE GROUP Our Pipeline group provides natural gas transmission services in the United States and internationally. In the U.S, we conduct our activities through seven wholly owned and four partially owned interstate systems along with a liquefied natural gas terminalling facility and numerous natural gas storage facilities. Our international pipeline operations include access from our U.S based systems into Canada and Mexico as well as interests in three major operating natural gas transmission systems in Australia. Each of these systems is discussed below: The TGP system. The Tennessee Gas Pipeline system consists of approximately 14,700 miles of pipeline with a design capacity of 5,970 MMcf/d. During 2000, TGP transported natural gas volumes averaging approximately 73 percent of its capacity. This multiple-line system begins in the gas-producing regions of Louisiana, including the Gulf of Mexico, and south Texas and extends to the northeast section of the United States, including the New York City and Boston metropolitan areas. TGP also has an interconnect at the United States-Mexico border. Along its system, TGP has approximately 89 Bcf of underground working gas storage capacity. 3 The ANR system. The ANR Pipeline system consists of approximately 10,600 miles of pipeline with a design capacity of 6,627 MMcf/d. During 2000, ANR transported natural gas volumes averaging approximately 71 percent of its capacity. This system's two interconnected, large diameter multiple pipeline systems transport gas from gas-producing fields in Texas, Oklahoma, Louisiana, the Gulf of Mexico, and Canada to markets in the Midwest and Northeast regions of the United States, including the metropolitan areas of Detroit, Chicago, and Minneapolis. Along its system, ANR has approximately 202 Bcf of underground working gas storage capacity. The EPNG system. The El Paso Natural Gas system consists of approximately 9,800 miles of pipeline with a design capacity of 4,744 MMcf/d. During 2000, EPNG transported natural gas volumes averaging approximately 82 percent of its capacity. The EPNG system delivers natural gas from the San Juan Basin of northern New Mexico and southern Colorado and the Permian Basin and Anadarko Basin to California, which is its single largest market, as well as markets in Nevada, Arizona, New Mexico, Texas, Oklahoma, and northern Mexico. The SNG system. The Southern Natural Gas system consists of approximately 8,200 miles of pipeline with a design capacity of 2,834 MMcf/d. During 2000, SNG transported volumes averaging approximately 73 percent of its capacity. SNG's interstate pipeline system extends from gas fields in Texas, Louisiana, Mississippi, Alabama and the Gulf of Mexico to markets in Louisiana, Mississippi, Alabama, Florida, Georgia, including the city of Atlanta, South Carolina and Tennessee. SNG is the principal pipeline supplier to the growing southeastern markets of Alabama and Georgia. In August 2000, the South Georgia Natural Gas system was combined with the SNG system as part of its rate case settlement. Along its system, SNG has approximately 60 Bcf of underground working gas storage capacity. The CIG system. The Colorado Interstate Gas system consists of approximately 4,400 miles of pipeline, with a design capacity of 2,290 MMcf/d. During 2000, CIG transported natural gas volumes averaging approximately 60 percent of its capacity. The CIG system is directly or indirectly connected to the major supply basins in the Rocky Mountain region and serves two major markets, one along the front range of the Rocky Mountains, and the second at various interconnects with pipeline systems transporting gas to California and the Midwest. Along its system, CIG has approximately 29 Bcf of underground working gas storage capacity. The WIC system. The Wyoming Interstate Company system consists of approximately 400 miles of pipeline with a total design capacity of approximately 1,157 MMcf/d. During 2000, WIC transported natural gas volumes averaging approximately 75 percent of its capacity. The system has two large-diameter pipelines that come together in northern Colorado to feed into the CIG-Trailblazer interconnect on the 800-mile Trailblazer system and into other interstate and intrastate pipelines at that interconnect. The MPC system. The Mojave Pipeline Company system consists of approximately 400 miles of pipeline with a design capacity of approximately 400 MMcf/d. During 2000, MPC transported natural gas volumes averaging approximately 100 percent of its capacity. The MPC system connects with the EPNG transmission system at Topock, Arizona and the Kern River Gas Transmission Company system in California and extends to customers in the vicinity of Bakersfield, California. Florida Gas Transmission system. We own a 50 percent interest in Citrus Corp., a holding company that owns 100 percent of Florida Gas Transmission Company. Florida Gas is the primary pipeline transporter of natural gas in the state of Florida and the sole pipeline transporter to peninsular Florida. The system consists of approximately 4,800 miles of interstate natural gas pipelines with a design capacity of 1,462 MMcf/d. During 2000, Florida Gas transported volumes averaging approximately 92 percent of its capacity. The system extends from south Texas to a point near Miami, Florida. Great Lakes. We own a 50 percent interest in Great Lakes Gas Transmission, LP. Great Lakes owns a 2,100-mile pipeline with a design capacity of 2,895 MMcf/d. The system extends from the Manitoba-Minnesota border to an interconnection on the Michigan-Ontario border at St. Clair, Michigan. During 2000, Great Lakes transported volumes averaging approximately 84 percent of its capacity. Alliance Pipeline. We own an approximate 14 percent interest in the Alliance pipeline project. Alliance consists of approximately 2,300 miles of pipeline with a design capacity of 1,325 MMcf/d and extends from supply fields in western Canada to the Chicago area market center. Alliance commenced service in late 2000. Portland Natural Gas Transmission. We own an approximate 19 percent interest in the Portland Natural Gas Transmission system. Portland consists of approximately 300 miles of interstate natural gas pipeline with a design capacity of 215 MMcf/d extending from the Canadian border near Pittsburg, New Hampshire to Dracut, Massachusetts. During 2000, Portland transported volumes averaging approximately 51 percent of its capacity. 4 Southern LNG, Inc. Southern LNG is a liquefied natural gas receiving terminal, located on Elba Island, near Savannah, Georgia, capable of achieving a peak send out of 540 MMcf/d and a base load send out of 333 MMcf/d. Inactive since the early 1980s, Southern LNG received an order from the Federal Energy Regulatory Commission (FERC) in March 2000 granting permission to reactivate the receiving terminal. We expect the terminal to be in service in the fourth quarter of 2001. ANR Storage. ANR Storage Company develops and operates underground natural gas storage facilities. ANR Storage owns four underground storage facilities in northern Michigan. These facilities have a working storage capacity of approximately 56 Bcf, of which 30 Bcf is contracted by ANR Pipeline Company. In addition, ANR Storage has joint ownership interests in three storage facilities located in Michigan and New York with a total working storage capacity of approximately 65 Bcf. All of ANR Storage's jointly owned capacity is under long-term contracts, including 45 Bcf contracted to ANR Pipeline Company. BearCreek Storage. Bear Creek Storage Company owns and operates an underground natural gas storage facility located in Louisiana. The facility has a capacity of 50 Bcf of base gas and 58 Bcf of working storage capacity. Bear Creek's working storage capacity is committed equally to the TGP and SNG systems under long-term contracts. Australian Pipelines. We own a 33 percent interest in the 488-mile Moomba to Adelaide pipeline system in southern Australia, the 470-mile Ballera to Wallumbilla pipeline system in southwestern Queensland, and the 925-mile Dampier-to-Bunbury natural gas pipeline in western Australia. Regulatory Environment Our interstate systems are regulated by FERC under the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. Each system operates under separate FERC approved tariffs that establish rates, terms, and conditions under which each system provides services to its customers. Generally, FERC's authority extends to: o the transportation of natural gas, rates and charges; o the construction of new facilities; o the extension or abandonment of services and facilities; o the maintenance of accounts and records and depreciation and amortization policies; o the acquisition and disposition of facilities; o the initiation and discontinuation of services; and o various other matters. Our wholly owned and investee pipelines have tariffs that have been established through filings with FERC and have a variety of terms and conditions, each of which affects its operations and its ability to recover fees for the services it provides. By and large, changes to these fees or terms can only be implemented upon approval by FERC. In Canada, our operating activities are regulated by the National Energy Board, or the NEB. Similar to FERC, the NEB governs tariffs and rates, and the construction and operation of natural gas pipelines in Canada. In Australia, rates and other business issues are regulated by various regional and national agencies, which govern the operating activities of these pipelines. Our interstate pipeline systems are also subject to the Natural Gas Pipeline Safety Act of 1968 that establishes pipeline and liquefied natural gas plant safety requirements, the National Environmental Policy Act, and other environmental legislation. Each of our systems has a continuing program of inspection designed to keep all of our facilities in compliance with pollution control and pipeline safety requirements. We believe our systems are in substantial compliance with applicable requirements. Markets and Competition Our interstate systems face varying degrees of competition from alternative energy sources, such as electricity, hydroelectric power, coal, and fuel oil. Also, the potential consequences of proposed and ongoing restructuring and deregulation of the electric power industry are currently unclear. Restructuring and deregulation may benefit the natural gas industry by creating more demand for natural gas turbine generated electric power, or it may hamper demand by allowing a more effective use of surplus electric capacity through increased wheeling as a result of open access. 4 5 TGP. TGP's customers include natural gas producers, marketers and end-users, as well as other gas transmission and distribution companies, none of which individually represents more than 10 percent of the revenues on TGP's system. Currently, over 70 percent of TGP's capacity is subject to firm contracts expiring after 2001. These contracts have an average term in excess of five years. TGP continues to pursue future markets and customers for the capacity that is not committed beyond 2001 and expects this capacity will be placed under a combination of long-term and short-term contracts. However, there can be no assurance that TGP will be able to replace these contracts or that the terms of new contracts will be as favorable to TGP as the existing ones. In a number of key markets, TGP faces competitive pressures from other major pipeline systems, which enable local distribution companies and end-users to choose a supplier or switch suppliers based on the short-term price of natural gas and the cost of transportation. Competition among pipelines is particularly intense in TGP's supply areas, Louisiana and Texas. In some instances, TGP has had to discount its transportation rates in order to maintain market share. The renegotiation of TGP's expiring contracts may be adversely affected by these competitive factors. ANR. In its historical market areas of Wisconsin and Michigan, ANR Pipeline Company competes with other interstate and intrastate pipeline companies and local distribution companies in the transportation and storage of natural gas. ANR has been successful in restructuring the service portfolios of a number of its major Wisconsin customers. This restructuring has enabled ANR to extend contracts that were set to expire in 2003, with the restructured contracts providing for a combined winter maximum daily quantity of 674 MMcf/d that will expire in 2008 and 2010. ANR continues to work with its largest customer, Wisconsin Energy Corporation, to restructure and extend contracts that are set to expire in 2003. In addition, Wisconsin Energy is a sponsor of the proposed Guardian Pipeline that will directly compete for a portion of this expiring capacity. ANR also has 900 MMcf/d of capacity under contract with Michigan Consolidated Gas Company. Of that amount, 110 MMcf/d is due to expire in March 2002, another 175 MMcf/d will expire in 2003, and the remainder of the capacity will expire between 2006 and 2011. Extension of these contracts is under negotiation. ANR also faces competition in the Northeast markets from other interstate pipelines serving electric generation and local distribution companies. EPNG. EPNG faces significant competition from other pipeline companies that transport natural gas to the California market. EPNG's current capacity to deliver natural gas to California is approximately 3.3 Bcf/d, and the combined capacity of all pipeline companies serving the California market is approximately 6.9 Bcf/d. In 2000, the demand for interstate pipeline capacity to California averaged 5.4 Bcf/d, equivalent to approximately 78 percent of the total interstate pipeline capacity serving that state. Natural gas shipped to California across the EPNG system represented approximately 35 percent of the natural gas consumed in the state in 2000. On an average annual basis, interstate pipeline capacity utilization to California is not expected to reach 100 percent for three to five years, based on expected demand growth and assuming no new interstate pipeline capacity is added. EPNG's ability to remarket the capacity that expires in May 2001 may be adversely affected by this excess capacity into California. The significant customers served by EPNG in California during 2000 included Southern California Gas Company, with capacity of 1,150 MMcf/d under contract until August 2006, and Merchant Energy, with capacity of 1,221 MMcf/d under contract through May 2001. EPNG is conducting an open season on the Merchant Energy contract, but it is uncertain whether the terms of the re-subscribed capacity will be as favorable as those that exist currently. SNG. SNG's customers include distribution and industrial customers, electric generation companies, gas producers, other gas pipelines and gas marketing and trading companies. SNG provides transportation services in both its gas supply and market areas. SNG's contracts to provide firm transportation service for its customers are for varying amounts and periods of time. Substantially all of the firm transportation capacity currently available in SNG's two largest market areas is fully subscribed. The significant customers served by SNG include: o Atlanta Gas Light Company, with capacity of 770 MMcf/d under contracts that expire beginning in 2005 through 2007, with the majority expiring in 2005; o Alabama Gas Corporation, with capacity of 384 MMcf/d under contracts that expire beginning in 2005 through 2008, with the majority expiring in 2008; and o South Carolina Pipeline Corporation, with capacity of 188 MMcf/d under contract which expires primarily in 2005. Nearly all of SNG's firm transportation contracts automatically extend the term for additional months or years unless notice of termination is given by one of the parties. 5 6 Competition among pipelines is strong in a number of SNG's key markets. Customers purchase gas supply from producers and gas marketing companies in unregulated transactions and contract with SNG for transportation services to deliver this supply to their markets. SNG's three largest customers are able to obtain a significant portion of their natural gas requirements through transportation from other pipelines. In addition, SNG competes with several pipelines for the transportation business of many of its other customers. The competition with such pipelines is intense, and SNG must, at times, discount its transportation rates in order to maintain market share. CIG. CIG serves two major markets, its "on-system" market, consisting of the utilities along the Front Range of the Rocky Mountains in Colorado and Wyoming, and its "off-system" market, consisting of the transportation of Rocky Mountain production from multiple supply basins to interconnections with other pipelines bound for the Midwest or California. CIG faces different types of competition in both markets. In the on-system market, competition comes from local supply in the Denver-Julesburg basin, from an intrastate pipeline directly serving Denver, and from off-system shippers who can "drop off" their gas in that market, supplanting CIG transportation for utility customers. The primary criterion for success in this market is the ability to serve a very volatile load reliably, at a competitive price. In the off-system market, CIG faces competition in its supply area from two major pipelines serving the California and Pacific Northwest markets. It also faces competition from competitors whose supply is produced in Texas, Oklahoma, and Kansas. These competitors can displace CIG deliveries into the pipelines serving the Midwestern markets. The primary criterion for success in this market is the strength of pricing differentials between Wyoming and Oklahoma. CIG's full capacity is contracted under firm transportation agreements, with the bulk of these agreements expiring within the next several years. The largest portion of these agreements is with Public Service Company of Colorado and will expire in the 2002 to 2005 timeframe. CIG is actively negotiating with all shippers for contract renewal and is optimistic that its ability to serve the Front Range market reliably and competitively, coupled with reasonably strong pricing differentials affecting off-system markets, will result in successful renewal of the expiring contracts. New firm transportation contracts have not yet been executed for the bulk of the volumes involved, but CIG has reached agreement in principle with Public Service of Colorado to renew its contracts at revenue levels close to historical levels. WIC. WIC's two lines are subject to different competitive forces. Both lines are currently fully contracted and are subject to take-away capacity constraints at their intersection in northern Colorado. Both of WIC's lines feed into the Trailblazer system going east, the CIG system going south and other interstate and intrastate pipelines connected at the CIG - Trailblazer interconnect. Due to the full capacity demand on the Trailblazer system and the near capacity demand on the CIG system, shippers on WIC's two lines must compete with each other for scarce capacity to the markets of choice. On WIC's main line, contracts for approximately 500 MMcf/d out of approximately 750 MMcf/d expire in 2003. Success in renewing or replacing these contracts will depend on the availability of eastbound capacity. WIC's remaining contracts generally have between six and ten years left. MERCHANT ENERGY Our Merchant Energy group is involved in a broad range of activities in the energy marketplace, including asset ownership, trading and risk management and financial services. Merchant Energy is organized into eight functional units, each with complementary activities that support our overall global energy merchant model. These units are: o Marketing and Origination; o Trading and Risk Management; o Power Generation; o LNG; o Refining, Marketing & Chemicals; o Coal; o Financial Services; and o Operations. Marketing and Origination. The Marketing and Origination unit markets natural gas, power, crude oil, refined products, coal, and other commodities, develops and acquires natural gas, power, refining, chemical, and coal assets, markets capacity from these assets, and creates innovative structured transactions to enhance their value. These units provide customers with flexible solutions to meet their energy supply and financial risk management requirements by utilizing their knowledge of the marketplace, natural gas pipelines and power transmission infrastructure, supply aggregation, transportation management and valuation, storage, and integrated price risk 6 7 management. They also enter into short and long term energy supply and purchase contracts and perform total energy infrastructure outsourcing for its customers. Trading and Risk Management. The Trading and Risk Management unit trades natural gas, power, crude oil, other commodities, and related financial instruments in North America and Europe and provides pricing and valuation analysis for the Marketing and Origination Unit. Through this group, we have natural gas storage and transportation assets, petroleum and petroleum products, terminalling capacity, and power generation facilities. For 2000, we grew our combined physical and financial settled volumes by 40% to 108,711 BBtue/day. We expect these volumes to significantly increase in 2001. Using the financial markets, we manage the inherent risk of Merchant Energy's asset and trading portfolios using value-at-risk limits set by our Board of Directors and optimize the value inherent in the segment's portfolio. Detailed below is the marketed and traded energy commodity volumes for the years ended December 31:
2000 1999 1998 ------- ------ ------ Physical natural gas marketed (Bbtu/d) 6,899 6,713 7,315 Crude and refined products (Thousand BBls) 7,772 4,990 21,716 Power Marketed (Thousand megawatt hours) 113,652 79,361 55,210 Financial Settled Volumes (Bbtue/d) 98,574 68,678 31,793
Power Generation. Our Power generation unit is one of the largest non-utility generators in the United States, and currently owns or has interests in 74 power plants in 21 countries. These plants represent 20,421 gross megawatts of generating capacity. Of these facilities, 86 percent are gas fired, and 14 percent are geothermal. During 2000, Merchant Energy continued acquiring domestic non-utility generation (NUG) assets, especially those with above-market power purchase agreements. As part of these efforts, we used Chaparral Investors, L.L.C., "Electron", to expand our growth in the power generation business. Through Chaparral, Merchant Energy has invested in 28 U.S. power generation facilities with a total generating capacity of approximately 5,800 megawatts. A subsidiary of Merchant Energy is the manager of Chaparral and its wholly-owned subsidiary, Mesquite Investors, L.L.C. under a management agreement, which expires in 2006. As compensation for managing Chaparral, Merchant Energy is paid an annual performance-based management fee. Detailed below are brief descriptions, by region, of Merchant Energy's power generation projects that are either operational or in various stages of construction or development.
NUMBER OF GROSS REGION PROJECT STATUS FACILITIES MEGAWATTS ------ -------------- ---------- --------- North America East Coast Operational 19 3,263 Under Construction 1 544 Under Development 5 1,924 Central Operational 7 1,245 Under Development 2 1,000 West Coast Operational 21 1,036 South America Operational 7 4,114 Under Construction 1 470 Asia Operational 5 2,589 Under Construction 2 1,108 Europe Operational 3 544 Under Construction 1 396 --- ------ Total Power Plants 74 20,421
LNG. The LNG division contracts for LNG terminalling and regasification capacity, coordinates short and long term LNG supply deliveries, and is developing an international LNG supply and marketing business. As of December 31, 2000, our LNG division has contracted for over 280 Bcf per year of LNG regassification capacity at three locations along the Eastern Coast of the U.S. and 1 location 7 8 in Louisiana. In the Caribbean, we have contracted for 105 Bcf per year of long term supplies of LNG with deliveries scheduled to begin in 2002. Refining, Marketing & Chemicals. Our Refining, Marketing and Chemicals unit owns interests in four crude oil refineries, seven chemical production facilities, and has blending and packaging operations that produce and distribute a variety of lubricants and automotive related products. The refineries have a throughput capability of 538,000 barrels of crude oil per day to produce gasoline and other products. The chemical facilities have a production capability of 3,800 tons per day and produce various industrial and agricultural products. Our refineries operated at 90% of average combined capacity in 2000 compared to 93% in 1999 and at 85% in 1998. The aggregate sales volumes (millions of barrels) of our wholly owned refineries were 181.9 in 2000, 171.3 in 1999 and 154.4 in 1998. Of the total refinery sales in 2000, 27% was gasoline, 49% was middle distillate, like jet fuel, diesel fuel and home heating oil, and 24% was heavy industrial fuels and other products. The following table presents average daily throughput and storage capacity at our refineries at December 31, 2000 in (Bbls):
AVERAGE DAILY THROUGHPUT DAILY -------------------- STORAGE REFINERY LOCATION CAPACITY 2000 1999 CAPACITY -------- -------- -------- ------- ------- ---------- Aruba Aruba 280,000 229,000 195,000 15,300,000 Corpus Christi Corpus Christi, 100,000 99,000 100,000 7,100,000 Texas Eagle Point Westville, New 140,000 143,000 143,000 9,300,000 Jersey Mobile Mobile, Alabama 18,000 12,000 13,000 600,000 ------- ------- ------- ---------- Total................... 538,000 483,000 451,000 32,300,000 ======= ======= ======= ==========
Our refineries produce a full range of petroleum products ranging from transportation fuels to paving asphalt. They are operated to produce the particular products required by customers within each refinery's geographic area. In 2000, the products emphasized included premium gasoline and products for specialty markets like petrochemical feed stocks, aviation fuels, and asphalt. Our chemical plants produce agricultural fertilizers, gasoline additives, and other industrial products from facilities in Wyoming, Nevada, and Oregon. The following table presents sales volumes from our chemical facilities for each of the three years ended December 31, 2000 (in thousands of tons);
2000 1999 1998 ----- ----- ----- Agricultural Sales...... 389 326 346 Industrial Sales........ 547 608 550 MTBE.................... 214 209 210 ----- ----- ----- Total.............. 1,150 1,143 1,106 ===== ===== =====
Coal. Our Coal units control reserves totaling 536 million recoverable tons at December 31, 2000, and produce a high-quality bituminous coal from reserves in Kentucky, Virginia and West Virginia. The coal is primarily sold under long-term contracts to power generation facilities in the eastern United States. Financial Services. The Financial Services unit provides mezzanine and equity financing to power project developments and provides institutional funds management. Merchant Energy owns EnCap, an institutional funds management firm specializing in financing independent oil and natural gas producers. EnCap manages three separate institutional oil and natural gas investment funds in the United States, and serves as investment advisor to Energy Capital Investment Company PLC, a publicly traded investment company in the United Kingdom. In 2000, we began originating mezzanine financing for North American power development projects. As of December 31, 2000, we had funded $5 Million of loans with additional commitments for $68 Million. 8 9 Operations. The Operations unit conducts the day-to-day operations of Merchant Energy's assets in close coordination with the Origination and Trading and Risk Management units. Our Operations group operates 17 generation facilities in the U.S. and 7 facilities in 7 foreign countries. Finance and Administration. The Finance and Administration unit implements financing strategies for Merchant Energy's assets, and provides accounting and administrative services for the segment's activities. Regulatory Environment Merchant Energy's domestic power generation activities are regulated by FERC under the Federal Power Act with respect to its rates, terms and conditions of service and other reporting requirements. In addition, exports of electricity outside of the U.S. must be approved by the Department of Energy. Our cogeneration and independent power production activities are regulated by FERC under the Public Utility Regulatory Policies Act and the EPA with respect to rates, the procurement and provision of certain services, and operating standards. Merchant Energy's foreign operations are regulated by numerous governmental agencies in the countries in which these projects are located. Generally, many of the countries in which Merchant Energy conducts and will conduct business have recently developed or are developing new regulatory and legal structures to accommodate private and foreign-owned businesses. These regulatory and legal structures and their interpretation and application by administrative agencies are relatively new and sometimes limited. Many detailed rules and procedures are yet to be issued and we expect that the interpretation of existing rules in these jurisdictions will evolve over time. We believe that our operations are in compliance in all material respects with all applicable environmental laws and regulations in the applicable foreign jurisdictions. We also believe that the operations of our projects in many of these countries eventually may be required to meet standards that are comparable in many respects to those in effect in the United States and in countries within the European Community. Markets and Competition Merchant Energy maintains a diverse supplier and customer base. During 2000, Merchant Energy's activities served over 900 suppliers and over 1,300 sales customers around the world. Merchant Energy's trading and marketing businesses operate in a highly competitive environment. Its primary competitors include: o marketing affiliates of major oil and natural gas producers; o marketing affiliates of large local distribution companies; o marketing affiliates of other interstate and intrastate pipelines; and o independent energy marketers with varying scopes of operations and financial resources. Merchant Energy competes on the basis of price, access to production, understanding of pipeline and transmission networks, imbalance management, experience in the marketplace, and counterparty credit. Many of Merchant Energy's generation facilities sell power pursuant to long-term agreements with investor-owned utilities in the United States. Because of the terms of its power purchase agreements for its facilities, Merchant Energy's revenues are not significantly impacted by competition from other sources of generation. The power generation industry is rapidly evolving, and regulatory initiatives have been adopted at the federal and state level aimed at increasing competition in the power generation business. As a result, it is likely that when the power purchase agreements expire, the facilities will be required to compete in a significantly different market in which operating efficiency and other economic factors will determine success. Merchant Energy is likely to face intense competition from generation companies as well as from the wholesale power markets. The number of competitors varies from country to country, as does their respective scope of operations. However, the type of competitors Merchant Energy competes against in most of its markets typically include other large multi-national energy infrastructure companies; large, in-country utilities and energy infrastructure companies; affiliates of major natural gas and oil producers as well as independent power producers and independent energy companies. The successful acquisition of new business opportunities is dependent upon Merchant Energy's ability to: o respond to requests to provide new services; 9 10 o mitigate potential risks; and o maintain strong business development, legal, financial and operational support teams with experience in the respective marketplace. FIELD SERVICES Our Field Services group provides customers with wellhead-to-mainline services, including natural gas gathering, storage, products extraction, fractionation, dehydration, purification, compression, transportation of natural gas and natural gas liquids, and intrastate natural gas transmission services. It also provides well-ties and offers real-time information services, including electronic wellhead gas flow measurement, and often works with Merchant Energy to provide fully bundled natural gas services with a broad range of pricing options as well as financial risk management products. Field Services' assets include natural gas gathering and NGL pipelines, treating, processing, and fractionation facilities in the San Juan Basin and the producing regions of east and south Texas, Louisiana, and the Rocky Mountains, as well as interests in natural gas pipeline systems located in the Gulf of Mexico. Field Services also owns an effective two percent general partner interest and a 28 percent limited partner interest in the common units of El Paso Energy Partners, L.P., a publicly traded master limited partnership, which is El Paso's primary vehicle for the acquisition and development of midstream energy infrastructure assets. Energy Partners' assets provide gathering, transportation, storage, and other related activities for producers of natural gas and oil. Either directly or through joint ventures, Energy Partners' owns interests in five natural gas and oil pipeline systems, five offshore platforms, two natural gas storage facilities, and producing and non-producing oil and natural gas properties. The following tables provide information concerning Field Services' gathering and transportation facilities, its processing facilities, and its facilities accounted for under the equity method as of December 31, 2000, and for the three years then ended:
AVERAGE THROUGHPUT THROUGHPUT AVERAGE MILES THROUGHPUT (BBtu/d) CAPACITY THROUGHPUT PERCENT OF OF CAPACITY ----------------------------- (MBbls (MBbls OIL/d) OWNERSHIP GATHERING & TREATING PIPELINE(1) (MMcf/d)(2) 2000 1999 1998 (3) OIL/d)(2) 2000 INTEREST -------------------- ----------- ----------- ----- ----- -------- ----------- Western Division ............. 9,035 1,798 1,896 1,868 1,943 -- -- 100 Eastern Division (4) ........ 2,230 1,065 443 514 534 -- -- 100 Central Division (5) ........ 9,890 6,760 1,425 1,528 1,771 -- -- 100 El Paso Energy Partners ...... 1,382 975 389 319 263 52 22 30
AVERAGE NATURAL GAS AVG. INLET VOLUME LIQUIDS SALES INLET (BBtu/d) (Mgal/d) PERCENT OF CAPACITY --------------------------- --------------------------- OWNERSHIP PROCESSING PLANTS (MMcf/d)(2) 2000 1999 1998 2000 1999 1998 INTEREST ----------------- ----------- ----- ---- ---- ----- ---- ---- ---------- Western Division ............. 964 916 901 848 1,006 898 886 100 Eastern Division (4) ........ 2,674 1,888 394 385 1,759 595 639 100 Central Division (5) ........ 1,883 309 242 269 307 202 208 100 Mobile Bay ................... 600 338 115 -- 547 77 -- 42 Coyote Gulch ................. 120 87 97 69 -- -- -- 50 Blue Water ................... 780 623 -- -- 680 -- -- 24
- ---------- (1) Mileage amounts are approximate for the total systems and have not been reduced to reflect Field Services' net ownership. (2) All capacity information reflects Field Services' net interest and is subject to increases or decreases depending on operating pressures and point of delivery into or out of the system. (3) Throughput for El Paso Energy Partners is averaged since its acquisition on August 14, 1998. (4) Reflects the acquisition of TransCanada Gas Processing U.S.A. acquired in December 1999. (5) Reflects the acquisition of El Paso Gas Transmission Texas (formerly PG&E Gas Transmission Texas) acquired in December 2000.. Regulatory Environment Some of Field Services' and Energy Partners' operations are subject to regulation by FERC in accordance with the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. Each pipeline subject to regulation operates under separate FERC approved tariffs with established rates, terms and conditions under which the pipeline provides services. 10 11 In addition, some of Field Services' and Energy Partners' operations, directly owned or owned through equity investments, are subject to the Natural Gas Pipeline Safety Act of 1968, as amended, the Hazardous Liquid Pipeline Safety Act, and the National Environmental Policy Act. Each of the pipelines has a continuing program of inspection designed to keep all of the facilities in compliance with pollution control and pipeline safety requirements. Field Services and Energy Partners believe that these systems are in substantial compliance with applicable requirements. Markets and Competition Field Services competes with, among others, major interstate and intrastate pipeline companies in the transportation and storage of natural gas and NGLs. Field Services also competes with major integrated energy companies, independent natural gas gathering and processing companies, natural gas marketers, and oil and natural gas producers in gathering and processing natural gas and NGLs. Competition for throughput and natural gas supplies is based on a number of factors, including: o price; o efficiency of facilities; o gathering system line pressures; o availability of facilities near drilling activity; o service; and o access to favorable downstream markets. PRODUCTION Production is engaged in the exploration for and the acquisition, development, and production of natural gas, oil, and liquids in the major producing basins of the United States. Production has onshore and coal seam operations and properties in 16 states and offshore operations and properties in federal and state waters in the Gulf of Mexico. It also has exploration and production rights in Australia, Brazil, Canada, Hungary, Indonesia, and Turkey. Poduction sells its natural gas primarily at spot-market prices. Production sells natural gas liquids at market prices under monthly or long-term contracts and its oil production at posted prices, subject to adjustments for gravity and transportation. A significant portion of Production's 2000 production was hedged by entering into third-party contracts and forward sales managed by Merchant Energy to reduce the risks associated with spot-market price volatility. Strategically, Production emphasizes disciplined investment criteria and manages its existing production portfolio to maximize volumes and minimize costs. Production expects to continue an active onshore and offshore drilling program to capitalize on its land and seismic holdings. Production is also pursuing strategic acquisitions of producing properties and the development of coal seam methane projects. In 2000, Production replaced 288 percent of the reserves it produced. 11 12 Natural Gas and Oil Reserves The following table details Production's proved reserves at December 31, 2000. Information in the table is based upon the reserve report prepared by Production dated January 1, 2001.
NET PROVED RESERVES(1) ---------------------------------------- NATURAL GAS LIQUIDS(2) TOTAL ----------- --------- --------- (MMcf) (MBbls) (MMcfe) PRODUCTION United States Producing .......................... 2,273,664 38,206 2,502,899 Non-Producing ...................... 603,352 16,839 704,383 Undeveloped ........................ 2,695,650 40,257 2,937,194 --------- --------- --------- Total proved reserves ............. 5,572,666 95,302 6,144,476 Canada Producing .......................... 41,478 1,007 47,520 Non-Producing ...................... 70,363 1,672 80,395 Undeveloped ........................ 54,670 1,244 62,134 --------- --------- --------- Total proved reserves ............. 166,511 3,923 190,049 Brazil Producing .......................... -- -- -- Non-Producing ...................... -- -- -- Undeveloped ........................ 90,862 4,862 120,034 --------- --------- --------- Total proved reserves ............. 90,862 4,862 120,034 NATURAL GAS SYSTEMS (3) Producing .......................... 175,353 231 176,739 Non-Producing ...................... -- -- -- Undeveloped ........................ -- -- -- --------- --------- --------- Total proved reserves ............. 175,353 231 176,739 ========= ========= =========
- ---------- (1) Net proved reserves exclude royalties and interests owned by others and reflects contractual arrangements and royalty obligations in effect at the time of the estimate. (2) Includes oil, condensate, and liquids. (3) Includes natural gas and oil properties operated by Colorado Interstate Gas Company. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of Production. The reserve data represents only estimates. Reservoir engineering is a subjective process of estimating underground accumulations of natural gas and oil that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretations and judgment. As a result, estimates of different engineers often vary. In addition, results of drilling, testing, and production subsequent to the date of an estimate may justify revision of such estimate. Reserve estimates are often different from the quantities of natural gas and oil that are ultimately recovered. The meaningfulness of reserve estimates is highly dependent upon the accuracy of the assumptions upon which they were based. In general, the volume of production from natural gas and oil properties owned by Production declines as reserves are depleted. Except to the extent Production conducts successful exploration and development activities or acquires additional properties containing proved reserves, or both, the proved reserves of Production will decline as reserves are produced. Wells and Acreage The following table details Production's gross and net interest in developed and undeveloped onshore, offshore, coal seam, and international acreage at December 31, 2000. Any acreage in which Production's interest is limited to owned royalty, overriding royalty, and other similar interests is excluded.
DEVELOPED UNDEVELOPED TOTAL -------------------------- -------------------------- -------------------------- GROSS NET GROSS NET GROSS NET ---------- ---------- ---------- ---------- ---------- ---------- PRODUCTION United States Onshore .................... 1,809,132 823,831 2,397,904 1,684,557 4,207,036 2,508,388 Offshore ................... 710,205 471,386 1,620,818 1,496,295 2,331,023 1,967,681 Coal seam .................. 32,634 26,666 581,045 437,493 613,679 464,159 ---------- ---------- ---------- ---------- ---------- ---------- Total United States ...... 2,551,971 1,321,883 4,599,767 3,618,345 7,151,738 4,940,228 International Australia .................. -- -- 1,770,364 613,600 1,770,364 613,600 Brazil ..................... -- -- 4,245,495 3,320,744 4,245,495 3,320,744 Canada ..................... 11,520 9,158 246,034 182,030 257,554 191,188 Hungary .................... -- -- 568,100 568,100 568,100 568,100 Indonesia .................. -- -- 1,373,691 442,606 1,373,691 442,606 ---------- ---------- ---------- ---------- ---------- ---------- Total International ...... 11,520 9,158 8,203,684 5,127,080 8,215,204 5,136,238 NATURAL GAS SYSTEMS Domestic Onshore 262,474 259,276 -- -- 262,474 259,276 ---------- ---------- ---------- ---------- ---------- ---------- Total .................... 2,825,965 1,590,317 12,803,451 8,745,425 15,629,416 10,335,742
The domestic net developed acreage is concentrated primarily in offshore Gulf of Mexico (30%), Texas (28%), Utah (20%), Oklahoma (7%), Colorado (6%) and Louisiana (6%). Approximately 17%, 14%, and 13% of our total domestic net undeveloped acreage is under leases that have minimum remaining primary terms expiring in 2001, 2002 and 2003, respectively. 12 13 The following table details Production's working interests in onshore, offshore, coal seam, and international natural gas and oil wells at December 31, 2000. Gross wells include 79 multiple completions.
NUMBER OF PRODUCTIVE PRODUCTIVE TOTAL WELLS BEING NATURAL GAS WELLS OIL WELLS PRODUCTIVE WELLS DRILLED ----------------- ---------------- ---------------- ---------------- GROSS NET GROSS NET GROSS NET GROSS NET ----- ------ ----- ----- ----- ----- ----- ----- PRODUCTION United States Onshore .............. 4,045 2,946 471 337 4,516 3,283 70 55 Offshore ............. 490 312 39 29 529 341 14 10 Coal seam ............ 1,086 663 -- -- 1,086 663 57 41 ----- ----- ----- ----- ----- ----- ----- ----- Total ......... 5,621 3,921 510 366 6,131 4,287 141 106 ----- ----- ----- ----- ----- ----- ----- ----- International Australia ............ -- -- -- -- -- -- 1 1 Canada ............... 26 21 -- -- 26 21 38 36 Indonesia ............ -- -- -- -- -- -- 1 1 ----- ----- ----- ----- ----- ----- ----- ----- Total ......... 26 21 -- -- 26 21 40 38 ----- ----- ----- ----- ----- ----- ----- ----- NATURAL GAS SYSTEMS ..... 809 789 9 8 818 797 -- -- ----- ----- ----- ----- ----- ----- ----- ----- Total .......... 6,456 4,731 519 374 6,975 5,105 181 144
The following table details Production's exploratory and development wells drilled during the years 1998 through 2000.
NET EXPLORATORY NET DEVELOPMENT WELLS DRILLED WELLS DRILLED ---------------------- ---------------------- 2000 1999 1998 2000 1999 1998 ---- ---- ---- ---- ---- ---- PRODUCTION United States Productive .......... 16 19 20 424 297 347 Dry ................. 17 19 22 18 3 19 --- --- --- --- --- --- Total ......... 33 38 42 442 300 366 --- --- --- --- --- --- Canada Productive .......... 3 5 -- 10 2 -- Dry ................. 3 -- -- 1 2 -- --- --- --- --- --- --- Total ......... 6 5 -- 11 4 -- --- --- --- --- --- --- Other Countries Productive .......... -- -- -- -- -- -- Dry ................. 1 -- 1 -- -- -- --- --- --- --- --- --- Total ......... 1 -- 1 -- -- -- --- --- --- --- --- --- NATURAL GAS SYSTEMS Productive .......... -- -- -- 1 13 6 Dry ................. -- -- -- -- -- -- --- --- --- --- --- --- Total ......... -- -- -- 1 13 6 --- --- --- --- --- --- Total ......... 40 43 43 454 317 372
The information above should not be considered indicative of future drilling performance, nor should it be assumed that there is any correlation between the number of productive wells drilled and the amount of natural gas and oil that may ultimately be recovered. Net Production, Unit Prices, and Production Costs The following table details Production's net production volumes, average sales prices received, and average production costs associated with the sale of natural gas and oil for the years ended December 31:
2000 1999 1998 ------- ------- ------- PRODUCTION Net Production: Natural Gas (Bcf) ......................... 517 416 411 Oil, Condensate, and Liquids (MMBbls) ..... 12 10 14 Total (Bcfe) ...................... 587 478 495 Average Realized Sales Price:(1) Natural Gas ($/Mcf) ....................... $ 2.61 $ 2.11 $ 1.98 Oil, Condensate, and Liquids ($/Bbl) ...... $ 21.82 $ 15.03 $ 12.37 Average Production Cost ($/Mcfe)(2) ......... $ 0.41 $ 0.39 $ 0.37 NATURAL GAS SYSTEMS Net Production: Natural Gas (Bcf) ......................... 33 36 39 Total (Bcfe) ...................... 33 36 39
13 14 - ---------- (1) We engage in hedging activities on our oil and natural gas production to obtain more determinable cash flows and to mitigate the risk of downward price movements on sales of these commodities. We do this through oil and natural gas swaps. As a result, our realized prices for any one period may be higher or lower than the average market prices for that period. (2) Includes direct lifting costs (labor, repairs and maintenance, materials, and supplies) and the administrative costs of production offices, insurance, and property and severance taxes. Development, Exploration, and Acquisition Expenditures The following table details information regarding Production's costs incurred in its development, exploration, and acquisition activities during the years ended December 31:
2000 1999 1998 ------ ------ ------ (IN MILLIONS) Development Costs ........................... $1,239 $ 771 $ 914 Exploration Costs: Proved Acquisitions ....................... 204 157 131 Lease Acquisitions and Delay Rentals ...... 190 208 196 Seismic Acquisition and Reprocessing ...... 92 118 111 Drilling .................................. 321 178 154 ------ ------ ------ Total Capital Expenditures ........ $2,046 $1,432 $1,506 ====== ====== ======
Regulatory and Operating Environment The federal government and the states in which Production operates or owns interests in producing properties regulate various matters affecting natural gas and oil production, including: o drilling and spacing of wells; o conservation; o forced pooling; and o protection of correlative rights among interest owners. Production is also subject to governmental safety regulations in the jurisdictions in which it operates. Production's operations under federal natural gas and oil leases are regulated by the statutes and regulations of the United States Department of the Interior that currently impose liability upon lessees for the cost of pollution resulting from their operations. Royalty obligations on all federal leases are regulated by the Minerals Management Service, which has promulgated valuation guidelines for the payment of royalties by producers. Other federal, state, and local laws and regulations relating to the protection of the environment affect Production's natural gas and oil operations through their effect on the construction and operation of facilities, drilling operations, production, or the delay or prevention of future offshore lease sales. We maintain substantial insurance on behalf of Production for sudden and accidental spills and oil pollution liability. Production's business has operating risks normally associated with the exploration for and production of natural gas and oil, including blowouts, cratering, pollution, and fires, each of which could result in damage to life or property. Offshore operations may encounter the usual marine perils, including hurricanes and other adverse weather conditions, and governmental regulations as well as interruption or termination by governmental authorities based on environmental and other considerations. Customary with industry practices, we maintain broad insurance coverage on behalf of Production with respect to potential losses resulting from these operating hazards. Markets and Competition The natural gas and oil business is highly competitive in the search for and acquisition of additional reserves and in the sale of natural gas, oil, and liquids. Production's competitors include the major and intermediate sized oil and natural gas companies, independent oil and natural gas operations, and individual producers or operators with varying scopes of operations and financial resources. Competitive factors include price, contract terms, and quality of service. These factors are, to some degree, mitigated by the large percentage of natural gas sales made to Merchant Energy. 14 15 CORPORATE AND OTHER OPERATIONS Through our corporate and other segment, we perform management, legal, financial, tax, consultative, administrative and other services for our operating business segments. The costs of providing such services are allocated to our business segments. 15 -----END PRIVACY-ENHANCED MESSAGE-----