-----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, NajVFSxWiBO1ld+qaf+j6+3X1oSE1P0O0q/4DSNoskPkzqOKZiqMcvnpo5O2EZGb oW78hT3PItB1NJajtNGzeg== 0000950129-96-000483.txt : 19960329 0000950129-96-000483.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950129-96-000483 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PANHANDLE EASTERN CORP ET AL CENTRAL INDEX KEY: 0000351696 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 742150460 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08157 FILM NUMBER: 96540162 BUSINESS ADDRESS: STREET 1: 5400 WESTHEIMER CT STREET 2: P O BOX 1642 CITY: HOUSTON STATE: TX ZIP: 77251 BUSINESS PHONE: 7136275400 MAIL ADDRESS: STREET 1: P.O. BOX 1642 CITY: HOUSTON STATE: TX ZIP: 77251-1642 10-K405 1 PANHANDLE EASTERN CORPORATION - 12/31/95 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NO. 1-8157 PANHANDLE EASTERN CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 74-2150460 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
5400 WESTHEIMER COURT P.O. BOX 1642 HOUSTON, TEXAS 77251-1642 (Address, including zip code, of principal executive offices) (713) 627-5400 (Telephone number, including area code) --------------------- Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $1.00 par value The New York Stock Exchange, Inc. The Pacific Stock Exchange Inc.
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in any definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ --------------------- State the aggregate market value of the voting stock held by non-affiliates of the Registrant. The aggregate market value is computed by reference to the last sale price of the Registrant's Common Stock, on the Composite Tape -- New York Stock Exchange Transactions, on February 29, 1996. $4,314,499,490
NUMBER OF SHARES OUTSTANDING TITLE OF EACH CLASS AS OF FEBRUARY 29, 1996 ------------------- ---------------------------- Common Stock, $1.00 par value 150,724,873
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K - --------- Part I Portions of the Annual Report to Stockholders of PanEnergy Corp for the year ended December 31, 1995 Part II Portions of the Annual Report to Stockholders of PanEnergy Corp for the year ended December 31, 1995 Part III Portions of the Definitive Proxy Statement, dated March 15, 1996, for the Annual Meeting of Stockholders of Panhandle Eastern Corporation, to be held April 24, 1996 Part IV Portions of the Annual Report to Stockholders of PanEnergy Corp for the year ended December 31, 1995
================================================================================ 2 TABLE OF CONTENTS PART I Item 1. Business....................................................................... 1 General........................................................................ 1 Natural Gas Transmission Group................................................. 2 LNG Operations................................................................. 5 Energy Services Group.......................................................... 5 Investments.................................................................... 7 Regulation..................................................................... 8 Rates and Regulatory Proceedings............................................... 9 Competition.................................................................... 9 Capital Expenditures For Clean Air Act Amendments.............................. 10 General Matters................................................................ 10 Item 2. Properties..................................................................... 10 Item 3. Legal Proceedings.............................................................. 13 Item 4. Submission of Matters to a Vote of Security Holders............................ 13 Executive Officers of Registrant......................................................... 13 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......... 14 Item 6. Selected Financial Data........................................................ 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 14 Item 8. Financial Statements and Supplementary Data.................................... 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................................... 14 PART III Item 10. Directors and Executive Officers of the Registrant............................. 14 Item 11. Executive Compensation......................................................... 14 Item 12. Security Ownership of Certain Beneficial Owners and Management................. 14 Item 13. Certain Relationships and Related Transactions................................. 14 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 15 Index to Financial Statements and Schedules.............................................. 21
--------------------- All gas volumes used herein are stated at 14.73 pounds per square inch, on a dry basis, at 60 degrees Fahrenheit. 3 PART I ITEM 1. BUSINESS GENERAL Panhandle Eastern Corporation, d/b/a PanEnergy Corp ("PEC"), is a holding company whose subsidiaries are primarily engaged in the interstate transportation and storage of natural gas, in the gathering, processing, marketing and intrastate transportation of natural gas, natural gas liquids ("NGLs") and crude oil, and in the marketing of electric power and risk-management services. As used herein, and unless otherwise stated, "PEC" refers to Panhandle Eastern Corporation, d/b/a PanEnergy Corp, and "Company" refers to Panhandle Eastern Corporation, d/b/a PanEnergy Corp, and its subsidiaries. Services relating to the interstate transportation and storage of natural gas are provided by the Company's natural gas transmission group. This group includes four major interstate pipeline subsidiaries of PEC -- Texas Eastern Transmission Corporation ("TETCO"), Algonquin Gas Transmission Company ("Algonquin"), Panhandle Eastern Pipe Line Company ("PEPL") and Trunkline Gas Company ("Trunkline"). Together, these subsidiaries own and operate one of the nation's largest gas transmission networks. This fully interconnected 22,000-mile system can receive natural gas from most major North American producing regions for delivery to markets in the Mid-Atlantic, New England and Midwest states. Services relating to the gathering, processing, marketing, intrastate transportation and storage of natural gas, NGLs and crude oil, as well as the marketing of electric power and risk-management services, are provided by the Company's energy services group. This group operates through PanEnergy Services, Inc. and its subsidiaries. PEC also owns other subsidiaries engaged in domestic and international energy development, importation of liquefied natural gas ("LNG") from Algeria, and the transportation, storage and regasification of LNG. In addition, PEC, through subsidiaries, owns interests in a partnership operating a cogeneration facility; in a joint venture that owns and operates a chemical-grade methanol plant and an MTBE (methyl tertiary butyl ether) plant in Saudi Arabia; and in master limited partnerships engaged in the transportation of natural gas in interstate commerce and in the transportation and storage of petroleum products. Financial information concerning the Company's business segments and sources of revenues is set forth in Note 3 of Notes to Consolidated Financial Statements on pages 43 and 44, and in the Consolidated Statement of Income on page 37, of the 1995 Annual Report to Stockholders of PanEnergy Corp (the "Annual Report"), filed as Exhibit 13, which are incorporated herein by reference. PEC is a Delaware corporation organized in 1981 in connection with the corporate restructuring of PEPL, which was incorporated in 1929. Executive offices of PEC are located at 5400 Westheimer Court, Houston, Texas 77056-5310, and the telephone number is (713) 627-5400. Certain Terms Certain terms used in the description of the Company's business are explained below. Capacity Release Program: An arrangement that allows firm open-access transportation or storage customers to assign pipeline capacity rights to third parties pursuant to procedures prescribed by FERC. Federal Energy Regulatory Commission ("FERC"): The agency that regulates the transportation of natural gas in interstate commerce under the Natural Gas Act of 1938 (the "NGA") and the Natural Gas Policy Act of 1978 (the "NGPA"). FERC's jurisdiction includes rate-making, construction of facilities and authorization to provide service. Firm Service: Transportation or storage of third-party gas, for which customers pay a charge to reserve pipeline or storage capacity. Gathering Systems: Pipeline, processing and related facilities that access production and other sources of natural gas supplies for delivery to mainline transportation systems. 1 4 Interruptible Service: Transportation or storage of third-party gas provided by pipelines on a capacity-available basis. Local Distribution Company ("LDC"): A municipal or investor-owned utility that sells or transports gas to local commercial, industrial and residential consumers. Merchant Service: Prior to FERC Order 636, traditional service volumes aggregated by pipelines, under purchase contracts with producers, and transported and resold to natural gas utilities and other customers at FERC-approved rates. Order 636: The FERC pipeline service restructuring rule that guided the industry's transition to unbundled, open-access pipeline contract transportation and related services, creating a more market-responsive environment. Reservation Charge: The amount paid by firm transportation or storage customers to reserve pipeline or storage capacity. Straight Fixed-Variable ("SFV"): A rate design that assigns return on equity, related taxes and other fixed costs to the reservation component of rates. Transition Costs: Those costs incurred as a result of the pipelines' transition to unbundled services under Order 636. The disposition of natural gas contracts tied to the former merchant function comprises the majority of such costs. Units of Measure: MMcf: Million cubic feet MMcf/d: Million cubic feet per day Bcf: Billion cubic feet Bcf/d: Billion cubic feet per day Tcf: Trillion cubic feet
NATURAL GAS TRANSMISSION GROUP General The Company's interstate pipelines serve principal markets in the Mid-Atlantic, New England and Midwest states. During 1995, the pipelines delivered approximately 12% of natural gas consumed in the U.S. Market and Supply Area Deliveries Market-area natural gas deliveries by the Company's interstate pipelines were 2.36 Tcf in 1995, up from the 2.22 Tcf delivered in 1994. Consolidated pipeline deliveries totaled 2.63 Tcf, compared to 2.50 Tcf in 1994. As used herein, "market area" with respect to each pipeline refers to those portions of the pipeline that include primarily delivery points for natural gas leaving the pipeline, and "supply area" with respect to each pipeline refers to those portions of the pipeline that include primarily receipt points for gas entering the pipeline. Market-area deliveries represent volumes of gas delivered to the market area, while supply-area deliveries represent volumes of gas delivered to the supply area. Generally, rates for supply-area service have lower margins than rates for market-area service. 2 5 Set forth below is information concerning throughput volumes for the Company's interstate Natural Gas Transmission Group for 1995, 1994 and 1993 (volumes in Bcf).
1995 % TOTAL 1994 % TOTAL 1993 % TOTAL ----- ------- ----- ------- ----- ------- Market Area TETCO.............................. 1,069 41 1,014 41 960 40 Algonquin.......................... 322 12 279 11 238 10 PEPL............................... 620 24 579 23 560 23 Trunkline.......................... 390 15 434 17 455 19 Intercompany Eliminations.......... (43) (2) (87) (3) (120) (5) ----- --- ----- --- ----- --- Total...................... 2,358 90 2,219 89 2,093 87 ===== === ===== === ===== === Supply Area TETCO.............................. 123 5 141 5 118 5 PEPL............................... 39 1 41 2 43 2 Trunkline.......................... 109 4 97 4 147 6 Intercompany Eliminations.......... -- -- -- -- (1) -- ----- --- ----- --- ----- --- Total...................... 271 10 279 11 307 13 ----- --- ----- --- ----- --- Total Volumes........................ 2,629 100 2,498 100 2,400 100 ===== === ===== === ===== === Summary by Pipeline (Total Volumes) TETCO.............................. 1,192 46 1,155 46 1,078 45 Algonquin.......................... 322 12 279 11 238 10 PEPL............................... 659 25 620 25 603 25 Trunkline.......................... 499 19 531 21 602 25 Intercompany Eliminations.......... (43) (2) (87) (3) (121) (5) ----- --- ----- --- ----- --- Total...................... 2,629 100 2,498 100 2,400 100 ===== === ===== === ===== ===
Demand for gas transmission on the Company's pipeline systems is seasonal, with the highest throughput occurring during the colder periods in the first and fourth quarters -- the winter heating season. However, the SFV rate design required by Order 636 has resulted in pipeline earnings generally being more evenly distributed throughout the year. Northeast Area TETCO. TETCO's major customers are located in Pennsylvania, New Jersey and New York, and include LDCs serving the Pittsburgh, Philadelphia, Newark and New York City metropolitan areas. Total throughput increased 3% in 1995 as a result of new expansion projects, including the Integrated Transportation Program ("ITP") and Flex-X, as well as more efficient utilization of the pipeline system. In the fall of 1995, the second portion of the ITP consisting of 45 MMcf/d was placed in service. ITP utilizes the transportation services of all four of the Company's interstate natural gas pipeline systems, with ultimate delivery by TETCO and Algonquin. The final phase of this 200 MMcf/d project is scheduled to be completed in 1996 with the addition of 25 MMcf/d of service. ITP provides firm transportation service for five Northeast customers. TETCO initiated 33 MMcf/d of firm service in November 1995 for PECO Energy Company and UGI Utilities, Inc. under 20-year contracts pursuant to the Company's Flex-X program. PEPL provides storage service for the project. Negotiations are proceeding with customers for 64 MMcf/d of winter-seasonal natural gas service through the WinterNet project. WinterNet, a proposed venture by TETCO and Consolidated Natural Gas Company, would phase in new services for Mid-Atlantic markets over four years beginning in 1997. The project is expected to be filed with FERC in the second quarter of 1996. 3 6 Algonquin. Algonquin's major customers include LDCs and electric power generators located in the Boston, Hartford, New Haven, Providence and Cape Cod areas. Algonquin's total throughput for 1995 increased by 15% compared to 1994, primarily as a result of increased natural gas usage by electric power generators. Algonquin placed its Chaplin, Connecticut, compressor station into service in January 1995 to initiate 36 MMcf/d of additional firm transportation service under a 20-year contract for New England Power Company's Manchester Street Station electric-generating plant in Providence, Rhode Island. Algonquin also is completing a four-mile lateral to deliver 75 MMcf/d of firm transportation to the Canal Electric plant at Sandwich, Massachusetts. Service is expected to begin in the second quarter of 1996. Midwest Area PEPL. PEPL's market volumes are concentrated among approximately 20 utilities located in the Midwest market area that encompasses large portions of Michigan, Ohio, Indiana, Illinois and Missouri. PEPL's major customers serving this market include utilities, producers and independent marketers. PEPL's total deliveries increased 6% in 1995 as a result of larger contract quantities and increased use of capacity release by customers. In August 1995, PEPL transferred most of its Mid-Continent natural gas gathering facilities to a non-FERC-regulated subsidiary of PEPL. The change in ownership is expected to improve the value of these assets by allowing for more effective competition with other non-FERC-regulated gathering companies. During 1995, PEPL renegotiated contracts with six of its major customers to provide 390 MMcf/d of transportation and storage service for the next several years. Trunkline. Trunkline's major customers include eight utilities located in portions of Tennessee, Missouri, Illinois, Indiana and Michigan. Trunkline's total throughput decreased 6% in 1995 as a result of warmer weather during the first quarter, capacity constraints from South Texas due to compressor outages and interruptible volumes lost to competitors' capacity release programs. In April 1995, Trunkline added 310 MMcf/d of firm and seasonal transportation service to the Chicago market under five-year contracts with The Peoples Gas Light and Coke Company ("Peoples"). These volumes are in addition to 60 MMcf/d of service to Peoples begun in 1993. In late 1995, PEPL and Trunkline began to combine the two pipeline systems' management and operations to create efficiencies by aligning marketing efforts and standardizing services. Storage TETCO provides firm and interruptible open-access storage services. Since the implementation of the Order 636 restructuring, storage is offered as a stand-alone unbundled service or as part of a no-notice bundled service. TETCO's storage services utilize two joint venture storage projects in Pennsylvania and one wholly-owned and operated storage field in Maryland. TETCO also leases storage capacity. TETCO's certificated working capacity in these three fields is 70 Bcf, and on December 31, 1995, the combined working gas in storage was 46 Bcf. Algonquin owns no storage fields. PEPL owns and operates three underground storage fields located in Illinois, Michigan and Oklahoma. Trunkline owns and operates one storage field in Louisiana. The combined maximum working gas capacity is 44 Bcf. Additionally, PEPL, through its Pan Gas Storage Company ("Pan Gas") subsidiary, is the owner of a storage field in Kansas with an estimated maximum capacity of 26 Bcf. PEPL is the operator of the field. Since the implementation of the Order 636 restructuring, PEPL, Trunkline and Pan Gas all offer firm and interruptible storage on an open-access basis. In addition to owning storage fields, PEPL also leases storage capacity. PEPL and Trunkline have retained the right to use up to 15 Bcf and 10 Bcf, respectively, of their storage capacity for system needs. 4 7 LNG OPERATIONS Subsidiaries of PEC entered into LNG import agreements with Sonatrach, the national oil and gas company of Algeria, in April 1987. The agreements provide for the importation of up to 3.3 Tcf of LNG over a period of up to 20 years. The agreements impose no take-or-pay or ship-or-pay obligations upon the Company and do not establish any minimum annual purchase volumes. In 1989, Trunkline LNG Company ("Trunkline LNG") activated the LNG program at its Lake Charles, Louisiana facility. Activation of the program was based primarily on the agreements with Sonatrach, as well as a long-term contract with Citrus Trading Corp. ("Citrus") that provides for the sale of up to 110 MMcf/d of gas. This maximum volume decreased to 86 MMcf/d for the remaining term of the contract beginning on September 1, 1995. Citrus can elect not to purchase gas in any month if residual fuel oil prices during the previous month fall below a specified level. However, in the event of such election, the Company has the option to require Citrus to purchase nominated volumes at a contractually determined reduced price. Therefore, volumes and prices under the Citrus contract are not certain. In 1995, deliveries of gas to Citrus were made only during the month of December, averaging 86 MMcf/d. In 1995, the Company sold 5.2 Bcf of regasified LNG. The Company, through its PanEnergy Development Company subsidiary, is advancing the EnergyPlus project, a proposed network of LNG facilities that will provide Northeast customers highly individualized peak-winter service by integrating existing transmission assets and a network of LNG satellite tanks with a new LNG storage facility. Algonquin LNG, Inc. ("Algonquin LNG"), a subsidiary of Algonquin, owns and operates an LNG facility in Providence, Rhode Island. The facility provides LNG handling services, including receipt, storage and redelivery. ENERGY SERVICES GROUP General The Company's energy services group, through PanEnergy Services, Inc. and its subsidiaries, is engaged in the gathering, processing, marketing, storage and intrastate transportation of natural gas, NGLs and crude oil, as well as in the marketing of electric power and risk-management services. Field Services Group The Company's Field Services Group, which operates mainly through PanEnergy Field Services, Inc., achieved a 19% increase in volumes of natural gas gathered to 1.9 Bcf/d in 1995. The Company owns and operates approximately 12,000 miles of natural gas gathering systems, including intrastate pipelines, and 21 natural gas processing plants in the United States. The Company's gathering systems are located in nine central states (see map under Item 2). These systems serve major gas-producing regions in the Rocky Mountain, Mid-Continent and Gulf Coast areas. Included in the Company's gathering operations are several intrastate pipeline systems and natural gas storage facilities, including the Winnie Pipeline and Spindletop Storage Facility purchased in 1994. In 1995, Field Services added significant processing and gathering facilities in Colorado, New Mexico and Texas, totaling 215 MMcf/d of capacity. In addition, Mid-Continent gathering facilities were transferred from the Natural Gas Transmission Group to Field Services. The Company's NGL processing operations involve the extraction of NGLs from natural gas and, at certain facilities, the fractionation of the NGLs into their individual components (ethane, propane, butane and natural gasoline). The natural gas used in the Company's processing operations is generally gathered on the Company's gathering system or, in the case of two facilities -- the National Helium Corporation ("National Helium") plant in Liberal, Kansas and the Wilcox plant in Goliad, Texas -- from the natural gas stream on the Company's transmission system. NGLs are sold by the Company to a variety of customers ranging from large multi-national petrochemical and refining companies to small family-owned retail propane distributors. 5 8 All NGL sales are made based upon current market-related prices. The Company also provides, on a more limited basis, processing services to producers and others for a stipulated fee. During 1995, NGL production at the Company's facilities averaged approximately 54,800 barrels per day, an 11% increase over 1994. The Company also produces helium at the National Helium facility. Gas and Power Services Group The Company markets natural gas primarily to LDCs, electric power generators, industrial end-users and gas marketing companies. During 1995, PanEnergy Gas Services, Inc. ("Gas Services"), the Company's gas marketing subsidiary, marketed an average of 3.5 Bcf/d of natural gas. Marketing operations encompass both on-system and off-system sales. With respect to on-system sales, the Company generally purchases natural gas from producers at the wellhead, gathers and (if necessary) processes the gas in its own facilities (see "Field Services Group" above) and delivers the gas to an intrastate or interstate pipeline for redelivery to another customer. With respect to off-system sales, the Company purchases natural gas from producers, pipelines and other suppliers not connected with the Company's facilities for resale to customers. The Company also provides energy-marketing services, such as supply and market aggregation, dispatching, balancing, transportation, storage, contract negotiation and administration, as well as risk-management products and services. The Company currently provides marketing services to customers transporting gas on substantially all pipeline systems serving the lower 48 states and Canada. In addition, the Company markets natural gas in the United Kingdom. In 1995, Gas Services expanded its trading operations with the acquisition of Continental Energy Company in Calgary, Alberta, bringing marketed volumes of Canadian gas to approximately 1 Bcf/d at year-end. The Company has a balanced portfolio of short-term and long-term gas sales agreements with customers, the vast majority of which incorporate market-sensitive pricing terms. Long-term gas purchase agreements with producers, principally entered into in connection with on-system sales, also generally include market-sensitive pricing provisions. Purchases and sales of off-system supply are normally made under short-term contracts. Purchase and sales commitments involving significant price and location risk are generally hedged with commodity futures, swaps and options. For information concerning the Company's risk-management activities, see Note 6 of Notes to Consolidated Financial Statements on pages 46 through 48 of the Annual Report, which is incorporated herein by reference. The Company's power marketing and related operations are conducted through PanEnergy Power Services, Inc. ("Power Services"). Formed in 1994, this subsidiary traded over 513,000 megawatt hours in 1995. The strategy of Power Services is to participate in the emerging open-access power supply business as well as to work with other Company business units to provide electric power services for Company facilities and for the units' customers. Joint Marketing Undertaking/Asset Purchase In January 1996, the Company signed a non-binding letter of intent with a subsidiary of Mobil Corporation ("Mobil") for two transactions. The first transaction would involve a purchase by Field Services of Mobil's interests in gathering, processing and related facilities for approximately $300 million, which would almost double the Company's production of NGL. The second transaction would combine the marketing operations of the Company's Gas and Power Services Group with those of Mobil. The resulting entity would be operated by the Company and owned 60% by the Company and 40% by Mobil. The transactions are expected to be completed by mid-1996. 6 9 Crude Oil Group The Company's crude oil group, which provides services through PanEnergy Transport and Trading Company and its affiliates, operates approximately 1,300 miles of intrastate crude oil pipelines in the Mid-Continent and South Texas and approximately 450 miles of NGL pipelines in the Texas Gulf Coast area. The crude oil pipeline system provides gathering and mainline transportation service, for a volumetric fee, based on published tariffs. In 1995, the group's throughput of crude oil averaged approximately 76,200 barrels per day, a 47% increase over 1994. This group also purchases crude oil from producers and markets it to end users. The NGL transportation system transports NGLs received from 12 processing plants in South Texas. During 1995, NGL throughput averaged approximately 16,500 barrels per day. INVESTMENTS Midland Cogeneration Venture A Company subsidiary owns an approximate 14.3% equity interest in the Midland Cogeneration Venture ("MCV"), which became operational in 1990. MCV converted an incomplete nuclear power plant to a dual-purpose energy unit that uses natural gas to generate electricity and produce industrial process steam. PEPL and Trunkline provide 95 MMcf/d of firm transportation to MCV. National Methanol Company The Company owns a 25% interest in National Methanol Company ("National Methanol"), a joint venture that owns and operates a chemical-grade methanol plant and an MTBE (methyl tertiary butyl ether) plant in Jubail, Saudi Arabia. The other partners are Hoechst Celanese Corporation, with a 25% interest, and majority state-owned Saudi Basic Industries Corporation, with a 50% interest. Northern Border Partners, L.P. A PEPL subsidiary owns an 8.5% equity interest (a 32.5% voting interest) in Northern Border Partners, L.P. ("Northern Border MLP"), consisting of general partner and subordinated limited partner interests. Northern Border MLP owns a 70% interest in Northern Border Pipeline Company ("Northern Border Pipeline"), which owns and operates a transmission system consisting of 969 miles of pipeline extending from the Canadian border through Montana to Iowa. Northern Border Pipeline transports natural gas both under traditional long-term contracts and on an open-access basis. It has a certificated transport capacity of 975 MMcf/d. TEPPCO Partners, L.P. A PEC subsidiary owns a 2% general partner interest and an 8.45% limited partner interest in TEPPCO Partners, L.P. ("TEPPCO Partners"). TEPPCO Partners owns and operates an approximate 4,300-mile refined petroleum products and liquefied petroleum gases ("LPGs") pipeline system extending from southeast Texas through the midwestern and central United States to the northeastern United States. The pipeline system includes delivery terminals along the pipeline for outloading product to tank trucks, rail cars or barges, as well as storage capacity at Mont Belvieu, Texas, the largest LPG storage complex in the United States, and at other locations. TEPPCO Partners also owns two marine receiving terminals at Beaumont, Texas and Providence, Rhode Island. The TEPPCO Partners pipeline system is the only pipeline that transports LPGs to the Northeast. Maritimes & Northeast Pipeline Project A PEC subsidiary plans to manage and operate the U.S. portion of the proposed 630-mile, 400 MMcf/d Maritimes & Northeast Pipeline Project, to be owned in conjunction with three other sponsors. The proposed pipeline will link approximately 3 Tcf of reserves offshore Nova Scotia with the Northeast pipeline grid. The 7 10 sponsors have filed for FERC approval for a 64-mile initial segment of the pipeline to deliver 60 MMcf/d of domestic supply to New England markets as early as 1997. Aguaytia Project The Company, through a subsidiary, owns a 25% equity interest in the Aguaytia project, the first private, integrated energy project in Peru. Facilities to generate and deliver electricity and process natural gas are scheduled to be in service by late 1997. REGULATION TETCO, Algonquin, PEPL, Trunkline, Trunkline LNG, Algonquin LNG and Pan Gas are "natural gas companies" under the NGA and NGPA and, as such, are subject to the jurisdiction of FERC. The NGA grants to FERC authority over the construction and operation of pipeline and related facilities utilized in the transportation and sale of natural gas in interstate commerce, including the extension, enlargement or abandonment of such facilities. The Company's subsidiaries hold required certificates of public convenience and necessity issued by FERC, authorizing them to construct and operate the pipelines, facilities and properties now in operation for which certificates are required, and to transport and store natural gas in interstate commerce. FERC also has authority to regulate rates and charges for natural gas transported in or stored for interstate commerce or sold by a natural gas company in interstate commerce for resale. The Company's subsidiaries file with FERC applications for changes in transportation and storage rates and charges. These changes are normally allowed to become effective after a suspension period, subject to refund, until such time as FERC authorizes the actual level of rates and charges. TETCO, Algonquin, PEPL and Trunkline operate as open-access transporters of natural gas. In 1992, FERC issued Order 636, which requires open-access pipelines to provide firm and interruptible transportation services on an equal basis for all gas supplies, whether purchased from the pipeline or from another gas supplier. To implement this requirement, Order 636 provides, among other things, for mandatory unbundling of services that have historically been provided by pipelines into separate open-access transportation, sales and storage services. Order 636, which is on appeal to the courts, provides for the use of the SFV rate design, which assigns return on equity, related taxes and other fixed costs to the reservation component of rates. In addition, Order 636 allows pipelines to recover eligible costs resulting from implementation of Order 636. Recoverable transition costs include gas supply realignment costs, unrecovered deferred gas purchase costs, other existing costs incurred in connection with bundled sales services that cannot be assigned to customers of unbundled services, and capital costs attributable to the restructuring. On August 1, 1994, TETCO implemented a FERC-approved settlement that resolved regulatory issues related primarily to Order 636 transition costs and a number of other issues related to services prior to Order 636. TETCO's final and nonappealable settlement provides for the recovery of certain transition costs through volumetric and reservation charges through 2002 and beyond, if necessary. Pursuant to the settlement, TETCO will absorb a certain portion of the transition costs, the amount of which continues to be subject to change dependent upon natural gas prices and deliverability levels. The Company has established provisions to reflect the impact of the settlement. PEPL's transition cost recoveries, which are subject to certain challenges pending before FERC, will occur through 1998. The Company's natural gas gathering activities are generally not subject to regulation by FERC under the NGA and the NGPA. In this regard, in May 1994, FERC issued orders announcing that it would not exercise jurisdiction over natural gas gathering activities operated by affiliates of interstate pipeline companies. Such orders are on appeal to the courts. FERC's orders are expected to enable the Company to compete with non-regulated service providers, which account for the majority of the sector's operations. With respect to the Company's natural gas marketing activities, such activities may, in certain circumstances, be subject to the jurisdiction of FERC. Current FERC policies permit the Company's gas marketing entities subject to FERC 8 11 jurisdiction to market natural gas at market-based rates pursuant to a blanket certificate. The Company's electric power marketing operations are also subject to the jurisdiction of FERC under the Federal Power Act. Current FERC policies permit the Company's electric marketing entity to market electricity at market-based rates. Regulation of the importation and exportation of natural gas is vested in the Secretary of Energy, who has delegated various aspects of this jurisdiction to FERC and the Office of Fossil Fuels of the Department of Energy. The Company's subsidiaries are subject to the Natural Gas Pipeline Safety Act of 1968, which regulates gas pipeline and LNG plant safety requirements; the Hazardous Liquid Pipeline Safety Act of 1979, which regulates oil and petroleum pipelines; and to federal and state environmental legislation. RATES AND REGULATORY PROCEEDINGS When rate cases are pending final FERC approval, a portion of the revenues collected by the Company's natural gas pipelines is subject to possible refunds. A summary of the status of significant pending rate cases and related regulatory matters involving TETCO, Algonquin, PEPL and Trunkline is contained in Note 4 of the Notes to Consolidated Financial Statements on pages 44 and 45 of the Annual Report, which are incorporated herein by reference. COMPETITION The Company's interstate pipeline subsidiaries compete with other interstate and intrastate pipeline companies in the transportation and storage of natural gas. The principal elements of competition among pipelines are rates, terms of service, and flexibility and reliability of service. The Company's pipelines continue to offer selective discounting to maximize revenues from existing capacity. In the Mid-Atlantic and Northeast markets, TETCO competes directly with Transcontinental Gas Pipe Line Corporation, Tennessee Gas Pipeline Company ("TGPC"), Iroquois Gas Transmission System ("Iroquois"), CNG Transmission Corporation and Columbia Gas Transmission Corporation. Algonquin competes directly in certain market areas with TGPC and Iroquois. PEPL and Trunkline compete directly with ANR Pipeline Company, Natural Gas Pipeline Company of America and Texas Gas Transmission Corporation in the Midwest market area. The Company's energy services group faces competition both in acquiring natural gas supplies and in marketing natural gas, NGLs and crude oil. Competition for natural gas supplies is primarily based on efficiency, reliability, availability of transportation and ability to obtain a satisfactory price for the producer's natural gas. Competition for customers is primarily based upon reliability and price of delivered natural gas, NGLs and crude oil. The Company's competitors for obtaining additional natural gas supplies, for gathering and processing natural gas and for marketing and transporting natural gas, NGLs and crude oil include major integrated oil companies, major interstate pipelines and their marketing affiliates and national and local natural gas gatherers, brokers, marketers and distributors of varying size, financial resources and experience. Natural gas competes with other forms of energy available to the Company's customers and end users, including electricity, coal and fuel oils. The primary competitive factor is price. Changes in the availability or price of natural gas and other forms of energy, the level of business activity, conservation, legislation and governmental regulations, the capability to convert to alternative fuels, and other factors, including weather, affect the demand for natural gas in the areas served by the Company. Electric power marketing faces competition from other forms of energy, such as natural gas, coal and fuel oil. Power Services also competes with electric utilities and other electric power marketers. The independent electric power market is still in the early stages of development and primarily regional in nature. 9 12 CAPITAL EXPENDITURES FOR CLEAN AIR ACT AMENDMENTS The Company has submitted plans to the appropriate state agencies in order to fully comply with the Clean Air Act Amendments of 1990 (the "Amendments"). Agency review of these plans is currently underway. In 1995, the Company made capital expenditures of approximately $20 million related to the requirements of the Amendments and associated state regulations, and further expenditures of $1.5 million are projected for 1996. Management believes that the expenditures related to compliance with the Amendments and the associated regulations will be eligible for recovery in rates. The Company recently determined that no further material expenditures are anticipated in connection with the present requirements of the Amendments or the associated regulations. For a discussion of other environmental matters involving the Company, see Note 13 of the Notes to Consolidated Financial Statements on pages 51 and 52 of the Annual Report, which are incorporated herein by reference. GENERAL MATTERS During 1995, no single customer accounted for 10% or more of the Company's consolidated revenues. While the Company does engage in some research and development activities, no such activities conducted during the past three years have been material to the Company's business, nor have there been any material customer-sponsored research activities during that period relating to the Company's business activities. TETCO, Algonquin, PEPL and Trunkline are members of and provide support to the Gas Research Institute ("GRI"), which plans and manages research and development efforts for the gas industry. The funds used to support GRI are derived from a surcharge on the pipelines' rates pursuant to FERC authorization. Payments amounted to approximately $16.2 million, $22.1 million and $20.8 million in 1995, 1994 and 1993, respectively, for the four companies combined. Foreign operations and export sales are not material to the Company's business as a whole. As of January 1, 1996, the Company had approximately 5,000 employees. ITEM 2. PROPERTIES NATURAL GAS TRANSMISSION GROUP TETCO's gas transmission system extends approximately 1,700 miles from producing fields in the Gulf Coast region of Texas and Louisiana to Ohio, Pennsylvania, New Jersey and New York. It consists of two parallel systems, one consisting of three large-diameter parallel pipelines and the other consisting of from one to three large-diameter pipelines over its length. TETCO's system, including the gathering systems, has 73 compressor stations. The TETCO system connects with the PEPL and Trunkline systems through the Lebanon Lateral. The Lebanon Lateral is located between Grant County, Indiana, and Lebanon, Ohio. TETCO owns the Indiana portion and a small segment of the Ohio portion of this pipeline, while the rest of this pipeline in Ohio is jointly owned by TETCO and another interstate gas pipeline company. The Indiana portion of the Lebanon Lateral extends approximately 53 miles, while the Ohio portion of this pipeline is 61 miles long. Algonquin's transmission system connects with TETCO's facilities in Lambertville and Hanover, New Jersey, and extends through New Jersey, New York, Connecticut, Rhode Island and Massachusetts to the Boston area. The system consists of approximately 250 miles of pipeline with six compressor stations. PEPL's transmission system, which consists of four large-diameter parallel pipelines and 13 mainline compressor stations, extends a distance of approximately 1,300 miles from producing areas in the Anadarko Basin of Texas, Oklahoma and Kansas through the states of Missouri, Illinois, Indiana and Ohio into Michigan. 10 13 Trunkline's transmission system extends approximately 1,400 miles from the Gulf Coast areas of Texas and Louisiana through the states of Arkansas, Mississippi, Tennessee, Kentucky, Illinois and Indiana to a point on the Indiana-Michigan border near Elkhart, Indiana. The system consists principally of three large-diameter parallel pipelines and 18 mainline compressor stations. Trunkline also owns and operates two offshore Louisiana gas supply systems consisting of 337 miles of pipeline extending approximately 81 miles into the Gulf of Mexico. TETCO owns and operates two offshore Louisiana gas supply systems, which extend over 100 miles into the Gulf of Mexico and consist of 490 miles of pipeline. For information concerning natural gas storage properties, see "Natural Gas Transmission Group -- Storage" under Item 1, which is incorporated herein by reference. LNG FACILITIES Algonquin LNG owns and operates an LNG storage facility in Providence, Rhode Island. This facility has a storage capacity of 600,000 barrels, which approximates 2 Bcf, and a design output capacity of 100 MMcf/d. Trunkline LNG owns a marine terminal, storage and regasification facility for LNG located near Lake Charles, Louisiana. The Trunkline LNG facilities have a design output capacity of approximately 700 MMcf/d and a storage capacity of approximately 1.8 million barrels, which approximates 6 Bcf. Lachmar, a partnership in which subsidiaries of PEC own all of the partnership interests, owns two LNG ships, each with a transportation capacity of 125,000 cubic meters of LNG. Both ships have been chartered through the first quarter of 1996. The Company continues to examine opportunities to better utilize its LNG assets, including the ships. ENERGY SERVICES GROUP For information regarding the properties of the Company's energy services segment, see "Energy Services Group" under Item 1, which is incorporated herein by reference. OTHER None of the other properties used in connection with the Company's other business activities is considered material to the Company's operations as a whole. 11 14 [Map of Panhandle Eastern Corporation Showing Pipelines, Storage Facilities, Principal Supply Areas and Proposed Pipelines.] 12 15 ITEM 3. LEGAL PROCEEDINGS For information concerning material legal proceedings, see Notes 4, 13 and 14 on pages 44, 45, 51 and 52 of the Annual Report, which are incorporated herein by reference. With respect to the lawsuit filed against PEC, Texas Eastern Corporation ("TEC") and TETCO on August 30, 1995 containing class action allegations for PCB-related injuries and damage described on page 52 of the Annual Report, the plaintiffs, with court approval, recently dismissed the suit voluntarily but retained the right to refile the action at a later date. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF REGISTRANT
BECAME AN AGE IN EXECUTIVE NAME OFFICE 1996 OFFICER ---- ------ ------ --------- Dennis R. Hendrix(1).......... Chairman of the Board 56 1990 Paul M. Anderson(2)........... President and Chief Executive Officer 51 1991 George L. Mazanec(3).......... Vice Chairman of the Board 60 1989 James T. Hackett(4)........... Executive Vice President 42 1996 Carl B. King(5)............... Senior Vice President and General Counsel 53 1990 Paul F. Ferguson, Jr.(6)...... Senior Vice President and Chief Financial Officer 47 1989 Sandra P. Meyer(7)............ Vice President and Controller 42 1993 James W. Hart, Jr.(8)......... Vice President, Public Affairs 60 1988 Vernell P. Ludwig(9).......... Vice President, Corporate Development 52 1993 Bruce A. Williamson(10)....... Treasurer 37 1995
- --------------- (1) Director and Chairman of the Board since November 1990; Chief Executive Officer from November 1990 to April 1995; and President from November 1990 to December 1993. (2) Chief Executive Officer since April 1995; President since December 1993; Director since December 1992. Executive Vice President from March 1991 to December 1993. Vice President, Finance and Chief Financial Officer, Inland Steel Industries, Inc., 1990-1991. (3) Director since December 1992 and Vice Chairman of the Board since December 1993; Executive Vice President from March 1991 to December 1993; and Group Vice President from November 1989 to March 1991. (4) Executive Vice President since January 1996. Senior Vice President of NGC Corporation ("NGC"), 1990-1995, and President of NGC's Trident division, 1995. Member of NGC's management committee, 1993-1994. (5) Senior Vice President and General Counsel since June 1990. (6) Senior Vice President and Chief Financial Officer since September 1995. Vice President, Finance and Accounting, from April 1992 to September 1995; Vice President and Treasurer from July 1990 to April 1992 and Treasurer from June 1994 until June 1995. (7) Controller since September 1993 and Vice President since December 1994. An officer or employee of PEC, or a subsidiary of PEC, for more than five years. (8) Vice President of the Company for more than five years. (9) Vice President, Corporate Development, since January 1993; President of Algonquin Energy Corporation and Algonquin Gas Transmission Corporation from April 1991 and January 1991, respectively, to August 1993 and prior thereto, Executive Vice President of those companies. 13 16 (10) Treasurer and Assistant Secretary since June 1995. Assistant Treasurer, Capital Markets, from 1993 to 1995, and Manager of E&P Risk Management from 1992 to 1993, both for Shell Oil Company. Vice President and Treasurer of Shell Leasing Company from 1990 to 1992. All officers of PEC are elected in April of each year at the organizational meeting of the Board of Directors. There are no family relationships among any directors or executive officers of PEC. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS See "PanEnergy Corp Common Stock Data by Quarters" on page 57 and Note 12 of the Notes to Consolidated Financial Statements on pages 50 and 51 of the Annual Report, which are incorporated herein by reference. The Common Stock is listed on the New York and Pacific Stock Exchanges. At February 29, 1996, there were 26,607 holders of record of the Common Stock. ITEM 6. SELECTED FINANCIAL DATA See page 56 of the Annual Report, which is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See pages 26 through 35 of the Annual Report, which are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to "Index -- Financial Statements" under Item 14(a)(1). See the consolidated quarterly financial data on page 55 of the Annual Report, which is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See pages 2 through 4 and page 6 of the Panhandle Eastern Corporation Definitive Proxy Statement, dated March 15, 1996 ("Proxy Statement"), which are incorporated herein by reference. See list of "Executive Officers of Registrant" on pages 13 and 14, which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION See pages 8 through 20 of the Proxy Statement, which are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See pages 6 through 8 of the Proxy Statement, which are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See pages 2 through 4, 7 and 8 of the Proxy Statement, which are incorporated herein by reference. 14 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: (a) The following documents are filed as a part of this report or incorporated herein by reference: (1) The Consolidated Financial Statements of Panhandle Eastern Corporation and Subsidiaries are listed on the Index, page 21. (2) Exhibits filed herewith are designated by an asterisk (*); all exhibits not so designated are incorporated herein by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**).
EXHIBIT FILE NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER ------- ----------- ---------------------------- ------ *3.01 Amended and Restated Certificate of Incorporation of Panhandle Eastern Corporation, including the Certificate of Elimination of the Participating Stock of Panhandle Eastern Corporation 3.03 By-Laws of Panhandle Eastern 19(a) to Form 10-Q of PEC for 1-8157 Corporation, effective July 8, quarter ended September 30, 1986 1986 4.01 Indenture, dated as of November 4.03 to Form 10-K of PEC for 1-8157 1, 1994, between Panhandle year ended December 31, 1994 Eastern Corporation and The First National Bank of Boston, as Trustee *4.02 Credit Agreement between Panhandle Eastern Corporation, d/b/a PanEnergy Corp, the financial institutions identified therein, and Chemical Bank, as Administrative Agent, dated as of January 31, 1996 *4.03 Credit Agreement (Five Year Facility) between Panhandle Eastern Corporation, d/b/a PanEnergy Corp, the financial institutions identified therein, and Chemical Bank, as Administrative Agent, dated as of January 31, 1996 **10.01 1977 Non-Qualified Stock Option 10(f) to Form 10-K of PEC for 1-8157 Plan of Panhandle Eastern year ended December 31, 1986 Corporation, as amended through December 3, 1986 (and related Agreement) **10.02 1982 Key Employee Stock Option 10(g) to Form 10-K of PEC for 1-8157 Plan of Panhandle Eastern year ended December 31, 1986 Corporation, as amended through December 3, 1986 (and related Agreement) **10.03 Panhandle Eastern 10(w) to Form 10-K of PEC for 1-8157 Corporation -- Nonemployee year ended December 31, 1985 Directors Retirement Plan (As amended May 22, 1985)
15 18
EXHIBIT FILE NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER ------- ----------- --------------------------- ------ **10.04 Deferred Compensation Plan for 10.04 to Form 10-K of PEC for 1-8157 the Board of Directors of year ended December 31, 1989 Panhandle Eastern Corporation (Adopted May 26, 1982; as amended November 29, 1989) **10.05 Amendment to Deferred 10.05 to Form 10-K of PEC for 1-8157 Compensation Plan for the Board year ended December 31, 1994 of Directors of Panhandle Eastern Corporation dated January 25, 1995 **10.06 Panhandle Eastern 10.05 to Form 10-K of PEC for 1-8157 Corporation -- Executive year ended December 31, 1989 Benefit Equalization Plan (As amended November 29, 1989; effective January 1, 1990) **10.07 Panhandle Eastern Corporation 10.06 to Form 10-K of PEC for 1-8157 Retirement Benefit Equalization year ended December 31, 1993 Plan (Adopted December 20, 1993; effective January 1, 1994; amends and restates Exhibit number 10.05) **10.08 Panhandle Eastern 19(a) to Form 10-Q of PEC for 1-8157 Corporation -- Executive quarter ended September 30, Severance Agreement 1988 10.09 Change in Control Severance Pay 19(c) to Form 10-Q of PEC for 1-8157 Plan of Panhandle Eastern quarter ended September 30, Corporation and Affiliates 1986 (Adopted July 8, 1986) **10.10 1989 Nonemployee Directors 28(a) to Form S-8 Registration 33-28912 Stock Option Plan (Adopted Statement of PEC February 1, 1989) 10.11 Employees Savings Plan of 10.12 to Form 10-K of PEC for 1-8157 Panhandle Eastern Corporation year ended December 31, 1990 and Participating Affiliates (Effective January 1, 1991) 10.12 Retirement Income Plan of 10.13 to Form 10-K of PEC for 1-8157 Panhandle Eastern Corporation year ended December 31, 1990 and Participating Affiliates (Effective January 1, 1991) **10.13 Panhandle Eastern Corporation 10.12 to Form 10-K of PEC for 1-8157 Key Executive Retirement year ended December 31, 1993 Benefit Equalization Plan (Adopted December 20, 1993; effective January 1, 1994) **10.14 Panhandle Eastern Corporation 10.13 to Form 10-K of PEC for 1-8157 Key Executive Deferred year ended December 31, 1993 Compensation Plan (Adopted December 20, 1993; effective January 1, 1994) **10.15 1990 Long Term Incentive Plan 10.14 to Form 10-K of PEC for 1-8157 (Adopted November 29, 1989) year ended December 31, 1990 10.16 Special Recognition Bonus Plan 10.15 to Form 10-K of PEC for 1-8157 (Adopted November 29, 1989) year ended December 31, 1990
16 19
EXHIBIT FILE NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER ------- ----------- --------------------------- ------ 10.17 Annual Cash Bonus Plan of 19.3 to Form 10-Q of PEC for 1-8157 Panhandle Eastern Corporation quarter ended September 30, (Adopted October 25, 1989; 1989 effective January 1, 1990) 10.18 Texas Eastern Deferred Income 10.9 to Form 10-K of TEC for 1-7587 Program; First Amendment, dated years ended December 31, 1984 December 5, 1985; and Second and 1986; 8 to Schedule 14D-9 Amendment, dated August 15, of TEC, dated January 30, 1989 1988 **10.19 Panhandle Eastern Corporation 10.18 to Form 10-K of PEC for 1-8157 1994 Long Term Incentive Plan year ended December 31, 1993 **10.20 Agreement, dated November 1, 10.27 to Form 10-K of PEC for 1-8157 1989, between G. L. Mazanec and year ended December 31, 1990 Panhandle Eastern Corporation **10.21 Amendment to Employment 10.17 to Form 10-K of PEC for 1-8157 Agreement, effective November year ended December 31, 1992 1, 1992, between G. L. Mazanec and Panhandle Eastern Corporation **10.22 Agreement, dated November 12, 10.28 to Form 10-K of PEC for 1-8157 1990, between D. R. Hendrix and year ended December 31, 1990 Panhandle Eastern Corporation **10.23 Amendment, dated March 12, 1993 10.19 to Form 10-K of PEC for 1-8157 to be effective as of February year ended December 31, 1992 24, 1993, to Agreement dated November 12, 1990, between D. R. Hendrix and Panhandle Eastern Corporation **10.24 Second Amendment, dated 10.23 to Form 10-K of PEC for 1-8157 December 20, 1993, to Agreement year ended December 31, 1993 dated November 12, 1990, between Dennis Hendrix and Panhandle Eastern Corporation **10.25 Agreement, dated November 12, 10.31 to Form 10-K of PEC for 1-8157 1990, between P. J. Burguieres year ended December 31, 1990 and Panhandle Eastern Corporation **10.26 Agreement, effective January 1, 10.32 to Form 10-K of PEC for 1-8157 1991, between P. J. Burguieres year ended December 31, 1990 and Panhandle Eastern Corporation **10.27 Agreement, effective March 1, 10.24 to Form 10-K of PEC for 1-8157 1991, between Paul M. Anderson year ended December 31, 1991 and Panhandle Eastern Corporation 10.28 Settlement Agreement, dated 19.4 to Form 10-Q of PEC for 1-8157 July 21, 1986, among Sonatrach, quarter ended June 30, 1986 Panhandle Eastern Corporation, Panhandle Eastern Pipe Line Company and Trunkline LNG Company
17 20
EXHIBIT FILE NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER ------- ----------- ---------------------------- ------ 10.29 Amendment, dated August 11, 19.5 to Form 10-Q of PEC for 1-8157 1986, to Settlement Agreement, quarter ended June 30, 1986 dated July 21, 1986, among Sonatrach, Panhandle Eastern Corporation, Panhandle Eastern Pipe Line Company and Trunkline LNG Company 10.30 Amendment No. 2, dated August 19(e) to Form 10-Q of PEC for 1-8157 1, 1988, to Settlement quarter ended June 30, 1988 Agreement, dated July 21, 1986, among Sonatrach, International Petroleum Investment Partnership, Panhandle Eastern Corporation, Panhandle Eastern Pipe Line Company and Trunkline LNG Company 10.31 Purchase Agreement, dated April 19(a) to Form 10-Q of PEC for 1-8157 26, 1987, between Sonatrading quarter ended March 31, 1987 Amsterdam B.V. and Trunkline LNG Company 10.32 Mutual Assurances Agreement, 19(b) to Form 10-Q of PEC for 1-8157 dated April 26, 1987, among quarter ended March 31, 1987 Sonatrach, Sonatrading Amsterdam B.V., Panhandle Eastern Corporation and Trunkline LNG Company 10.33 Tanker Utilization Agreement, 19(c) to Form 10-Q of PEC for 1-8157 dated April 26, 1987, between quarter ended March 31, 1987 Sonatrading Amsterdam B.V. and Trunkline LNG Company 10.34 Transportation Agreement, dated 19(d) to Form 10-Q of PEC for 1-8157 April 26, 1987, between quarter ended March 31, 1987 Sonatrach and Trunkline LNG Company * **10.35 Letter Agreement constituting a Contract of Employment between James T. Hackett and Panhandle Eastern Corporation, dated December 19, 1995 * **10.36 Retirement Income Plan of Panhandle Eastern Corporation and Participating Affiliates, as amended and restated effective January 1, 1995 * **10.37 Amendment No. 1 to the Retirement Income Plan of Panhandle Eastern Corporation and Participating Affiliates, effective January 1, 1996
18 21
EXHIBIT FILE NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER ------- ----------- ---------------------------- ------ * **10.38 Amendment No. 2 to the Retirement Income Plan of Panhandle Eastern Corporation and Participating Affiliates, effective January 1, 1996 *13 PanEnergy Corp 1995 Annual Report to Stockholders 21 List of Certain Subsidiaries of the Registrant and state of incorporation: (a) Algonquin Energy, Inc. (Delaware) (b) Algonquin Gas Transmission Company (Delaware) (c) National Helium Corporation (Delaware) (d) PanEnergy Field Services, Inc. (Colorado) (e) PanEnergy Gas Services, Inc. (Colorado) (f) PanEnergy International Development Corporation (Delaware) (g) PanEnergy Natural Gas Corporation (Delaware) (h) PanEnergy Power Services, Inc. (Colorado) (i) PanEnergy Risk Management Services, Inc. (Delaware) (j) PanEnergy Services, Inc. (Delaware) (k) PanEnergy Transport and Trading Company (Colorado) (l) Panhandle Eastern Pipe Line Company (Delaware) (m) Texas Eastern Arabian, Ltd. (Bermuda) (n) Texas Eastern (Bermuda), Ltd. (Bermuda) (o) Texas Eastern Corporation (Delaware) (p) Texas Eastern Products Pipeline Company (Delaware) (q) Texas Eastern Transmission Corporation (Delaware) (r) Trunkline Gas Company (Delaware) *23 Consent of KPMG Peat Marwick LLP *24 Powers of Attorney *27 Financial Data Schedule for December 31, 1995
19 22
EXHIBIT FILE NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER ------- ----------- --------------------------- ------ *99 Definitive Proxy Statement, dated March 15, 1996 for the Annual Meeting of Stockholders of Panhandle Eastern Corporation
The total amount of securities of the Registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an Exhibit does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees, upon request of the Securities and Exchange Commission, to furnish copies of any or all of such instruments. (b) Reports on Form 8-K -- No reports on Form 8-K were filed during the fourth quarter of 1995. 20 23 PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES INDEX FINANCIAL STATEMENTS AND SCHEDULES FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report........................................................ 36* Consolidated Statement of Income.................................................... 37* Consolidated Balance Sheet.......................................................... 38-39* Consolidated Statement of Common Stockholders' Equity............................... 40* Consolidated Statement of Cash Flows................................................ 41* Notes to Consolidated Financial Statements.......................................... 42-54*
- --------------- * Refers to the pages in the PanEnergy Corp 1995 Annual Report to Stockholders, which are incorporated herein by reference. All Schedules are omitted because they are not applicable, not required or the information is included in the Consolidated Financial Statements or the Notes thereto. 21 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PANHANDLE EASTERN CORPORATION By /s/ ROBERT W. REED --------------------------------- (Robert W. Reed, Secretary) Date: March 28, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 28, 1996.
NAME AND SIGNATURE TITLE - --------------------------------------------- ----- (i) Principal executive officer:* /s/ PAUL M. ANDERSON President and Chief - --------------------------------------------- Executive Officer (Paul M. Anderson) (ii) Principal financial officer:* /s/ PAUL F. FERGUSON, JR. Senior Vice President and - --------------------------------------------- Chief Financial Officer (Paul F. Ferguson, Jr.) (iii) Principal accounting officer:* /s/ SANDRA P. MEYER Vice President and Controller - --------------------------------------------- (Sandra P. Meyer)
(iv) Directors:* PAUL M. ANDERSON MILTON CARROLL ROBERT CIZIK CHARLES W. DUNCAN, JR. HARRY E. EKBLOM WILLIAM T. ESREY ANN MAYNARD GRAY DENNIS R. HENDRIX HAROLD S. HOOK LEO E. LINBECK, JR. GEORGE L. MAZANEC RALPH S. O'CONNER * Signed on behalf of each of these persons: By /s/ ROBERT W. REED ---------------------------------- (Robert W. Reed, Attorney-in-Fact) 22 25 EXHIBIT INDEX (a) The following documents are filed as a part of this report or incorporated herein by reference: (1) The Consolidated Financial Statements of Panhandle Eastern Corporation and Subsidiaries are listed on the Index, page 21. (2) Exhibits filed herewith are designated by an asterisk (*); all exhibits not so designated are incorporated herein by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**).
EXHIBIT FILE NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER ------- ----------- --------------------------- ------ *3.01 Amended and Restated Certificate of Incorporation of Panhandle Eastern Corporation, including the Certificate of Elimination of the Participating Stock of Panhandle Eastern Corporation 3.03 By-Laws of Panhandle Eastern 19(a) to Form 10-Q of PEC for 1-8157 Corporation, effective July 8, quarter ended September 30, 1986 1986 4.01 Indenture, dated as of November 4.03 to Form 10-K of PEC for 1-8157 1, 1994, between Panhandle year ended December 31, 1994 Eastern Corporation and The First National Bank of Boston, as Trustee *4.02 Credit Agreement between Panhandle Eastern Corporation, d/b/a PanEnergy Corp, and Chemical Bank, as Administrative Agent, dated as of January 31, 1996 *4.03 Credit Agreement (Five Year Facility) between Panhandle Eastern Corporation, d/b/a PanEnergy Corp, and Chemical Bank, as Administrative Agent, dated as of January 31, 1996 **10.01 1977 Non-Qualified Stock Option 10(f) to Form 10-K of PEC for 1-8157 Plan of Panhandle Eastern year ended December 31, 1986 Corporation, as amended through December 3, 1986 (and related Agreement) **10.02 1982 Key Employee Stock Option 10(g) to Form 10-K of PEC for 1-8157 Plan of Panhandle Eastern year ended December 31, 1986 Corporation, as amended through December 3, 1986 (and related Agreement) **10.03 Panhandle Eastern 10(w) to Form 10-K of PEC for 1-8157 Corporation -- Nonemployee year ended December 31, 1985 Directors Retirement Plan (As amended May 22, 1985)
26
EXHIBIT FILE NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER ------- ----------- --------------------------- ------- **10.04 Deferred Compensation Plan for 10.04 to Form 10-K of PEC for 1-8157 the Board of Directors of year ended December 31, 1989 Panhandle Eastern Corporation (Adopted May 26, 1982; as amended November 29, 1989) **10.05 Amendment to Deferred 10.05 to Form 10-K of PEC for 1-8157 Compensation Plan for the Board year ended December 31, 1994 of Directors of Panhandle Eastern Corporation dated January 25, 1995 **10.06 Panhandle Eastern 10.05 to Form 10-K of PEC for 1-8157 Corporation -- Executive year ended December 31, 1989 Benefit Equalization Plan (As amended November 29, 1989; effective January 1, 1990) **10.07 Panhandle Eastern Corporation 10.06 to Form 10-K of PEC for 1-8157 Retirement Benefit Equalization year ended December 31, 1993 Plan (Adopted December 20, 1993; effective January 1, 1994; amends and restates Exhibit number 10.05) **10.08 Panhandle Eastern 19(a) to Form 10-Q of PEC for 1-8157 Corporation -- Executive quarter ended September 30, Severance Agreement 1988 10.09 Change in Control Severance Pay 19(c) to Form 10-Q of PEC for 1-8157 Plan of Panhandle Eastern quarter ended September 30, Corporation and Affiliates 1986 (Adopted July 8, 1986) **10.10 1989 Nonemployee Directors 28(a) to Form S-8 Registration 33-28912 Stock Option Plan (Adopted Statement of PEC February 1, 1989) 10.11 Employees Savings Plan of 10.12 to Form 10-K of PEC for 1-8157 Panhandle Eastern Corporation year ended December 31, 1990 and Participating Affiliates (Effective January 1, 1991) 10.12 Retirement Income Plan of 10.13 to Form 10-K of PEC for 1-8157 Panhandle Eastern Corporation year ended December 31, 1990 and Participating Affiliates (Effective January 1, 1991) **10.13 Panhandle Eastern Corporation 10.12 to Form 10-K of PEC for 1-8157 Key Executive Retirement year ended December 31, 1993 Benefit Equalization Plan (Adopted December 20, 1993; effective January 1, 1994) **10.14 Panhandle Eastern Corporation 10.13 to Form 10-K of PEC for 1-8157 Key Executive Deferred year ended December 31, 1993 Compensation Plan (Adopted December 20, 1993; effective January 1, 1994) **10.15 1990 Long Term Incentive Plan 10.14 to Form 10-K of PEC for 1-8157 (Adopted November 29, 1989) year ended December 31, 1990 10.16 Special Recognition Bonus Plan 10.15 to Form 10-K of PEC for 1-8157 (Adopted November 29, 1989) year ended December 31, 1990
27
EXHIBIT FILE NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER ------- ----------- --------------------------- ------ 10.17 Annual Cash Bonus Plan of 19.3 to Form 10-Q of PEC for 1-8157 Panhandle Eastern Corporation quarter ended September 30, (Adopted October 25, 1989; 1989 effective January 1, 1990) 10.18 Texas Eastern Deferred Income 10.9 to Form 10-K of TEC for 1-7587 Program; First Amendment, dated years ended December 31, 1984 December 5, 1985; and Second and 1986; 8 to Schedule 14D-9 Amendment, dated August 15, of TEC, dated January 30, 1989 1988 **10.19 Panhandle Eastern Corporation 10.18 to Form 10-K of PEC for 1-8157 1994 Long Term Incentive Plan year ended December 31, 1993 **10.20 Agreement, dated November 1, 10.27 to Form 10-K of PEC for 1-8157 1989, between G. L. Mazanec and year ended December 31, 1990 Panhandle Eastern Corporation **10.21 Amendment to Employment 10.17 to Form 10-K of PEC for 1-8157 Agreement, effective November year ended December 31, 1992 1, 1992, between G. L. Mazanec and Panhandle Eastern Corporation **10.22 Agreement, dated November 12, 10.28 to Form 10-K of PEC for 1-8157 1990, between D. R. Hendrix and year ended December 31, 1990 Panhandle Eastern Corporation **10.23 Amendment, dated March 12, 1993 10.19 to Form 10-K of PEC for 1-8157 to be effective as of February year ended December 31, 1992 24, 1993, to Agreement dated November 12, 1990, between D. R. Hendrix and Panhandle Eastern Corporation **10.24 Second Amendment, dated 10.23 to Form 10-K of PEC for 1-8157 December 20, 1993, to Agreement year ended December 31, 1993 dated November 12, 1990, between Dennis Hendrix and Panhandle Eastern Corporation **10.25 Agreement, dated November 12, 10.31 to Form 10-K of PEC for 1-8157 1990, between P. J. Burguieres year ended December 31, 1990 and Panhandle Eastern Corporation **10.26 Agreement, effective January 1, 10.32 to Form 10-K of PEC for 1-8157 1991, between P. J. Burguieres year ended December 31, 1990 and Panhandle Eastern Corporation **10.27 Agreement, effective March 1, 10.24 to Form 10-K of PEC for 1-8157 1991, between Paul M. Anderson year ended December 31, 1991 and Panhandle Eastern Corporation 10.28 Settlement Agreement, dated 19.4 to Form 10-Q of PEC for 1-8157 July 21, 1986, among Sonatrach, quarter ended June 30, 1986 Panhandle Eastern Corporation, Panhandle Eastern Pipe Line Company and Trunkline LNG Company
28
EXHIBIT FILE NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER ------- ----------- --------------------------- ------ 10.29 Amendment, dated August 11, 19.5 to Form 10-Q of PEC for 1-8157 1986, to Settlement Agreement, quarter ended June 30, 1986 dated July 21, 1986, among Sonatrach, Panhandle Eastern Corporation, Panhandle Eastern Pipe Line Company and Trunkline LNG Company 10.30 Amendment No. 2, dated August 19(e) to Form 10-Q of PEC for 1-8157 1, 1988, to Settlement quarter ended June 30, 1988 Agreement, dated July 21, 1986, among Sonatrach, International Petroleum Investment Partnership, Panhandle Eastern Corporation, Panhandle Eastern Pipe Line Company and Trunkline LNG Company 10.31 Purchase Agreement, dated April 19(a) to Form 10-Q of PEC for 1-8157 26, 1987, between Sonatrading quarter ended March 31, 1987 Amsterdam B.V. and Trunkline LNG Company 10.32 Mutual Assurances Agreement, 19(b) to Form 10-Q of PEC for 1-8157 dated April 26, 1987, among quarter ended March 31, 1987 Sonatrach, Sonatrading Amsterdam B.V., Panhandle Eastern Corporation and Trunkline LNG Company 10.33 Tanker Utilization Agreement, 19(c) to Form 10-Q of PEC for 1-8157 dated April 26, 1987, between quarter ended March 31, 1987 Sonatrading Amsterdam B.V. and Trunkline LNG Company 10.34 Transportation Agreement, dated 19(d) to Form 10-Q of PEC for 1-8157 April 26, 1987, between quarter ended March 31, 1987 Sonatrach and Trunkline LNG Company ***10.35 Letter Agreement constituting a Contract of Employment between James T. Hackett and Panhandle Eastern Corporation, dated December 19, 1995 ***10.36 Retirement Income Plan of Panhandle Eastern Corporation and Participating Affiliates, as amended and restated effective January 1, 1995 ***10.37 Amendment No. 1 to the Retirement Income Plan of Panhandle Eastern Corporation and Participating Affiliates, effective January 1, 1996
29
EXHIBIT FILE NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER ------- ----------- --------------------------- ------ ***10.38 Amendment No. 2 to the Retirement Income Plan of Panhandle Eastern Corporation and Participating Affiliates, effective January 1, 1996 *13 PanEnergy Corp 1995 Annual Report to Stockholders 21 List of Certain Subsidiaries of the Registrant and state of incorporation: (Contained within Part IV of the Form 10-K for the Fiscal Year Ended December 31, 1995) *23 Consent of KPMG Peat Marwick LLP *24 Powers of Attorney *27 Financial Data Schedule for December 31, 1995 *99 Definitive Proxy Statement, dated March 15, 1996 for the Annual Meeting of Stockholders of Panhandle Eastern Corporation
EX-3.01 2 AMENDED & RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.01 CERTIFICATE OF ELIMINATION of the PARTICIPATING PREFERRED STOCK (Par Value $1.00 Per Share) of PANHANDLE EASTERN CORPORATION ________________________________________________ Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware ________________________________________________ PANHANDLE EASTERN CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Company"), does hereby certify that the following resolutions were duly adopted by the Board of Directors of the Company on February 16, 1996, and remains in full force and effect: ELIMINATION OF PARTICIPATING PREFERRED STOCK WHEREAS, the Board of Directors of Panhandle Eastern Corporation (the "Company") believes that it is in the best interest of the Company to eliminate the 1,000,000 shares of Participating Preferred Stock, par value $1.00, of the Company. NOW, THEREFORE, IT IS HEREBY RESOLVED, that, pursuant to the authority granted to and vested in the Board of Directors and in accordance with the provisions of the Restated Certificate of Incorporation of the Company filed with the Office of the Secretary of State of the State of Delaware on April 13, 1990 (the "Certificate of Incorporation"), the Board hereby states and declares that none of the 1,000,000 authorized shares of the series of Preferred Stock of the Company designated as "Participating Preferred Stock" is outstanding and none will be issued subject to the Certificate of Incorporation or the certificate of designation and terms previously filed with the Secretary of State of the State of Delaware with respect to the Participating Preferred Stock and, when the certificate of 2 -2- elimination, referred to below, setting forth this resolution becomes effective, it shall have the effect of eliminating from the Certificate of Incorporation and such certificate of designation and terms all matters set forth therein with respect to the Participating Preferred Stock; and FURTHER RESOLVED, that, pursuant to the authority granted to and vested in the Board of Directors, the Board of Directors hereby authorizes the elimination in whole of the Participating Preferred Stock, and any shares thereof previously reserved for issuance shall automatically cease to be reserved for such purpose; and FURTHER RESOLVED, that each officer of the Company is hereby authorized, in the name and on behalf of the Company, to prepare, execute and file, or cause to be prepared and filed, a certificate of elimination relating to the Participating Preferred Stock substantially in the form presented to the Board of Directors. IN WITNESS WHEREOF, PANHANDLE EASTERN CORPORATION has caused this Certificate of Elimination to be duly executed by its duly authorized officer, this _________ day of March, 1996. PANHANDLE EASTERN CORPORATION By: ------------------------------ Robert W. Reed Secretary EX-4.02 3 CREDIT AGREEMENT - CHEMICAL BANK 1 EXHIBIT 4.02 [EXECUTION COPY] ================================================================================ PANHANDLE EASTERN CORPORATION doing business as PANENERGY CORP ___________________________________ $400,000,000 CREDIT AGREEMENT dated as of January 31, 1996 ___________________________________ CHEMICAL BANK as Administrative Agent ================================================================================ 2 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 2. AMOUNTS AND TERMS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.1 Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.2 Revolving Credit Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.3 Procedure for Revolving Credit Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.4 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.5 Issuance of Commercial L/Cs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.6 Issuance of Standby L/Cs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.7 Participating Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.8 Procedure for Opening Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.9 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.11 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.12 Letter of Credit Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.13 Competitive Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.14 Competitive Loan Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.15 Procedure for Competitive Loan Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.16 Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.17 Term Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.18 Procedure for Term Loan Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.19 Extension of Revolving Credit Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.20 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 3. INTEREST RATE PROVISIONS, FEES, CONVERSIONS AND PAYMENTS . . . . . . . . . . . . . . . . . . . . . . 31 3.1 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.2 Facility and Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.3 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.4 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.5 Optional Prepayments of Revolving Credit Loans and Term Loans . . . . . . . . . . . . . . . . . . . 34 3.6 Reduction of Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.7 Pro Rata Treatment and Payments; Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.8 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.9 Failure by Lenders to Make Funds Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.10 Conversion Options for Loans; Minimum Amount of Loans . . . . . . . . . . . . . . . . . . . . . . . 37 3.11 Inability to Determine Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 3.13 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3.14 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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Page ---- 3.15 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.16 Lenders' Obligation to Mitigate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 3.17 Replacement of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 4. CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 4.1 Conditions to the Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 4.2 Conditions to the Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 4.3 Conditions to All Loans and All Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.1 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 5.2 Corporate Existence; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 5.3 Corporate Power; Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . 45 5.4 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.5 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.6 Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.7 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.8 Environmental Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.9 Investment Company Act, Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . 47 SECTION 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 6.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 6.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.3 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.4 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.5 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.6 Inspection of Property; Books and Records; Discussions . . . . . . . . . . . . . . . . . . . . . . . 49 6.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 7.1 Maintenance of Consolidated Indebtedness to Consolidated Capitalization Percentage Ratio of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7.2 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7.3 Consolidation, Merger, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.4 Principal Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.5 Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.6 Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 9. THE ADMINISTRATIVE AGENT AND THE ISSUING LENDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 9.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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Page ---- 9.4 Reliance by Administrative Agent and the Issuing Lenders . . . . . . . . . . . . . . . . . . . . . . 55 9.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 9.6 Non-Reliance on Administrative Agent, Issuing Lenders and Other Lenders . . . . . . . . . . . . . . 56 9.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 9.8 Administrative Agent and Issuing Lenders in Their Individual Capacities . . . . . . . . . . . . . . 57 9.9 Successor Administrative Agent and Issuing Lenders . . . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 10.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 10.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 10.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 10.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 10.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 10.7 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 10.8 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 10.9 Transfers of Competitive Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 10.10 Register, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 10.11 Adjustments; Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 10.12 Existing Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 10.14 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 10.15 Submission to Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 10.16 Limitation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 10.17 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
iii 5 SCHEDULES - --------- 1 Lending Offices 2 Revolving Credit Commitments 3 Excluded Sales of Assets EXHIBITS - -------- A Form of Competitive Loan Confirmation B Form of Competitive Loan Offer C Form of Competitive Loan Request D Form of Letter of Credit Participation Certificate E Form of Revolving Credit Note F-1 Form of Grid Competitive Loan Note F-2 Form of Individual Competitive Loan Note G Form of Term Note H Form of Extension Request I Form of Opinion of Sullivan & Cromwell J Form of General Counsel's Opinion K Form of Commitment Transfer Supplement iv 6 CREDIT AGREEMENT Dated as of January 31, 1996 PANHANDLE EASTERN CORPORATION, a Delaware corporation doing business as PanEnergy Corp (the "Company"), the several financial institutions from time to time parties to this Agreement (collectively, the "Lenders" and individually, a "Lender") and CHEMICAL BANK, a New York banking corporation ("Chemical"), as Administrative Agent, do hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms have the following meanings: "ABR Loans": Revolving Credit Loans or Term Loans at such time as they are made and/or are being maintained at a rate of interest based upon the Alternate Base Rate. "Additional Lender": as defined in subsection 2.19(c). "Adjusted CD Rate": with respect to each day during an Interest Period for CD Rate Loans, a rate per annum determined for such day in accordance with the following formula (rounded upward, if necessary, to the next higher 1/100 of 1%): CD Rate + Assessment Rate ---------------------------- 1.00-CD Reserve Requirements "Administrative Agent": Chemical, in its capacity as administrative agent for the Lenders hereunder and its successors and assigns in such capacity. "Administrative Agent's Office": the office of the Administrative Agent located at 270 Park Avenue, New York, New York 10017, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. "Affiliate": of any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, control of a Person shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agreement": this Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "AGTCO": Algonquin Gas Transmission Company, a Delaware corporation. 7 "Alternate Base Rate": for any day, a rate per annum (rounded upward, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day or (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by Chemical as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by Chemical in connection with extensions of credit to debtors); and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If the Administrative Agent shall have determined that it is unable to ascertain the Federal Funds Effective Rate, for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof (which determination shall be prima facie evidence of such inability), the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Facility Fee Percentage": on any date, the applicable percentage set forth below based upon the ratings applicable on such date to the Company's senior, unsecured, non-credit-enhanced long-term indebtedness for borrowed money ("Index Debt"):
Percentage ---------- CATEGORY 1 Rating A- or higher by S&P A3 or higher by Moody's .075% CATEGORY 2 Rating BBB+ by S&P Baa1 by Moody's .09% CATEGORY 3 Rating BBB by S&P Baa2 by Moody's .10%
-2- 8
Percentage ---------- CATEGORY 4 Rating BBB- by S&P Baa3 by Moody's .125% CATEGORY 5 Rating BB+ or lower by S&P Ba1 or lower by Moody's .175%
For purposes of the foregoing, (i) if the ratings for Index Debt established or deemed to have been established by S&P and Moody's shall fall within different Categories, the Applicable Facility Fee Percentage shall be determined by reference to the numerically lower of such Categories (i.e., the Category corresponding to the higher rating); (ii) if S&P or Moody's shall not have in effect a rating for Index Debt (other than for a reason not related to the creditworthiness of the Company or to any act or failure to act on the part of the Company, or because such rating agency shall no longer be in the business of rating corporate debt obligations), then the rating of such agency shall be deemed to fall within Category 5; and (iii) if any rating established or deemed to have been established by S&P or Moody's shall be changed (other than as a result of a change in the rating system of S&P or Moody's), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Facility Fee Percentage shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change, or if either such rating agency shall no longer have in effect a rating for Index Debt (other than for one of the reasons referred to in clause (ii) above), the Company and the Lenders, acting through the Administrative Agent, shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system or the non-availability of ratings from such rating agency. "Applicable Index Rate": in respect of any Index Rate Competitive Loan of a specified maturity requested pursuant to an Index Rate Competitive Loan Request, the London interbank offered rate for deposits in Dollars for the period commencing on the date of such Index Rate Competitive Loan and ending on the maturity date thereof which appears on Telerate Page 3750 as of 11:00 A.M., London time, two Working Days prior to the beginning of such period. "Applicable L/C Fee Percentage": on any date, the applicable percentage set forth below based upon the ratings applicable on such date to the Index Debt: -3- 9
Percentage ---------- CATEGORY 1 Rating A- or higher by S&P A3 or higher by Moody's .20% CATEGORY 2 Rating BBB+ by S&P Baa1 by Moody's .235% CATEGORY 3 Rating BBB by S&P Baa2 by Moody's .275% CATEGORY 4 Rating BBB- by S&P Baa3 by Moody's .325% CATEGORY 5 Rating BB+ or lower by S&P Ba1 or lower by Moody's .45%
For purposes of the foregoing, (i) if the ratings for Index Debt established or deemed to have been established by S&P and Moody's shall fall within different Categories, the Applicable L/C Fee Percentage shall be determined by reference to the numerically lower of such Categories (i.e., the Category corresponding to the higher rating); (ii) if S&P or Moody's shall not have in effect a rating for Index Debt (other than for a reason not related to the creditworthiness of the Company or to any act or failure to act on the part of the Company, or because such rating agency shall no longer be in the business of rating corporate debt obligations), then the rating of such rating agency shall be deemed to fall within Category 5; and (iii) if any rating established or deemed to have been established by S&P or Moody's shall be changed (other than as a result of a change in the rating system of S&P or Moody's), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable L/C Fee Percentage shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change, or if either such rating agency shall no longer have in effect a rating for Index Debt (other than for one of the reasons referred to in clause (ii) above), the Company and the -4- 10 Lenders, acting through the Administrative Agent, shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system or the non-availability of ratings from such rating agency. "Applicable Margin": on any date, for CD Rate Loans and Eurodollar Loans, the applicable percentage set forth below based upon the ratings applicable on such date to the Index Debt:
EURODOLLAR CD RATE LOAN LOAN Percentage Percentage ------------ ---------- CATEGORY 1 Rating A- or higher by S&P A3 or higher by Moody's .325% .20% CATEGORY 2 Rating BBB+ by S&P Baa1 by Moody's .36% .235% CATEGORY 3 Rating BBB by S&P Baa2 by Moody's .40% .275% CATEGORY 4 Rating BBB- by S&P Baa3 by Moody's .45% .325% CATEGORY 5 Rating BB+ or lower by S&P Ba1 or lower by Moody's .575% .45%
For purposes of the foregoing, (i) if the ratings for Index Debt established or deemed to have been established by S&P and Moody's shall fall within different Categories, the Applicable Margin shall be determined by reference to the numerically lower of such categories (i.e., the Category corresponding to the higher rating); (ii) if S&P or Moody's shall not have in effect a rating for Index Debt (other than for a reason not related to the creditworthiness of the Company or to any act or failure to act on the part of the Company, or because such rating agency shall no longer be in the business of rating corporate debt obligations), then the rating -5- 11 of such rating agency shall be deemed to fall within Category 5; and (iii) if any rating for Index Debt established or deemed to have been established by S&P or Moody's shall be changed (other than as a result of a change in the rating system of S&P or Moody's), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change, or if either such rating agency shall no longer have in effect a rating for Index Debt (other than for one of the reasons referred to in clause (ii) above), the Company and the Lenders, acting through the Administrative Agent, shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system or the non-availability of ratings from such rating agency. "Assessment Rate": for each Interest Period for CD Rate Loans, the net annual assessment rate (rounded upward, if necessary, to the next higher 1/100 of 1%) estimated by Chemical at the beginning of such Interest Period to be the current annual assessment rate payable by Chemical to the Federal Deposit Insurance Corporation (or any successor) for insuring time deposits made in Dollars at offices of Chemical in the United States. "Asset Sale": any sale, transfer, lease or other disposition of any property or asset of the Company or any Subsidiary of the Company except a sale, transfer, lease or other disposition (a) of cash, (b) of temporary cash investments, (c) of trade receivables or other rights to receive money (whether absolute or contingent, or matured or unmatured), (d) of inventories of gas and materials and supplies other than (i) in connection with a sale, transfer, lease or other disposition of property, plant and equipment or (ii) for the primary purpose of financing the purchase, storage or transportation of such gas or materials and supplies by the Company or a Subsidiary of the Company, (e) by the Company to a Subsidiary of the Company or by a Subsidiary of the Company to the Company or to another Subsidiary of the Company (but if the sale, transfer, lease or other disposition is by one of the Principal Subsidiaries, then only to another of the Principal Subsidiaries), (f) of other assets in the ordinary course of business or (g) of other assets listed on Schedule 3 hereto. "Borrowing Date": any Business Day or Working Day, as applicable, specified in a notice pursuant to subsection 2.3, 2.5, 2.6, 2.15 or 2.18 as a date on which the Lenders are to make Loans or an Issuing Lender is to issue a Letter of Credit pursuant to such notice. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to close. "Capital Lease": as to any Person, (a) any lease of property, real or personal, the obligations under which are capitalized on a balance sheet of such Person and (b) any other such lease to the extent that the then present value of the minimum rental commitment thereunder should, in accordance with GAAP, be capitalized on a balance sheet of the lessee. -6- 12 "Cash Equivalents": (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iv) certificates of deposit or banker's acceptances maturing within one year from the date of acquisition thereof issued by (x) any Lender, (y) any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having combined capital and surplus of not less than $250,000,000 or (z) any bank which has a short-term commercial paper rating meeting the requirements of clause (iii) above (any such Lender or bank, a "Qualifying Lender"); (v) eurodollar time deposits having a maturity of less than one year purchased directly from any Lender (whether such deposit is with such Lender or any other Lender hereunder) or issued by any Qualifying Lender; and (vi) repurchase agreements and reverse repurchase agreements with a term of not more than one year with any Qualifying Lender relating to marketable direct obligations issued or unconditionally guaranteed by the United States. "CD Rate": with respect to each day during an Interest Period for CD Rate Loans, the rate per annum equal to the average (rounded upward, if necessary, to the next higher of 1/100 of 1%) of the respective rates notified to the Administrative Agent by each of the Reference Lenders as the average rate per annum bid by New York certificate of deposit dealers of recognized standing for the purchase at face value from the Reference Lenders of their certificates of deposit in The City of New York at or about 10:00 A.M., New York City time, on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the CD Rate Loans of such Reference Lender to be outstanding during such Interest Period. "CD Rate Loans": Revolving Credit Loans or Term Loans at such time as they are made and/or are being maintained at a rate of interest based upon the Adjusted CD Rate. "CD Reserve Requirements": with respect to any day during an Interest Period for CD Rate Loans, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirement for a member bank of the Federal Reserve System in The City of New York with deposits exceeding $1,000,000,000 in respect of new non-personal time deposits in Dollars in The City of New York having a maturity comparable to such Interest Period and in an amount of $100,000 or more. "Chemical": Chemical Bank. "Code": the Internal Revenue Code of 1986, as amended from time to time. -7- 13 "Commercial L/C": a commercial letter of credit in a face amount of not less than $500,000, payable in Dollars, issued by an Issuing Lender in accordance with subsections 2.4 and 2.5 for the account of the Company for the purchase of goods in the ordinary course of business, in which the Participating Lenders participate pursuant to subsection 2.7. "Commercial L/C Application": as defined in subsection 2.5(a). "Commitments": the collective reference to the Revolving Credit Commitments and the Term Loan Commitments. "Commitment Percentage": as to any Lender, the percentage of the aggregate Commitments constituted by such Lender's Commitments (or, at any time after the Commitments shall have expired or terminated, the ratio, expressed as a percentage, which the aggregate principal amount of such Lender's Loans then outstanding bears to the aggregate principal amount of all Loans then outstanding). "Commitment Transfer Supplement": as defined in subsection 10.8. "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA. "Company": Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp. "Competitive Loan": each loan made pursuant to subsection 2.13. "Competitive Loan Assignee": as defined in subsection 10.9(a). "Competitive Loan Assignment": any assignment by a Competitive Loan Lender to a Competitive Loan Assignee of a Competitive Loan and related Individual Competitive Loan Note; any such Competitive Loan Assignment to be registered in the Register must set forth, in respect of the Competitive Loan Assignee thereunder, the full name of such Competitive Loan Assignee, its address for notices, its lending office address (in each case with telephone and facsimile transmission numbers) and payment instructions for all payments to such Competitive Loan Assignee, and must contain an agreement by such Competitive Loan Assignee to comply with the provisions of subsections 3.12, 3.16 and 10.9. "Competitive Loan Borrowing Period": the period from and including the Effective Date until the date which is seven days prior to the Revolving Credit Termination Date or, if earlier, the date on which the Revolving Credit Commitments shall terminate as provided herein. "Competitive Loan Confirmation": each confirmation by the Company of its acceptance of Competitive Loan Offers, which Competitive Loan Confirmation shall be substantially in the form of Exhibit A and shall be delivered to the Administrative Agent in writing or by facsimile transmission. -8- 14 "Competitive Loan Lender": each Lender that has agreed to offer to make Competitive Loans hereunder. "Competitive Loan Maturity Date": as to any Competitive Loan, the date specified by the Company pursuant to subsection 2.15(d)(ii) in its acceptance of the related Competitive Loan Offer. "Competitive Loan Note": a Grid Competitive Loan Note or an Individual Competitive Loan Note. "Competitive Loan Offer": each offer of a Competitive Loan Lender to make Competitive Loans pursuant to a Competitive Loan Request, which Competitive Loan Offer shall contain the information specified in Exhibit B and shall be delivered to the Administrative Agent by telephone, immediately confirmed by facsimile transmission. "Competitive Loan Request": each request by the Company for Competitive Loan Lenders to submit bids to make Competitive Loans, which request shall contain the information in respect of such requested Competitive Loans specified in Exhibit C and shall be delivered to the Administrative Agent in writing or by facsimile transmission, or by telephone, immediately confirmed by facsimile transmission. "Consolidated Capitalization": at a particular date, the sum of (a) Consolidated Net Worth at such date, (b) the amount of Consolidated Indebtedness at such date and (c) the aggregate amounts payable upon involuntary liquidation (other than accrued dividends) to holders of shares of any classes of preferred stock (other than preferred stock subject to mandatory redemption or repurchase) of the Company and its Subsidiaries at such date. "Consolidated Indebtedness": at a particular date, all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Net Worth": at a particular date, all amounts which would be included under common stockholders' equity on a consolidated balance sheet of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Tangible Assets": at a particular date, the total assets appearing on the consolidated balance sheet of the Company and its consolidated Subsidiaries most recently delivered to each Lender pursuant to subsection 5.1, 6.1(a) or 6.1(b), as the case may be, less intangible assets. As used herein "intangible assets" means the value (net of applicable reserves) as shown on or reflected in such balance sheet of goodwill, deferred charges, patents and trademarks. "Continuing Lenders": as defined in subsection 2.19. "Contractual Obligations": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. -9- 15 "Credit Availability Amount": at any time, (a) the then aggregate amount of the Revolving Credit Commitments less (b) the then Extensions of Credit. "Credit Documents": as defined in subsection 9.1. "Credit Exposure": as defined in subsection 10.7. "Default": any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, event or act, has been satisfied. "Determining Lenders": (a) Lenders whose Commitment Percentages aggregate at least 40% and (b) after the Commitments have expired or terminated, Lenders whose outstanding Loans represent in the aggregate at least 40% of all outstanding Loans. "Dollars" and "$": the lawful currency of the United States of America. "Domestic Lending Office": initially, the office of each Lender designated as such and set forth on Schedule 1, and thereafter, such other office of such Lender, if any, of which such Lender shall notify the Administrative Agent and the Company in writing. "Effective Date": the earliest date (but not later than March 31, 1996) on which all of the conditions precedent to the initial Loans set forth in Section 4 shall have occurred (or shall have been waived in accordance with subsection 10.1). "ERISA": as defined in subsection 5.7. "Eurocurrency Reserve Requirements": with respect to each day during an Interest Period for Eurodollar Loans, the aggregate (without duplication) of the rates (expressed as a decimal) of reserve requirements in effect on such day (including, without limitations, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto), dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board) maintained by a member bank of such System. "Eurodollar Base Rate": with respect to each day during an Interest Period for Eurodollar Loans, the rate per annum equal to the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates notified to the Administrative Agent by each of the Reference Lenders as the rate at which its Eurodollar Lending Office is offered Dollar deposits two Working Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Eurodollar Lending Office are customarily conducted at or about 10:00 A.M., New York City time, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Loans of such Reference Lender to be outstanding during such Interest Period. -10- 16 "Eurodollar Lending Office": initially, the office of each Lender designated as such and set forth on Schedule 1, and thereafter, such other office of such Lender, if any, of which such Lender shall notify the Administrative Agent and the Company in writing. "Eurodollar Loans": Revolving Credit Loans or Term Loans at such time as they are made and/or are being maintained at a rate of interest based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during an Interest Period for Eurodollar Loans, a rate per annum determined for such day in accordance with the following formula (rounded upward, if necessary, to the next higher 1/16 of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Event of Default": any of the events specified in Section 8; provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, event or act, has been satisfied. "Exchange Act": the Securities Exchange Act of 1934, as amended. "Existing Facilities": (a) the Credit Agreement, dated as of December 1, 1994, among the Company, the financial institutions parties thereto and Chemical Bank, as administrative agent, (b) the Credit Agreement, dated as of December 1, 1994, among TETCO, the financial institutions parties thereto and Chemical Bank, as administrative agent, and (c) the Credit Agreement, dated as of December 1, 1994, among PEPL, the financial institutions parties thereto and Chemical Bank, as administrative agent. "Extension Effective Date": as defined in subsection 2.19(a). "Extension Request": as defined in subsection 2.19(a). "Extensions of Credit": at any particular time, the sum of (a) the aggregate principal amount of Loans then outstanding and (b) the aggregate Letter of Credit Obligations (excluding interest, fees and indemnities thereon) then outstanding. "Facility Fee": as defined in subsection 3.2(a). "Fixed Rate Competitive Loan Request": any Competitive Loan Request requesting the Competitive Loan Lenders to offer to make Fixed Rate Competitive Loans. "Fixed Rate Competitive Loans": Competitive Loans the rate of interest applicable to which is equal to a fixed percentage rate per annum specified by the Competitive Loan Lender making such Loan in its Competitive Loan Offer (as opposed to a rate composed of the Applicable Index Rate plus or minus a margin). "GAAP": generally accepted accounting principles in the United States of America as in effect from time to time. -11- 17 "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Grid Competitive Loan Notes": as defined in subsection 2.14(a). "Indebtedness": of a Person, at a particular date, the sum (without duplication) at such date of (a) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which such Person is liable as obligor or arising under any conditional sales contract or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (b) obligations of such Person under Capital Leases, (c) the face amount available or to be available to be drawn under all letters of credit issued for the account of such Person (excluding any amount relating to Indebtedness included in the definition of Indebtedness under another clause of this definition) and, without duplication, the unreimbursed amount of all drafts drawn thereunder, (d) any obligations (in the nature of principal or interest) of such Person in respect of acceptances or similar obligations issued or created for the account of such Person, (e) Indebtedness referred to in clause (a), (b), (c) or (d) above or (f) or (g) below secured by any Lien on any property or asset owned or held by such Person regardless of whether the Indebtedness secured thereby shall have been assumed by or is a primary liability of such Person (but in any event not exceeding the fair market value of such property or asset), (f) all direct guarantees by such Person of Indebtedness referred to in clause (a), (b), (c), (d) or (e) above of another Person and (g) all amounts payable in connection with mandatory redemptions or repurchases of preferred stock of such Person. "Index Debt": as defined in the definition of "Applicable Facility Fee Percentage". "Index Rate Competitive Loans": Competitive Loans bearing interest at a rate equal to the Applicable Index Rate plus or minus a margin bid. "Index Rate Competitive Loan Request": any Competitive Loan Request requesting the Competitive Loan Lenders to offer to make Index Rate Competitive Loans. "Individual Competitive Loan Notes": as defined in subsection 2.14(b). "Interest Payment Date": (a) as to any ABR Loan, the last day of each March, June, September and December to occur while such ABR Loan is outstanding, commencing on March 31, 1996, and each date principal is due with respect to such ABR Loan; (b) as to any Eurodollar Loan in respect of which the Company has selected an Interest Period of one, two or three months and any CD Rate Loan in respect of which the Company has selected an Interest Period of 30, 60 or 90 days, the last day of such Interest Period; (c) as to any Eurodollar Loan and any CD Rate Loan in respect of which the Company has selected a longer Interest Period than the periods described in clause (b), the last day of each March, June, September and December falling within such Interest Period and the last day of such Interest Period; (d) as to any Fixed Rate Competitive Loan, each interest payment date specified by the Company for such Loan in the related Competitive Loan Request (including, -12- 18 in any event, the Competitive Loan Maturity Date in respect of such Loan); and (e) as to any Index Rate Competitive Loan, (i) the Competitive Loan Maturity Date in respect of such Loan and (ii) each date (if any) occurring prior to such Competitive Loan Maturity Date which is three months, or a whole multiple thereof, after the Borrowing Date in respect of such Loan. "Interest Period": (a) with respect to any Eurodollar Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months (or nine months, to the extent funds are available for such nine-month period) thereafter, as selected by the Company in its notice of borrowing as provided in subsection 2.3, or its notice of conversion as provided in subsection 3.10, as the case may be; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months (or nine months, to the extent funds are available for such nine-month period) thereafter, as selected by the Company by irrevocable notice to the Administrative Agent not less than three Working Days prior to the last day of the then current Interest Period with respect to such Eurodollar Loan; and (b) with respect to any CD Rate Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such CD Rate Loan and ending 30, 60, 90, 120 or 180 days (or 360 days, to the extent funds are available for such 360-day period) thereafter, as selected by the Company in its notice of borrowing as provided in subsection 2.3, or its notice of conversion as provided in subsection 3.10, as the case may be; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such CD Rate Loan and ending 30, 60, 90, 120 or 180 days (or 360 days, to the extent funds are available for such 360-day period) thereafter, as selected by the Company by irrevocable notice to the Administrative Agent not less than two Business Days prior to the last day of the then current Interest Period with respect to such CD Rate Loan. All of the foregoing provisions relating to Interest Periods are subject to the following: (A) if any Interest Period for Eurodollar Loans would otherwise end on a day which is not a Working Day, that Interest Period shall be extended to the next succeeding Working Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Working Day; -13- 19 (B) if any Interest Period for CD Rate Loans would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day; (C) the Company shall have no right to elect an Interest Period with respect to Revolving Credit Loans which would extend beyond the Revolving Credit Termination Date or an Interest Period with respect to Term Loans which would extend beyond the Term Loan Maturity Date; (D) if the Company shall fail to give notice as provided above, the Company shall be deemed to have selected an ABR Loan to replace the affected Eurodollar Loans or CD Rate Loans; (E) any Interest Period for Eurodollar Loans that begins on the last Working Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Working Day of a calendar month; (F) the Company shall select Interest Periods so that there shall be no more than eight Tranches with respect to the Revolving Credit Loans or Term Loans in existence at any one time; and (G) for purposes of determining the availability of a nine-month Interest Period for Eurodollar Loans, or a 360-day Interest Period for CD Rate Loans, such Interest Period shall be deemed available if (a) each of the Reference Banks quotes a rate to the Administrative Agent as provided in the definition of "Eurodollar Base Rate" or "CD Rate", as the case may be, and (b) the Determining Lenders shall not have advised the Administrative Agent that the Eurodollar Rate or the Adjusted CD Rate, as the case may be, determined by the Administrative Agent on the basis of such quotes will not adequately and fairly reflect the cost to such Lenders of maintaining or funding their Eurodollar Loans or CD Rate Loans, as the case may be, for such Interest Period. "Issuing Lender": with respect to Letters of Credit, Chemical or such other Lenders as the Company may from time to time designate as an Issuing Lender (and which shall accept such designation) and notify the Administrative Agent of such designation, each in its capacity as issuer of such Letters of Credit. "L/C Participating Interest": with respect to any Letter of Credit, (a) in the case of the Issuing Lender, its interest in such Letter of Credit and the Letter of Credit Application relating thereto after giving effect to the granting of any participating interests therein pursuant to subsection 2.7 and (b) in the case of each Participating Lender, its undivided participating interest in such Letter of Credit and the Letter of Credit Application relating thereto. "Lenders": as defined in the preamble to this Agreement, which term includes Lenders originally executing this Agreement and, thereafter, from the date upon which the conditions referred to in subsection 10.8 are satisfied, the Purchasing Lenders. -14- 20 "Letter of Credit Applications": the collective reference to Commercial L/C Applications and Standby L/C Applications. "Letter of Credit Obligations": at any particular time, all liabilities of the Company with respect to Letters of Credit, whether or not any such liability is contingent, including without duplication, the sum of (a) the then outstanding Reimbursement Obligations plus (b) the then aggregate undrawn face amount of the Letters of Credit. "Letter of Credit Participation Certificate": a certificate in substantially the form of Exhibit D. "Letters of Credit": the collective reference to Commercial L/Cs and Standby L/Cs. "Lien": any mortgage, pledge, hypothecation, security interest, encumbrance, charge or lien (statutory or otherwise) (including, without limitation, any conditional sale or other title retention agreement and any Capital Lease having substantially the same economic effect as any of the foregoing) or the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing. "Loan": any Revolving Credit Loan, Term Loan or Competitive Loan made pursuant to this Agreement. "Moody's": Moody's Investors Service, Inc. "Note": any Revolving Credit Note, Term Note or Competitive Loan Note. "Obligations": the unpaid principal amount of, and interest on, the Notes and all other obligations and liabilities of the Company to the Administrative Agent and the Lenders (including, without limitation, Reimbursement Obligations), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with this Agreement, whether on account of principal, interest, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to the Administrative Agent) or otherwise. "Participants": as defined in subsection 10.7. "Participating Lender": each Lender (other than the Issuing Lender), with respect to its L/C Participating Interest in each Letter of Credit. "PENGC": PanEnergy Natural Gas Corporation, a Delaware corporation. "PEPL": Panhandle Eastern Pipe Line Company, a Delaware corporation. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. -15- 21 "PES": PanEnergy Services, Inc., a Delaware corporation. "Principal Subsidiaries": TETCO, PEPL, AGTCO, PENGC and PES. "Purchasing Lender": as defined in subsection 10.8. "Reference Lenders": Chemical, Morgan Guaranty Trust Company of New York and NationsBank of Texas, N.A. "Refunding Extension of Credit": Loans or issuances of Letters of Credit hereunder which, after application of the proceeds thereof, result in no net increase in the aggregate outstanding Extensions of Credit with respect to any Lender. "Register": as defined in subsection 10.10(a). "Reimbursement Obligation": the obligation of the Company to reimburse an Issuing Lender in accordance with the terms of this Agreement and the related Letter of Credit Application for any payment made by an Issuing Lender under any Letter of Credit. "Required Lenders": (a) Lenders whose Commitment Percentages aggregate at least 50.1% and (b) after the Commitments have expired or terminated, Lenders whose outstanding Loans represent in the aggregate at least 50.1% of all outstanding Loans. "Requirements of Law": as to any Person, the articles or certificate of incorporation and bylaws (or other organizational or governing documents) of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": as to any Person, the chief executive officer, president or any vice-president of such Person or, with respect to financial matters, the chief financial officer, treasurer or controller or any assistant treasurer, of such Person or any other officer authorized by such Person to deliver documents with respect to financial matters pursuant to this Agreement. Unless otherwise qualified, all references to a "Responsible Officer" in this Agreement shall refer to a Responsible Officer of the Company. "Revolving Credit Commitments": as defined in subsection 2.1(a). "Revolving Credit Loans": as defined in subsection 2.1(a). "Revolving Credit Notes": as defined in subsection 2.2. "Revolving Credit Termination Date": the date 364 days after the Effective Date (or the extension of such date pursuant to subsection 2.19). "S&P": Standard & Poor's Ratings Group. -16- 22 "SEC Reports": the Company's (a) Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and (b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995. "Significant Subsidiary": any Subsidiary of the Company that, in terms of total assets or the investment therein, would be a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X under the Securities Act of 1933 and the Exchange Act. "Standby L/C": an irrevocable letter of credit in a face amount of not less than $500,000, payable in Dollars, issued in accordance with subsections 2.4 and 2.6 by an Issuing Lender in Dollars for the account of the Company in respect of obligations of the Company and its Subsidiaries incurred pursuant to contracts made or performances undertaken or to be undertaken or like matters relating to contracts to which the Company or any Subsidiary thereof is or proposes to become a party in the ordinary course of the Company's or such Subsidiary's, as the case may be, business, including, without limiting the foregoing, for insurance purposes. "Standby L/C Application": as defined in subsection 2.6(a). "Subsidiary": a corporation of which shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by the Company. "Term Loan Commitments": as defined in subsection 2.16(a). "Term Loan Maturity Date": as defined in subsection 2.17. "Term Loans": as defined in subsection 2.16(a). "Term Notes": as defined in subsection 2.17. "Terminating Lender": as defined in subsection 2.19(b). "TETCO": Texas Eastern Transmission Corporation, a Delaware corporation. "Tranche": Eurodollar Loans or CD Rate Loans, in either case whose Interest Periods each begin on the same day and end on the same day. "Transferee": as defined in subsection 10.10(e). "Type": (a) as to any Revolving Credit Loan or Term Loan, its nature as an ABR Loan, a Eurodollar Loan or a CD Rate Loan and (b) as to any Competitive Loan, its nature as a Fixed Rate Competitive Loan or an Index Rate Competitive Loan . -17- 23 "Uniform Customs": the Uniform Customs and Practice for Documentary Credits (1993 Version), International Chamber of Commerce Publication No. 500 and any amendments or revisions thereof. "Wholly-Owned Subsidiary": a corporation of which all of the shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the Board of Directors or other managers of such corporation are at the time owned, directly or indirectly through one or more intermediaries, or both, by the Company. "Working Day": any Business Day on which dealings in foreign currencies and exchange between banks may be carried on in London, England and in The City of New York. 1.2 Other Definitional Provisions. (a) Unless otherwise specified herein, all terms defined in this Agreement or any other Credit Document shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. (b) As used herein or in any certificate or document made or delivered pursuant hereto, accounting terms relating to the Company and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement, or any other certificate or document made or delivered pursuant hereto shall refer to this Agreement or such other certificate or document, as the case may be, as a whole and not to any particular provision thereof, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNTS AND TERMS OF LOANS 2.1 Revolving Credit Commitments. (a) Subject to the terms and conditions hereof, each Lender severally, and not jointly, agrees to make revolving credit loans (collectively, the "Revolving Credit Loans") to the Company from time to time during the period from the Effective Date to, but not including, the Revolving Credit Termination Date in an aggregate principal amount at any one time outstanding not to exceed the amount set forth under the heading "Revolving Credit Commitment" opposite the name of such Lender on Schedule 2 hereto, as such amount may be reduced or increased from time to time pursuant to subsection 2.19 or 3.6 hereof (collectively, the "Revolving Credit Commitments"). The Company may use the Revolving Credit Commitments by requesting the Lenders to make Revolving Credit Loans, prepaying Revolving Credit Loans in whole or in part and reborrowing, all in accordance with the terms and conditions hereof; provided that the Revolving Credit Loans made as part of any one borrowing shall not exceed the Credit -18- 24 Availability Amount on the Borrowing Date, after giving effect to the use and application of the proceeds thereof. (b) Subject to the terms and conditions hereof, the Revolving Credit Loans may be (i) ABR Loans, (ii) Eurodollar Loans, (iii) CD Rate Loans or (iv) any combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsection 2.3. 2.2 Revolving Credit Notes. The Revolving Credit Loans made by each Lender pursuant hereto shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit E (collectively, the "Revolving Credit Notes"), with appropriate insertions therein as to principal amount, payable to the order of such Lender and representing the obligation of the Company to pay a principal amount equal to the lesser of (a) such Lender's Revolving Credit Commitment and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by such Lender, with interest thereon as prescribed in subsection 3.1. Each Lender is hereby authorized to record the date, Type and amount of each Revolving Credit Loan made by such Lender and the date and amount of each payment or prepayment of principal thereof and, with respect to Eurodollar Loans and CD Rate Loans, the length of the Interest Period and the Eurodollar Rate or CD Rate applicable thereto, on the schedule annexed to and constituting a part of its Revolving Credit Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded in the absence of manifest error; provided that failure by any Lender to make any such recordation on such Revolving Credit Note shall not affect any of the obligations of the Company under such Revolving Credit Note or this Agreement. The Revolving Credit Note of each Lender shall (i) be dated the Effective Date, (ii) bear interest, payable as specified in subsection 3.1, for the period from the date thereof on the unpaid principal amount thereof from time to time outstanding at the interest rate per annum specified in subsection 3.1 until paid in full and (iii) be stated to mature on the Revolving Credit Termination Date. 2.3 Procedure for Revolving Credit Borrowings. The Company may borrow pursuant to subsection 2.1 hereof on any Working Day if the borrowing (or any portion thereof) consists of Eurodollar Loans or on any Business Day if the borrowing consists entirely of ABR Loans and/or CD Rate Loans by the Company giving the Administrative Agent irrevocable written notice (or telephonic notice promptly confirmed in writing) prior to 11:45 A.M., New York City time, on, in the case of ABR Loans, two Business Days prior to, in the case of CD Rate Loans, and three Working Days prior to, in the case of Eurodollar Loans, the proposed Borrowing Date specifying (a) the amount to be borrowed, (b) the requested Borrowing Date, (c) whether the borrowing is to be a Eurodollar Loan, a CD Rate Loan, an ABR Loan, or a combination thereof and (d) if the borrowing is to be entirely or partly a Eurodollar Loan or a CD Rate Loan, the length of the Interest Period(s) thereof. Each borrowing shall be in an aggregate principal amount of the lesser of (i) $10,000,000 or a whole multiple of $5,000,000 in excess thereof and (ii) the then Credit Availability Amount. Upon receipt of such notice from the Company, the Administrative Agent shall promptly notify each Lender thereof. Not later than 1:00 P.M., New York City time, on the Borrowing Date specified in such notice, each Lender shall make available to the Administrative Agent at the Administrative Agent's Office for the account of the Company an amount in immediately available funds equal to the amount of the Revolving Credit Loan to -19- 25 be made by such Lender. The proceeds of such Revolving Credit Loans will then be made available to the Company by the Administrative Agent at the Administrative Agent's Office by crediting the account of the Company on the books of the Administrative Agent's Office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 2.4 Letters of Credit. Subject to the terms and conditions hereof, the Issuing Lenders agree to issue, and each Participating Lender agrees to purchase an L/C Participating Interest in, Letters of Credit in the form of Commercial L/Cs or Standby L/Cs from time to time during the period from the Effective Date to, but not including, the Revolving Credit Termination Date; provided that (i) the aggregate face amount of the Letters of Credit issued on any Borrowing Date shall not exceed the Credit Availability Amount on such Borrowing Date and (ii) on the date of the issuance of any Letter of Credit, and after giving effect to the issuance of such Letter of Credit, the aggregate Letter of Credit Obligations outstanding at such time shall not exceed 50% of the aggregate Revolving Credit Commitments at such time. 2.5 Issuance of Commercial L/Cs. (a) The Company may request an Issuing Lender to issue a Commercial L/C in favor of sellers of goods to the Company or any of its Subsidiaries on any Business Day during the period from the Effective Date to, but not including, the Revolving Credit Termination Date by delivering to the Issuing Lender, through the Administrative Agent at its address specified in subsection 10.2, a commercial letter of credit application and security agreement in such Issuing Lender's then customary form (as such form may be agreed to be modified, the "Commercial L/C Application"), completed to the satisfaction of such Issuing Lender, and such other certificates, documents and other papers and information as such Issuing Lender may reasonably request. The Company hereby agrees to observe and perform its covenants, duties and obligations under each Commercial L/C Application. (b) Each Commercial L/C issued hereunder shall, among other things, (i) provide for the payment of sight drafts when presented for honor thereunder, in accordance with the terms thereof and when accompanied by the documents described therein or when such documents are presented, as the case may be, (ii) have an expiry date occurring not later than 180 days after the date of issuance of such Commercial L/C and in no event occurring later than the Revolving Credit Termination Date and (iii) have a minimum face amount of $500,000. Each Commercial L/C Application and each Commercial L/C shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. 2.6 Issuance of Standby L/Cs. (a) The Company may request an Issuing Lender to issue a Standby L/C on any Business Day during the period from the Effective Date to, but not including, the Revolving Credit Termination Date by delivering to such Issuing Lender, through the Administrative Agent at its address specified in subsection 10.2, a standby letter of credit application in such Issuing Lender's then customary form (as such form may be agreed to be modified, the "Standby L/C Application"), completed to the satisfaction of such Issuing Lender together with the proposed form of such letter of credit (which shall comply with the applicable requirements of paragraph (b) below) and such other certificates, documents and other papers and information as such Issuing Lender may reasonably request. -20- 26 The Company hereby agrees to observe and perform its covenants, duties and obligations under each Standby L/C Application. (b) Each Standby L/C issued hereunder shall, among other things, (i) be in such form requested by the Company as shall be acceptable to the relevant Issuing Lender in its sole discretion, (ii) have an expiry date occurring not later than the Revolving Credit Termination Date and (iii) have a minimum face amount of $500,000. Each Standby L/C Application and each Standby L/C shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. 2.7 Participating Interests. Effective in the case of each Letter of Credit as of the date of the issuance thereof, each Issuing Lender agrees to allot and does allot, to itself and each Participating Lender, and each Participating Lender severally and irrevocably agrees to take and does take, an L/C Participating Interest in such Letter of Credit and the related Letter of Credit Application in a percentage equal to such Participating Lender's Commitment Percentage. Each Participating Lender hereby agrees that its obligation to participate in each Letter of Credit issued by such Issuing Lender hereunder and the drafts drawn thereunder shall be irrevocable and unconditional. 2.8 Procedure for Opening Letters of Credit. Upon receipt of any Letter of Credit Application from the Company, the relevant Issuing Lender will promptly notify each Lender thereof through the Administrative Agent, but in no event shall such notice to each Lender be given later than the date three Business Days following receipt of such Letter of Credit Application or the date such Issuing Lender issues the Letter of Credit, whichever is earlier. Subject to the terms and conditions hereof, upon such receipt, such Issuing Lender will process such Letter of Credit Application, and the other certificates, documents and other papers delivered to such Issuing Lender in connection therewith, in accordance with its customary procedures and, subject to fulfillment of the applicable conditions specified in subsection 4.3, shall promptly open such Letter of Credit (but in no event shall such Issuing Lender be required to open any Letter of Credit earlier than three Business Days after receipt by such Issuing Lender of the Letter of Credit Application relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof and by furnishing a copy thereof to the Company and to the other Lenders. 2.9 Payments. (a) In the event of any request for drawing under any Letter of Credit by the beneficiary thereof, the relevant Issuing Lender shall immediately notify the Company and the Administrative Agent, and the Company shall reimburse such Issuing Lender on the day on which such drawing is honored in an amount in same day funds equal to the amount of such drawing, and otherwise in accordance with the terms of the Letter of Credit Application relating thereto; provided that anything contained in this Agreement to the contrary notwithstanding, (i) unless the Company shall have notified the Administrative Agent and such Issuing Lender prior to 11:00 A.M., New York City time, on the date of such drawing that the Company intends to reimburse such Issuing Lender for the amount of such drawing with funds other than the proceeds of Revolving Credit Loans, the Company shall be deemed to have given notice pursuant to subsection 2.3 to the Administrative Agent requesting the Lenders to make Revolving Credit Loans on the date on which such drawing is honored in an amount equal to the amount of such drawing, and (ii) subject to satisfaction or -21- 27 waiver of the applicable conditions specified in subsections 4.1 and 4.3, the Lenders shall, on the date of such drawing, make Revolving Credit Loans that are ABR Loans in the amount of such drawing, the proceeds of which shall be applied directly by the Administrative Agent to reimburse such Issuing Lender for the amount of such drawing, and provided further that if for any reason the Company does not cause the proceeds of Revolving Credit Loans to be received by such Issuing Lender on such date in an amount equal to the amount of such drawing, the Company shall reimburse such Issuing Lender, on the Business Day immediately following the date of such drawing, in an amount in same day funds equal to the excess of the amount of such drawing over the amount of such Revolving Credit Loans, if any, which are so received, plus accrued interest on such amount at the rate per annum equal to 2% above the Alternate Base Rate. (b) If the Company shall fail to reimburse an Issuing Lender as provided in subsection 2.9(a) in an amount equal to the amount of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall promptly notify each Participating Lender through the Administrative Agent of the unreimbursed amount of such drawing and of such Participating Lender's respective participation therein based on such Participating Lender's Commitment Percentage. Forthwith upon its receipt of any such notice, each Participating Lender will transfer to such Issuing Lender in immediately available funds an amount equal to such Participating Lender's Commitment Percentage of the unreimbursed portion of such payment. Upon its receipt from such Participating Lender of such amount, such Issuing Lender will complete, execute and deliver to such Participating Lender a Letter of Credit Participation Certificate dated the date of such receipt and in such amount. If any Participating Lender fails to make available to such Issuing Lender the amount of such Participating Lender's Commitment Percentage of such drawing as provided in this subsection 2.9(b), such Issuing Lender shall be entitled to recover such amount on demand from such Participating Lender together with interest at the rate per annum equal to 1/2 of 1% above the then applicable Federal funds rate for three Business Days and thereafter at the rate per annum equal to 2% above the Alternate Base Rate. (c) Whenever, at any time after an Issuing Lender has made a payment under any Letter of Credit and has received from any Participating Lender such Participating Lender's Commitment Percentage of the unreimbursed portion of such payment, such Issuing Lender receives any reimbursement on account of such unreimbursed portion or any payment of interest on account thereof, such Issuing Lender will transfer such amount to the Administrative Agent in immediately available funds, and the Administrative Agent will promptly and in no event later than one Business Day after it receives such payment, distribute to each Participating Lender its Commitment Percentage thereof in like funds as received by the Administrative Agent; provided that in the event that the receipt by an Issuing Lender of such reimbursement or such payment of interest (as the case may be) is required to be returned, such Participating Lender will return to such Issuing Lender any portion thereof previously distributed by such Issuing Lender to it, and provided further that any payment by the Company on account of such unreimbursed portion or interest thereon to such Issuing Lender shall be deemed to satisfy the Company's obligations to such Issuing Lender and any Participating Lenders with respect to such payment upon receipt thereof by such Issuing Lender. -22- 28 2.10 Further Assurances. The Company hereby agrees, from time to time, to do and perform any and all acts and to execute any and all further instruments reasonably requested by an Issuing Lender more fully to effect the purposes of this Agreement and the issuance of the Letters of Credit opened hereunder. 2.11 Obligations Absolute. The payment obligations of the Company under subsection 2.9 shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: (a) the existence of any claim, set-off, defense or other right which the Company may have at any time against any beneficiary, or any transferee, of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), any Issuing Lender or any Participating Lender, or any other Person, whether in connection with this Agreement, the transactions contemplated herein, or any unrelated transaction; provided, however, that nothing herein shall prevent the assertion of any such right by separate suit or compulsory counterclaim; (b) any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (c) payment by any Issuing Lender under any Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit, except payment resulting from the gross negligence or willful misconduct of such Issuing Lender; or (d) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing, except circumstances or happenings resulting from the gross negligence or willful misconduct of such Issuing Lender. 2.12 Letter of Credit Application. The provisions of any Letter of Credit Application related to any Letter of Credit are supplemental to, and not in derogation of, any rights and remedies of each Issuing Lender and the Participating Lenders under this Section 2 and applicable law. The Company acknowledges and agrees that all rights of each Issuing Lender under any Letter of Credit Application and this Agreement (other than those pursuant to subsections 3.3(b) and (c)) shall inure to the benefit of each Participating Lender to the extent of its Commitment Percentage as fully as if such Participating Lender was a party to such Letter of Credit Application. 2.13 Competitive Loans. Subject to the terms and conditions of this Agreement, the Company may borrow Competitive Loans from time to time during the Competitive Loan Borrowing Period on any Business Day (in the case of Fixed Rate Competitive Loans) or Working Day (in the case of Index Rate Competitive Loans), provided that in no event may Competitive Loans exceed the Credit Availability Amount on the Borrowing Date, after giving effect to the use and application of the proceeds thereof. Within the limits and on the conditions hereinafter set forth with respect to Competitive Loans, the Company from time to time may borrow, repay and reborrow Competitive Loans. -23- 29 2.14 Competitive Loan Notes. (a) The Competitive Loans made by each Competitive Loan Lender pursuant hereto shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit F-1 (collectively, the "Grid Competitive Loan Notes"), with appropriate insertions therein as to principal amount, payable to the order of such Lender and representing the obligation of the Company to pay a principal amount equal to the lesser of (i) the aggregate Revolving Credit Commitments and (ii) the aggregate unpaid principal amount of all Competitive Loans made by such Competitive Loan Lender, with interest thereon as prescribed in subsection 3.1. Each Competitive Loan Lender is hereby authorized to record the date, amount, interest rate, Interest Payment Dates and Competitive Loan Maturity Date of each Competitive Loan made by such Competitive Loan Lender and each payment of principal with respect thereto on the schedule annexed to and constituting a part of its Grid Competitive Loan Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided that failure by any Lender to make any such recordation on such Grid Competitive Loan Note shall not affect any of the obligations of the Company under such Grid Competitive Loan Note or this Agreement. Each Grid Competitive Loan Note shall be dated the Effective Date and each Competitive Loan evidenced thereby shall bear interest, payable as specified in subsection 3.1, for the period from the date thereof on the unpaid principal amount thereof from time to time outstanding at the interest rate per annum specified in subsection 3.1 until paid in full. (b) Amounts advanced by a Competitive Loan Lender pursuant to subsection 2.13 on a Borrowing Date which have the same maturity date and interest rate shall be deemed to constitute one Competitive Loan so long as such amounts remain evidenced by the Grid Competitive Loan Note of such Competitive Loan Lender; any such Competitive Loan Lender that wishes such amounts to constitute more than one Competitive Loan and to have each such Competitive Loan evidenced by a separate promissory note payable to such Competitive Loan Lender, substantially in the form of Exhibit F-2 with appropriate insertions as to Borrowing Date, principal amount and interest rate (an "Individual Competitive Loan Note"), shall notify the Administrative Agent and the Company by facsimile transmission of the respective principal amounts of the Competitive Loans (which principal amounts shall not be less than $5,000,000 for any of such Competitive Loans) to be evidenced by each such Individual Competitive Loan Note. Not later than three Business Days after receipt of such notice, the Company shall deliver to such Competitive Loan Lender an Individual Competitive Loan Note payable to the order of such Competitive Loan Lender in the principal amount of each such Competitive Loan and otherwise conforming to the requirements of this Agreement. Upon receipt of such Individual Competitive Loan Note, such Competitive Loan Lender shall endorse on the schedule attached to its Grid Competitive Loan Note the transfer of such Competitive Loan from such Grid Competitive Loan Note to such Individual Competitive Loan Note. 2.15 Procedure for Competitive Loan Borrowing. (a) The Company shall request Competitive Loans by delivering a Competitive Loan Request to the Administrative Agent, not later than 12:00 Noon (New York City time) four Working Days prior to the proposed Borrowing Date (in the case of an Index Rate Competitive Loan Request), and not later than 10:00 A.M., New York City time, one Business Day prior to the proposed Borrowing Date (in the case of a Fixed Rate Competitive Loan Request). Each Competitive Loan Request in respect of any Borrowing Date may solicit bids for Competitive Loans in an aggregate -24- 30 principal amount of $10,000,000 or an integral multiple of $5,000,000 in excess thereof and having not more than three alternative Competitive Loan Maturity Dates. The Competitive Loan Maturity Date for each Fixed Rate Competitive Loan shall be not less than seven days nor more than 360 days after the Borrowing Date therefor and the Competitive Loan Maturity Date for each Index Rate Competitive Loan shall be one, two, three, six or nine months after the Borrowing Date therefor, and in any event shall be no later than the Revolving Credit Termination Date. The Administrative Agent shall notify each Competitive Loan Lender promptly by facsimile transmission of the contents of such Competitive Loan Request received by the Administrative Agent. (b) In the case of an Index Rate Competitive Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Competitive Loan Request, each Competitive Loan Lender may elect, in its sole discretion, to offer irrevocably, subject to Section 4, to make one or more Competitive Loans at the Applicable Index Rate plus or minus a margin determined by such Competitive Loan Lender in its sole discretion for each such Competitive Loan. Any such irrevocable offer shall be made by delivering a Competitive Loan Offer to the Administrative Agent, before 10:30 A.M., New York City time, on the day that is three Working Days before the proposed Borrowing Date, setting forth: (i) the maximum amount of Competitive Loans for each Competitive Loan Maturity Date and the aggregate maximum amount of Competitive Loans for all Competitive Loan Maturity Dates which such Competitive Loan Lender would be willing to make (which amounts may, subject to subsection 2.13, exceed such Competitive Loan Lender's Revolving Credit Commitment); and (ii) the margin above or below the Applicable Index Rate at which such Competitive Loan Lender is willing to make each such Competitive Loan. The Administrative Agent shall advise the Company before 11:00 A.M., New York City time, on the date which is three Working Days before the proposed Borrowing Date of the contents of each such Competitive Loan Offer received by it. If the Administrative Agent, in its capacity as a Competitive Loan Lender, shall elect, in its sole discretion, to make any such Competitive Loan Offer, it shall advise the Company of the contents of its Competitive Loan Offer before 10:15 A.M., New York City time, on the date which is three Working Days before the proposed Borrowing Date. (c) In the case of a Fixed Rate Competitive Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Competitive Loan Request, each Competitive Loan Lender may elect, in its sole discretion, to offer irrevocably, subject to Section 4, to make one or more Competitive Loans at a rate of interest determined by such Competitive Loan Lender in its sole discretion for each such Competitive Loan. Any such irrevocable offer shall be made by delivering a Competitive Loan Offer to the Administrative Agent before 9:30 A.M., New York City time, on the proposed Borrowing Date, setting forth: (i) the maximum amount of Competitive Loans for each Competitive Loan Maturity Date and the aggregate maximum amount of Competitive Loans for all -25- 31 Competitive Loan Maturity Dates, which such Competitive Loan Lender would be willing to make (which amounts may, subject to subsection 2.13, exceed such Competitive Loan Lender's Revolving Credit Commitment); and (ii) the rate of interest at which such Competitive Loan Lender is willing to make each such Competitive Loan. The Administrative Agent shall advise the Company before 10:00 A.M., New York City time, on the proposed Borrowing Date of the contents of each such Competitive Loan Offer received by it. If the Administrative Agent, in its capacity as a Competitive Loan Lender, shall elect, in its sole discretion, to make any such Competitive Loan Offer it shall advise the Company of the contents of its Competitive Loan Offer before 9:15 A.M., New York City time, on the proposed Borrowing Date. (d) Before 11:30 A.M., New York City time, three Working Days before the proposed Borrowing Date (in the case of Index Rate Competitive Loans) and before 10:30 A.M., New York City time, on the proposed Borrowing Date (in the case of Fixed Rate Competitive Loans), the Company, in its absolute discretion, shall: (i) cancel such Competitive Loan Request by giving the Administrative Agent telephone notice to that effect, or (ii) by giving telephone notice to the Administrative Agent (immediately confirmed by delivery to the Administrative Agent of a Competitive Loan Confirmation in writing) (1) subject to the provisions of subsection 2.15(e), accept one or more of the offers made by any Competitive Loan Lender or Competitive Loan Lenders pursuant to subsection 2.15(b) or subsection 2.15(c), as the case may be, of the amount of Competitive Loans for each relevant maturity date and (2) reject any remaining offers made by Competitive Loan Lenders pursuant to subsection 2.15(b) or subsection 2.15(c), as the case may be. (e) The Company's acceptance of Competitive Loans in response to any Competitive Loan Request shall be subject to the following limitations: (i) The amount of Competitive Loans accepted for each Competitive Loan Maturity Date specified by any Competitive Loan Lender in its Competitive Loan Offer shall not exceed the maximum amount for such Competitive Loan Maturity Date specified in such Competitive Loan Offer; (ii) the aggregate amount of Competitive Loans accepted for all Competitive Loan Maturity Dates specified by any Competitive Loan Lender in its Competitive Loan Offer shall not exceed the aggregate maximum amount specified in such Competitive Loan Offer for all such Competitive Loan Maturity Dates; (iii) the Company may not accept offers for Competitive Loans for any Competitive Loan Maturity Date in an aggregate principal amount in excess of the maximum principal amount requested in the related Competitive Loan Request; and -26- 32 (iv) if the Company accepts any of such offers, (1) it must accept such offers based solely upon pricing for such relevant Competitive Loan Maturity Date (including any amounts which shall be payable to the relevant Competitive Loan Lender in respect of the relevant Competitive Loans pursuant to subsection 3.14) and upon no other criteria whatsoever and (2) if two or more Competitive Loan Lenders submit offers for any Competitive Loan Maturity Date at identical pricing and the Company accepts any of such offers but does not wish to (or by reason of the limitations set forth in subsection 2.13 or in this subsection 2.15, cannot) borrow the total amount offered by such Competitive Loan Lenders with such identical pricing, the Company shall accept offers from all of such Competitive Loan Lenders in amounts allocated among them pro rata according to the amounts offered by such Competitive Loan Lenders (or as nearly pro rata as shall be practicable after giving effect to the requirement that Competitive Loans made by a Competitive Loan Lender on a Borrowing Date for each relevant Competitive Loan Maturity Date shall be in a principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof), provided that if the number of Competitive Loan Lenders that submit offers for any Competitive Loan Maturity Date at identical pricing is such that, after the Company accepts such offers pro rata in accordance with the foregoing, the Competitive Loans to be made by any such Competitive Loan Lender would be less than $5,000,000 principal amount, the number of such Competitive Loan Lenders shall be reduced by the Administrative Agent by lot until the Competitive Loans to be made by each such remaining Competitive Loan Lender would be in a principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. (f) If the Company notifies the Administrative Agent that a Competitive Loan Request is cancelled pursuant to subsection 2.15(d)(i), the Administrative Agent shall give prompt telephone notice thereof to the Competitive Loan Lenders. (g) If the Company accepts pursuant to subsection 2.15(d)(ii) one or more of the offers made by any one or more Competitive Loan Lenders, the Administrative Agent promptly shall notify each Competitive Loan Lender which has made such a Competitive Loan Offer of (i) the aggregate amount of such Competitive Loans to be made on such Borrowing Date for each Competitive Loan Maturity Date and (ii) the acceptance or rejection of any offers to make such Competitive Loans made by such Competitive Loan Lender. Before 12:00 Noon, New York City time, on the Borrowing Date specified in the applicable Competitive Loan Request, each Competitive Loan Lender whose Competitive Loan Offer has been accepted shall make available to the Administrative Agent at the Administrative Agent's Office the amount of Competitive Loans to be made by such Competitive Loan Lender, in immediately available funds. The Administrative Agent will make such funds available to the Company as soon as practicable on such date at the Administrative Agent's Office. As soon as practicable after each Borrowing Date, the Administrative Agent shall notify each Lender of the aggregate amount of Competitive Loans advanced on such Borrowing Date and the respective maturity dates thereof. (h) Nothing in subsection 2.13 or this subsection 2.15 shall be construed as a right of first offer in favor of the Lenders or to otherwise limit the ability of the Company to request and accept credit facilities from any Person (including any of the Lenders). -27- 33 (i) A Competitive Loan Request may request offers for Competitive Loans to be made on not more than one Borrowing Date and to mature on not more than three Competitive Loan Maturity Dates. No Competitive Loan Request may be submitted earlier than five Business Days after submission of any other Competitive Loan Request. (j) The Company shall pay to the Administrative Agent, for the account of each Lender which has made a Competitive Loan, on the applicable Competitive Loan Maturity Date the then unpaid principal amount of such Competitive Loan. The Company shall not have the right to prepay any principal amount of any Competitive Loan. 2.16 Term Loans. (a) Subject to the terms and conditions hereof, each Lender severally, and not jointly, agrees to make a term loan (collectively, the "Term Loans") to the Company on the Revolving Credit Termination Date, in a principal amount not to exceed the principal amount of the Revolving Credit Loans of such Lender outstanding on the Revolving Credit Termination Date (collectively, the "Term Loan Commitments"). (b) Subject to the terms and conditions hereof, the Term Loans may be (i) ABR Loans, (ii) Eurodollar Loans, (iii) CD Rate Loans or (iv) any combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsection 2.18. 2.17 Term Notes. The Term Loan made by each Lender pursuant hereto shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit G (collectively, the "Term Notes"), with appropriate insertions therein as to principal amount, payable to the order of such Lender and representing the obligation of the Company to pay a principal amount equal to the lesser of (a) the amount of the Term Loan Commitment of such Lender and (b) the aggregate unpaid principal amount of the Term Loan made by such Lender, with interest thereon as prescribed in subsection 3.1. Each Lender is hereby authorized to record the date, amount and Type of the Term Loan made by such Lender,the date and amount of each payment or prepayment of principal thereof, and, with respect to each Term Loan being maintained as a Eurodollar Loan or CD Rate Loan, the length of each Interest Period and the Eurodollar Rate or CD Rate applicable thereto on the schedule annexed to and constituting a part of its Term Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded in the absence of manifest error; provided that failure by any Lender to make any such recordation on its Term Note shall not affect any of the obligations of the Company under such Term Note or this Agreement. The Term Note of each Lender shall (i) be dated the Revolving Credit Termination Date, (ii) bear interest, payable as specified in subsection 3.1, for the period from the date thereof on the unpaid principal amount thereof at the applicable interest rate per annum specified in subsection 3.1 and (iii) be stated to mature on the date which is one year from the Revolving Credit Termination Date (the "Term Loan Maturity Date"). 2.18 Procedure for Term Loan Borrowing. The Company shall give the Administrative Agent irrevocable written notice (or telephonic notice promptly confirmed in writing) prior to 10:00 A.M., New York City time, two Business Days prior to the Revolving Credit Termination Date requesting that the Lenders make the Term Loans on the Revolving Credit Termination Date and specifying the principal amount of the Term Loans and the Term -28- 34 Loan Maturity Date. The Term Loans made on the Revolving Credit Termination Date shall initially be ABR Loans unless, treating the borrowing of the Term Loans as if it were a conversion of Loans pursuant to subsection 3.10, the Company shall have given notice with respect to Loans of another Type in accordance with subsection 3.10. Upon receipt of such notice, the Agent shall promptly notify each Lender thereof. Not later than 12:00 noon, New York City time, on the Revolving Credit Termination Date, each Lender shall make available to the Administrative Agent at the Administrative Agent's Office for the account of the Company an amount in immediately available funds equal to the amount of the Term Loan to be made by such Lender. The proceeds of such Loans will then be made available to the Company by the Administrative Agent at the Administrative Agent's Office by crediting the account of the Company on the books of the Administrative Agent's Office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 2.19 Extension of Revolving Credit Termination Date. (a) The Company may request, in a notice substantially in the form of Exhibit H (an "Extension Request") given as herein provided to the Administrative Agent not less than 45 days and not more than 60 days prior to the Revolving Credit Termination Date, that the Revolving Credit Termination Date be extended, which notice shall specify that the requested extension is to be effective (the "Extension Effective Date") on the Revolving Credit Termination Date, and that the new Revolving Credit Termination Date to be in effect following such extension (the "Requested Revolving Credit Termination Date") is to be the date 364 days after the Extension Effective Date. The Administrative Agent shall forthwith transmit such Extension Request to the Lenders. Each Lender shall, not less than 30 days and not more than 45 days prior to the Extension Effective Date, notify the Company and the Administrative Agent of its election to extend or not to extend the Revolving Credit Termination Date with respect to its Revolving Credit Commitment. The Company may, not later than 30 days prior to the Extension Effective Date, revoke its request to extend the Revolving Credit Termination Date. Notwithstanding any provision of this Agreement to the contrary, any notice by any Lender of its willingness to extend the Revolving Credit Termination Date with respect to its Revolving Credit Commitment shall be revocable by such Lender in its sole and absolute discretion at any time prior to the date which is 30 days prior to the Extension Effective Date. If on the date 30 days prior to the Extension Effective Date Lenders having at least 75% of the aggregate amount of the Revolving Credit Commitments elect to extend the Revolving Credit Termination Date with respect to their Revolving Credit Commitments and the Company has not revoked its request to extend the Revolving Credit Termination Date, then, subject to the provisions of this subsection 2.19, the Revolving Credit Termination Date shall be extended for 364 days. Any Lender which shall not notify the Company and the Administrative Agent of its election to extend the Revolving Credit Termination Date on or prior to the date 30 days prior to the Extension Effective Date shall be deemed to have elected not to extend the Revolving Credit Termination Date with respect to its Revolving Credit Commitment. (b) Provided that Lenders having at least 75% of the aggregate amount of the Revolving Credit Commitments shall have elected to extend their Revolving Credit Commitments as provided in this subsection 2.19, if any Lender shall timely notify the Company and the Administrative Agent pursuant to subsection 2.19(a) of its election not to extend its Revolving Credit Commitment or its revocation of any extension, or shall be -29- 35 deemed to have elected not to extend its Revolving Credit Commitments (any such Lender being called a "Terminating Lender"), then the remaining Lenders (the "Continuing Lenders") or any of them shall have the right (but not the obligation), upon irrevocable notice to the Company and the Administrative Agent not later than 15 Business Days preceding the Extension Effective Date to increase their Revolving Credit Commitments, by an amount up to in the aggregate the Revolving Credit Commitments of any Terminating Lenders. If Continuing Lenders have elected to increase their Revolving Credit Commitments pursuant to the preceding sentence by an aggregate amount which exceeds the aggregate Revolving Credit Commitments of the Terminating Lenders, then the proposed increase in the Revolving Credit Commitment of each such Continuing Lender (as specified in the notice referred to in the preceding sentence) shall be decreased pro rata so that the aggregate increase in the Revolving Credit Commitments of such Continuing Lenders is equal to the aggregate Revolving Credit Commitments of the Terminating Lenders. Each increase in the Revolving Credit Commitment of a Continuing Lender shall be evidenced by a written instrument executed by such Continuing Lender, the Company and the Administrative Agent, and shall take effect on the Extension Effective Date. (c) In the event the aggregate Revolving Credit Commitments of any Terminating Lenders shall exceed the aggregate amount by which the Continuing Lenders have agreed to increase their Revolving Credit Commitments pursuant to subsection 2.19(b), the Company may, with the approval of the Administrative Agent (which will not be unreasonably withheld), designate one or more other banking institutions willing to extend Revolving Credit Commitments until the Requested Revolving Credit Termination Date in an aggregate amount not greater than such excess. Any such banking institution (an "Additional Lender") shall, on or prior to the Extension Effective Date, execute and deliver to the Company and the Administrative Agent a Commitment Transfer Supplement, satisfactory to the Company and the Administrative Agent, setting forth the amount of such Additional Lender's Revolving Credit Commitment and containing its agreement to become, and to perform all the obligations of, a Lender hereunder, and the Revolving Credit Commitment of such Additional Lender shall become effective on the Extension Effective Date. (d) The Company shall deliver to each Continuing Lender whose Revolving Credit Commitment is being increased pursuant to this subsection 2.19 and to each Additional Lender, on the Extension Effective Date, in exchange for the Revolving Credit Notes held by such Lender, new Revolving Credit Notes, maturing on the Requested Revolving Credit Termination Date, in the principal amount of such Lender's Revolving Credit Commitment after giving effect to the adjustments made pursuant to this subsection 2.19. (e) If the Lenders having at least 75% of the aggregate amount of the Revolving Credit Commitments shall have elected to extend their Revolving Credit Commitments as provided in this subsection 2.19 and the Company has not revoked its request to extend the Termination Date as provided in this subsection 2.19, then (i) the Revolving Credit Commitments of the Continuing Lenders and any Additional Lenders shall continue until the Requested Revolving Credit Termination Date specified in the notice from the Company, and as to such Lenders the terms "Revolving Credit Termination Date", as used herein shall mean such Requested Revolving Credit Termination Date; (ii) the Revolving Credit Commitments of any Terminating Lender shall continue until the Extension Effective Date, and shall then -30- 36 terminate (as to any Terminating Lender, the term "Revolving Credit Termination Date", as used herein, shall mean the Extension Effective Date) and any such Terminating Lender shall receive payment in full of the outstanding principal amount, together with accrued interest to such date and any other amounts owed by the Company to such Terminating Lender pursuant to any Credit Document, of the Revolving Credit Loans of such Terminating Lender; and (iii) from and after the Extension Effective Date, the term "Lenders" shall be deemed to include the Additional Lenders and (except with respect to subsection 3.15 and 10.5 to the extent the rights under such subsections arise after the Revolving Credit Termination Date in respect of Terminating Lenders) to exclude the Terminating Lenders. 2.20 Use of Proceeds. The proceeds of the Revolving Credit Loans and the Competitive Loans shall be used to finance working capital requirements and investments, and to support commercial paper programs of, the Company and its Subsidiaries. The proceeds of the Term Loans shall be used solely to refinance the Revolving Credit Loans. The Letters of Credit shall be used to secure performance and other bonds and provide credit support for general corporate purposes. SECTION 3. INTEREST RATE PROVISIONS, FEES, CONVERSIONS AND PAYMENTS 3.1 Interest Rates and Payment Dates. (a) Each ABR Loan shall bear interest for the period from and including the date thereof until maturity or conversion on the unpaid principal amount thereof at a fluctuating rate per annum equal to the Alternate Base Rate. (b) Each Eurodollar Loan shall bear interest for each Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the Eurodollar Rate determined for such Interest Period plus the Applicable Margin. (c) Each CD Rate Loan shall bear interest for each Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the Adjusted CD Rate for such Interest Period plus the Applicable Margin. (d) Each Competitive Loan shall bear interest for each day from the applicable Borrowing Date to (but excluding) the applicable Competitive Loan Maturity Date at the rate of interest specified in the Competitive Loan Offer accepted by the Company in connection with such Competitive Loan. (e) If all or a portion of the principal amount of any of the Eurodollar Loans or CD Rate Loans shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), each such Eurodollar Loan or CD Rate Loan shall be converted to an ABR Loan at the end of the last applicable Interest Period therefor for which the Administrative Agent shall have determined, on or prior to the date such unpaid principal amount became due, a Eurodollar Rate or an Adjusted CD Rate, as the case may be. Any overdue principal amount of any Loan and, to the extent permitted by law, any interest payable thereon which shall not be paid when due shall bear interest from the due date thereof until payment in full thereof (as -31- 37 well after judgment as before judgment) at a rate per annum equal to 2% above the rate otherwise applicable. (f) Interest payable under subsection 3.1(a), 3.1(b), 3.1(c) or 3.1(d) shall be payable in arrears on each Interest Payment Date. Interest payable under subsection 3.1(e) shall be payable on demand. 3.2 Facility and Other Fees. (a) The Company agrees to pay to the Administrative Agent for the account of each Lender a facility fee (a "Facility Fee") from the Effective Date to, but not including, the Revolving Credit Termination Date (or, if the Company shall borrow Term Loans, until the Term Loan Maturity Date) or such earlier date upon which the Revolving Credit Commitments shall terminate or be reduced to zero or the Term Loans shall be repaid in full as provided herein, computed at a rate per annum equal to the Applicable Facility Fee Percentage from time to time in effect (i) until the Revolving Credit Termination Date, on the amount of the Revolving Credit Commitment of such Lender from time to time in effect, whether used or unused (including the portion of such Revolving Credit Commitment represented by such Lender's L/C Participating Interest in outstanding Letters of Credit) and (ii) thereafter, on the unpaid principal amount of such Lender's Term Loan outstanding from time to time. Such Facility Fee shall be payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing March 31, 1996 (such fee to be calculated through the last day of such quarter) on the Revolving Credit Termination Date and on the Term Loan Maturity Date or such earlier date as the Revolving Credit Commitments shall terminate or be reduced to zero as provided herein or the Term Loans shall be repaid in full. (b) The Company agrees to pay to the Administrative Agent for its own account the fees in the amounts and on the dates previously agreed to in writing by the Company and the Administrative Agent. Each Lender acknowledges that the Administrative Agent is being paid certain other fees for its own account in connection with this Agreement in addition to the fees described herein. 3.3 Letter of Credit Fees. (a) In lieu of any letter of credit commissions and fees provided for in any Commercial L/C Application or Standby L/C Application (other than standard administration, amendment, transfer and negotiation fees referred to in clause (c) below), the Company agrees to pay the Administrative Agent, for the account of the relevant Issuing Lender and the Participating Lenders in accordance with their respective Commitment Percentages, (i) with respect to Standby L/Cs, a non-refundable Letter of Credit fee computed at a rate per annum equal to the Applicable L/C Fee Percentage from time to time in effect on the amount from time to time available to be drawn under all outstanding Standby L/Cs during the period for which payment is made, commencing on the respective dates of issuance thereof until the last day a drawing may be made thereunder, payable quarterly in advance commencing on the date of opening of each Standby L/C and thereafter on each Interest Payment Date for ABR Loans and (ii) with respect to each Commercial L/C, a non-refundable Letter of Credit fee equal to .25 of 1% of the amount drawn on such Commercial L/C from time to time, payable upon each drawing thereon. -32- 38 (b) In addition to the fees set forth in subsection 3.3(a), the Company agrees to pay each Issuing Lender, for such Issuing Lender's own account, (i) with respect to Standby L/Cs, a Letter of Credit fee equal to .175 of 1% per annum of the amount from time to time available to be drawn under all outstanding Standby L/Cs issued by it during the period for which payment is made, commencing on the respective dates of issuance thereof until the last day a drawing may be made thereunder, payable quarterly in advance commencing on the date of opening each Standby L/C and thereafter on each Interest Payment Date for ABR Loans and (ii) with respect to each Commercial L/C, a non-refundable Letter of Credit fee equal to .0625 of 1% of the face amount of such Commercial L/C payable upon issuance thereof. (c) The Company agrees to pay each Issuing Lender for its own account the customary administration, amendment, transfer and negotiation fees charged by such Issuing Lender in connection with its issuance and administration of Letters of Credit. 3.4 Computation of Interest and Fees. (a) Interest on ABR Loans and all fees shall be calculated on the basis of a year of 365 days (or 366 days, as the case may be) for the actual days elapsed. Interest on Eurodollar Loans, CD Rate Loans and Competitive Loans shall be calculated on the basis of a year of 360 days for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of each determination of a Eurodollar Rate and of an Adjusted CD Rate. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate, the Eurocurrency Reserve Requirements or the CD Reserve Requirements, as the case may be, shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate is announced or such change in the Eurocurrency Reserve Requirements or the CD Reserve Requirements shall become effective, as the case may be. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall constitute prima facie evidence of the rate so determined in the absence of manifest error. (c) If any Reference Lender's Revolving Credit Commitment shall terminate (otherwise than on termination of all the Revolving Credit Commitments), or all of its Loans shall be assigned for any reason whatsoever, such Reference Lender shall thereupon cease to be a Reference Lender and, if as a result of the foregoing, there shall only be one Reference Lender remaining, then the Administrative Agent (after consultation with the Lenders and with the consent of the Company) shall, by notice to the Company and the Lenders, designate another Lender as a Reference Lender so that there shall at all times be at least two Reference Lenders. (d) Each Reference Lender shall use its best efforts to furnish quotations of rates to the Administrative Agent as contemplated hereby. If any of the Reference Lenders shall be unable or otherwise fails to supply such rates to the Administrative Agent upon its request, the rate of interest shall be determined on the basis of the quotations of the remaining Reference Lenders or Reference Lender. -33- 39 3.5 Optional Prepayments of Revolving Credit Loans and Term Loans. The Company may from time to time prepay any Revolving Credit Loans or Term Loans, in whole or in part, without premium or penalty, by giving irrevocable notice to the Administrative Agent and making such prepayment (i) if the Revolving Credit Loans or Term Loans to be prepaid are ABR Loans, prior to 11:00 A.M., New York City time, on any Business Day or, if such notice and prepayment are not so given and made prior to 11:00 A.M., upon at least one Business Day's irrevocable notice to the Administrative Agent, (ii) if the Revolving Credit Loans or Term Loans to be prepaid are CD Rate Loans, upon at least three Business Days' irrevocable notice to the Administrative Agent or (iii) if the Revolving Credit Loans or Term Loans to be prepaid are Eurodollar Loans, upon at least three Working Days' irrevocable notice to the Administrative Agent, in each case specifying the date and amount of prepayment and whether such Revolving Credit Loans or Term Loans are ABR Loans, CD Rate Loans or Eurodollar Loans or a combination thereof, and if of a combination thereof, the amount of prepayment allocable to each and if Eurodollar Loans or CD Rate Loans are to be prepaid, the Tranche to be prepaid. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender thereof. If such notice is given, the Company shall make such prepayment, and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments pursuant to this subsection 3.5 shall be in an aggregate principal amount of $10,000,000 or a whole multiple of $5,000,000 in excess thereof. Amounts prepaid in respect of Term Loans may not be reborrowed. 3.6 Reduction of Revolving Credit Commitments. (a) The Company shall have the right, upon not less than three Business Days' notice to the Administrative Agent, from time to time, to reduce the amount of the Revolving Credit Commitments provided that any such reduction shall be in an amount not less than $25,000,000 or a whole multiple of $1,000,000 in excess thereof; and provided further that no such reduction of the Revolving Credit Commitments shall be permitted if, after giving effect to prepayments of Revolving Credit Loans, replacements of Letters of Credit and deposits of cash collateral pursuant to subsection 3.6(b), the aggregate Extensions of Credit outstanding would exceed the aggregate Revolving Credit Commitments, as so reduced, or the aggregate Letter of Credit Obligations outstanding would exceed 50% of the aggregate Commitments, as so reduced. Upon receipt of any notice pursuant to this subsection 3.6(a), the Administrative Agent shall promptly notify each Lender thereof. (b) Any reduction of the Revolving Credit Commitments pursuant to subsection 3.6(a) shall (i) reduce permanently the amount of the Revolving Credit Commitments then in effect, (ii) be accompanied by (A) a prepayment of Revolving Credit Loans outstanding in an amount equal to the excess, if any, of the aggregate Extensions of Credit outstanding over the aggregate Revolving Credit Commitments, as so reduced, and (B) a replacement of outstanding Letters of Credit such that after giving effect to such replacement, the aggregate Letter of Credit Obligations outstanding are less than or equal to 50% of the aggregate Commitments, as so reduced. To the extent that the aggregate Extensions of Credit exceed the aggregate Revolving Credit Commitments, as reduced, after Revolving Credit Loans have been prepaid in accordance with the immediately preceding sentence, the Company shall (i) replace outstanding Letters of Credit such that, after giving effect to such replacement, the aggregate Extensions of Credit are less than or equal to the -34- 40 aggregate Revolving Credit Commitments, as reduced, and/or (ii) deposit in a cash collateral account with the Administrative Agent on terms and conditions satisfactory to the Administrative Agent and as cash collateral for the liability of the Issuing Lender (whether direct or contingent) under any Letter of Credit outstanding, an amount which shall be equal to the amount by which the aggregate Extensions of Credit exceed the aggregate Revolving Credit Commitments, as reduced. Any amounts deposited in any cash collateral account may be withdrawn by the Administrative Agent at any time to pay Obligations when due. The Administrative Agent shall use its best efforts to invest any amounts so deposited in United States Treasury bills or other Cash Equivalents designated by the Company; provided that the Administrative Agent shall not be liable to the Company for failure to so invest or for any losses suffered as a result of any such investment or withdrawal. The unused portion of any amounts deposited by the Company in any such cash collateral account pursuant to this subsection 3.6(b), and any earnings from investments of amounts on deposit therein, shall be paid to the Company after sufficient Letters of Credit have expired undrawn so that the aggregate Extensions of Credit shall no longer exceed the aggregate Revolving Credit Commitments as then reduced. 3.7 Pro Rata Treatment and Payments; Lending Offices. (a) Each borrowing by the Company of Revolving Credit Loans and Term Loans hereunder, each conversion or continuation of a Revolving Credit Loan or Term Loan under subsection 3.10, each payment (including each prepayment) by the Company on account of principal of or interest on Revolving Credit Loans or Term Loans, each payment by the Company on account of fees and other amounts hereunder (except fees and other amounts referred to in subsections 3.2(b), 3.3(b), 3.3(c), 3.8, 3.12, 3.13, 3.14 and 3.15) and any reduction of the Revolving Credit Commitments hereunder shall be made pro rata according to the respective Commitment Percentages of the Lenders. All payments (including prepayments) to be made by the Company on account of principal, interest, fees and other amounts shall be made without set-off or counterclaim to the Administrative Agent, for the account of the Lenders (except with respect to the fees and other amounts referred to in subsections 3.2(b), 3.3(b), 3.3(c), 3.8, 3.12, 3.13, 3.14 and 3.15), at the Administrative Agent's Office, in Dollars and in immediately available funds. The Administrative Agent shall promptly distribute each such payment to each Lender in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans or Index Rate Competitive Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan or Index Rate Competitive Loan becomes due and payable on a day other than a Working Day, the maturity thereof shall be extended to the next succeeding Working Day (and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension) unless the result of such extension would be to extend such payment into another calendar month in which event such payment shall be made on the immediately preceding Working Day. (b) Eurodollar Loans and Index Rate Competitive Loans shall be made by each Lender at its Eurodollar Lending Office and ABR Loans, CD Rate Loans and Fixed Rate Competitive Loans shall be made by each Lender at its Domestic Lending Office. -35- 41 3.8 Capital Adequacy. In the event that any Lender shall have reasonably determined that the applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards" or the adoption after the date of this Agreement of any other law, rule, regulation or guideline regarding capital adequacy, or any change therein or in the interpretation or application thereof after the date of this Agreement or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or governmental authority does or shall have the effect of reducing the rate of return on such Lender's capital as a consequence of the Letters of Credit or its unused Revolving Credit Commitment hereunder to a level below that which such Lender could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount related to such Letters of Credit or unused Revolving Credit Commitment which is reasonably deemed by such Lender to be material, then from time to time, promptly after submission by such Lender to the Company (with a copy to the Administrative Agent) of a written request therefor, the Company shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. This covenant shall survive the termination of this Agreement and payment in full of the Obligations. 3.9 Failure by Lenders to Make Funds Available. Unless the Administrative Agent shall have been notified in writing by any Lender prior to a Borrowing Date that such Lender will not make that amount which would constitute its share of such borrowing on such Borrowing Date available to the Administrative Agent, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such Borrowing Date, and the Administrative Agent may, in reliance upon such assumption, make available to the Company a corresponding amount. If such amount is made available to the Administrative Agent on a date after such Borrowing Date, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (i) 1/2 of 1% above the daily average Federal funds rate during such period as quoted by the Administrative Agent, times (ii) such Lender's share of such borrowing, times (iii) a fraction the numerator of which is the number of days that elapse from and including such Borrowing Date to the date on which such Lender's share of such borrowing shall have become immediately available to the Administrative Agent and the denominator of which is 360. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection 3.9 shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not in fact made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall be entitled to recover such amount, on demand, from the Company with interest thereon at the rate applicable to the Loans made on such Borrowing Date. 3.10 Conversion Options for Loans; Minimum Amount of Loans. (a) The Company may elect from time to time to convert (i) Eurodollar Loans to ABR Loans, CD Rate Loans or a combination thereof, by giving the Administrative Agent at least one Business Day's prior irrevocable notice of such election if electing one or more ABR Loans or at least two Business Days' prior irrevocable notice if electing one or more CD Rate Loans; (ii) CD Rate Loans to Eurodollar Loans, ABR Loans or a combination thereof, by giving the Administrative Agent at least three Working Days' prior irrevocable notice of such election if electing one or more Eurodollar Loans or at least one Business Day's prior irrevocable notice of such election if electing one or more ABR Loans; or (iii) ABR Loans to Eurodollar Loans, CD Rate Loans or a combination thereof, by giving the -36- 42 Administrative Agent at least three Working Days' prior irrevocable notice of such election if electing one or more Eurodollar Loans or at least two Business Days' prior irrevocable notice if electing one or more CD Rate Loans; provided that any such conversion of Eurodollar Loans or CD Rate Loans shall only be made on the last day of the Interest Period with respect thereto. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender thereof. All or any part of outstanding Eurodollar Loans, CD Rate Loans and ABR Loans may be converted in accordance with the terms hereof; provided that (i) no Loan may be converted into a CD Rate Loan or a Eurodollar Loan when any Event of Default has occurred and is continuing, (ii) partial conversions shall be in an aggregate principal amount of $10,000,000 or a whole multiple of $5,000,000 in excess thereof and (iii) any such conversion may only be made if, after giving effect thereto, subsection 3.10(c) shall not have been contravened. (b) Any Eurodollar Loans or CD Rate Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Company with the notice provisions contained in subsection 3.10(a) applicable with respect to each Type of Loan; provided that no Eurodollar Loans or CD Rate Loans may be continued as such when any Event of Default has occurred and is continuing, but shall be automatically converted to ABR Loans on the last day of the last Interest Period for which a Eurodollar Rate or an Adjusted CD Rate, as the case may be, was determined by the Administrative Agent on or prior to the Administrative Agent's obtaining knowledge of such Event of Default. The Administrative Agent shall notify the Lenders promptly that such automatic conversion contemplated by this subsection 3.10(b) will occur. (c) All borrowings, conversions, payments and prepayments hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of any Tranche shall not be less than $10,000,000. 3.11 Inability to Determine Interest Rate. (a) In the event that the Administrative Agent or the Required Lenders shall have determined (which determination shall be conclusive and binding upon the Company) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any requested Interest Period with respect to (i) proposed Loans that the Company has requested be made as Eurodollar Loans, (ii) Eurodollar Loans that will result from the requested conversion of ABR Loans or CD Rate Loans into Eurodollar Loans or (iii) the continuation of Eurodollar Loans beyond the expiration of the then current Interest Period with respect thereto, the Administrative Agent shall forthwith give telephonic notice of such determination (promptly confirmed thereafter in writing) to the Company and the Lenders at least two Working Days prior to, as the case may be, the requested Borrowing Date for such Eurodollar Loans, the conversion date of such ABR Loan or CD Rate Loan, as the case may be, or the last day of such Interest Period. If such notice is given (A) any requested Eurodollar Loans shall be made as ABR Loans, (B) any ABR Loans or CD Rate Loans that were to have been converted to Eurodollar Loans shall be continued as or converted to ABR Loans or CD Rate Loans, as the case may be, and (C) any outstanding -37- 43 Eurodollar Loans shall be converted, on the last day of the then current Interest Period with respect thereto, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made, and the Company shall not have the right to convert ABR Loans or CD Rate Loans to Eurodollar Loans. (b) In the event that the Administrative Agent or the Required Lenders shall have determined (which determination shall be conclusive and binding upon the Company) that by reason of circumstances affecting the domestic certificate of deposit market, adequate and reasonable means do not exist for ascertaining the CD Rate for any requested Interest Period with respect to (i) proposed Loans that the Company has requested be made as CD Rate Loans, (ii) CD Rate Loans that will result from the requested conversion of ABR Loans or Eurodollar Loans into CD Rate Loans or (iii) the continuation of CD Rate Loans beyond the expiration of the then current Interest Period with respect thereto, the Administrative Agent shall forthwith give telephonic notice of such determination (promptly confirmed thereafter in writing) to the Company and the Lenders at least one Business Day prior to, as the case may be, the requested Borrowing Date for such CD Rate Loans, the conversion date of such ABR Loan or Eurodollar Loan, as the case may be, or the last day of such Interest Period. If such notice is given, (A) any requested CD Rate Loans shall be made as ABR Loans, (B) any ABR Loans or Eurodollar Loans that were to have been converted to CD Rate Loans shall be continued as or converted to ABR Loans or Eurodollar Loans, as the case may be, and (C) any outstanding CD Rate Loans shall be converted, on the last day of the then current Interest Period with respect thereto, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further CD Rate Loans shall be made, and the Company shall not have the right to convert ABR Loans or Eurodollar Loans to CD Rate Loans. 3.12 Taxes. (a) Except as otherwise required by law, all payments made by the Company hereunder shall be made free and clear of, and without reduction for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding income and franchise taxes imposed (a) by the United States of America or any political subdivision or taxing authority thereof or therein (including Puerto Rico) or (b) by any jurisdiction in which such Lender's Eurodollar Lending Office is located or any political subdivision or taxing authority thereof or therein (such non-excluded taxes being called "Foreign Taxes"). If any Foreign Taxes are required to be withheld from any amounts payable to any Lender hereunder or under the Notes, the amounts so payable to such Lender shall be increased to the extent necessary to yield to such Lender (after payment of all Foreign Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and its Note(s). Whenever any Foreign Tax is payable by the Company, as promptly as possible thereafter, the Company shall send to the Administrative Agent, for the account of such Lender, a certified copy of an original official receipt showing payment thereof. If the Company fails to pay any Foreign Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent, for the account of the Lenders, the required receipts or other required documentary evidence, in either case for any reason other than any Lender's failure to comply with subsection 3.12(b), the Company shall indemnify the Lenders for any incremental taxes, interest or penalties that may become payable by any Lender as a result of any such failure. -38- 44 (b) Prior to the first Interest Payment Date each Lender that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Company and the Administrative Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each Lender which delivers to the Company and the Administrative Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the next preceding sentence further undertakes to deliver to the Company and the Administrative Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company and the Administrative Agent, and such extensions or renewals thereof as may reasonably be requested by the Company or the Administrative Agent, certifying in the case of a Form 1001 or 4224 that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless in any such cases an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Company that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. (c) The agreements in this subsection 3.12 shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (d) The Company shall not be required to pay any increased amount on account of Foreign Taxes pursuant to this subsection 3.12 to any Lender to the extent that such Foreign Taxes would not have been payable if such Lender had furnished a form (properly and accurately completed in all material respects) which it was otherwise required to furnish in accordance with this subsection 3.12, unless such failure results from any event subsequent to the date hereof (including without limitation any change in treaty, law or regulation) specified in the final sentence of subsection 3.12(b) and such Lender so notifies the Company. 3.13 Illegality. Notwithstanding any other provisions herein, if, after the date hereof, any change in any Requirement of Law or in the interpretation or application thereof, shall make it unlawful for any Lender to make or maintain Eurodollar Loans or Index Rate Competitive Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make or maintain Eurodollar Loans or convert ABR Loans or CD Rate Loans to Eurodollar Loans shall forthwith be suspended, (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the respective next succeeding Interest Payment Dates for such Loans or within such earlier period as required by law and (c) the Company shall, with respect to any Index Rate Competitive Loan of such Lender, take such action as such Lender may reasonably request. Promptly upon -39- 45 becoming aware that any such illegality with respect to Eurodollar Loans ceases to exist, such Lender shall notify the Company and the Administrative Agent thereof and, after such notice, such suspension shall cease to exist. The Company hereby agrees promptly to pay any Lender, upon its demand, any additional amounts necessary to compensate such Lender for any costs incurred by such Lender in making any conversion in accordance with this subsection 3.13 (such Lender's notice of such costs, as certified to the Company through the Administrative Agent, to be prima facie evidence of such costs in the absence of manifest error). 3.14 Requirements of Law. (a) In the event that any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority after the date hereof (or, in the case of Index Rate Competitive Loans, made subsequent to acceptance by the Company of such Loans): (i) does or shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note or any Loans made by it, or change the basis of taxation of payments to such Lender of principal, commitment or facility fee, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of such Lender or its applicable Lending Office imposed by the jurisdiction in which such Lender's principal executive office or the applicable Lending Office is located); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender which are not otherwise included in the determination of the Eurodollar Rate, the Adjusted CD Rate or the Applicable Index Rate, as the case may be; or (iii) does or shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender of making, renewing or maintaining advances or extensions of credit or to reduce any amount receivable hereunder, in each case, in respect of its Eurodollar Loans, CD Rate Loans or Index Rate Competitive Loans, then, in any such case, the Company shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such additional cost or reduced amount receivable which such Lender deems to be material as reasonably determined by such Lender with respect to such Eurodollar Loans, CD Rate Loans or Index Rate Competitive Loans. (b) (i) In the event that any change in any Requirement of Law shall either (A) impose, modify, deem or make applicable any reserve, special deposit, assessment or similar requirement against Letters of Credit issued by or participated in by any Lender or (B) impose on any Lender any other condition regarding this Agreement or any Letter of Credit, and the result of any event referred to in clause (A) or (B) above shall be to increase the cost to such Lender of issuing, maintaining or participating in any Letter of Credit, then -40- 46 the Company agrees, upon demand by such Lender, to promptly pay to such Lender, from time to time as specified by such Lender, additional amounts which shall be sufficient to compensate such Lender for such increased cost. (ii) The Company agrees that the provisions of the foregoing paragraph (b)(i) and the provisions of each Letter of Credit Application providing for reimbursement or payment to the Issuing Lender in the event of the imposition or implementation of, or increase in, any reserve, special deposit or similar requirement in respect of the Letter of Credit relating thereto shall apply equally to each Participating Lender in respect of its L/C Participating Interest in such Letter of Credit. (c) If a Lender or the Administrative Agent becomes entitled to claim any additional amounts pursuant to this subsection 3.14 or subsection 3.15, it shall promptly notify the Company, through the Administrative Agent, of the event by reason of which it has become so entitled. A certificate submitted by such Lender, through the Administrative Agent, to the Company shall be delivered to the Company at least three Business Days prior to the date of any requested payment and shall be prima facie evidence of such amounts in the absence of manifest error. This covenant shall survive the termination of this Agreement and payment of the outstanding Obligations. Notwithstanding the foregoing, no Lender shall be entitled to request compensation under this subsection 3.14 with respect to any Index Rate Competitive Loan if it shall have obtained actual knowledge of the change giving rise to such request at the time of submission of such Lender's Competitive Loan Offer pursuant to which such Competitive Loan shall have been made, unless notice of such Lender's entitlement to such compensation shall have been furnished to the Company at or prior to such time. 3.15 Indemnity. The Company agrees to indemnify each Lender and to hold such Lender harmless from any loss (excluding loss of profits) or expense which such Lender may sustain or incur as a consequence of (a) default by the Company in payment of the principal of or interest on any Eurodollar Loans , CD Rate Loans or Competitive Loans of such Lender, (b) default by the Company in making a borrowing, continuation or conversion after the Company has given a notice in accordance with subsection 2.3, 2.15, 2.18 or 3.10, as the case may be, (c) default by the Company in making any prepayment after the Company has given a notice in accordance with the provisions of this Agreement and (d) a prepayment or conversion of a Eurodollar Loan, CD Rate Loan or Competitive Loan on a day which is not the last day of an Interest Period or the applicable Competitive Loan Maturity Date, as the case may be, with respect thereto, in each of clauses (a) through (d) including, but not limited to, any such loss or expense arising from interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain its Eurodollar Loans, CD Rate Loans or Competitive Loans, as the case may be, hereunder. This covenant shall survive termination of this Agreement and payment in full of the Obligations. 3.16 Lenders' Obligation to Mitigate. Each Lender agrees that, as promptly as practicable after it becomes aware that it has been or will be affected by the occurrence of an event or the existence of a condition described under subsection 3.12, 3.13 or 3.14(a), it will, to the extent not inconsistent with such Lender's generally applicable internal policies, use its best efforts to make, fund or maintain the affected Eurodollar Loans, CD Rate Loans or Competitive Loans, as the case may be, of such Lender through another lending office of such Lender if as a result thereof the additional moneys which would otherwise be required to be paid in respect of such Loans pursuant to subsection 3.12, 3.13 or 3.14(a) would be materially reduced or the illegality or other adverse circumstances which would otherwise require such payment pursuant to subsection 3.12, 3.13 or 3.14(a) would cease to exist and if, as determined by such Lender, in its sole discretion, the making, funding or maintaining of such Loans through such other lending office would not otherwise adversely affect such Loans or such Lender. The Company hereby agrees to pay all reasonable expenses incurred by any Lender in utilizing another lending office of such -41- 47 Lender pursuant to this subsection 3.16 if, upon being notified by such Lender of its intention to change lending offices in accordance with the preceding sentence, the Company requests such Lender to take the steps specified in this subsection 3.16. If the Company fails to make a request upon being so notified, such Lender shall have no obligations under this subsection 3.16. 3.17 Replacement of Lender. If the Company is required to make a payment to any Lender pursuant to subsection 3.8, 3.12 or 3.14, or the obligation of any Lender to make Eurodollar Loans is suspended pursuant to subsection 3.13, the Company may, with the prior written consent of the Required Lenders (which consent may not be unreasonably withheld) and upon not less than 15 Business Days' prior notice to the Administrative Agent, immediately terminate the Revolving Credit Commitment of such Lender and prepay such Lender's Loans, together with accrued interest thereon and all other amounts payable with respect thereto. Such termination shall not relieve the Company of its Obligations to such Lender under subsection 3.15 or 10.5 in respect of periods prior to such termination. The Required Lenders shall not withhold their consent to any such termination if the Company, on terms and conditions reasonably satisfactory to the Required Lenders, shall have located a banking institution, reasonably satisfactory to the Required Lenders, which shall have agreed to be substituted for such Lender on such terms and conditions as a Lender under this Agreement. SECTION 4. CONDITIONS OF LENDING 4.1 Conditions to the Initial Loans. The obligation of each Lender to make its initial Loan and the obligation of the relevant Issuing Lender to issue the initial Letter of Credit on or after the Effective Date shall be subject to the satisfaction of the following conditions precedent: (a) Agreement; Revolving Credit Notes and Competitive Loan Notes. The Administrative Agent shall have received (i) a counterpart of this Agreement for each Lender, duly executed by a Responsible Officer and (ii) an appropriate Revolving Credit Note and Grid Competitive Loan Note, for each Lender, conforming to the requirements hereof and duly executed by a Responsible Officer. (b) Corporate Proceedings. The Administrative Agent shall have received, with a copy for each Lender, a copy of the resolutions of the Board of Directors of the Company (or duly authorized committee thereof) authorizing the execution, delivery and performance of this Agreement, the Notes and the borrowings provided for herein. Such resolutions shall be certified by the Secretary or an Assistant Secretary of the Company, which certifications shall -42- 48 state that the resolutions thereby certified have not been amended, modified, revoked or rescinded and are in full force and effect as of such date. (c) Legal Opinions. The Administrative Agent shall have received, with a copy for each Lender, legal opinions, dated the Effective Date, of Sullivan & Cromwell and the General Counsel of the Company or other counsel satisfactory to the Lenders, substantially in the form of Exhibits I and J. (d) Cancellation of Existing Facilities. The Administrative Agent shall have received a copy of written irrevocable notices from the Company, PEPL and TETCO terminating the Commitments (as defined in each of the Existing Facilities) and directing the Agent (as so defined) to prepay by wire transfer, in immediately available funds, in full any loans and other extensions of credit then outstanding thereunder, together with accrued interest thereon, and any unpaid facility fees then accrued and all other amounts then due, upon receipt of the proceeds from the Loans or other funds available to or provided by the Company, PEPL and/or TETCO (which in the aggregate shall be in an amount at least sufficient to make all payments referred to in this subsection (d)). (e) Additional Matters. The Administrative Agent shall have received, with a copy for each Lender, such other certificates, opinions, documents and instruments relating to the transactions contemplated hereby as may have been reasonably requested by any Lender, and all corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Administrative Agent and the Required Lenders and their respective counsel. 4.2 Conditions to the Term Loans. The obligation of each Lender to make its Term Loan on the Revolving Credit Termination Date shall be subject to the satisfaction of the condition that the Administrative Agent shall have received an appropriate Term Note, for each Lender, conforming to the requirements hereof and duly executed by a Responsible Officer. 4.3 Conditions to All Loans and All Letters of Credit. The obligation of each Lender to make any Loan, other than a conversion or continuation of a Loan under subsection 3.10, or of the relevant Issuing Lender to issue a Letter of Credit (including, without limitation, its initial Loans requested to be made by it and, in the case of such Issuing Lender, its obligation to issue the initial Letter of Credit), is subject to the satisfaction of the following conditions precedent as of the date such Loan is made or such Letter of Credit is issued: (a) Non-Refunding Extensions of Credit. In the case of any Loan or Letter of Credit which does not involve a Refunding Extension of Credit: (i) the representations and warranties made by the Company in this Agreement shall be true and correct in all material respects on and as of such date immediately prior to and after giving effect to such Extension of Credit as if made on and as of such date, -43- 49 except to the extent such representations and warranties relate solely to an earlier date or period; (ii) no Default or Event of Default shall have occurred and be continuing on such date or shall occur after giving effect to the Loans requested to be made or the Letters of Credit requested to be issued; and (iii) with respect to the issuance of any Letter of Credit, the relevant Issuing Lender shall have received a Letter of Credit Application, completed to the satisfaction of such Issuing Lender, and such other certificates, documents and other papers and information as such Issuing Lender may reasonably request. (b) Refunding Extensions of Credit. In the case of any Loan or Letter of Credit involving solely a Refunding Extension of Credit: (i) no Event of Default shall have occurred and be continuing on such date or shall occur after giving effect to the Loans requested to be made or the Letter of Credit requested to be issued; and (ii) with respect to the issuance of any Letter of Credit, the relevant Issuing Lender shall have received a Letter of Credit Application, completed to the satisfaction of such Issuing Lender, and such other certificates, documents and other papers and information as such Issuing Lender may reasonably request. Each borrowing of Loans, other than a conversion or continuation of a Loan under subsection 3.10, or issuance of a Letter of Credit under this Agreement, shall constitute a representation or warranty by the Company hereunder as of the date of such borrowing or such issuance that the conditions in clauses (a)(i) and (ii) or in clause (b)(i) of this subsection 4.3 applicable thereto have been satisfied. Each conversion of a Loan into a Eurodollar Loan or CD Rate Loan under subsection 3.10 shall constitute a representation and warranty by the Company hereunder as of the date of such conversion that no Event of Default shall have occurred and be continuing on such date. SECTION 5. REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loans and to induce the Issuing Lenders to issue, and the Participating Lenders to participate in, the Letters of Credit as herein provided, the Company hereby represents and warrants to the Administrative Agent and to each Lender that: 5.1 Financial Condition. The consolidated balance sheet of the Company and its Subsidiaries as at December 31, 1994 and the related consolidated statements of income, common stockholders' equity, and cash flows for the year then ended, certified by KPMG Peat Marwick LLP, copies of which have been heretofore furnished to each Lender, present fairly the consolidated financial position of the Company and its Subsidiaries as at such date, and the consolidated results of their operations and cash flows for the year then ended, in -44- 50 accordance with GAAP. The unaudited consolidated balance sheet of the Company and its Subsidiaries as of September 30, 1995, together with unaudited consolidated statements of income and cash flows for the nine months ended September 30, 1994 and 1995, included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, present fairly the consolidated financial position of the Company and its Subsidiaries as of September 30, 1995 and the consolidated results of their operations and cash flows for the nine months ended September 30, 1994 and 1995, in conformity with GAAP applicable to Reports on Form 10-Q. Since September 30, 1995, there has been no change in the consolidated financial position or results of operations of the Company and its Subsidiaries which is reasonably likely to have a material adverse effect on the ability of the Company to repay the principal of and interest on the Loans and all other amounts payable under this Agreement in accordance with the terms of this Agreement and the Notes, except as set forth in, or contemplated by the disclosures contained in, the SEC Reports. 5.2 Corporate Existence; Qualification. The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of Delaware, (ii) has the corporate power and authority to own and operate its properties, to lease the properties it operates as lessee and to conduct the business in which it is currently engaged and (iii) is duly qualified as a foreign corporation and is in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and where the failure to be so qualified and in good standing would have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. 5.3 Corporate Power; Authorization; Enforceable Obligations. (a) The Company has the corporate power and authority to execute, deliver and perform this Agreement and the Notes. The Company has the corporate power and authority to borrow hereunder and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and the Notes. The Company has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the Notes prior to the execution and delivery thereof. (b) No consent or authorization of, or filing with or other act by or in respect of, any Person (including, without limitation, any Governmental Authority) is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or the Notes or the consummation of the transactions contemplated hereby or thereby, except (i) for consents, authorizations and filings which have been obtained or made, as the case may be, and are in full force and effect, (ii) which are not required to be obtained or made prior to the date on which this representation is made or deemed made or (iii) the failure of which to obtain or make (x) would not have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole or (y) would not materially adversely affect the ability of the Company to perform its obligations under this Agreement or the Notes. (c) This Agreement has been duly executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar laws of general applicability relating to or affecting creditors' rights -45- 51 and to general equity principles. The Notes have been duly authorized by the Company and, when executed, issued and delivered pursuant hereto, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 5.4 No Legal Bar. The execution, delivery and performance by the Company of this Agreement and the Notes, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of the Company except for such violations which would not have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole, and will not result in, or require, the creation or imposition of, any Lien on any of its properties or revenues pursuant to any Requirement of Law or Contractual Obligation. 5.5 No Material Litigation. No litigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Company, threatened by or against the Company or any of its Subsidiaries which is reasonably likely to have a material adverse effect on the ability of the Company to repay the principal of and interest on the Loans and all other amounts payable under this Agreement in accordance with the terms of this Agreement and the Notes, except as set forth in, or contemplated by the disclosures contained in, the SEC Reports. 5.6 Margin Regulations. No part of the proceeds of any Loans hereunder will be used for any purpose which violates the provisions of Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. The Company is not engaged nor will it engage, principally, or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under said Regulation U. 5.7 ERISA. (i) No employee benefit plan established or maintained, or to which contributions have been made, by the Company or any Commonly Controlled Entity which is subject to Part 3 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"), had an accumulated funding deficiency as of the last day of the most recent fiscal year of such plan ended prior to the date hereof, (ii) no material liability to the Pension Benefit Guarantee Corporation has been incurred with respect to any such plan by the Company and (iii) neither any such plan nor any trustee or administrator of any such plan has engaged in a prohibited transaction which could subject any such plan, or any such trustee or administrator, or any party dealing with any such plan, to the tax or penalty on prohibited transactions imposed by Section 4975 of the Code, except in any such case referred to in clause (i), (ii) or (iii) which would not, individually or in the aggregate, have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. As used in this Agreement, the term "accumulated funding deficiency" has the meaning assigned to such term in ERISA and the term "prohibited transaction" shall have the meaning assigned to such term in said Section 4975. -46- 52 5.8 Environmental Regulations. Except as set forth in, or contemplated by the disclosures contained in, the SEC Reports, each of the Company and its Subsidiaries is in compliance with all Requirements of Law relating to pollution and environmental control in all jurisdictions in which it is presently doing business, except to the extent that the failure to comply therewith would not, individually or in the aggregate, have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. 5.9 Investment Company Act, Public Utility Holding Company Act. The Company is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. The Company is not subject to any duty, obligation or liability as a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6. AFFIRMATIVE COVENANTS The Company agrees that, so long as the Commitments remain in effect, any Loans or any Letter of Credit Obligations remain outstanding and unpaid or any other amount is owing to any Lender or the Administrative Agent hereunder, the Company shall, and, except in the case of the agreements set forth in subsections 6.1, 6.2 and 6.7, shall cause each of its Significant Subsidiaries to: 6.1 Financial Statements. Furnish to each Lender: (a) within 120 days after the end of each fiscal year of the Company, a copy of the audited consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income and stockholders' equity and cash flows for such year, setting forth in comparative form the figures for the previous year, reported on without qualification arising out of the scope of the audit by independent certified public accountants of nationally recognized standing selected by the Company; and (b) within 60 days after the end of each of the first three quarterly periods of each fiscal year of the Company, a copy of the unaudited consolidated balance sheets of the Company and its consolidated Subsidiaries as at the end of each such quarter, the related unaudited consolidated statements of income of the Company and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through such date and the related unaudited consolidated statements of cash flows of the Company and its consolidated Subsidiaries for the portion of the fiscal year through such date, setting forth in each case in comparative form the figures for the corresponding prior year-to- date period (subject to normal year-end audit adjustments). The Company covenants and agrees that all such financial statements shall be prepared in accordance with GAAP (subject, in the case of interim statements, to normal year-end audit adjustments and except that such interim statements may be prepared in accordance with -47- 53 GAAP applicable to Reports on Form 10-Q) applied consistently throughout the periods reflected therein (except as disclosed therein). 6.2 Certificates; Other Information. Furnish to each Lender: (a) concurrently with the delivery of the financial statements referred to in subsections 6.1(a) and (b), a certificate of a Responsible Officer (i) stating that such Responsible Officer has obtained no knowledge of any Default or Event of Default, except as specified in such certificate, (ii) stating, to the best of such Responsible Officer's knowledge, that all such financial statements have been prepared in accordance with GAAP (subject, in the case of interim statements, to normal year-end audit adjustments and except that such interim statements may have been prepared in accordance with GAAP applicable to Reports on Form 10-Q) applied consistently throughout the periods reflected therein (except as disclosed therein) and (iii) showing in detail the calculations supporting such statements in respect of subsection 7.1; (b) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally and all regular and periodic reports (other than on Form 11-K) and all final registration statements (other than on Form S-8) and final prospectuses, if any, filed by the Company with any securities exchange or with the Securities and Exchange Commission or any Governmental Authority succeeding to any of its functions; and (c) promptly, such additional financial and other information as any Lender may from time to time reasonably request through the Administrative Agent. 6.3 Payment of Taxes. Pay and discharge, or cause the payment and discharge of, all federal and all other material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien upon any properties of the Company or any of its Significant Subsidiaries; provided that neither the Company nor any of its Significant Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and (if necessary) by proper proceedings if it has maintained adequate reserves (in the good faith judgment of management of the Company or the relevant Significant Subsidiary, as the case may be) with respect thereto in accordance with GAAP. 6.4 Maintenance of Existence. Preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all material rights, privileges and franchises necessary or desirable in the normal conduct of its business (provided that the foregoing shall not prevent (i) any merger or consolidation of any Subsidiary with, or any sale or other disposition by any Subsidiary of any property or assets to, the Company or a Wholly-Owned Subsidiary or (ii) the taking of, or failure to take, any action which, in the opinion of the chief executive officer or chief financial officer of the Company, will not materially adversely affect the ability of the Company to perform its obligations hereunder); and comply with all Requirements of Law except to the extent the same is being contested in good faith and except to the extent that failure to comply therewith would not, in the -48- 54 aggregate, have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. 6.5 Maintenance of Property; Insurance. (a) Keep all property useful and necessary in its business in good working order and condition, normal wear and tear excepted, to the extent customary for companies in similar businesses; and (b) Maintain with financially sound insurance companies insurance on all its property in at least such amounts and with such deductibles as are usually maintained by, and against at least such risks as are usually insured against in the same general area by, companies engaged in the same or a similar business. 6.6 Inspection of Property; Books and Records; Discussions. Upon reasonable notice to the Company by the Administrative Agent or 25% of the Lenders given through the Administrative Agent and at the expense of the relevant Lenders, permit representatives of any Lenders to visit and inspect such of their properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business of the Company and its Subsidiaries with officers and employees of the Company and its Subsidiaries and with its independent certified public accountants. Each Lender shall hold all non-public information obtained pursuant to this subsection 6.6 confidential in accordance with its customary procedures in respect of confidential information and in any event subject to subsection 10.10(e) may make any disclosure to a Transferee or as required or requested by any Governmental Authority. 6.7 Notices. Promptly give notice to the Administrative Agent and each Lender: (a) of the occurrence of any Default or Event of Default; and (b) of any litigation or proceeding affecting the Company or any of its Subsidiaries (i) in which the amount claimed is $25,000,000 or more and not covered by insurance or (ii) in which injunctive or similar relief is sought, which in any such case referred to in clause (i) or (ii) if obtained would have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. Each notice pursuant to this subsection 6.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Company or such Subsidiary proposes to take with respect thereto. SECTION 7. NEGATIVE COVENANTS The Company hereby agrees that, so long as the Commitments remain in effect, any Loans or any Letter of Credit Obligations remain outstanding and unpaid or any other amount is owing to any Lender or the Administrative Agent, the Company shall not, and, in the case of subsections 7.2, 7.5 and 7.6, shall not permit any of its Subsidiaries to, directly or indirectly: -49- 55 7.1 Maintenance of Consolidated Indebtedness to Consolidated Capitalization Percentage Ratio of the Company. Permit the ratio (expressed as a percentage) of (a) Consolidated Indebtedness to (b) Consolidated Capitalization as at the end of any calendar quarter to be greater than 65%. 7.2 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except: (a) Liens for taxes, assessments, governmental charges or levies not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves (in the good faith judgment of the Company) with respect thereto are maintained on the books of the Company in accordance with GAAP; (b) statutory Liens of landlords and carrier's, vendor's, warehousemen's, mechanic's, materialmen's, repairmen's, or other like Liens arising in the ordinary course of business if the obligations secured by such Liens are not overdue for a period of more than 60 days or which are being contested in good faith and (if necessary) by appropriate proceedings; (c) pledges or deposits and Liens under bonds required in connection with worker's compensation, unemployment insurance and other social security legislation incurred in the ordinary course of business; (d) Liens incurred or deposits to secure the performance of tenders, bids, contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance and return-of-money bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Company; (f) Liens arising from judgments or decrees in circumstances not constituting an Event of Default under subsection 8.1(g); (g) purchase money Liens securing obligations arising from the acquisition by the Company of property, provided that the principal amount of such obligations does not exceed the purchase price of such property; (h) (A) Liens in existence on the date of this Agreement, (B) Liens on any property existing at the time of acquisition thereof (including Liens on any property acquired from a Person which is merged into the Company) and (C) any extension, renewal or refunding of any Lien referred to in clause (A) or (B), provided that no such Lien is extended to cover any additional property (other than replacement property) and that the amount of Indebtedness secured thereby is not increased; -50- 56 (i) Liens in respect of future demand charges or reservation charges sold by the Company or any Subsidiary not exceeding $275,000,000 at any one time; (j) Liens in favor of the Company or any Subsidiary; (k) Liens in favor of the Administrative Agent, any Issuing Lender or the Lenders under this Agreement; and (l) other Liens securing obligations such that the aggregate book value (net of applicable reserves) of the assets securing such obligations does not exceed at any one time an amount equal to 10% of Consolidated Tangible Assets at such time. 7.3 Consolidation, Merger, Etc. Consolidate with, merge into or sell, lease or otherwise dispose of its properties and assets as an entirety or substantially as an entirety to any Person in one transaction or any series of transactions. 7.4 Principal Subsidiaries. (a) Fail to own, directly or indirectly, all of the outstanding shares of common stock of each of the Principal Subsidiaries or (b) create, incur, assume or suffer to exist any Lien upon any shares of common stock of any Principal Subsidiary owned by the Company or any of its Subsidiaries except Liens of the nature referred to in clauses (a), (f), (j) and (k) of subsection 7.2. 7.5 Lines of Business. Engage in any line of business which is material to the Company and its Subsidiaries taken as a whole other than the lines of business in which the Company and its Subsidiaries are now engaged and other energy related lines of business. 7.6 Asset Sales. Make any Asset Sale in any fiscal year if such Asset Sale, together with all other Asset Sales made during such fiscal year, will result in Asset Sales of property or assets with an aggregate fair market value (as determined in good faith by the Company) equal to or greater than 5% of Consolidated Tangible Assets at the time of such Asset Sale. SECTION 8. EVENTS OF DEFAULT Upon the occurrence and during the continuance of any of the following events: (a) Payments. The Company shall fail to pay any principal of any Loan when due (whether at stated maturity, by acceleration or otherwise); or the Company shall fail to pay any interest on any Loan or any fee payable hereunder within ten days after the same becomes due and payable in accordance with the terms hereof; or (b) Representations and Warranties. Any representation, warranty or other statement made or deemed made by the Company herein or which is contained in any certificate furnished at any time pursuant to Section 4 hereof shall prove to have been untrue in any material respect on or as of the date made or deemed made or furnished; or -51- 57 (c) Certain Covenants. The Company shall default in the observance or performance of any covenant or agreement contained in subsection 7.1, 7.3, 7.4, 7.5 or 7.6; or (d) Other Covenants. The Company shall default in the observance or performance of any other covenant or agreement contained in this Agreement, and any such default referred to in this paragraph (d) shall continue unremedied for a period of 30 days after written notice from the Administrative Agent at the direction of the Required Lenders; or (e) Cross-Default. The Company, any of its Significant Subsidiaries or any Principal Subsidiary shall (i) default in any payment of principal of or interest on any other Indebtedness for borrowed money or deferred Indebtedness for the payment of the purchase price of property or assets purchased, in excess of $100,000,000 in the aggregate, beyond the period of grace, if any, provided in the agreement or instrument under which such Indebtedness was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any agreement or instrument evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, without the further giving of notice or the further lapse of time, if required, such Indebtedness to become due prior to its stated maturity; provided, however, that if either (i) such Indebtedness shall have been paid or (ii) such default or other event shall be cured by the Company, such Significant Subsidiary or such Principal Subsidiary, as the case may be, or waived by the holders of such Indebtedness and any acceleration of maturity having resulted from such default or other event or condition shall be rescinded or annulled, in each case in accordance with the terms of such agreement or instrument, without any modification of the terms of such Indebtedness requiring the Company, such Significant Subsidiary or such Principal Subsidiary, as the case may be, to furnish additional or other security therefor or reducing the average life to maturity thereof or increasing the principal amount thereof or any agreement by the Company, such Significant Subsidiary or such Principal Subsidiary, as the case may be, to furnish additional or other security therefor or to issue in lieu thereof Indebtedness secured by additional or other collateral or with a shorter average life to maturity or in a greater principal amount, then any default hereunder by reason thereof shall be deemed to have been thereupon cured or waived; or (f) Bankruptcy or Reorganization Proceeding. (i) The Company, any of its Significant Subsidiaries or any Principal Subsidiary shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company, any of its Significant Subsidiaries or any Principal Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company, any of its Significant Subsidiaries or any Principal Subsidiary any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the -52- 58 entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company, any of its Significant Subsidiaries or any Principal Subsidiary any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company, any of its Significant Subsidiaries or any Principal Subsidiary shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any of the Company, any of its Significant Subsidiaries or any Principal Subsidiary shall generally not, or shall be unable to, or shall admit in writing its inability to, pay their respective debts as they become due; or (g) Judgments. One or more judgments or decrees for the payment of money shall be entered against the Company or any of its Significant Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance, except for any reasonable deductible) of $25,000,000 or more and there shall have been a period of 60 consecutive days during which a stay of enforcement of such judgment or decree, by reason of a pending appeal or otherwise, shall not be in effect or during which such judgment or decree shall not have been vacated or discharged; or (h) Change in Control of the Company. (i) Any Person or any Persons acting together which would constitute a "group" for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof, shall acquire direct or indirect beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of 50% or more of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of directors of the Company or (ii) the election by any Person or Group, together with any Affiliates thereof, of a sufficient number of its or their nominees to the Board of Directors of the Company such that such nominees, when added to any existing directors remaining on such Board of Directors after such election who are Affiliates of such Person or Group, shall constitute a majority of such Board of Directors; or (i) ERISA. Any accumulated funding deficiency shall exist with respect to any employee benefit plan established or maintained, or to which contributions have been made, by the Company or any Commonly Controlled Entity or the Company shall incur any material liability to the Pension Benefit Guarantee Corporation with respect to any such plan or any such plan or trustee or administrator thereof shall engage in a prohibited transaction, and in each case such event or condition, together with all such other events or conditions which have occurred and are continuing at such time, has a material adverse effect on the ability of the Company to perform its obligations under this Agreement or the Notes; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Company, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including amounts payable in respect of Letters of Credit whether or not the beneficiaries thereof shall have presented the drafts and other documents required thereunder) and the Notes shall immediately become due and payable and -53- 59 (B) if such event is any other Event of Default, any of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the direction of the Required Lenders, the Administrative Agent shall, by notice to the Company, declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the direction of the Required Lenders, the Administrative Agent shall, by notice of default to the Company, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including amounts payable in respect of Letters of Credit whether or not the beneficiaries thereof shall have presented the drafts and other documents required thereunder) and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable; and (iii) the Administrative Agent may, and upon the direction of the Required Lenders shall, exercise any and all remedies and other rights provided pursuant to this Agreement. With respect to all Letters of Credit that shall not have expired or with respect to which presentment for honor shall not have occurred, upon the occurrence of an Event of Default, the Company shall deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate undrawn face amount of such Letters of Credit for application to payments of drafts drawn thereunder, and the Administrative Agent shall use its best efforts to invest such amounts so deposited in United States Treasury bills or other Cash Equivalents designated by the Company; provided that the Administrative Agent shall not be liable to the Company for failure to invest or for any losses suffered as a result of any such investment or withdrawal. The unused portion of such amounts, if any, shall be returned to the Company after the respective expiry dates of the Letters of Credit and after all Obligations are paid in full. Except as expressly provided above in this Section 8, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 9. THE ADMINISTRATIVE AGENT AND THE ISSUING LENDERS 9.1 Appointment. Each Lender hereby irrevocably designates and appoints Chemical as the Administrative Agent of such Lender under this Agreement, the Notes and each other agreement (if any) entered into pursuant to this Agreement (collectively, the "Credit Documents") and Chemical and each other Lender so designated hereunder as the Issuing Lenders under this Agreement, and each such Lender irrevocably authorizes Chemical as the Administrative Agent for such Lender and Chemical and each other Issuing Lender as Issuing Lenders to take such action on its behalf under the provisions of this Agreement and each other Credit Document and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent or the Issuing Lenders, as the case may be, by the terms of this Agreement and each other Credit Document, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, neither the Administrative Agent nor the Issuing Lenders shall have any duties or responsibilities, except those expressly set forth herein and in the other Credit Documents, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent and the Issuing Lenders. -54- 60 9.2 Delegation of Duties. The Administrative Agent and the Issuing Lenders may execute any of their respective duties under this Agreement or the other Credit Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither the Administrative Agent nor any Issuing Lender shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 9.3 Exculpatory Provisions. Neither the Administrative Agent nor any Issuing Lender nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Credit Document (except for its or such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Company or any officer thereof contained in this Agreement or any other Credit Document or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or any other Credit Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Credit Document, or for any failure of the Company or any other Person to perform its obligations hereunder or thereunder. Neither the Administrative Agent nor any Issuing Lender shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Credit Document or to inspect the properties, books or records of the Company or any of its Subsidiaries. This subsection 9.3 is intended to govern the relationship between the Administrative Agent and the Issuing Lenders, on the one hand, and the Lenders, on the other. 9.4 Reliance by Administrative Agent and the Issuing Lenders. The Administrative Agent and the Issuing Lenders shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by any of them to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Administrative Agent or an Issuing Lender. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent and the Issuing Lenders shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless any such Person shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent and the Issuing Lenders shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Required Lenders (or, if required by this Agreement, all of the Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. -55- 61 9.5 Notice of Default. Neither the Administrative Agent nor any Issuing Lender shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent or such Issuing Lender, as the case may be, has received notice from a Lender or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent or an Issuing Lender receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent and the Issuing Lenders shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Administrative Agent or the Issuing Lenders shall have received such directions, the Administrative Agent and the Issuing Lenders may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as they shall deem advisable in the best interests of the Lenders. 9.6 Non-Reliance on Administrative Agent, Issuing Lenders and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor the Issuing Lenders nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent or the Issuing Lenders hereafter taken, including any review of the affairs of the Company, shall be deemed to constitute any representation or warranty by the Administrative Agent or the Issuing Lenders to any Lender. Each Lender represents to the Administrative Agent and the Issuing Lenders that it has, independently and without reliance upon the Administrative Agent, the Issuing Lenders or any other Lender and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent, the Issuing Lenders or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement or under the other Credit Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent or an Issuing Lender hereunder or under the other Credit Documents, neither the Administrative Agent nor such Issuing Lender shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of the Administrative Agent or the Issuing Lenders or any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates. 9.7 Indemnification. The Lenders agree to indemnify the Administrative Agent and the Issuing Lenders in their respective capacities as such (to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so), ratably according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at -56- 62 any time following the payment of the Notes) be imposed on, incurred by or asserted against the Administrative Agent or the Issuing Lenders in any way relating to or arising out of this Agreement or any other Credit Document or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent or the Issuing Lenders under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's or an Issuing Lender's gross negligence or willful misconduct. The agreements in this subsection 9.7 shall survive the payment of the Notes and all other amounts payable hereunder. 9.8 Administrative Agent and Issuing Lenders in Their Individual Capacities. The Administrative Agent, each Issuing Lender and their respective Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company as though the Administrative Agent or such Issuing Lender were not the Administrative Agent or an Issuing Lender, respectively, hereunder. With respect to Loans made or renewed by it and any Note issued to it, the Administrative Agent and the Issuing Lenders shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent or an Issuing Lender, and the terms "Lender" and "Lenders" shall include the Administrative Agent and the Issuing Lenders in their respective individual capacities. 9.9 Successor Administrative Agent and Issuing Lenders. The Administrative Agent or any Issuing Lender may resign as Administrative Agent or Issuing Lender upon 30 days' notice to the Company and the Lenders. If the Administrative Agent or any Issuing Lender shall resign as Administrative Agent or Issuing Lender under this Agreement, then the Required Lenders during such 30-day period shall appoint from among the Lenders a successor agent or issuing bank for the Lenders, whereupon such successor agent or issuing bank shall succeed to the rights, powers and duties of the Administrative Agent or Issuing Lender being replaced and the term "Administrative Agent" or "Issuing Lender" shall mean such successor agent or issuing bank, respectively, effective upon its appointment, and the former Administrative Agent's or Issuing Lender's rights, powers and duties as Administrative Agent or Issuing Lender shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or Issuing Lender or any of the parties to this Agreement or any holders of the Notes; provided that no successor agent or issuing bank may be appointed by the Required Lenders without the prior written consent of the Company, which consent shall not be unreasonably withheld. After any retiring Administrative Agent's or Issuing Lender's resignation hereunder as the Administrative Agent or an Issuing Lender, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent or an Issuing Lender under this Agreement. -57- 63 SECTION 10. MISCELLANEOUS 10.1 Amendments and Waivers. Neither this Agreement, any Note, any other Credit Document nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection 10.1. With the written consent of the Required Lenders, the Administrative Agent and the Company may, from time to time, enter into written amendments, supplements or modifications for the purpose of adding, deleting or changing any provisions to this Agreement, the Notes or any other Credit Document, or changing in any manner the rights of the Lenders or of the Company hereunder or thereunder or waiving, on such terms and conditions as the Administrative Agent may specify in such instrument, any of the requirements of this Agreement, the Notes or any other Credit Document or any Default or Event of Default and its consequences; provided that no such waiver and no such amendment, supplement or modification shall (a) extend the Revolving Credit Termination Date (except in the manner expressly contemplated by this Agreement) or Term Loan Maturity Date or extend the maturity of any Loan or any installment thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any fee payable to the Lenders hereunder, or reduce the principal amount thereof, or increase the amount of any Lender's Revolving Credit Commitment, Term Loan Commitment or Commitment Percentage, or amend, modify or waive any provision of this subsection 10.1 or reduce the percentage specified in the definition of Required Lenders, or consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement, in each case without the written consent of all the Lenders or (b) amend, modify or waive any provision of Section 9 without the written consent of the then Administrative Agent or Issuing Lender affected by such amendment, modification or waiver. Any such waiver and any such amendment, supplement or modification shall apply to each of the Lenders equally and shall be binding upon the Company, the Lenders, the Administrative Agent and all future holders of the Notes. In the case of any waiver, the Company, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 10.2 Notices. Except as otherwise expressly provided herein, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile), and shall be deemed to have been duly given or made when delivered by hand, or five days after being deposited in the United States mail, postage prepaid, or, in the case of facsimile notice, when sent, and telephonically confirmed, or, in the case of a nationally recognized courier service, one Business Day after delivery to such courier service, addressed as follows in the case of the Company and the Administrative Agent, and as set forth on Schedule 1 in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: -58- 64 The Company: PanEnergy Corp 5400 Westheimer Court Houston, Texas 77056-5310 Attention: Treasurer Facsimile: (713) 627-4603 Confirmation: (713) 627-5900 The Administrative Agent: Chemical Bank 270 Park Avenue New York, New York 10017 Attention: Energy Division Facsimile: (212) 270-4892 Confirmation: (212) 270-3531 provided that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to subsections 2.3, 2.15, 2.18, 2.19, 3.5, 3.6 and 3.10 shall not be effective until actually received. 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and issuance of Letters of Credit hereunder. 10.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse the Administrative Agent for all the reasonable fees and disbursements of counsel to the Administrative Agent incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the Notes and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, (b) to pay or reimburse each Lender and the Administrative Agent for all their costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes and any such other documents, including, without limitation, the fees and disbursements of counsel to the Administrative Agent, and (c) to pay, indemnify and hold each Lender and the Administrative Agent harmless from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, -59- 65 supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes and any such other documents. This covenant shall survive the termination of this Agreement and payment in full of the Obligations. 10.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company, the Lenders, the Administrative Agent, all future holders of the Notes and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. No Lender may participate, assign or sell any of its Credit Exposure (as defined in subsection 10.7) except as required by operation of law, in connection with the merger, consolidation, dissolution or sale of any Lender or the sale of all or substantially all of the assets of such Lender or as provided in subsection 10.7, 10.8 or 10.9. 10.7 Participations. Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more commercial banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any L/C Participating Interest of such Lender, any part of the Commitments of such Lender or any other interest of such Lender hereunder (in respect of any such Lender, its "Credit Exposure"); provided, however, that, except with the prior written consent of the Company and the Administrative Agent (which in each case shall not be unreasonably withheld), after giving effect to all of such sales by any Lender, and any other assignments permitted under this subsection 10.7 and 10.8, such Lender shall continue to have beneficial ownership of Credit Exposure equal to not less than 50% of its Commitments; and provided, further, that no Participant (other than an Affiliate of a Lender) shall be entitled under the relevant participation agreement to require such Lender to take or omit to take any action hereunder, except, to the extent any Participant has any interest directly affected thereby, that extends the Revolving Credit Termination Date or the Term Loan Maturity Date or the final maturity of any Note or any installment thereof or reduces the rate or extends the time of payment of interest thereon, or reduces any fee payable to the Lenders hereunder, or reduces the principal amount thereof, or changes the amount of any Lender's Commitment Percentage, or increases the amount of any Lender's Revolving Credit Commitment or Term Loan Commitment. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note or L/C Participating Interest for all purposes under this Agreement, and the Company and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. The Company agrees that if amounts outstanding under this Agreement and the Notes are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement, any Note and any Letter of Credit to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note or the Issuing Lender with respect to any Letter of Credit; provided that such right of set-off shall be subject to the obligations of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in subsection 10.11. The Company also agrees that each Participant shall be entitled to the benefits of subsections 3.12, -60- 66 3.13, 3.14 and 3.15 with respect to its participation in the Commitments, the Loans and the Letters of Credit outstanding from time to time; provided that no Participant shall be entitled to receive any greater amount pursuant to such subsections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. 10.8 Assignments. Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to any other Lender or any Affiliate thereof, and, subject to the limitations set forth in the proviso to this sentence and with the consent of the Company and the Administrative Agent (which in each case shall not be unreasonably withheld) to one or more additional commercial banks or other financial institutions ("Purchasing Lenders") all or any part of its rights and obligations under this Agreement and its Notes and with respect to the Letters of Credit, pursuant to a Commitment Transfer Supplement, in the form of Exhibit K (a "Commitment Transfer Supplement"), executed by such Purchasing Lender, such transferor Lender (and, in the case of a Purchasing Lender that is not then a Lender or an Affiliate thereof, by the Company and the Administrative Agent), and delivered to the Administrative Agent for its acceptance and recording in the Register; provided, however, that, except with the prior written consent of the Company (which consent shall not be unreasonably withheld) or in connection with a transfer pursuant to subsection 10.10(d), (i) the Commitments purchased by any such Purchasing Lender that is not then a Lender shall be equal to or greater than $15,000,000 and (ii) the transferor Lender which has transferred part of its Commitments to any such Purchasing Lender that is not then a Lender shall retain Commitments, after giving effect to such sale, equal to or greater than $15,000,000 in the aggregate. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date determined pursuant to such Commitment Transfer Supplement, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Lender hereunder with Commitments as set forth therein to the same extent as if it were an original party hereto with the same Commitment Percentage set forth in such Commitment Transfer Supplement and no further action by the Company, the Lenders or the Administrative Agent shall be required in respect thereof except as otherwise provided herein, and (y) the transferor Lender thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto except, in respect of periods prior to such termination, with respect to subsections 3.8, 3.14, 3.15 and 10.5). Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and its Notes and with respect to the Letters of Credit. On or prior to the Transfer Effective Date determined pursuant to such Commitment Transfer Supplement, the Company, at the Company's expense, shall execute and deliver to the Administrative Agent in exchange for each surrendered Note a new Note, to the order of such Purchasing Lender, and each Issuing Lender shall execute and deliver new Letter of Credit Participation Certificates, if appropriate, in each case in amounts equal to its respective percentages of Commitments or, -61- 67 as appropriate, the outstanding Loans as adjusted assumed by it pursuant to such Commitment Transfer Supplement and, if the transferor Lender has retained Commitments or any Competitive Loans hereunder, a new Note or Notes to the order of the transferor Lender in an amount or amounts equal to the Commitments and any Competitive Loans retained by it hereunder. Such new Note or Notes shall be dated the Effective Date in the case of a Revolving Credit Note or Competitive Loan Note or the Revolving Credit Termination Date in the case of a Term Note and shall otherwise be in the form of the Note replaced thereby. The Note surrendered by the transferor Lender shall be returned by the Administrative Agent to the Company marked "cancelled". If any Letter of Credit Participation Certificates have been issued to the transferor Lender and are then outstanding, appropriate adjustments by virtue of the issuance of new certificates to the Purchasing Lender and, if appropriate, the transferor Lender shall be made as promptly as practicable after the Transfer Effective Date. 10.9 Transfers of Competitive Loans. (a) Any Competitive Loan Lender, in the ordinary course of its business and in accordance with applicable law, at any time may assign to one or more banks or other entities (each, a "Competitive Loan Assignee") any Competitive Loan owing to such Competitive Loan Lender and any Individual Competitive Loan Note held by such Lender evidencing such Competitive Loan, pursuant to a Competitive Loan Assignment executed by the assignor Competitive Loan Lender and the Competitive Loan Assignee. (b) Upon such execution, from and after the date of such Competitive Loan Assignment, the Competitive Loan Assignee shall be deemed, to the extent of the assignment provided for in such Competitive Loan Assignment, and subject to the provisions of subsections 10.9(c) and 10.9(d), to have the same rights and benefits of payment and enforcement with respect to such Competitive Loan and Individual Competitive Loan Note (including, without limitation, the applicable rights set forth in subsections 3.12, 3.13, 3.14 and 3.15) and the same rights of setoff and obligation to share pursuant to subsection 10.11 as it would have had if it were a Competitive Loan Lender hereunder. (c) Unless such Competitive Loan Assignment shall otherwise specify and a copy of such Competitive Loan Assignment shall have been delivered to the Administrative Agent for its acceptance and recording in the Register in accordance with subsection 10.10(a), the assignor under the Competitive Loan Assignment shall act as collection agent for the Competitive Loan Assignee thereunder, and the Administrative Agent shall pay all amounts received from the Company which are allocable to the assigned Competitive Loan or Individual Competitive Loan Note directly to such assignor without any liability to such Competitive Loan Assignee. (d) A Competitive Loan Assignee under a Competitive Loan Assignment shall not, by virtue of such Competitive Loan Assignment, become a party to this Agreement or a "Competitive Loan Lender", or have any rights to consent to or refrain from consenting to any amendment, waiver or other modification of any provision of this Agreement or any related document; provided that (i) the assignor under such Competitive Loan Assignment and such Competitive Loan Assignee may, in their discretion, agree between themselves upon the manner in which such assignor will exercise its rights under this Agreement and any related document, and (ii) if a copy of such Competitive Loan Assignment shall have been delivered -62- 68 to the Administrative Agent for its acceptance and recording in the Register in accordance with subsection 10.10(a), no such amendment, waiver or modification may reduce or postpone any payment of principal or interest or modify the Competitive Loan Maturity Date in respect of any Competitive Loan or Individual Competitive Loan Note assigned to such Competitive Loan Assignee without the written consent of such Competitive Loan Assignee. (e) If a Competitive Loan Assignee has caused a Competitive Loan Assignment to be recorded in the Register in accordance with subsection 10.10(a) such Competitive Loan Assignee may thereafter, in the ordinary course of its business and in accordance with applicable law, assign the relevant Competitive Loans and Individual Competitive Loan Notes to any Competitive Loan Lender, to any affiliate or subsidiary of such Competitive Loan Assignee or to any other financial institution that has total assets in excess of $1,000,000,000 and that in the ordinary course of its business extends credit of the same type as the Competitive Loans, and the foregoing provisions of this subsection 10.9 shall apply, mutatis mutandis, to any such assignment by a Competitive Loan Assignee. Except in accordance with the preceding sentence, Competitive Loans and Individual Competitive Loan Notes may not be further assigned by a Competitive Loan Assignee, subject to any legal or regulatory requirement that the Competitive Loan Assignee's assets must remain under its control. 10.10 Register, Etc. (a) The Administrative Agent shall maintain at its address referred to in subsection 10.2 a copy of each Commitment Transfer Supplement and each Competitive Loan Assignment delivered to it and a register (the "Register") for the recordation of (i) the names and addressees of the Lenders and the Commitments of, and principal amount of the Loans owing to and L/C Participating Interests of, each Lender from time to time and (ii) with respect to each Competitive Loan Assignment delivered to the Administrative Agent, the name and address of the Competitive Loan Assignee and the principal amount of each Competitive Loan owing to such Competitive Loan Assignee. The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loans recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Lender or Competitive Loan Assignee at any reasonable time and from time to time upon reasonable prior notice. (b) Upon its receipt of a Commitment Transfer Supplement executed by a transferor Lender and a Purchasing Lender (and, in the case of a Purchasing Lender that is not then a Lender or an Affiliate thereof, by the Company and the Administrative Agent) together with payment by the Purchasing Lender to the Administrative Agent of a registration and processing fee of $2,500, the Administrative Agent shall (i) promptly accept such Commitment Transfer Supplement and (ii) on the Transfer Effective Date determined pursuant thereto (and as defined therein) record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Company. (c) Upon its receipt of a Competitive Loan Assignment executed by an assignor Competitive Loan Lender and a Competitive Loan Assignee, together with payment to the Administrative Agent of a registration and processing fee of $2,500 (which shall not be payable by the Company), the Administrative Agent promptly shall (i) accept such Competitive Loan Assignment, (ii) record the information contained therein in the Register -63- 69 and (iii) give notice of such acceptance and recordation to the assignor Competitive Loan Lender, the Competitive Loan Assignee and the Company. (d) If any Lender (or, if such Lender has participated all or any part of its Loans or Commitments or assigned any of its Competitive Loans, any of such Lender's Participants or Competitive Loan Assignees) does not agree with a proposal of the Company for an amendment, waiver or consent in respect of an issue described in clause (a) of the proviso to the second sentence of subsection 10.1, the Company, with the consent of the Required Lenders, may require that such Lender (and each of its Participants and Competitive Loan Assignees, if any) transfer all of its right, title and interest under this Agreement and such Lender's Note or Notes to a bank identified by the Company who agrees to assume the obligations of such Lender (a "Proposed Lender") for a consideration equal to the outstanding principal amount of such Lender's Loans, together with interest thereon to the date of such transfer and all other amounts payable hereunder (including but not limited to amounts payable under subsection 3.15) to such Lender on or prior to the date of such transfer. No Lender shall withhold its consent to such a transfer if the fee and any consideration paid to such transferee are reasonably acceptable to such Lender. Subject to the execution and delivery of a Commitment Transfer Supplement, such Proposed Lender shall be a "Lender" for all purposes hereunder. (e) The Company authorizes each Lender to disclose to any Participant, Competitive Loan Assignee or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Company which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Company in connection with such Lender's credit evaluation of the Company prior to entering into this Agreement; provided that, if non-public information is furnished, each Transferee shall execute and deliver to such Lender a confidentiality agreement between such Lender and the Transferee, substantially in the form previously approved by the Administrative Agent and the Company. (f) If, pursuant to subsection 10.7, 10.8 or 10.9, any interest in this Agreement or any Note or Letter of Credit is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee (unless such Transferee is a Lender purchasing under subsection 10.8) concurrently with the effectiveness of such transfer, (i) to represent to the transferor Lender (for the benefit of the transferor Lender, the Administrative Agent and the Company) that under applicable law and treaties no taxes will be required to be withheld by the Administrative Agent, the Company or the transferor Lender with respect to any payments to be made to such Transferee, in respect of the Loans or Letters of Credit, (ii) to furnish to the transferor Lender, the Administrative Agent and the Company either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Participant claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Lender, the Administrative Agent and the Company) to provide the transferor Lender, the Administrative Agent and the Company a new Form 4224 or Form 1001 upon the obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws -64- 70 and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (g) Nothing herein shall prohibit any Lender from pledging or assigning any Notes to any Federal Reserve Bank in accordance with applicable law. 10.11 Adjustments; Set-Off. (a) If any Lender (a "Benefitted Lender") shall at any time receive any payment in respect of all or part of its Loans or L/C Participating Interests (other than pursuant to subsections 3.8, 3.12, 3.13, 3.14, 3.15, 3.17, 10.8, 10.9 or 10.10(d)), or interest thereon, or receive any collateral in respect thereof or any amount under any guarantee in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in clause (f) of Section 8, or otherwise) in a greater proportion than any such payment to and collateral received by any other Lender, if any, in respect of such other Lender's Loans or L/C Participating Interests, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lender such portion of each such other Lender's Loans or L/C Participating Interests, or shall provide such other Lender with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Lender so purchasing a portion of another Lender's Loans or L/C Participating Interests may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law, upon the occurrence of an Event of Default, each Lender shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by applicable law, to set off and apply against any indebtedness, whether matured or unmatured, of the Company to such Lender, any amount owing from such Lender to the Company, and the aforesaid right of set-off may be exercised by such Lender against the Company or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or executor, judgment or attachment creditor of the Company or against anyone else claiming through or against the Company or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or executor, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Lender prior to the making, filing or issuance, or service upon such Lender of, or of notice of, any such petition, assignment for the benefit of creditors, appointment or application for the appointment of a receiver, or issuance of execution, subpoena, order or warrant. Each Lender agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application. 10.12 Existing Facilities. Each Lender which is a party to the Existing Facilities (the "Existing Lenders") agrees that the irrevocable notice and direction to be delivered by the -65- 71 Company, PEPL and TETCO to each Lender and the Administrative Agent pursuant to subsection 4.1(d) shall constitute sufficient notice of the termination of the Commitments (as defined in each Existing Facility) and the prepayment of any loans outstanding under the Existing Facilities, and hereby waives any express notice requirements under each Existing Facility in connection therewith. 10.13 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. 10.14 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 10.15 SUBMISSION TO JURISDICTION; WAIVERS. THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND THE APPELLATE COURTS FROM ANY THEREOF; (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS, AND WAIVES TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (C) AGREES THAT, IF IT SHALL NOT HAVE A REGISTERED AGENT FOR SERVICE OF PROCESS IN THE STATE OF NEW YORK, THEN SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), AS THE CASE MAY BE, AT ITS ADDRESS SET FORTH IN SUBSECTION 10.2 OR AT SUCH OTHER ADDRESS OF WHICH THE LENDERS SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND (D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION. -66- 72 10.16 Limitation of Interest. It is expressly stipulated and agreed to be the intent of the Company and each Lender at all times to comply with the law applicable to such Lender in connection with the Credit Documents governing the maximum rate or amount of interest payable on or in connection with the Credit Documents. If the applicable law is ever judicially interpreted so as to render usurious any amount called for under the Credit Documents, or contracted for, charged, taken, reserved or received with respect to the Credit Documents, or if acceleration of the maturity of the Loans or if any prepayment by or on behalf of the Company results in the payment of any interest in excess of that permitted by applicable law, then it is the Company's and such Lender's express intent that all excess amounts theretofore collected by such Lender be credited on the principal balance of the Loans (or, if such Loans have been or would thereby be paid in full, refunded to the Company), and the provisions of the Credit Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced as to such Lender, without the necessity of the execution of any new document, so as to comply with applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. The right to accelerate the maturity of the Loans does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and the Lenders do not intend to collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to each Lender for the use, forbearance or detention of the indebtedness evidenced by the Credit Documents shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the rate or amount of interest on account of such indebtedness does not exceed the applicable usury ceiling. As used herein, the term "maximum rate" as to any Lender shall mean the maximum non-usurious rate of interest which may be lawfully contracted for, charged, taken, reserved or received by such Lender from the Company in connection with the Loans evidenced hereby under applicable law. 10.17 Entire Agreement. This Agreement constitutes the entire agreement and understanding among the parties hereto as to the subject matter hereof and supersedes any previous agreement, oral or written, as to such subject matter. -67- 73 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: [ILLEGIBLE] ------------------------------------------ Title: CHEMICAL BANK, as Administrative Agent, as an Issuing Lender and as a Lender By: /s/ JAMES H. RAMAGE ------------------------------------------ Title: Vice President BANK OF AMERICA ILLINOIS By: [ILLEGIBLE] ------------------------------------------ Title: BANK OF MONTREAL By: [ILLEGIBLE] ------------------------------------------ Title: Director THE BANK OF NEW YORK By: /s/ RAYMOND J. PALMER ------------------------------------------ Title: Vice President 74 THE BANK OF NOVA SCOTIA By: /s/ F.C.H. ASHBY ------------------------------------------ Title: Senior Manager Loan Operations BARCLAYS BANK PLC By: [ILLEGIBLE] ------------------------------------------ Title: Director CIBC, INC. By: [ILLEGIBLE] ------------------------------------------ Title: Authorized Signatory THE FIRST NATIONAL BANK OF BOSTON By: /s/ CAROL E. HOLLEY ------------------------------------------ Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By: [ILLEGIBLE] ------------------------------------------ Title: Attorney in Fact MELLON BANK, N.A. By: E. MARC CUENOD, JR. ------------------------------------------ Title: First Vice President 75 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: [ILLEGIBLE] ------------------------------------------ Title: Vice President NATIONSBANK OF TEXAS, N.A. By: [ILLEGIBLE] ------------------------------------------ Title: Senior Vice President NATIONAL WESTMINSTER BANK PLC NEW YORK BRANCH By: /s/ DAVID L. SMITH ------------------------------------------ Title: Vice President NATIONAL WESTMINSTER BANK PLC NASSAU BRANCH By: /s/ DAVID L. SMITH ------------------------------------------ Title: Vice President BANK OF TOKYO LIMITED, DALLAS AGENCY By: /s/ J. McINTYRE ------------------------------------------ Title: Vice President 76 THE FUJI BANK, LIMITED (HOUSTON AGENCY) By: [ILLEGIBLE] ------------------------------------------ Title: Vice President & Senior Manager THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: [ILLEGIBLE] ------------------------------------------ Title: Joint General Manager THE ROYAL BANK OF CANADA By: /s/ EVERETT M. HARNER ------------------------------------------ Title: Manager THE SANWA BANK, LIMITED, DALLAS AGENCY By: [ILLEGIBLE] ------------------------------------------ Title: Vice President SOCIETE GENERALE, SOUTHWEST AGENCY By: /s/ RICHARD A. GOULD ------------------------------------------ Title: Vice President 77 THE TORONTO-DOMINION BANK, HOUSTON AGENCY By: /s/ WARREN FINLAY ------------------------------------------ Title: Manager Credit UNION BANK OF SWITZERLAND, HOUSTON AGENCY By: /s/ DAN O. BOYLE ------------------------------------------ Title: Managing Director By: /s/ FINLEY BIGGERSTAFF ------------------------------------------ Title: Assistant Treasurer ARAB BANKING CORPORATION By: STEPHEN A. PLAUCHE' ------------------------------------------ Title: Vice President BANK OF SCOTLAND By: /s/ CATHERINE M. ONIFFREY ------------------------------------------ Title: Vice President THE CHASE MANHATTAN BANK, N.A. By: /s/ BETTYLOU J. ROBERT ------------------------------------------ Title: Vice President 78 CHRISTIANIA BANK By: [ILLEGIBLE] ------------------------------------------ Title: Vice President By: /s/ CARL-PETTER SVENDSEN ------------------------------------------ Title: First Vice President FIRST INTERSTATE BANK OF TEXAS, N.A. By: /s/ COLLIE C. MICHAELS ------------------------------------------ Title: Vice President THE BANK OF YOKOHAMA, LOS ANGELES AGENCY By: [ILLEGIBLE] ------------------------------------------ Title: Deputy General Manager THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY By: [ILLEGIBLE] ------------------------------------------ Title: Senior Vice President THE MITSUBISHI BANK, LIMITED, HOUSTON AGENCY By: /s/ SHOJI HONDA ------------------------------------------ Title: General Manager 79 THE NORTHERN TRUST COMPANY By: [ILLEGIBLE] ------------------------------------------ Title: [ILLEGIBLE] THE SUMITOMO BANK, LIMITED, HOUSTON AGENCY By: /s/ HARUMITSU SEKI ------------------------------------------ Title: General Manager 80 Schedule 1 Schedules to Credit Agreement dated as of January 31, 1996 LENDING OFFICES Chemical Bank 140 East 45th Street, 29th Floor New York, NY 10017 Attn: Hilma Gabbidon Telex: 166350 Answerback: TCBHOU Telecopy: (212) 622-0002 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Bank of America Illinois 231 South LaSalle Street, 10th Floor Chicago, IL 60697 Attn: Amy Goldstein Telecopy: (312) 974-9626 and Bank of Montreal 115 South LaSalle Street Chicago, IL 60603 Attn: Telex: Answerback: Telecopy: Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above 81 Bank of Montreal, Houston Agency 700 Louisiana, Suite 4400 Houston, TX 77002 Attn: Mark E. Peterson Telex: 775640 Answerback: BMOHOU Telecopy: (713) 223-4007 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Bank of New York One Wall Street New York, NY 10286 Attn: Raymond J. Palmer Telex: MCI 62763 Answerback: BONY UW Telecopy: (212) 635-7923 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Bank of Nova Scotia-Atlanta Agency 600 Peachtree Street, N.E., Suite 2700 Atlanta, GA 30308 Attn: Claude Ashby Telex: 00542319 Answerback: SCOTIABANK ATL Telecopy: (404) 888-8998 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -2- 82 With a copy to: Bank of Nova Scotia, Houston Rep. Office 2430 Two Shell Plaza Houston, TX 77002 Attn: R.R. Slaid Barclays Bank PLC 222 Broadway, 12th Floor New York, NY 10038 Attn: Customer Service Unit Telex: 126195 Answerback: BARCLADOM NYK Telecopy: (212) 412-5002 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above CIBC, Inc. 2 Paces West 2727 Paces Ferry Road, Suite 1200 Atlanta, GA 30339 Attn: Adrianne Burch Telex: 54-2413 Answerback: CANBANK ATL Telecopy: (404) 319-4950 (404) 319-4951 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The First National Bank of Boston 100 Federal Street, 01-15-4 Boston, MA 02110 Attn: Lee A. Merkle Telex: Answerback: Telecopy: (617) 434-3652 -3- 83 Domestic Lending Office: Same as above Eurodollar Lending Office: Bank of Boston 100 Federal St., 01-1B-12 Boston, MA 02110 The First National Bank of Chicago One First National Plaza Chicago, IL 60670 Attn: Petroleum & Mining Division Telex: Answerback: Telecopy: (312) 658-0880 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Mellon Bank, N.A. Three Mellon Bank Center Pittsburgh, PA 15259 Attn: Loan Administration Telex: 812367 Answerback: MELBNK Telecopy: (412) 236-2027 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Morgan Guaranty Trust Company of New York 60 Wall Street New York, NY 10260 Attn: John Kowalczuk Telex: ITT 420230 Answerback: MGT UI Telecopy: (212) 648-7612 -4- 84 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above NationsBank of Texas, N.A. 700 Louisiana Street, 8th Floor Houston, TX 77002 Attn: Loan Services Telex: 6829317 Answerback: NATIONSBK-DAL Telecopy: (713) 247-6432 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above National Westminster Bank PLC 175 Water Street, Level 21 New York, NY 10038 Attn: Gary Tenner Telex: 233 222 Answerback: NWBUR Telecopy: (212) 602-4180 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Bank of Tokyo, Ltd., Dallas Agency 909 Fannin Street, Suite 1104 Houston, TX 77010 Attn: Michael G. Meiss Telex: Answerback: Telecopy: (713) 658-8341 -5- 85 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Fuji Bank, Limited (Houston Agency) 1 Houston Center, Suite 4100 1221 McKinney Street Houston, TX 77010 Attn: Jenny Lin/Teri McPherson Credit Contact: Charles van Ravenswaay Telex: 790-026 Answerback: FUJIBANK HOU Telecopy: (713) 759-0048 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Long-Term Credit Bank of Japan, Ltd. 165 Broadway New York, NY 10006 Attn: Chikara Mano Telex: 425722 Answerback: LTCB-UI Telecopy: (212) 608-2371 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -6- 86 The Royal Bank of Canada 1 Financial Square, 24th Floor New York, NY 10005-3531 Attn: Rosemary Addonizio, Loans Administration Telex: MCI 62519 Answerback: ROYBAN Telecopy: (212) 428-2372 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Sanwa Bank, Limited, Dallas Agency 4100W Texas Commerce Tower 2200 Ross Avenue Dallas, TX 75201 Attn: Brian Heagler Telex: 735282 Answerback: SANWABK DAL Telecopy: (2214) 741-6535 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Societe Generale, Southwest Agency 1111 Bagby, Suite 2020 Houston, Texas 77002 Attn: Richard A. Gould Telex: Answerback: Telecopy: (713) 650-0824 Domestic Lending Office: 2001 Ross Avenue, Suite 4800 Dallas, Texas 75201 Attn: Ralph Saheb Telecopy: (214) 979-1104 Eurodollar Lending Office: Same as above -7- 87 The Toronto-Dominion Bank, Houston Agency 909 Fannin, 17th Floor Houston, TX 77010 Attn: Jeff Jones Telex: Answerback: Telecopy: (713) 951-9921 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Union Bank of Switzerland, Houston Agency 1100 Louisiana Street, Suite 4500 Houston, TX 77002 Attn: Dan Boyle Telex: 762 597 Answerback: UBSHOU Telecopy: (713) 655-6555 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Arab Banking Corporation (B.S.C.) 245 Park Avenue New York, NY 10167 Attn: Loan Manager Telex: 661978 WU Answerback: ABC NY Telecopy: (212) 599-8385 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -8- 88 Bank of Scotland 565 Fifth Avenue New York, NY 10017 Attn: Janet Taffe Telex: 6801012 Answerback: UBIFORN Telecopy: (212) 557-9460 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Christiania Bank 11 West 42nd Street, 7th Floor New York, NY 10026 Attn: Jahn O. Roising Telex: 824277 Answerback: CHRBK Telecopy: (212) 827-4888 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above First Interstate Bank of Texas, N.A. 1000 Louisiana, 3rd Floor Houston, TX 77002 Attn: Ann Rhoads Telex: 166488 Answerback: FITXINTHOU Telecopy: (713) 250-7912 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -9- 89 The Bank of Yokohama, Ltd., Los Angeles Agency 777 So. Figueroa Street, Suite 700 Los Angeles, CA 90017 Attn: Mike Jackson Telex: TWX9103213395 Answerback: HAMAGIN Telecopy: (213) 236-0007 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza New York, NY 10081 Attn: Vito Cipriano Telex: 62910 CMBUW Telecopy: (212) 552-1687 Domestic Lending Office: Same as above Eurodollar Lending Office: Cayman Islands, B.W.I. c/o The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza New York, NY 10081 The Industrial Bank of Japan Trust Company 245 Park Avenue New York, NY 10167-0037 Attn: Ira Gottlieb Telex: 425754 Answerback: IBTC UI Telecopy: (212) 557-3581 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -10- 90 The Mitsubishi Bank, Limited, Houston Agency 2 Houston Center, Suite 3100 909 Fannin Street Houston, TX 77010 Attn: Barrie Hogue Telex: 791211 Answerback: BISHIHOV Telecopy: (713) 658-0116 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Northern Trust Company 50 South LaSalle Street Chicago, IL 60675 Attn: Mark A. Short Telex: WUD 254419 Answerback: NORTRUST CGO Telecopy: (312) 630-1566 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Sumitomo Bank, Limited, Houston Agency NCNB Center 700 Louisiana, Suite 1750 Houston, TX 77002 Attn: Akihiko Yuasa Telex: 774417 Answerback: SUMITBANK HOUA Telecopy: (713) 759-0020 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -11- 91 Schedule 2 REVOLVING CREDIT COMMITMENTS
Percentage Commitment of Lender (in millions) Commitments ------ ------------- ----------- Chemical Bank $ 17.0 4.25% Bank of America Illinois 18.5 4.625 Bank of Montreal 18.5 4.625 The Bank of New York 18.5 4.625 The Bank of Nova Scotia 18.5 4.625 Barclays Bank PLC 18.5 4.625 CIBC, Inc. 18.5 4.625 The First National Bank of Boston 18.5 4.625 The First National Bank of Chicago 18.5 4.625 Mellon Bank, N.A. 18.5 4.625 Morgan Guaranty Trust Company of New York 18.5 4.625 NationsBank of Texas, N.A. 18.5 4.625 National Westminster Bank PLC 18.5 4.625 Bank of Tokyo, Ltd., Dallas Agency 12.0 3.0 The Fuji Bank, Limited (Houston Agency) 12.0 3.0 The Long-Term Credit Bank of Japan, Ltd. 12.0 3.0 The Royal Bank of Canada 12.0 3.0 The Sanwa Bank, Limited, Dallas Agency 12.0 3.0 Societe Generale, Southwest Agency 12.0 3.0 The Toronto-Dominion Bank, Houston Agency 12.0 3.0 Union Bank of Switzerland, Houston Agency 12.0 3.0 Arab Banking Corporation (B.S.C.) 6.5 1.625 Bank of Scotland 6.5 1.625 Christiania Bank 6.5 1.625 First Interstate Bank of Texas, N.A. 6.5 1.625 The Bank of Yokohama, Ltd., Los Angeles Agency 6.5 1.625 The Chase Manhattan Bank, N.A. 6.5 1.625 The Industrial Bank of Japan Trust Company 6.5 1.625 The Mitsubishi Bank, Limited, Houston Agency 6.5 1.625 The Northern Trust Company 6.5 1.625 The Sumitomo Bank, Limited, Houston Agency 6.5 1.625 ------ ----- Total $400.0 100.0% ====== =====
92 Schedule 3 EXCLUDED SALES OF ASSETS PEPL's transmission and gathering system west of Haven, Kansas known as the "West End System." The two liquefied natural gas tankers owned by Lachmar, a Delaware partnership, and related parts and equipment. PEPL's headquarters building and related assets located at 5400 Westheimer Court, Houston, Texas. Transportation equipment and related facilities of the Company and its Subsidiaries. Any investment in any entity (other than the Principal Subsidiaries) in which the Company and/or its Subsidiaries owns less than 100% of the equity interest. 93 EXHIBIT A TO CREDIT AGREEMENT FORM OF COMPETITIVE LOAN CONFIRMATION ____________, 199__ Chemical Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Reference is made to the Credit Agreement, dated as of January 31, 1996, among the undersigned, the Lenders named therein, and Chemical Bank, as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. In accordance with subsection 2.15(d) of the Credit Agreement, the undersigned accepts and confirms the offers by Competitive Loan Lender(s) to make Competitive Loans to the undersigned on ________________, 199__ [Competitive Loan Borrowing Date] under subsection 2.15(b) [index rate] or 2.15(c) [fixed rate] in the (respective) amount(s) set forth on the attached list of Competitive Loans offered. Very truly yours, PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: ------------------------------------ Title: [The Company must attach Competitive Loan Offer list prepared by Administrative Agent with accepted amount entered by the Company to right of each Competitive Loan Offer.] A-1 94 EXHIBIT B TO CREDIT AGREEMENT FORM OF COMPETITIVE LOAN OFFER Chemical Bank, as Administrative Agent ____________, 199__ 270 Park Avenue New York, New York 10017 Reference is made to the Credit Agreement, dated as of January 31, 1996, among Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp, the Lenders named therein, and Chemical Bank, as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. In accordance with subsection 2.15(b) [index rate] or 2.15(c) [fixed rate] of the Credit Agreement, the undersigned Competitive Loan Lender offers to make Competitive Loans thereunder in the following amounts with the following maturity dates:
- ---------------------------------------------------------------------------------------- Competitive Loan Borrowing Date: _______________, 199__ Aggregate Maximum Amount $__________ - ---------------------------------------------------------------------------------------- Maturity Date 1: Maximum Amount: $_________________ _______________, 199__ $____________ offered at __________* $____________ offered at __________* - ---------------------------------------------------------------------------------------- Maturity Date 2: Maximum Amount: $_________________ _______________, 199__ $____________ offered at __________* $____________ offered at __________* - ---------------------------------------------------------------------------------------- Maturity Date 3: Maximum Amount: $_________________ _______________, 199__ $____________ offered at __________* $____________ offered at __________* - ----------------------------------------------------------------------------------------
Very truly yours, [NAME OF COMPETITIVE LOAN LENDER] By ------------------------------------- Name ----------------------------------- Title ---------------------------------- Telephone No. -------------------------- Fax No. -------------------------------- - -------------------- * Insert the interest rate offered for the specified loan amount. In the case of Index Rate Competitive Loans, insert a margin bid. In the case of Fixed Rate Competitive Loans, insert a fixed rate bid. B-1 95 EXHIBIT C TO CREDIT AGREEMENT FORM OF COMPETITIVE LOAN REQUEST _______________, 199__ Chemical Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Reference is made to the Credit Agreement, dated as of January 31, 1996, among the undersigned, the Lenders named therein, and Chemical Bank, as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. This is [an Index Rate] [a Fixed Rate] Competitive Loan Reques(1) pursuant to subsection 2.14(a) of the Credit Agreement requesting quotes for the following Competitive Loans:
=========================================================================================== Loan 1 Loan 2 Loan 3 Aggregate Principal Amount $__________ $__________ $__________ - ------------------------------------------------------------------------------------------- Borrowing Date - ------------------------------------------------------------------------------------------- Competitive Loan Maturity Date - ------------------------------------------------------------------------------------------- Interest Payment Dates ===========================================================================================
Very truly yours, PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: ------------------------------------ Title: - ------------------------- (1) Pursuant to the Credit Agreement, a Competitive Loan Request may be transmitted in writing (including by facsimile transmission), or by telephone, immediately confirmed by facsimile transmission. In any case, a Competitive Loan Request shall contain the information specified in the second paragraph of this form. C-1 96 EXHIBIT D TO CREDIT AGREEMENT FORM OF LETTER OF CREDIT PARTICIPATION CERTIFICATE __________, 19__ Name of Lender Dear Sirs: Pursuant to subsection 2.7 of the Credit Agreement dated as of January 31, 1996 (the "Credit Agreement"; terms defined in the Credit Agreement being used herein with their respective defined meanings) among Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp, the financial institutions parties thereto (the "Lenders") and Chemical Bank, as Administrative Agent for the Lenders, the undersigned hereby acknowledges receipt from you on the date hereof of an L/C Participating Interest in the amount of ____________________ DOLLARS ($_________) in the following [Standby L/C] [Commercial L/C] and the Letter of Credit Application relating thereto. Very truly yours, [ISSUING LENDER] By: ------------------------------------ Title: D-1 97 EXHIBIT E TO CREDIT AGREEMENT FORM OF REVOLVING CREDIT NOTE REVOLVING CREDIT NOTE New York, New York January 31, 1996 FOR VALUE RECEIVED, the undersigned, PANHANDLE EASTERN CORPORATION, a Delaware corporation, doing business as PanEnergy Corp (the "Company"), hereby unconditionally promises to pay on the Revolving Credit Termination Date to the order of [NAME OF LENDER] (the "Lender") at the office of Chemical Bank located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal amount of the lesser of (a) _________________________ DOLLARS ($________) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Lender to the undersigned pursuant to subsection 2.1 of the Credit Agreement referred to below. The undersigned further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the date hereof at the applicable rate per annum set forth in subsection 3.1 of the Credit Agreement referred to below until any such amount shall become due and payable (whether at the stated maturity, by acceleration or otherwise), and thereafter on such overdue amount at the rate per annum set forth in subsection 3.1(e) of said Credit Agreement until paid in full (both before and after judgment). Interest shall be payable in arrears on each Interest Payment Date, commencing on the first such date to occur after the date hereof and upon payment (including prepayment) in full of the unpaid principal amount hereof. The holder of this Note is authorized to record the date, Type and amount of each Loan made by the Lender pursuant to subsection 2.1 of said Credit Agreement, the date and amount of each payment or prepayment of principal with respect thereto, the length of each Interest Period with respect to each Loan made and/or maintained as a Eurodollar Loan or CD Rate Loan and the Eurodollar Rate or Adjusted CD Rate and each conversion made pursuant to subsection 3.10 of said Credit Agreement on the schedules annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, which recordation shall constitute prima facie evidence of the accuracy of the information recorded; provided that failure by the Lender to make any such recordation on this Note shall not affect the obligations of the Company under this Note or said Credit Agreement. This Note is one of the Revolving Credit Notes referred to in the Credit Agreement dated as of January 31, 1996 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among Panhandle Eastern Corporation, doing business as PanEnergy Corp, the Lender, the other financial institutions parties thereto, and Chemical Bank, as Administrative Agent, is entitled to the benefits thereof and is subject to prepayment E-1 98 in whole or in part as provided therein. Terms used herein which are defined in the Credit Agreement shall have such defined meanings unless otherwise defined herein or unless the context otherwise requires. Upon the occurrence of any one or more of the Events of Default specified in said Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: ------------------------------------ Title: E-2 99 SCHEDULE A to Revolving Credit Note LOANS, CONVERSIONS AND PAYMENTS WITH RESPECT TO ABR LOANS
Amount of ABR Loans Amount of ABR Loans Made or Converted Paid or Converted into from Eurodollar Loans Eurodollar Loans or CD Unpaid Principal Notation Made Date or CD Rate Loans Rate Loans Balance of ABR Loans by - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- ------------- - --------------- --------------------- ---------------------- -------------------- -------------
E-3 100 SCHEDULE B to Revolving Credit Note LOANS, CONVERSIONS AND PAYMENTS WITH RESPECT TO EURODOLLAR LOANS
Amount of Amount of Unpaid Eurodollar Loans Interest Period Eurodollar Loans Principal Made or Converted and Eurodollar Paid or Converted Balance of from ABR Loans or Rate with Respect into ABR Loans or Eurodollar Notation Date CD Rate Loans Thereto CD Rate Loans Loans Made By - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- -------- - ------------------ ----------------- ----------------- ----------------- ---------- --------
E-4 101 SCHEDULE C to Revolving Credit Note LOANS, CONVERSIONS AND PAYMENTS WITH RESPECT TO CD RATE LOANS
Amount of CD Rate Amount of CD Rate Loans Paid or Unpaid Loans Made or Converted into ABR Principal Converted from Interest Period Loans or Balance of ABR Loans or and CD Rate with Eurodollar Rate CD Rate Notation Date Eurodollar Loans Respect Thereto Loans Loans Made By - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- -------- - ------------------ ----------------- ----------------- ------------------ ---------- --------
E-5 102 EXHIBIT F-1 TO CREDIT AGREEMENT FORM OF GRID COMPETITIVE LOAN NOTE COMPETITIVE LOAN NOTE $400,000,000 New York, New York January 31, 1996 FOR VALUE RECEIVED, the undersigned, PANHANDLE EASTERN CORPORATION, a Delaware corporation, doing business as PanEnergy Corp (the "Company"), hereby unconditionally promises to pay to the order of [NAME OF LENDER] (the "Competitive Loan Lender") at the office of Chemical Bank located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal amount of the lesser of (a) FOUR HUNDRED MILLION DOLLARS ($400,000,000) and (b) the aggregate unpaid principal amount of all Competitive Loans made by the Competitive Loan Lender to the Borrower pursuant to subsection 2.13 of the Credit Agreement referred to below. The principal amount of each Competitive Loan evidenced hereby shall be payable on the Competitive Loan Maturity Date therefor set forth on the schedule annexed hereto and made a part hereof or on a continuation of such schedule which shall be attached hereto and made a part hereof (the "Grid"). The Company further agrees to pay interest in like money at such office on the unpaid principal amount of each Competitive Loan evidenced hereby, at the rate per annum set forth in respect of such Competitive Loan on the Grid, calculated on the basis of a year of 360 days and actual days elapsed from the date of such Competitive Loan until the due date thereof (whether at the stated maturity, by acceleration or otherwise), and thereafter on such overdue amount at the rate per annum set forth in subsection 3.1(e) of said Credit Agreement until paid in full (both before and after judgment). Interest on each Competitive Loan evidenced hereby shall be payable on the date or dates set forth in respect of such Competitive Loan on the Grid. Competitive Loans evidenced by this Note may not be prepaid. The holder of this Note is authorized to record on the Grid the date, amount, interest rate, Interest Payment Dates and Competitive Loan Maturity Date in respect of each Competitive Loan made pursuant to subsection 2.13 of said Credit Agreement, and amount of each payment of principal with respect thereto. Each such recordation shall constitute prima facie evidence of the accuracy of the information recorded; provided, that failure by the Competitive Loan Lender to make any such recordation shall not affect the obligations of the Company under this Note or said Credit Agreement. This Note is one of the Competitive Loan Notes referred to in the Credit Agreement dated as of January 31, 1996 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp, the Competitive Loan Lender, the other banks and financial institutions parties thereto, and Chemical Bank, as Administrative Agent and is entitled to the benefits thereof. Terms used herein which are defined in the Credit Agreement shall have such defined meanings unless otherwise defined herein or unless the context otherwise requires. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. F-1-1 103 All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: ------------------------------------ Title: F-1-2 104 SCHEDULE OF COMPETITIVE LOANS
Amount of Interest Payment Maturity Payment Notation Date Loan Interest Rate Dates Date Date Made by - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- -------- - ------------- --------- ------------- ---------------- -------- ------- --------
F-1-3 105 EXHIBIT F-2 TO CREDIT AGREEMENT FORM OF INDIVIDUAL COMPETITIVE LOAN NOTE INDIVIDUAL COMPETITIVE LOAN NOTE $_______________ New York, New York __________ ___, 199_ FOR VALUE RECEIVED, the undersigned, PANHANDLE EASTERN CORPORATION, a Delaware corporation, doing business as PanEnergy Corp (the "Company"), hereby unconditionally promises to pay on ___________, 199_ to the order of [NAME OF LENDER] (the "Competitive Loan Lender") at the office of Chemical Bank located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal sum of ________________ DOLLARS ($___________). The undersigned further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the date hereof at the rate of __% per annum (calculated on the basis of a year of 360 days and actual days elapsed) until the due date hereof (whether at the stated maturity, by acceleration or otherwise), and thereafter on such overdue amount at the rate per annum set forth in subsection 3.1(e) of the Credit Agreement dated as of January 31, 1996 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among Panhandle Eastern Corporation, doing business as PanEnergy Corp, the Competitive Loan Lender, the other financial institutions parties thereto, and Chemical Bank, as Administrative Agent, until paid in full (both before and after judgment). Interest shall be payable on the Interest Payment Date or Dates determined as provided in subsections 3.1(d) and 3.1(f) of the Credit Agreement. This Note is one of the Individual Competitive Loan Notes referred to in, is subject to and is entitled to the benefits of, the Credit Agreement, which Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events. Terms used herein which are defined in the Credit Agreement shall have such defined meanings unless otherwise defined herein or unless the context otherwise requires. This Note may not be prepaid. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: ------------------------------------ Title F-2-1 106 EXHIBIT G TO CREDIT AGREEMENT FORM OF TERM NOTE $__________ New York, New York _____________, 199_ FOR VALUE RECEIVED, the undersigned, PANHANDLE EASTERN CORPORATION, a Delaware corporation, doing business as PanEnergy Corp (the "Company"), hereby unconditionally promises to pay to the order of [NAME OF LENDER] (the "Lender") at the office of Chemical Bank located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal amount of (a) ________________________ DOLLARS ($________), or, if less (b) the aggregate unpaid principal amount of the Term Loan which is made by the Lender to the Company pursuant to subsection 2.16 of the Credit Agreement referred to below. The principal amount of the Term Loan evidenced hereby shall be payable on __________, 199_. The undersigned further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the date hereof at the applicable rate per annum set forth in subsection 3.1 of the Credit Agreement referred to below until any such amount shall become due and payable (whether at the stated maturity, by acceleration or otherwise), and thereafter on such overdue amount at the rate per annum set forth in subsection 3.1(e) of said Credit Agreement until paid in full (both before and after judgment). Interest shall be payable in arrears on each Interest Payment Date, commencing on the first such date to occur after the date hereof and upon payment (including prepayment) in full of the unpaid principal amount hereof. The holder of this Note is authorized to record the date and amount of the Term Loan made by the Lender pursuant to subsection 2.16 of said Credit Agreement, its character as an ABR Loan, CD Rate Loan or Eurodollar Loan, the date and amount of each payment or prepayment of principal with respect thereto, and, if such Term Loan is maintained as a Eurodollar Loan or CD Rate Loan, the length of each Interest Period and the Eurodollar Rate or Adjusted CD Rate applicable thereto and each conversion made pursuant to subsection 3.10 of said Credit Agreement on the schedules annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, which recordation shall constitute prima facie evidence of the accuracy of the information recorded; provided that failure by the Lender to make any such recordation on this Note shall not affect the obligations of the Company under this Note or said Credit Agreement. This Note is one of the Term Notes referred to in the Credit Agreement dated as of January 31, 1996 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among Panhandle Eastern Corporation, doing business as PanEnergy Corp, the Lender, the other financial institutions parties thereto, and Chemical Bank, as Administrative Agent, is entitled to the benefits thereof, is secured as provided therein and is subject to prepayment in whole or in part as provided therein. Terms used herein which are defined in the Credit Agreement shall have such defined meanings unless otherwise defined herein or unless the context otherwise requires. G-1 107 Upon the occurrence of any one or more of the Events of Default specified in said Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided therein. All parties now and hereafter liable with respect to this Term Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. THIS TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: ------------------------------------ Title: G-2 108 SCHEDULE A to Term Note LOANS, CONVERSIONS AND PAYMENTS WITH RESPECT TO ABR LOAN
Amount of ABR Loan Amount of ABR Loan Made or Converted Paid or Converted into from Eurodollar Loan Eurodollar Loan or CD Unpaid Principal Notation Made Date or CD Rate Loan Rate Loan Balance of ABR Loan by - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- ------------- - ----------------- -------------------- ---------------------- ------------------- -------------
G-3 109 SCHEDULE B to Term Note LOANS, CONVERSIONS AND PAYMENTS WITH RESPECT TO EURODOLLAR LOAN
Amount of Amount of Unpaid Eurodollar Loan Interest Period Eurodollar Loan Principal Made or Converted and Eurodollar Paid or Converted Balance of from ABR Loan or Rate with Respect into ABR Loan or Eurodollar Notation Date CD Rate Loan Thereto CD Rate Loan Loan Made By - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- -------- - ------------------- ----------------- ----------------- ----------------- ---------- --------
G-4 110 SCHEDULE C to Term Note LOANS, CONVERSIONS AND PAYMENTS WITH RESPECT TO CD RATE LOAN
Amount of CD Rate Amount of CD Rate Loan Made or Loan Paid or Unpaid Converted from Interest Period Converted into ABR Principal ABR Loan or and CD Rate with Loan or Eurodollar Balance of Notation Date Eurodollar Loan Respect Thereto Rate Loan CD Rate Loan Made By - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ -------- - ------------------- ----------------- ---------------- ------------------ ------------ --------
G-5 111 EXHIBIT H TO CREDIT AGREEMENT FORM OF EXTENSION REQUEST ________________, 199__ Chemical Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Reference is made to the Credit Agreement, dated as of January 31, 1996, among the undersigned (the "Company"), the Lenders named therein, and Chemical Bank, as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. The Company hereby requests, pursuant to subsection 2.19 of the Credit Agreement, that the Revolving Credit Termination Date be extended on such date for 364 days, to _________, 199_. Very truly yours, PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: ------------------------------------ Title H-1 112 EXHIBIT I TO CREDIT AGREEMENT FORM OF OPINION OF SULLIVAN & CROMWELL January 31, 1996 To the Lenders and the Administrative Agent Referred to Below Dear Sirs: We have acted as special counsel to Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp (the "Company"), in connection with the Credit Agreement, dated as of January 31, 1996 (the "Credit Agreement"), among the Company, the several financial institutions party thereto (the "Lenders") and Chemical Bank, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). All capitalized terms used herein which are not otherwise defined are used herein with the meanings assigned to such terms in the Credit Agreement. We have examined executed copies of the Credit Agreement, the Revolving Credit Notes and the Competitive Loan Notes delivered on the date hereof, as well as such records, certificates and other documents and such questions of law as we have considered necessary or appropriate for the purposes of this opinion. Based upon the foregoing, we are of the opinion that: 1. The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware. The Company has the corporate power and authority to own and operate its properties, to lease the properties it operates as lessee and to conduct the businesses in which it is currently engaged. 2. The Company has the corporate power and authority to execute, deliver and perform the Credit Agreement and the Notes and has taken all corporate action to authorize the execution, delivery and performance of the Credit Agreement and the Notes. 3. No regulatory consent, authorization, approval or filing is required to be obtained or made by the Company under the Federal laws of the United States, the laws of the State of New York or the General Corporation Law of the State of Delaware for the execution, delivery and performance of the Credit Agreement and the Notes. 4. The Credit Agreement, the Revolving Credit Notes and the Competitive Loan Notes delivered on the date hereof have been duly executed and delivered by the Company and constitute valid and legally binding obligations of the Company enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, I-1 113 reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 5. The execution, delivery and performance by the Company of the Credit Agreement and the Notes will not (a) violate the Certificate of Incorporation or By-Laws of the Company, (b) result in a default under or breach of any indenture, loan agreement or other similar agreement or instrument known to us to be binding upon the Company, (c) violate any Federal law of the United States, any law of the State of New York or Delaware (in the case of the State of Delaware, solely in respect of its General Corporation Law), or any rule or regulation adopted by a Governmental Authority thereof, or (d) result in, or require the creation or imposition of, any Lien on any properties or revenues of the Company pursuant to any of the foregoing; provided, however, that for purposes of this paragraph 5, we express no opinion with respect to Federal or state securities laws, other anti-fraud laws and fraudulent transfer laws; and provided, further, that insofar as performance by the Company of its obligations under the Credit Agreement and the Notes is concerned, we express no opinion as to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights. 6. Assuming the proceeds of the Loans are used solely for the purposes set forth in the Credit Agreement, such Loans will not violate the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 7. The Company is not an "investment company" as that term is defined in the Investment Company Act of 1940. The foregoing opinion is limited to the Federal laws of the United States, the laws of the State of New York and the General Corporation Law of the State of Delaware, and we are expressing no opinion as to the effect of the laws of any other jurisdiction. We express no opinion as to the validity, binding effect or enforceability of any provision in the Credit Agreement which purports to (i) provide indemnification of any person for any claims, damages, liabilities or expenses resulting from violation by such person of applicable securities laws, (ii) grant any Lender rights of setoff other than as provided in Section 151 of the Debtor & Creditor Law of the State of New York or (iii) preserve or maintain the enforceability of the Credit Agreement where one or more provisions contained therein is determined to be invalid, illegal or unenforceable. With your approval, we have also relied as to certain matters on information obtained from public officials, officers of the Company or other sources believed by us to be responsible and we have assumed that the Credit Agreement has been duly authorized, executed and delivered by the parties thereto other than the Company and that the signatures on all documents examined by us are genuine, assumptions which we have not independently verified. Very truly yours, SULLIVAN & CROMWELL I-2 114 EXHIBIT J TO CREDIT AGREEMENT FORM OF GENERAL COUNSEL'S OPINION January 31, 1996 To the Lenders and the Administrative Agent Referred to Below Dear Sirs: I am General Counsel of Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp (the "Company"), and am familiar with the Credit Agreement, dated as of January 31, 1996 (the "Credit Agreement"), among the Company, the several financial institutions party thereto (the "Lenders") and Chemical Bank, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). All capitalized terms used herein which are not otherwise defined are used herein with the meanings assigned to such terms in the opinion of Sullivan & Cromwell delivered to you on the date hereof in connection with the Credit Agreement. As General Counsel of the Company, I am generally familiar with the organization and affairs of the Company. Lawyers in the Legal Department of the Company have been asked, by me or others, to review legal matters arising in connection with the Credit Agreement. Accordingly some of the matters referred to herein have not been handled personally by me, but I have been made familiar with the facts and circumstances and the applicable law, and the opinions herein expressed are my own or the opinions of other lawyers in which I concur. In rendering the opinions expressed herein, I or lawyers in the Legal Department of the Company have examined such corporate records, certificates and other documents and such questions of law as were considered necessary or appropriate for the purposes hereof. Based upon the foregoing, I am of the opinion that: 1. The Company is duly qualified to do business as a foreign corporation in good standing in each jurisdiction where it is required to be so qualified, except where any failure to be so qualified and in good standing would not have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. 2. Except as set forth in the SEC Reports, no litigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best of my knowledge, threatened by or against the Company or any of its Subsidiaries or against any of their respective properties or revenues which would have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. J-1 115 3. The execution, delivery and performance by the Company of the Credit Agreement and the Notes will not violate any contract known to me to be binding upon the Company, except for such violations which would not have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole and will not result in or require the creation or imposition of any Lien on any of its properties or revenues pursuant to any such contract. With your approval, I have relied as to certain matters on information obtained from public officials, officers of the Company, opinions of local counsel or other sources believed by me to be responsible and I have assumed that the signatures on all documents examined by me are genuine, assumptions which I have not independently verified. This opinion is solely for your benefit and the benefit of your respective assignees and transferees permitted under the Credit Agreement and the benefit of special counsel to the Administrative Agent and the benefit of the Company's special counsel and may not be relied upon in any matter by any other person without my written consent. Very truly yours, J-2 116 EXHIBIT K TO CREDIT AGREEMENT FORM OF COMMITMENT TRANSFER SUPPLEMENT COMMITMENT TRANSFER SUPPLEMENT, dated as of the date set forth in Item 1 of Schedule I hereto, among the Transferor Lender set forth in Item 2 of Schedule I hereto (the "Transferor Lender"), each Purchasing Lender set forth in Item 3 of Schedule I hereto (each, a "Purchasing Lender"), and CHEMICAL BANK, as administrative agent for the Lenders under the Credit Agreement described below (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, this Commitment Transfer Supplement is being executed and delivered in accordance with subsection 10.8 of the Credit Agreement, dated as of January 31, 1996, among Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp (the "Borrower"), the Transferor Lender, the other Lenders parties thereto and the Administrative Agent (as from time to time amended, supplemented or otherwise modified in accordance with the terms thereof, the "Credit Agreement"; terms defined therein being used herein as therein defined); WHEREAS, each Purchasing Lender (if it is not already a Lender party to the Credit Agreement) wishes to become a Lender party to the Credit Agreement; and WHEREAS, the Transferor Lender is selling and assigning to each Purchasing Lender, rights, obligations and commitments under the Credit Agreement; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Upon receipt by the Administrative Agent of five counterparts of this Commitment Transfer Supplement, to each of which is attached a fully completed Schedule I and Schedule II, and each of which has been executed by the Transferor Lender, each Purchasing Lender (and any other person required by the Credit Agreement to execute this Commitment Transfer Supplement), the Administrative Agent will transmit to the Borrower, the Transferor Lender and each Purchasing Lender a Transfer Effective Notice, substantially in the form of Schedule III to this Commitment Transfer Supplement (a "Transfer Effective Notice"). Such Transfer Effective Notice shall set forth, inter alia, the date on which the transfer effected by this Commitment Transfer Supplement shall become effective (the "Transfer Effective Date"), which date shall be the fifth Business Day following the date of such Transfer Effective Notice. From and after the Transfer Effective Date each Purchasing Lender shall be a Lender party to the Credit Agreement for all purposes thereof. 2. At or before 12:00 Noon, local time of the Transferor Lender, on the Transfer Effective Date, each Purchasing Lender shall pay to the Transferor Lender, in immediately available funds, an amount equal to the purchase price, as agreed between the Transferor Lender and such Purchasing Lender (the "Purchase Price"), of the portion being purchased by K-1 117 such Purchasing Lender (such Purchasing Lender's "Purchased Percentage") of the outstanding principal amount of the Loans, the Letter of Credit Obligations, the L/C Participating Interests and other amounts owing to the Transferor Lender under the Credit Agreement and its Notes. Effective upon receipt by the Transferor Lender of the Purchase Price from a Purchasing Lender, without recourse, representation or warranty, each Purchasing Lender hereby irrevocably purchases, takes and assumes from the Transferor Lender, such Purchasing Lender's Purchased Percentage of the Commitments, the L/C Participating Interests, the obligation to purchase L/C Participating Interests and the presently outstanding Loans and other amounts owing to the Transferor Lender under the Credit Agreement and its Notes together with all instruments, documents and collateral security pertaining thereto; provided that such Participating Lender's interest in any Letter of Credit outstanding on the Transfer Effective Date shall be as set forth in subsection 2.7 of the Credit Agreement. 3. The Transferor Lender has made arrangements with each Purchasing Lender with respect to (i) the portion, if any, to be paid, and the date or dates for payment, by the Transferor Lender to such Purchasing Lender of any fees heretofore received by the Transferor Lender pursuant to the Credit Agreement prior to the Transfer Effective Date and (ii) the portion, if any, to be paid and the date or dates for payment, by such Purchasing Lender to the Transferor Lender of fees or interest received by such Purchasing Lender pursuant to the Credit Agreement and from and after the Transfer Effective Date. 4. (a) All principal payments that would otherwise be payable from and after the Transfer Effective Date to or for the account of the Transferor Lender pursuant to the Credit Agreement and its Notes shall, instead, be payable to or for the account of the Transferor Lender or the Purchasing Lender, as the case may be, in accordance with their respective interest as reflected in this Commitment Transfer Supplement. (b) All interest, fees and other amounts that would otherwise accrue for the account of the Transferor Lender from and after the Transfer Effective Date pursuant to the Credit Agreement and its Notes shall, instead, accrue for the account of, and be payable to, the Transferor Lender and the Purchasing Lenders, as the case may be, in accordance with their respective interests as reflected in this Commitment Transfer Supplement. In the event that any amount of interest, fees or other amounts accruing prior to the Transfer Effective Date was included in the Purchase Price paid by the Purchasing Lender, the Transferor Lender and each Purchasing Lender will make appropriate arrangements for payment by the Transferor Lender to such Purchasing Lender of such amount upon receipt thereof from the Borrower. 5. On or prior to the Transfer Effective Date, the Transferor Lender will deliver to the Administrative Agent its Notes. On or prior to the Transfer Effective Date, the Borrower will deliver to the Administrative Agent new Notes for each Purchasing Lender and the Transferor Lender, in each case in principal amounts reflecting, in accordance with the Credit Agreement, the principal amount of any Competitive Loans being transferred and their respective Commitments (as adjusted pursuant to this Commitment Transfer Supplement). As provided in subsection 10.8 of the Credit Agreement, each such new Note shall be dated the Effective Date in the case of a Revolving Credit Note or Competitive Loan Note or the K-2 118 Revolving Credit Termination Date in the case of a Term Note. In addition, on or prior to the Transfer Effective Date, the Transferor Lender will deliver to the Administrative Agent any Letter of Credit Participation Certificates issued by an Issuing Lender to the Transferor Lender. On or prior to the Transfer Effective Date, if applicable, each Issuing Lender shall deliver to the Administrative Agent for each Purchasing Lender and the Transferor Lender new Letter of Credit Participation Certificates, in each case in amounts reflecting, in accordance with the Credit Agreement, their respective Commitments (as adjusted pursuant to this Commitment Transfer Supplement). Promptly after the Transfer Effective Date, the Administrative Agent will send to each of the Transferor Lender and the Purchasing Lenders its new Notes and new Letter of Credit Participation Certificates and will send to the Borrower the superseded Notes of the Transferor Lender, marked "Cancelled". 6. Concurrently with the execution and delivery hereof, the Transferor Lender will provide to each Purchasing Lender (if it is not already a Lender party to the Credit Agreement) copies of all documents delivered to such Transferor Lender on the Effective Date in satisfaction of the conditions precedent set forth in the Credit Agreement. 7. Each of the parties to this Commitment Transfer Supplement agrees that at any time and from time to time upon the written request of any other party, it will execute and deliver such further documents and do such further acts and things as such other party may reasonably request in order to effect the purposes of this Commitment Transfer Supplement. 8. By executing and delivering this Commitment Transfer Supplement, the Transferor Lender and each Purchasing Lender confirm to and agree with each other and the Administrative Agent and the Lenders as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned hereby free and clear of any adverse claim, the Transferor Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement, the Notes, the Letters of Credit or any other instrument or document furnished pursuant thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, the Notes, the Letters of Credit or any other instrument or document furnished pursuant thereto; (ii) the Transferor Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of their respective obligations under the Credit Agreement, the Notes, the Letters of Credit or any other instrument or document furnished pursuant thereto; (iii) each Purchasing Lender confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in subsection 5.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Commitment Transfer Supplement; (iv) each Purchasing Lender will, independently and without reliance upon the Administrative Agent, the Transferor Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (v) each Purchasing Lender appoints and authorizes the Administrative Agent and any Issuing Lender to take such action as agent and issuing lender on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent and Issuing Lenders by the terms thereof, together with such powers as are reasonably K-3 119 incidental thereto, all in accordance with Section 9 of the Credit Agreement; and (vi) each Purchasing Lender agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender. 9. Each party hereto represents and warrants to and agrees with the Administrative Agent that it is aware of and will comply with the provisions of subsections 10.10(e) and (f) of the Credit Agreement. 10. Schedule II hereto sets forth the revised Commitments and Commitment Percentages of the Transferor Lender and each Purchasing Lender as well as administrative information with respect to each Purchasing Lender. 11. THIS COMMITMENT TRANSFER SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Commitment Transfer Supplement to be executed by their respective duly authorized officers on Schedule I hereto as of the date set forth in Item 1 of Schedule I hereto. K-4 120 SCHEDULE I to Commitment Transfer Supplement COMPLETION OF INFORMATION AND SIGNATURES FOR COMMITMENT TRANSFER SUPPLEMENT Re: Credit Agreement, dated as of January 31, 1996, with Panhandle Eastern Corporation, doing business as PanEnergy Corp, as Borrower Item 1 (Date of Commitment Transfer [Insert date of Commitment Transfer Supplement): Supplement] Item 2 (Transferor Lender): [Insert name of Transferor Lender] Item 3 (Purchasing Lender[s]): [Insert name[s] of Purchasing Lender[s]] Item 4 (Signatures of Parties to Commitment Transfer Supplement):
, as Transferor Lender By: ------------------------------------ Title , as a Purchasing Lender By: ------------------------------------ Title , as a Purchasing Lender By: ------------------------------------ Title K-5 121 Consented to and Acknowledged: PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By ------------------------------------------- Title: CHEMICAL BANK, As Administrative Agent By ------------------------------------------- Title: [Consents Required only when Purchasing Lender is not already a Lender or Affiliate thereof] Accepted for Recordation in Register: CHEMICAL BANK, as Administrative Agent By ------------------------------------------- Title: Acknowledged: [Acknowledgement from Issuing Lender (other than Chemical Bank) required if such Issuing Lender has outstanding Letter of Credit Participation Certificates] By ------------------------------------------- Title: K-6 122 SCHEDULE II to Commitment Transfer Supplement LIST OF LENDING OFFICES, ADDRESS FOR NOTICES AND COMMITMENT AMOUNTS [Name of Transferor Lender] Revised Commitment Amount: $___________ Revised Commitment Percentage: ___________ [Name of Purchasing Lender] New Commitment Amount: $___________ New Commitment Percentage: ___________
Address for Notices: [Address] Attention: Telex: Answerback: Telephone: Telecopier: Confirmation: Eurodollar Lending Office: - ---------------------------------- - ---------------------------------- - ---------------------------------- Domestic Lending Office: - ---------------------------------- - ---------------------------------- - ---------------------------------- K-7 123 SCHEDULE III to Commitment Transfer Supplement Form of Transfer Effective Notice To: Panhandle Eastern Corporation, doing business as PanEnergy Corp Insert Name of Transferor Lender and each Purchasing Lender The undersigned, as Administrative Agent [delegate of the Administrative Agent performing administrative functions of the Administrative Agent] under the Credit Agreement, dated as of January 31, 1996, among Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp, the Lenders parties thereto and Chemical Bank, as Administrative Agent, acknowledges receipt of five executed counterparts of a completed Commitment Transfer Supplement, as described in Schedule I hereto. [Note: attach copy of Schedule I from Commitment Transfer Supplement.] Terms defined in such Commitment Transfer Supplement are used herein as therein defined. 1. Pursuant to such Commitment Transfer Supplement, you are advised that the Transfer Effective Date will be ________________ [insert fifth Business Day following date of Transfer Effective Notice]. 2. Pursuant to such Commitment Transfer Supplement, the Transferor Lender is required to deliver to the Administrative Agent on or before the Transfer Effective Date its Notes and to each Issuing Lender any applicable Letter of Credit Participation Certificates. 3. Pursuant to such Commitment Transfer Supplement, the Company is required to deliver to the Administrative Agent on or before the Transfer Effective Date the following Notes dated ____________________. [Describe each new Note for Transferor Lender and Purchasing Lender as to principal amount and payee] 4. Pursuant to such Commitment Transfer Supplement, each Issuing Lender listed below is required to deliver to the Administrative Agent on or before the Transfer Effective Date the following Letter of Credit Participation Certificates: 5. Pursuant to such Commitment Transfer Supplement, each Purchasing Lender is required to pay its Purchase Price to the Transferor Lender at or before 12:00 noon on the Transfer Effective Date in immediately available funds. Very truly yours, CHEMICAL BANK By: ------------------------------------ Title: K-8 EX-4.03 4 CREDIT AGREEMENT - CHEMICAL BANK 1 EXHIBIT 4.03 [EXECUTION COPY] ================================================================================ PANHANDLE EASTERN CORPORATION doing business as PANENERGY CORP ___________________________________ $400,000,000 CREDIT AGREEMENT (FIVE YEAR FACILITY) dated as of January 31, 1996 ___________________________________ CHEMICAL BANK as Administrative Agent ================================================================================ 2 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 2. AMOUNTS AND TERMS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.2 Revolving Credit Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.3 Procedure for Revolving Credit Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.4 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.5 Issuance of Commercial L/Cs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.6 Issuance of Standby L/Cs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.7 Participating Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.8 Procedure for Opening Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.9 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.11 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.12 Letter of Credit Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.13 Competitive Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.14 Competitive Loan Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.15 Procedure for Competitive Loan Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.16 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 3. INTEREST RATE PROVISIONS, FEES, CONVERSIONS AND PAYMENTS . . . . . . . . . . . . . . . . . . . . . . 27 3.1 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 3.2 Facility and Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 3.3 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.4 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.5 Optional Prepayments of Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.6 Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.7 Pro Rata Treatment and Payments; Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.8 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.9 Failure by Lenders to Make Funds Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.10 Conversion Options for Loans; Minimum Amount of Loans . . . . . . . . . . . . . . . . . . . . . . . 33 3.11 Inability to Determine Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.13 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.14 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.15 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.16 Lenders' Obligation to Mitigate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 3.17 Replacement of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
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Page ---- SECTION 4. CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 4.1 Conditions to the Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 4.2 Conditions to All Loans and All Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.1 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.2 Corporate Existence; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.3 Corporate Power; Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . 41 5.4 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.5 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.6 Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.7 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.8 Environmental Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.9 Investment Company Act, Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . 43 SECTION 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 6.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 6.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6.3 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6.4 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6.5 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.6 Inspection of Property; Books and Records; Discussions . . . . . . . . . . . . . . . . . . . . . . . 45 6.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 7.1 Maintenance of Consolidated Indebtedness to Consolidated Capitalization Percentage Ratio of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 7.2 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 7.3 Consolidation, Merger, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.4 Principal Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.5 Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.6 Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 9. THE ADMINISTRATIVE AGENT AND THE ISSUING LENDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 50 9.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 9.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 9.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 9.4 Reliance by Administrative Agent and the Issuing Lenders . . . . . . . . . . . . . . . . . . . . . . 51 9.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 9.6 Non-Reliance on Administrative Agent, Issuing Lenders and Other Lenders . . . . . . . . . . . . . . 52 9.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
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Page ---- 9.8 Administrative Agent and Issuing Lenders in Their Individual Capacities . . . . . . . . . . . . . . 53 9.9 Successor Administrative Agent and Issuing Lenders . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 10.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 10.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 10.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 10.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 10.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 10.7 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 10.8 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 10.9 Transfers of Competitive Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 10.10 Register, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 10.11 Adjustments; Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 10.12 Existing Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 10.14 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 10.15 Submission to Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 10.16 Limitation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 10.17 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
iii 5 SCHEDULES 1 Lending Offices 2 Commitments 3 Excluded Sales of Assets EXHIBITS A Form of Competitive Loan Confirmation B Form of Competitive Loan Offer C Form of Competitive Loan Request D Form of Letter of Credit Participation Certificate E Form of Revolving Credit Note F-1 Form of Grid Competitive Loan Note F-2 Form of Individual Competitive Loan Note G Form of Opinion of Sullivan & Cromwell H Form of General Counsel's Opinion I Form of Commitment Transfer Supplement iv 6 CREDIT AGREEMENT (FIVE YEAR FACILITY) Dated as of January 31, 1996 PANHANDLE EASTERN CORPORATION, a Delaware corporation doing business as PanEnergy Corp (the "Company"), the several financial institutions from time to time parties to this Agreement (collectively, the "Lenders" and individually, a "Lender") and CHEMICAL BANK, a New York banking corporation ("Chemical"), as Administrative Agent, do hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms have the following meanings: "ABR Loans": Revolving Credit Loans at such time as they are made and/or are being maintained at a rate of interest based upon the Alternate Base Rate. "Adjusted CD Rate": with respect to each day during an Interest Period for CD Rate Loans, a rate per annum determined for such day in accordance with the following formula (rounded upward, if necessary, to the next higher 1/100 of 1%): CD Rate + Assessment Rate ---------------------------- 1.00-CD Reserve Requirements "Administrative Agent": Chemical, in its capacity as administrative agent for the Lenders hereunder and its successors and assigns in such capacity. "Administrative Agent's Office": the office of the Administrative Agent located at 270 Park Avenue, New York, New York 10017, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. "Affiliate": of any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, control of a Person shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agreement": this Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "AGTCO": Algonquin Gas Transmission Company, a Delaware corporation. 7 "Alternate Base Rate": for any day, a rate per annum (rounded upward, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day or (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by Chemical as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by Chemical in connection with extensions of credit to debtors); and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If the Administrative Agent shall have determined that it is unable to ascertain the Federal Funds Effective Rate, for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof (which determination shall be prima facie evidence of such inability), the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Facility Fee Percentage": on any date, the applicable percentage set forth below based upon the ratings applicable on such date to the Company's senior, unsecured, non-credit-enhanced long-term indebtedness for borrowed money ("Index Debt"):
Percentage ---------- CATEGORY 1 Rating A- or higher by S&P A3 or higher by Moody's .09% CATEGORY 2 Rating BBB+ by S&P Baa1 by Moody's .125% CATEGORY 3 Rating BBB by S&P Baa2 by Moody's .15%
-2- 8
Percentage ---------- CATEGORY 4 Rating BBB- by S&P Baa3 by Moody's .20% CATEGORY 5 Rating BB+ or lower by S&P Ba1 or lower by Moody's .275%
For purposes of the foregoing, (i) if the ratings for Index Debt established or deemed to have been established by S&P and Moody's shall fall within different Categories, the Applicable Facility Fee Percentage shall be determined by reference to the numerically lower of such Categories (i.e., the Category corresponding to the higher rating); (ii) if S&P or Moody's shall not have in effect a rating for Index Debt (other than for a reason not related to the creditworthiness of the Company or to any act or failure to act on the part of the Company, or because such rating agency shall no longer be in the business of rating corporate debt obligations), then the rating of such agency shall be deemed to fall within Category 5; and (iii) if any rating established or deemed to have been established by S&P or Moody's shall be changed (other than as a result of a change in the rating system of S&P or Moody's), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Facility Fee Percentage shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change, or if either such rating agency shall no longer have in effect a rating for Index Debt (other than for one of the reasons referred to in clause (ii) above), the Company and the Lenders, acting through the Administrative Agent, shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system or the non-availability of ratings from such rating agency. "Applicable Index Rate": in respect of any Index Rate Competitive Loan of a specified maturity requested pursuant to an Index Rate Competitive Loan Request, the London interbank offered rate for deposits in Dollars for the period commencing on the date of such Index Rate Competitive Loan and ending on the maturity date thereof which appears on Telerate Page 3750 as of 11:00 A.M., London time, two Working Days prior to the beginning of such period. "Applicable L/C Fee Percentage": on any date, the applicable percentage set forth below based upon the ratings applicable on such date to the Index Debt: -3- 9
Percentage ---------- CATEGORY 1 Rating A- or higher by S&P A3 or higher by Moody's .185% CATEGORY 2 Rating BBB+ by S&P Baa1 by Moody's .20% CATEGORY 3 Rating BBB by S&P Baa2 by Moody's .225% CATEGORY 4 Rating BBB- by S&P Baa3 by Moody's .25% CATEGORY 5 Rating BB+ or lower by S&P Ba1 or lower by Moody's .35%
For purposes of the foregoing, (i) if the ratings for Index Debt established or deemed to have been established by S&P and Moody's shall fall within different Categories, the Applicable L/C Fee Percentage shall be determined by reference to the numerically lower of such Categories (i.e., the Category corresponding to the higher rating); (ii) if S&P or Moody's shall not have in effect a rating for Index Debt (other than for a reason not related to the creditworthiness of the Company or to any act or failure to act on the part of the Company, or because such rating agency shall no longer be in the business of rating corporate debt obligations), then the rating of such rating agency shall be deemed to fall within Category 5; and (iii) if any rating established or deemed to have been established by S&P or Moody's shall be changed (other than as a result of a change in the rating system of S&P or Moody's), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable L/C Fee Percentage shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change, or if either such rating agency shall no longer have in effect a rating for Index Debt (other than for one of the reasons referred to in clause (ii) above), the Company and the -4- 10 Lenders, acting through the Administrative Agent, shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system or the non-availability of ratings from such rating agency. "Applicable Margin": on any date, for CD Rate Loans and Eurodollar Loans, the applicable percentage set forth below based upon the ratings applicable on such date to the Index Debt:
EURODOLLAR CD RATE LOAN LOAN Percentage Percentage ------------ ---------- CATEGORY 1 Rating A- or higher by S&P A3 or higher by Moody's .31% .185% CATEGORY 2 Rating BBB+ by S&P Baa1 by Moody's .325% .20% CATEGORY 3 Rating BBB by S&P Baa2 by Moody's .35% .225% CATEGORY 4 Rating BBB- by S&P Baa3 by Moody's .375% .25% CATEGORY 5 Rating BB+ or lower by S&P Ba1 or lower by Moody's .475% .35%
For purposes of the foregoing, (i) if the ratings for Index Debt established or deemed to have been established by S&P and Moody's shall fall within different Categories, the Applicable Margin shall be determined by reference to the numerically lower of such categories (i.e., the Category corresponding to the higher rating); (ii) if S&P or Moody's shall not have in effect a rating for Index Debt (other than for a reason not related to the creditworthiness of the Company or to any act or failure to act on the part of the Company, or because such rating agency shall no longer be in the business of rating corporate debt obligations), then the rating -5- 11 of such rating agency shall be deemed to fall within Category 5; and (iii) if any rating for Index Debt established or deemed to have been established by S&P or Moody's shall be changed (other than as a result of a change in the rating system of S&P or Moody's), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change, or if either such rating agency shall no longer have in effect a rating for Index Debt (other than for one of the reasons referred to in clause (ii) above), the Company and the Lenders, acting through the Administrative Agent, shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system or the non-availability of ratings from such rating agency. "Assessment Rate": for each Interest Period for CD Rate Loans, the net annual assessment rate (rounded upward, if necessary, to the next higher 1/100 of 1%) estimated by Chemical at the beginning of such Interest Period to be the current annual assessment rate payable by Chemical to the Federal Deposit Insurance Corporation (or any successor) for insuring time deposits made in Dollars at offices of Chemical in the United States. "Asset Sale": any sale, transfer, lease or other disposition of any property or asset of the Company or any Subsidiary of the Company except a sale, transfer, lease or other disposition (a) of cash, (b) of temporary cash investments, (c) of trade receivables or other rights to receive money (whether absolute or contingent, or matured or unmatured), (d) of inventories of gas and materials and supplies other than (i) in connection with a sale, transfer, lease or other disposition of property, plant and equipment or (ii) for the primary purpose of financing the purchase, storage or transportation of such gas or materials and supplies by the Company or a Subsidiary of the Company, (e) by the Company to a Subsidiary of the Company or by a Subsidiary of the Company to the Company or to another Subsidiary of the Company (but if the sale, transfer, lease or other disposition is by one of the Principal Subsidiaries, then only to another of the Principal Subsidiaries), (f) of other assets in the ordinary course of business or (g) of other assets listed on Schedule 3 hereto. "Borrowing Date": any Business Day or Working Day, as applicable, specified in a notice pursuant to subsection 2.3, 2.5, 2.6 or 2.15 as a date on which the Lenders are to make Loans or an Issuing Lender is to issue a Letter of Credit pursuant to such notice. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to close. "Capital Lease": as to any Person, (a) any lease of property, real or personal, the obligations under which are capitalized on a balance sheet of such Person and (b) any other such lease to the extent that the then present value of the minimum rental commitment thereunder should, in accordance with GAAP, be capitalized on a balance sheet of the lessee. -6- 12 "Cash Equivalents": (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iv) certificates of deposit or banker's acceptances maturing within one year from the date of acquisition thereof issued by (x) any Lender, (y) any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having combined capital and surplus of not less than $250,000,000 or (z) any bank which has a short-term commercial paper rating meeting the requirements of clause (iii) above (any such Lender or bank, a "Qualifying Lender"); (v) eurodollar time deposits having a maturity of less than one year purchased directly from any Lender (whether such deposit is with such Lender or any other Lender hereunder) or issued by any Qualifying Lender; and (vi) repurchase agreements and reverse repurchase agreements with a term of not more than one year with any Qualifying Lender relating to marketable direct obligations issued or unconditionally guaranteed by the United States. "CD Rate": with respect to each day during an Interest Period for CD Rate Loans, the rate per annum equal to the average (rounded upward, if necessary, to the next higher of 1/100 of 1%) of the respective rates notified to the Administrative Agent by each of the Reference Lenders as the average rate per annum bid by New York certificate of deposit dealers of recognized standing for the purchase at face value from the Reference Lenders of their certificates of deposit in The City of New York at or about 10:00 A.M., New York City time, on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the CD Rate Loans of such Reference Lender to be outstanding during such Interest Period. "CD Rate Loans": Revolving Credit Loans at such time as they are made and/or are being maintained at a rate of interest based upon the Adjusted CD Rate. "CD Reserve Requirements": with respect to any day during an Interest Period for CD Rate Loans, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirement for a member bank of the Federal Reserve System in The City of New York with deposits exceeding $1,000,000,000 in respect of new non-personal time deposits in Dollars in The City of New York having a maturity comparable to such Interest Period and in an amount of $100,000 or more. "Chemical": Chemical Bank. "Code": the Internal Revenue Code of 1986, as amended from time to time. -7- 13 "Commercial L/C": a commercial letter of credit in a face amount of not less than $500,000, payable in Dollars, issued by an Issuing Lender in accordance with subsections 2.4 and 2.5 for the account of the Company for the purchase of goods in the ordinary course of business, in which the Participating Lenders participate pursuant to subsection 2.7. "Commercial L/C Application": as defined in subsection 2.5(a). "Commitments": as defined in subsection 2.1(a). "Commitment Percentage": as to any Lender, the percentage of the aggregate Commitments constituted by such Lender's Commitments (or, at any time after the Commitments shall have expired or terminated, the ratio, expressed as a percentage, which the aggregate principal amount of such Lender's Loans then outstanding bears to the aggregate principal amount of all Loans then outstanding). "Commitment Transfer Supplement": as defined in subsection 10.8. "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA. "Company": Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp. "Competitive Loan": each loan made pursuant to subsection 2.13. "Competitive Loan Assignee": as defined in subsection 10.9(a). "Competitive Loan Assignment": any assignment by a Competitive Loan Lender to a Competitive Loan Assignee of a Competitive Loan and related Individual Competitive Loan Note; any such Competitive Loan Assignment to be registered in the Register must set forth, in respect of the Competitive Loan Assignee thereunder, the full name of such Competitive Loan Assignee, its address for notices, its lending office address (in each case with telephone and facsimile transmission numbers) and payment instructions for all payments to such Competitive Loan Assignee, and must contain an agreement by such Competitive Loan Assignee to comply with the provisions of subsections 3.12, 3.16 and 10.9. "Competitive Loan Borrowing Period": the period from and including the Effective Date until the date which is seven days prior to the Termination Date or, if earlier, the date on which the Commitments shall terminate as provided herein. "Competitive Loan Confirmation": each confirmation by the Company of its acceptance of Competitive Loan Offers, which Competitive Loan Confirmation shall be substantially in the form of Exhibit A and shall be delivered to the Administrative Agent in writing or by facsimile transmission. "Competitive Loan Lender": each Lender that has agreed to offer to make Competitive Loans hereunder. -8- 14 "Competitive Loan Maturity Date": as to any Competitive Loan, the date specified by the Company pursuant to subsection 2.15(d)(ii) in its acceptance of the related Competitive Loan Offer. "Competitive Loan Note": a Grid Competitive Loan Note or an Individual Competitive Loan Note. "Competitive Loan Offer": each offer of a Competitive Loan Lender to make Competitive Loans pursuant to a Competitive Loan Request, which Competitive Loan Offer shall contain the information specified in Exhibit B and shall be delivered to the Administrative Agent by telephone, immediately confirmed by facsimile transmission. "Competitive Loan Request": each request by the Company for Competitive Loan Lenders to submit bids to make Competitive Loans, which request shall contain the information in respect of such requested Competitive Loans specified in Exhibit C and shall be delivered to the Administrative Agent in writing or by facsimile transmission, or by telephone, immediately confirmed by facsimile transmission. "Consolidated Capitalization": at a particular date, the sum of (a) Consolidated Net Worth at such date, (b) the amount of Consolidated Indebtedness at such date and (c) the aggregate amounts payable upon involuntary liquidation (other than accrued dividends) to holders of shares of any classes of preferred stock (other than preferred stock subject to mandatory redemption or repurchase) of the Company and its Subsidiaries at such date. "Consolidated Indebtedness": at a particular date, all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Net Worth": at a particular date, all amounts which would be included under common stockholders' equity on a consolidated balance sheet of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Tangible Assets": at a particular date, the total assets appearing on the consolidated balance sheet of the Company and its consolidated Subsidiaries most recently delivered to each Lender pursuant to subsection 5.1, 6.1(a) or 6.1(b), as the case may be, less intangible assets. As used herein "intangible assets" means the value (net of applicable reserves) as shown on or reflected in such balance sheet of goodwill, deferred charges, patents and trademarks. "Contractual Obligations": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Credit Availability Amount": at any time, (a) the then aggregate amount of the Commitments less (b) the then Extensions of Credit. "Credit Documents": as defined in subsection 9.1. -9- 15 "Credit Exposure": as defined in subsection 10.7. "Default": any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, event or act, has been satisfied. "Determining Lenders": (a) Lenders whose Commitment Percentages aggregate at least 40% and (b) after the Commitments have expired or terminated, Lenders whose outstanding Loans represent in the aggregate at least 40% of all outstanding Loans. "Dollars" and "$": the lawful currency of the United States of America. "Domestic Lending Office": initially, the office of each Lender designated as such and set forth on Schedule 1, and thereafter, such other office of such Lender, if any, of which such Lender shall notify the Administrative Agent and the Company in writing. "Effective Date": the earliest date (but not later than March 31, 1996) on which all of the conditions precedent to the initial Loans set forth in Section 4 shall have occurred (or shall have been waived in accordance with subsection 10.1). "ERISA": as defined in subsection 5.7. "Eurocurrency Reserve Requirements": with respect to each day during an Interest Period for Eurodollar Loans, the aggregate (without duplication) of the rates (expressed as a decimal) of reserve requirements in effect on such day (including, without limitations, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto), dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board) maintained by a member bank of such System. "Eurodollar Base Rate": with respect to each day during an Interest Period for Eurodollar Loans, the rate per annum equal to the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates notified to the Administrative Agent by each of the Reference Lenders as the rate at which its Eurodollar Lending Office is offered Dollar deposits two Working Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Eurodollar Lending Office are customarily conducted at or about 10:00 A.M., New York City time, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Loans of such Reference Lender to be outstanding during such Interest Period. "Eurodollar Lending Office": initially, the office of each Lender designated as such and set forth on Schedule 1, and thereafter, such other office of such Lender, if any, of which such Lender shall notify the Administrative Agent and the Company in writing. -10- 16 "Eurodollar Loans": Revolving Credit Loans at such time as they are made and/or are being maintained at a rate of interest based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during an Interest Period for Eurodollar Loans, a rate per annum determined for such day in accordance with the following formula (rounded upward, if necessary, to the next higher 1/16 of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Event of Default": any of the events specified in Section 8; provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, event or act, has been satisfied. "Exchange Act": the Securities Exchange Act of 1934, as amended. "Existing Facilities": (a) the Credit Agreement, dated as of December 1, 1994, among the Company, the financial institutions parties thereto and Chemical Bank, as administrative agent, (b) the Credit Agreement, dated as of December 1, 1994, among TETCO, the financial institutions parties thereto and Chemical Bank, as administrative agent, and (c) the Credit Agreement, dated as of December 1, 1994, among PEPL, the financial institutions parties thereto and Chemical Bank, as administrative agent. "Extensions of Credit": at any particular time, the sum of (a) the aggregate principal amount of Loans then outstanding and (b) the aggregate Letter of Credit Obligations (excluding interest, fees and indemnities thereon) then outstanding. "Facility Fee": as defined in subsection 3.2(a). "Fixed Rate Competitive Loan Request": any Competitive Loan Request requesting the Competitive Loan Lenders to offer to make Fixed Rate Competitive Loans. "Fixed Rate Competitive Loans": Competitive Loans the rate of interest applicable to which is equal to a fixed percentage rate per annum specified by the Competitive Loan Lender making such Loan in its Competitive Loan Offer (as opposed to a rate composed of the Applicable Index Rate plus or minus a margin). "GAAP": generally accepted accounting principles in the United States of America as in effect from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Grid Competitive Loan Notes": as defined in subsection 2.14(a). -11- 17 "Indebtedness": of a Person, at a particular date, the sum (without duplication) at such date of (a) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which such Person is liable as obligor or arising under any conditional sales contract or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (b) obligations of such Person under Capital Leases, (c) the face amount available or to be available to be drawn under all letters of credit issued for the account of such Person (excluding any amount relating to Indebtedness included in the definition of Indebtedness under another clause of this definition) and, without duplication, the unreimbursed amount of all drafts drawn thereunder, (d) any obligations (in the nature of principal or interest) of such Person in respect of acceptances or similar obligations issued or created for the account of such Person, (e) Indebtedness referred to in clause (a), (b), (c) or (d) above or (f) or (g) below secured by any Lien on any property or asset owned or held by such Person regardless of whether the Indebtedness secured thereby shall have been assumed by or is a primary liability of such Person (but in any event not exceeding the fair market value of such property or asset), (f) all direct guarantees by such Person of Indebtedness referred to in clause (a), (b), (c), (d) or (e) above of another Person and (g) all amounts payable in connection with mandatory redemptions or repurchases of preferred stock of such Person. "Index Debt": as defined in the definition of "Applicable Facility Fee Percentage". "Index Rate Competitive Loans": Competitive Loans bearing interest at a rate equal to the Applicable Index Rate plus or minus a margin bid. "Index Rate Competitive Loan Request": any Competitive Loan Request requesting the Competitive Loan Lenders to offer to make Index Rate Competitive Loans. "Individual Competitive Loan Notes": as defined in subsection 2.14(b). "Interest Payment Date": (a) as to any ABR Loan, the last day of each March, June, September and December to occur while such ABR Loan is outstanding, commencing on March 31, 1996, and each date principal is due with respect to such ABR Loan; (b) as to any Eurodollar Loan in respect of which the Company has selected an Interest Period of one, two or three months and any CD Rate Loan in respect of which the Company has selected an Interest Period of 30, 60 or 90 days, the last day of such Interest Period; (c) as to any Eurodollar Loan and any CD Rate Loan in respect of which the Company has selected a longer Interest Period than the periods described in clause (b), the last day of each March, June, September and December falling within such Interest Period and the last day of such Interest Period; (d) as to any Fixed Rate Competitive Loan, each interest payment date specified by the Company for such Loan in the related Competitive Loan Request (including, in any event, the Competitive Loan Maturity Date in respect of such Loan); and (e) as to any Index Rate Competitive Loan, (i) the Competitive Loan Maturity Date in respect of such Loan and (ii) each date (if any) occurring prior to such Competitive Loan Maturity Date which is three months, or a whole multiple thereof, after the Borrowing Date in respect of such Loan. -12- 18 "Interest Period": (a) with respect to any Eurodollar Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months (or nine or twelve months, to the extent funds are available for such nine- or twelve-month period) thereafter, as selected by the Company in its notice of borrowing as provided in subsection 2.3, or its notice of conversion as provided in subsection 3.10, as the case may be; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months (or nine or twelve months, to the extent funds are available for such nine- or twelve-month period) thereafter, as selected by the Company by irrevocable notice to the Administrative Agent not less than three Working Days prior to the last day of the then current Interest Period with respect to such Eurodollar Loan; and (b) with respect to any CD Rate Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such CD Rate Loan and ending 30, 60, 90, 120 or 180 days (or 360 days, to the extent funds are available for such 360-day period) thereafter, as selected by the Company in its notice of borrowing as provided in subsection 2.3, or its notice of conversion as provided in subsection 3.10, as the case may be; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such CD Rate Loan and ending 30, 60, 90, 120 or 180 days (or 360 days, to the extent funds are available for such 360-day period) thereafter, as selected by the Company by irrevocable notice to the Administrative Agent not less than two Business Days prior to the last day of the then current Interest Period with respect to such CD Rate Loan. All of the foregoing provisions relating to Interest Periods are subject to the following: (A) if any Interest Period for Eurodollar Loans would otherwise end on a day which is not a Working Day, that Interest Period shall be extended to the next succeeding Working Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Working Day; (B) if any Interest Period for CD Rate Loans would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day; (C) the Company shall have no right to elect an Interest Period which would extend beyond the Termination Date; -13- 19 (D) if the Company shall fail to give notice as provided above, the Company shall be deemed to have selected an ABR Loan to replace the affected Eurodollar Loans or CD Rate Loans; (E) any Interest Period for Eurodollar Loans that begins on the last Working Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Working Day of a calendar month; (F) the Company shall select Interest Periods so that there shall be no more than eight Tranches with respect to the Revolving Credit Loans in existence at any one time; and (G) for purposes of determining the availability of a nine- or twelve-month Interest Period for Eurodollar Loans, or a 360-day Interest Period for CD Rate Loans, such Interest Period shall be deemed available if (a) each of the Reference Banks quotes a rate to the Administrative Agent as provided in the definition of "Eurodollar Base Rate" or "CD Rate", as the case may be, and (b) the Determining Lenders shall not have advised the Administrative Agent that the Eurodollar Rate or the Adjusted CD Rate, as the case may be, determined by the Administrative Agent on the basis of such quotes will not adequately and fairly reflect the cost to such Lenders of maintaining or funding their Eurodollar Loans or CD Rate Loans, as the case may be, for such Interest Period. "Issuing Lender": with respect to Letters of Credit, Chemical or such other Lenders as the Company may from time to time designate as an Issuing Lender (and which shall accept such designation) and notify the Administrative Agent of such designation, each in its capacity as issuer of such Letters of Credit. "L/C Participating Interest": with respect to any Letter of Credit, (a) in the case of the Issuing Lender, its interest in such Letter of Credit and the Letter of Credit Application relating thereto after giving effect to the granting of any participating interests therein pursuant to subsection 2.7 and (b) in the case of each Participating Lender, its undivided participating interest in such Letter of Credit and the Letter of Credit Application relating thereto. "Lenders": as defined in the preamble to this Agreement, which term includes Lenders originally executing this Agreement and, thereafter, from the date upon which the conditions referred to in subsection 10.8 are satisfied, the Purchasing Lenders. "Letter of Credit Applications": the collective reference to Commercial L/C Applications and Standby L/C Applications. "Letter of Credit Obligations": at any particular time, all liabilities of the Company with respect to Letters of Credit, whether or not any such liability is contingent, including without duplication, the sum of (a) the then outstanding Reimbursement Obligations plus (b) the then aggregate undrawn face amount of the Letters of Credit. -14- 20 "Letter of Credit Participation Certificate": a certificate in substantially the form of Exhibit D. "Letters of Credit": the collective reference to Commercial L/Cs and Standby L/Cs. "Lien": any mortgage, pledge, hypothecation, security interest, encumbrance, charge or lien (statutory or otherwise) (including, without limitation, any conditional sale or other title retention agreement and any Capital Lease having substantially the same economic effect as any of the foregoing) or the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing. "Loan": any Revolving Credit Loan or Competitive Loan made pursuant to this Agreement. "Moody's": Moody's Investors Service, Inc. "Note": any Revolving Credit Note or Competitive Loan Note. "Obligations": the unpaid principal amount of, and interest on, the Notes and all other obligations and liabilities of the Company to the Administrative Agent and the Lenders (including, without limitation, Reimbursement Obligations), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with this Agreement, whether on account of principal, interest, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to the Administrative Agent) or otherwise. "Participants": as defined in subsection 10.7. "Participating Lender": each Lender (other than the Issuing Lender), with respect to its L/C Participating Interest in each Letter of Credit. "PENGC": PanEnergy Natural Gas Corporation, a Delaware corporation. "PEPL": Panhandle Eastern Pipe Line Company, a Delaware corporation. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PES": PanEnergy Services, Inc., a Delaware corporation. "Principal Subsidiaries": TETCO, PEPL, AGTCO, PENGC and PES. "Purchasing Lender": as defined in subsection 10.8. "Reference Lenders": Chemical, Morgan Guaranty Trust Company of New York and NationsBank of Texas, N.A. -15- 21 "Refunding Extension of Credit": Loans or issuances of Letters of Credit hereunder which, after application of the proceeds thereof, result in no net increase in the aggregate outstanding Extensions of Credit with respect to any Lender. "Register": as defined in subsection 10.10. "Reimbursement Obligation": the obligation of the Company to reimburse an Issuing Lender in accordance with the terms of this Agreement and the related Letter of Credit Application for any payment made by an Issuing Lender under any Letter of Credit. "Required Lenders": (a) Lenders whose Commitment Percentages aggregate at least 50.1% and (b) after the Commitments have expired or terminated, Lenders whose outstanding Loans represent in the aggregate at least 50.1% of all outstanding Loans. "Requirements of Law": as to any Person, the articles or certificate of incorporation and bylaws (or other organizational or governing documents) of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": as to any Person, the chief executive officer, president or any vice-president of such Person or, with respect to financial matters, the chief financial officer, treasurer or controller or any assistant treasurer, of such Person or any other officer authorized by such Person to deliver documents with respect to financial matters pursuant to this Agreement. Unless otherwise qualified, all references to a "Responsible Officer" in this Agreement shall refer to a Responsible Officer of the Company. "Revolving Credit Loans": as defined in subsection 2.1(a) "Revolving Credit Notes": as defined in subsection 2.2. "S&P": Standard & Poor's Ratings Group. "SEC Reports": the Company's (a) Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and (b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995. "Significant Subsidiary": any Subsidiary of the Company that, in terms of total assets or the investment therein, would be a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X under the Securities Act of 1933 and the Exchange Act. "Standby L/C": an irrevocable letter of credit in a face amount of not less than $500,000, payable in Dollars, issued in accordance with subsections 2.4 and 2.6 by an Issuing Lender in Dollars for the account of the Company in respect of obligations of the Company and its Subsidiaries incurred pursuant to contracts made or performances undertaken or to be undertaken or like matters relating to contracts to which the Company or any Subsidiary thereof is or proposes to become a party in the ordinary course of the Company's or such -16- 22 Subsidiary's, as the case may be, business, including, without limiting the foregoing, for insurance purposes. "Standby L/C Application": as defined in subsection 2.6(a). "Subsidiary": a corporation of which shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by the Company. "Termination Date": January 31, 2001. "TETCO": Texas Eastern Transmission Corporation, a Delaware corporation. "Tranche": Eurodollar Loans or CD Rate Loans, in either case whose Interest Periods each begin on the same day and end on the same day. "Transferee": as defined in subsection 10.10(e). "Type": (a) as to any Revolving Credit Loan, its nature as an ABR Loan, a Eurodollar Loan or a CD Rate Loan and (b) as to any Competitive Loan, its nature as a Fixed Rate Competitive Loan or an Index Rate Competitive Loan . "Uniform Customs": the Uniform Customs and Practice for Documentary Credits (1993 Version), International Chamber of Commerce Publication No. 500 and any amendments or revisions thereof. "Wholly-Owned Subsidiary": a corporation of which all of the shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the Board of Directors or other managers of such corporation are at the time owned, directly or indirectly through one or more intermediaries, or both, by the Company. "Working Day": any Business Day on which dealings in foreign currencies and exchange between banks may be carried on in London, England and in The City of New York. 1.2 Other Definitional Provisions. (a) Unless otherwise specified herein, all terms defined in this Agreement or any other Credit Document shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. (b) As used herein or in any certificate or document made or delivered pursuant hereto, accounting terms relating to the Company and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. -17- 23 (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement, or any other certificate or document made or delivered pursuant hereto shall refer to this Agreement or such other certificate or document, as the case may be, as a whole and not to any particular provision thereof, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNTS AND TERMS OF LOANS 2.1 Commitments. (a) Subject to the terms and conditions hereof, each Lender severally, and not jointly, agrees to make revolving credit loans (collectively, the "Revolving Credit Loans") to the Company from time to time during the period from the Effective Date to, but not including, the Termination Date in an aggregate principal amount at any one time outstanding not to exceed the amount set forth under the heading "Commitment" opposite the name of such Lender on Schedule 2 hereto, as such amount may be reduced from time to time pursuant to subsection 3.6 hereof (collectively, the "Commitments"). The Company may use the Commitments by requesting the Lenders to make Revolving Credit Loans, prepaying Revolving Credit Loans in whole or in part and reborrowing, all in accordance with the terms and conditions hereof; provided that the Revolving Credit Loans made as part of any one borrowing shall not exceed the Credit Availability Amount on the Borrowing Date, after giving effect to the use and application of the proceeds thereof. (b) Subject to the terms and conditions hereof, the Revolving Credit Loans may be (i) ABR Loans, (ii) Eurodollar Loans, (iii) CD Rate Loans or (iv) any combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsection 2.3. 2.2 Revolving Credit Notes. The Revolving Credit Loans made by each Lender pursuant hereto shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit E (collectively, the "Revolving Credit Notes"), with appropriate insertions therein as to principal amount, payable to the order of such Lender and representing the obligation of the Company to pay a principal amount equal to the lesser of (a) such Lender's Commitment and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by such Lender, with interest thereon as prescribed in subsection 3.1. Each Lender is hereby authorized to record the date, Type and amount of each Revolving Credit Loan made by such Lender and the date and amount of each payment or prepayment of principal thereof and, with respect to Eurodollar Loans and CD Rate Loans, the length of the Interest Period and the Eurodollar Rate or CD Rate applicable thereto, on the schedule annexed to and constituting a part of its Revolving Credit Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded in the absence of manifest error; provided that failure by any Lender to make any such recordation on such Revolving Credit Note shall not affect any of the obligations of the Company under such Revolving Credit Note or this Agreement. The Revolving Credit Note of each Lender shall (i) be dated the Effective Date, (ii) bear interest, payable as specified in subsection 3.1, for the period -18- 24 from the date thereof on the unpaid principal amount thereof from time to time outstanding at the interest rate per annum specified in subsection 3.1 until paid in full and (iii) be stated to mature on the Termination Date. 2.3 Procedure for Revolving Credit Borrowings. The Company may borrow pursuant to subsection 2.1 hereof on any Working Day if the borrowing (or any portion thereof) consists of Eurodollar Loans or on any Business Day if the borrowing consists entirely of ABR Loans and/or CD Rate Loans by the Company giving the Administrative Agent irrevocable written notice (or telephonic notice promptly confirmed in writing) prior to 11:45 A.M., New York City time, on, in the case of ABR Loans, two Business Days prior to, in the case of CD Rate Loans, and three Working Days prior to, in the case of Eurodollar Loans, the proposed Borrowing Date specifying (a) the amount to be borrowed, (b) the requested Borrowing Date, (c) whether the borrowing is to be a Eurodollar Loan, a CD Rate Loan, an ABR Loan, or a combination thereof and (d) if the borrowing is to be entirely or partly a Eurodollar Loan or a CD Rate Loan, the length of the Interest Period(s) thereof. Each borrowing shall be in an aggregate principal amount of the lesser of (i) $10,000,000 or a whole multiple of $5,000,000 in excess thereof and (ii) the then Credit Availability Amount. Upon receipt of such notice from the Company, the Administrative Agent shall promptly notify each Lender thereof. Not later than 1:00 P.M., New York City time, on the Borrowing Date specified in such notice, each Lender shall make available to the Administrative Agent at the Administrative Agent's Office for the account of the Company an amount in immediately available funds equal to the amount of the Revolving Credit Loan to be made by such Lender. The proceeds of such Revolving Credit Loans will then be made available to the Company by the Administrative Agent at the Administrative Agent's Office by crediting the account of the Company on the books of the Administrative Agent's Office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 2.4 Letters of Credit. Subject to the terms and conditions hereof, the Issuing Lenders agree to issue, and each Participating Lender agrees to purchase an L/C Participating Interest in, Letters of Credit in the form of Commercial L/Cs or Standby L/Cs from time to time during the period from the Effective Date to, but not including, the Termination Date; provided that (i) the aggregate face amount of the Letters of Credit issued on any Borrowing Date shall not exceed the Credit Availability Amount on such Borrowing Date and (ii) on the date of the issuance of any Letter of Credit, and after giving effect to the issuance of such Letter of Credit, the aggregate Letter of Credit Obligations outstanding at such time shall not exceed 50% of the aggregate Commitments at such time. 2.5 Issuance of Commercial L/Cs. (a) The Company may request an Issuing Lender to issue a Commercial L/C in favor of sellers of goods to the Company or any of its Subsidiaries on any Business Day during the period from the Effective Date to, but not including, the Termination Date by delivering to the Issuing Lender, through the Administrative Agent at its address specified in subsection 10.2, a commercial letter of credit application and security agreement in such Issuing Lender's then customary form (as such form may be agreed to be modified, the "Commercial L/C Application"), completed to the satisfaction of such Issuing Lender, and such other certificates, documents and other papers and information as such Issuing Lender may reasonably request. The Company hereby agrees -19- 25 to observe and perform its covenants, duties and obligations under each Commercial L/C Application. (b) Each Commercial L/C issued hereunder shall, among other things, (i) provide for the payment of sight drafts when presented for honor thereunder, in accordance with the terms thereof and when accompanied by the documents described therein or when such documents are presented, as the case may be, (ii) have an expiry date occurring not later than 180 days after the date of issuance of such Commercial L/C and in no event occurring later than the Termination Date and (iii) have a minimum face amount of $500,000. Each Commercial L/C Application and each Commercial L/C shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. 2.6 Issuance of Standby L/Cs. (a) The Company may request an Issuing Lender to issue a Standby L/C on any Business Day during the period from the Effective Date to, but not including, the Termination Date by delivering to such Issuing Lender, through the Administrative Agent at its address specified in subsection 10.2, a standby letter of credit application in such Issuing Lender's then customary form (as such form may be agreed to be modified, the "Standby L/C Application"), completed to the satisfaction of such Issuing Lender together with the proposed form of such letter of credit (which shall comply with the applicable requirements of paragraph (b) below) and such other certificates, documents and other papers and information as such Issuing Lender may reasonably request. The Company hereby agrees to observe and perform its covenants, duties and obligations under each Standby L/C Application. (b) Each Standby L/C issued hereunder shall, among other things, (i) be in such form requested by the Company as shall be acceptable to the relevant Issuing Lender in its sole discretion, (ii) have an expiry date occurring not later than the Termination Date and (iii) have a minimum face amount of $500,000. Each Standby L/C Application and each Standby L/C shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. 2.7 Participating Interests. Effective in the case of each Letter of Credit as of the date of the issuance thereof, each Issuing Lender agrees to allot and does allot, to itself and each Participating Lender, and each Participating Lender severally and irrevocably agrees to take and does take, an L/C Participating Interest in such Letter of Credit and the related Letter of Credit Application in a percentage equal to such Participating Lender's Commitment Percentage. Each Participating Lender hereby agrees that its obligation to participate in each Letter of Credit issued by such Issuing Lender hereunder and the drafts drawn thereunder shall be irrevocable and unconditional. 2.8 Procedure for Opening Letters of Credit. Upon receipt of any Letter of Credit Application from the Company, the relevant Issuing Lender will promptly notify each Lender thereof through the Administrative Agent, but in no event shall such notice to each Lender be given later than the date three Business Days following receipt of such Letter of Credit Application or the date such Issuing Lender issues the Letter of Credit, whichever is earlier. Subject to the terms and conditions hereof, upon such receipt, such Issuing Lender will process such Letter of Credit Application, and the other certificates, documents and other -20- 26 papers delivered to such Issuing Lender in connection therewith, in accordance with its customary procedures and, subject to fulfillment of the applicable conditions specified in subsection 4.2, shall promptly open such Letter of Credit (but in no event shall such Issuing Lender be required to open any Letter of Credit earlier than three Business Days after receipt by such Issuing Lender of the Letter of Credit Application relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof and by furnishing a copy thereof to the Company and to the other Lenders. 2.9 Payments. (a) In the event of any request for drawing under any Letter of Credit by the beneficiary thereof, the relevant Issuing Lender shall immediately notify the Company and the Administrative Agent, and the Company shall reimburse such Issuing Lender on the day on which such drawing is honored in an amount in same day funds equal to the amount of such drawing, and otherwise in accordance with the terms of the Letter of Credit Application relating thereto; provided that anything contained in this Agreement to the contrary notwithstanding, (i) unless the Company shall have notified the Administrative Agent and such Issuing Lender prior to 11:00 A.M., New York City time, on the date of such drawing that the Company intends to reimburse such Issuing Lender for the amount of such drawing with funds other than the proceeds of Revolving Credit Loans, the Company shall be deemed to have given notice pursuant to subsection 2.3 to the Administrative Agent requesting the Lenders to make Revolving Credit Loans on the date on which such drawing is honored in an amount equal to the amount of such drawing, and (ii) subject to satisfaction or waiver of the applicable conditions specified in subsections 4.1 and 4.2, the Lenders shall, on the date of such drawing, make Revolving Credit Loans that are ABR Loans in the amount of such drawing, the proceeds of which shall be applied directly by the Administrative Agent to reimburse such Issuing Lender for the amount of such drawing, and provided further that if for any reason the Company does not cause the proceeds of Revolving Credit Loans to be received by such Issuing Lender on such date in an amount equal to the amount of such drawing, the Company shall reimburse such Issuing Lender, on the Business Day immediately following the date of such drawing, in an amount in same day funds equal to the excess of the amount of such drawing over the amount of such Revolving Credit Loans, if any, which are so received, plus accrued interest on such amount at the rate per annum equal to 2% above the Alternate Base Rate. (b) If the Company shall fail to reimburse an Issuing Lender as provided in subsection 2.9(a) in an amount equal to the amount of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall promptly notify each Participating Lender through the Administrative Agent of the unreimbursed amount of such drawing and of such Participating Lender's respective participation therein based on such Participating Lender's Commitment Percentage. Forthwith upon its receipt of any such notice, each Participating Lender will transfer to such Issuing Lender in immediately available funds an amount equal to such Participating Lender's Commitment Percentage of the unreimbursed portion of such payment. Upon its receipt from such Participating Lender of such amount, such Issuing Lender will complete, execute and deliver to such Participating Lender a Letter of Credit Participation Certificate dated the date of such receipt and in such amount. If any Participating Lender fails to make available to such Issuing Lender the amount of such Participating Lender's Commitment Percentage of such drawing as provided in this subsection 2.9(b), such Issuing Lender shall be entitled to recover such amount on -21- 27 demand from such Participating Lender together with interest at the rate per annum equal to 1/2 of 1% above the then applicable Federal funds rate for three Business Days and thereafter at the rate per annum equal to 2% above the Alternate Base Rate. (c) Whenever, at any time after an Issuing Lender has made a payment under any Letter of Credit and has received from any Participating Lender such Participating Lender's Commitment Percentage of the unreimbursed portion of such payment, such Issuing Lender receives any reimbursement on account of such unreimbursed portion or any payment of interest on account thereof, such Issuing Lender will transfer such amount to the Administrative Agent in immediately available funds, and the Administrative Agent will promptly and in no event later than one Business Day after it receives such payment, distribute to each Participating Lender its Commitment Percentage thereof in like funds as received by the Administrative Agent; provided that in the event that the receipt by an Issuing Lender of such reimbursement or such payment of interest (as the case may be) is required to be returned, such Participating Lender will return to such Issuing Lender any portion thereof previously distributed by such Issuing Lender to it, and provided further that any payment by the Company on account of such unreimbursed portion or interest thereon to such Issuing Lender shall be deemed to satisfy the Company's obligations to such Issuing Lender and any Participating Lenders with respect to such payment upon receipt thereof by such Issuing Lender. 2.10 Further Assurances. The Company hereby agrees, from time to time, to do and perform any and all acts and to execute any and all further instruments reasonably requested by an Issuing Lender more fully to effect the purposes of this Agreement and the issuance of the Letters of Credit opened hereunder. 2.11 Obligations Absolute. The payment obligations of the Company under subsection 2.9 shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: (a) the existence of any claim, set-off, defense or other right which the Company may have at any time against any beneficiary, or any transferee, of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), any Issuing Lender or any Participating Lender, or any other Person, whether in connection with this Agreement, the transactions contemplated herein, or any unrelated transaction; provided, however, that nothing herein shall prevent the assertion of any such right by separate suit or compulsory counterclaim; (b) any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (c) payment by any Issuing Lender under any Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit, except payment resulting from the gross negligence or willful misconduct of such Issuing Lender; or -22- 28 (d) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing, except circumstances or happenings resulting from the gross negligence or willful misconduct of such Issuing Lender. 2.12 Letter of Credit Application. The provisions of any Letter of Credit Application related to any Letter of Credit are supplemental to, and not in derogation of, any rights and remedies of each Issuing Lender and the Participating Lenders under this Section 2 and applicable law. The Company acknowledges and agrees that all rights of each Issuing Lender under any Letter of Credit Application and this Agreement (other than those pursuant to subsections 3.3(b) and (c)) shall inure to the benefit of each Participating Lender to the extent of its Commitment Percentage as fully as if such Participating Lender was a party to such Letter of Credit Application. 2.13 Competitive Loans. Subject to the terms and conditions of this Agreement, the Company may borrow Competitive Loans from time to time during the Competitive Loan Borrowing Period on any Business Day (in the case of Fixed Rate Competitive Loans) or Working Day (in the case of Index Rate Competitive Loans), provided that in no event may Competitive Loans exceed the Credit Availability Amount on the Borrowing Date, after giving effect to the use and application of the proceeds thereof. Within the limits and on the conditions hereinafter set forth with respect to Competitive Loans, the Company from time to time may borrow, repay and reborrow Competitive Loans. 2.14 Competitive Loan Notes. (a) The Competitive Loans made by each Competitive Loan Lender pursuant hereto shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit F-1 (collectively, the "Grid Competitive Loan Notes"), with appropriate insertions therein as to principal amount, payable to the order of such Lender and representing the obligation of the Company to pay a principal amount equal to the lesser of (i) the aggregate Commitments and (ii) the aggregate unpaid principal amount of all Competitive Loans made by such Competitive Loan Lender, with interest thereon as prescribed in subsection 3.1. Each Competitive Loan Lender is hereby authorized to record the date, amount, interest rate, Interest Payment Dates and Competitive Loan Maturity Date of each Competitive Loan made by such Competitive Loan Lender and each payment of principal with respect thereto on the schedule annexed to and constituting a part of its Grid Competitive Loan Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided that failure by any Lender to make any such recordation on such Grid Competitive Loan Note shall not affect any of the obligations of the Company under such Grid Competitive Loan Note or this Agreement. Each Grid Competitive Loan Note shall be dated the Effective Date and each Competitive Loan evidenced thereby shall bear interest, payable as specified in subsection 3.1, for the period from the date thereof on the unpaid principal amount thereof from time to time outstanding at the interest rate per annum specified in subsection 3.1 until paid in full. (b) Amounts advanced by a Competitive Loan Lender pursuant to subsection 2.13 on a Borrowing Date which have the same maturity date and interest rate shall be deemed to constitute one Competitive Loan so long as such amounts remain evidenced by the Grid Competitive Loan Note of such Competitive Loan Lender; any such Competitive Loan Lender that wishes such amounts to constitute more than one Competitive Loan and to have each such -23- 29 Competitive Loan evidenced by a separate promissory note payable to such Competitive Loan Lender, substantially in the form of Exhibit F-2 with appropriate insertions as to Borrowing Date, principal amount and interest rate (an "Individual Competitive Loan Note"), shall notify the Administrative Agent and the Company by facsimile transmission of the respective principal amounts of the Competitive Loans (which principal amounts shall not be less than $5,000,000 for any of such Competitive Loans) to be evidenced by each such Individual Competitive Loan Note. Not later than three Business Days after receipt of such notice, the Company shall deliver to such Competitive Loan Lender an Individual Competitive Loan Note payable to the order of such Competitive Loan Lender in the principal amount of each such Competitive Loan and otherwise conforming to the requirements of this Agreement. Upon receipt of such Individual Competitive Loan Note, such Competitive Loan Lender shall endorse on the schedule attached to its Grid Competitive Loan Note the transfer of such Competitive Loan from such Grid Competitive Loan Note to such Individual Competitive Loan Note. 2.15 Procedure for Competitive Loan Borrowing. (a) The Company shall request Competitive Loans by delivering a Competitive Loan Request to the Administrative Agent, not later than 12:00 Noon (New York City time) four Working Days prior to the proposed Borrowing Date (in the case of an Index Rate Competitive Loan Request), and not later than 10:00 A.M., New York City time, one Business Day prior to the proposed Borrowing Date (in the case of a Fixed Rate Competitive Loan Request). Each Competitive Loan Request in respect of any Borrowing Date may solicit bids for Competitive Loans in an aggregate principal amount of $10,000,000 or an integral multiple of $5,000,000 in excess thereof and having not more than three alternative Competitive Loan Maturity Dates. The Competitive Loan Maturity Date for each Fixed Rate Competitive Loan shall be not less than seven days nor more than 360 days after the Borrowing Date therefor and the Competitive Loan Maturity Date for each Index Rate Competitive Loan shall be one, two, three, six, nine or twelve months after the Borrowing Date therefor, and in any event shall be no later than the Termination Date. The Administrative Agent shall notify each Competitive Loan Lender promptly by facsimile transmission of the contents of such Competitive Loan Request received by the Administrative Agent. (b) In the case of an Index Rate Competitive Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Competitive Loan Request, each Competitive Loan Lender may elect, in its sole discretion, to offer irrevocably, subject to Section 4, to make one or more Competitive Loans at the Applicable Index Rate plus or minus a margin determined by such Competitive Loan Lender in its sole discretion for each such Competitive Loan. Any such irrevocable offer shall be made by delivering a Competitive Loan Offer to the Administrative Agent, before 10:30 A.M., New York City time, on the day that is three Working Days before the proposed Borrowing Date, setting forth: (i) the maximum amount of Competitive Loans for each Competitive Loan Maturity Date and the aggregate maximum amount of Competitive Loans for all Competitive Loan Maturity Dates which such Competitive Loan Lender would be willing to make (which amounts may, subject to subsection 2.13, exceed such Competitive Loan Lender's Commitment); and -24- 30 (ii) the margin above or below the Applicable Index Rate at which such Competitive Loan Lender is willing to make each such Competitive Loan. The Administrative Agent shall advise the Company before 11:00 A.M., New York City time, on the date which is three Working Days before the proposed Borrowing Date of the contents of each such Competitive Loan Offer received by it. If the Administrative Agent, in its capacity as a Competitive Loan Lender, shall elect, in its sole discretion, to make any such Competitive Loan Offer, it shall advise the Company of the contents of its Competitive Loan Offer before 10:15 A.M., New York City time, on the date which is three Working Days before the proposed Borrowing Date. (c) In the case of a Fixed Rate Competitive Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Competitive Loan Request, each Competitive Loan Lender may elect, in its sole discretion, to offer irrevocably, subject to Section 4, to make one or more Competitive Loans at a rate of interest determined by such Competitive Loan Lender in its sole discretion for each such Competitive Loan. Any such irrevocable offer shall be made by delivering a Competitive Loan Offer to the Administrative Agent before 9:30 A.M., New York City time, on the proposed Borrowing Date, setting forth: (i) the maximum amount of Competitive Loans for each Competitive Loan Maturity Date and the aggregate maximum amount of Competitive Loans for all Competitive Loan Maturity Dates, which such Competitive Loan Lender would be willing to make (which amounts may, subject to subsection 2.13, exceed such Competitive Loan Lender's Commitment); and (ii) the rate of interest at which such Competitive Loan Lender is willing to make each such Competitive Loan. The Administrative Agent shall advise the Company before 10:00 A.M., New York City time, on the proposed Borrowing Date of the contents of each such Competitive Loan Offer received by it. If the Administrative Agent, in its capacity as a Competitive Loan Lender, shall elect, in its sole discretion, to make any such Competitive Loan Offer it shall advise the Company of the contents of its Competitive Loan Offer before 9:15 A.M., New York City time, on the proposed Borrowing Date. (d) Before 11:30 A.M., New York City time, three Working Days before the proposed Borrowing Date (in the case of Index Rate Competitive Loans) and before 10:30 A.M., New York City time, on the proposed Borrowing Date (in the case of Fixed Rate Competitive Loans), the Company, in its absolute discretion, shall: (i) cancel such Competitive Loan Request by giving the Administrative Agent telephone notice to that effect, or (ii) by giving telephone notice to the Administrative Agent (immediately confirmed by delivery to the Administrative Agent of a Competitive Loan Confirmation in writing) (1) subject to the provisions of subsection 2.15(e), accept one or more of the offers made -25- 31 by any Competitive Loan Lender or Competitive Loan Lenders pursuant to subsection 2.15(b) or subsection 2.15(c), as the case may be, of the amount of Competitive Loans for each relevant maturity date and (2) reject any remaining offers made by Competitive Loan Lenders pursuant to subsection 2.15(b) or subsection 2.15(c), as the case may be. (e) The Company's acceptance of Competitive Loans in response to any Competitive Loan Request shall be subject to the following limitations: (i) The amount of Competitive Loans accepted for each Competitive Loan Maturity Date specified by any Competitive Loan Lender in its Competitive Loan Offer shall not exceed the maximum amount for such Competitive Loan Maturity Date specified in such Competitive Loan Offer; (ii) the aggregate amount of Competitive Loans accepted for all Competitive Loan Maturity Dates specified by any Competitive Loan Lender in its Competitive Loan Offer shall not exceed the aggregate maximum amount specified in such Competitive Loan Offer for all such Competitive Loan Maturity Dates; (iii) the Company may not accept offers for Competitive Loans for any Competitive Loan Maturity Date in an aggregate principal amount in excess of the maximum principal amount requested in the related Competitive Loan Request; and (iv) if the Company accepts any of such offers, (1) it must accept such offers based solely upon pricing for such relevant Competitive Loan Maturity Date (including any amounts which shall be payable to the relevant Competitive Loan Lender in respect of the relevant Competitive Loans pursuant to subsection 3.14) and upon no other criteria whatsoever and (2) if two or more Competitive Loan Lenders submit offers for any Competitive Loan Maturity Date at identical pricing and the Company accepts any of such offers but does not wish to (or by reason of the limitations set forth in subsection 2.13 or in this subsection 2.15, cannot) borrow the total amount offered by such Competitive Loan Lenders with such identical pricing, the Company shall accept offers from all of such Competitive Loan Lenders in amounts allocated among them pro rata according to the amounts offered by such Competitive Loan Lenders (or as nearly pro rata as shall be practicable after giving effect to the requirement that Competitive Loans made by a Competitive Loan Lender on a Borrowing Date for each relevant Competitive Loan Maturity Date shall be in a principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof), provided that if the number of Competitive Loan Lenders that submit offers for any Competitive Loan Maturity Date at identical pricing is such that, after the Company accepts such offers pro rata in accordance with the foregoing, the Competitive Loans to be made by any such Competitive Loan Lender would be less than $5,000,000 principal amount, the number of such Competitive Loan Lenders shall be reduced by the Administrative Agent by lot until the Competitive Loans to be made by each such remaining Competitive Loan Lender would be in a principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. -26- 32 (f) If the Company notifies the Administrative Agent that a Competitive Loan Request is cancelled pursuant to subsection 2.15(d)(i), the Administrative Agent shall give prompt telephone notice thereof to the Competitive Loan Lenders. (g) If the Company accepts pursuant to subsection 2.15(d)(ii) one or more of the offers made by any one or more Competitive Loan Lenders, the Administrative Agent promptly shall notify each Competitive Loan Lender which has made such a Competitive Loan Offer of (i) the aggregate amount of such Competitive Loans to be made on such Borrowing Date for each Competitive Loan Maturity Date and (ii) the acceptance or rejection of any offers to make such Competitive Loans made by such Competitive Loan Lender. Before 12:00 Noon, New York City time, on the Borrowing Date specified in the applicable Competitive Loan Request, each Competitive Loan Lender whose Competitive Loan Offer has been accepted shall make available to the Administrative Agent at the Administrative Agent's Office the amount of Competitive Loans to be made by such Competitive Loan Lender, in immediately available funds. The Administrative Agent will make such funds available to the Company as soon as practicable on such date at the Administrative Agent's Office. As soon as practicable after each Borrowing Date, the Administrative Agent shall notify each Lender of the aggregate amount of Competitive Loans advanced on such Borrowing Date and the respective maturity dates thereof. (h) Nothing in subsection 2.13 or this subsection 2.15 shall be construed as a right of first offer in favor of the Lenders or to otherwise limit the ability of the Company to request and accept credit facilities from any Person (including any of the Lenders). (i) A Competitive Loan Request may request offers for Competitive Loans to be made on not more than one Borrowing Date and to mature on not more than three Competitive Loan Maturity Dates. No Competitive Loan Request may be submitted earlier than five Business Days after submission of any other Competitive Loan Request. (j) The Company shall pay to the Administrative Agent, for the account of each Lender which has made a Competitive Loan, on the applicable Competitive Loan Maturity Date the then unpaid principal amount of such Competitive Loan. The Company shall not have the right to prepay any principal amount of any Competitive Loan. 2.16 Use of Proceeds. The proceeds of the Loans shall be used to finance the general corporate purposes of the Company and its Subsidiaries, and the Letters of Credit shall be used to secure performance and other bonds and provide credit support for general corporate purposes. SECTION 3. INTEREST RATE PROVISIONS, FEES, CONVERSIONS AND PAYMENTS 3.1 Interest Rates and Payment Dates. (a) Each ABR Loan shall bear interest for the period from and including the date thereof until maturity or conversion on the unpaid principal amount thereof at a fluctuating rate per annum equal to the Alternate Base Rate. -27- 33 (b) Each Eurodollar Loan shall bear interest for each Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the Eurodollar Rate determined for such Interest Period plus the Applicable Margin. (c) Each CD Rate Loan shall bear interest for each Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the Adjusted CD Rate for such Interest Period plus the Applicable Margin. (d) Each Competitive Loan shall bear interest for each day from the applicable Borrowing Date to (but excluding) the applicable Competitive Loan Maturity Date at the rate of interest specified in the Competitive Loan Offer accepted by the Company in connection with such Competitive Loan. (e) If all or a portion of the principal amount of any of the Eurodollar Loans or CD Rate Loans shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), each such Eurodollar Loan or CD Rate Loan shall be converted to an ABR Loan at the end of the last applicable Interest Period therefor for which the Administrative Agent shall have determined, on or prior to the date such unpaid principal amount became due, a Eurodollar Rate or an Adjusted CD Rate, as the case may be. Any overdue principal amount of any Loan and, to the extent permitted by law, any interest payable thereon which shall not be paid when due shall bear interest from the due date thereof until payment in full thereof (as well after judgment as before judgment) at a rate per annum equal to 2% above the rate otherwise applicable. (f) Interest payable under subsection 3.1(a), 3.1(b), 3.1(c) or 3.1(d) shall be payable in arrears on each Interest Payment Date. Interest payable under subsection 3.1(e) shall be payable on demand. 3.2 Facility and Other Fees. (a) The Company agrees to pay to the Administrative Agent for the account of each Lender a facility fee (a "Facility Fee") from the Effective Date to, but not including, the Termination Date or such earlier date upon which the Commitments shall terminate or be reduced to zero, computed at a rate per annum equal to the Applicable Facility Fee Percentage from time to time in effect, on the amount of the Commitment of such Lender from time to time in effect, whether used or unused (including the portion of such Commitment represented by such Lender's L/C Participating Interest in outstanding Letters of Credit). Such Facility Fee shall be payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing March 31, 1996 (such fee to be calculated through the last day of such quarter) and on the Termination Date or such earlier date as the Commitments shall terminate or be reduced to zero as provided herein. (b) The Company agrees to pay to the Administrative Agent for its own account the fees in the amounts and on the dates previously agreed to in writing by the Company and the Administrative Agent. Each Lender acknowledges that the Administrative Agent is being paid certain other fees for its own account in connection with this Agreement in addition to the fees described herein. -28- 34 3.3 Letter of Credit Fees. (a) In lieu of any letter of credit commissions and fees provided for in any Commercial L/C Application or Standby L/C Application (other than standard administration, amendment, transfer and negotiation fees referred to in clause (c) below), the Company agrees to pay the Administrative Agent, for the account of the relevant Issuing Lender and the Participating Lenders in accordance with their respective Commitment Percentages, (i) with respect to Standby L/Cs, a non-refundable Letter of Credit fee computed at a rate per annum equal to the Applicable L/C Fee Percentage from time to time in effect on the amount from time to time available to be drawn under all outstanding Standby L/Cs during the period for which payment is made, commencing on the respective dates of issuance thereof until the last day a drawing may be made thereunder, payable quarterly in advance commencing on the date of opening of each Standby L/C and thereafter on each Interest Payment Date for ABR Loans and (ii) with respect to each Commercial L/C, a non-refundable Letter of Credit fee equal to .25 of 1% of the amount drawn on such Commercial L/C from time to time, payable upon each drawing thereon. (b) In addition to the fees set forth in subsection 3.3(a), the Company agrees to pay each Issuing Lender, for such Issuing Lender's own account, (i) with respect to Standby L/Cs, a Letter of Credit fee equal to .175 of 1% per annum of the amount from time to time available to be drawn under all outstanding Standby L/Cs issued by it during the period for which payment is made, commencing on the respective dates of issuance thereof until the last day a drawing may be made thereunder, payable quarterly in advance commencing on the date of opening each Standby L/C and thereafter on each Interest Payment Date for ABR Loans and (ii) with respect to each Commercial L/C, a non-refundable Letter of Credit fee equal to .0625 of 1% of the face amount of such Commercial L/C payable upon issuance thereof. (c) The Company agrees to pay each Issuing Lender for its own account the customary administration, amendment, transfer and negotiation fees charged by such Issuing Lender in connection with its issuance and administration of Letters of Credit. 3.4 Computation of Interest and Fees. (a) Interest on ABR Loans and all fees shall be calculated on the basis of a year of 365 days (or 366 days, as the case may be) for the actual days elapsed. Interest on Eurodollar Loans, CD Rate Loans and Competitive Loans shall be calculated on the basis of a year of 360 days for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of each determination of a Eurodollar Rate and of an Adjusted CD Rate. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate, the Eurocurrency Reserve Requirements or the CD Reserve Requirements, as the case may be, shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate is announced or such change in the Eurocurrency Reserve Requirements or the CD Reserve Requirements shall become effective, as the case may be. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall constitute prima facie evidence of the rate so determined in the absence of manifest error. -29- 35 (c) If any Reference Lender's Commitment shall terminate (otherwise than on termination of all the Commitments), or all of its Loans shall be assigned for any reason whatsoever, such Reference Lender shall thereupon cease to be a Reference Lender and, if as a result of the foregoing, there shall only be one Reference Lender remaining, then the Administrative Agent (after consultation with the Lenders and with the consent of the Company) shall, by notice to the Company and the Lenders, designate another Lender as a Reference Lender so that there shall at all times be at least two Reference Lenders. (d) Each Reference Lender shall use its best efforts to furnish quotations of rates to the Administrative Agent as contemplated hereby. If any of the Reference Lenders shall be unable or otherwise fails to supply such rates to the Administrative Agent upon its request, the rate of interest shall be determined on the basis of the quotations of the remaining Reference Lenders or Reference Lender. 3.5 Optional Prepayments of Revolving Credit Loans. The Company may from time to time prepay any Revolving Credit Loans, in whole or in part, without premium or penalty, by giving irrevocable notice to the Administrative Agent and making such prepayment (i) if the Revolving Credit Loans to be prepaid are ABR Loans, prior to 11:00 A.M., New York City time, on any Business Day or, if such notice and prepayment are not so given and made prior to 11:00 A.M., upon at least one Business Day's irrevocable notice to the Administrative Agent, (ii) if the Revolving Credit Loans to be prepaid are CD Rate Loans, upon at least three Business Days' irrevocable notice to the Administrative Agent or (iii) if the Revolving Credit Loans to be prepaid are Eurodollar Loans, upon at least three Working Days' irrevocable notice to the Administrative Agent, in each case specifying the date and amount of prepayment and whether such Revolving Credit Loans are ABR Loans, CD Rate Loans or Eurodollar Loans or a combination thereof, and if of a combination thereof, the amount of prepayment allocable to each and if Eurodollar Loans or CD Rate Loans are to be prepaid, the Tranche to be prepaid. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender thereof. If such notice is given, the Company shall make such prepayment, and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments pursuant to this subsection 3.5 shall be in an aggregate principal amount of $10,000,000 or a whole multiple of $5,000,000 in excess thereof. 3.6 Reduction of Commitments. (a) The Company shall have the right, upon not less than three Business Days' notice to the Administrative Agent, from time to time, to reduce the amount of the Commitments provided that any such reduction shall be in an amount not less than $25,000,000 or a whole multiple of $1,000,000 in excess thereof; and provided further that no such reduction of the Commitments shall be permitted if, after giving effect to prepayments of Revolving Credit Loans, replacements of Letters of Credit and deposits of cash collateral pursuant to subsection 3.6(b), the aggregate Extensions of Credit outstanding would exceed the aggregate Commitments, as so reduced, or the aggregate Letter of Credit Obligations outstanding would exceed 50% of the aggregate Commitments, as so reduced. Upon receipt of any notice pursuant to this subsection 3.6(a), the Administrative Agent shall promptly notify each Lender thereof. -30- 36 (b) Any reduction of the Commitments pursuant to subsection 3.6(a) shall (i) reduce permanently the amount of the Commitments then in effect, (ii) be accompanied by (A) a prepayment of Revolving Credit Loans outstanding in an amount equal to the excess, if any, of the aggregate Extensions of Credit outstanding over the aggregate Commitments, as so reduced, and (B) a replacement of outstanding Letters of Credit such that after giving effect to such replacement, the aggregate Letter of Credit Obligations outstanding are less than or equal to 50% of the aggregate Commitments, as so reduced. To the extent that the aggregate Extensions of Credit exceed the aggregate Commitments, as reduced, after Revolving Credit Loans have been prepaid in accordance with the immediately preceding sentence, the Company shall (i) replace outstanding Letters of Credit such that, after giving effect to such replacement, the aggregate Extensions of Credit are less than or equal to the aggregate Commitments, as reduced, and/or (ii) deposit in a cash collateral account with the Administrative Agent on terms and conditions satisfactory to the Administrative Agent and as cash collateral for the liability of the Issuing Lender (whether direct or contingent) under any Letter of Credit outstanding, an amount which shall be equal to the amount by which the aggregate Extensions of Credit exceed the aggregate Commitments, as reduced. Any amounts deposited in any cash collateral account may be withdrawn by the Administrative Agent at any time to pay Obligations when due. The Administrative Agent shall use its best efforts to invest any amounts so deposited in United States Treasury bills or other Cash Equivalents designated by the Company; provided that the Administrative Agent shall not be liable to the Company for failure to so invest or for any losses suffered as a result of any such investment or withdrawal. The unused portion of any amounts deposited by the Company in any such cash collateral account pursuant to this subsection 3.6(b), and any earnings from investments of amounts on deposit therein, shall be paid to the Company after sufficient Letters of Credit have expired undrawn so that the aggregate Extensions of Credit shall no longer exceed the aggregate Commitments as then reduced. 3.7 Pro Rata Treatment and Payments; Lending Offices. (a) Each borrowing by the Company of Revolving Credit Loans hereunder, each conversion or continuation of a Revolving Credit Loan under subsection 3.10, each payment (including each prepayment) by the Company on account of principal of or interest on Revolving Credit Loans, each payment by the Company on account of fees and other amounts hereunder (except fees and other amounts referred to in subsections 3.2(b), 3.3(b), 3.3(c), 3.8, 3.12, 3.13, 3.14 and 3.15) and any reduction of the Commitments hereunder shall be made pro rata according to the respective Commitment Percentages of the Lenders. All payments (including prepayments) to be made by the Company on account of principal, interest, fees and other amounts shall be made without set-off or counterclaim to the Administrative Agent, for the account of the Lenders (except with respect to the fees and other amounts referred to in subsections 3.2(b), 3.3(b), 3.3(c), 3.8, 3.12, 3.13, 3.14 and 3.15), at the Administrative Agent's Office, in Dollars and in immediately available funds. The Administrative Agent shall promptly distribute each such payment to each Lender in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans or Index Rate Competitive Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan or Index Rate Competitive Loan becomes due and payable on a day other than a Working Day, the maturity thereof shall be extended to the next succeeding Working -31- 37 Day (and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension) unless the result of such extension would be to extend such payment into another calendar month in which event such payment shall be made on the immediately preceding Working Day. (b) Eurodollar Loans and Index Rate Competitive Loans shall be made by each Lender at its Eurodollar Lending Office and ABR Loans, CD Rate Loans and Fixed Rate Competitive Loans shall be made by each Lender at its Domestic Lending Office. 3.8 Capital Adequacy. In the event that any Lender shall have reasonably determined that the applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards" or the adoption after the date of this Agreement of any other law, rule, regulation or guideline regarding capital adequacy, or any change therein or in the interpretation or application thereof after the date of this Agreement or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or governmental authority does or shall have the effect of reducing the rate of return on such Lender's capital as a consequence of the Letters of Credit or its unused Commitment hereunder to a level below that which such Lender could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount related to such Letters of Credit or unused Commitment which is reasonably deemed by such Lender to be material, then from time to time, promptly after submission by such Lender to the Company (with a copy to the Administrative Agent) of a written request therefor, the Company shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. This covenant shall survive the termination of this Agreement and payment in full of the Obligations. 3.9 Failure by Lenders to Make Funds Available. Unless the Administrative Agent shall have been notified in writing by any Lender prior to a Borrowing Date that such Lender will not make that amount which would constitute its share of such borrowing on such Borrowing Date available to the Administrative Agent, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such Borrowing Date, and the Administrative Agent may, in reliance upon such assumption, make available to the Company a corresponding amount. If such amount is made available to the Administrative Agent on a date after such Borrowing Date, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (i) 1/2 of 1% above the daily average Federal funds rate during such period as quoted by the Administrative Agent, times (ii) such Lender's share of such borrowing, times (iii) a fraction the numerator of which is the number of days that elapse from and including such Borrowing Date to the date on which such Lender's share of such borrowing shall have become immediately available to the Administrative Agent and the denominator of which is 360. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection 3.9 shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not in fact made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall be -32- 38 entitled to recover such amount, on demand, from the Company with interest thereon at the rate applicable to the Loans made on such Borrowing Date. 3.10 Conversion Options for Loans; Minimum Amount of Loans. (a) The Company may elect from time to time to convert (i) Eurodollar Loans to ABR Loans, CD Rate Loans or a combination thereof, by giving the Administrative Agent at least one Business Day's prior irrevocable notice of such election if electing one or more ABR Loans or at least two Business Days' prior irrevocable notice if electing one or more CD Rate Loans; (ii) CD Rate Loans to Eurodollar Loans, ABR Loans or a combination thereof, by giving the Administrative Agent at least three Working Days' prior irrevocable notice of such election if electing one or more Eurodollar Loans or at least one Business Day's prior irrevocable notice of such election if electing one or more ABR Loans; or (iii) ABR Loans to Eurodollar Loans, CD Rate Loans or a combination thereof, by giving the Administrative Agent at least three Working Days' prior irrevocable notice of such election if electing one or more Eurodollar Loans or at least two Business Days' prior irrevocable notice if electing one or more CD Rate Loans; provided that any such conversion of Eurodollar Loans or CD Rate Loans shall only be made on the last day of the Interest Period with respect thereto. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender thereof. All or any part of outstanding Eurodollar Loans, CD Rate Loans and ABR Loans may be converted in accordance with the terms hereof; provided that (i) no Loan may be converted into a CD Rate Loan or a Eurodollar Loan when any Event of Default has occurred and is continuing, (ii) partial conversions shall be in an aggregate principal amount of $10,000,000 or a whole multiple of $5,000,000 in excess thereof and (iii) any such conversion may only be made if, after giving effect thereto, subsection 3.10(c) shall not have been contravened. (b) Any Eurodollar Loans or CD Rate Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Company with the notice provisions contained in subsection 3.10(a) applicable with respect to each Type of Loan; provided that no Eurodollar Loans or CD Rate Loans may be continued as such when any Event of Default has occurred and is continuing, but shall be automatically converted to ABR Loans on the last day of the last Interest Period for which a Eurodollar Rate or an Adjusted CD Rate, as the case may be, was determined by the Administrative Agent on or prior to the Administrative Agent's obtaining knowledge of such Event of Default. The Administrative Agent shall notify the Lenders promptly that such automatic conversion contemplated by this subsection 3.10(b) will occur. (c) All borrowings, conversions, payments and prepayments hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of any Tranche shall not be less than $10,000,000. 3.11 Inability to Determine Interest Rate. (a) In the event that the Administrative Agent or the Required Lenders shall have determined (which determination shall be conclusive and binding upon the Company) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any requested Interest Period with respect to (i) proposed Loans that the Company has requested be made as Eurodollar Loans, (ii) Eurodollar Loans that will result from the requested conversion of ABR Loans or CD Rate Loans into Eurodollar Loans or -33- 39 (iii) the continuation of Eurodollar Loans beyond the expiration of the then current Interest Period with respect thereto, the Administrative Agent shall forthwith give telephonic notice of such determination (promptly confirmed thereafter in writing) to the Company and the Lenders at least two Working Days prior to, as the case may be, the requested Borrowing Date for such Eurodollar Loans, the conversion date of such ABR Loan or CD Rate Loan, as the case may be, or the last day of such Interest Period. If such notice is given (A) any requested Eurodollar Loans shall be made as ABR Loans, (B) any ABR Loans or CD Rate Loans that were to have been converted to Eurodollar Loans shall be continued as or converted to ABR Loans or CD Rate Loans, as the case may be, and (C) any outstanding Eurodollar Loans shall be converted, on the last day of the then current Interest Period with respect thereto, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made, and the Company shall not have the right to convert ABR Loans or CD Rate Loans to Eurodollar Loans. (b) In the event that the Administrative Agent or the Required Lenders shall have determined (which determination shall be conclusive and binding upon the Company) that by reason of circumstances affecting the domestic certificate of deposit market, adequate and reasonable means do not exist for ascertaining the CD Rate for any requested Interest Period with respect to (i) proposed Loans that the Company has requested be made as CD Rate Loans, (ii) CD Rate Loans that will result from the requested conversion of ABR Loans or Eurodollar Loans into CD Rate Loans or (iii) the continuation of CD Rate Loans beyond the expiration of the then current Interest Period with respect thereto, the Administrative Agent shall forthwith give telephonic notice of such determination (promptly confirmed thereafter in writing) to the Company and the Lenders at least one Business Day prior to, as the case may be, the requested Borrowing Date for such CD Rate Loans, the conversion date of such ABR Loan or Eurodollar Loan, as the case may be, or the last day of such Interest Period. If such notice is given, (A) any requested CD Rate Loans shall be made as ABR Loans, (B) any ABR Loans or Eurodollar Loans that were to have been converted to CD Rate Loans shall be continued as or converted to ABR Loans or Eurodollar Loans, as the case may be, and (C) any outstanding CD Rate Loans shall be converted, on the last day of the then current Interest Period with respect thereto, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further CD Rate Loans shall be made, and the Company shall not have the right to convert ABR Loans or Eurodollar Loans to CD Rate Loans. 3.12 Taxes. (a) Except as otherwise required by law, all payments made by the Company hereunder shall be made free and clear of, and without reduction for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding income and franchise taxes imposed (a) by the United States of America or any political subdivision or taxing authority thereof or therein (including Puerto Rico) or (b) by any jurisdiction in which such Lender's Eurodollar Lending Office is located or any political subdivision or taxing authority thereof or therein (such non-excluded taxes being called "Foreign Taxes"). If any Foreign Taxes are required to be withheld from any amounts payable to any Lender hereunder or under the Notes, the amounts so payable to such Lender shall be increased to the extent necessary to yield to such Lender (after payment of all Foreign Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and its Note(s). Whenever any -34- 40 Foreign Tax is payable by the Company, as promptly as possible thereafter, the Company shall send to the Administrative Agent, for the account of such Lender, a certified copy of an original official receipt showing payment thereof. If the Company fails to pay any Foreign Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent, for the account of the Lenders, the required receipts or other required documentary evidence, in either case for any reason other than any Lender's failure to comply with subsection 3.12(b), the Company shall indemnify the Lenders for any incremental taxes, interest or penalties that may become payable by any Lender as a result of any such failure. (b) Prior to the first Interest Payment Date each Lender that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Company and the Administrative Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each Lender which delivers to the Company and the Administrative Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the next preceding sentence further undertakes to deliver to the Company and the Administrative Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company and the Administrative Agent, and such extensions or renewals thereof as may reasonably be requested by the Company or the Administrative Agent, certifying in the case of a Form 1001 or 4224 that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless in any such cases an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Company that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. (c) The agreements in this subsection 3.12 shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (d) The Company shall not be required to pay any increased amount on account of Foreign Taxes pursuant to this subsection 3.12 to any Lender to the extent that such Foreign Taxes would not have been payable if such Lender had furnished a form (properly and accurately completed in all material respects) which it was otherwise required to furnish in accordance with this subsection 3.12, unless such failure results from any event subsequent to the date hereof (including without limitation any change in treaty, law or regulation) specified in the final sentence of subsection 3.12(b) and such Lender so notifies the Company. -35- 41 3.13 Illegality. Notwithstanding any other provisions herein, if, after the date hereof, any change in any Requirement of Law or in the interpretation or application thereof, shall make it unlawful for any Lender to make or maintain Eurodollar Loans or Index Rate Competitive Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make or maintain Eurodollar Loans or convert ABR Loans or CD Rate Loans to Eurodollar Loans shall forthwith be suspended, (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the respective next succeeding Interest Payment Dates for such Loans or within such earlier period as required by law and (c) the Company shall, with respect to any Index Rate Competitive Loan of such Lender, take such action as such Lender may reasonably request. Promptly upon becoming aware that any such illegality with respect to Eurodollar Loans ceases to exist, such Lender shall notify the Company and the Administrative Agent thereof and, after such notice, such suspension shall cease to exist. The Company hereby agrees promptly to pay any Lender, upon its demand, any additional amounts necessary to compensate such Lender for any costs incurred by such Lender in making any conversion in accordance with this subsection 3.13 (such Lender's notice of such costs, as certified to the Company through the Administrative Agent, to be prima facie evidence of such costs in the absence of manifest error). 3.14 Requirements of Law. (a) In the event that any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority after the date hereof (or, in the case of Index Rate Competitive Loans, made subsequent to acceptance by the Company of such Loans): (i) does or shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note or any Loans made by it, or change the basis of taxation of payments to such Lender of principal, commitment or facility fee, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of such Lender or its applicable Lending Office imposed by the jurisdiction in which such Lender's principal executive office or the applicable Lending Office is located); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender which are not otherwise included in the determination of the Eurodollar Rate, the Adjusted CD Rate or the Applicable Index Rate, as the case may be; or (iii) does or shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender of making, renewing or maintaining advances or extensions of credit or to reduce any amount receivable hereunder, in each case, in respect of its Eurodollar Loans, CD Rate Loans or Index Rate Competitive Loans, then, in any such case, the Company shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such -36- 42 additional cost or reduced amount receivable which such Lender deems to be material as reasonably determined by such Lender with respect to such Eurodollar Loans, CD Rate Loans or Index Rate Competitive Loans. (b) (i) In the event that any change in any Requirement of Law shall either (A) impose, modify, deem or make applicable any reserve, special deposit, assessment or similar requirement against Letters of Credit issued by or participated in by any Lender or (B) impose on any Lender any other condition regarding this Agreement or any Letter of Credit, and the result of any event referred to in clause (A) or (B) above shall be to increase the cost to such Lender of issuing, maintaining or participating in any Letter of Credit, then the Company agrees, upon demand by such Lender, to promptly pay to such Lender, from time to time as specified by such Lender, additional amounts which shall be sufficient to compensate such Lender for such increased cost. (ii) The Company agrees that the provisions of the foregoing paragraph (b)(i) and the provisions of each Letter of Credit Application providing for reimbursement or payment to the Issuing Lender in the event of the imposition or implementation of, or increase in, any reserve, special deposit or similar requirement in respect of the Letter of Credit relating thereto shall apply equally to each Participating Lender in respect of its L/C Participating Interest in such Letter of Credit. (c) If a Lender or the Administrative Agent becomes entitled to claim any additional amounts pursuant to this subsection 3.14 or subsection 3.15, it shall promptly notify the Company, through the Administrative Agent, of the event by reason of which it has become so entitled. A certificate submitted by such Lender, through the Administrative Agent, to the Company shall be delivered to the Company at least three Business Days prior to the date of any requested payment and shall be prima facie evidence of such amounts in the absence of manifest error. This covenant shall survive the termination of this Agreement and payment of the outstanding Obligations. Notwithstanding the foregoing, no Lender shall be entitled to request compensation under this subsection 3.14 with respect to any Index Rate Competitive Loan if it shall have obtained actual knowledge of the change giving rise to such request at the time of submission of such Lender's Competitive Loan Offer pursuant to which such Competitive Loan shall have been made, unless notice of such Lender's entitlement to such compensation shall have been furnished to the Company at or prior to such time. 3.15 Indemnity. The Company agrees to indemnify each Lender and to hold such Lender harmless from any loss (excluding loss of profits) or expense which such Lender may sustain or incur as a consequence of (a) default by the Company in payment of the principal of or interest on any Eurodollar Loans , CD Rate Loans or Competitive Loans of such Lender, (b) default by the Company in making a borrowing, continuation or conversion after the Company has given a notice in accordance with subsection 2.3, 2.15 or 3.10, as the case may be, (c) default by the Company in making any prepayment after the Company has given a notice in accordance with the provisions of this Agreement and (d) a prepayment or conversion of a Eurodollar Loan, CD Rate Loan or Competitive Loan on a day which is not the last day of an Interest Period or the applicable Competitive Loan Maturity Date, as the case may be, with respect thereto, in each of clauses (a) through (d) including, but not limited to, any such loss or expense arising from interest or fees payable by such Lender to lenders of -37- 43 funds obtained by it in order to maintain its Eurodollar Loans, CD Rate Loans or Competitive Loans, as the case may be, hereunder. This covenant shall survive termination of this Agreement and payment in full of the Obligations. 3.16 Lenders' Obligation to Mitigate. Each Lender agrees that, as promptly as practicable after it becomes aware that it has been or will be affected by the occurrence of an event or the existence of a condition described under subsection 3.12, 3.13 or 3.14(a), it will, to the extent not inconsistent with such Lender's generally applicable internal policies, use its best efforts to make, fund or maintain the affected Eurodollar Loans, CD Rate Loans or Competitive Loans, as the case may be, of such Lender through another lending office of such Lender if as a result thereof the additional moneys which would otherwise be required to be paid in respect of such Loans pursuant to subsection 3.12, 3.13 or 3.14(a) would be materially reduced or the illegality or other adverse circumstances which would otherwise require such payment pursuant to subsection 3.12, 3.13 or 3.14(a) would cease to exist and if, as determined by such Lender, in its sole discretion, the making, funding or maintaining of such Loans through such other lending office would not otherwise adversely affect such Loans or such Lender. The Company hereby agrees to pay all reasonable expenses incurred by any Lender in utilizing another lending office of such Lender pursuant to this subsection 3.16 if, upon being notified by such Lender of its intention to change lending offices in accordance with the preceding sentence, the Company requests such Lender to take the steps specified in this subsection 3.16. If the Company fails to make a request upon being so notified, such Lender shall have no obligations under this subsection 3.16. 3.17 Replacement of Lender. If the Company is required to make a payment to any Lender pursuant to subsection 3.8, 3.12 or 3.14, or the obligation of any Lender to make Eurodollar Loans is suspended pursuant to subsection 3.13, the Company may, with the prior written consent of the Required Lenders (which consent may not be unreasonably withheld) and upon not less than 15 Business Days' prior notice to the Administrative Agent, immediately terminate the Commitment of such Lender and prepay such Lender's Loans, together with accrued interest thereon and all other amounts payable with respect thereto. Such termination shall not relieve the Company of its Obligations to such Lender under subsection 3.15 or 10.5 in respect of periods prior to such termination. The Required Lenders shall not withhold their consent to any such termination if the Company, on terms and conditions reasonably satisfactory to the Required Lenders, shall have located a banking institution, reasonably satisfactory to the Required Lenders, which shall have agreed to be substituted for such Lender on such terms and conditions as a Lender under this Agreement. SECTION 4. CONDITIONS OF LENDING 4.1 Conditions to the Initial Loans. The obligation of each Lender to make its initial Loan and the obligation of the relevant Issuing Lender to issue the initial Letter of Credit on or after the Effective Date shall be subject to the satisfaction of the following conditions precedent: (a) Agreement; Revolving Credit Notes and Competitive Loan Notes. The Administrative Agent shall have received (i) a counterpart of this Agreement for each Lender, -38- 44 duly executed by a Responsible Officer and (ii) an appropriate Revolving Credit Note and Grid Competitive Loan Note, for each Lender, conforming to the requirements hereof and duly executed by a Responsible Officer. (b) Corporate Proceedings. The Administrative Agent shall have received, with a copy for each Lender, a copy of the resolutions of the Board of Directors of the Company (or duly authorized committee thereof) authorizing the execution, delivery and performance of this Agreement, the Notes and the borrowings provided for herein. Such resolutions shall be certified by the Secretary or an Assistant Secretary of the Company, which certifications shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded and are in full force and effect as of such date. (c) Legal Opinions. The Administrative Agent shall have received, with a copy for each Lender, legal opinions, dated the Effective Date, of Sullivan & Cromwell and the General Counsel of the Company or other counsel satisfactory to the Lenders, substantially in the form of Exhibits G and H. (d) Cancellation of Existing Facilities. The Administrative Agent shall have received a copy of written irrevocable notices from the Company, PEPL and TETCO terminating the Commitments (as defined in each of the Existing Facilities) and directing the Agent (as so defined) to prepay by wire transfer, in immediately available funds, in full any loans and other extensions of credit then outstanding thereunder, together with accrued interest thereon, and any unpaid facility fees then accrued and all other amounts then due, upon receipt of the proceeds from the Loans or other funds available to or provided by the Company, PEPL and/or TETCO (which in the aggregate shall be in an amount at least sufficient to make all payments referred to in this subsection (d)). (e) Additional Matters. The Administrative Agent shall have received, with a copy for each Lender, such other certificates, opinions, documents and instruments relating to the transactions contemplated hereby as may have been reasonably requested by any Lender, and all corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Administrative Agent and the Required Lenders and their respective counsel. 4.2 Conditions to All Loans and All Letters of Credit. The obligation of each Lender to make any Loan, other than a conversion or continuation of a Loan under subsection 3.10, or of the relevant Issuing Lender to issue a Letter of Credit (including, without limitation, its initial Loans requested to be made by it and, in the case of such Issuing Lender, its obligation to issue the initial Letter of Credit), is subject to the satisfaction of the following conditions precedent as of the date such Loan is made or such Letter of Credit is issued: (a) Non-Refunding Extensions of Credit. In the case of any Loan or Letter of Credit which does not involve a Refunding Extension of Credit: -39- 45 (i) the representations and warranties made by the Company in this Agreement shall be true and correct in all material respects on and as of such date immediately prior to and after giving effect to such Extension of Credit as if made on and as of such date, except to the extent such representations and warranties relate solely to an earlier date or period; (ii) no Default or Event of Default shall have occurred and be continuing on such date or shall occur after giving effect to the Loans requested to be made or the Letters of Credit requested to be issued; and (iii) with respect to the issuance of any Letter of Credit, the relevant Issuing Lender shall have received a Letter of Credit Application, completed to the satisfaction of such Issuing Lender, and such other certificates, documents and other papers and information as such Issuing Lender may reasonably request. (b) Refunding Extensions of Credit. In the case of any Loan or Letter of Credit involving solely a Refunding Extension of Credit: (i) no Event of Default shall have occurred and be continuing on such date or shall occur after giving effect to the Loans requested to be made or the Letter of Credit requested to be issued; and (ii) with respect to the issuance of any Letter of Credit, the relevant Issuing Lender shall have received a Letter of Credit Application, completed to the satisfaction of such Issuing Lender, and such other certificates, documents and other papers and information as such Issuing Lender may reasonably request. Each borrowing of Loans, other than a conversion or continuation of a Loan under subsection 3.10, or issuance of a Letter of Credit under this Agreement, shall constitute a representation or warranty by the Company hereunder as of the date of such borrowing or such issuance that the conditions in clauses (a)(i) and (ii) or in clause (b)(i) of this subsection 4.2 applicable thereto have been satisfied. Each conversion of a Loan into a Eurodollar Loan or CD Rate Loan under subsection 3.10 shall constitute a representation and warranty by the Company hereunder as of the date of such conversion that no Event of Default shall have occurred and be continuing on such date. SECTION 5. REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loans and to induce the Issuing Lenders to issue, and the Participating Lenders to participate in, the Letters of Credit as herein provided, the Company hereby represents and warrants to the Administrative Agent and to each Lender that: 5.1 Financial Condition. The consolidated balance sheet of the Company and its Subsidiaries as at December 31, 1994 and the related consolidated statements of income, common stockholders' equity, and cash flows for the year then ended, certified by KPMG -40- 46 Peat Marwick LLP, copies of which have been heretofore furnished to each Lender, present fairly the consolidated financial position of the Company and its Subsidiaries as at such date, and the consolidated results of their operations and cash flows for the year then ended, in accordance with GAAP. The unaudited consolidated balance sheet of the Company and its Subsidiaries as of September 30, 1995, together with unaudited consolidated statements of income and cash flows for the nine months ended September 30, 1994 and 1995, included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, present fairly the consolidated financial position of the Company and its Subsidiaries as of September 30, 1995 and the consolidated results of their operations and cash flows for the nine months ended September 30, 1994 and 1995, in conformity with GAAP applicable to Reports on Form 10-Q. Since September 30, 1995, there has been no change in the consolidated financial position or results of operations of the Company and its Subsidiaries which is reasonably likely to have a material adverse effect on the ability of the Company to repay the principal of and interest on the Loans and all other amounts payable under this Agreement in accordance with the terms of this Agreement and the Notes, except as set forth in, or contemplated by the disclosures contained in, the SEC Reports. 5.2 Corporate Existence; Qualification. The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of Delaware, (ii) has the corporate power and authority to own and operate its properties, to lease the properties it operates as lessee and to conduct the business in which it is currently engaged and (iii) is duly qualified as a foreign corporation and is in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and where the failure to be so qualified and in good standing would have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. 5.3 Corporate Power; Authorization; Enforceable Obligations. (a) The Company has the corporate power and authority to execute, deliver and perform this Agreement and the Notes. The Company has the corporate power and authority to borrow hereunder and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and the Notes. The Company has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the Notes prior to the execution and delivery thereof. (b) No consent or authorization of, or filing with or other act by or in respect of, any Person (including, without limitation, any Governmental Authority) is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or the Notes or the consummation of the transactions contemplated hereby or thereby, except (i) for consents, authorizations and filings which have been obtained or made, as the case may be, and are in full force and effect, (ii) which are not required to be obtained or made prior to the date on which this representation is made or deemed made or (iii) the failure of which to obtain or make (x) would not have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole or (y) would not materially adversely affect the ability of the Company to perform its obligations under this Agreement or the Notes. -41- 47 (c) This Agreement has been duly executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. The Notes have been duly authorized by the Company and, when executed, issued and delivered pursuant hereto, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 5.4 No Legal Bar. The execution, delivery and performance by the Company of this Agreement and the Notes, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of the Company except for such violations which would not have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole, and will not result in, or require, the creation or imposition of, any Lien on any of its properties or revenues pursuant to any Requirement of Law or Contractual Obligation. 5.5 No Material Litigation. No litigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Company, threatened by or against the Company or any of its Subsidiaries which is reasonably likely to have a material adverse effect on the ability of the Company to repay the principal of and interest on the Loans and all other amounts payable under this Agreement in accordance with the terms of this Agreement and the Notes, except as set forth in, or contemplated by the disclosures contained in, the SEC Reports. 5.6 Margin Regulations. No part of the proceeds of any Loans hereunder will be used for any purpose which violates the provisions of Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. The Company is not engaged nor will it engage, principally, or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under said Regulation U. 5.7 ERISA. (i) No employee benefit plan established or maintained, or to which contributions have been made, by the Company or any Commonly Controlled Entity which is subject to Part 3 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"), had an accumulated funding deficiency as of the last day of the most recent fiscal year of such plan ended prior to the date hereof, (ii) no material liability to the Pension Benefit Guarantee Corporation has been incurred with respect to any such plan by the Company and (iii) neither any such plan nor any trustee or administrator of any such plan has engaged in a prohibited transaction which could subject any such plan, or any such trustee or administrator, or any party dealing with any such plan, to the tax or penalty on prohibited transactions imposed by Section 4975 of the Code, except in any such case referred to in clause (i), (ii) or (iii) which would not, individually or in the aggregate, have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. As used in this Agreement, the term "accumulated funding deficiency" has the meaning assigned to -42- 48 such term in ERISA and the term "prohibited transaction" shall have the meaning assigned to such term in said Section 4975. 5.8 Environmental Regulations. Except as set forth in, or contemplated by the disclosures contained in, the SEC Reports, each of the Company and its Subsidiaries is in compliance with all Requirements of Law relating to pollution and environmental control in all jurisdictions in which it is presently doing business, except to the extent that the failure to comply therewith would not, individually or in the aggregate, have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. 5.9 Investment Company Act, Public Utility Holding Company Act. The Company is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. The Company is not subject to any duty, obligation or liability as a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6. AFFIRMATIVE COVENANTS The Company agrees that, so long as the Commitments remain in effect, any Loans or any Letter of Credit Obligations remain outstanding and unpaid or any other amount is owing to any Lender or the Administrative Agent hereunder, the Company shall, and, except in the case of the agreements set forth in subsections 6.1, 6.2 and 6.7, shall cause each of its Significant Subsidiaries to: 6.1 Financial Statements. Furnish to each Lender: (a) within 120 days after the end of each fiscal year of the Company, a copy of the audited consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income and stockholders' equity and cash flows for such year, setting forth in comparative form the figures for the previous year, reported on without qualification arising out of the scope of the audit by independent certified public accountants of nationally recognized standing selected by the Company; and (b) within 60 days after the end of each of the first three quarterly periods of each fiscal year of the Company, a copy of the unaudited consolidated balance sheets of the Company and its consolidated Subsidiaries as at the end of each such quarter, the related unaudited consolidated statements of income of the Company and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through such date and the related unaudited consolidated statements of cash flows of the Company and its consolidated Subsidiaries for the portion of the fiscal year through such date, setting forth in each case in comparative form the figures for the corresponding prior year-to-date period (subject to normal year-end audit adjustments). -43- 49 The Company covenants and agrees that all such financial statements shall be prepared in accordance with GAAP (subject, in the case of interim statements, to normal year-end audit adjustments and except that such interim statements may be prepared in accordance with GAAP applicable to Reports on Form 10-Q) applied consistently throughout the periods reflected therein (except as disclosed therein). 6.2 Certificates; Other Information. Furnish to each Lender: (a) concurrently with the delivery of the financial statements referred to in subsections 6.1(a) and (b), a certificate of a Responsible Officer (i) stating that such Responsible Officer has obtained no knowledge of any Default or Event of Default, except as specified in such certificate, (ii) stating, to the best of such Responsible Officer's knowledge, that all such financial statements have been prepared in accordance with GAAP (subject, in the case of interim statements, to normal year-end audit adjustments and except that such interim statements may have been prepared in accordance with GAAP applicable to Reports on Form 10-Q) applied consistently throughout the periods reflected therein (except as disclosed therein) and (iii) showing in detail the calculations supporting such statements in respect of subsection 7.1; (b) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally and all regular and periodic reports (other than on Form 11-K) and all final registration statements (other than on Form S-8) and final prospectuses, if any, filed by the Company with any securities exchange or with the Securities and Exchange Commission or any Governmental Authority succeeding to any of its functions; and (c) promptly, such additional financial and other information as any Lender may from time to time reasonably request through the Administrative Agent. 6.3 Payment of Taxes. Pay and discharge, or cause the payment and discharge of, all federal and all other material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien upon any properties of the Company or any of its Significant Subsidiaries; provided that neither the Company nor any of its Significant Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and (if necessary) by proper proceedings if it has maintained adequate reserves (in the good faith judgment of management of the Company or the relevant Significant Subsidiary, as the case may be) with respect thereto in accordance with GAAP. 6.4 Maintenance of Existence. Preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all material rights, privileges and franchises necessary or desirable in the normal conduct of its business (provided that the foregoing shall not prevent (i) any merger or consolidation of any Subsidiary with, or any sale or other disposition by any Subsidiary of any property or assets to, the Company or a Wholly-Owned Subsidiary or (ii) the taking of, or failure to take, any action which, in the opinion of the chief executive officer or chief financial officer of the Company, will not -44- 50 materially adversely affect the ability of the Company to perform its obligations hereunder); and comply with all Requirements of Law except to the extent the same is being contested in good faith and except to the extent that failure to comply therewith would not, in the aggregate, have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. 6.5 Maintenance of Property; Insurance. (a) Keep all property useful and necessary in its business in good working order and condition, normal wear and tear excepted, to the extent customary for companies in similar businesses; and (b) Maintain with financially sound insurance companies insurance on all its property in at least such amounts and with such deductibles as are usually maintained by, and against at least such risks as are usually insured against in the same general area by, companies engaged in the same or a similar business. 6.6 Inspection of Property; Books and Records; Discussions. Upon reasonable notice to the Company by the Administrative Agent or 25% of the Lenders given through the Administrative Agent and at the expense of the relevant Lenders, permit representatives of any Lenders to visit and inspect such of their properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business of the Company and its Subsidiaries with officers and employees of the Company and its Subsidiaries and with its independent certified public accountants. Each Lender shall hold all non-public information obtained pursuant to this subsection 6.6 confidential in accordance with its customary procedures in respect of confidential information and in any event subject to subsection 10.10(e) may make any disclosure to a Transferee or as required or requested by any Governmental Authority. 6.7 Notices. Promptly give notice to the Administrative Agent and each Lender: (a) of the occurrence of any Default or Event of Default; and (b) of any litigation or proceeding affecting the Company or any of its Subsidiaries (i) in which the amount claimed is $25,000,000 or more and not covered by insurance or (ii) in which injunctive or similar relief is sought, which in any such case referred to in clause (i) or (ii) if obtained would have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. Each notice pursuant to this subsection 6.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Company or such Subsidiary proposes to take with respect thereto. SECTION 7. NEGATIVE COVENANTS The Company hereby agrees that, so long as the Commitments remain in effect, any Loans or any Letter of Credit Obligations remain outstanding and unpaid or any other amount is owing to any Lender or the Administrative Agent, the Company shall not, and, in the case -45- 51 of subsections 7.2, 7.5 and 7.6, shall not permit any of its Subsidiaries to, directly or indirectly: 7.1 Maintenance of Consolidated Indebtedness to Consolidated Capitalization Percentage Ratio of the Company. Permit the ratio (expressed as a percentage) of (a) Consolidated Indebtedness to (b) Consolidated Capitalization as at the end of any calendar quarter to be greater than 65%. 7.2 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except: (a) Liens for taxes, assessments, governmental charges or levies not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves (in the good faith judgment of the Company) with respect thereto are maintained on the books of the Company in accordance with GAAP; (b) statutory Liens of landlords and carrier's, vendor's, warehousemen's, mechanic's, materialmen's, repairmen's, or other like Liens arising in the ordinary course of business if the obligations secured by such Liens are not overdue for a period of more than 60 days or which are being contested in good faith and (if necessary) by appropriate proceedings; (c) pledges or deposits and Liens under bonds required in connection with worker's compensation, unemployment insurance and other social security legislation incurred in the ordinary course of business; (d) Liens incurred or deposits to secure the performance of tenders, bids, contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance and return-of-money bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Company; (f) Liens arising from judgments or decrees in circumstances not constituting an Event of Default under subsection 8.1(g); (g) purchase money Liens securing obligations arising from the acquisition by the Company of property, provided that the principal amount of such obligations does not exceed the purchase price of such property; (h) (A) Liens in existence on the date of this Agreement, (B) Liens on any property existing at the time of acquisition thereof (including Liens on any property acquired from a Person which is merged into the Company) and (C) any extension, renewal or refunding of any Lien referred to in clause (A) or (B), provided that no such Lien is extended to cover any -46- 52 additional property (other than replacement property) and that the amount of Indebtedness secured thereby is not increased; (i) Liens in respect of future demand charges or reservation charges sold by the Company or any Subsidiary not exceeding $275,000,000 at any one time; (j) Liens in favor of the Company or any Subsidiary; (k) Liens in favor of the Administrative Agent, any Issuing Lender or the Lenders under this Agreement; and (l) other Liens securing obligations such that the aggregate book value (net of applicable reserves) of the assets securing such obligations does not exceed at any one time an amount equal to 10% of Consolidated Tangible Assets at such time. 7.3 Consolidation, Merger, Etc. Consolidate with, merge into or sell, lease or otherwise dispose of its properties and assets as an entirety or substantially as an entirety to any Person in one transaction or any series of transactions. 7.4 Principal Subsidiaries. (a) Fail to own, directly or indirectly, all of the outstanding shares of common stock of each of the Principal Subsidiaries or (b) create, incur, assume or suffer to exist any Lien upon any shares of common stock of any Principal Subsidiary owned by the Company or any of its Subsidiaries except Liens of the nature referred to in clauses (a), (f), (j) and (k) of subsection 7.2. 7.5 Lines of Business. Engage in any line of business which is material to the Company and its Subsidiaries taken as a whole other than the lines of business in which the Company and its Subsidiaries are now engaged and other energy related lines of business. 7.6 Asset Sales. Make any Asset Sale in any fiscal year if such Asset Sale, together with all other Asset Sales made during such fiscal year, will result in Asset Sales of property or assets with an aggregate fair market value (as determined in good faith by the Company) equal to or greater than 5% of Consolidated Tangible Assets at the time of such Asset Sale. SECTION 8. EVENTS OF DEFAULT Upon the occurrence and during the continuance of any of the following events: (a) Payments. The Company shall fail to pay any principal of any Loan when due (whether at stated maturity, by acceleration or otherwise); or the Company shall fail to pay any interest on any Loan or any fee payable hereunder within ten days after the same becomes due and payable in accordance with the terms hereof; or (b) Representations and Warranties. Any representation, warranty or other statement made or deemed made by the Company herein or which is contained in any -47- 53 certificate furnished at any time pursuant to Section 4 hereof shall prove to have been untrue in any material respect on or as of the date made or deemed made or furnished; or (c) Certain Covenants. The Company shall default in the observance or performance of any covenant or agreement contained in subsection 7.1, 7.3, 7.4, 7.5 or 7.6; or (d) Other Covenants. The Company shall default in the observance or performance of any other covenant or agreement contained in this Agreement, and any such default referred to in this paragraph (d) shall continue unremedied for a period of 30 days after written notice from the Administrative Agent at the direction of the Required Lenders; or (e) Cross-Default. The Company, any of its Significant Subsidiaries or any Principal Subsidiary shall (i) default in any payment of principal of or interest on any other Indebtedness for borrowed money or deferred Indebtedness for the payment of the purchase price of property or assets purchased, in excess of $100,000,000 in the aggregate, beyond the period of grace, if any, provided in the agreement or instrument under which such Indebtedness was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any agreement or instrument evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, without the further giving of notice or the further lapse of time, if required, such Indebtedness to become due prior to its stated maturity; provided, however, that if either (i) such Indebtedness shall have been paid or (ii) such default or other event shall be cured by the Company, such Significant Subsidiary or such Principal Subsidiary, as the case may be, or waived by the holders of such Indebtedness and any acceleration of maturity having resulted from such default or other event or condition shall be rescinded or annulled, in each case in accordance with the terms of such agreement or instrument, without any modification of the terms of such Indebtedness requiring the Company, such Significant Subsidiary or such Principal Subsidiary, as the case may be, to furnish additional or other security therefor or reducing the average life to maturity thereof or increasing the principal amount thereof or any agreement by the Company, such Significant Subsidiary or such Principal Subsidiary, as the case may be, to furnish additional or other security therefor or to issue in lieu thereof Indebtedness secured by additional or other collateral or with a shorter average life to maturity or in a greater principal amount, then any default hereunder by reason thereof shall be deemed to have been thereupon cured or waived; or (f) Bankruptcy or Reorganization Proceeding. (i) The Company, any of its Significant Subsidiaries or any Principal Subsidiary shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company, any of its Significant Subsidiaries or any Principal Subsidiary shall -48- 54 make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company, any of its Significant Subsidiaries or any Principal Subsidiary any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company, any of its Significant Subsidiaries or any Principal Subsidiary any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company, any of its Significant Subsidiaries or any Principal Subsidiary shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any of the Company, any of its Significant Subsidiaries or any Principal Subsidiary shall generally not, or shall be unable to, or shall admit in writing its inability to, pay their respective debts as they become due; or (g) Judgments. One or more judgments or decrees for the payment of money shall be entered against the Company or any of its Significant Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance, except for any reasonable deductible) of $25,000,000 or more and there shall have been a period of 60 consecutive days during which a stay of enforcement of such judgment or decree, by reason of a pending appeal or otherwise, shall not be in effect or during which such judgment or decree shall not have been vacated or discharged; or (h) Change in Control of the Company. (i) Any Person or any Persons acting together which would constitute a "group" for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof, shall acquire direct or indirect beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of 50% or more of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of directors of the Company or (ii) the election by any Person or Group, together with any Affiliates thereof, of a sufficient number of its or their nominees to the Board of Directors of the Company such that such nominees, when added to any existing directors remaining on such Board of Directors after such election who are Affiliates of such Person or Group, shall constitute a majority of such Board of Directors; or (i) ERISA. Any accumulated funding deficiency shall exist with respect to any employee benefit plan established or maintained, or to which contributions have been made, by the Company or any Commonly Controlled Entity or the Company shall incur any material liability to the Pension Benefit Guarantee Corporation with respect to any such plan or any such plan or trustee or administrator thereof shall engage in a prohibited transaction, and in each case such event or condition, together with all such other events or conditions which have occurred and are continuing at such time, has a material adverse effect on the ability of the Company to perform its obligations under this Agreement or the Notes; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Company, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other -49- 55 amounts owing under this Agreement (including amounts payable in respect of Letters of Credit whether or not the beneficiaries thereof shall have presented the drafts and other documents required thereunder) and the Notes shall immediately become due and payable and (B) if such event is any other Event of Default, any of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the direction of the Required Lenders, the Administrative Agent shall, by notice to the Company, declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the direction of the Required Lenders, the Administrative Agent shall, by notice of default to the Company, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including amounts payable in respect of Letters of Credit whether or not the beneficiaries thereof shall have presented the drafts and other documents required thereunder) and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable; and (iii) the Administrative Agent may, and upon the direction of the Required Lenders shall, exercise any and all remedies and other rights provided pursuant to this Agreement. With respect to all Letters of Credit that shall not have expired or with respect to which presentment for honor shall not have occurred, upon the occurrence of an Event of Default, the Company shall deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate undrawn face amount of such Letters of Credit for application to payments of drafts drawn thereunder, and the Administrative Agent shall use its best efforts to invest such amounts so deposited in United States Treasury bills or other Cash Equivalents designated by the Company; provided that the Administrative Agent shall not be liable to the Company for failure to invest or for any losses suffered as a result of any such investment or withdrawal. The unused portion of such amounts, if any, shall be returned to the Company after the respective expiry dates of the Letters of Credit and after all Obligations are paid in full. Except as expressly provided above in this Section 8, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 9. THE ADMINISTRATIVE AGENT AND THE ISSUING LENDERS 9.1 Appointment. Each Lender hereby irrevocably designates and appoints Chemical as the Administrative Agent of such Lender under this Agreement, the Notes and each other agreement (if any) entered into pursuant to this Agreement (collectively, the "Credit Documents") and Chemical and each other Lender so designated hereunder as the Issuing Lenders under this Agreement, and each such Lender irrevocably authorizes Chemical as the Administrative Agent for such Lender and Chemical and each other Issuing Lender as Issuing Lenders to take such action on its behalf under the provisions of this Agreement and each other Credit Document and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent or the Issuing Lenders, as the case may be, by the terms of this Agreement and each other Credit Document, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, neither the Administrative Agent nor the Issuing Lenders shall have any duties or responsibilities, except those expressly set forth herein and in the other Credit Documents, or any fiduciary relationship with any Lender, and no implied covenants, -50- 56 functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent and the Issuing Lenders. 9.2 Delegation of Duties. The Administrative Agent and the Issuing Lenders may execute any of their respective duties under this Agreement or the other Credit Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither the Administrative Agent nor any Issuing Lender shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 9.3 Exculpatory Provisions. Neither the Administrative Agent nor any Issuing Lender nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Credit Document (except for its or such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Company or any officer thereof contained in this Agreement or any other Credit Document or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or any other Credit Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Credit Document, or for any failure of the Company or any other Person to perform its obligations hereunder or thereunder. Neither the Administrative Agent nor any Issuing Lender shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Credit Document or to inspect the properties, books or records of the Company or any of its Subsidiaries. This subsection 9.3 is intended to govern the relationship between the Administrative Agent and the Issuing Lenders, on the one hand, and the Lenders, on the other. 9.4 Reliance by Administrative Agent and the Issuing Lenders. The Administrative Agent and the Issuing Lenders shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by any of them to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Administrative Agent or an Issuing Lender. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent and the Issuing Lenders shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless any such Person shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent and the Issuing Lenders shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Required -51- 57 Lenders (or, if required by this Agreement, all of the Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. 9.5 Notice of Default. Neither the Administrative Agent nor any Issuing Lender shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent or such Issuing Lender, as the case may be, has received notice from a Lender or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent or an Issuing Lender receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent and the Issuing Lenders shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Administrative Agent or the Issuing Lenders shall have received such directions, the Administrative Agent and the Issuing Lenders may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as they shall deem advisable in the best interests of the Lenders. 9.6 Non-Reliance on Administrative Agent, Issuing Lenders and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor the Issuing Lenders nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent or the Issuing Lenders hereafter taken, including any review of the affairs of the Company, shall be deemed to constitute any representation or warranty by the Administrative Agent or the Issuing Lenders to any Lender. Each Lender represents to the Administrative Agent and the Issuing Lenders that it has, independently and without reliance upon the Administrative Agent, the Issuing Lenders or any other Lender and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent, the Issuing Lenders or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement or under the other Credit Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent or an Issuing Lender hereunder or under the other Credit Documents, neither the Administrative Agent nor such Issuing Lender shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of the Administrative Agent or the Issuing Lenders or any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates. 9.7 Indemnification. The Lenders agree to indemnify the Administrative Agent and the Issuing Lenders in their respective capacities as such (to the extent not reimbursed by the -52- 58 Company and without limiting the obligation of the Company to do so), ratably according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Administrative Agent or the Issuing Lenders in any way relating to or arising out of this Agreement or any other Credit Document or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent or the Issuing Lenders under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's or an Issuing Lender's gross negligence or willful misconduct. The agreements in this subsection 9.7 shall survive the payment of the Notes and all other amounts payable hereunder. 9.8 Administrative Agent and Issuing Lenders in Their Individual Capacities. The Administrative Agent, each Issuing Lender and their respective Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company as though the Administrative Agent or such Issuing Lender were not the Administrative Agent or an Issuing Lender, respectively, hereunder. With respect to Loans made or renewed by it and any Note issued to it, the Administrative Agent and the Issuing Lenders shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent or an Issuing Lender, and the terms "Lender" and "Lenders" shall include the Administrative Agent and the Issuing Lenders in their respective individual capacities. 9.9 Successor Administrative Agent and Issuing Lenders. The Administrative Agent or any Issuing Lender may resign as Administrative Agent or Issuing Lender upon 30 days' notice to the Company and the Lenders. If the Administrative Agent or any Issuing Lender shall resign as Administrative Agent or Issuing Lender under this Agreement, then the Required Lenders during such 30-day period shall appoint from among the Lenders a successor agent or issuing bank for the Lenders, whereupon such successor agent or issuing bank shall succeed to the rights, powers and duties of the Administrative Agent or Issuing Lender being replaced and the term "Administrative Agent" or "Issuing Lender" shall mean such successor agent or issuing bank, respectively, effective upon its appointment, and the former Administrative Agent's or Issuing Lender's rights, powers and duties as Administrative Agent or Issuing Lender shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or Issuing Lender or any of the parties to this Agreement or any holders of the Notes; provided that no successor agent or issuing bank may be appointed by the Required Lenders without the prior written consent of the Company, which consent shall not be unreasonably withheld. After any retiring Administrative Agent's or Issuing Lender's resignation hereunder as the Administrative Agent or an Issuing Lender, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent or an Issuing Lender under this Agreement. -53- 59 SECTION 10. MISCELLANEOUS 10.1 Amendments and Waivers. Neither this Agreement, any Note, any other Credit Document nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection 10.1. With the written consent of the Required Lenders, the Administrative Agent and the Company may, from time to time, enter into written amendments, supplements or modifications for the purpose of adding, deleting or changing any provisions to this Agreement, the Notes or any other Credit Document, or changing in any manner the rights of the Lenders or of the Company hereunder or thereunder or waiving, on such terms and conditions as the Administrative Agent may specify in such instrument, any of the requirements of this Agreement, the Notes or any other Credit Document or any Default or Event of Default and its consequences; provided that no such waiver and no such amendment, supplement or modification shall (a) extend the Termination Date or extend the maturity of any Loan or any installment thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any fee payable to the Lenders hereunder, or reduce the principal amount thereof, or increase the amount of any Lender's Commitment or Commitment Percentage, or amend, modify or waive any provision of this subsection 10.1 or reduce the percentage specified in the definition of Required Lenders, or consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement, in each case without the written consent of all the Lenders or (b) amend, modify or waive any provision of Section 9 without the written consent of the then Administrative Agent or Issuing Lender affected by such amendment, modification or waiver. Any such waiver and any such amendment, supplement or modification shall apply to each of the Lenders equally and shall be binding upon the Company, the Lenders, the Administrative Agent and all future holders of the Notes. In the case of any waiver, the Company, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 10.2 Notices. Except as otherwise expressly provided herein, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile), and shall be deemed to have been duly given or made when delivered by hand, or five days after being deposited in the United States mail, postage prepaid, or, in the case of facsimile notice, when sent, and telephonically confirmed, or, in the case of a nationally recognized courier service, one Business Day after delivery to such courier service, addressed as follows in the case of the Company and the Administrative Agent, and as set forth on Schedule 1 in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: The Company: PanEnergy Corp 5400 Westheimer Court Houston, Texas 77056-5310 Attention: Treasurer Facsimile: (713) 627-4603 Confirmation: (713) 627-5900 -54- 60 The Administrative Agent: Chemical Bank 270 Park Avenue New York, New York 10017 Attention: Energy Division Facsimile: (212) 270-4892 Confirmation: (212) 270-3531 provided that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to subsections 2.3, 2.15, 3.5, 3.6 and 3.10 shall not be effective until actually received. 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and issuance of Letters of Credit hereunder. 10.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse the Administrative Agent for all the reasonable fees and disbursements of counsel to the Administrative Agent incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the Notes and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, (b) to pay or reimburse each Lender and the Administrative Agent for all their costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes and any such other documents, including, without limitation, the fees and disbursements of counsel to the Administrative Agent, and (c) to pay, indemnify and hold each Lender and the Administrative Agent harmless from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes and any such other documents. This covenant shall survive the termination of this Agreement and payment in full of the Obligations. 10.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company, the Lenders, the Administrative Agent, all future holders of the Notes and their respective successors and assigns, except that the Company may not assign or -55- 61 transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. No Lender may participate, assign or sell any of its Credit Exposure (as defined in subsection 10.7) except as required by operation of law, in connection with the merger, consolidation, dissolution or sale of any Lender or the sale of all or substantially all of the assets of such Lender or as provided in subsection 10.7, 10.8 or 10.9. 10.7 Participations. Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more commercial banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any L/C Participating Interest of such Lender, any part of the Commitment of such Lender or any other interest of such Lender hereunder (in respect of any such Lender, its "Credit Exposure"); provided, however, that, except with the prior written consent of the Company and the Administrative Agent (which in each case shall not be unreasonably withheld), after giving effect to all of such sales by any Lender, and any other assignments permitted under this subsection 10.7 and 10.8, such Lender shall continue to have beneficial ownership of Credit Exposure equal to not less than 50% of its Commitment; and provided, further, that no Participant (other than an Affiliate of a Lender) shall be entitled under the relevant participation agreement to require such Lender to take or omit to take any action hereunder, except, to the extent any Participant has any interest directly affected thereby, that extends the Termination Date or the final maturity of any Note or any installment thereof or reduces the rate or extends the time of payment of interest thereon, or reduces any fee payable to the Lenders hereunder, or reduces the principal amount thereof, or changes the amount of any Lender's Commitment Percentage, or increases the amount of any Lender's Commitment. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note or L/C Participating Interest for all purposes under this Agreement, and the Company and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. The Company agrees that if amounts outstanding under this Agreement and the Notes are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement, any Note and any Letter of Credit to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note or the Issuing Lender with respect to any Letter of Credit; provided that such right of set-off shall be subject to the obligations of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in subsection 10.11. The Company also agrees that each Participant shall be entitled to the benefits of subsections 3.12, 3.13, 3.14 and 3.15 with respect to its participation in the Commitments, the Loans and the Letters of Credit outstanding from time to time; provided that no Participant shall be entitled to receive any greater amount pursuant to such subsections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. 10.8 Assignments. Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to any other Lender -56- 62 or any Affiliate thereof, and, subject to the limitations set forth in the proviso to this sentence and with the consent of the Company and the Administrative Agent (which in each case shall not be unreasonably withheld) to one or more additional commercial banks or other financial institutions ("Purchasing Lenders") all or any part of its rights and obligations under this Agreement and its Notes and with respect to the Letters of Credit, pursuant to a Commitment Transfer Supplement, in the form of Exhibit I (a "Commitment Transfer Supplement"), executed by such Purchasing Lender, such transferor Lender (and, in the case of a Purchasing Lender that is not then a Lender or an Affiliate thereof, by the Company and the Administrative Agent), and delivered to the Administrative Agent for its acceptance and recording in the Register; provided, however, that, except with the prior written consent of the Company (which consent shall not be unreasonably withheld) or in connection with a transfer pursuant to subsection 10.10(d), (i) the Commitment purchased by any such Purchasing Lender that is not then a Lender shall be equal to or greater than $15,000,000 and (ii) the transferor Lender which has transferred part of its Commitment to any such Purchasing Lender that is not then a Lender shall retain a Commitment, after giving effect to such sale, equal to or greater than $15,000,000 in the aggregate. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date determined pursuant to such Commitment Transfer Supplement, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein to the same extent as if it were an original party hereto with the same Commitment Percentage set forth in such Commitment Transfer Supplement and no further action by the Company, the Lenders or the Administrative Agent shall be required in respect thereof except as otherwise provided herein, and (y) the transferor Lender thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto except, in respect of periods prior to such termination, with respect to subsections 3.8, 3.14, 3.15 and 10.5). Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and its Notes and with respect to the Letters of Credit. On or prior to the Transfer Effective Date determined pursuant to such Commitment Transfer Supplement, the Company, at the Company's expense, shall execute and deliver to the Administrative Agent in exchange for each surrendered Note a new Note, to the order of such Purchasing Lender, and each Issuing Lender shall execute and deliver new Letter of Credit Participation Certificates, if appropriate, in each case in amounts equal to its respective percentages of Commitments or, as appropriate, the outstanding Loans as adjusted assumed by it pursuant to such Commitment Transfer Supplement and, if the transferor Lender has retained a Commitment or any Competitive Loans hereunder, a new Note or Notes to the order of the transferor Lender in an amount or amounts equal to the Commitment and any Competitive Loans retained by it hereunder. Such new Note or Notes shall be dated the Effective Date and shall otherwise be in the form of the Note replaced thereby. The Note surrendered by the transferor Lender shall be returned by the Administrative Agent to the Company marked "cancelled". If any Letter of Credit Participation Certificates have been issued to the transferor Lender and are -57- 63 then outstanding, appropriate adjustments by virtue of the issuance of new certificates to the Purchasing Lender and, if appropriate, the transferor Lender shall be made as promptly as practicable after the Transfer Effective Date. 10.9 Transfers of Competitive Loans. (a) Any Competitive Loan Lender, in the ordinary course of its business and in accordance with applicable law, at any time may assign to one or more banks or other entities (each, a "Competitive Loan Assignee") any Competitive Loan owing to such Competitive Loan Lender and any Individual Competitive Loan Note held by such Lender evidencing such Competitive Loan, pursuant to a Competitive Loan Assignment executed by the assignor Competitive Loan Lender and the Competitive Loan Assignee. (b) Upon such execution, from and after the date of such Competitive Loan Assignment, the Competitive Loan Assignee shall be deemed, to the extent of the assignment provided for in such Competitive Loan Assignment, and subject to the provisions of subsections 10.9(c) and 10.9(d), to have the same rights and benefits of payment and enforcement with respect to such Competitive Loan and Individual Competitive Loan Note (including, without limitation, the applicable rights set forth in subsections 3.12, 3.13, 3.14 and 3.15) and the same rights of setoff and obligation to share pursuant to subsection 10.11 as it would have had if it were a Competitive Loan Lender hereunder. (c) Unless such Competitive Loan Assignment shall otherwise specify and a copy of such Competitive Loan Assignment shall have been delivered to the Administrative Agent for its acceptance and recording in the Register in accordance with subsection 10.10(a), the assignor under the Competitive Loan Assignment shall act as collection agent for the Competitive Loan Assignee thereunder, and the Administrative Agent shall pay all amounts received from the Company which are allocable to the assigned Competitive Loan or Individual Competitive Loan Note directly to such assignor without any liability to such Competitive Loan Assignee. (d) A Competitive Loan Assignee under a Competitive Loan Assignment shall not, by virtue of such Competitive Loan Assignment, become a party to this Agreement or a "Competitive Loan Lender", or have any rights to consent to or refrain from consenting to any amendment, waiver or other modification of any provision of this Agreement or any related document; provided that (i) the assignor under such Competitive Loan Assignment and such Competitive Loan Assignee may, in their discretion, agree between themselves upon the manner in which such assignor will exercise its rights under this Agreement and any related document, and (ii) if a copy of such Competitive Loan Assignment shall have been delivered to the Administrative Agent for its acceptance and recording in the Register in accordance with subsection 10.10(a), no such amendment, waiver or modification may reduce or postpone any payment of principal or interest or modify the Competitive Loan Maturity Date in respect of any Competitive Loan or Individual Competitive Loan Note assigned to such Competitive Loan Assignee without the written consent of such Competitive Loan Assignee. (e) If a Competitive Loan Assignee has caused a Competitive Loan Assignment to be recorded in the Register in accordance with subsection 10.10(a) such Competitive Loan Assignee may thereafter, in the ordinary course of its business and in accordance with -58- 64 applicable law, assign the relevant Competitive Loans and Individual Competitive Loan Notes to any Competitive Loan Lender, to any affiliate or subsidiary of such Competitive Loan Assignee or to any other financial institution that has total assets in excess of $1,000,000,000 and that in the ordinary course of its business extends credit of the same type as the Competitive Loans, and the foregoing provisions of this subsection 10.9 shall apply, mutatis mutandis, to any such assignment by a Competitive Loan Assignee. Except in accordance with the preceding sentence, Competitive Loans and Individual Competitive Loan Notes may not be further assigned by a Competitive Loan Assignee, subject to any legal or regulatory requirement that the Competitive Loan Assignee's assets must remain under its control. 10.10 Register, Etc. (a) The Administrative Agent shall maintain at its address referred to in subsection 10.2 a copy of each Commitment Transfer Supplement and each Competitive Loan Assignment delivered to it and a register (the "Register") for the recordation of (i) the names and addressees of the Lenders and the Commitments of, and principal amount of the Loans owing to and L/C Participating Interests of, each Lender from time to time and (ii) with respect to each Competitive Loan Assignment delivered to the Administrative Agent, the name and address of the Competitive Loan Assignee and the principal amount of each Competitive Loan owing to such Competitive Loan Assignee. The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loans recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Lender or Competitive Loan Assignee at any reasonable time and from time to time upon reasonable prior notice. (b) Upon its receipt of a Commitment Transfer Supplement executed by a transferor Lender and a Purchasing Lender (and, in the case of a Purchasing Lender that is not then a Lender or an Affiliate thereof, by the Company and the Administrative Agent) together with payment by the Purchasing Lender to the Administrative Agent of a registration and processing fee of $2,500, the Administrative Agent shall (i) promptly accept such Commitment Transfer Supplement and (ii) on the Transfer Effective Date determined pursuant thereto (and as defined therein) record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Company. (c) Upon its receipt of a Competitive Loan Assignment executed by an assignor Competitive Loan Lender and a Competitive Loan Assignee, together with payment to the Administrative Agent of a registration and processing fee of $2,500 (which shall not be payable by the Company), the Administrative Agent promptly shall (i) accept such Competitive Loan Assignment, (ii) record the information contained therein in the Register and (iii) give notice of such acceptance and recordation to the assignor Competitive Loan Lender, the Competitive Loan Assignee and the Company. (d) If any Lender (or, if such Lender has participated all or any part of its Loans or Commitments or assigned any of its Competitive Loans, any of such Lender's Participants or Competitive Loan Assignees) does not agree with a proposal of the Company for an amendment, waiver or consent in respect of an issue described in clause (a) of the proviso to the second sentence of subsection 10.1, the Company, with the consent of the Required Lenders, may require that such Lender (and each of its Participants and Competitive Loan -59- 65 Assignees, if any) transfer all of its right, title and interest under this Agreement and such Lender's Note or Notes to a bank identified by the Company who agrees to assume the obligations of such Lender (a "Proposed Lender") for a consideration equal to the outstanding principal amount of such Lender's Loans, together with interest thereon to the date of such transfer and all other amounts payable hereunder (including but not limited to amounts payable under subsection 3.15) to such Lender on or prior to the date of such transfer. No Lender shall withhold its consent to such a transfer if the fee and any consideration paid to such transferee are reasonably acceptable to such Lender. Subject to the execution and delivery of a Commitment Transfer Supplement, such Proposed Lender shall be a "Lender" for all purposes hereunder. (e) The Company authorizes each Lender to disclose to any Participant, Competitive Loan Assignee or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Company which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Company in connection with such Lender's credit evaluation of the Company prior to entering into this Agreement; provided that, if non-public information is furnished, each Transferee shall execute and deliver to such Lender a confidentiality agreement between such Lender and the Transferee, substantially in the form previously approved by the Administrative Agent and the Company. (f) If, pursuant to subsection 10.7, 10.8 or 10.9, any interest in this Agreement or any Note or Letter of Credit is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee (unless such Transferee is a Lender purchasing under subsection 10.8) concurrently with the effectiveness of such transfer, (i) to represent to the transferor Lender (for the benefit of the transferor Lender, the Administrative Agent and the Company) that under applicable law and treaties no taxes will be required to be withheld by the Administrative Agent, the Company or the transferor Lender with respect to any payments to be made to such Transferee, in respect of the Loans or Letters of Credit, (ii) to furnish to the transferor Lender, the Administrative Agent and the Company either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Participant claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Lender, the Administrative Agent and the Company) to provide the transferor Lender, the Administrative Agent and the Company a new Form 4224 or Form 1001 upon the obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (g) Nothing herein shall prohibit any Lender from pledging or assigning any Notes to any Federal Reserve Bank in accordance with applicable law. 10.11 Adjustments; Set-Off. (a) If any Lender (a "Benefitted Lender") shall at any time receive any payment in respect of all or part of its Loans or L/C Participating Interests -60- 66 (other than pursuant to subsections 3.8, 3.12, 3.13, 3.14, 3.15, 3.17, 10.8, 10.9 or 10.10(d)), or interest thereon, or receive any collateral in respect thereof or any amount under any guarantee in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in clause (f) of Section 8, or otherwise) in a greater proportion than any such payment to and collateral received by any other Lender, if any, in respect of such other Lender's Loans or L/C Participating Interests, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lender such portion of each such other Lender's Loans or L/C Participating Interests, or shall provide such other Lender with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Lender so purchasing a portion of another Lender's Loans or L/C Participating Interests may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law, upon the occurrence of an Event of Default, each Lender shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by applicable law, to set off and apply against any indebtedness, whether matured or unmatured, of the Company to such Lender, any amount owing from such Lender to the Company, and the aforesaid right of set-off may be exercised by such Lender against the Company or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or executor, judgment or attachment creditor of the Company or against anyone else claiming through or against the Company or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or executor, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Lender prior to the making, filing or issuance, or service upon such Lender of, or of notice of, any such petition, assignment for the benefit of creditors, appointment or application for the appointment of a receiver, or issuance of execution, subpoena, order or warrant. Each Lender agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application. 10.12 Existing Facilities. Each Lender which is a party to the Existing Facilities (the "Existing Lenders") agrees that the irrevocable notice and direction to be delivered by the Company, PEPL and TETCO to each Lender and the Administrative Agent pursuant to subsection 4.1(d) shall constitute sufficient notice of the termination of the Commitments (as defined in each Existing Facility) and the prepayment of any loans outstanding under the Existing Facilities, and hereby waives any express notice requirements under each Existing Facility in connection therewith. 10.13 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies -61- 67 of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. 10.14 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 10.15 SUBMISSION TO JURISDICTION; WAIVERS. THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND THE APPELLATE COURTS FROM ANY THEREOF; (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS, AND WAIVES TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (C) AGREES THAT, IF IT SHALL NOT HAVE A REGISTERED AGENT FOR SERVICE OF PROCESS IN THE STATE OF NEW YORK, THEN SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), AS THE CASE MAY BE, AT ITS ADDRESS SET FORTH IN SUBSECTION 10.2 OR AT SUCH OTHER ADDRESS OF WHICH THE LENDERS SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND (D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION. 10.16 Limitation of Interest. It is expressly stipulated and agreed to be the intent of the Company and each Lender at all times to comply with the law applicable to such Lender in connection with the Credit Documents governing the maximum rate or amount of interest payable on or in connection with the Credit Documents. If the applicable law is ever judicially interpreted so as to render usurious any amount called for under the Credit Documents, or contracted for, charged, taken, reserved or received with respect to the Credit Documents, or if acceleration of the maturity of the Loans or if any prepayment by or on behalf of the Company results in the payment of any interest in excess of that permitted by -62- 68 applicable law, then it is the Company's and such Lender's express intent that all excess amounts theretofore collected by such Lender be credited on the principal balance of the Loans (or, if such Loans have been or would thereby be paid in full, refunded to the Company), and the provisions of the Credit Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced as to such Lender, without the necessity of the execution of any new document, so as to comply with applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. The right to accelerate the maturity of the Loans does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and the Lenders do not intend to collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to each Lender for the use, forbearance or detention of the indebtedness evidenced by the Credit Documents shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the rate or amount of interest on account of such indebtedness does not exceed the applicable usury ceiling. As used herein, the term "maximum rate" as to any Lender shall mean the maximum non-usurious rate of interest which may be lawfully contracted for, charged, taken, reserved or received by such Lender from the Company in connection with the Loans evidenced hereby under applicable law. 10.17 Entire Agreement. This Agreement constitutes the entire agreement and understanding among the parties hereto as to the subject matter hereof and supersedes any previous agreement, oral or written, as to such subject matter. -63- 69 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: [ILLEGIBLE] ----------------------------------------- Title: Treasurer and Assistant Secretary CHEMICAL BANK, as Administrative Agent, as an Issuing Lender and as a Lender By: /s/ JAMES H. RAMAGE ----------------------------------------- Title: Vice President BANK OF AMERICA ILLINOIS By: [ILLEGIBLE] ----------------------------------------- Title: BANK OF MONTREAL By: /s/ JULIA BUTHAM ----------------------------------------- Title: Director THE BANK OF NEW YORK By: /s/ RAYMOND J. PALMER ----------------------------------------- Title: Vice President 70 THE BANK OF NOVA SCOTIA By: /s/ F.C.H. ASHBY ----------------------------------------- Title: Senior Manager Loan Operations BARCLAYS BANK PLC By: [ILLEGIBLE] ----------------------------------------- Title: Director CIBC, INC. By: [ILLEGIBLE] ----------------------------------------- Title: Authorized Signatory THE FIRST NATIONAL BANK OF BOSTON By: /s/ CAROL E. HOLLEY ----------------------------------------- Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By: /s/ HELEN A. CARR ----------------------------------------- Title: Attorney in Fact MELLON BANK, N.A. By: /s/ E. MARO CUENOD, JR. ----------------------------------------- Title: First Vice President 71 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ JOHN KANDYH ----------------------------------------- Title: Vice President NATIONSBANK OF TEXAS, N.A. By: [ILLEGIBLE] ----------------------------------------- Title: Senior Vice President NATIONAL WESTMINSTER BANK PLC NEW YORK BRANCH By: /s/ DAVID L. SMITH ----------------------------------------- Title: Vice President NATIONAL WESTMINSTER BANK PLC NASSAU BRANCH By: /s/ DAVID L. SMITH ----------------------------------------- Title: Vice President BANK OF TOKYO LTD., DALLAS AGENCY By: [ILLEGIBLE] ----------------------------------------- Title: Vice President 72 THE FUJI BANK, LIMITED (HOUSTON AGENCY) By: [ILLEGIBLE] ----------------------------------------- Title: Vice President & Senior Manager THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: /s/ JOHN SULLIVAN ----------------------------------------- Title: Joint General Manager THE ROYAL BANK OF CANADA By: /s/ EVERETT M. HARNER ----------------------------------------- Title: Manager THE SANWA BANK, LIMITED, DALLAS AGENCY By: /s/ BRAIN J. HEAGLER ----------------------------------------- Title: Vice President SOCIETE GENERALE, SOUTHWEST AGENCY By: /s/ RICHARD A. GOULD ----------------------------------------- Title: Vice President 73 THE TORONTO-DOMINION BANK, HOUSTON AGENCY By: /s/ WARREN FINLAY ----------------------------------------- Title: Manager Credit UNION BANK OF SWITZERLAND, HOUSTON AGENCY By: /s/ DAN O. BOYLE ----------------------------------------- Title: Managing Director By: /s/ FINLEY BIGGERSTAFF ----------------------------------------- Title: Assistant Treasurer ARAB BANKING CORPORATION By: /s/ STEPHEN A. PLAUCHE ----------------------------------------- Title: Vice President BANK OF SCOTLAND By: /s/ CATHERINE M. ONIFFREY ----------------------------------------- Title: Vice President THE CHASE MANHATTAN BANK, N.A. By: /s/ BETTYLOU J. ROBERT ----------------------------------------- Title: Vice President 74 CHRISTIANIA BANK By: [ILLEGIBLE] ----------------------------------------- Title: Vice President By: /s/ CARL-PETTER SVENDSEN ----------------------------------------- Title: First Vice President FIRST INTERSTATE BANK OF TEXAS, N.A. By: /s/ COLLIE O. MICHAELS ----------------------------------------- Title: Vice President THE BANK OF YOKOHAMA, LOS ANGELES AGENCY By: [ILLEGIBLE] ----------------------------------------- Title: Deputy General Manager THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY By: [ILLEGIBLE] ----------------------------------------- Title: Senior Vice President THE MITSUBISHI BANK LIMITED, HOUSTON AGENCY By: /s/ SHOJI HONDA ----------------------------------------- Title: General Manager 75 THE NORTHERN TRUST COMPANY By: [ILLEGIBLE] ----------------------------------------- Title: Commercial Realty Officer THE SUMITOMO BANK LIMITED, HOUSTON AGENCY By: /s/ HARUMITSU SEKI ----------------------------------------- Title: General Manager 76 Schedule 1 Schedules to Credit Agreement dated as of January 31, 1996 LENDING OFFICES Chemical Bank 140 East 45th Street, 29th Floor New York, NY 10017 Attn: Hilma Gabbidon Telex: 166350 Answerback: TCBHOU Telecopy: (212) 622-0002 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Bank of America Illinois 231 South LaSalle Street, 10th Floor Chicago, IL 60697 Attn: Amy Goldstein Telecopy: (312) 974-9626 and Bank of Montreal 115 South LaSalle Street Chicago, IL 60603 Attn: Telex: Answerback: Telecopy: Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Bank of Montreal, Houston Agency 700 Louisiana, Suite 4400 Houston, TX 77002 Attn: Mark E. Peterson 77 Telex: 775640 Answerback: BMOHOU Telecopy: (713) 223-4007 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Bank of New York One Wall Street New York, NY 10286 Attn: Raymond J. Palmer Telex: MCI 62763 Answerback: BONY UW Telecopy: (212) 635-7923 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Bank of Nova Scotia-Atlanta Agency 600 Peachtree Street, N.E., Suite 2700 Atlanta, GA 30308 Attn: Claude Ashby Telex: 00542319 Answerback: SCOTIABANK ATL Telecopy: (404) 888-8998 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above With a copy to: Bank of Nova Scotia, Houston Rep. Office 2430 Two Shell Plaza Houston, TX 77002 Attn: R.R. Slaid -2- 78 Barclays Bank PLC 222 Broadway, 12th Floor New York, NY 10038 Attn: Customer Service Unit Telex: 126195 Answerback: BARCLADOM NYK Telecopy: (212) 412-5002 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above CIBC, Inc. 2 Paces West 2727 Paces Ferry Road, Suite 1200 Atlanta, GA 30339 Attn: Adrianne Burch Telex: 54-2413 Answerback: CANBANK ATL Telecopy: (404) 319-4950 (404) 319-4951 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The First National Bank of Boston 100 Federal Street, 01-15-4 Boston, MA 02110 Attn: Lee A. Merkle Telex: Answerback: Telecopy: (617) 434-3652 Domestic Lending Office: Same as above Eurodollar Lending Office: Bank of Boston 100 Federal St., 01-1B-12 Boston, MA 02110 -3- 79 The First National Bank of Chicago One First National Plaza Chicago, IL 60670 Attn: Petroleum & Mining Division Telex: Answerback: Telecopy: (312) 658-0880 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Mellon Bank, N.A. Three Mellon Bank Center Pittsburgh, PA 15259 Attn: Loan Administration Telex: 812367 Answerback: MELBNK Telecopy: (412) 236-2027 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Morgan Guaranty Trust Company of New York 60 Wall Street New York, NY 10260 Attn: John Kowalczuk Telex: ITT 420230 Answerback: MGT UI Telecopy: (212) 648-7612 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -4- 80 NationsBank of Texas, N.A. 700 Louisiana Street, 8th Floor Houston, TX 77002 Attn: Loan Services Telex: 6829317 Answerback: NATIONSBK-DAL Telecopy: (713) 247-6432 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above National Westminster Bank PLC 175 Water Street, Level 21 New York, NY 10038 Attn: Gary Tenner Telex: 233 222 Answerback: NWBUR Telecopy: (212) 602-4180 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Bank of Tokyo, Ltd., Dallas Agency 909 Fannin Street, Suite 1104 Houston, TX 77010 Attn: Michael G. Meiss Telex: Answerback: Telecopy: (713) 658-8341 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -5- 81 The Fuji Bank, Limited (Houston Agency) 1 Houston Center, Suite 4100 1221 McKinney Street Houston, TX 77010 Attn: Jenny Lin/Teri McPherson Credit Contact: Charles van Ravenswaay Telex: 790-026 Answerback: FUJIBANK HOU Telecopy: (713) 759-0048 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Long-Term Credit Bank of Japan, Ltd. 165 Broadway New York, NY 10006 Attn: Chikara Mano Telex: 425722 Answerback: LTCB-UI Telecopy: (212) 608-2371 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Royal Bank of Canada 1 Financial Square, 24th Floor New York, NY 10005-3531 Attn: Rosemary Addonizio, Loans Administration Telex: MCI 62519 Answerback: ROYBAN Telecopy: (212) 428-2372 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -6- 82 The Sanwa Bank, Limited, Dallas Agency 4100W Texas Commerce Tower 2200 Ross Avenue Dallas, TX 75201 Attn: Brian Heagler Telex: 735282 Answerback: SANWABK DAL Telecopy: (2214) 741-6535 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Societe Generale, Southwest Agency 1111 Bagby, Suite 2020 Houston, Texas 77002 Attn: Richard A. Gould Telex: Answerback: Telecopy: (713) 650-0824 Domestic Lending Office: 2001 Ross Avenue, Suite 4800 Dallas, Texas 75201 Attn: Ralph Saheb Telecopy: (214) 979-1104 Eurodollar Lending Office: Same as above The Toronto-Dominion Bank, Houston Agency 909 Fannin, 17th Floor Houston, TX 77010 Attn: Jeff Jones Telex: Answerback: Telecopy: (713) 951-9921 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -7- 83 Union Bank of Switzerland, Houston Agency 1100 Louisiana Street, Suite 4500 Houston, TX 77002 Attn: Dan Boyle Telex: 762 597 Answerback: UBSHOU Telecopy: (713) 655-6555 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Arab Banking Corporation (B.S.C.) 245 Park Avenue New York, NY 10167 Attn: Loan Manager Telex: 661978 WU Answerback: ABC NY Telecopy: (212) 599-8385 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Bank of Scotland 565 Fifth Avenue New York, NY 10017 Attn: Janet Taffe Telex: 6801012 Answerback: UBIFORN Telecopy: (212) 557-9460 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above Christiania Bank -8- 84 11 West 42nd Street, 7th Floor New York, NY 10026 Attn: Jahn O. Roising Telex: 824277 Answerback: CHRBK Telecopy: (212) 827-4888 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above First Interstate Bank of Texas, N.A. 1000 Louisiana, 3rd Floor Houston, TX 77002 Attn: Ann Rhoads Telex: 166488 Answerback: FITXINTHOU Telecopy: (713) 250-7912 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Bank of Yokohama, Ltd., Los Angeles Agency 777 So. Figueroa Street, Suite 700 Los Angeles, CA 90017 Attn: Mike Jackson Telex: TWX9103213395 Answerback: HAMAGIN Telecopy: (213) 236-0007 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -9- 85 The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza New York, NY 10081 Attn: Vito Cipriano Telex: 62910 CMBUW Telecopy: (212) 552-1687 Domestic Lending Office: Same as above Eurodollar Lending Office: Cayman Islands, B.W.I. c/o The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza New York, NY 10081 The Industrial Bank of Japan Trust Company 245 Park Avenue New York, NY 10167-0037 Attn: Ira Gottlieb Telex: 425754 Answerback: IBTC UI Telecopy: (212) 557-3581 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Mitsubishi Bank, Limited, Houston Agency 2 Houston Center, Suite 3100 909 Fannin Street Houston, TX 77010 Attn: Barrie Hogue Telex: 791211 Answerback: BISHIHOV Telecopy: (713) 658-0116 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -10- 86 The Northern Trust Company 50 South LaSalle Street Chicago, IL 60675 Attn: Mark A. Short Telex: WUD 254419 Answerback: NORTRUST CGO Telecopy: (312) 630-1566 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above The Sumitomo Bank, Limited, Houston Agency NCNB Center 700 Louisiana, Suite 1750 Houston, TX 77002 Attn: Akihiko Yuasa Telex: 774417 Answerback: SUMITBANK HOUA Telecopy: (713) 759-0020 Domestic Lending Office: Same as above Eurodollar Lending Office: Same as above -11- 87 Schedule 2 REVOLVING CREDIT COMMITMENTS
Percentage Commitment of Lender (in millions) Commitments ----- Chemical Bank $ 17.0 4.25% Bank of America Illinois 18.5 4.625 Bank of Montreal 18.5 4.625 The Bank of New York 18.5 4.625 The Bank of Nova Scotia 18.5 4.625 Barclays Bank PLC 18.5 4.625 CIBC, Inc. 18.5 4.625 The First National Bank of Boston 18.5 4.625 The First National Bank of Chicago 18.5 4.625 Mellon Bank, N.A. 18.5 4.625 Morgan Guaranty Trust Company of New York 18.5 4.625 NationsBank of Texas, N.A. 18.5 4.625 National Westminster Bank PLC 18.5 4.625 Bank of Tokyo, Ltd., Dallas Agency 12.0 3.0 The Fuji Bank, Limited (Houston Agency) 12.0 3.0 The Long-Term Credit Bank of Japan, Ltd. 12.0 3.0 The Royal Bank of Canada 12.0 3.0 The Sanwa Bank, Limited, Dallas Agency 12.0 3.0 Societe Generale, Southwest Agency 12.0 3.0 The Toronto-Dominion Bank, Houston Agency 12.0 3.0 Union Bank of Switzerland, Houston Agency 12.0 3.0 Arab Banking Corporation (B.S.C.) 6.5 1.625 Bank of Scotland 6.5 1.625 Christiania Bank 6.5 1.625 First Interstate Bank of Texas, N.A. 6.5 1.625 The Bank of Yokohama, Ltd., Los Angeles Agency 6.5 1.625 The Chase Manhattan Bank, N.A. 6.5 1.625 The Industrial Bank of Japan Trust Company 6.5 1.625 The Mitsubishi Bank, Limited, Houston Agency 6.5 1.625 The Northern Trust Company 6.5 1.625 The Sumitomo Bank, Limited, Houston Agency 6.5 1.625 ------ ----- Total $400.0 100.0% ====== =====
88 Schedule 3 EXCLUDED SALES OF ASSETS PEPL's transmission and gathering system west of Haven, Kansas known as the "West End System." The two liquefied natural gas tankers owned by Lachmar, a Delaware partnership, and related parts and equipment. PEPL's headquarters building and related assets located at 5400 Westheimer Court, Houston, Texas. Transportation equipment and related facilities of the Company and its Subsidiaries. Any investment in any entity (other than the Principal Subsidiaries) in which the Company and/or its Subsidiaries owns less than 100% of the equity interest. 89 EXHIBIT A TO CREDIT AGREEMENT FORM OF COMPETITIVE LOAN CONFIRMATION ____________, 199__ Chemical Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Reference is made to the Credit Agreement (Five Year Facility), dated as of January 31, 1996, among the undersigned, the Lenders named therein, and Chemical Bank, as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. In accordance with subsection 2.15(d) of the Credit Agreement, the undersigned accepts and confirms the offers by Competitive Loan Lender(s) to make Competitive Loans to the undersigned on ________________, 199__ [Competitive Loan Borrowing Date] under subsection 2.15(b) [index rate] or 2.15(c) [fixed rate] in the (respective) amount(s) set forth on the attached list of Competitive Loans offered. Very truly yours, PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: ----------------------------------- Title: [The Company must attach Competitive Loan Offer list prepared by Administrative Agent with accepted amount entered by the Company to right of each Competitive Loan Offer.] A-1 90 EXHIBIT B TO CREDIT AGREEMENT FORM OF COMPETITIVE LOAN OFFER Chemical Bank, as Administrative Agent ____________, 199__ 270 Park Avenue New York, New York 10017 Reference is made to the Credit Agreement (Five Year Facility), dated as of January 31, 1996, among Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp, the Lenders named therein, and Chemical Bank, as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. In accordance with subsection 2.15(b) [index rate] or 2.15(c) [fixed rate] of the Credit Agreement, the undersigned Competitive Loan Lender offers to make Competitive Loans thereunder in the following amounts with the following maturity dates: - -------------------------------------------------------------------------------- Competitive Loan Borrowing Date: _______________, 199__ Aggregate Maximum Amount $__________ - -------------------------------------------------------------------------------- Maturity Date 1: Maximum Amount: $_________________ _______________, 199__ $____________ offered at __________* $____________ offered at __________* - -------------------------------------------------------------------------------- Maturity Date 2: Maximum Amount: $_________________ _______________, 199__ $____________ offered at __________* $____________ offered at __________* - -------------------------------------------------------------------------------- Maturity Date 3: Maximum Amount: $_________________ _______________, 199__ $____________ offered at __________* $____________ offered at __________* - --------------------------------------------------------------------------------
Very truly yours, [NAME OF COMPETITIVE LOAN LENDER] By -------------------------------------- Name ------------------------------------ Title ----------------------------------- Telephone No. --------------------------- Fax No. --------------------------------- __________________________________ * Insert the interest rate offered for the specified loan amount. In the case of Index Rate Competitive Loans, insert a margin bid. In the case of Fixed Rate Competitive Loans, insert a fixed rate bid. B-1 91 EXHIBIT C TO CREDIT AGREEMENT FORM OF COMPETITIVE LOAN REQUEST _______________, 199__ Chemical Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Reference is made to the Credit Agreement (Five Year Facility), dated as of January 31, 1996, among the undersigned, the Lenders named therein, and Chemical Bank, as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. This is [an Index Rate] [a Fixed Rate] Competitive Loan Reques(1) pursuant to subsection 2.14(a) of the Credit Agreement requesting quotes for the following Competitive Loans:
============================================================================================= Loan 1 Loan 2 Loan 3 - --------------------------------------------------------------------------------------------- Aggregate Principal Amount $__________ $__________ $__________ - --------------------------------------------------------------------------------------------- Borrowing Date - --------------------------------------------------------------------------------------------- Competitive Loan Maturity Date - --------------------------------------------------------------------------------------------- Interest Payment Dates =============================================================================================
Very truly yours, PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: -------------------------------- Title: __________________________________ (1) Pursuant to the Credit Agreement, a Competitive Loan Request may be transmitted in writing (including by facsimile transmission), or by telephone, immediately confirmed by facsimile transmission. In any case, a Competitive Loan Request shall contain the information specified in the second paragraph of this form. C-1 92 EXHIBIT D TO CREDIT AGREEMENT FORM OF LETTER OF CREDIT PARTICIPATION CERTIFICATE __________, 19__ Name of Lender Dear Sirs: Pursuant to subsection 2.7 of the Credit Agreement (Five Year Facility) dated as of January 31, 1996 (the "Credit Agreement"; terms defined in the Credit Agreement being used herein with their respective defined meanings) among Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp, the financial institutions parties thereto (the "Lenders") and Chemical Bank, as Administrative Agent for the Lenders, the undersigned hereby acknowledges receipt from you on the date hereof of an L/C Participating Interest in the amount of ____________________ DOLLARS ($_________) in the following [Standby L/C] [Commercial L/C] and the Letter of Credit Application relating thereto. Very truly yours, [ISSUING LENDER] By: -------------------------------- Title: D-1 93 EXHIBIT E TO CREDIT AGREEMENT FORM OF REVOLVING CREDIT NOTE REVOLVING CREDIT NOTE New York, New York January 31, 1996 FOR VALUE RECEIVED, the undersigned, PANHANDLE EASTERN CORPORATION, a Delaware corporation, doing business as PanEnergy Corp (the "Company"), hereby unconditionally promises to pay on the Termination Date to the order of [NAME OF LENDER] (the "Lender") at the office of Chemical Bank located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal amount of the lesser of (a) _________________________ DOLLARS ($________) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Lender to the undersigned pursuant to subsection 2.1 of the Credit Agreement referred to below. The undersigned further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the date hereof at the applicable rate per annum set forth in subsection 3.1 of the Credit Agreement referred to below until any such amount shall become due and payable (whether at the stated maturity, by acceleration or otherwise), and thereafter on such overdue amount at the rate per annum set forth in subsection 3.1(e) of said Credit Agreement until paid in full (both before and after judgment). Interest shall be payable in arrears on each Interest Payment Date, commencing on the first such date to occur after the date hereof and upon payment (including prepayment) in full of the unpaid principal amount hereof. The holder of this Note is authorized to record the date, Type and amount of each Loan made by the Lender pursuant to subsection 2.1 of said Credit Agreement, the date and amount of each payment or prepayment of principal with respect thereto, the length of each Interest Period with respect to each Loan made and/or maintained as a Eurodollar Loan or CD Rate Loan and the Eurodollar Rate or Adjusted CD Rate and each conversion made pursuant to subsection 3.10 of said Credit Agreement on the schedules annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, which recordation shall constitute prima facie evidence of the accuracy of the information recorded; provided that failure by the Lender to make any such recordation on this Note shall not affect the obligations of the Company under this Note or said Credit Agreement. This Note is one of the Revolving Credit Notes referred to in the Credit Agreement (Five Year Facility) dated as of January 31, 1996 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among Panhandle Eastern Corporation, doing business as PanEnergy Corp, the Lender, the other financial institutions parties thereto, and Chemical Bank, as Administrative Agent, is entitled to the benefits thereof and is subject E-1 94 to prepayment in whole or in part as provided therein. Terms used herein which are defined in the Credit Agreement shall have such defined meanings unless otherwise defined herein or unless the context otherwise requires. Upon the occurrence of any one or more of the Events of Default specified in said Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: ------------------------------------ Title: E-2 95 SCHEDULE A to Revolving Credit Note LOANS, CONVERSIONS AND PAYMENTS WITH RESPECT TO ABR LOANS
Amount of ABR Loans Made or Amount of ABR Loans Converted from Paid or Converted into Unpaid Principal Eurodollar Loans or Eurodollar Loans or Balance of Date CD Rate Loans CD Rate Loans ABR Loans Notation Made by - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- ----------------- - ---------- ------------------- ---------------------- ---------------- -----------------
E-3 96 SCHEDULE B to Revolving Credit Note LOANS, CONVERSIONS AND PAYMENTS WITH RESPECT TO EURODOLLAR LOANS
Amount of Amount of Unpaid Eurodollar Loans Interest Period Eurodollar Loans Principal Made or Converted and Eurodollar Paid or Converted Balance of from ABR Loans or Rate with Respect into ABR Loans or Eurodollar Notation Date CD Rate Loans Thereto CD Rate Loans Loans Made By - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------ - --------- -------------------- ---------------------- ------------------ ------------- ------------
E-4 97 SCHEDULE C to Revolving Credit Note LOANS, CONVERSIONS AND PAYMENTS WITH RESPECT TO CD RATE LOANS
Amount of CD Rate Amount of CD Rate Loans Paid or Unpaid Loans Made or Converted into ABR Principal Converted from Interest Period Loans or Balance of ABR Loans or and CD Rate with Eurodollar Rate CD Rate Notation Date Eurodollar Loans Respect Thereto Loans Loans Made By - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- ----------- - ------------- ------------------- ----------------- -------------------- ------------- -----------
E-5 98 EXHIBIT F-1 TO CREDIT AGREEMENT FORM OF GRID COMPETITIVE LOAN NOTE COMPETITIVE LOAN NOTE $400,000,000 New York, New York January 31, 1996 FOR VALUE RECEIVED, the undersigned, PANHANDLE EASTERN CORPORATION, a Delaware corporation, doing business as PanEnergy Corp (the "Company"), hereby unconditionally promises to pay to the order of [NAME OF LENDER] (the "Competitive Loan Lender") at the office of Chemical Bank located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal amount of the lesser of (a) FOUR HUNDRED MILLION DOLLARS ($400,000,000) and (b) the aggregate unpaid principal amount of all Competitive Loans made by the Competitive Loan Lender to the Borrower pursuant to subsection 2.13 of the Credit Agreement referred to below. The principal amount of each Competitive Loan evidenced hereby shall be payable on the Competitive Loan Maturity Date therefor set forth on the schedule annexed hereto and made a part hereof or on a continuation of such schedule which shall be attached hereto and made a part hereof (the "Grid"). The Company further agrees to pay interest in like money at such office on the unpaid principal amount of each Competitive Loan evidenced hereby, at the rate per annum set forth in respect of such Competitive Loan on the Grid, calculated on the basis of a year of 360 days and actual days elapsed from the date of such Competitive Loan until the due date thereof (whether at the stated maturity, by acceleration or otherwise), and thereafter on such overdue amount at the rate per annum set forth in subsection 3.1(e) of said Credit Agreement until paid in full (both before and after judgment). Interest on each Competitive Loan evidenced hereby shall be payable on the date or dates set forth in respect of such Competitive Loan on the Grid. Competitive Loans evidenced by this Note may not be prepaid. The holder of this Note is authorized to record on the Grid the date, amount, interest rate, Interest Payment Dates and Competitive Loan Maturity Date in respect of each Competitive Loan made pursuant to subsection 2.13 of said Credit Agreement, and amount of each payment of principal with respect thereto. Each such recordation shall constitute prima facie evidence of the accuracy of the information recorded; provided, that failure by the Competitive Loan Lender to make any such recordation shall not affect the obligations of the Company under this Note or said Credit Agreement. This Note is one of the Competitive Loan Notes referred to in the Credit Agreement (Five Year Facility) dated as of January 31, 1996 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp, the Competitive Loan Lender, the other banks and financial institutions parties thereto, and Chemical Bank, as Administrative Agent and is entitled to the benefits thereof. Terms used herein which are defined in the Credit Agreement shall have such defined meanings unless otherwise defined herein or unless the context otherwise requires. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. F-1-1 99 All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: -------------------------------- Title: F-1-2 100 SCHEDULE OF COMPETITIVE LOANS
Interest Amount of Payment Maturity Payment Notation Date Loan Interest Rate Dates Date Date Made by - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- ------------- - --------- ----------- ----------------- --------------- ------------- ------------- -------------
F-1-3 101 EXHIBIT F-2 TO CREDIT AGREEMENT FORM OF INDIVIDUAL COMPETITIVE LOAN NOTE INDIVIDUAL COMPETITIVE LOAN NOTE $_______________ New York, New York __________ ___, 199_ FOR VALUE RECEIVED, the undersigned, PANHANDLE EASTERN CORPORATION, a Delaware corporation, doing business as PanEnergy Corp (the "Company"), hereby unconditionally promises to pay on ___________, 199_ to the order of [NAME OF LENDER] (the "Competitive Loan Lender") at the office of Chemical Bank located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal sum of ________________ DOLLARS ($___________). The undersigned further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the date hereof at the rate of __% per annum (calculated on the basis of a year of 360 days and actual days elapsed) until the due date hereof (whether at the stated maturity, by acceleration or otherwise), and thereafter on such overdue amount at the rate per annum set forth in subsection 3.1(e) of the Credit Agreement (Five Year Facility) dated as of January 31, 1996 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among Panhandle Eastern Corporation, doing business as PanEnergy Corp, the Competitive Loan Lender, the other financial institutions parties thereto, and Chemical Bank, as Administrative Agent, until paid in full (both before and after judgment). Interest shall be payable on the Interest Payment Date or Dates determined as provided in subsections 3.1(d) and 3.1(f) of the Credit Agreement. This Note is one of the Individual Competitive Loan Notes referred to in, is subject to and is entitled to the benefits of, the Credit Agreement, which Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events. Terms used herein which are defined in the Credit Agreement shall have such defined meanings unless otherwise defined herein or unless the context otherwise requires. This Note may not be prepaid. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By: ---------------------------------- Title: F-2-1 102 EXHIBIT G TO CREDIT AGREEMENT FORM OF OPINION OF SULLIVAN & CROMWELL January 31, 1996 To the Lenders and the Administrative Agent Referred to Below Dear Sirs: We have acted as special counsel to Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp (the "Company"), in connection with the Credit Agreement (Five Year Facility), dated as of January 31, 1996 (the "Credit Agreement"), among the Company, the several financial institutions party thereto (the "Lenders") and Chemical Bank, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). All capitalized terms used herein which are not otherwise defined are used herein with the meanings assigned to such terms in the Credit Agreement. We have examined executed copies of the Credit Agreement, the Revolving Credit Notes and the Competitive Loan Notes delivered on the date hereof, as well as such records, certificates and other documents and such questions of law as we have considered necessary or appropriate for the purposes of this opinion. Based upon the foregoing, we are of the opinion that: 1. The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware. The Company has the corporate power and authority to own and operate its properties, to lease the properties it operates as lessee and to conduct the businesses in which it is currently engaged. 2. The Company has the corporate power and authority to execute, deliver and perform the Credit Agreement and the Notes and has taken all corporate action to authorize the execution, delivery and performance of the Credit Agreement and the Notes. 3. No regulatory consent, authorization, approval or filing is required to be obtained or made by the Company under the Federal laws of the United States, the laws of the State of New York or the General Corporation Law of the State of Delaware for the execution, delivery and performance of the Credit Agreement and the Notes. 4. The Credit Agreement, the Revolving Credit Notes and the Competitive Loan Notes delivered on the date hereof have been duly executed and delivered by the Company and constitute valid and legally binding obligations of the Company enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium G-1 103 and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 5. The execution, delivery and performance by the Company of the Credit Agreement and the Notes will not (a) violate the Certificate of Incorporation or By-Laws of the Company, (b) result in a default under or breach of any indenture, loan agreement or other similar agreement or instrument known to us to be binding upon the Company, (c) violate any Federal law of the United States, any law of the State of New York or Delaware (in the case of the State of Delaware, solely in respect of its General Corporation Law), or any rule or regulation adopted by a Governmental Authority thereof, or (d) result in, or require the creation or imposition of, any Lien on any properties or revenues of the Company pursuant to any of the foregoing; provided, however, that for purposes of this paragraph 5, we express no opinion with respect to Federal or state securities laws, other anti-fraud laws and fraudulent transfer laws; and provided, further, that insofar as performance by the Company of its obligations under the Credit Agreement and the Notes is concerned, we express no opinion as to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights. 6. Assuming the proceeds of the Loans are used solely for the purposes set forth in the Credit Agreement, such Loans will not violate the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 7. The Company is not an "investment company" as that term is defined in the Investment Company Act of 1940. The foregoing opinion is limited to the Federal laws of the United States, the laws of the State of New York and the General Corporation Law of the State of Delaware, and we are expressing no opinion as to the effect of the laws of any other jurisdiction. We express no opinion as to the validity, binding effect or enforceability of any provision in the Credit Agreement which purports to (i) provide indemnification of any person for any claims, damages, liabilities or expenses resulting from violation by such person of applicable securities laws, (ii) grant any Lender rights of setoff other than as provided in Section 151 of the Debtor & Creditor Law of the State of New York or (iii) preserve or maintain the enforceability of the Credit Agreement where one or more provisions contained therein is determined to be invalid, illegal or unenforceable. With your approval, we have also relied as to certain matters on information obtained from public officials, officers of the Company or other sources believed by us to be responsible and we have assumed that the Credit Agreement has been duly authorized, executed and delivered by the parties thereto other than the Company and that the signatures on all documents examined by us are genuine, assumptions which we have not independently verified. Very truly yours, SULLIVAN & CROMWELL G-2 104 EXHIBIT H TO CREDIT AGREEMENT FORM OF GENERAL COUNSEL'S OPINION January 31, 1996 To the Lenders and the Administrative Agent Referred to Below Dear Sirs: I am General Counsel of Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp (the "Company"), and am familiar with the Credit Agreement (Five Year Facility), dated as of January 31, 1996 (the "Credit Agreement"), among the Company, the several financial institutions party thereto (the "Lenders") and Chemical Bank, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). All capitalized terms used herein which are not otherwise defined are used herein with the meanings assigned to such terms in the opinion of Sullivan & Cromwell delivered to you on the date hereof in connection with the Credit Agreement. As General Counsel of the Company, I am generally familiar with the organization and affairs of the Company. Lawyers in the Legal Department of the Company have been asked, by me or others, to review legal matters arising in connection with the Credit Agreement. Accordingly some of the matters referred to herein have not been handled personally by me, but I have been made familiar with the facts and circumstances and the applicable law, and the opinions herein expressed are my own or the opinions of other lawyers in which I concur. In rendering the opinions expressed herein, I or lawyers in the Legal Department of the Company have examined such corporate records, certificates and other documents and such questions of law as were considered necessary or appropriate for the purposes hereof. Based upon the foregoing, I am of the opinion that: 1. The Company is duly qualified to do business as a foreign corporation in good standing in each jurisdiction where it is required to be so qualified, except where any failure to be so qualified and in good standing would not have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. 2. Except as set forth in the SEC Reports, no litigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best of my knowledge, threatened by or against the Company or any of its Subsidiaries or against any of their respective properties or revenues which would have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole. H-1 105 3. The execution, delivery and performance by the Company of the Credit Agreement and the Notes will not violate any contract known to me to be binding upon the Company, except for such violations which would not have a material adverse effect on the business of the Company and its Subsidiaries taken as a whole and will not result in or require the creation or imposition of any Lien on any of its properties or revenues pursuant to any such contract. With your approval, I have relied as to certain matters on information obtained from public officials, officers of the Company, opinions of local counsel or other sources believed by me to be responsible and I have assumed that the signatures on all documents examined by me are genuine, assumptions which I have not independently verified. This opinion is solely for your benefit and the benefit of your respective assignees and transferees permitted under the Credit Agreement and the benefit of special counsel to the Administrative Agent and the benefit of the Company's special counsel and may not be relied upon in any matter by any other person without my written consent. Very truly yours, H-2 106 EXHIBIT I TO CREDIT AGREEMENT FORM OF COMMITMENT TRANSFER SUPPLEMENT COMMITMENT TRANSFER SUPPLEMENT, dated as of the date set forth in Item 1 of Schedule I hereto, among the Transferor Lender set forth in Item 2 of Schedule I hereto (the "Transferor Lender"), each Purchasing Lender set forth in Item 3 of Schedule I hereto (each, a "Purchasing Lender"), and CHEMICAL BANK, as administrative agent for the Lenders under the Credit Agreement described below (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, this Commitment Transfer Supplement is being executed and delivered in accordance with subsection 10.8 of the Credit Agreement (Five Year Facility), dated as of January 31, 1996, among Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp (the "Borrower"), the Transferor Lender, the other Lenders parties thereto and the Administrative Agent (as from time to time amended, supplemented or otherwise modified in accordance with the terms thereof, the "Credit Agreement"; terms defined therein being used herein as therein defined); WHEREAS, each Purchasing Lender (if it is not already a Lender party to the Credit Agreement) wishes to become a Lender party to the Credit Agreement; and WHEREAS, the Transferor Lender is selling and assigning to each Purchasing Lender, rights, obligations and commitments under the Credit Agreement; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Upon receipt by the Administrative Agent of five counterparts of this Commitment Transfer Supplement, to each of which is attached a fully completed Schedule I and Schedule II, and each of which has been executed by the Transferor Lender, each Purchasing Lender (and any other person required by the Credit Agreement to execute this Commitment Transfer Supplement), the Administrative Agent will transmit to the Borrower, the Transferor Lender and each Purchasing Lender a Transfer Effective Notice, substantially in the form of Schedule III to this Commitment Transfer Supplement (a "Transfer Effective Notice"). Such Transfer Effective Notice shall set forth, inter alia, the date on which the transfer effected by this Commitment Transfer Supplement shall become effective (the "Transfer Effective Date"), which date shall be the fifth Business Day following the date of such Transfer Effective Notice. From and after the Transfer Effective Date each Purchasing Lender shall be a Lender party to the Credit Agreement for all purposes thereof. 2. At or before 12:00 Noon, local time of the Transferor Lender, on the Transfer Effective Date, each Purchasing Lender shall pay to the Transferor Lender, in immediately available funds, an amount equal to the purchase price, as agreed between the Transferor Lender and such Purchasing Lender (the "Purchase Price"), of the portion being purchased by such Purchasing Lender (such Purchasing Lender's "Purchased Percentage") of the outstanding principal amount of the Loans, the Letter of Credit Obligations, the L/C Participating Interests and other amounts owing to the I-1 107 Transferor Lender under the Credit Agreement and its Notes. Effective upon receipt by the Transferor Lender of the Purchase Price from a Purchasing Lender, without recourse, representation or warranty, each Purchasing Lender hereby irrevocably purchases, takes and assumes from the Transferor Lender, such Purchasing Lender's Purchased Percentage of the Commitments, the L/C Participating Interests, the obligation to purchase L/C Participating Interests and the presently outstanding Loans and other amounts owing to the Transferor Lender under the Credit Agreement and its Notes together with all instruments, documents and collateral security pertaining thereto; provided that such Participating Lender's interest in any Letter of Credit outstanding on the Transfer Effective Date shall be as set forth in subsection 2.7 of the Credit Agreement. 3. The Transferor Lender has made arrangements with each Purchasing Lender with respect to (i) the portion, if any, to be paid, and the date or dates for payment, by the Transferor Lender to such Purchasing Lender of any fees heretofore received by the Transferor Lender pursuant to the Credit Agreement prior to the Transfer Effective Date and (ii) the portion, if any, to be paid and the date or dates for payment, by such Purchasing Lender to the Transferor Lender of fees or interest received by such Purchasing Lender pursuant to the Credit Agreement and from and after the Transfer Effective Date. 4. (a) All principal payments that would otherwise be payable from and after the Transfer Effective Date to or for the account of the Transferor Lender pursuant to the Credit Agreement and its Notes shall, instead, be payable to or for the account of the Transferor Lender or the Purchasing Lender, as the case may be, in accordance with their respective interest as reflected in this Commitment Transfer Supplement. (b) All interest, fees and other amounts that would otherwise accrue for the account of the Transferor Lender from and after the Transfer Effective Date pursuant to the Credit Agreement and its Notes shall, instead, accrue for the account of, and be payable to, the Transferor Lender and the Purchasing Lenders, as the case may be, in accordance with their respective interests as reflected in this Commitment Transfer Supplement. In the event that any amount of interest, fees or other amounts accruing prior to the Transfer Effective Date was included in the Purchase Price paid by the Purchasing Lender, the Transferor Lender and each Purchasing Lender will make appropriate arrangements for payment by the Transferor Lender to such Purchasing Lender of such amount upon receipt thereof from the Borrower. 5. On or prior to the Transfer Effective Date, the Transferor Lender will deliver to the Administrative Agent its Notes. On or prior to the Transfer Effective Date, the Borrower will deliver to the Administrative Agent new Notes for each Purchasing Lender and the Transferor Lender, in each case in principal amounts reflecting, in accordance with the Credit Agreement, the principal amount of any Competitive Loans being transferred and their respective Commitments (as adjusted pursuant to this Commitment Transfer Supplement). As provided in subsection 10.8 of the Credit Agreement, each such new Note shall be dated the Effective Date. In addition, on or prior to the Transfer Effective Date, the Transferor Lender will deliver to the Administrative Agent any Letter of Credit Participation Certificates issued by an Issuing Lender to the Transferor Lender. On or prior to the Transfer Effective Date, if applicable, each Issuing Lender shall deliver to the Administrative Agent for each Purchasing Lender and the Transferor Lender new Letter of Credit Participation Certificates, in each case in amounts reflecting, in accordance with the Credit Agreement, their respective Commitments (as adjusted pursuant to this Commitment Transfer Supplement). Promptly I-2 108 after the Transfer Effective Date, the Administrative Agent will send to each of the Transferor Lender and the Purchasing Lenders its new Notes and new Letter of Credit Participation Certificates and will send to the Borrower the superseded Notes of the Transferor Lender, marked "Cancelled". 6. Concurrently with the execution and delivery hereof, the Transferor Lender will provide to each Purchasing Lender (if it is not already a Lender party to the Credit Agreement) copies of all documents delivered to such Transferor Lender on the Effective Date in satisfaction of the conditions precedent set forth in the Credit Agreement. 7. Each of the parties to this Commitment Transfer Supplement agrees that at any time and from time to time upon the written request of any other party, it will execute and deliver such further documents and do such further acts and things as such other party may reasonably request in order to effect the purposes of this Commitment Transfer Supplement. 8. By executing and delivering this Commitment Transfer Supplement, the Transferor Lender and each Purchasing Lender confirm to and agree with each other and the Administrative Agent and the Lenders as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned hereby free and clear of any adverse claim, the Transferor Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement, the Notes, the Letters of Credit or any other instrument or document furnished pursuant thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, the Notes, the Letters of Credit or any other instrument or document furnished pursuant thereto; (ii) the Transferor Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of their respective obligations under the Credit Agreement, the Notes, the Letters of Credit or any other instrument or document furnished pursuant thereto; (iii) each Purchasing Lender confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in subsection 5.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Commitment Transfer Supplement; (iv) each Purchasing Lender will, independently and without reliance upon the Administrative Agent, the Transferor Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (v) each Purchasing Lender appoints and authorizes the Administrative Agent and any Issuing Lender to take such action as agent and issuing lender on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent and Issuing Lenders by the terms thereof, together with such powers as are reasonably incidental thereto, all in accordance with Section 9 of the Credit Agreement; and (vi) each Purchasing Lender agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender. 9. Each party hereto represents and warrants to and agrees with the Administrative Agent that it is aware of and will comply with the provisions of subsections 10.10(e) and (f) of the Credit Agreement. I-3 109 10. Schedule II hereto sets forth the revised Commitments and Commitment Percentages of the Transferor Lender and each Purchasing Lender as well as administrative information with respect to each Purchasing Lender. 11. THIS COMMITMENT TRANSFER SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Commitment Transfer Supplement to be executed by their respective duly authorized officers on Schedule I hereto as of the date set forth in Item 1 of Schedule I hereto. I-4 110 SCHEDULE I to Commitment Transfer Supplement COMPLETION OF INFORMATION AND SIGNATURES FOR COMMITMENT TRANSFER SUPPLEMENT Re: Credit Agreement (Five Year Facility), dated as of January 31, 1996, with Panhandle Eastern Corporation, doing business as PanEnergy Corp, as Borrower Item 1 (Date of Commitment Transfer [Insert date of Commitment Transfer Supplement): Supplement] Item 2 (Transferor Lender): [Insert name of Transferor Lender] Item 3 (Purchasing Lender[s]): [Insert name[s] of Purchasing Lender[s]] Item 4 (Signatures of Parties to Commitment Transfer Supplement):
, as Transferor Lender By ---------------------------------------- Title: , as a Purchasing Lender By ---------------------------------------- Title: , as a Purchasing Lender By ---------------------------------------- Title: I-5 111 Consented to and Acknowledged: PANHANDLE EASTERN CORPORATION, doing business as PANENERGY CORP By ------------------------------------- Title: CHEMICAL BANK, As Administrative Agent By ------------------------------------- Title: [Consents Required only when Purchasing Lender is not already a Lender or Affiliate thereof] Accepted for Recordation in Register: CHEMICAL BANK, as Administrative Agent By ------------------------------------- Title: Acknowledged: [Acknowledgement from Issuing Lender (other than Chemical Bank) required if such Issuing Lender has outstanding Letter of Credit Participation Certificates] By ------------------------------------- Title: I-6 112 SCHEDULE II to Commitment Transfer Supplement LIST OF LENDING OFFICES, ADDRESS FOR NOTICES AND COMMITMENT AMOUNTS [Name of Transferor Lender] Revised Commitment Amount: $___________ Revised Commitment Percentage: ___________ [Name of Purchasing Lender] New Commitment Amount: $___________ New Commitment Percentage: ___________
Address for Notices: [Address] Attention: Telex: Answerback: Telephone: Telecopier: Confirmation: Eurodollar Lending Office: - ----------------------------------- - ----------------------------------- - ----------------------------------- Domestic Lending Office: - ----------------------------------- - ----------------------------------- - ----------------------------------- I-7 113 SCHEDULE III to Commitment Transfer Supplement Form of Transfer Effective Notice To: Panhandle Eastern Corporation, doing business as PanEnergy Corp Insert Name of Transferor Lender and each Purchasing Lender The undersigned, as Administrative Agent [delegate of the Administrative Agent performing administrative functions of the Administrative Agent] under the Credit Agreement (Five Year Facility), dated as of January 31, 1996, among Panhandle Eastern Corporation, a Delaware corporation, doing business as PanEnergy Corp, the Lenders parties thereto and Chemical Bank, as Administrative Agent, acknowledges receipt of five executed counterparts of a completed Commitment Transfer Supplement, as described in Schedule I hereto. [Note: attach copy of Schedule I from Commitment Transfer Supplement.] Terms defined in such Commitment Transfer Supplement are used herein as therein defined. 1. Pursuant to such Commitment Transfer Supplement, you are advised that the Transfer Effective Date will be ________________ [insert fifth Business Day following date of Transfer Effective Notice]. 2. Pursuant to such Commitment Transfer Supplement, the Transferor Lender is required to deliver to the Administrative Agent on or before the Transfer Effective Date its Notes and to each Issuing Lender any applicable Letter of Credit Participation Certificates. 3. Pursuant to such Commitment Transfer Supplement, the Company is required to deliver to the Administrative Agent on or before the Transfer Effective Date the following Notes dated ____________________. [Describe each new Note for Transferor Lender and Purchasing Lender as to principal amount and payee] 4. Pursuant to such Commitment Transfer Supplement, each Issuing Lender listed below is required to deliver to the Administrative Agent on or before the Transfer Effective Date the following Letter of Credit Participation Certificates: 5. Pursuant to such Commitment Transfer Supplement, each Purchasing Lender is required to pay its Purchase Price to the Transferor Lender at or before 12:00 noon on the Transfer Effective Date in immediately available funds. Very truly yours, CHEMICAL BANK By: ------------------------------- Title: I-8 EX-10.35 5 LETTER AGREEMENT EMPLOYMENT - JAMES T. HACKETT 1 EXHIBIT 10.35 PANHANDLE EASTERN CORPORATION [LETTERHEAD] America's Natural Gas Transportation Company Paul M. Anderson President and Chief Executive Officer December 19, 1995 PERSONAL AND CONFIDENTIAL Mr. James Hackett 3373 Delmonte Drive Houston, Texas 77019 Dear Jim: I am extending to you an offer of employment on behalf of Panhandle Eastern Corporation (hereinafter "Company") and its affiliated companies. You would serve in the capacity of Executive Vice President of the Company, reporting directly to me. As such, you will have reporting to you the Chief Financial Officer and the heads of Human Resources, Public Affairs, Strategic Planning, Corporate Development and Regulatory Affairs and will represent these functions on the Policy Committee. You will be required to devote your full time and efforts to the business affairs of the Company and to conform with all policies of the Company as they apply to an employee of such level. If you accept this offer, you will report to work on January 2, 1996, or such other date as we mutually agree. Employment is contingent upon your successful completion of the Company's pre-employment screening procedures. The compensation package is as follows: o Base salary for the first two (2) years of employment of not less than $350,000 per year. o A bonus under the Company's Annual Cash Bonus Program for the first year of employment of not less than $175,000. o A restricted stock award under the Company's 1994 Long Term Incentive Plan covering 75,000 shares of the Company's common stock, with the restrictions lapsing as to 15,000 shares upon completion of each of the first five (5) years of employment. Attached is a copy of the Award Agreement. Please note that Section 4(a) thereof has been revised from the version previously furnished to you. o A non-qualified stock option award under the Company's 1994 Long Term 2 Mr. James Hackett December 19, 1995 Page 2 Incentive Plan covering 50,000 shares of the Company's common stock, with a per share option price equal to fair market value at date of grant, that will become exercisable as to 16,666 shares upon completion of the first year of employment, 16,667 shares upon completion of the second year of employment and 16,667 shares upon completion of the third year of employment. o Eligibility to participate in the Company's Key Executive Deferred Compensation Plan, which, in conjunction with the Company's 401(k) savings plan, currently permits deferral of up to 15% of salary and bonus. The employment may be terminated by you or the Company for any reason, or for no reason, at any time. However, should your employment terminate before the expiration of two years following your written acceptance of this offer, for any reason whatsoever, other than (1) your resignation for reasons other than disability, or (2) the termination of your employment by the Company for cause, you shall be entitled to continuation of base salary for the remainder of the two year period and, if before completion of one year of employment, you shall be entitled to the $175,000 minimum cash bonus. For the purposes of this paragraph, the term "cause" shall mean your willfully engaging in conduct materially and demonstrably injurious to the property, business or reputation of the Company and/or its affiliates, including, but not limited to, fraud, misappropriation, commission of a felony or conflict of interest. For purposes of the foregoing sentence, no conduct, whether by act or failure to act, on your part will be considered "willfully" engaged in, unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the interests of the Company and/or its affiliates or not opposed to the interests of the Company and/or its affiliates. If you accept this offer, please sign in the space indicated below and return one (1) signed original to me by no later than December 31, 1995. Very truly yours, /s/ PAUL ANDERSON Accepted: /s/ JAMES T. HACKETT 12/31/95 - ------------------------------ James Hackett Date EX-10.36 6 RETIREMENT INCOME PLAN 1 EXHIBIT 10.36 RETIREMENT INCOME PLAN OF PANHANDLE EASTERN CORPORATION AND PARTICIPATING AFFILIATES (AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1995) 2 TABLE OF CONTENTS
ARTICLE PAGE - ------- ---- I - DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . I-1 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1 1.2 Employment Terminology . . . . . . . . . . . . . . . . . . . . . . . . . I-8 1.3 Number and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8 1.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-9 II - PURPOSE OF PLAN AND EFFECT OF RESTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1 2.1 Purpose of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1 2.2 Effect of Restatement . . . . . . . . . . . . . . . . . . . . . . . . . II-1 III - PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1 3.1 Participation Eligibility . . . . . . . . . . . . . . . . . . . . . . . III-1 3.2 Commencement of Participation . . . . . . . . . . . . . . . . . . . . . III-1 IV - BENEFIT ACCRUAL SERVICE AND CASH BALANCE ACCRUALS . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1 4.1 Benefit Accrual Service . . . . . . . . . . . . . . . . . . . . . . . . IV-1 4.2 Cash Balance Accruals . . . . . . . . . . . . . . . . . . . . . . . . . IV-1 4.3 Break in Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-2 4.4 Cash-Out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-2 V - RETIREMENT BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1 5.1 Normal Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1 5.2 Early Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1 VI - DISABILITY BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1 6.1 Disability Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1 6.2 Post Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1 VII - SEVERANCE BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1 7.1 No Benefits Unless Herein Set Forth . . . . . . . . . . . . . . . . . . VII-1 7.2 Severance Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1 7.3 Regular Vesting Service . . . . . . . . . . . . . . . . . . . . . . . . VII-3 7.4 Special Vesting Service . . . . . . . . . . . . . . . . . . . . . . . . VII-4 VIII - DEATH BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII-1 8.1 Before Annuity Starting Date . . . . . . . . . . . . . . . . . . . . . . VIII-1 8.2 After Annuity Starting Date . . . . . . . . . . . . . . . . . . . . . . VIII-5 8.3 Cash-Out of Death Benefit . . . . . . . . . . . . . . . . . . . . . . . VIII-5 8.4 Special Transitional Provision . . . . . . . . . . . . . . . . . . . . . VIII-6 IX - PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-1 9.1 Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-1 9.2 Standard and Alternative Benefits for Members . . . . . . . . . . . . . IX-2 9.3 Level Income Option . . . . . . . . . . . . . . . . . . . . . . . . . . IX-4
(i) 3 9.4 Cash-Outs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-4 9.5 Direct Rollover Election . . . . . . . . . . . . . . . . . . . . . . . . IX-5 9.6 Special Distribution Limitations . . . . . . . . . . . . . . . . . . . . IX-5 9.7 Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-6 9.8 Reemployment of Members . . . . . . . . . . . . . . . . . . . . . . . . IX-6 9.9 Actuarial Equivalency . . . . . . . . . . . . . . . . . . . . . . . . . IX-7 9.10 Benefit Payment Deduction Arrangements . . . . . . . . . . . . . . . . . IX-7 9.11 Commercial Annuities . . . . . . . . . . . . . . . . . . . . . . . . . . IX-8 9.12 Unclaimed Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-8 9.13 Claims Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-8 X - SPECIAL BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X-1 10.1 Change of Control Benefits . . . . . . . . . . . . . . . . . . . . . . . X-1 10.2 July 31, 1989 Sale of Petrolane Incorporated . . . . . . . . . . . . . . X-2 10.3 Social Security Supplement . . . . . . . . . . . . . . . . . . . . . . . X-3 10.4 Supplemental Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . X-4 10.5 1995 Voluntary Early Retirement Program . . . . . . . . . . . . . . . . X-7 XI - GRANDFATHERED AND PROTECTED BENEFITS . . . . . . . . . . . . . . . . . . . . . XI-1 11.1 Panhandle Plan Prior to Effective Date . . . . . . . . . . . . . . . . . XI-1 11.2 Texas Eastern Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-4 11.3 Algonquin Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-7 XII - LIMITATIONS ON BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . XII-1 XIII - FUNDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XIII-1 13.1 No Contributions by Members . . . . . . . . . . . . . . . . . . . . . . XIII-1 13.2 Company Contributions . . . . . . . . . . . . . . . . . . . . . . . . . XIII-1 13.3 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XIII-1 13.4 Payments to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . XIII-1 13.5 Return of Contributions . . . . . . . . . . . . . . . . . . . . . . . . XIII-1 XIV - ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . XIV-1 14.1 Appointment of Committee . . . . . . . . . . . . . . . . . . . . . . . . XIV-1 14.2 Term, Vacancies, Resignation and Removal . . . . . . . . . . . . . . . . XIV-1 14.3 Officers, Records and Procedures . . . . . . . . . . . . . . . . . . . . XIV-1 14.4 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XIV-1 14.5 Self-Interest of Members . . . . . . . . . . . . . . . . . . . . . . . . XIV-1 14.6 Compensation and Bonding . . . . . . . . . . . . . . . . . . . . . . . . XIV-1 14.7 Committee Powers and Duties . . . . . . . . . . . . . . . . . . . . . . XIV-2 14.8 Authorization, Delegation and Allocation . . . . . . . . . . . . . . . . XIV-2 14.9 Investment Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . XIV-3 14.10 Company to Supply Information . . . . . . . . . . . . . . . . . . . . . XIV-3 14.11 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . XIV-4 XV - ADMINISTRATION OF TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . XV-1 15.1 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . XV-1 15.2 Trust Fund Property . . . . . . . . . . . . . . . . . . . . . . . . . . XV-1 15.3 Funding Projections . . . . . . . . . . . . . . . . . . . . . . . . . . XV-1 15.4 Authorization of Benefit Payments . . . . . . . . . . . . . . . . . . . XV-1
(ii) 4 XVI - TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVI-1 XVII - FIDUCIARY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVII-1 17.1 Article Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVII-1 17.2 General Allocation of Duties . . . . . . . . . . . . . . . . . . . . . . XVII-1 17.3 Fiduciary Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVII-1 XVIII - ADOPTION BY CONTROLLED ENTITIES . . . . . . . . . . . . . . . . . . . . . . . XVIII-1 18.1 Approval of Directors . . . . . . . . . . . . . . . . . . . . . . . . . XVIII-1 18.2 Single Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVIII-1 18.3 Amendments, Termination and Appointment of Committee and Trustee . . . . . . . . . . . . . . . . . XVIII-1 18.4 Transfer Between Participating Affiliates . . . . . . . . . . . . . . . XVIII-1 18.5 Termination of Participation . . . . . . . . . . . . . . . . . . . . . . XVIII-1 XIX - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XIX-1 XX - TERMINATION AND MERGER OR CONSOLIDATION . . . . . . . . . . . . . . . . . . . XX-1 20.1 Declaration of Intent . . . . . . . . . . . . . . . . . . . . . . . . . XX-1 20.2 Administration of the Plan in Case of Termination . . . . . . . . . . . . . . . . . . . . . . . . . XX-1 20.3 Merger, Consolidation or Transfer . . . . . . . . . . . . . . . . . . . XX-1 XXI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXI-1 21.1 Not Contract of Employment . . . . . . . . . . . . . . . . . . . . . . . XXI-1 21.2 Payments Solely from Trust Fund . . . . . . . . . . . . . . . . . . . . XXI-1 21.3 Alienation of Interest Forbidden . . . . . . . . . . . . . . . . . . . . XXI-1 21.4 No Benefits to the Company . . . . . . . . . . . . . . . . . . . . . . . XXI-1 21.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXI-1 21.6 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXI-1 XXII - TOP-HEAVY STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXII-1 22.1 Article Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXII-1 22.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXII-1 22.3 Top-Heavy Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXII-3 22.4 Super Top-Heavy Status . . . . . . . . . . . . . . . . . . . . . . . . . XXII-4 22.5 Termination of Top-Heavy Status . . . . . . . . . . . . . . . . . . . . XXII-4 22.6 Effect of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . XXII-5
(iii) 5 RETIREMENT INCOME PLAN OF PANHANDLE EASTERN CORPORATION AND PARTICIPATING AFFILIATES WHEREAS, PANHANDLE EASTERN CORPORATION and certain of its affiliates have heretofore adopted the RETIREMENT INCOME PLAN OF PANHANDLE EASTERN CORPORATION AND PARTICIPATING AFFILIATES (the "Plan") for the benefit of their employees; and WHEREAS, Panhandle Eastern Corporation and its affiliates which have adopted the Plan desire to amend the Plan in several respects and to restate the Plan, intending thereby to provide an uninterrupted and continuing program of benefits; NOW, THEREFORE, the Plan is hereby amended and restated in its entirety as follows, with no interruption in time, effective as of January 1, 1995: (iv) 6 I. DEFINITIONS AND CONSTRUCTION 1.1 DEFINITIONS. Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary. (1) ACT: The "Employee Retirement Income Security Act of 1974, as amended." (2) ACTUARIAL EQUIVALENT OR ACTUARIALLY EQUIVALENT: Equality in value of the aggregate amounts expected to be received under different times and forms of payment based upon the following assumptions: (i) for determining Actuarial Equivalence for a Member's Final Average Pay Benefit in determining a form other than described in (ii) below, the applicable assumptions shall be an 8% per annum interest rate assumption and mortality rate assumptions determined under the 1983 Group Annuity Table (83-GAM) for males; (ii) for determining Actuarial Equivalence for a Member's Final Average Pay Benefit in determining (A) a present value of such benefit, (B) the amount of any other payment of such benefit made in a form other than a nondecreasing annuity (other than an annuity that decreases merely because of the cessation or reduction of Social Security supplements or qualified disability payments, as defined in section 411(a)(9) of the Code) payable for a period not less than the life of the Member or, in the case of a "qualified preretirement survivor annuity" (as that term is defined in section 417(c) of the Code), the life of the Eligible Surviving Spouse, or (C) the amount of a lump sum payment, the applicable assumptions shall be the interest rate or rates which would be used by the Pension Benefit Guaranty Corporation for purposes of determining the present value of such Member's benefits under the Plan if the Plan had terminated with insufficient assets to provide benefits guaranteed by the Pension Benefit Guaranty Corporation as of (A) if the Member's Annuity Starting Date precedes the July 1 of the Plan Year in which such distribution to such Member is paid, the January 1 of such Plan Year or the July 1 of the preceding Plan Year, whichever produces the greater lump sum payment and (B) if the Member's Annuity Starting Date is on or after the July 1 of the Plan Year in which such distribution to such Member is paid, the January 1 or July 1 of such Plan Year, whichever produces the greater lump sum payment and mortality rate assumptions determined under the 1983 Group Annuity Table (83-GAM) for males. The above notwithstanding, if the present value of such benefit, utilizing the foregoing interest rate, exceeds $25,000, in determining the amount of such payment, 120% of the such foregoing interest rate shall be utilized; provided, however, that in no event shall the present value of such benefit determined by the use of 120% of the foregoing interest rate result in a present value less than $25,000; I-1 7 (iii) for determining Actuarial Equivalence for a Member's Cash Balance Accrual in determining a form other than as described in (iv) or (v) below, the applicable assumptions shall be an 8% per annum interest rate assumption and mortality rate assumptions determined under the 1983 Group Annuity Table (83-GAM) for males; (iv) for determining Actuarial Equivalence for a Member's Cash Balance Accrual in determining (A) the present value of the benefit, or (B) the amount of any other payment made in a form other than a nondecreasing annuity (other than an annuity that decreases merely because of the cessation or reduction of Social Security supplements or qualified disability payments, as defined in section 411(a)(9) of the Code) payable for a period not less than the life of the Member or, in the case of a "qualified preretirement survivor annuity" (as that term is defined in section 417(c) of the Code), the life of the Eligible Surviving Spouse, the applicable assumptions shall be the annual rate of interest on 30-year Treasury securities as of the first day of the Plan Year in which such determination is made and the mortality rate assumptions determined under the table prescribed by the Secretary of Treasury pursuant to section 417(e)(3) of the Code; (v) the amount of a lump sum payment attributable to a Member's Cash Balance Benefit shall be the greater of (a) the dollar value of the Member's Cash Balance Accrual as of the date of determination of such lump sum payment or (b) the present value of his Cash Balance Accrual as of the date of determination of such lump sum payment determined by assuming his Cash Balance Accrual is increased for the period between such date of determination and the Member's Normal Retirement Date by crediting accruals for such period pursuant to Section 4.2(b) but based upon the Interest Credit Rate as in effect as of the end of the Plan Year immediately preceding the date of determination of such lump payment, converting such projected Cash Balance Accrual into a single life annuity for the life of the Member commencing at such Normal Retirement Date and determining the present value of such single life annuity based upon the annual rate of interest on 30-year Treasury securities as of the first day of the Plan Year in which such determination is made and the mortality rate assumptions determined under the table prescribed by the Secretary of Treasury pursuant to section 417(e)(3) of the Code; (vi) for determining Actuarial Equivalence for any purpose other than as described in (i) through (v) above, an 8% per annum interest rate assumption and mortality rate assumptions determined under the 1983 Group Annuity Table (83-GAM) for males. (3) ALGONQUIN PLAN: The Employees' Retirement Plan of Algonquin Gas Transmission Company as in effect prior to its merger into the Plan. (4) ANNUITY STARTING DATE: With respect to each Member or beneficiary, the first day of the first month for which an amount is payable to the Member or beneficiary from the Trust Fund as an annuity or in any other form. I-2 8 (5) AVERAGE ANNUAL COVERED COMPENSATION: The average (without indexing) of the Social Security Taxable Wage Bases in effect for each calendar year during the thirty-five year period ending with the last day of the calendar year in which the Member attains (or will attain) Social Security Retirement Age. For this purpose, the Social Security Taxable Wage Base for the Plan Year in which the determination is being made and for any subsequent Plan Year shall be assumed to be the same as the Social Security Taxable Base in effect as of the beginning of the Plan Year in which the determination is being made. (6) AVERAGE ANNUAL PLAN COMPENSATION: The result obtained by (A) dividing the total Plan Compensation paid to an Eligible Employee while employed as an Eligible Employee by either a Final Average Pay Employer or a Cash Balance Employer during a considered period by the number of months for which Plan Compensation was received during the considered period and (B) multiplying such amount by twelve. The considered period shall be the sixty consecutive months of employment within the last one hundred twenty months of employment after 1985 which yield the highest average Plan Compensation; provided, that if a Member has less than sixty consecutive months of such employment, his considered period shall be all of his completed months of such employment. In determining the considered period for calculating Average Annual Plan Compensation, periods during which the Member was not employed by either a Final Average Pay Employer or a Cash Balance Employer shall not be taken into account and months during which a Member did not receive Compensation for a full month shall be taken into account or disregarded in accordance with nondiscriminatory criteria established by the Committee. (7) BENEFIT ACCRUAL SERVICE: For each Member and as of any determination date, the sum of all service credited for such Member pursuant to Section 4.1. (8) CASH BALANCE EMPLOYER: Each Controlled Entity which has adopted the Plan to provide benefits for its Eligible Employees pursuant to the Plan's Cash Balance Accrual formula. (9) CASH BALANCE ACCRUAL: For each Member and as of any determination date, the sum of all accruals credited for such Member pursuant to Section 4.2. (10) CASH BALANCE BENEFIT: The benefit determined under the Plan which is attributable to a Member's Cash Balance Accruals. (11) CODE: The Internal Revenue Code of 1986, as amended. (12) COMMENCEMENT DATE: The date on which an Employee first performs an Hour of Service. (13) COMMITTEE: The administrative committee appointed by the Directors to administer the Plan. (14) COMPANY: Each Final Average Pay Employer and each Cash Balance Employer. (15) CONTROLLED ENTITY: Each corporation that is a member of a controlled group of corporations, within the meaning of section 1563(a) (determined without regard to sections 1563(a)(4) and I-3 9 1563(e)(3)(C)) of the Code, of which Panhandle Eastern Corporation is a member, each trade or business (whether or not incorporated) with which Panhandle Eastern Corporation is under common control and each organization that is a member of an affiliated service group, within the meaning of section 414(m) of the Code, of which Panhandle Eastern Corporation is a member. (16) DIRECT ROLLOVER: A payment by the Plan to an Eligible Retirement Plan designated by a Distributee. (17) DIRECTORS: The Board of Directors of Panhandle Eastern Corporation or the Finance Committee of the Board of Directors of Panhandle Eastern Corporation to the extent the powers of such board are exercised by such committee. (18) DISTRIBUTEE: Each (A) Member entitled to an Eligible Rollover Distribution, (B) Member's surviving spouse with respect to the interest of such surviving spouse in an Eligible Rollover Distribution, and (C) former spouse of a Member who is an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, with regard to the interest of such former spouse in an Eligible Rollover Distribution. (19) EARLY RETIREMENT DATE: The first date upon which a Member has both attained fifty-five years of age while employed and completed five or more years of Benefit Accrual Service. (20) EFFECTIVE DATE: January 1, 1995, as to this restatement of the Plan. (21) ELIGIBLE EMPLOYEE: Any Employee of a Company other than (A) an individual whose terms of employment are subject to collective bargaining between a collective bargaining representative and the Company unless there is in effect a collective bargaining agreement that provides for coverage of such individual under the Plan, (B) an individual (i) who is a nonresident alien who receives no earned income from sources within the United States or (ii) who is otherwise classified by the Company as Non-U.S. Payroll, (C) any Leased Employee, or (D) an individual whose terms of employment are subject to a written employment contract or agreement that provides that such individual shall not be covered under the Plan. (22) ELIGIBLE RETIREMENT PLAN: (A) With respect to a Distributee other than a surviving spouse, an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified plan described in section 401(a) of the Code, which under its provisions accepts such Distributee's Eligible Rollover Distribution and (B) with respect to a Distributee who is a surviving spouse, an individual retirement account described in section 408(a) of the Code or an individual retirement annuity described in section 408(b) of the Code. (23) ELIGIBLE ROLLOVER DISTRIBUTION: Any distribution of all or any portion of the Plan benefit of a Distributee other than (A) a distribution that is one of a series of substantially equal periodic I-4 10 payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary or for a specified period of ten years or more, (B) a distribution to the extent such distribution is required under section 401(a)(9) of the Code, (C) the portion of a distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities), and (D) any other distribution so designated by the Internal Revenue Service in revenue rulings, notices, and other guidance of general applicability. (24) ELIGIBLE SURVIVING SPOUSE: With respect to a Member who dies prior to his Annuity Starting Date, a surviving spouse to whom a deceased Member was married on the date of his death. With respect to a Member who dies on or after his Annuity Starting Date, the spouse to whom a deceased Member was married on his Annuity Starting Date. (25) EMPLOYEE: Any individual employed by a Controlled Entity or any Leased Employee. (26) FINAL AVERAGE PAY EMPLOYER: Each Controlled Entity which has adopted the Plan to provide benefits for its Eligible Employees pursuant to the Plan's Final Average Pay Benefit formula. (27) FINAL AVERAGE PAY BENEFIT: The benefit determined under the Plan which is attributable to a Member's Benefit Accrual Service. (28) HOUR OF SERVICE: An Hour of Service is each hour for which an Employee is directly or indirectly paid, or entitled to payment, by a Controlled Entity for the performance of duties. (29) INTEREST CREDIT RATE: The one-year United States Treasury Bill rate but not in excess of the annual rate of interest on 30-year United States Treasury securities. (30) LEASED EMPLOYEE: Any person who is not an employee of a Controlled Entity but who performs services for a Controlled Entity pursuant to an agreement (oral or written) between a Controlled Entity and any leasing organization, provided that such person has performed such services for the Controlled Entity or for related persons (within the meaning of section 103(b)(6)(C) of the Code) on a substantially full-time basis for a period of at least one year and such services are of a type historically performed by the Controlled Entity's employees in the Controlled Entity's field of business. (31) MEMBER: Any individual who has met the eligibility requirements for participation in the Plan as set forth in Article III herein. (32) MONTHLY PLAN COMPENSATION: The Plan Compensation received by a Member from a Cash Balance Employer for a calendar month. I-5 11 (33) NORMAL RETIREMENT DATE: The later of the date upon which a Member attains sixty-five years of age or the fifth anniversary of the date as of which the Member commenced participation in the Plan. (34) PERIOD OF SERVICE: Each period of an Employee's Service commencing on his Commencement Date or a Reemployment Commencement Date, if applicable, and ending on a Severance from Service Date. Notwithstanding the foregoing, a period during which an Employee is absent from Service by reason of the Employee's pregnancy, the birth of a child of the Employee or the placement of a child with the Employee in connection with the adoption of such child by the Employee or for the purposes of caring for such child for the period immediately following such birth or placement shall not constitute a Period of Service between the first and second anniversary of the first date of such absence. Further notwithstanding the foregoing, an Employee's Period of Service shall include any period following his termination of employment for which he receives a lump sum payment of bank time, unused vacation or accrued vacation pay, pay in lieu of notice of termination of employment or severance pay (other than extraordinary severance pay owed pursuant to the terms of an executive employment contract). (35) PERIOD OF SEVERANCE: Each period of time commencing on an Employee's Severance from Service Date and ending on a Reemployment Commencement Date. (36) PLAN COMPENSATION: The total of all wages, salaries, fees for professional service and other amounts received in cash by a Member for services actually rendered or labor performed for the Company while an Eligible Employee and a Member to the extent such amounts are includable in gross income (except that prior to January 1, 1996, an executive bonus shall be deemed so includable in the year earned rather than when paid), excluding, however, severance pay, vacation pay at separation, reimbursements or other expense allowances, cash and noncash fringe benefits, moving and relocation expenses and allowances, transition pay, Company contributions to or payments from this or any other deferred compensation program whether such program is qualified under section 401(a) of the Code or nonqualified, welfare benefits, amounts realized from the exercise of a stock option which is not an incentive stock option within the meaning of section 422A of the Code or when property described in section 83 of the Code is no longer subject to a substantial risk of forfeiture, any amount realized as a result of a disqualifying disposition within the meaning of section 421(a) of the Code and any other amounts which receive special tax benefits under the Code but are not hereinafter included; provided that, for the purposes of this definition, elective contributions made on a Member's behalf by the Company to the Employees' Savings Plan of Panhandle Eastern Corporation and Participating Affiliates, the Associated Natural Gas, Inc. Retirement Savings Plan, the Panhandle Eastern Corporation SelectPlan or the Associated Natural Gas, Inc. Cafeteria Plan that are not includable in income under section 125, section 402(e)(3), section 402(h) or section 403(b) of the Code shall be included in his Plan Compensation. The above notwithstanding, the Plan Compensation of any Member taken into account for purposes of the Plan shall be limited to $150,000 for any calendar year (with such amount to be (i) adjusted automatically to reflect any cost-of-living increases authorized by section 401(a)(17) of the Code and (ii) prorated for a period considered in determining Average Annual Plan C- I-6 12 ompensation of less than twelve months and to the extent otherwise required by applicable law). (37) PLAN OR PANHANDLE PLAN: The Retirement Income Plan of Panhandle Eastern Corporation and Participating Affiliates, as amended from time to time. (38) PLAN YEAR: The twelve-consecutive month period commencing January 1 of each year. (39) REEMPLOYMENT COMMENCEMENT DATE: The first date upon which an Employee performs an Hour of Service following a Severance from Service Date. (40) RETIREMENT: With respect to each Member, termination of his employment on or after his Early Retirement Date or Normal Retirement Date. (41) SERVICE: The period of an Employee's employment with a Controlled Entity. (42) SEVERANCE FROM SERVICE DATE: The first date on which the Service of an Employee terminates following his Commencement Date or a Reemployment Commencement Date, if applicable. Notwithstanding the foregoing, the Severance from Service Date of an Employee who is absent from Service by reason of the Employee's pregnancy, the birth of a child of the Employee or the placement of a child with the Employee in connection with the adoption of such child by the Employee or for purposes of caring for such child for the period immediately following such birth or placement shall be the second anniversary of the first date of such absence. (43) SOCIAL SECURITY RETIREMENT AGE: The age used as the retirement age under section 216(l) of the Social Security Act, applied without regard to the age increase factor and as if the early retirement age under such section was sixty-two. (44) SOCIAL SECURITY TAXABLE WAGE BASE: The contribution and benefit base under section 230 of the federal Social Security Act. (45) TEXAS EASTERN PLAN: The Texas Eastern Retirement Plan as in effect prior to its merger into the Plan. (46) TOTALLY AND PERMANENTLY DISABLED: A Member who has terminated employment by reason of disability shall be considered Totally and Permanently Disabled if such Member is eligible for and receiving either Social Security Disability Benefits under the federal Social Security Act or disability benefits under any Company-sponsored long-term disability plan. Upon application by the Member, the Committee shall determine whether a Member has become Totally and Permanently Disabled and shall so notify such Member within sixty days thereafter. A Member shall be considered to have ceased to be Totally and Permanently Disabled if, prior to his Normal Retirement Date, such Member is no longer receiving either Social Security Disability Benefits under the federal Social Security Act or disability benefits under any Company-sponsored long-term disability plan. I-7 13 (47) TRUST: The trust established under the Trust Agreement to hold and invest contributions made under the Plan and from which the Plan benefits will be distributed. (48) TRUST AGREEMENT: The agreement entered into between the Company and the Trustee establishing the Trust. (49) TRUST FUND: The funds and properties held pursuant to the provisions of the Trust Agreement hereof for the use and benefit of the Members, together with all income, profits and increments thereto. (50) TRUSTEE: The Trustee or Trustees qualified and acting under the Trust Agreement at any time. (51) VESTED INTEREST: The percentage of a Member's Plan benefit which, pursuant to the Plan, is nonforfeitable. (52) VESTING SERVICE: The measure of service with the Company or a Controlled Entity used in determining a Member's nonforfeitable right to a benefit. 1.2 EMPLOYMENT TERMINOLOGY. Wherever appropriate herein, the terms "employment", "employee", "employed" or other similar terminology refer to being employed by any Controlled Entity and the terms "termination of employment", "terminate employment", "employment terminated", "terminated" or other similar terminology refer to no longer being employed by any Controlled Entity. 1.3 NUMBER AND GENDER. Wherever appropriate herein, words used in the singular shall be considered to include the plural and the plural to include the singular. The masculine gender, where appearing in this Plan, shall be deemed to include the feminine gender. 1.4 HEADINGS. The headings of Articles and Sections herein are included solely for convenience and if there is any conflict between such headings and the text of the Plan, the text shall control. I-8 14 II. PURPOSE OF PLAN AND EFFECT OF RESTATEMENT 2.1 PURPOSE OF PLAN. The purpose of the Plan is to provide retirement and incidental benefits for those Members who complete the required period of employment with the Company. The benefits provided by the Plan will be paid from the Trust Fund and will be in addition to any benefits the Members may be entitled to receive pursuant to any other Company programs or pursuant to the federal Social Security Act. The Plan and the Trust are established and shall be maintained for the exclusive benefit of the Members and their beneficiaries. No part of the Trust Fund can ever revert to the Company, except as hereinafter provided in Section 13.5 and 20.2(c), or be used for or diverted to purposes other than the exclusive benefit of the Members and their beneficiaries. 2.2 EFFECT OF RESTATEMENT. (a) Contrary Plan provisions notwithstanding, in no event shall any Member's Plan benefit as of the later of the Effective Date or the date of adoption of this restatement of the Plan be less than such Member's Plan benefit under the terms of the Plan on the date immediately prior to the later of the Effective Date or the date of adoption of this restatement of the Plan determined based upon such Member's Plan Compensation and Benefit Accrual Service as of such date. (b) Except as otherwise provided in the Plan, all benefit payments being made under the terms of the Plan as in effect prior to the Effective Date shall continue to be made in the same amount and manner and shall not be affected by the terms of this restated Plan. (c) Except as otherwise specifically provided in the Plan or as required by the Code or the Act, the terms of this restated Plan shall not affect the amount of the Plan benefits of Members who do not complete an Hour of Service on or after the Effective Date or the time or form of payment of such benefits. Except as otherwise specifically provided in the Plan or as required by the Code or the Act, the amount, time of payment, form of payment and all other terms and conditions of the Plan benefit of any Member who does not complete an Hour of Service on or after the Effective Date shall continue to be governed by the terms of the Plan document or any predecessor plan document as in effect at the time of such Member's termination of employment. II-1 15 III. PARTICIPATION 3.1 PARTICIPATION ELIGIBILITY. Any Eligible Employee shall become a Member upon the completion of one year of Vesting Service as computed in accordance with Section 7.3. Notwithstanding the foregoing: (a) an Eligible Employee who was a Member of the Plan on the day prior to the Effective Date shall remain a Member of this restatement of the Plan as of the Effective Date; and (b) an Eligible Employee who was a Member of the Plan prior to a termination of employment shall remain a Member upon his reemployment as an Eligible Employee. 3.2 COMMENCEMENT OF PARTICIPATION. The Plan Membership of a Member who is employed by a Final Average Pay Employer at the time he satisfies the participation eligibility criteria of Section 3.1 shall commence retroactive to his Commencement Date or, if later, the date he first became an Eligible Employee. The Plan Membership of a Member who was employed by a Cash Balance Employer as of January 1, 1995 and who had satisfied the participation eligibility criteria of Section 3.1 as of January 1, 1995 shall commence as of January 1, 1995. The Plan Membership of any other Member who is employed as an Eligible Employee by a Cash Balance Employer at the time he satisfies the participation eligibility criteria of Section 3.1 shall commence as of the first day of the first month coincident with or immediately following his satisfaction of such criteria. The Plan Membership of an Employee who has completed one year of Vesting Service but who has not become a Member of the Plan because he was not an Eligible Employee shall commence immediately upon his becoming an Eligible Employee as a result of a change in his employment status. III-1 16 IV. BENEFIT ACCRUAL SERVICE AND CASH BALANCE ACCRUALS 4.1 BENEFIT ACCRUAL SERVICE. (a) For the period preceding the Effective Date, a Member shall be credited with years of Benefit Accrual Service in an amount equal to all years of service credited to him for accrual purposes under the Plan as it existed on the day prior to the Effective Date. (b) On and after the Effective Date, a Member shall be credited with Benefit Accrual Service in an amount equal to his aggregate Periods of Service except (1) no credit shall be given for Periods of Service prior to the date the Member first becomes a Member of the Plan, (2) no credit shall be given for Periods of Service completed while the Member is not an Eligible Employee, (3) no credit shall be given for Periods of Service completed while the Member is not employed by a Final Average Pay Employer and (4) a Member shall receive credit for a fractional year of Benefit Accrual Service based upon the number of days of Service in such fractional year. (c) If a Member's employment terminates prior to his Normal Retirement Date because he has become Totally and Permanently Disabled (whether before or after the Effective Date) while he was an Eligible Employee and employed by a Final Average Pay Employer, such Member shall be credited with Benefit Accrual Service in an amount equal to the full and fractional years included in the period prior to his Annuity Starting Date during which he is Totally and Permanently Disabled. (d) For purposes of determining a Member's Early Retirement Date under Section 1.1(19), eligibility for a death benefit under Section 8.1(c) or 8.1(f), and whether a Member has completed at least five years of Benefit Accrual Service under Section 6.1(c) only, Benefit Accrual Service shall be deemed to include post-1994 service with a Cash Balance Employer as an Eligible Employee which would have constituted Benefit Accrual Service had the Member instead been employed by a Final Average Pay Employer and to include any period for which a Member continues to receive Cash Balance Accruals pursuant to Section 6.1(b). 4.2 CASH BALANCE ACCRUALS. (a) For each Plan Year prior to the Plan Year including his Annuity Starting Date, a Member who is employed at any time during such Plan Year as an Eligible Employee by a Cash Balance Employer shall be credited with a Cash Balance Accrual as of the last day of such Plan Year equal to 3% of such Member's Monthly Plan Compensation for each full or partial month during such Plan Year while he was so employed. IV-1 17 (b) For each Plan Year prior to the Plan Year including his Annuity Starting Date, a Member (whether or not he is then an Eligible Employee or then employed) shall be credited with a Cash Balance Accrual as of the last day of such Plan Year equal to: (i) his Cash Balance Accrual as of the end of the immediately preceding Plan Year; multiplied by (ii) the Interest Credit Rate as of the last day of the immediately preceding Plan Year. (c) For the Plan Year including his Annuity Starting Date, a Member who is employed as an Eligible Employee by a Cash Balance Employer at any time during such Plan Year shall be credited with a Cash Balance Accrual as of the day immediately preceding his Annuity Starting Date equal to 3% of such Member's monthly Plan Compensation for each month during such Plan Year while he was so employed. (d) For the Plan Year including his Annuity Starting Date, a Member (whether or not he is then an Eligible Employee or then employed) shall be credited with a Cash Balance Accrual as of the day immediately preceding his Annuity Starting Date equal to: (i) his Cash Balance Accrual as of the last day of the immediately preceding Plan Year; multiplied by (ii) the Interest Credit Rate as of the last day of the immediately preceding Plan Year; multiplied by (iii) a fraction, the numerator of which is the number of full months during the Plan Year which were prior to the Member's Annuity Starting Date and the denominator of which is twelve. (e) If a Member's employment terminates prior to his Annuity Starting Date because he has become Totally and Permanently Disabled while employed by a Cash Balance Employer as an Eligible Employee, such Member shall be credited with Cash Balance Accrual credits for each Plan Year while he is Totally and Permanently Disabled and prior to his Annuity Starting Date in accordance with Paragraphs (a), (b), (c) and (d) above but based upon the rate of Monthly Plan Compensation equal to the monthly average of his Plan Compensation for the twelve-month period immediately preceding the date he incurred his disability. (f) No Cash Balance Accruals shall be credited for a Member pursuant to this Section 4.2 for any period from and after his Annuity Starting Date. 4.3 BREAK IN SERVICE. Contrary Plan provisions notwithstanding, if a Member who does not have a Vested Interest terminates employment, his Benefit Accrual Service and Cash Balance Accrual which were credited for his period of employment prior to such termination shall be disregarded if IV-2 18 his years of Vesting Service prior to such termination of employment are disregarded pursuant to Section 7.3(e). 4.4 CASH-OUT. (a) If a Member terminates employment and has a 0% Vested Interest or receives a lump sum distribution pursuant to Section 9.4, such Member's Benefit Accrual Service and Cash Balance Accruals which were credited for his period of employment prior to such termination shall be disregarded, and such Member's nonvested Plan benefit shall become a forfeiture as of the date of such distribution (or as of the date of termination of employment if the Member has a 0% Vested Interest with such Member being considered to have received a distribution of zero dollars on the date of his termination of employment). (b) Paragraph (a) above notwithstanding, if such terminated Member is subsequently reemployed and either the Member had a 0% Vested Interest at the time of his termination or the distribution previously made to him was for less than the present value of his entire Plan benefit at the time of such distribution, the Benefit Accrual Service and Cash Balance Accrual which were disregarded and the forfeiture which occurred pursuant to Paragraph (a) above shall be restored as of the date of reemployment unless such Benefit Accrual Service and Cash Balance Accrual are disregarded pursuant to the provisions of Section 4.3; provided, however, if such Member received a distribution at the time of his termination, such restoration shall only be made if such Member repays, within five years from the date the Member is reemployed, the distributed amount plus interest thereon at the rate of 5% (or at a rate which may later be specified by regulations or by law) per annum compounded annually from the date of distribution to the date of repayment. IV-3 19 V. RETIREMENT BENEFITS 5.1 NORMAL RETIREMENT. (a) A Member whose employment terminates, for a reason other than death, on or after his Normal Retirement Date shall be entitled to receive, as of such date, a retirement benefit, payable at the time and in a form provided in Article IX, which is the Actuarial Equivalent of a series of monthly payments for his life commencing on the first day of the month coinciding with or next following the date of his Retirement, each monthly payment being equal to the sum of (1) and (2) below: (1) one-twelfth of 1.25% of his Average Annual Plan Compensation multiplied by his years of Benefit Accrual Service plus 0.35% of his Average Annual Plan Compensation in excess of 125% of his Average Annual Covered Compensation multiplied by his years of Benefit Accrual Service not in excess of thirty-five years; and (2) the monthly payment amount derived by converting his Cash Balance Accrual as of his Annuity Starting Date into a single life annuity on an Actuarially Equivalent basis. (b) With respect to any Member who is to receive his benefit pursuant to Paragraph (a) above, such Member's Annuity Starting Date shall be the first day of the month coinciding with or next following the date of the Member's Retirement. (c) The Committee shall furnish any Member who continues his employment with any Controlled Entity beyond his Normal Retirement Date with the notification described in section 2530.203-3 of the Labor Department Regulations relating to the Act. Upon such Member's termination of employment, his Article IX benefit shall be increased to the extent required, if at all, under such regulations to avoid the effecting of a permanent withholding of benefits during such Member's post Normal Retirement Date employment. 5.2 EARLY RETIREMENT. (a) A Member whose employment terminates on or after his Early Retirement Date and prior to his Normal Retirement Date, for a reason other than because of death or because he has become Totally and Permanently Disabled, shall be entitled to receive, as of such Member's Normal Retirement Date, a retirement benefit, payable at the time and in a form provided in Article IX, which is the Actuarial Equivalent of a series of monthly payments for his life commencing on the first day of the month coinciding with or next following his Normal Retirement Date, each monthly payment being equal to the sum of (1) and (2) below: V-1 20 (1) one-twelfth of 1.25% of his Average Annual Plan Compensation (determined as of the date of his termination of employment) multiplied by his years of Benefit Accrual Service (determined as of the date of his termination of employment) plus 0.35% of such Average Annual Plan Compensation in excess of 125% of his Average Annual Covered Compensation (determined as of the date of his termination of employment) multiplied by such years of Benefit Accrual Service which are not in excess of thirty-five years; and (2) the monthly payment amount derived by converting his Cash Balance Accrual as of his Normal Retirement Date into a single life annuity on an Actuarially Equivalent basis. (b) If such Member requests the Committee to authorize the commencement of his Article IX benefit as of the first day of the month coinciding with or next following the date of his Retirement, or as of the first day of any subsequent month which precedes his Normal Retirement Date, such Member shall be entitled to receive his Article IX benefit as of the first day of the month so requested, and the value thereof shall be the sum of (1) and (2) below: (1) the monthly amount determined pursuant to (a)(1) above but reduced to reflect such Member's younger age and the earlier commencement of payments by multiplying each such monthly payment in accordance with the following schedule:
*AGE AT COMMENCEMENT MULTIPLIER ------------------- ---------- 60 or older 100% 59 96.5% 58 93.0% 57 89.5% 56 86.0% 55 82.5%
(*) If the age of a Member at the date on which the benefit commences is a fractional number of years, the percentage to be used will be obtained by a pro rata adjustment as determined by the Committee; and (2) the monthly payment amount derived by converting his Cash Balance Accrual as of his selected Annuity Starting Date on an Actuarially Equivalent basis. Any request, pursuant to this Paragraph, for early commencement of benefit payments must be made by filing with the Committee the form prescribed by the Committee at least 30 days prior to the date of such commencement and no such request may be withdrawn by a Member after commencement of payment of his Article IX benefit. V-2 21 (c) With respect to any Member who is to receive his benefit pursuant to Paragraph (a) above, such Member's Annuity Starting Date shall be the first day of the month coincident with or next following his Normal Retirement Date; provided that he has given the Committee at least thirty days advance notice that he is electing such date as his Annuity Starting Date. With respect to any Member who is to receive early commencement of his benefit pursuant to Paragraph (b) above, such Member's Annuity Starting Date shall be the first day of the month so requested. V-3 22 VI. DISABILITY BENEFITS 6.1 DISABILITY BENEFITS. (a) In the event a Member's employment terminates prior to his Normal Retirement Date while he is an Eligible Employee and employed by a Final Average Pay Employer because he has become Totally and Permanently Disabled, such Member shall receive Benefit Accrual Service while he remains so disabled prior to his Annuity Starting Date and shall be entitled to receive, as of his selected Annuity Starting Date, a disability retirement benefit, payable at the time and in a form provided in Article IX, which is the Actuarial Equivalent of a series of monthly payments for his life commencing on the Member's selected Annuity Starting Date, each monthly payment being equal to the sum of (1) and (2) below: (1) one-twelfth of 1.25% of the Average Annual Plan Compensation he would have had if he had received during his period of disability Plan Compensation equal to the monthly average of his Plan Compensation for the twelve-month period immediately preceding the date he incurred his disability multiplied by his years of Benefit Accrual Service plus 0.35% of such Average Annual Plan Compensation in excess of 125% of the Average Annual Covered Compensation he would have had if he had received during period of his disability monthly Plan Compensation equal to the monthly average of his Plan Compensation for the twelve-month period immediately preceding the date he incurred his disability multiplied by his years of Benefit Accrual Service not in excess of thirty-five years; and (2) the monthly payment amount derived by converting his Cash Balance Accrual as of his Annuity Starting Date into a single life annuity on an Actuarially Equivalent basis. (b) In the event a Member's employment terminates prior to his Normal Retirement Date while he is an Eligible Employee and employed by a Cash Balance Employer because he has become Totally and Permanently Disabled, such Member shall continue to receive Cash Balance Accruals pursuant to Section 4.2(e) while he remains so disabled prior to his Annuity Starting Date and shall be entitled to receive, as of his selected Annuity Starting Date, a disability retirement benefit, payable at the time and in a form provided in Article IX, which is the Actuarial Equivalent of a series of monthly payments for his life commencing on the Member's selected Annuity Starting Date, each monthly payment being equal to the sum of (1) and (2) below: (1) the monthly amount of any Final Average Pay Benefit, if any, which, although, based upon Benefit Accrual Service completed prior to becoming employed by the Cash Balance Employer, shall reflect Average Annual Plan Compensation and Average Annual Covered Compensation calculated as if he had received, while he remained so disabled prior to his Annuity Starting Date, monthly Plan Compensation equal to the monthly average VI-1 23 of his Plan Compensation for the twelve-month period immediately preceding the date he became so disabled; and (2) the monthly payment amount derived by converting his Cash Balance Accrual as of his Annuity Starting Date into a single life annuity on an Actuarially Equivalent basis. (c) With respect to any Member who is to receive his benefit pursuant to Paragraphs (a) or (b) above, such Member's Annuity Starting Date shall be the first day of any month from and after the date he attains the age of fifty-five as elected by such Member, provided that such Member has given the Committee at least thirty days advance written notice of his selected Annuity Starting Date, and if the Member has completed at least five years of Benefit Accrual Service, the portion of his benefit computed under Paragraph (a)(1) or (b)(1) above shall be reduced in accordance with the schedule contained in Section 5.2(b)(1) instead of the schedule contained in Section 7.2(d)(1). 6.2 POST DISABILITY. (a) If a Member who has been Totally and Permanently Disabled ceases to be so disabled prior to his Annuity Starting Date, no disability retirement benefits shall be paid to such Member pursuant to Section 6.1. (b) In the event a Member ceases to be Totally and Permanently Disabled prior to his Annuity Starting Date, for purposes of determining eligibility for and the amount of any Plan benefit to which such Member may subsequently become entitled, such Member shall be credited with Vesting Service for the period he remained so disabled as if his employment had continued through such period and, in the case of a Final Average Pay Benefit, shall be assumed to have received during such period monthly Plan Compensation equal to the monthly average of his Plan Compensation for the twelve-month period immediately preceding the date he became Totally and Permanently Disabled. VI-2 24 VII. SEVERANCE BENEFITS 7.1 NO BENEFITS UNLESS HEREIN SET FORTH. Except as set forth in this Article, upon termination of employment of a Member for any reason other than Retirement, death or having become Totally and Permanently Disabled, such Member shall acquire no right to any benefit from the Plan or the Trust Fund. 7.2 SEVERANCE BENEFIT. (a) For purposes of this Section, a Member's Vested Interest shall be determined by such Member's full years of Vesting Service in accordance with the following schedule:
FULL YEARS OF VESTING SERVICE VESTED INTEREST ----------------------------- --------------- Less than 5 years 0% 5 years or more 100%
With respect to any Member who was a participant in the Plan on the day prior to the Effective Date, in no event shall such Member's nonforfeitable percentage after the Effective Date be less than such nonforfeitable percentage would have been had the Plan provisions prior to such date been in effect. (b) Paragraph (a) above notwithstanding, a Member shall have a 100% Vested Interest upon attainment while employed of his Normal Retirement Date. (c) A Member whose employment terminates, for a reason other than because of Retirement, death or having become Totally and Permanently Disabled shall be entitled to receive, as of such Member's Normal Retirement Date, a severance benefit, payable at the time and in a form provided in Article IX, which is the Actuarial Equivalent of a series of monthly payments for his life commencing on the first day of the month coinciding with or next following his Normal Retirement Date, each monthly payment being equal to the sum of (1) and (2) below: (1) one-twelfth of 1.25% of his Average Annual Plan Compensation (determined as of the date of his termination of employment) multiplied by his years of Benefit Accrual Service (determined as of the date of his termination of employment) plus 0.35% of such Average Annual Plan Compensation in excess of 125% of his Average Annual Covered Compensation (determined as of the date of his termination of employment) multiplied by such years of Benefit Accrual Service not in excess of thirty-five years; and (2) the monthly payment amount derived by converting his Cash Balance Accrual as of his Normal Retirement Date into a single life annuity on an Actuarially Equivalent basis. VII-1 25 (d) If the present value of a Member's Vested Interest in his severance benefit exceeds $10,000 and such Member requests the Committee to authorize the commencement of such benefit as of the first day of the month coinciding with or next following his fifty-fifth birthday, or as of the first day of any subsequent month which precedes his Normal Retirement Date, such Member shall be entitled to receive his severance benefit as of the first day of the month so requested and each monthly payment of such benefit shall be the sum of (1) and (2) below: (1) The monthly amount determined pursuant to (c)(1) above, but reduced to reflect such Member's younger age and the earlier commencement of payments by multiplying each such monthly payment in accordance with the following schedule (prorated in the case of fractional months):
*AGE AT COMMENCEMENT MULTIPLIER ------------------- ---------- 65 or older 100% 64 93.3% 63 86.7% 62 80.0% 61 73.3% 60 66.7% 59 63.3% 58 60.0% 57 56.7% 56 53.3% 55 50.0%
(*) If the age of a Member at the date on which the benefit commences is a fractional number of years, the percentage to be used will be obtained by a pro rata adjustment as determined by the Committee; and (2) the monthly payment amount derived by converting his Cash Balance Accrual as of his selected Annuity Starting Date into a single life annuity on an Actuarially Equivalent basis. If the present value of a Member's Vested Interest in his severance benefit is equal to or less than $10,000 but greater than $3,500 and such Member requests the Committee to authorize the commencement of such benefit as of the first day of the month coinciding with or next following the date of his termination of employment, or as of the first day of any subsequent month which precedes his Normal Retirement Date, such Member shall be entitled to receive his severance benefit as of the first day of the month so requested and each monthly payment of such benefit shall be the sum of (1) and (2) below: (1) the monthly amount determined pursuant to (c)(1) above, but actuarially reduced to reflect such Member's younger age and the earlier commencement of payments; VII-2 26 (2) the monthly payment amount derived by converting his Cash Balance Accrual as of his selected Annuity Starting Date into a single life annuity commencing as of the selected Annuity Starting Date on an Actuarially Equivalent basis. Any request, pursuant to this Paragraph, for early commencement of benefit payments must be made by filing with the Committee the form prescribed by the Committee at least 30 days prior to the date of such commencement and no such request may be withdrawn by a Member after commencement of payment of his Article IX benefit. (e) With respect to any Member who is to receive his benefit pursuant to Paragraph (c) above, such Member's Annuity Starting Date shall be the first day of the month coincident with or next following his Normal Retirement Date. With respect to any Member who is to receive early commencement of his benefit pursuant to Paragraph (d) above, such Member's Annuity Starting Date shall be the first day of the month so requested; provided that such Member has given the Committee at least thirty days advance written notice of such selected Annuity Starting Date. 7.3 REGULAR VESTING SERVICE. (a) For the period preceding the Effective Date, an Employee shall be credited with Vesting Service in an amount equal to all service credited to him for vesting purposes under the Plan as it existed on the day prior to the Effective Date. (b) On and after the Effective Date, subject to the remaining Paragraphs of this Section, an Employee shall be credited with Vesting Service in an amount equal to his aggregate Periods of Service whether or not such Periods of Service are completed consecutively. (c) Paragraph (b) above notwithstanding, if an Employee terminates his Service (other than during a leave of absence) and subsequently resumes his Service, if his Reemployment Commencement Date is within twelve months of his Severance from Service Date, such Period of Severance shall be treated as a Period of Service for purposes of Paragraph (b) above. (d) Paragraph (b) above notwithstanding, if an Employee terminates his Service during a leave of absence and subsequently resumes his Service, if his Reemployment Commencement Date is within twelve months of the beginning of such leave of absence, such Period of Severance shall be treated as a Period of Service for purposes of Paragraph (b) above. (e) In the case of an Employee who terminates employment at a time when he does not have any Vested Interest but who then incurs a Period of Severance which equals or exceeds the greater of (1) five years or (2) his Period of Service prior to such Period of Severance, such Employee's Period of Service completed before such Period of Severance shall be disregarded in determining his years of Vesting Service. 7.4 SPECIAL VESTING SERVICE. For the period preceding the Effective Date, any individual who was employed by Associated Natural Gas, Inc. shall be credited with Vesting Service in an amount equal to all years of Service credited to him for vesting purposes under the terms of the Associated Natural Gas, Inc. Retirement Savings Plan for such period. VII-3 27 VIII. DEATH BENEFITS 8.1 BEFORE ANNUITY STARTING DATE. (a) Except as provided in this Section 8.1, no benefits shall be paid pursuant to this Plan with respect to any Member who dies prior to his Annuity Starting Date. (b) If a Member dies on or after completing five years of Vesting Service but prior to completing ten years of Benefit Accrual Service (or ten years of Service which would have constituted Benefit Accrual Service had the Member always been employed by a Final Average Pay Employer) and while employed or while Totally and Permanently Disabled and is survived by an Eligible Surviving Spouse, such Eligible Surviving Spouse shall be entitled to receive a single life annuity consisting of monthly payments for the life of the Eligible Surviving Spouse. The monthly payment amount of such single life annuity shall be equal to the sum of (1) and (2) below: (1) 50% of the monthly payment amount attributable to the Final Average Pay Benefit the deceased Member would have received if his Plan benefit expressed in the standard form described in Section 9.2(a) had commenced as of the date of his death, determined by applying the following early commencement multipliers in lieu of the early commencement multipliers of Sections 5.2(b) and 7.2(d):
AGE AT AGE AT COMMENCEMENT MULTIPLIER COMMENCEMENT MULTIPLIER 20 1 .8% 30 4.0 21 2 .0 31 4.4 22 2 .1 32 4.8 23 2 .3 33 5.2 24 2 .5 34 5.6 25 2 .7 35 6.1 26 2 .9 36 6.6 27 3 .2 37 7.2 28 3 .4 38 7.8 29 3 .7 39 8.5 40 9 .2% 50 21.9 41 10.0 51 24.0 42 10.9 52 26.4 43 11.9 53 28.9 44 12.9 54 31.8
VIII-1 28 45 14.1 55 82.5 46 15.4 56 86.0 47 16.8 57 89.5 48 18.3 58 93.0 49 20.0 59 96.5 60 or older 100.0; and
(2) the monthly payment amount derived by converting 50% of the deceased Member's Cash Balance Accrual as of the date of his death into a single life annuity on an Actuarially Equivalent basis. Payment of the survivor annuity provided by this Paragraph shall begin as of the first day of the first month coinciding with or next following the Member's date of death and shall end as of the first day of the month in which the death of the Eligible Surviving Spouse occurs. Notwithstanding the foregoing, in the absence of consent by such Member's Eligible Surviving Spouse, payment of such survivor annuity may not begin prior to the date such Member would have reached his Normal Retirement Date. In the event of such deferral, the amount of the survivor annuity attributable to the deceased Member's Final Average Pay Benefit shall be increased on an Actuarially Equivalent basis to reflect such deferred commencement and the portion of such survivor annuity attributable to the deceased Member's Cash Balance Benefit shall be increased by crediting Cash Balance Accruals pursuant to Section 4.2 until commencement of payment of such survivor annuity. No death benefit shall be paid pursuant to this Paragraph if a deceased Member's Eligible Surviving Spouse elects to defer commencement of payment of death benefits owed pursuant to this Paragraph and dies prior to such commencement of payment. (c) If a Member dies on or after completing ten years of Benefit Accrual Service and while employed or while Totally and Permanently Disabled and is survived by an Eligible Surviving Spouse, such Eligible Surviving Spouse shall be entitled to receive a single life annuity consisting of monthly payments for the life of the Eligible Surviving Spouse. The monthly payment amount of such single life annuity shall be equal to the sum of (1) and (2) below: (1) 75% of the monthly payment amount attributable to the Final Average Pay Benefit the deceased Member would have received if his Plan benefit expressed in the form of a single life annuity had commenced as of the date of his death without reduction for commencement prior to his Normal Retirement Date; and (2) the monthly payment amount derived by converting 75% of the deceased Member's Cash Balance Accrual as of the date of his death into a single life annuity on an Actuarially Equivalent basis. Payment of the survivor annuity provided by this Paragraph shall begin with the first day of the first month coinciding with or next following the Member's date of death and shall end as of the first day of the month in which the death of the Eligible Surviving Spouse occurs. Notwithstanding the foregoing, in the absence of consent by such Member's Eligible Surviving Spouse, payment of such VIII-2 29 survivor annuity may not begin prior to the date such Member would have reached his Normal Retirement Date. In the event of such deferral, the portion of such survivor annuity attributable to the deceased Member's Cash Balance Benefit shall be increased by crediting Cash Balance Accruals pursuant to Section 4.2 until commencement of payment of such survivor annuity. No death benefit shall be paid pursuant to this Paragraph if a deceased Member's Eligible Surviving Spouse elects to defer commencement of payment of death benefits owed pursuant to this Paragraph and dies prior to such commencement of payment. (d) A married Member with an Eligible Surviving Spouse shall have a survivor annuity paid to his Eligible Surviving Spouse in the event such Member dies with a Vested Interest before his Annuity Starting Date and if no death benefit is payable pursuant to Paragraph (b) or Paragraph (c) above with respect to such Member or if the death benefit provided pursuant to this Paragraph (d) is greater than the death benefit provided by Paragraph (b) or Paragraph (c), as applicable. The survivor annuity provided by this Paragraph shall be a single life annuity consisting of monthly payments for the life of the Eligible Surviving Spouse determined as follows: (1) if such Member dies on or before reaching his Early Retirement Date and Normal Retirement Date, the death benefit such Eligible Surviving Spouse would have received had such deceased Member terminated his employment on the earlier of his actual date of termination of employment or his date of death, survived until the earlier of his Early Retirement Date or Normal Retirement Date, elected to begin receiving his Vested Interest in the standard form described in Section 9.2(a) beginning immediately at the earlier of his Early Retirement Date or Normal Retirement Date and died on the day after the day on which he would have reached the earlier of his Early Retirement Date or Normal Retirement Date; or (2) if such Member dies after reaching his Early Retirement Date or Normal Retirement Date while employed, the death benefit such Eligible Surviving Spouse would have received had such deceased Member elected to receive his Vested Interest in the standard form described in Section 9.2(a) on the day prior to his date of death; or (3) if such Member's employment terminates before such Member reaches his Early Retirement Date or Normal Retirement Date and such Member dies after reaching his Early Retirement Date or Normal Retirement Date, the death benefit such Eligible Surviving Spouse would have received had such deceased Member elected to receive his Vested Interest in the standard form described in Section 9.2(a) beginning on the day prior to his date of death. Payment of the survivor annuity provided by this Paragraph shall begin as of the first day of the month coinciding with or next following the later of (1) the Member's date of death or (2) the date the Member reached or would have reached the earlier of his Early Retirement Date or Normal Retirement Date and shall end as of the first day of the month in which the death of the Eligible Surviving Spouse occurs; provided, however, that a Member's Eligible Surviving Spouse may elect for payment of such survivor annuity to begin with the first day of the first month coinciding with or next following the Member's date of death, in which event the Cash Balance Accrual portion of such VIII-3 30 survivor annuity shall be based upon the deceased Member's Cash Balance Accrual as of the date of his death and the Final Average Pay Benefit portion of such survivor annuity shall be reduced by an Actuarially Equivalent basis to reflect such earlier commencement. Notwithstanding the foregoing, in the absence of consent by such Member's Eligible Surviving Spouse, payment of such survivor annuity may not begin prior to the date such Member would have reached his Normal Retirement Date. In the event of such deferral, the amount of the survivor annuity shall be increased on an Actuarially Equivalent basis to reflect such deferred commencement. No death benefit shall be paid pursuant to this Paragraph if a deceased Member's Eligible Surviving Spouse elects to defer commencement of payment of death benefits owed pursuant to this Paragraph and dies prior to such commencement of payment. (e) If a Member dies on or after completing five years of Vesting Service and is not survived by an Eligible Surviving Spouse and is not entitled to a death benefit pursuant to Paragraph (f) below, such Member's beneficiary designated pursuant to Section 9.6 shall be entitled to receive a single life annuity for the life of such designated beneficiary equal to the monthly payment amount derived by converting 50% of the deceased Member's Cash Balance Accrual as of the date of his death into a single life annuity on an Actuarially Equivalent basis. Payment of the survivor annuity provided by this Paragraph shall begin as of the first day of the first month coinciding with or next following the Member's date of death and shall end as of the first day of the month in which the death of the designated beneficiary occurs. Notwithstanding the foregoing, the Member's designated beneficiary may defer commencement of payment of survivor annuity until the first day of any month preceding the date the deceased Member would have reached his Normal Retirement Date. In the event of such deferral, the amount of the survivor annuity payable to the Member's deceased beneficiary shall be increased by crediting Cash Balance Accruals pursuant to Section 4.2 for the period between the date of the deceased Member's death and the date of commencement of payment to the designated beneficiary of such survivor annuity. No death benefit shall be paid pursuant to this Paragraph if a deceased Member's designated beneficiary elects to defer commencement of payment of death benefits owed pursuant to this Paragraph and dies prior to such commencement of payment. (f) If a Member dies on or after completing ten years of Benefit Accrual Service and while employed or while Totally and Permanently Disabled and is not survived by an Eligible Surviving Spouse, such deceased Member's beneficiary designated pursuant to Section 9.6 shall be entitled to receive a single life annuity consisting of monthly payments for the life of the designated beneficiary equal to the monthly payment amount derived by converting 75% of the deceased Member's Cash Balance Accrual as of the date of his death into a single life annuity on an Actuarially Equivalent basis. Payment of the survivor annuity provided by this Paragraph shall begin as of the first day of the first month coinciding with or next following the Member's date of death and shall end as of the first day of the month in which the death of the designated beneficiary occurs. Notwithstanding the foregoing, the Member's designated beneficiary may defer commencement of payment of survivor annuity until the first day of any month preceding the date the deceased Member would have reached his Normal Retirement Date. In the event of such deferral, the amount of the survivor annuity payable to the Member's deceased beneficiary shall be increased by crediting Cash Balance Accruals pursuant to Section 4.2 for the period between the date of the deceased Member's death and the date of commencement of payment to the designated beneficiary of such survivor annuity. No death benefit shall be paid pursuant to this Paragraph if a deceased Member's designated VIII-4 31 beneficiary elects to defer commencement of payment of death benefits owed pursuant to this Paragraph and dies prior to such commencement of payment. 8.2 AFTER ANNUITY STARTING DATE. With respect to any Member who dies on or after his Annuity Starting Date, whether or not payment of his benefit has actually begun, the only benefit payable pursuant to this Plan shall be that, if any, provided for his beneficiary pursuant to the form of Article IX benefit he was receiving or about to receive. 8.3 CASH-OUT OF DEATH BENEFIT. (a) If a Member dies prior to his Annuity Starting Date and his Eligible Surviving Spouse or beneficiary is entitled to a death benefit pursuant to this Article VIII and the present value of such death benefit is not in excess of $3,500, such present value shall be paid in a lump sum payment in lieu of any other benefit herein provided and without regard to the spousal consent requirement of Section 8.1. Any payment pursuant to this Paragraph (a) shall be made as soon as administratively feasible following the Member's date of death, but no later than the close of the second Plan Year following the Plan Year in which such Member dies. (b) If a Member dies prior to his Annuity Starting Date and his Eligible Surviving Spouse or beneficiary is entitled to a death benefit pursuant to Paragraph (b), (c), (e), or (f) of Section 8.1 and the present value of such death benefit is more than $3,500, such Eligible Surviving Spouse or beneficiary may elect to have such present value paid in a lump sum in lieu of any other benefit herein provided. In the case of a death benefit payable as a survivor annuity to a Member's Eligible Surviving Spouse, within a reasonable time after written request by such Eligible Surviving Spouse for the lump sum payment, the Committee shall provide to such Eligible Surviving Spouse a written explanation of the survivor annuity form otherwise payable and the financial effect of electing such lump sum payment. 8.4 SPECIAL TRANSITIONAL PROVISION. With respect to any married former Member who terminated employment prior to August 23, 1984, if such Member (1) had at least one Hour of Service in the first Plan Year beginning on or after January 1, 1976, (2) had completed at least ten years of service under the Plan, (3) had not reached the earlier of his Early Retirement Date or Normal Retirement Date as of the date of his termination, and (4) has not reached his Annuity Starting Date as of August 23, 1984, then such Member shall have a survivor annuity paid to his Eligible Surviving Spouse in the event such Member dies before his Annuity Starting Date. Such survivor annuity shall be as described pursuant to Section 8.1(d) without regard to the death benefit provided in Section 8.1(c). VIII-5 32 IX. PAYMENT OF BENEFITS 9.1 TIME OF PAYMENT. (a) Payment of benefits under the Plan to a Member (other than death benefits payable pursuant to Article VIII) shall commence as of such Member's Annuity Starting Date, but the first payment shall be made no earlier than the expiration of the seven-day period that begins the day after the information required to be furnished pursuant to Section 9.2(a) has been furnished to the Participant. (b) Plan provisions to the contrary notwithstanding, commencement of a Member's benefit payments shall not occur: (1) unless such Member consents (and, if such Member has an Eligible Surviving Spouse, unless such Eligible Surviving Spouse consents (with such consent being irrevocable) in accordance with the requirements of section 417 of the Code and applicable Treasury Regulations thereunder) within ninety days of his Annuity Starting Date, prior to such Member's Normal Retirement Date; (2) unless such Member elects, after the sixtieth day following the close of the Plan Year during which such Member attains, or would have attained, the age of sixty-five or, if later, terminates employment; or (3) at a time or in a manner inconsistent with the provisions of section 401(a)(9) of the Code and applicable Treasury Regulations thereunder and shall in no event occur: (A) In the case of a Member who attains the age of seventy and one-half prior to January 1, 1988 and is not a "five-percent owner" (within the meaning of section 416(i) of the Code) at any time during the five Plan Year period ending in the calendar year in which such Member attains the age of seventy and one-half, after April 1st following the later of (i) the calendar year in which such Member attains the age of seventy and one-half, or (ii) the calendar year in which such Member terminates his employment, or if such Member becomes a "five-percent owner" following the end of such five Plan Year period, April 1st of the calendar year following the calendar year in which such Member becomes a "five-percent owner;" (B) In the case of a Member who does not attain the age of seventy and one-half prior to January 1, 1988 or is a "five-percent owner" (within the meaning of section 416(i) of the Code) at any time during the five Plan Year period ending in the calendar year in which such Member attains the age of seventy and one-half, after IX-1 33 April 1st of the calendar year following the calendar year in which such Member attains the age of seventy and one-half; and (C) In the case of a Member who becomes entitled to a benefit pursuant to Article VIII, after the last day of the five-year period following the death of such Member; provided, however, if such Member's beneficiary is his surviving spouse, the Annuity Starting Date may be deferred until the date upon which such Member would have attained the age of seventy and one-half, unless such surviving spouse dies before payments commence, in which case the Annuity Starting Date may not be deferred beyond the last day of the one-year period following the death of such surviving spouse. Further, the preceding provisions of this Section notwithstanding, a Member may not elect to defer the receipt of his benefit hereunder to the extent that such deferral creates a death benefit that is more than incidental within the meaning of section 401(a)(9)(G) of the Code and applicable Treasury Regulations thereunder. (c) Consent of the Member's Eligible Surviving Spouse under Paragraph (b)(1) shall not be required if the Member's benefit is to be paid in the form of the standard benefit described in Section 9.2(a). The Committee shall furnish certain information pertinent to a Member's consent under Paragraph (b)(1) to each Member no less than thirty days (unless such thirty-day period is waived by an affirmative election in accordance with applicable Treasury Regulations) and no more than ninety days before his Annuity Starting Date, and the furnished information shall include a general description of the material features of, and an explanation of the relative values of, the alternative forms of benefit available under the Plan and must inform the Member of his right to defer his Annuity Starting Date and of his transfer right pursuant to Section 9.5, if applicable. (d) Subject to the provisions of Paragraph (b)(2) above, a Member's Annuity Starting Date shall not occur while the Member is employed by any Controlled Entity. (e) Paragraphs (a), (b)(1) and (b)(2) notwithstanding, a Member may elect to defer his Annuity Starting Date beyond the date specified in such Paragraphs, subject to the provisions of Paragraph (b)(3), by submitting to the Committee a written statement, signed by the Member, which describes the benefit and the date on which the payment of such benefit shall commence. 9.2 STANDARD AND ALTERNATIVE BENEFITS FOR MEMBERS. (a) For purposes of Article V, VI or VII, the standard form of benefit for any Member who is married on his Annuity Starting Date shall be a joint and survivor annuity. Such joint and survivor annuity shall be an annuity which is payable for the life of the Member with a survivor annuity for the life of the Member's Eligible Surviving Spouse which shall be 50% of the amount of the annuity payable during the joint lives of the Member and the Eligible Surviving Spouse. The standard form of benefit for any Member who is not married on his Annuity Starting Date shall be the benefit described in Article V, VI or VII, whichever is applicable to such Member. IX-2 34 Any Member who would otherwise receive the standard form of benefit may elect not to take his benefit in such form by executing the benefit election form prescribed by the Committee during the election period described below. Any election may be revoked and subsequent elections may be made or revoked at any time during such election period. The Committee shall furnish certain information pertinent to this Section 9.2(a) election, to each Member no less than thirty days (unless such thirty-day period is waived by an affirmative election in accordance with applicable Treasury Regulations) and no more than ninety days before his Annuity Starting Date. The furnished information shall be written in nontechnical language and shall include an explanation of (1) the terms and conditions of the standard benefit, (2) such Member's right to make an election not to take his benefit in the standard form and the effect of such an election, (3) the rights of such Member's Eligible Surviving Spouse, if any, (4) the right to revoke any such election and the effect of such revocation, (5) a general description of the eligibility conditions and other material features of the alternative forms of benefit available pursuant to Paragraph (c) below, and (6) sufficient additional information to explain the relative values of such alternative forms of benefit. The period of time during which a Member may make or revoke the election described in this Section 9.2(a) shall be the ninety-day period ending on such Member's Annuity Starting Date provided that such election may also be revoked at any time prior to the expiration of the seven-day period that begins the day after the information required to be furnished pursuant to this Paragraph has been furnished to the Member. (b) Notwithstanding anything to the contrary herein, an election by a married Member not to receive the standard benefit as provided in Section 9.2(a) shall not be effective unless (1) such Member's Eligible Surviving Spouse has consented thereto in writing (including consent to the specific designated beneficiary, if any, to receive payments following the Member's death and to the specific benefit form elected, if any, which designation and election may not subsequently be changed by the Member without spousal consent) and such consent acknowledges the effect of such election and is witnessed by a Plan representative (other than the Member) or a notary public, or (2) such consent may not be obtained because such Eligible Surviving Spouse cannot be located or because of other circumstances described by applicable Treasury Regulations. Any such consent by such Eligible Surviving Spouse shall be irrevocable. (c) For purposes of Article V, VI or VII, the benefit for any Member who has elected not to receive the standard benefit set forth in Section 9.2(a) shall be paid in one of the following alternative forms to be selected by such Member or, in the absence of such selection, by the Committee prior to his Annuity Starting Date; provided, however, that the period and method of payment of any such form shall be in compliance with the provisions of section 401(a)(9) of the Code and applicable Treasury Regulations thereunder: (1) A single life annuity for the life of such Member. (2) An annuity for the life of the Member and continuing at a 75% or 100% rate for the life of the Member's Eligible Surviving Spouse; provided, however, that in no event shall the period of payment of any such annuity exceed the greater of (A) the life IX-3 35 expectancy of the Member or (B) the joint life expectancy of the Member and his designated beneficiary. (3) A lump sum. (4) An annuity for a term certain of five years or ten years and continuous for the life of the Member if he survives such term certain; provided, however, that the present value of the payments actuarially expected to be made to the Member shall be more than 50% of the present value of the total payments actuarially expected to be made to the Member and his designated beneficiary; and provided, further that the period of payment of such annuity shall not exceed the greater of (A) the life expectancy of the Member or (B) the joint life expectancy of the Member and his designated beneficiary. 9.3 LEVEL INCOME OPTION. If payment of a Member's Article IX benefit commences prior to the earliest age as of which such Member will become eligible for an Old-Age Insurance Benefit under the Social Security Act, any portion of such Member's Article IX benefit is attributable to the period of employment with a Final Average Pay Employer and such Member elects payment of such Article IX benefit in the form of a single life annuity or an annuity for the life of the Member and continuing at a 50% rate for the life of his Eligible Surviving Spouse, at the request of the Member the amount of the payments of the Article IX benefit may be adjusted so that an increased amount will be paid prior to such age and a reduced amount thereafter; the purpose of this adjustment is to enable the Member to receive, from this Plan and under the Social Security Act, an aggregate income in approximately a level amount for life. 9.4 CASH-OUTS. If a Member terminates his employment and the present value of his Vested Interest is not in excess of $3,500, such present value shall be paid to such terminated Member in lieu of any other benefit herein provided and without regard to the consent requirements of Section 9.1(b)(1) and the election and spousal consent requirements of Section 9.2. If a Member terminates his employment and the present value of his Vested Interest is greater than $3,500 but is not more than $10,000, such present value shall be paid to such terminated Member in lieu of any other benefit herein provided if the Member and the Member's Eligible Surviving Spouse, if any, consent to payment of same in accordance with Sections 9.1(b)(1) and 9.2. Any such payment shall be made as soon as administratively feasible following such Member's termination of employment but not later than the close of the second Plan Year following the Plan Year in which such Member terminated his employment. The provisions of this Section shall not be applicable to a Member following his Annuity Starting Date. 9.5 DIRECT ROLLOVER ELECTION. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have all or any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. The preceding sentence notwithstanding, if less than 100% of the Member's Eligible Rollover Distribution is to be a Direct Rollover, the amount of the Direct Rollover must be $500 or more. Prior to any IX-4 36 Direct Rollover pursuant to this Section, the Committee may require the Distributee to furnish the Committee with a statement from the plan, account, or annuity to which the benefit is to be transferred verifying that such plan, account, or annuity is, or is intended to be, an Eligible Retirement Plan. (b) No less than thirty days and no more than ninety days before his Annuity Starting Date, the Committee shall inform the Distributee of his Direct Rollover right pursuant to this Section. A distribution or Direct Rollover of the Distributee's benefit may commence less than thirty days after such notice is given, provided that (1) the Committee clearly informs the Distributee that the Distributee has a right to a period of at least thirty days after receiving the notice to consider the decision of whether or not to elect a Direct Rollover and (2) the Distributee, after receiving the notice, affirmatively elects either a distribution or a Direct Rollover or a combination thereof. 9.6 SPECIAL DISTRIBUTION LIMITATIONS. (a) For purposes of this Section, the following terms shall have the following meanings: (1) "Benefit" of a Member includes (A) loans from the Plan in excess of the amounts set forth in section 72(p)(2)(A) of the Code, (B) any periodic income from the Plan, (C) any Plan withdrawal values payable to a living Member and (D) any death benefits from the Plan not provided for by insurance on the Member's life. (2) "Current Plan Liabilities" means with respect to a Plan Year the amount described in section 412(1)(7) for such Plan Year. (3) "Restricted Member" includes with respect to a Plan Year any Member who during such Plan Year is (A) either a "highly compensated employee," as such term is defined in section 414(q) of the Code, or a "highly compensated former employee," as such term is defined in section 414(q)(9) of the Code, and (B) is one of the twenty-five most highly compensated (based on compensation, within the meaning of section 414(s) of the Code, received from the Company or a Controlled Entity) of such individuals. (b) The annual payments from the Plan to a Restricted Member for a Plan Year may not exceed an amount equal to the annual payments that would be made on behalf of such Restricted Member under a single life annuity that is the Actuarial Equivalent of the sum of (1) the Restricted Member's Final Average Pay Benefit and Cash Balance Benefit and (2) the Restricted Members' Benefits under the Plan other than his Final Average Pay Benefit and Cash Balance Benefit. The provisions of this Paragraph shall not apply if after payment to a Restricted Member of his Benefits, the value of the assets of the Trust equals or exceeds 110% of the value of Current Plan Liabilities or the value of his Benefits is less than 1% of the value of Current Plan Liabilities. IX-5 37 9.7 BENEFICIARIES. (a) Subject to the restrictions of Section 9.2(b), each Member shall have the right to designate the beneficiary or beneficiaries to receive any continuing payments in the event such Member's Article IX benefit is payable in a form whereby payments could continue beyond such Member's death. Each such designation shall be made on the form prescribed by the Committee and shall be filed with the Committee. Any such designation may be changed at any time prior to the Member's Annuity Starting Date by executing a new designation and filing same with the Committee. If a Member's Article IX benefit is payable in a form whereby payments could continue beyond such Member's death, a Member may change such designation after his Annuity Starting Date if, and only if, the amount of his monthly Plan benefit payments were not determined in part by reference to the life of his designated beneficiary. If no beneficiary designation is on file with the Committee at the time of the death of the Member or such designation is not effective for any reason as determined by the Committee, then the designated beneficiary or beneficiaries to receive such continuing payments shall be as follows: (1) If a Member leaves a surviving spouse, any death benefit or continuing payments shall be paid to such surviving spouse; (2) If a Member leaves no surviving spouse, any death benefit or continuing payments shall be paid to such Member's executor or administrator. (b) Each Member shall have the right to designate the beneficiary or beneficiaries to receive any benefit payable with respect to such Member pursuant to Sections 8.1(e) and (f). Each such designation shall be made on the form prescribed by the Committee and shall be filed with the Committee. Any such designation may be changed at any time by executing a new designation and filing same with the Committee. If no such designation is on file with the Committee at the time of the death of the Member or such designation is not effective for any reason as determined by the Committee, then the designated beneficiary or beneficiaries to receive such continuing payments shall be paid to such Member's executor or administrator. 9.8 REEMPLOYMENT OF MEMBERS. (a) Upon reemployment on a full-time and permanent basis of a Member who had previously terminated employment and who was to receive or had begun to receive payment of his Article IX benefit, the payments of his Article IX benefit shall be suspended during the period of such reemployment. Upon reemployment on other than a full-time and permanent basis of a Member who had previously terminated employment and who was to receive or had begun to receive payment of his Article IX benefit, the payments of his Article IX benefit shall continue as if such reemployment had not occurred. Upon termination of any Member's reemployment, whether or not the payments of his Article IX benefit were suspended during such reemployment, such Member's Article IX benefit shall be computed pursuant to the applicable provisions of the Plan as follows: (1) The Member's recomputed Article IX benefit shall take into account all of the Member's years of Benefit Accrual Service and all of the Member's Cash Balance IX-6 38 Accruals including years of Benefit Accrual Service and Cash Balance Accruals earned during his period of reemployment and years of Benefit Accrual Service and Cash Balance Accruals earned prior to his earlier termination of employment. (2) Such recomputed benefit shall then be reduced by the Actuarial Equivalent of the accumulated benefit payments received by the Member prior to his current termination of employment. Solely for purposes of determining Actuarial Equivalence under this Paragraph (a)(2), an interest rate of 5.0% shall be used in lieu of the rate otherwise defined in Section 1.1(3). (3) In no event shall the Member's recomputed Article IX benefit be less than the Actuarial Equivalent of the benefit the Member was to receive or was receiving as of his date of employment. (b) In the case of any such Member whose reemployment on a full-time and permanent basis occurs on or after his Normal Retirement Date and whose Article IX benefit payments are to be suspended pursuant to Paragraph (a) above, the Committee shall furnish such Member with the notification described in section 2530.203-3 of the Labor Department regulations relating to the Act. Upon such Member's termination of reemployment, his Article IX benefit shall be increased to the extent required, if at all, under such regulations to avoid the effecting of a prohibited forfeitures of benefits by virtue of such suspension during such Member's post-Normal Retirement Date reemployment. 9.9 ACTUARIAL EQUIVALENCY. With respect to any benefit payable pursuant to the Plan with respect to a Member, whichever form of payment is selected, the value of such benefit shall be the Actuarial Equivalent of the Member's Plan benefit determined pursuant to Article V, VI, VII or VIII, whichever is applicable. 9.10 BENEFIT PAYMENT DEDUCTION ARRANGEMENTS. Effective as of his Annuity Starting Date or as of the first day of any subsequent month, a Member or his beneficiary may direct the Plan to pay all or a designated portion of his monthly Plan benefit payments to the administrator of the Panhandle Eastern Corporation Medical and Dental Plans in payment of the contributions required to be made by such Member or his beneficiary as a condition to coverage thereunder. Any benefit payment deduction arrangement established pursuant to this Section 9.10 shall be subject to the following conditions: (i) the arrangement may be revoked at any time by the Member or his beneficiary upon thirty days' written notice to the Committee; (ii) the arrangement may not accelerate or otherwise affect the time or form of payment of a Member's monthly Plan benefit payments; and (iii) no amounts will be paid from the Plan to the administrator of the Panhandle Eastern Corporation Medical and Dental Plans unless such administrator has filed with the Committee a blanket acknowledgement stating that the Panhandle Eastern Corporation Medical and IX-7 39 Dental Plans have no enforceable right in or to any Plan benefit payment or portion thereof as a result of an arrangement established pursuant to this Section 9.10 (except to the extent of payments actually received pursuant to such arrangement). 9.11 COMMERCIAL ANNUITIES. In any case where a benefit is to be paid in the form of an annuity, the Trustee may, upon proper direction by the Committee, purchase a commercial annuity contract and distribute such contract to the Member or beneficiary. Thereupon, the Plan shall have no further liability with respect to the amount used to purchase the annuity contract and such Member or beneficiary shall look solely to the company issuing such contract for such annuity payments. All certificates for commercial annuity benefits shall be nontransferable, except for surrender to the issuing company, and no benefit thereunder may be sold, assigned, discounted or pledged (other than as collateral for a loan from the company issuing same). Notwithstanding the foregoing, the terms of any such commercial annuity contract shall conform with the time of payment, form of payment and consent provisions of Articles VIII and IX. 9.12 UNCLAIMED BENEFITS. In the case of a benefit payable on behalf of a Member, if the Committee is unable to locate the Member or beneficiary to whom such benefit is payable, upon the Committee's determination thereof, such benefit shall be forfeited. Notwithstanding the foregoing, if subsequent to any such forfeiture the Member or beneficiary to whom such benefit is payable makes a valid claim for such benefit, such forfeited benefit shall be restored. 9.13 CLAIMS REVIEW. In any case in which a claim for Plan benefits of a Member or beneficiary is denied or modified, the Committee shall within a reasonable period of time after receipt of such claim, furnish to the claimant a notice of its decision which shall: (a) state the specific reason or reasons for the denial or modification, (b) provide specific reference to pertinent Plan provisions on which the denial or modification is based, (c) provide a description of any additional material or information necessary for the Member, his beneficiary or representative to perfect the claim and an explanation of why such material or information is necessary, and (d) explain the Plan's claim review procedure as contained herein. If such notice is not furnished to the claimant within a reasonable period of time following receipt of the claim by the Committee, the claim shall be deemed denied. In the event a claim for benefits is denied or modified, if the Member, his beneficiary or representative desires to have such denial or modification reviewed, he must, within sixty days following receipt of the notice of such denial or modification, submit a written request for review by the Committee of its initial decision. Within sixty days following such request for review the Committee shall, after providing a full and fair hearing, render its final decision in writing to the Member, his beneficiary or representative stating specific reasons for such decision. If special IX-8 40 circumstances require an extension of such sixty-day period, the Committee's decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. If an extension of time for review is required, written notice of the extension shall be furnished to the Member, beneficiary or representative prior to the commencement of the extension period. The Committee's decision on review of an appealed claim shall be communicated to the appealing claimant in writing, shall include specific reasons for the decision, shall be written in a manner calculated to be understood by the appealing claimant and shall include specific references to the pertinent Plan provisions on which such decision was based. If the Committee's decision on review of an appealed claim is not furnished to the claimant within the sixty-day period following the appealing claimant's request for review or the 120 days following such request if the sixty-day period is extended, the appealed claim shall be deemed denied on review. IX-9 41 X. SPECIAL BENEFITS 10.1 CHANGE OF CONTROL BENEFITS. (a) A Member who is credited with five years of Vesting Service but has not attained the age of fifty- five as of the date of his termination of employment and (1) Whose employment is involuntarily terminated within three years after the effective date of a Change in Control (as defined in Section 10.2 below) due to business changes, consolidation of operations or elimination of positions; or (2) Whose employment was terminated within three years after the effective date of a Change in Control (as defined in Section 10.2 below) and within sixty days after a reassignment to a lower salary grade, a reduction in eligibility to participate in employee benefit and compensation plans (including, but not limited to, incentive bonus or stock option plans), a reduction in job responsibility and/or authority, a request to relocate by more than twenty-five miles or a relocation of regular assigned work place by more than twenty-five additional miles from residence shall be entitled to commencement of an Article IX benefit computed in the manner described in Section 5.2(a) as of the first day of the month coinciding with or next following his fifty-fifth birthday, or as of the first day of any subsequent month which precedes his Normal Retirement Date, but reduced to the percentage described in the following table instead of the table described in Section 5.2(b) based upon the Member's years of Vesting Service and his age at the date of such commencement of payment:
Years of Service Age (*) at ---------------------------------------- Date Benefit 25 Years 20 Years to 15 Years to Under Commences & Over 25 Years 20 Years 15 Years --------- -------- ------------ ----------- -------- 65 or Older 100% 100% 100% 100% 64 100 99 98 97 63 100 98 96 94 62 100 97 94 91 61 97 94 91 88 60 94 91 88 85 59 91 88 85 82 58 88 85 82 79 57 85 82 79 76 56 82 79 76 73 55 79 76 73 70
X-1 42 (*) If the age of a Member at the date on which the benefit commences is a fractional number of years, the percentage to be used will be obtained by a pro rata adjustment as determined by the Committee. (b) A For purposes of Paragraph (a) above, a "Change in Control" shall mean a Change of Control of Panhandle Eastern Corporation. A Change in Control shall be deemed to have occurred if: (i) a third person, including a "group" as determined in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the beneficial owner (as so determined) of shares of Panhandle Eastern Corporation having 30% or more of the total number of votes that may be cast for the election of directors of Panhandle Eastern Corporation; or (ii) as a result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the persons who are directors of Panhandle Eastern Corporation before the Transaction shall cease to constitute a majority of the Board of Directors of Panhandle Eastern Corporation or any successor to Panhandle Eastern Corporation; or (iii) all or substantially all of the assets and business of Panhandle Eastern Corporation are sold, transferred or assigned to, or otherwise acquired by, any other entity or entities. 10.2 SOCIAL SECURITY SUPPLEMENT. (a) An Eligible Member who, on January 1, 1995, is both alive and has not attained age 65, shall be entitled to a Social Security Supplement. The Social Security Supplement shall be $70 for each month during the Benefit Period, except that in the event of the Eligible Member's death or attainment of age 65 during the Benefit Period, the Eligible Employee shall not be entitled to the Social Security Supplement for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the Eligible Member's Normal or Early Retirement Benefit is paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, the Social Security Supplement shall only be paid to the Eligible Member (or, if the Eligible Member is deceased, to the Eligible Member's surviving spouse, otherwise to the deceased Eligible Member's estate) for a particular calendar year during the Benefit Period if the Eligible Member is alive on July 1 of that calendar year, shall be paid in a single annualized payment (but curtailed to reflect any anticipated attainment of age 65 during that calendar year) and shall be paid as promptly following such date as administratively feasible and (ii) in an annuity form, the Social Security Supplement shall only be paid to the Eligible Member (or, if the Eligible Member is deceased, to the Eligible Member's surviving spouse, otherwise to the deceased Eligible Member's estate) for a particular calendar month during the Benefit Period if the Eligible Member is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (b) In the case of an Eligible Member who dies during the Benefit Period and who is survived by a spouse who has not attained age 65 and to whom the Eligible Employee had been continuously married from the date as of which the Eligible Member's Normal or Early Retirement Benefit had commenced to be paid, such spouse shall be entitled to a Social Security Supplement. The Social Security Supplement shall be $35 for each month during the remaining portion of the Benefit Period that begins with the month immediately following the month during which the Eligible Member died, except that in the event of such spouse's death or attainment of age 65 during such remaining portion, such spouse shall not be entitled to the Social Security Supplement for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event X-2 43 the Eligible Member's Normal or Early Retirement Benefit is paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, the Social Security Supplement shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar year during the Benefit Period if such spouse is alive on July 1 of that calendar year, shall be paid in a single annualized payment (but curtailed to reflect any anticipated attainment of age 65 during that calendar year) and shall be paid as promptly following such date as administratively feasible, and shall not be payable for any portion of any calendar year for which another Social Security Supplement or a Supplemental Benefit has been paid with respect to the Eligible Member, and (ii) in an annuity form, the Social Security Supplement shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar month during the Benefit Period if such spouse is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (c) In the case of an Eligible Member who died before January 1, 1995, and who is survived by a spouse who has not attained age 65 and to whom the Member had been continuously married from the date as of which the Member's Normal or Early Retirement Benefit had commenced to be paid, such spouse shall be entitled to a Social Security Supplement. The Social Security Supplement shall be $35 for each month during the Benefit Period, except that in the event of such spouse's death or attainment of age 65 during the Benefit Period, such spouse shall not be entitled to a Social Security Supplement for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the Eligible Member's Normal or Early Retirement Benefit has been paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, the Social Security Supplement shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar year during the Benefit Period if such spouse is alive on July 1 of that calendar year, shall be paid in a single annualized payment (but curtailed to reflect any anticipated attainment of age 65 during that calendar year) and shall be paid as promptly following such date as administratively feasible and (ii) in an annuity form, the Social Security Supplement shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar month during the Benefit Period if such spouse is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (d) As used in this Section 10.2: the term "Eligible Member" means a Member (but not a Member who (i) retired from Petrolane Inc. or any of its subsidiaries or (ii) who prior to the attainment of age 55, retired from Halcon SD Group Inc., subsequently renamed Process Research and Development Company, or any of its subsidiaries) who became entitled to a Normal Retirement Benefit or an Early Retirement Benefit that commenced to be paid prior to February 1, 1991; the term "Benefit Period" means the twelve consecutive-month period beginning January 1, 1995 and ending December 31, 1995; the term "Social Security Supplement" means a benefit provided by this Section 10.2; and the term "Supplemental Benefit" means a benefit provided by Section 10.3 of the Plan. 10.3 SUPPLEMENTAL BENEFIT. (a) An Eligible Member who, on January 1, 1995, is both alive and has attained at least age 65, shall be entitled to a Supplemental Benefit. The Supplemental Benefit shall be $35 for each month during the Benefit Period, except that in the event the Eligible Member dies during the X-3 44 Benefit Period, the Eligible Member shall not be entitled to a Supplemental Benefit for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the Eligible Member's Normal or Early Retirement Benefit is paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, the Supplemental Benefit shall only be paid to the Eligible Member (or, if the Eligible Member is deceased, to the Eligible Member's surviving spouse, otherwise to the Eligible Member's estate) for a particular calendar year during the Benefit Period only if the Eligible Member is alive on July 1 of that calendar year, shall be paid in a single annualized payment and shall be paid as promptly following such date as administratively feasible and (ii) in an annuity form, a Supplemental Benefit shall only be paid to the Eligible Member (or, if the Eligible Member is deceased, to the Eligible Member's surviving spouse, otherwise to the Eligible Member's estate) for a particular calendar month during the Benefit Period if the Eligible Member is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (b) In the case of an Eligible Member who attains age 65 during 1995, the Eligible Member shall be entitled to a Supplemental Benefit. The Supplemental Benefit shall be $35 for each month during the remaining portion of the Benefit Period that begins immediately after the month during which the Eligible Member attained age 65, except that in the event the Eligible Member dies during the Benefit Period, the Eligible Member shall not be entitled to a Supplemental Benefit for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the Eligible Member's Normal or Early Retirement Benefit is paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, a Supplemental Benefit shall only be paid to the Eligible Member (or, if the Eligible Member is deceased, to the Eligible Member's surviving spouse, otherwise to the Eligible Member's estate) for a particular calendar year during the Benefit Period if the Eligible Member is alive on July 1 of that calendar year, shall be paid in a single annualized payment (but curtailed to reflect any anticipated attainment of age 65 during that calendar year) and shall be paid as promptly following such date as administratively feasible, and shall not be payable for any portion of any calendar year for which a Social Security Supplement has been paid with respect to the Eligible Member and (ii) in an annuity form, a Supplemental Benefit shall only be paid to the Eligible Member (or, if the Eligible Member is deceased, to the Eligible Member's surviving spouse, otherwise to the Eligible Member's estate) for a particular calendar month during the Benefit Period if the Eligible Member is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (c) In the case of an Eligible Member who has died before January 1, 1995, and who is survived by a spouse who before or during 1995 attains age 65 and to whom the Member had been continuously married from the date as of which the Member's Normal or Early Retirement Benefit had commenced to be paid, such spouse shall be entitled to a Supplemental Benefit. The Supplemental Benefit shall be $17.50 for each month during the Benefit Period or, if such spouse attains age 65 during the Benefit Period, for each month during the portion of the Benefit Period that begins immediately after the month during which such spouse attained age 65, except that in the event such spouse dies during the Benefit Period, the Supplemental Benefit shall not be paid for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the respective Member's Normal or Early Retirement Benefit has been paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, a Supplemental Benefit shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar year during the Benefit Period if such spouse is alive on July 1 of that calendar year, shall be paid in a single X-4 45 annualized payment (but curtailed to reflect any anticipated attainment of age 65 during that calendar year) and shall be paid as promptly following such date as administratively feasible, and shall not be payable for any portion of any calendar year for which a Social Security Supplement or another Supplemental Benefit was paid with respect to the Eligible Member and (ii) in an annuity form, a special benefit payment shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar month during the Benefit Period if such spouse is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (d) In the case of an Eligible Member who has died during 1995 and who is survived by a spouse who before or during 1995 attains age 65 and to whom the Member had been continuously married from the date as of which the Member's Normal or Early Retirement Benefit had commenced to be paid, such spouse shall be entitled to a Supplemental Benefit. The Supplemental Benefit shall be $17.50 for each month during which the portion of the Benefit Period that begins immediately after the month during which the later of the Eligible Member's death or such spouse's attainment of age 65 occurs, except that in the event such spouse dies during the Benefit Period, such spouse shall not be entitled to a Supplemental Benefit for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the Eligible Member's Normal or Early Retirement Benefit has been paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, a Supplemental Benefit shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar year during the Benefit Period if such spouse is alive on July 1 of that calendar year, shall be paid in a single annualized payment (but curtailed to reflect any anticipated attainment of age 65 during that calendar year) and shall be paid as promptly following such date as administratively feasible, and shall not be payable for any portion of any calendar year for which a Social Security Supplement or another Supplemental Benefit was paid with respect to the Eligible Member and (ii) in an annuity form, a Supplemental Benefit payment shall only be paid to such spouse (or, if such spouse is deceased, to the such spouse's estate) for a particular calendar month during the Benefit Period if such spouse is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (e) As used in Section 10.3: the term "Eligible Member" shall mean a Member (but not a Member who (i) retired from Petrolane Inc. or any of its subsidiaries or (ii) who prior to attainment of age 55, retired from Halcon SD Group Inc., subsequently renamed Process Research and Development Company, or any of its subsidiaries) who became entitled to a Normal Retirement Benefit or an Early Retirement Benefit that commenced to be paid prior to February 1, 1991; the term "Benefit Period" means the consecutive-month period beginning January 1, 1995; the term "Social Security Supplement" means a benefit provided by Section 10.2 of the Plan; and the term "Supplemental Benefit" means a benefit provided by this Section 10.3. 10.4 1995 VOLUNTARY EARLY RETIREMENT PROGRAM. (a) Plan provisions to the contrary notwithstanding, any Member (i) who, during 1995, attains age 50 or any greater age, X-5 46 (ii) who currently is actively participating in the Plan and is employed by (A) National Helium Corporation at a Liberal, Kansas work location, (B) Centana Energy Corporation (but excluding Gulf Coast Field Service Units at Winnie, Spindletop, and Port Arthur, Texas), or (iii) Associated Natural Gas, Inc. (but only if transferred from 1 Source Energy, Inc. on January 1, 1995), (iii) who irrevocably elects to terminate employment March 31, 1995 (or such later date, but not beyond July 31, 1995, as the employing Company may request) and whose employment terminates pursuant to such election, shall be entitled to have Plan benefits determined in accordance with Sections 10.4(b) and 10.4(c). (b) A Member who meets the requirements of Section 10.4(a) shall be entitled to receive, as of such Member's Normal Retirement Date, a Final Average Pay Benefit which is the Actuarial Equivalent of a Pension commencing on the first day of the month coinciding with or next following the Member's Normal Retirement Date, each monthly payment of such Pension being computed in the manner provided in Section 5.1(a)(1) considering his Average Annual Plan Compensation and Average Annual Covered Compensation, to the date of his termination of employment, and his Benefit Accrual Service to the date of his termination of employment, plus five years of additional Benefit Accrual Service (or such shorter period of additional Benefit Accrual Service that does not cause total Benefit Accrual Service to exceed thirty-five years). If such Member requests the Committee to authorize the commencement of his Plan benefit as of the first day of the month coinciding with or next following the date of his Retirement, or as of the first day of any subsequent month which precedes his Normal Retirement Date, such Member shall be entitled to receive his Plan benefit as of the first day of the month so requested, and the value of the Final Average Pay Benefit portion thereof shall be the Actuarial Equivalent of a Pension commencing on the first day of the month so requested, each monthly payment of the Final Average Pay Benefit portion thereof being computed in the manner provided in Paragraph (a) above, but reduced to reflect such Member's younger age and the earlier commencement of payments by multiplying each such monthly payment in accordance with the following schedule:
*Age at Commencement Multiplier ------------------- ---------- 55 or older 100% 54 96.5% 53 93.0% 52 89.5% 51 86.0% 49-50 82.5%
(*) If the age of a Member at the date on which the benefit commences is a fractional number of years, the percentage to be used will be obtained by a pro rate adjustment as determined by the Company. X-6 47 (c) A Member who meets the requirements of Section 10.4(a) and whose Annuity Starting Date precedes September 1, 1995 shall be entitled to have the lump sum payment of the Final Average Pay Benefit portion of his Plan benefit determined on the basis of an Applicable Interest Rate no less favorable to the Member than the interest rate or rates which would be used by the Pension Benefit Guaranty Corporation for purposes of determining the present value of such Member's benefits under the Plan if the Plan had terminated with insufficient assets to provide benefits guaranteed by the Pension Benefit Guaranty Corporation as of July 1, 1994, or January 1, 1995, whichever produces the greater lump sum payment. X-7 48 XI. GRANDFATHERED AND PROTECTED BENEFITS 11.1 PANHANDLE PLAN PRIOR TO EFFECTIVE DATE. (a) Any Member who was a participant in the Panhandle Plan on December 31, 1990 other than an individual who became a participant in the Panhandle Plan on December 31, 1990 by reason of the merger as of such date of the Texas Eastern Plan or the Algonquin Plan into the Panhandle Plan and who terminates employment after he has both attained the age of fifty-five and completed five or more years of Vesting Service and who requests early commencement of his Article IX benefit pursuant to Section 5.2(b) shall receive the greater of the monthly benefit computed in accordance with Section 5.2(b) or the Actuarial Equivalent of a single life annuity for the life of the Member based upon his accrued benefit under the Panhandle Plan as of December 31, 1990 and reduced in accordance with the following table:
Years of Service --------------------------------------- Age (*) at 25 Years 20 Years to 15 Years to Under Retirement & Over 25 Years 20 Years 15 Years ---------- -------- ------------ ----------- -------- 65 or Older 100% 100% 100% 100% 64 100 99 98 97 63 100 98 96 94 62 100 97 94 91 61 97 94 91 88 60 94 91 88 85 59 91 88 85 82 58 88 85 82 79 57 85 82 79 76 56 82 79 76 73 55 79 76 73 70
(*) If the age of a Member at the date on which the benefit commences is a fractional number of years, the percentage to be used will be obtained by a pro rata adjustment as determined by the Committee. (b) Any Member of the Panhandle Plan who was Totally and Permanently Disabled as of December 31, 1990 other than an individual who became a participant in the Panhandle Plan on December 31, 1990 by reason of the merger as of such date of the Texas Eastern Plan or the Algonquin Plan into the Panhandle Plan may elect commencement of his Article IX benefit as of the XI-1 49 first day of the month coinciding with or next following the date he attains the age of fifty-five or as of the first day of any subsequent month which precedes his Normal Retirement Date and the value thereof shall be the Actuarial Equivalent of a single life annuity for the life of the Member commencing on the date so elected, each monthly payment being computed in the manner provided in Section 6.2(a) but without credit for Benefit Accrual Service and Cash Balance Accruals that would have been credited for the period from and after the date of such commencement. The payments of such benefit which are attributable to the Member's Final Average Pay Benefit shall be reduced in accordance with the table described in Paragraph (a) above. Any request for such early commencement must be received by the Committee not less than sixty days prior to the proposed date of commencement of the benefit. (c) Any Member who was a participant in the Panhandle Plan on December 31, 1990 other than an individual who became a participant in the Panhandle Plan on December 31, 1990 by reason of the merger as of such date of the Texas Eastern Plan or the Algonquin Plan into the Panhandle Plan and who terminates employment with a Vested Interest and who requests commencement of his Article IX benefit pursuant to Section 7.2(d) shall receive the greater of the monthly benefit computed in accordance with Section 7.2(d) or the Actuarial Equivalent of a single life annuity for the life of the Member based upon his accrued benefit under the Panhandle Plan as of December 31, 1990 and reduced in accordance with the following table:
* Age at Date Percent of Normal Benefit Commences Retirement Income Benefit ----------------- ------------------------- 55 50.0 56 53.3 57 56.7 58 60.0 59 63.3 60 66.7 61 73.3 62 80.0 63 86.7 64 93.3 65 or older 100.0
(*) If the age of a Member at the date on which the benefit commences is a fractional number of years, the percentage to be used will be obtained by a pro rata adjustment as determined by the Committee. (d) If a surviving spouse annuity pursuant to Section 8.1 is not payable or if the surviving spouse benefit provided in this Section is greater, a Member who was a Member of the Panhandle Plan on December 31, 1990 other than an individual who became a participant in the XI-2 50 Panhandle Plan on December 31, 1990 by reason of the merger as of such date of the Texas Eastern Plan or the Algonquin Plan into the Panhandle Plan and who dies on or before his Annuity Starting Date shall be entitled to a death benefit paid to his Eligible Surviving Spouse equal to (i) or (ii) as follows: (i) A monthly benefit for 120 months of an amount equal to 50% of the Member's monthly accrued benefit under the Panhandle Plan as of December 31, 1990 or (ii) A monthly benefit for the life of the Member's Eligible Surviving Spouse in accordance with the following table:
Percent of Member's Accrued Monthly Benefit * Age at Time Under the Panhandle Plan Of Member's Death As Of December 31, 1990 ----------------- ----------------------- 65 or older 50.0 64 48.5 63 47.0 62 45.5 61 44.0 60 42.5 59 41.0 58 39.5 57 38.0 56 36.5 55 35.0 54 33.5 53 32.0 52 30.5 51 or younger 29.0
(*) Age of Spouse to be determined by nearest birthday. (e) Any Member who was a participant in the Panhandle Plan on December 31, 1990 other than an individual who became a participant in the Panhandle Plan on December 31, 1990 by reason of the merger as of such date of the Texas Eastern Plan or the Algonquin Plan into the Panhandle Plan may elect to receive the portion of his Article IX benefit which is equal to his accrued benefit under the Panhandle Plan as of December 31, 1990 in the form of an annuity for the joint lives of the Member and any person designated by the Member and continuing at a 50%, 75% or 100% rate (as selected by the Member) for a term certain of five years to such designated person following XI-3 51 the death of the Member, with the remainder of such Article IX benefit being paid in the form selected by the Member pursuant to Section 9.2; provided, however, that if such annuity is other than an annuity for the joint lives of the Member and his spouse, the present value of payments actuarially expected to be received by the Member shall be more than 50% of the present value of the total payments actuarially expected to be made to the Member and his designated beneficiary under the Plan and, provided further, that in no event shall the period of payment of such annuity exceed the greater of (A) the life expectancy of the Member or (B) the joint life expectancy of the Member and his designated beneficiary. Any election pursuant to this Paragraph (e) shall be subject to the election and consent requirements of Section 9.2. 11.2 TEXAS EASTERN PLAN. (a) The Normal Retirement Date of a Member of the Texas Eastern Plan on December 30, 1990 and who was also an Employee of Texas Eastern Corporation or an affiliate thereof on December 31, 1987 shall be the date he attains the age of sixty-five. (b) In the case of a Member who was entitled to special benefits provided to Pilots under the Texas Eastern Plan, such Member shall at all times be entitled to a minimum Plan benefit which is the Actuarial Equivalent of a single life annuity for the life of the Member equal to the benefit to which he would have been entitled under the terms of the Texas Eastern Plan as in effect on December 31, 1988 had his employment terminated on such date. Such minimum benefit, if payable in lieu of the benefit otherwise payable pursuant to the Plan shall commence at such times and be subject to such reductions as were applicable with respect to Pilot benefits under the terms of the Texas Eastern Plan as in effect on December 31, 1988. Such minimum benefit, if it becomes the basis of a death benefit in lieu of the benefit otherwise established pursuant to the Plan shall commence at such times and be subject to such reductions as were applicable with respect to Pilot death benefits under the terms of the Plan as in effect on December 31, 1988. (c) Any Member who was a participant in the Texas Eastern Plan on December 30, 1990 and who terminates employment on or after his Normal Retirement Date or because he is Totally and Permanently Disabled shall be entitled to a minimum Plan benefit which is the Actuarial Equivalent of a single life annuity for the life of the Member commencing on the first day of the month coinciding with or next following the date of his termination of employment. The amount of each monthly payment of such single life annuity (prior to payment of any 50% surviving spouse benefit) shall be $50.00; provided, however, that such amount shall be reduced by 1/3 of 1% for each full month by which the Member is less than sixty years of age on the date his benefits are to commence. (d) Any Member who was a participant in the Texas Eastern Plan on December 30, 1990 and who terminates employment with a Vested Interest and who requests commencement of his Plan benefit pursuant to Section 7.2(d) shall receive the greater of the monthly benefit computed in accordance with Section 7.2(d) or the Actuarial Equivalent of a single life annuity for the life of the Member based upon his accrued benefit under the Texas Eastern Plan as of December 30, 1990 and reduced in accordance with the following table: XI-4 52
Reduction Age Factor --- ---------- 55 .3330 56 .3683 57 .4081 58 .4529 59 .5037 60 .5612 61 .6267 62 .7016 63 .7873 64 .8860 65 1.0000
(e) The provisions of this Paragraph (e) shall control with respect to any Member of the Plan who was required or permitted to make contributions to the Plan at any time prior to the Effective Date. For purposes of this Paragraph (e), the portion of such Member's Plan benefit which is derived from such contributions ("Contribution Benefit") shall be based upon the sum of (i) his aggregate contributions made to the Plan, plus (ii) for the period preceding January 1, 1988, interest on such contributions accrued at the rate provided by the Plan to January 1, 1988, plus (iii) interest on the sum of the amounts determined under (i) and (ii) above, compounded annually, at a rate equal to 120% of the Federal mid-term rate (as in effect for the first month of a Plan Year) for the period beginning January 1, 1988 and ending on the date of determination of the Member's Contribution Benefit, and at the rate provided in Section 1.1(3) of the Plan for calculating the present value of a benefit (as of the determination date) for the period beginning with the determination date and ending on the date upon which the Member would reach Normal Retirement Date, expressed as an annual benefit in the form of a single life annuity (without ancillary benefits) commencing as of the Member's Normal Retirement Date, calculated using the interest rate provided in Section 1.1(3)(ii) of the Plan for determining the present value of a benefit (as of the determination date). In determining the Actuarial Equivalent of a Member's Contribution Benefit to reflect the form of benefit as provided under the Plan, the actuarial adjustment factors adopted by the actuary for the Plan shall be those factors, if any, prescribed by Treasury Regulations. The Actuarial Equivalent of a Member's Contribution Benefit shall, in all cases, be reduced by an amount which is the Actuarial Equivalent of the accumulated value of any benefit payments received by or on behalf of such Member pursuant to the Plan and not otherwise repaid into the Plan. The Actuarial Equivalent of a Member's Contribution Benefit shall be nonforfeitable at all times and in no event shall the amount of any benefit to which a Member or his beneficiary is entitled pursuant to the Plan, be less than the Actuarial Equivalent of such Member's Contribution Benefit. Each Member whose employment is terminated for any reason other than Retirement, death or because he has bd XI-5 53 eDotally and Permanently Disabled and whose Vested Interest is 0% as of the date his employment is terminated shall be entitled to receive, as of such Member's Normal Retirement Date, a Plan benefit commencing on the first day of the month coinciding with or next following such Member's Normal Retirement Date which is the Actuarial Equivalent of such Member's Contribution Benefit. If a Member dies prior to his Annuity Starting Date and is not entitled to a death benefit pursuant to Article VIII, such deceased Member's beneficiary, designated in accordance with Section 9.6, shall be entitled to a death benefit the amount of which is the Actuarial Equivalent of such deceased Member's Contribution Benefit. Such death benefit shall be payable in one lump sum as soon as practicable after such deceased Member's death. If a Member dies on or after his Annuity Starting Date, such deceased Member's beneficiary, designated in accordance with Section 9.6, shall be entitled to a death benefit the amount of which is the Actuarial Equivalent of such deceased Member's Contribution Benefit, reduced by an amount which is the Actuarial Equivalent of the sum of (1) the accumulated value of the payments received, and (2) the present value of the payments to be received by such deceased Member and his annuitant or designated beneficiary under the applicable form of Article IX benefit. Such death benefit shall be payable in one lump sum as soon as practicable after such deceased Member's death. In the event a survivor annuity is to be paid to a Member's Eligible Surviving Spouse pursuant to Article VIII and such survivor annuity is determined solely by an amount equal to such Member's Contribution Benefit, such Eligible Surviving Spouse may elect, in lieu of such surviving spouse annuity, a lump sum payment of such amount. Within a reasonable time after written request by an Eligible Surviving Spouse, the Committee shall provide to such Eligible Surviving Spouse a written explanation, in nontechnical language, of such survivor annuity form and the lump sum option which may be selected along with the financial effect of each such form. In the event of any such election by such Eligible Surviving Spouse, such lump sum payment shall be made as soon as practicable thereafter. (f) Any Member who was a participant in the Texas Eastern Plan on December 30, 1990 may elect to receive the portion of his Plan benefit which is equal to his accrued benefit under the Texas Eastern Plan as of December 30, 1990 in the form of an annuity consisting of monthly payments for a term certain of fifteen years and continuous for the life of the Member if he survives such term certain, with the remainder of such benefit being paid in the form selected by the Member pursuant to Section 9.2, provided that the present value of the payments actuarially expected to be made to the Member shall be more than 50% of the present value of the total payments actuarially expected to be made to the Member and his designated beneficiary under the Plan and, provided further, that in no event shall the period of payment of such annuity exceed the greater of (A) the life expectancy of the Member or (B) the joint life expectancy of the Member and his designated beneficiary. Any election pursuant to this Paragraph (f) shall be subject to the election and consent requirements of Section 9.2. 11.3 ALGONQUIN PLAN. (a) Any Member who was a participant in the Algonquin Plan on December 30, 1990 and who terminates employment prior to his Normal Retirement Date but on or after his Early Retirement Date and who requests commencement of his Article IX benefit pursuant to Section 5.2(b) shall receive the greater of the monthly benefit computed in accordance with Section 5.2(b) or the Actuarial Equivalent of a single life annuity for the life of the Member based upon his accrued XI-6 54 benefit under the Algonquin Plan as of December 30, 1990 but reduced by 1/12th of 5% for each month in excess of thirty- six months by which such commencement preceded the date the Member would attain the age of sixty-five to reflect such Member's younger age and the earlier commencement of payments; provided, however, that such reduction shall not be applicable if (i) the Member had attained the age of sixty-two and had completed at least twenty-five years of Benefit Accrual Service as of the date of termination of his employment or (ii) the commencement date selected by the Member is within thirty-six months of the date he would attain the age of sixty-five. (b) Any Member who was a participant in the Algonquin Plan on December 30, 1990 may elect to receive the portion of his Plan benefit which is equal to his accrued benefit under the Algonquin Plan as of December 30, 1990 in the form of an annuity for a term certain of ten years following his Normal Retirement Date or his Early Retirement Date and continuous for the life of such Member if he survives such term certain; provided, however, that if such annuity is other than an annuity for the joint lives of the Member and his spouse, the present value of payments actuarially expected to be received by the Member shall be more than 50% of the present value of the total payments actuarially expected to be made to the Member and his designated beneficiary under the Plan and, provided further, that in no event shall the period of payment of such annuity exceed the greater of (A) the life expectancy of the Member or (B) the joint life expectancy of the Member and his designated beneficiary. Any election pursuant to this Paragraph (e) shall be subject to the election and consent requirements of Section 9.2. XI-7 55 XII. LIMITATIONS ON BENEFITS Contrary Plan provisions notwithstanding, the benefit of a Member under the Plan shall not exceed the maximum benefit permitted pursuant to section 415(b) of the Code (as adjusted in accordance with the provisions of section 415(d) of the Code). In the case of a Member who also participated in a defined contribution plan of the Company, the benefit of such Member under this Plan shall be reduced to the extent necessary to prevent the limitation set forth in section 415(e) of the Code from being exceeded. For purposes of determining whether the Plan benefit of a Member exceeds the limitations provided in this Section, all defined benefit plans of the Company are to be treated as one defined benefit plan and all defined contribution plans of the Company are to be treated as one defined contribution plan. In addition, all defined benefit plans and defined contribution plans of Controlled Entities shall be aggregated for this purpose. For purposes of this Paragraph only, a "Controlled Entity" (other than an affiliated service group member within the meaning of section 414(m) of the Code) shall be determined by application of a more than 50% control standard in lieu of an 80% control standard. For purposes of this Article XII, the "limitation year" (as that term is defined in Treasury Regulation section 1.415-2(b)) shall be the Plan Year. In no event shall a Member's benefit under the Plan as limited pursuant to the provisions of this Article XII and applicable provisions of the Code for periods from and after January 1, 1995 be less than such Member's benefit under the Plan determined as of December 31, 1994. XII-1 56 XIII. FUNDING 13.1 NO CONTRIBUTIONS BY MEMBERS. The Plan is to be funded solely from contributions by the Company and Members are neither required nor permitted to make contributions to this Plan. 13.2 COMPANY CONTRIBUTIONS. The Company, acting under the advice of the actuary for the Plan, intends but does not guarantee to make contributions to the Trust in such amount and at such times as are required to maintain the Plan and Trust for its Employees in compliance with the provisions of section 412 of the Code. All contributions made by the Company to the Trust shall be used to fund benefits under the Plan or to pay expenses of the Plan and Trust and shall be irrevocable, except as otherwise provided in Sections 13.5 and 20.2(c). 13.3 FORFEITURES. All forfeitures arising under the Plan will be applied to reduce the Company's contributions thereunder and shall not be used to increase the benefits any Member would otherwise receive under the Plan at any time prior to termination of the Plan. 13.4 PAYMENTS TO TRUSTEE. The Company's contributions shall be paid directly to the Trustee. On or about the date of any such payment, the Committee shall be informed as to the amount of such payment. 13.5 RETURN OF CONTRIBUTIONS. Anything to the contrary herein notwithstanding, the Company's contributions are contingent upon the deductibility of such contributions under section 404 of the Code. To the extent that a deduction for contributions is disallowed, such contributions shall, upon the written demand of the Company, be returned to the Company by the Trustee within one year after the date of disallowance, reduced by any net losses of the Trust Fund attributable thereto but not increased by any net earnings of the Trust Fund attributable thereto. Moreover, if Company contributions are made under a mistake of fact, such contributions shall, upon the written demand of the Company, be returned to the Company by the Trustee within one year after the payment thereof, reduced by any net losses of the Trust Fund attributable thereto but not increased by any net earnings of the Trust Fund attributable thereto. XIII-1 57 XIV. ADMINISTRATION OF THE PLAN 14.1 APPOINTMENT OF COMMITTEE. The general administration of the Plan shall be vested in the Committee which shall be appointed by the Directors and shall consist of one or more persons. For purposes of the Act, the Committee shall be the Plan "administrator" and shall be the "named fiduciary" with respect to the general administration of the Plan. 14.2 TERM, VACANCIES, RESIGNATION AND REMOVAL. Each member of the Committee shall serve until he resigns or is removed by the Directors. If at any time and for any reason there is a vacancy on the Committee, the Directors shall appoint a substitute member to fill such vacancy. At any time during his term of office, a member of the Committee may resign by giving written notice to the Directors and the Committee, such resignation to become effective upon the appointment of a substitute member or, if earlier, the lapse of thirty days after such notice is given as herein provided. At any time during his term of office, and for any reason, a member of the Committee may be removed by the Directors. 14.3 OFFICERS, RECORDS AND PROCEDURES. The Committee may select officers and may appoint a secretary who need not be a member of the Committee. The Committee shall keep appropriate records of its proceedings and the administration of the Plan. The Committee shall designate the person or persons who shall be authorized to sign for the Committee and, upon such designation, the signature of such person or persons shall bind the Committee. 14.4 MEETINGS. The Committee shall hold meetings upon such notice and at such time and places as it may from time to time determine. Notice to a member shall not be required if waived. A majority of the members of the Committee duly appointed shall constitute a quorum for the transaction of business. Actions taken by the Committee at any meeting where a quorum is present shall be by vote of a majority of those present at such meeting and entitled to vote. Actions may be taken without a meeting upon written consent signed by a majority of the members of the Committee. 14.5 SELF-INTEREST OF MEMBERS. No member of the Committee shall have any right to vote or decide upon any matter relating solely to himself under the Plan or to vote in any case in which his individual right to claim any benefit under the Plan is particularly involved. In any case in which a Committee member is so disqualified to act, and the remaining members cannot agree, the Directors shall appoint a temporary substitute member to exercise all the powers of the disqualified member concerning the matter in which he is disqualified. 14.6 PLAN COMPENSATION AND BONDING. The members of the Committee shall not receive compensation with respect to their services for the Committee. To the extent required by the Act or other applicable law, or required by the Company, members of the Committee shall furnish bond or security for the performance of their duties hereunder. XIV-1 58 14.7 COMMITTEE POWERS AND DUTIES. The Committee shall supervise the administration and enforcement of the Plan according to the terms and provisions hereof and shall have all powers necessary to accomplish these purposes, including, but not by way of limitation, the right, power, authority and duty to be exercised in its sole discretion: (a) to make rules, regulations and bylaws for the administration of the Plan which are not inconsistent with the terms and provisions hereof; (b) to construe all terms, provisions, conditions and limitations of the Plan, and, in all cases, the construction necessary for the Plan to qualify under the applicable provisions of the Code shall control; (c) to correct any defect or supply any omission or reconcile any inconsistency that may appear in the Plan, in such manner and to such extent as it shall deem expedient to effectuate the purposes of the Plan; (d) to employ and compensate such accountants, attorneys, investment advisors and other agents and employees as the Committee may deem necessary or advisable in the proper and efficient administration of the Plan; (e) to determine all questions relating to eligibility; (f) to determine the amount, manner and time of payment of any benefits hereunder and to prescribe procedures to be followed by distributees in obtaining benefits; (g) to prepare, file and distribute, in such manner as the Committee determines to be appropriate, such information and material as is required by the reporting and disclosure requirements of the Act; (h) to make a determination as to the right of any person to a benefit under the Plan; (i) to issue directions to the Trustee concerning all benefits which are to be paid from the Trust Fund pursuant to the provisions of the Plan; and (j) to receive and review reports from the Trustee as to the financial condition of the Trust Fund, including its receipts and disbursements. 14.8 AUTHORIZATION, DELEGATION AND ALLOCATION. (a) The Committee may expressly authorize one or more of its members or one or more Employees the right and power to exercise and fulfill on behalf of the Committee any of its powers and duties. From and after such authorization and until such authorization is revoked by the Committee, the actions of the authorized individual(s) shall constitute the actions of the Committee in full as to the delegated powers and duties. XIV-2 59 (b) The Committee may assign or allocate to one or more Employees certain ministerial responsibilities (which may include benefit determinations, claims processing, reporting and disclosure activities) in connection with the on-going operation and administration of the Plan. In acting pursuant to such assignment or allocation, such Employees shall not constitute fiduciaries of the Plan for purposes of the Act but, rather, shall be acting as agent of the Committee which shall remain fully responsible for such actions. (c) The Committee may delegate to any designee it deems advisable any or all of the powers and duties of the Committee to be exercised by such designee in a fiduciary capacity. Such delegation must be in writing, specifying the powers or duties being delegated, and must be accepted in writing by the designee. Upon such delegation and acceptance, the delegating Committee members shall have no liability for the acts or omissions of any such designee, as long as the delegating Committee members do not violate their fiduciary responsibility in making or continuing such delegation. 14.9 INVESTMENT MANAGER. The Committee may, in its sole discretion, appoint an "investment manager," with power to manage, acquire or dispose of any asset of the Plan and to direct the Trustee in this regard, so long as: (1) the investment manager is (A) registered as an investment adviser under the Investment Advisers Act of 1940, (B) a bank, as defined in the Investment Advisers Act of 1940, or (C) an insurance company qualified to do business under the laws of more than one state; and (2) such investment manager acknowledges in writing that he is a fiduciary with respect to the Plan. Upon such appointment, the Committee shall not be liable for the acts of the investment manager, as long as the Committee does not violate its fiduciary responsibility in making or continuing such appointment. Notwithstanding anything to the contrary herein contained, the Trustee shall follow the directions of such investment manager and shall not be liable for the acts or omissions of such investment manager. The investment manager may be removed by the Committee at any time and within its sole discretion. 14.10 COMPANY TO SUPPLY INFORMATION. The Company shall supply full and timely information to the Committee relating to the Plan Compensation of all Members, their ages, their Retirement, death or other cause for termination of employment and such other pertinent facts as the Committee may require. The Company shall advise the Trustee of such of the foregoing facts as are deemed necessary for the Trustee to carry out the Trustee's duties under the Plan. When making a determination in connection with the Plan, the Committee shall be entitled to rely upon the aforesaid information furnished by the Company. 14.11 INDEMNIFICATION. The Company shall indemnify and hold harmless each member of the Committee and any other person acting on its behalf, against any and all expenses and liabilities arising out of his or her administrative functions or fiduciary responsibilities, excepting only expenses XIV-3 60 and liabilities arising out of the individual's own willful misconduct. Expenses against which such person shall be indemnified hereunder include, without limitation, the amounts of any settlement or judgment, costs, counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof. XIV-4 61 XV. ADMINISTRATION OF TRUST FUND 15.1 PAYMENT OF EXPENSES. All expenses incident to the administration of the Plan and Trust, including but not limited to, actuarial, legal, accounting, premiums to the Pension Benefit Guaranty Corporation, Trustee fees, expenses of the Committee and the cost of furnishing any bond or security required of the Committee, may be paid by the Company and, if not paid by the Company, shall be paid by the Trustee from the Trust Fund and, until paid, shall constitute a claim against the Trust Fund which is paramount to the claims of Members and beneficiaries; provided, however, that in the event the Trustee's compensation is to be paid, pursuant to this Section, from the Trust Fund, any individual serving as Trustee who already receives full-time pay from an employer or an association of employers whose employees are participants in the Plan, or from an employee organization whose members are participants in the Plan, shall not receive any additional compensation for serving as Trustee. 15.2 TRUST FUND PROPERTY. (a) All contributions heretofore made and hereafter made under this Plan shall be paid to the Trustee and shall be held, invested and reinvested by the Trustee. All property and funds of the Trust Fund, including income from investments and from all other sources, shall be retained for the exclusive benefit of Members, as provided in the Plan, and shall be used to pay benefits to Members or their beneficiaries, or to pay expenses of administration of the Plan and Trust Fund to the extent not paid by the Company. (b) No Member shall have any title to any specific asset in the Trust Fund. No Member shall have any right to, or interest in, any assets of the Trust Fund upon termination of his employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the benefits payable to such Member out of the assets of the Trust Fund. 15.3 FUNDING PROJECTIONS. The Committee shall periodically obtain cash flow projections from the actuary for the Plan and shall supply them to the Trustee so that an appropriate investment policy may be maintained. The Committee shall notify the Trustee of any anticipated significant changes in the number or composition of Members in the Plan or any other matter (including a change in the contribution level) which would have a significant impact on the expected cash flow requirements. 15.4 AUTHORIZATION OF BENEFIT PAYMENTS. The Committee shall issue directions to the Trustee concerning all benefits which are to be paid from the Trust Fund pursuant to the provisions of the Plan. All distributions hereunder shall be made in cash or in the form of a commercial annuity contract. XV-1 62 XVI. TRUSTEE As a means of administering the amounts contributed by the Company and, prior to cessation of Member Contributions, the Members, the Company has entered into a Trust Agreement with the Trustee. The Trustee shall be the "named fiduciary" with respect to investment of the Trust Fund's assets. The Trust Agreement may be amended, from time to time, as the Company deems advisable in order to effectuate the purpose of the Plan. No Trustee shall be required to furnish any bond or security for the performance of its powers and duties unless the applicable law makes the furnishing of such bond or security mandatory. XVI-1 63 XVII. FIDUCIARY PROVISIONS 17.1 ARTICLE CONTROLS. This Article shall control over any contrary, inconsistent or ambiguous provisions contained in the Plan. 17.2 GENERAL ALLOCATION OF DUTIES. Each fiduciary with respect to the Plan shall have only those specific powers, duties, responsibilities and obligations as are specifically given him under the Plan. The Directors shall have the sole authority to appoint and remove the Trustee or members of the Committee. Except as otherwise specifically provided, the Committee shall have the sole responsibility for the administration of the Plan, which responsibility is specifically described herein. Except as otherwise specifically provided, the Trustee shall have the sole responsibility for the administration, investment and management of the assets held under the Plan. It is intended under the Plan that each fiduciary shall be responsible for the proper exercise of his own powers, duties, responsibilities and obligations hereunder and shall not be responsible for any act or failure to act of another fiduciary except to the extent provided by law or as specifically provided herein. 17.3 FIDUCIARY DUTY. Each fiduciary under the Plan, including but not limited to the Committee and the Trustee as "named fiduciaries," shall discharge his duties and responsibilities with respect to the Plan: (a) solely in the interest of the Members, for the exclusive purpose of providing benefits to Members, and their beneficiaries, and defraying reasonable expenses of administering the Plan; (b) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; (c) by diversifying the investments of the Plan so as to minimize the risk of large losses, unless under the circumstances it is prudent not to do so; and (d) in accordance with the documents and instruments governing the Plan insofar as such documents and instruments are consistent with applicable law. No fiduciary shall cause the Plan or Trust Fund to enter into a "prohibited transaction" as provided in section 4975 of the Code. XVII-1 64 XVIII. ADOPTION BY CONTROLLED ENTITIES 18.1 APPROVAL OF DIRECTORS. It is contemplated that Controlled Entities may adopt this Plan. Any such Controlled Entity, whether or not presently existing, may become, upon approval of the Directors, a party hereto by appropriate action of its board of directors or noncorporate counterpart. 18.2 SINGLE PLAN. For purposes of the Code and the Act, the Plan as adopted by Panhandle Eastern Corporation and the adopting Controlled Entities shall constitute a single plan rather than a separate plan of each of Panhandle Eastern Corporation and the adopting Controlled Entities. All assets of the Plan (other than dedicated annuity contracts) shall be available to pay benefits to all Members and their beneficiaries. 18.3 AMENDMENTS, TERMINATION AND APPOINTMENT OF COMMITTEE AND TRUSTEE. The power to amend the Plan or to terminate the Plan shall be exercised by Panhandle Eastern Corporation alone. Nevertheless, any Controlled Entity adopting the Plan may, with the consent of the Directors, incorporate in its adoption agreement or in an amendment document specific provisions relating to the operation of the Plan, and such provisions shall become a part of the Plan as to such Controlled Entity only. The power to appoint or otherwise affect the Committee or the Trustee shall be exercised by the Directors alone. 18.4 TRANSFER BETWEEN PARTICIPATING AFFILIATES. If a Member participates in the Plan while employed by more than one Controlled Entity which has adopted the Plan, the costs of providing that portion of the benefits payable to or on behalf of such Member shall be apportioned among such entities based upon the Benefit Accrual Service, Cash Balance Accruals, and Plan Compensation applicable to such employment, as determined by Panhandle Eastern Corporation. 18.5 TERMINATION OF PARTICIPATION. Any Controlled Entity which has adopted the Plan may, by appropriate action of its board of directors or noncorporate counterpart and with the consent of the Directors, terminate its participation in the Plan. Moreover, the Directors may, in their discretion, terminate a Controlled Entity's Plan participation at any time. XVIII-1 65 XIX. AMENDMENTS No amendment of the Plan may be made which would vest in the Company, directly or indirectly, any interest in or control of the Trust Fund. No amendment may be made which would vary the Plan's exclusive purpose of providing benefits to Members, and their beneficiaries, and defraying reasonable expenses of administering the Plan or which would permit the diversion of any part of the Trust Fund from that exclusive purpose. No amendment shall be made which would reduce any then nonforfeitable interest of a Member. No amendment shall increase the duties or responsibilities of the Trustee unless the Trustee consents thereto in writing. Subject to these limitations and any other limitations contained in the Act or the Code, Panhandle Eastern Corporation may from time to time unilaterally amend, in whole or in part, any or all provisions of the Plan on behalf of itself and the other Controlled Entities which have adopted the Plan. Panhandle Eastern Corporation's right to amend the Plan may be exercised by resolution of its Board of Directors, the Finance Committee of its Board of Directors (or any successor committee) or its Policy Committee, and any such amendment of the Plan shall be set forth in writing. Specifically, but not by way of limitation, Panhandle Eastern Corporation may unilaterally make any amendment necessary to acquire and maintain a qualified status for the Plan under the Code, whether or not retroactive, on behalf of itself and the other Controlled Entities which have adopted the Plan. XIX-1 66 XX. TERMINATION AND MERGER OR CONSOLIDATION 20.1 DECLARATION OF INTENT. Panhandle Eastern Corporation has established the Plan with the bona fide intention and expectation that from year to year the Company will be able to, and will deem it advisable to, make its contributions as herein provided. However, Panhandle Eastern Corporation realizes that circumstances not now foreseen, or circumstances beyond its control, may make it either impossible or inadvisable to continue to make Company contributions to the Trustee. Therefore, Panhandle Eastern Corporation shall have the power to terminate the Plan or partially terminate the Plan at any time hereafter with respect to Employees, or any group of Employees, of any Controlled Entity or of all Controlled Entities. Each member of the Committee, the Trustee and all affected Members shall be notified of such termination or partial termination. 20.2 ADMINISTRATION OF THE PLAN IN CASE OF TERMINATION. (a) If the Plan is terminated or partially terminated, the Vested Interest of each affected Member shall be 100%, effective as of the termination date. (b) Upon termination of the Plan, the affected assets of the Trust Fund shall be liquidated and distributed in accordance with section 4044 of the Act and the time of payment, manner of payment and consent provisions of Articles VIII and IX. (c) Upon termination of the Plan and notwithstanding any other provisions of the Plan, after the satisfaction of all liabilities of the Plan to the affected Members and beneficiaries, Panhandle Eastern Corporation shall receive any remaining amount resulting from any variations between actual requirements and actuarially expected requirements. 20.3 MERGER, CONSOLIDATION OR TRANSFER. This Plan or Trust Fund may not merge or consolidate with, or transfer its assets or liabilities to, any other plan, unless immediately thereafter each Member would, in the event such other plan terminated, be entitled to a benefit which is equal to or greater than the benefit to which he would have been entitled if the Plan were terminated immediately before the merger, consolidation or transfer. XX-1 67 XXI. MISCELLANEOUS 21.1 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of this Plan shall not be deemed to be a contract between the Company and any person or to be consideration for the employment of any person. Nothing herein contained shall be deemed to give any person the right to be retained in the employ of the Company or to restrict the right of the Company to discharge any person at any time nor shall the Plan be deemed to give the Company the right to require any person to remain in the employ of the Company or to restrict any person's right to terminate his employment at any time. 21.2 PAYMENTS SOLELY FROM TRUST FUND. All benefits payable under the Plan shall be paid or provided for solely from the Trust Fund and neither the Company nor the Trustee assumes any liability or responsibility for the adequacy thereof. The Committee or the Trustee may require execution and delivery of such instruments as are deemed necessary to assure proper payment of any benefits. 21.3 ALIENATION OF INTEREST FORBIDDEN. Except as otherwise provided with respect to "qualified domestic relations orders" pursuant to section 206(d) of the Act and sections 401(a)(13) and 414(p) of the Code and except as otherwise provided under other applicable law, no right or interest of any kind in any benefit shall be transferable or assignable by any Member or any beneficiary or be subject to anticipation, adjustment, alienation, encumbrance, garnishment, attachment, execution or levy or any kind. Plan provisions to the contrary notwithstanding, the Committee shall comply with the terms and provisions of any "qualified domestic relations orders" and shall establish appropriate procedures to effect the same. 21.4 NO BENEFITS TO THE COMPANY. No part of the corpus or income of the Trust Fund shall be used for any purpose other than the exclusive purpose of providing benefits for the Members and their beneficiaries and defraying reasonable expenses of administrating the Plan. Anything to the contrary herein notwithstanding, the Plan shall never be construed to vest any rights in the Company other than those specifically given hereunder. 21.5 SEVERABILITY. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein. 21.6 JURISDICTION. The situs of the Plan is Texas. All provisions of the Plan shall be construed in accordance with the laws of Texas except to the extent preempted by federal law. XXI-1 68 XXII. TOP-HEAVY STATUS 22.1 ARTICLE CONTROLS. Any Plan provisions to the contrary notwithstanding, the provisions of this Article XXII shall control to the extent required to cause the Plan to comply with the requirements imposed under section 416 of the Code. 22.2 DEFINITIONS. For purposes of this Article, the following terms and phrases shall have these respective meanings: (a) ACCOUNT BALANCE: As of any Valuation Date, the aggregate amount credited to an individual's account or accounts under a qualified defined contribution plan maintained by the Company or a Controlled Entity (excluding employee contributions which were deductible within the meaning of section 219 of the Code and rollover or transfer contributions made after December 31, 1983 by or on behalf of such individual to such plan from another qualified plan sponsored by an entity other than the Company or a Controlled Entity), increased by (1) the aggregate distributions made to such individual from such plan during a five-year period ending on the Determination Date and (2) the amount of any contributions due as of the Determination Date immediately following such Valuation Date. (b) ACCRUED BENEFIT: As of any Valuation Date, the present value (computed on the basis of the assumptions specified in Paragraph (c) below) of the cumulative accrued benefit (excluding the portion thereof which is attributable to employee contributions which were deductible pursuant to section 219 of the Code, to rollover or transfer contributions made after December 31, 1983 by or on behalf of such individual to such plan from another qualified plan sponsored by an entity other than the Company or a Controlled Entity, to proportional subsidies or to ancillary benefits) of an individual under a qualified defined benefit plan maintained by the Company or a Controlled Entity increased by (1) the aggregate distributions made to such individual from such plan during a five-year period ending on the Determination Date and (2) the estimated benefit accrued by such individual between such Valuation Date and the Determination Date immediately following such Valuation Date. Solely for the purpose of determining top-heavy status, the Accrued Benefit of an individual shall be determined under (1) the method, if any, that uniformly applies for accrual purposes under all qualified defined benefit plans maintained by the Company and the Controlled Entities, or (2) if there is no such method, as if such benefit accrued not more rapidly than under the slowest accrual rate permitted under section 411(b)(1)(C) of the Code. (c) ACTUARIAL EQUIVALENT: Equality in value of the aggregate amounts expected to be received under different times and forms of payment based upon the interest and mortality rate assumptions set forth in Section 1.1(3)(i). (d) AGGREGATION GROUP: The group of qualified plans maintained by the Company and each Controlled Entity consisting of (1) each plan in which a Key Employee participates XXII-1 69 and each other plan which enables a plan in which a Key Employee participates to meet the requirements of sections 401(a)(4) or 410 of the Code, or (2) each plan in which a Key Employee participates, each other plan which enables a plan in which a Key Employee participates to meet the requirements of sections 401(a)(4) or 410 of the Code and any other plan which the Company elects to include as a part of such group; provided, however, that the Company may not elect to include a plan in such group if its inclusion would cause the group to fail to meet the requirements of sections 401(a)(4) or 410 of the Code. (e) ANNUAL RETIREMENT BENEFIT: A benefit payable annually in the form of a single life annuity for the life of a Member (with no ancillary benefits) beginning at his Normal Retirement Date. (f) AVERAGE REMUNERATION FOR HIS HIGH FIVE YEARS: The result obtained by dividing the total Remuneration paid to a Member during a considered period by the number of years for which such Remuneration was received. The considered period shall be the five consecutive Years of Service during which the Member was both an active Member in the Plan and had the greatest Remuneration from the Company; provided, however, that if the Member has less than five-consecutive Years of Service, such shorter period shall be deemed his considered period. (g) DETERMINATION DATE: For the first Plan Year of any plan, the last day of such Plan Year and for each subsequent Plan Year of such plan, the last day of the preceding Plan Year. (h) KEY EMPLOYEE: A "key employee" as defined in section 416(i) of the Code and the Treasury Regulations thereunder. (i) PLAN YEAR: With respect to any plan, the annual accounting period used by such plan for annual reporting purposes. (j) REMUNERATION: Compensation within the meaning of section 415(c)(3) of the Code, as limited by section 401(a)(17) of the Code. (k) VALUATION DATE: With respect to any Plan Year of any defined contribution plan, the most recent date within the twelve-month period ending on a Determination Date as of which the trust fund established under such plan was valued and the net income (or loss) thereof allocated to participants' accounts. With respect to any Plan Year of any defined benefit plan, the most recent date within a twelve-month period ending on a Determination Date as of which the plan assets were valued for purposes of computing plan costs for purposes of the requirements imposed under section 412 of the Code. (l) YEARS OF SERVICE: Shall be determined under the rules of section 411(a)(4), (5) and (6) of the Code except that Years of Service beginning prior to January 1, 1984 and Years of Service for any Plan Year for which the Plan was not top-heavy shall be disregarded. XXII-2 70 22.3 TOP-HEAVY STATUS. (a) The Plan shall be deemed to be top-heavy for a Plan Year commencing after December 31, 1983, if, as of the Determination Date for such Plan Year, (1) the sum of Accrued Benefits of Members who are Key Employees exceeds 60% of the sum of Accrued Benefits of all Members unless an Aggregation Group including the Plan is not top- heavy or (2) an Aggregation Group including the Plan is top-heavy. An Aggregation Group shall be deemed to be top-heavy as of a Determination Date if the sum (computed in accordance with section 416(g)(2)(B) of the Code and the Treasury Regulations promulgated thereunder) of (1) the Account Balances of Key Employees under all defined contribution plans included in the Aggregation Group and (2) the Accrued Benefits of Key Employees under all defined benefit plans included in the Aggregation Group exceeds 60% of the sum of the Account Balances and the Accrued Benefits of all individuals under such plans. Notwithstanding the foregoing, the Account Balances and Accrued Benefits of individuals who are not Key Employees in any Plan Year but who were Key Employees in any prior Plan Year shall not be considered in determining the top-heavy status of the Plan for such Plan Year. Further, notwithstanding the foregoing, for purposes of determining top-heavy status for Plan Years commencing after December 31, 1984, the Account Balances and Accrued Benefits of individuals who have not performed services for the Company at any time during the five-year period ending on the applicable Determination Date shall not be considered. (b) If the Plan is determined to be top-heavy for a Plan Year, the Vested Interest of each Member who is credited with an Hour of Service during such Plan Year shall be determined in accordance with the following schedule:
YEARS OF VESTING SERVICE VESTED INTEREST ------------------------ --------------- Less than 2 years 0% 2 years 20% 3 years 40% 4 years 60% 5 years or more 100%
(c) If the Plan is determined to be top-heavy for a Plan Year, the Article IX benefit of each Member who is not a Key Employee shall in no event be less than the Actuarial Equivalent of an Annual Retirement Benefit equal to the lesser of: (1) 2% of his Average Remuneration for His High Five Years multiplied by his Years of Service; or (2) 20% of his Average Remuneration for His High Five Years. The minimum benefit required to be accrued for a Plan Year pursuant to this Paragraph for a Member shall be accrued regardless of whether such Member has terminated his employment with the Company prior to the end of such Plan Year. Notwithstanding the foregoing, no benefit shall be accrued pursuant to this Paragraph for a Plan Year with respect to a Member who is a participant in XXII-3 71 another defined benefit plan sponsored by the Company or a Controlled Entity if such Member accrues under such defined benefit plan (for the Plan Year of such plan ending with or within the Plan Year of this Plan) a benefit which is at least equal to the benefit described in section 416(c)(1) of the Code. Notwithstanding the foregoing, no benefit shall be accrued pursuant to this Paragraph for a Plan Year with respect to a Member who is a participant in a defined contribution plan sponsored by the Company or a Controlled Entity if such Member receives under such defined contribution plan (for the Plan Year of such plan ending with or within the Plan Year of this Plan) a contribution which is equal to or greater than 5% of such Member's Remuneration for such Plan Year. If the preceding sentence is not applicable, the requirements of this Paragraph shall be met by providing a minimum benefit under the Plan which, when considered with the benefit provided under such defined contribution plan as an offset, is at least equal to the minimum benefit provided pursuant to this Paragraph. For this purpose, the actuarial assumptions specified in the Plan shall be utilized to determine the value of such offset as of the applicable Determination Date. (d) If the Plan is determined to be top-heavy for a Plan Year, but is not determined to be super top- heavy for such Plan Year, the Committee may elect for the Plan to provide the special minimum benefit described in this Paragraph in order to comply with the provisions of section 416(h)(2) of the Code. If the Committee so elects for the Plan to provide such special minimum benefit, the Article IX benefit of each Member who is not a Key Employee shall in no event be less than the Actuarial Equivalent of an Annual Retirement Benefit equal to the lesser of: (1) 3% of his Average Remuneration for His High Five Years multiplied by his Years of Service; or (2) a percentage (not to exceed 30%) of his Average Remuneration for His High Five Years equal to 20% increased by 1% for each Year of Service credited to such Member. 22.4 SUPER TOP-HEAVY STATUS. The Plan shall be deemed to be super top-heavy for a Plan Year if the Plan would be top-heavy for such Plan Year if "90%" were substituted for "60%" in each place that it appears in Section 22.3(a). 22.5 TERMINATION OF TOP-HEAVY STATUS. If the Plan has been deemed to be top-heavy for one or more Plan Years and thereafter ceases to be top-heavy, the provisions of this Article XXII shall cease to apply to the Plan effective as of the Determination Date on which it is deemed to no longer be top-heavy. Notwithstanding the foregoing, the Vested Interest of each Member who is a Member on such Determination Date or who has terminated his employment but has not incurred a One-Year Break-in-Service as of such Determination Date shall not be reduced and, with respect to each Member who has three or more years of Vesting Service on such Determination Date, the Vested Interest of each such Member shall continue to be determined in accordance with the schedule set forth in Section 22.3(b). Further notwithstanding the foregoing, the Article IX benefit of a Member shall in no event be less than the Actuarial Equivalent of the benefit determined in accordance with Sections 22.3(c) or 22.3(d), if applicable, as of the last Determination Date on which the Plan was deemed to be top-heavy. XXII-4 72 22.6 EFFECT OF ARTICLE. Notwithstanding anything contained herein to the contrary, the provisions of this Article shall automatically become inoperative and of no effect to the extent not required by the Code or the Act. XXII-5 73 EXECUTED on this ______ day of _________________, 1995. PANHANDLE EASTERN CORPORATION By ------------------------------------ CASH BALANCE EMPLOYERS: FINAL AVERAGE PAY EMPLOYERS: ASSOCIATED NATURAL GAS, INC. ALGONQUIN GAS TRANSMISSION COMPANY By By -------------------------------- ------------------------------------ ALGONQUIN LNG, INC. By ------------------------------------ CENTANA ENERGY CORPORATION (ON AND AFTER JULY 1, 1995, CENTANA ENERGY CORPORATION CEASED TO BE A FINAL AVERAGE PAY EMPLOYER EXCEPT FOR BENEFIT ACCRUALS UNDER ARTICLE VI FOR THEN-DISABLED EMPLOYEES) By ------------------------------------ PANHANDLE EASTERN PIPE LINE COMPANY By ------------------------------------ (v) 74 TEXAS EASTERN PRODUCTS PIPELINE COMPANY By ------------------------------------ TEXAS EASTERN TRANSMISSION CORPORATION By ------------------------------------ TRUNKLINE GAS COMPANY By ------------------------------------ TRUNKLINE LNG COMPANY By ------------------------------------ PANENERGY INFORMATION SERVICES COMPANY (FORMERLY 1 SOURCE INFORMATION SERVICES COMPANY) By ------------------------------------ PAN SERVICE COMPANY By ------------------------------------ (vi) EX-10.37 7 AMEND. 1 TO RETIREMENT INCOME PLAN 1 EXHIBIT 10.37 RETIREMENT INCOME PLAN OF PANHANDLE EASTERN CORPORATION AND PARTICIPATING AFFILIATES AMENDMENT 1 Pursuant to its authority under Article XIX of the Retirement Income Plan of Panhandle Eastern Corporation and Participating Affiliates(the "Plan"), Panhandle Eastern Corporation hereby amends the Plan, effective January 1, 1996, in the following respects: 1. Section 10.2 of the Plan is revised in its entirety effective January 1, 1996, to read as follows: 10.2 SOCIAL SECURITY SUPPLEMENT (a) An Eligible Member who, on January 1, 1996, is both alive and has not attained age 65, shall be entitled to a Social Security Supplement. The Social Security Supplement shall be $70 for each month during the Benefit Period, except that in the event of the Eligible Member's death or attainment of age 65 during the Benefit Period, the Eligible Member not be entitled to the Social Security Supplement for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the Eligible Member's Normal or Early Retirement Benefit is paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, the Social Security Supplement shall only be paid to the Eligible Member (or if the Eligible member is deceased, to the Eligible Member's surviving spouse, otherwise to the deceased Eligible Member's estate) for a particular calendar year during the Benefit Period if the Eligible Member is alive on July 1 of that calendar year, shall be paid in a single annualized payment (but curtailed to reflect any anticipated attainment of age 65 during that calendar year) and shall be paid as promptly following such date as administratively feasible and (ii) in an annuity form, the Social Security Supplement shall only be paid to the Eligible Member (or, if the Eligible Member is deceased, to the Eligible Member's surviving spouse, otherwise to the deceased Eligible Member's estate) for a particular calendar month during the Benefit Period if the Eligible Member is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively 1 2 feasible. (b) In the case of an Eligible Member who dies during the Benefit Period and who is survived by a spouse who has not attained age 65 and to whom the Eligible Member the date as of which the Eligible Member's Normal or Early Retirement Benefit had commenced to be paid, such spouse shall be entitled to a Social Security Supplement. The Social Security Supplement shall be $35 for each month during the remaining portion of the Benefit Period that begins with the month immediately following the month during which the Eligible Member died, except that in the event of such spouse's death or attainment of age 65 during such remaining portion, such spouse shall not be entitled to the Social Security Supplement for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the Eligible Member's Normal or Early Retirement Benefit is paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, the Social Security Supplement shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar year during the Benefit Period if such spouse is alive on July 1 of that calendar year, shall be paid in a single annualized payment (but curtailed to reflect any anticipated attainment of age 65 during that calendar year) and shall be paid as promptly following such date as administratively feasible, and shall not be payable for any portion of any calendar year for which another Social Security Supplement or a Supplemental Benefit has been paid with respect to the Eligible Member, and (ii) in an annuity form, the Social Security Supplement shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar month during the Benefit Period if such spouse is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (c) In the case of an Eligible Member who died before January 1, 1996, and who survived by a spouse who has not attained age 65 and to whom the Member had been continuously married from the date as of which the Member's Normal or Early Retirement Benefit had commenced to be paid, such spouse shall be entitled to a Social Security Supplement. The Social 2 3 Security Supplement shall be $35 for each month during the Benefit Period, except that in the event of such spouse's death or attainment of age 65 during the Benefit Period, such spouse shall not be entitled to a Social Security Supplement for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the Eligible Member's Normal or Early Retirement Benefit has been paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, the Social Security Supplement shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar year during the Benefit Period if such spouse is alive on July 1 of that calendar year, shall be paid in a single annualized payment (but curtailed to reflect any anticipated attainment of age 65 during that calendar year) and shall be paid as promptly following such date as administratively feasible and (ii) in an annuity form, the Social Security Supplement shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar month during the Benefit Period if such spouse is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (d) As used in this Section 10.2: the term "Eligible Member" means a Member (but not a Member who (i) retired from Petrolane Inc. or any of its subsidiaries or (ii) who prior to the attainment of age 55, retired from Halcon SD Group Inc., subsequently renamed Process Research and Development Company, or any of its subsidiaries) who became entitled to a Normal Retirement Benefit or an Early Retirement Benefit that commenced to be paid prior to February 1, 1991; the term "Benefit Period" means the twelve consecutive-month period beginning January 1, 1996 and ending December 31, 1996; the term "Social Security Supplement" means a benefit provided by this Section 10.2; and the term "Supplemental Benefit" means a benefit provided by Section 10.3 of the Plan. 2. Section 10.3 of the Plan is revised in its entirety to read as follows: 10.3 SUPPLEMENTAL BENEFIT. (a) An Eligible Member who, on January 1, 3 4 1996 is both alive and has attained at least age 65, shall be entitled to a Supplemental Benefit. The Supplemental Benefit shall be $35 for each month during the Benefit Period, except that in the event the Eligible Member dies during the Benefit Period, the Eligible Member shall not be entitled to a Supplemental Benefit for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the Eligible Member's Normal or Early Retirement Benefit is paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, the Supplemental Benefit shall only be paid to the Eligible Member (or, if the Eligible Member is deceased, to the Eligible Member's surviving spouse, otherwise to the Eligible Member's estate) for a particular calendar year during the Benefit Period only if the Eligible Member is alive on July 1 of that calendar year, shall be paid in a single annualized payment and shall be paid as promptly following such date as administratively feasible and (ii) in an annuity form, a Supplemental Benefit shall only be paid to the Eligible Member (or, if the Eligible Member is deceased, to the Eligible Member's surviving spouse, otherwise to the Eligible Member's estate) for a particular calendar month during the Benefit Period if the Eligible Member is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (b) In the case of an Eligible Member who attains age 65 during 1996, the Eligible Member shall be entitled to a Supplemental Benefit. The Supplemental Benefit shall be $35 for each month during the remaining portion of the Benefit Period that begins immediately after the month during which the Eligible Member attained age 65, except that in the event the Eligible Member dies during the Benefit Period, the Eligible Member shall not be entitled to a Supplemental Benefit for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the Eligible Member's Normal or Early Retirement Benefit is paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, a Supplemental Benefit shall only be paid to the Eligible Member (or, if the Eligible Member is deceased, to the Eligible Member's surviving spouse, otherwise to the Eligible Member's estate) for a particular calendar year during the Benefit Period if the Eligible Member 4 5 is alive on July 1 of that calendar year, shall be paid in a single annualized payment and shall be paid as promptly following such date as administratively feasible, and shall not be payable for any portion of any calendar year for which a Social Security Supplement has been paid with respect to the Eligible Member and (ii) in an annuity form, a Supplemental Benefit shall only be paid to the Eligible Member (or, if the Eligible Member is deceased, to the Eligible Member's surviving spouse, otherwise to the Eligible Member's estate) for a particular calendar month during the Benefit Period if the Eligible Member is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (c) In the case of an Eligible Member who has died before January 1, 1996, and who survived by a spouse who before or during 1996 attains age 65 and to whom the Member had been continuously married from the date as of which the Member's Normal or Early Retirement Benefit had commenced to be paid, such spouse shall be entitled to a Supplemental Benefit. The Supplemental Benefit shall be $17.50 for each month during the Benefit Period or, if such spouse attains age 65 during the Benefit Period, for each month during the portion of the Benefit Period that begins immediately after the month during which such spouse attained age 65, except that in the event such spouse dies during the Benefit Period, the Supplemental Benefit shall not be paid for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the respective Member's Normal or Early Retirement Benefit has been paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, a Supplemental Benefit shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar year during the Benefit Period if such spouse is alive on July 1 of that calendar year, shall be paid in a single annualized payment and shall be paid as promptly following such date as administratively feasible, and shall not be payable for any portion of any calendar year for which a Social Security Supplement or another Supplemental Benefit was paid with respect to the Eligible Member and (ii) in an annuity form, a special benefit payment shall only be paid to such spouse (or, if such spouse is deceased, to 5 6 such spouse's estate) for a particular calendar month during the Benefit Period if such spouse is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (d) In the case of an Eligible Member who has died during 1996 and who is survived by a spouse who before or during 1996 attains age 65 and to whom the Member had been continuously married from the date as of which the Member's Normal or Early Retirement Benefit had commenced to be paid, such spouse shall be entitled to a Supplemental Benefit. The Supplemental Benefit shall be $17.50 for each month during which the portion of the Benefit Period that begins immediately after the month during which the later of the Eligible Member's death or such spouse's attainment of age 65 occurs, except that in the event such spouse dies during the Benefit Period, such spouse shall not be entitled to a Supplemental Benefit for any month following the month during which such event occurred. Notwithstanding the foregoing, in the event the Eligible Member's Normal or Early Retirement Benefit has been paid as (i) a lump sum or by distribution of a fully paid-up annuity contract, a Supplemental Benefit shall only be paid to such spouse (or, if such spouse is deceased, to such spouse's estate) for a particular calendar year during the Benefit Period if such spouse is alive on July 1 of that calendar year, shall be paid in a single annualized payment and shall be paid as promptly following such date as administratively feasible, and shall not be payable for any portion of any calendar year for which a Social Security Supplement or another Supplemental Benefit was paid with respect to the Eligible Member and (ii) in an annuity form, a Supplemental Benefit payment shall only be paid to such spouse (or, if such spouse is deceased, to the such spouse's estate) for a particular calendar month during the Benefit Period if such spouse is alive on the first day of that calendar month and shall be paid as promptly following such date as administratively feasible. (e) As used in Section 10.3: the term "Eligible Member" shall mean a Member (but not a Member who (i) retired from Petrolane Inc. or any of its subsidiaries or (ii) who prior to attainment of age 55, retired from Halcon SD Group Inc., subsequently renamed 6 7 Process Research and Development Company, or any of its subsidiaries) who became entitled to a Normal Retirement Benefit or an Early Retirement Benefit that commenced to be paid prior to February 1, 1991: the term "Benefit Period" means the consecutive-month period beginning January 1, 1996; the term "Social Security Supplement" means a benefit provided by Section 10.2 of the Plan; and the term "Supplemental Benefit" means a benefit provided by this Section 10.3. 7 8 IN WITNESS WHEREOF, this amendment to the Plan is executed this _______ day of December, 1995 on behalf of Panhandle Eastern Corporation. PANHANDLE EASTERN CORPORATION By: ------------------------------ Its: Senior Vice President 8 EX-10.38 8 AMENDMENT 2 TO RETIREMENT INCOME PLAN 1 EXHIBIT 10.38 RETIREMENT INCOME PLAN OF PANHANDLE EASTERN CORPORATION AND PARTICIPATING AFFILIATES AMENDMENT 2 Pursuant to its authority under Article XIX of the Retirement Income Plan of Panhandle Eastern Corporation and Participating Affiliates (the "Plan"), Panhandle Eastern Corporation hereby amends the Plan, effective January 1, 1996, in the following respects: 1. Section 7.2 of the Plan is revised by redesignating Paragraph (e) thereof as Paragraph (f) thereof. 2. Section 7.2 of the Plan is revised by adding thereto a new Paragraph (e) thereof reading in its entirety as follows: (e) In the case of a Member (1) who becomes entitled to a severance benefit pursuant to the Paragraph (c) above, on account of termination of employment occurring on or after January 1, 1996, and (2) who, at the time of such termination, is credited with ten or more full years of Vesting Service and has attained age 50, the following schedule shall be substituted for the schedule contained in Paragraph (d)(1) above:
*Age at Commencement Multiplier ------------------- ---------- 60 or older 100% 59 96.5% 58 93.0% 57 89.5% 56 86.0% 55 82.5%
(*) If the age of a Member at the date on which the benefit commences is a fractional number of years, the percentage to be used will be obtained by pro rata adjustment as determined by the Committee. IN WITNESS WHEREOF, this amendment to the Plan is executed this __________ day of January, 1996 on behalf of Panhandle Eastern Corporation. PANHANDLE EASTERN CORPORATION By: ----------------------------------- Its: --------------------------------- EX-13 9 PANENERGY CORP 1995 ANNUAL REPORT 1 PANENERGY CORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information is provided to facilitate increased understanding of the 1995, 1994 and 1993 consolidated financial statements and accompanying notes of PanEnergy Corp (PEC), formerly Panhandle Eastern Corporation, and its subsidiaries (the Company). The discussion of the Company's "Operating Environment and Outlook" addresses key trends and future plans. Material period-to-period variances in the consolidated statement of income are discussed under "Results of Operations." The "Capital Resources, Liquidity and Financial Position" section analyzes cash flows and financial position. Throughout these discussions, management addresses items that are reasonably likely to materially affect future liquidity or earnings. OPERATING ENVIRONMENT AND OUTLOOK The changing environment resulting from the restructuring of the natural gas industry in the post-Order 636 environment has led to industry consolidations and created additional growth opportunities for the Company. One such opportunity was the Company's December 1994 merger with Associated Natural Gas Corporation, now PanEnergy Natural Gas Corporation (PanEnergy Natural Gas). Potential for growth was further assisted by the Federal Energy Regulatory Commission's (FERC's) announcement in 1994 that it would not exercise jurisdiction over natural gas gathering activities operated separately from natural gas pipeline activities. This decision allowed previously regulated providers of natural gas gathering, processing, storage and marketing services to be more competitive with service providers not regulated by FERC. The Company integrated the PanEnergy Natural Gas operations in 1995 and continued its growth strategy of expanding non-jurisdictional businesses, while also continuing to advance interstate natural gas pipeline market-expansion projects and providing new services to customers. The new PanEnergy Corp name reflects the broad range of energy services now provided by the Company. In the Energy Services segment, the Company continued to grow through acquisitions, expansions and joint ventures in 1995 and will continue this growth in 1996 and beyond. In late January 1996, the Company signed a non-binding letter of intent with certain Mobil Corporation (Mobil) affiliates to combine marketing operations of both companies into a new joint venture and for the Company to purchase Mobil's interests in certain gathering, processing and associated facilities for approximately $300 million. In 1995, the Field Services group, which gathers, aggregates, stores and processes natural gas and also markets natural gas liquids (NGLs), added significant processing and gathering facilities in Colorado, New Mexico, Texas and the Gulf of Mexico. In addition, mid-continent gathering facilities were transferred in 1995 from Natural Gas Transmission to the Field Services group. The Gas and Power Services group, the energy marketing and risk management services provider of Energy Services, expanded its activities through the acquisition of Continental Energy Marketing Company (Continental) of Calgary, Canada. In late 1995, the Company combined its natural gas and electric power marketing activities to further capitalize on future opportunities for meeting the complete energy needs of customers. [BAR CHART] Commensurate with this growth, Energy Services generated 69% of the Company's consolidated revenues in 1995 as compared with 63% in 1994. This segment should continue to contribute the majority of the Company's revenues as it expands in the future. In the Natural Gas Transmission segment, which consists of Texas Eastern Transmission Corporation (TETCO), Algonquin Gas Transmission Company (Algonquin), Panhandle Eastern Pipe Line Company (PEPL) and Trunkline Gas Company (Trunkline), traditional pipeline sales services ceased in 1994 and all services are now offered on an unbundled basis. Additionally, Order 636 requires use of the straight fixed-variable rate design which makes earnings less sensitive to throughput changes. The new rate design has caused the percentage of throughput related to firm transportation contracts for the Natural Gas Transmission segment to rise from 64% in 1993 to 88% in 1995. The Company's pipelines have not experienced any significant reductions in firm 26 2 capacity sold; however, they continue to offer selective discounting to maximize revenues from existing capacity. [BAR CHART] The Natural Gas Transmission companies continue to advance selective projects that provide expanded services to meet the specific needs of customers in the current unbundled environment. These projects include WinterNet and EnergyPlus, designed to meet the winter-seasonal and peak-demand service requirements of customers in the Northeast, Mid-Atlantic and Southeast markets. As the new environment has evolved, industry participants have indicated a desire for greater standardization of pipeline tariffs. The Company, responding to these concerns, filed with FERC in 1995 to increase the level of standardization of the Company's four interstate pipelines' gas tariffs to enhance the nationwide transportation of natural gas. PEPL and Trunkline have begun to combine operations to provide standard operating practices and services to customers. This consolidation will contribute to an approximate 7% reduction in the Company's work force. The related cost of termination benefits, to be recognized in the first quarter 1996, are expected to be substantially offset by resulting savings throughout the remainder of 1996. The Company plans to continue to pursue strategic opportunities that emerge in the U.S. and internationally via additional joint ventures, expansion projects and acquisitions in both the Natural Gas Transmission and the Energy Services segments. RESULTS OF OPERATIONS The Company reported 1995 consolidated net income of $303.6 million, or $2.03 per share on 149.7 million average common shares outstanding. This compares with consolidated net income in 1994 of $225.2 million, or $1.51 per share on 148.7 million shares, and $171.6 million, or $1.21 per share on 142.4 million shares, in 1993. The continued strong performance of the Natural Gas Transmission segment and the successful integration of the PanEnergy Natural Gas operations into the growing Energy Services segment helped the Company achieve a 35% increase in net income in 1995 as compared to 1994. OPERATING INCOME ANALYSIS CONSOLIDATED OPERATING INCOME BY SEGMENT
MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------- Natural Gas Transmission TETCO $294.1 $264.7 $181.9(1) Algonquin 73.3 65.9 56.0 PEPL 143.9 151.1 124.8 Trunkline 45.6 47.7 53.3 --------------------------------- Total 556.9 529.4 416.0 --------------------------------- Energy Services Field Services 80.6 49.2 57.9 Gas and Power Services 16.7 16.6 12.3 Crude Oil 8.8 9.0 3.0 --------------------------------- Total 106.1 74.8 73.2 --------------------------------- Parent, Other and Eliminations 5.7 (18.9)(2) 2.6 --------------------------------- Consolidated Operating Income $668.7 $585.3 $491.8 =========================================================================
(1) Includes a $100 million charge reflecting TETCO's settlement of Order 636 implementation and other issues. (2) Includes nonrecurring merger costs of $16.2 million. The rate of inflation in the United States has been relatively low in 1995 and recent years, and has not had a material impact on the Company. Under the ratemaking process applicable to regulated portions of the Company's business, recovery of plant costs through depreciation and the allowed return on plant investment is limited to historical cost, which is significantly less than current replacement cost. NATURAL GAS TRANSMISSION Operating income from the Natural Gas Transmission segment totaled $556.9 million in 1995, representing a $27.5 million increase from 1994 operating income, which was $113.4 million higher than 1993 results. This segment's revenues continued to decline due to the elimination of merchant services during 1994. The resulting $177.9 million decrease in gross sales revenue in 1995 as compared with 1994 was offset by a related reduction in the cost of natural gas sold. Increases in transportation revenue have resulted from expanded services and the recovery of eligible costs resulting from the implementation of FERC Order 636 (transition costs). TETCO, Algonquin, PEPL and Trunkline are subject to the accounting requirements of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." Accordingly, certain costs have been deferred as regulatory assets for amounts recoverable from customers, including costs related to environmental matters, Order 636 transition, take-or-pay contracts, certain employee benefits and early retirement of debt. 27 3 TEXAS EASTERN TRANSMISSION CORPORATION
MILLIONS 1995 1994 1993 - ----------------------------------------------------------------------- Transportation Revenue $774.2 $719.2 $574.3 -------------------------------- Sales Revenue - - 225.8 Gas Purchased - - 96.2 -------------------------------- Net Sales Revenue - - 129.6 Storage and Other Revenue 100.2 107.5 105.5 -------------------------------- TOTAL NET REVENUES 874.4 826.7 809.4 Operating Expenses 436.4 420.9 486.7 Depreciation and Amortization 143.9 141.1 140.8 -------------------------------- OPERATING INCOME $294.1 $264.7 $181.9 - ----------------------------------------------------------------------- VOLUMES (Bcf)* Transports 1,192 1,155 1,045 Sales - - 33 -------------------------------- Total Deliveries 1,192 1,155 1,078 =======================================================================
*Billion cubic feet Operating income for TETCO increased $29.4 million in 1995 as compared with 1994. Transportation revenue increased $55 million, or 8%, reflecting new expansion projects, including ITP (Integrated Transportation Program), FTS-7 and FTS-8, which were placed in service in late 1994. Also contributing to the increase were $43 million of higher transition costs recoveries, partially offset by $16 million of lower PCB (polychlorinated biphenyl) cost recoveries. These higher net cost recoveries of $27 million were offset by a corresponding increase in operating expenses. Operating expenses in 1995 also included a $40 million charge for higher transition cost estimates, as well as a $33 million reduction for lower-than-projected PCB cleanup costs incurred. Operating expenses, excluding transition and PCB costs, declined primarily due to a $5 million charge to income in 1994 related to the Edison, New Jersey pipeline rupture and cost-management initiatives in 1995. Operating income increased $82.8 million in 1994 as compared with 1993. Operating income in 1993 included a charge of $100 million for the FERC-approved settlement that resolved issues related primarily to Order 636 transition costs and bundled merchant services. The $17.3 million increase in net revenues in 1994 compared with 1993 was primarily attributable to transition cost recoveries, partially offset by a reduction in interruptible transportation revenues. These transition cost recoveries were offset by related increases in expenses in 1994. ALGONQUIN GAS TRANSMISSION COMPANY
MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------ Transportation Revenue $144.7 $132.0 $109.9 --------------------------------- Sales Revenue - - 59.6 Gas Purchased - - 46.8 --------------------------------- Net Sales Revenue - - 12.8 Storage and Other Revenue 7.4 12.4 13.0 --------------------------------- TOTAL NET REVENUES 152.1 144.4 135.7 Operating Expenses 51.3 54.5 56.9 Depreciation and Amortization 27.5 24.0 22.8 --------------------------------- OPERATING INCOME $ 73.3 $ 65.9 $ 56.0 - ------------------------------------------------------------------------ VOLUMES (Bcf) Transports 322 279 236 Sales - - 2 --------------------------------- Total Deliveries 322 279 238 ========================================================================
Algonquin's operating income increased $7.4 million in 1995 compared with 1994. Expansion projects, including ITP, as well as expanded services to local distribution companies and an electric power generator contributed approximately $9 million of additional income in 1995. This increase was partially offset by lower income from resolutions of regulatory issues which totaled $4 million in 1995, versus $8 million in 1994. Algonquin's 1994 operating income rose $9.9 million from 1993. This increase reflected an $8.7 million rise in net revenues including $8 million related to the settlement of a prior-year rate case and certain other regulatory issues. Net revenues generated from new incremental projects more than offset revenue declines related to restructured services. PANHANDLE EASTERN PIPE LINE COMPANY
Millions 1995 1994 1993 - ------------------------------------------------------------------------ Transportation Revenue $304.8 $315.3 $276.8 --------------------------------- Sales Revenue - - 98.7 Gas Purchased - - 42.7 --------------------------------- Net Sales Revenue - - 56.0 Storage and Other Revenue 66.9 72.4 54.8 --------------------------------- TOTAL NET REVENUES 371.7 387.7 387.6 Operating Expenses 193.1 206.5 228.9 Depreciation and Amortization 34.7 30.1 33.9 --------------------------------- OPERATING INCOME $143.9 $151.1 $124.8 - ------------------------------------------------------------------------ VOLUMES (Bcf) Transports 659 620 581 Sales - - 22 --------------------------------- Total Deliveries 659 620 603 ========================================================================
28 4 PEPL's operating income decreased $7.2 million in 1995 as compared with 1994. The comparison for the year includes the effects of $20.4 million of income recorded in 1995 for the resolution of certain regulatory matters, offset by $34.5 million recorded in 1994 for similar resolutions. The sale of gathering assets to an affiliated Field Services subsidiary in August 1995 resulted in lower revenues and expenses of approximately $11.4 million and $10.2 million, respectively, as compared with 1994. Excluding the impact of these items, PEPL's revenues from its core business were stable and earnings improved due to lower operating expenses. Depreciation and amortization increased due to a 1994 rate reduction amounting to $2.9 million and depreciation on market-expansion projects. PEPL's 1994 operating income increased $26.3 million over 1993, reflecting increased firm transportation contracts (including several new long-term contracts), the partial resolution of several prior-year regulatory and gas supply issues, as well as reduced expenses. These improvements were partially offset by the impact of the elimination of seasonal rates effective May 1, 1993. Contributing to the transportation revenue increase in 1994 was $21.1 million related to the partial resolution of two prior-year regulatory proceedings. Operating expenses decreased primarily as a result of cost-containment efforts and the 1994 reversal of $13.4 million of provisions established for regulatory and gas supply matters that were partially resolved. TRUNKLINE GAS COMPANY
Millions 1995 1994 1993 - ------------------------------------------------------------------------ Transportation Revenue $151.2 $166.2 $138.7 --------------------------------- Sales Revenue - 177.9 293.4 Gas Purchased - 177.9 238.6 --------------------------------- Net Sales Revenue - - 54.8 Storage and Other Revenue 8.9 9.9 10.0 --------------------------------- TOTAL NET REVENUES 160.1 176.1 203.5 Operating Expenses 92.1 106.8 128.5 Depreciation and Amortization 22.4 21.6 21.7 --------------------------------- OPERATING INCOME $ 45.6 $ 47.7 $ 53.3 - ------------------------------------------------------------------------ VOLUMES (Bcf) Transports 499 531 536 Sales* - - 66 --------------------------------- Total Deliveries 499 531 602 ========================================================================
*Excludes 89 Bcf and 41 Bcf for 1994 and 1993, respectively, which are reported as transports. Operating income for Trunkline decreased $2.1 million in 1995 as compared with 1994, primarily resulting from $4 million of revenues recorded in 1994 related to a contract settlement. Decreased transportation revenue, due to lower volumes attributable to warmer weather during the first half of 1995, was offset by lower operating costs. Sales revenue and associated gas purchased costs declined $177.9 million as a result of the elimination of Trunkline's merchant function in late 1994. Operating income decreased $5.6 million in 1994 as compared with 1993, primarily due to reduced interruptible transportation revenue and volumes in the supply area. Trunkline's sales revenue diminished as a result of the expiration of its unbundled sales contracts on October 31, 1994, as well as a $15.5 million rate settlement benefit recognized in 1993. The effect of the rate settlement was partially offset by a $13 million charge related to a fixed-price gas sales contract which expired in 1994. During 1993, the Company purchased natural gas futures, options and swaps to mitigate the financial impacts of its unbundled sales contracts. ENERGY SERVICES Operating income for the Energy Services segment in 1995 was $106.1 million, a 42% increase over 1994 income of $74.8 million. Operating income in 1995 represented 16% of the Company's consolidated operating income, as compared with 13% in 1994. [BAR CHART] In addition to providing gathering, processing and storage services, this segment also markets natural gas and petroleum products and began marketing electric power and providing various services to the electric power industry in 1995. Marketing of natural gas and petroleum products generates significant revenue. RISK MANAGEMENT. The Company uses financial instruments to reduce its exposure to market fluctuations in the price and transportation costs of natural gas and petroleum products. The Company's market exposure arises from inventory balances and fixed-price purchase and sale commitments that extend for periods of up to 10 years which are entered into to support the Company's operating activities. The weighted average life of the Company's price risk portfolio was four months at December 31, 1995. The Company's general strategy is to hedge price and location risk with futures, swaps and options; however, net open positions in terms of price, volume and specified delivery point do occur. In addition to hedging activities, the Company also engages in trading of such instruments. During 1995 and 1994, the Company recognized gains of $10.5 million and $0.7 million, respectively, from risk management activities. The Company manages open positions with 29 5 strict policies which limit its exposure to market risk and require reporting potential financial exposure to management on a daily basis. These policies include risk tolerance limits using statistically-weighted price movements to calculate a daily earnings at risk (DEAR) as well as a total value at risk (VAR) measurement. New York Mercantile Exchange (Exchange) traded futures and option contracts are guaranteed by the Exchange and have nominal credit risk. On all other transactions, the Company is exposed to credit risk in the event of nonperformance by the counterparties. For each counterparty, the Company analyzes their financial condition prior to entering into an agreement, establishes credit limits and monitors the appropriateness of these limits on an ongoing basis. See Note 6 of the Notes to Consolidated Financial Statements. FIELD SERVICES
Millions 1995 1994 1993 - ------------------------------------------------------------------------ Revenue $804.6 $730.1 $574.2 Products Purchased 598.6 551.5 407.6 --------------------------------- NET REVENUE 206.0 178.6 166.6 Operating Expenses 88.1 101.2 87.4 Depreciation and Amortization 37.3 28.2 21.3 --------------------------------- OPERATING INCOME $ 80.6 $ 49.2 $ 57.9 - ------------------------------------------------------------------------ VOLUMES Natural Gas Gathered/ Processed (Bcf/d)(1) 1.9 1.6 1.4 NGL Production (MBbl/d)(2) 54.8 49.4 42.0 ========================================================================
(1) Billion cubic feet per day (2) Thousand barrels per day Field Services' operating income increased $31.4 million, or 64%, for 1995 as compared with 1994. Net revenues increased $27.4 million, or 15%, resulting from higher natural gas processing margins, gathering volumes and liquids production. Gas processing margins improved due to lower replacement gas prices, which declined approximately 21% in 1995. NGL average prices were up 9% in 1995 which also contributed to higher margins. Gas volumes gathered and processed increased 19% due to acquisitions and additional well connections. NGL production increased 11%, primarily resulting from acquisitions and higher efficiencies at the National Helium Corporation (National Helium) plant. Operating expenses were more than $13 million lower in 1995, primarily benefitting from cost-saving efficiencies from merging certain field operations in late 1994 and early 1995. Operating income for Field Services was down $8.7 million in 1994 from 1993. Higher net revenues from increased volumes were offset by higher depreciation and operating expenses resulting from acquisitions. The rise in volumes related to a 14% growth in natural gas gathered and processed and higher NGL production. NGL production in 1994 included a full year of operations at the Oklahoma Hillsboro plant as well as increases at the National Helium plant and the Weld County, Colorado facility. These increases were partially offset by lower NGL prices in 1994 as compared with 1993. GAS AND POWER SERVICES
MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------ Revenue $1,876.5 $1,644.3 $1,323.0 Gas Purchased 1,827.3 1,606.4 1,294.7 --------------------------------- NET REVENUE 49.2 37.9 28.3 Operating Expenses 30.1 18.3 13.4 Depreciation and Amortization 2.4 3.0 2.6 --------------------------------- OPERATING INCOME $ 16.7 $ 16.6 $ 12.3 - ------------------------------------------------------------------------ Natural Gas Marketed (Bcf/d) 3.5 2.7 2.1 Gas Unit Margin ($/Mcf)* .039 .037 .037 ========================================================================
* Dollars per thousand cubic feet Gas and Power Services' operating income was $16.7 million in 1995 versus $16.6 million in 1994. Net revenues increased $11.3 million as a result of a 30% increase in marketed volumes, partly resulting from the Continental acquisition. Including risk management gains, overall gas unit margins improved slightly to $0.039 per Mcf from $0.037 per Mcf in 1994. The net revenue increase was offset by higher operating expenses attributable to expanded operations, including start-up costs for the electric power marketing area in 1995. Operating income increased $4.3 million in 1994 from 1993 as volumes aggregated and marketed rose 29%. The growth in volumes was attributable to increased activity in the Midwest, as well as the expansion of certain acquired operations in the western United States and Canada. CRUDE OIL
MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------ Revenue $978.8 $580.3 $555.4 Products Purchased 953.8 560.1 545.4 --------------------------------- NET REVENUE 25.0 20.2 10.0 Operating Expenses 13.2 9.1 6.2 Depreciation and Amortization 3.0 2.1 0.8 --------------------------------- OPERATING INCOME $ 8.8 $ 9.0 $ 3.0 - ------------------------------------------------------------------------ Crude Oil Pipeline Volumes (MBbl/d) 76.2 52.0 32.5 NGL Pipeline Volumes (MBbl/d) 16.5 16.0 2.8 ========================================================================
Crude Oil's operating income decreased slightly to $8.8 million for 1995. Higher crude oil trading and pipeline volumes contributed to a $398.5 million increase in gross revenues and a $4.8 million, or 24%, increase in net revenues, which was offset by higher expenses. 30 6 Operating income increased $6 million in 1994 from 1993 as a result of higher crude oil unit margins and pipeline volumes in 1994. NGL pipeline volumes increased to 16 MBbl/d from 2.8 MBbl/d in 1993 primarily due to the acquisition of Dean Pipeline, an NGL transportation system in South Texas, in November 1993. The higher net revenues in 1994 were partially offset by higher expenses. PARENT, OTHER AND ELIMINATIONS LNG PROJECT. Operating income for the LNG Project increased $12 million comparing 1995 with 1994. A $10.4 million provision reversal recorded in 1995 and higher liquefied natural gas (LNG) tanker charter revenues contributed to the increase. Both of the LNG tankers are under charters that extend through the first quarter 1996. Operating income for the LNG Project decreased $6.6 million in 1994 compared to 1993. This decrease was primarily the result of lower LNG tanker charter revenues. OTHER. Operating income in 1995 for other activities improved from 1994 due to the $16.2 million non-recurring charge recorded in 1994 for the PanEnergy Natural Gas merger, partially offset by higher expenses in 1995 for PanEnergy Information Services. Included in the amounts discussed above are intercompany transactions that do not impact consolidated operating income. OTHER INCOME AND DEDUCTIONS. The increase of $27.9 million in net other income and deductions in 1995 compared with 1994 was primarily the result of higher gains on sales of assets and increased earnings from investments in affiliates in 1995. Net other income and deductions decreased $34.9 million in 1994 as compared with 1993 primarily from a gain on the sale of certain assets recorded in 1993. A summary of equity in earnings of unconsolidated affiliates follows:
YEARS ENDED DECEMBER 31 Millions 1995 1994 1993 - ------------------------------------------------------------------------ National Methanol Company $22.5 $26.2 $ 3.3 Midland Cogeneration Venture 11.6 2.8 (1.6) Northern Border Partners, L.P. 7.2 4.5 13.9 TEPPCO Partners, L.P. 6.4 3.6 0.8 Other affiliates 2.9 3.8 (0.3) --------------------------------- Total $50.6 $40.9 $16.1 ========================================================================
The increase in earnings from investments in affiliates in 1995 was primarily attributable to an $8.8 million increase in earnings from Midland Cogeneration Venture resulting from higher revenue from increased capacity availability and lower fuel costs. Equity in earnings from National Methanol Company (National Methanol) decreased $3.7 million reflecting lower average methanol margins, partially offset by a full year's sales of MTBE (methyl tertiary butyl ether) in 1995, versus four months' sales in 1994. Methanol margins, which increased throughout 1994 and the first quarter of 1995, declined during the remainder of 1995, with fourth quarter 1995 margins 29% lower than the fourth quarter of 1994. The improvement in net other income and deductions in 1995 also includes an $8.1 million gain resulting from the sale of the Company's investment in Seagull Shoreline System in the third quarter 1995, as well as the 1994 write-off of $3.8 million of costs related to the Liberty Pipeline Project. The decrease of $34.9 million in net other income in 1994 compared with 1993 was primarily the result of a $48.2 million gain on the sale of a partial interest in Northern Border Partners, L.P. (Northern Border) in 1993 and resulting lower equity in earnings from Northern Border in 1994. In addition, 1994 results include the write-off of costs expended on the Liberty Pipeline Project. Partially offsetting the declines were $23 million in higher earnings from National Methanol, reflecting higher methanol margins during 1994. INTEREST EXPENSE. Interest expense in 1995 decreased slightly compared with 1994 primarily as a result of lower interest on rate refunds, partially offset by higher average debt balances outstanding in 1995. [BAR CHART] Consolidated interest expense decreased $37.5 million in 1994 compared with 1993. This reduction reflected the effects of lower interest rates and reduced average debt balances outstanding between 1994 and 1993. Proceeds from the sale of assets and common stock were used for the early retirement of four issues of relatively high-interest debt in the last nine months of 1993. INCOME TAX. The effective tax rates for 1995, 1994 and 1993 differed from the statutory federal income tax rates primarily because of the effect of state income taxes. 31 7 CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL POSITION OPERATING CASH FLOW
YEARS ENDED DECEMBER 31 MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------ Net Cash Flows Provided by Operating Activities $573.1 $448.0 $769.5 - ------------------------------------------------------------------------
Operating cash flows increased $125.1 million from 1994 to 1995. This increase primarily reflects higher 1995 earnings as well as lower cash requirements for transition cost payments in excess of recoveries. Increases in accounts receivable, related to higher levels of gas marketing activities, were mostly offset by corresponding increases in accounts payable. Operating cash flows decreased $321.5 million from 1993 to 1994. This decrease reflected the 1993 sales of inventory and $173.5 million of LNG project settlement receivables, along with net cash outflows in 1994 related to transition cost payments and recoveries. These decreases were partially offset by lower interest costs in 1994. ORDER 636 TRANSITION COSTS. With implementation of Order 636 and the elimination of pipeline merchant services, the Company's interstate natural gas pipelines are incurring certain costs related to the transition, primarily TETCO's gas purchase contract commitments. At December 31, 1995, TETCO's gross commitments under gas purchase contracts that do not contain market-sensitive pricing provisions were approximately $160 million, $115 million, $60 million and $25 million for the years 1996 through 1999, respectively, with no significant amounts thereafter. These estimates reflect significant assumptions regarding deliverability and natural gas prices. On August 1, 1994, TETCO implemented a FERC-approved settlement that resolved regulatory issues related primarily to Order 636 transition costs and a number of other issues related to services prior to Order 636. In 1994, TETCO refunded $84 million to customers pursuant to the settlement. TETCO's final and nonappealable settlement provides for the recovery of certain transition costs through volumetric and reservation charges through 2002 and beyond, if necessary. Pursuant to the settlement, TETCO will absorb a certain portion of the transition costs, the amount of which continues to be subject to change dependent upon natural gas prices and deliverability levels. In 1993, the Company established an additional provision of $100 million ($60.2 million after tax) to reflect the impact of the settlement. In the fourth quarter 1995, based upon producers' discoveries of additional natural gas reserves, TETCO increased its estimated liabilities for transition costs by $125.8 million. Under the terms of the existing settlement, regulatory assets were increased by $85.8 million and TETCO recognized a $40 million charge to operating expenses ($26 million after tax). PEPL's transition cost recoveries, which are subject to certain challenges pending before FERC, will occur through 1998. At December 31, 1995 and 1994, the Company's interstate pipelines had recorded approximately $70 million and $310 million (1995), and $35 million and $300 million (1994) of current and long-term regulatory assets, respectively, representing transition costs incurred or estimated to be incurred that will be recovered. At December 31, 1995 and 1994, the Company had recorded estimated current and long-term liabilities related to Order 636 transition costs of approximately $125 million and $165 million (1995), and $125 million and $105 million (1994), respectively. During the next two years, above-market gas purchase contract payments by TETCO are expected to exceed transition cost collections from customers. Net cash receipts related to transition costs are expected to occur in periods thereafter. Cash requirements related to transition costs will be funded by cash from operations and/or available credit facilities. The Company believes the exposure associated with gas purchase contract commitments and the termination of the Company's pipeline merchant services is substantially mitigated by transition cost recoveries pursuant to TETCO's settlement, Order 636 and other mechanisms. ENVIRONMENTAL MATTERS. TETCO is currently conducting PCB assessment and cleanup programs at certain of its compressor station sites under conditions stipulated by a U.S. Consent Decree and agreements reached with certain states. Cleanup work provided for by the Consent Decree and state agency agreements is expected to continue until 1998. Groundwater monitoring activities will continue beyond 1998. These programs are not expected to interrupt or diminish TETCO's operational ability to deliver natural gas to customers. At December 31, 1995 and 1994, TETCO had current and long-term liabilities recorded of $44.9 million and $168.3 million (1995) and $56.4 million and $289.1 million (1994), respectively, for remaining estimated cleanup costs. These cost estimates represent gross cleanup costs expected to be incurred by TETCO, have not been discounted or reduced by customer recoveries and do not include fines, penalties or third-party claims. Estimated liabilities for remaining PCB cleanup costs were reduced by $77.6 million in the fourth quarter 1995 as a result of lower-than-projected cleanup costs incurred on completed sites. TETCO is recovering 57.5% of cleanup costs in rates pursuant to a stipulation and agreement approved by FERC in 1992. As a result of the reduction in estimated cleanup costs, the related regulatory assets were reduced $44.6 million. TETCO's share of the cleanup estimate was lowered which resulted in a $33 million decrease to operating expenses ($21.5 million after tax). At December 31, 1995 and 1994, TETCO had current and long-term regulatory assets 32 8 recorded of $17 million and $101.7 million (1995) and $18.6 million and $177.1 million (1994), respectively, representing costs to be recovered from customers. In addition, the Company has identified environmental contamination at up to 53 sites on the PEPL and Trunkline systems and is undertaking cleanup programs at these sites. The contamination resulted from the past use of lubricants containing PCBs and the prior use of wastewater collection facilities and other on-site disposal areas. Soil and sediment testing, to date, has detected no significant off-site contamination. The Company has communicated with the Environmental Protection Agency and appropriate state regulatory agencies on these matters. In August 1995, Trunkline entered into a consent order under a cleanup program with the Tennessee Department of Environment and Conservation for the cleanup of its Tennessee facility. Cleanups in other states by PEPL and Trunkline are also proceeding. The environmental cleanup programs are expected to continue until 2002. At December 31, 1995 and 1994, the Company had undiscounted liabilities recorded of $68.9 million and $70 million, respectively, relating to PEPL and Trunkline PCB, wastewater and disposal area cleanup programs and had regulatory assets recorded of $79.2 million and $82.4 million, respectively, representing costs to be recovered from customers. The Company believes it will be able to fund the TETCO, PEPL and Trunkline PCB and other cleanup costs from recoveries from customers and other cash flows. LITIGATION. In connection with a rupture and fire that occurred on TETCO's 36-inch natural gas pipeline on March 23, 1994 in Edison, New Jersey, claims have been made and numerous lawsuits have been filed in the Superior Court of New Jersey, Middlesex County against TETCO and other private and governmental entities by or on behalf of hundreds of individuals and general businesses. These claimants seek compensatory damages for personal injuries and/or property losses, as well as punitive damages. The property insurers of an apartment complex adjacent to the asphalt plant where the rupture occurred also have filed suits against TETCO and other defendants in Superior Court seeking to recover amounts paid under pertinent policies of insurance. Quality Materials, Inc., the owner of the asphalt plant, has filed suit in the U.S. District Court for the District of New Jersey against TETCO seeking to recover unspecified property damages, lost income and punitive damages. TETCO has filed a counterclaim against Quality Materials, Inc. The findings of an investigation of the incident by the Company and the National Transportation Safety Board (NTSB) indicate third-party damage to be the cause of the rupture. Additionally, an NTSB report found that TETCO's pipeline operations met or exceeded federal safety regulations. The Company recorded a $5 million after-tax charge in 1994 for costs related to this incident that are not recoverable under the Company's insurance policies. On August 30, 1995, two plaintiffs filed a lawsuit with class action allegations in the 58th Judicial District Court, Jefferson County, Texas, against PEC, Texas Eastern Corporation (TEC) and TETCO, among other defendants. Plaintiffs seek recovery of compensatory and punitive damages, in unspecified amounts, for personal injuries and property damage resulting from alleged exposure to PCBs. Additionally, TETCO, as well as certain other PEC subsidiaries in some of the cases, are defendants in several other private plaintiff suits in various courts. These suits seek relief for actual and punitive damages that allegedly resulted from the release of PCBs and other hazardous substances in violation of federal and state laws. The Company is defending itself vigorously in all the above suits. OTHER MATTERS. The U.S. Department of the Interior announced its intention to seek additional royalties from gas producers as a result of payments received by such producers in connection with past take-or-pay settlements, and buyouts and buydowns of gas sales contracts with natural gas pipelines. The Company's pipelines, with respect to certain producer contract settlements, may be contractually required to reimburse or, in some instances, to indemnify producers against such royalty claims. The potential liability of the producers to the government and of the pipelines to the producers involves complex issues of law and fact which are likely to take a substantial period of time to resolve. If the Company's pipelines ultimately have to reimburse or indemnify the producers, the Company's pipelines will file with FERC to recover a portion of these costs from pipeline customers. The Company expects to generate sufficient future taxable income from operations to fully utilize deferred tax assets, net of valuation allowance, including full utilization of the investment tax credit (ITC) carryforward in 1996. However, if needed, the Company could implement tax-planning strategies to accelerate approximately $140 million of taxable income prior to expiration of the ITC. The statutory expiration of the ITC accumulated as of December 31, 1995 is as follows: 1997 - $8.9 million; 1998 - $5.9 million; thereafter - $9.7 million. The carrying value of LNG project assets is expected to be recovered through estimated future cash flows. Current estimates of future cash flows are based on significant business relationships and assumptions of future natural gas prices, supply availability and demand for LNG, which are subject to change. The Company believes the regulatory, environmental and legal issues discussed above will not have a material adverse effect on the Company's consolidated results of operations, financial position or liquidity. 33 9 INVESTING CASH FLOW
YEARS ENDED DECEMBER 31 MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------ Net Cash Flows Used in Investing Activities $419.7 $584.0 $156.1 - ------------------------------------------------------------------------
Cash flows used in investing activities decreased in 1995 by $164.3 million as compared with 1994 primarily resulting from $122.2 million of lower capital expenditures in 1995 and decreased tax payments for past asset sales. Compared with 1994, net cash used by investing activities was significantly lower in 1993 as a result of $196.9 million of lower capital and investment expenditures in 1993, approximately $147 million of cash proceeds received in 1993 from the sale of a partial interest in Northern Border and $40 million from the sale of the Wattenberg system. CAPITAL AND INVESTMENT EXPENDITURES - 1995. Capital and investment expenditures totaled $442.3 million in 1995, compared with $563.7 million for 1994. Market-expansion projects represented approximately 60% of 1995 total expenditures. Expenditures in 1995 included the acquisition of a natural gas gathering and processing system in central Colorado for approximately $60 million. Expenditures in 1994 included the purchase of certain intrastate natural gas pipeline, storage and processing facilities in south Texas for more than $100 million. [BAR CHART] CAPITAL AND INVESTMENT EXPENDITURES - 1996 AND BEYOND. The Company currently expects to invest approximately $400 million in 1996 capital and investment expenditures, with approximately 60% for Natural Gas Transmission and 30% for Energy Services, with the remainder budgeted for international and other development projects. The Company's 1996 base expenditure plans include approximately $200 million for market-expansion projects by the Natural Gas Transmission and Energy Services segments. Projects are also planned which would expand the Company's international business, including a proposed joint pipeline project along with several partners to access natural gas reserves located near offshore Nova Scotia. This project, the Maritimes and Northeast Pipeline Project, is planned to be in full operation in 1999. The Company, along with five other international energy companies, is also participating in the development of an integrated gas and power project to be located near Aguaytia, Peru. Expenditures related to the proposed transactions with Mobil announced in January 1996 are not included in the aforementioned budgeted expenditures and percentages. The Company has submitted plans to the appropriate state and/or federal agencies in order to fully comply with the Clean Air Act Amendments of 1990 (the Amendments). While regulatory review of these plans is currently underway, the Company estimates that remaining capital expenditures necessary to comply with the requirements of the Amendments and associated regulations total approximately $20 million. Management believes any expenditures necessary will be eligible for recovery in rates. The Company formed a joint venture in 1994 with a subsidiary of Western Gas Resources, Inc. that will provide gathering, processing and marketing services for natural gas producers. Each partner will contribute to the venture certain pipeline and gas processing facilities within Oklahoma. FERC approved the transfer in 1995, subject to certain conditions of which the Company has requested clarification. ASSET SALES. The Company sold its investment in the Seagull Shoreline System in 1995 for approximately $13 million. In addition, the Company has received approval from FERC to sell certain gathering assets to Anadarko Gathering Company for approximately $23 million. The sale is expected to be completed in the first quarter 1996. In 1990, the Internal Revenue Service (IRS) issued regulations which disallow for tax purposes losses incurred in the Company's 1989 sales of certain TEC assets. Consequently, the Company established a provision in 1990 for this and certain other issues, resulting in an increase in goodwill and the deferred income tax liability. Following further discussions with the IRS, the Company in 1994 revised its estimates with respect to the disallowed loss issue and in 1995 with respect to other issues. As a result, the Company reduced the related goodwill and deferred income tax liability by approximately $200 million and $100 million in 1994 and 1995, respectively. Investing cash flows for 1995 and 1994 include payments by the Company of $12 million and $41 million, respectively, for prior year tax liabilities primarily related to asset sales. OTHER. The Company has formed a limited liability corporation, Altra Energy Technologies L.L.C., with Williams Companies, Inc. that will provide electronic information products and services for the energy industry. The Company contributed the assets of one of its subsidiaries to the new venture in January 1996. 34 10 FINANCING CASH FLOW
YEARS ENDED DECEMBER 31 MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------ Net Cash Flows Provided by (Used in) Financing Activities $(135.9) $208.3 $(578.0) - ------------------------------------------------------------------------
Cash flows provided by financing activities decreased $344.2 million from 1994 to 1995. Debt issuances in 1995, which include $200 million of long-term debt and a $145 million net increase in short-term bank borrowings, were $210.6 million lower than 1994. Debt retirements in 1995 increased $35.1 million and included repayment of $185 million of the Company's bank credit facility as well as early redemption of $125 million of PEPL's 9-7/8% debentures. Cash flows provided by financing activities increased $786.3 million from 1993 to 1994. During 1993, significant debt retirements were made, including early redemption of $500 million of high-interest rate long-term debt and retirement of amounts outstanding under revolving credit agreements. Proceeds from stock issuances, asset and receivable sales, and other cash available were used to retire this debt. DEBT AND CREDIT FACILITIES. PEC entered into two new variable-rate, bank credit agreements, dated January 31, 1996, that permit PEC to borrow up to $400 million under a five-year facility and $400 million under a 364-day facility. In conjunction with these new agreements, PEC canceled its previous $600 million agreement and TETCO and PEPL canceled their combined $200 million agreements. [BAR CHART] COMMON STOCKHOLDERS' EQUITY. In 1993, PEC sold 10 million shares of common stock priced at $21.25 per share, resulting in net proceeds to the Company of $204.5 million, which was applied toward the early redemption of debt. In the determination of the amount of dividends to be paid to common stockholders, management and the board of directors regularly review, among other factors, the Company's projected operating results, cash flows and financial position. The board of directors increased the quarterly dividend from $0.21 to $0.225 per common share effective with the 1995 first quarter. Under the most restrictive covenants contained in the Company's debt agreements, $899.9 million of PEC's consolidated common stockholders' equity was available for the payment of dividends at December 31, 1995. FINANCING REQUIREMENTS. Dividends and debt repayments for the next year, along with operating and investing requirements, are expected to be funded by cash from operations, debt issuances, periodic sales of trade receivables with limited recourse and/or available credit facilities. As of the date of this report, PEC, TETCO and PEPL each have effective shelf registration statements with the Securities and Exchange Commission for the issuance of $100 million of unsecured debt securities. ACCOUNTING STANDARDS SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995. This standard addresses the timing and measurement of stock-based compensation expense. The Company has elected to retain the approach of Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," (the intrinsic value method) for recognizing stock-based expense in the consolidated financial statements. The Company will adopt SFAS No. 123 in 1996 with respect to the disclosure requirements set forth therein for companies retaining the intrinsic value approach of APB No. 25. 35 11 PANENERGY CORP AND SUBSIDIARIES REPORT OF MANAGEMENT The management of PanEnergy Corp and subsidiary companies (the Company) acknowledges its responsibility for the integrity of the financial statements and related information contained in this Annual Report. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles appropriate to our business activities. The management of the Company also acknowledges its responsibility for maintaining adequate internal controls. Accordingly, accounting systems and related internal controls are maintained to provide reasonable assurance that assets are protected from loss or unauthorized use, that transactions and events are recorded properly and that adequate accounting records are maintained. The Corporate Auditing Department, which is independent of operational management, monitors the design and implementation of internal control systems and compliance with Company policies. The Company's independent auditors, KPMG Peat Marwick LLP, have audited the consolidated financial statements. Their audit was conducted in accordance with generally accepted auditing standards, which includes the consideration of the Company's internal controls to the extent necessary to form an independent opinion on the consolidated financial statements prepared by management. The Company has established statements of corporate policy relating to conflict of interest and conduct of business and receives from appropriate employees confirmation of compliance with these policies. The Audit Committee of the Board of Directors, which is composed of Directors who are not officers or employees, meets at least three times annually to review the work of the independent auditors, management and the Corporate Auditing Department, and to consider management's performance of its financial reporting responsibility. The independent auditors, as well as the director of the Corporate Auditing Department, are afforded an opportunity to present to the Audit Committee their opinions in the absence of management personnel. The Audit Committee reports regularly to the Board of Directors the results of its meetings and its recommendations, including that for the selection of the independent auditors. /S/ PAUL ANDERSON Paul Anderson President and Chief Executive Officer /s/ PAUL F. FERGUSON, JR. Paul F. Ferguson, Jr. Senior Vice President and Chief Financial Officer KPMG PEAT MARWICK LLP, CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT The Board of Directors PanEnergy Corp (formerly Panhandle Eastern Corporation-See Note 1): We have audited the accompanying consolidated balance sheets of PanEnergy Corp and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, common stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PanEnergy Corp and Subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Houston, Texas January 23, 1996 36 12 PANENERGY CORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31 ------------------------------------------ MILLIONS, EXCEPT PER SHARE AMOUNTS 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------- OPERATING Sales of natural gas and petroleum products $3,397.2 $3,044.0 $3,046.7 REVENUES Transportation and storage of natural gas 1,500.6 1,432.8 1,181.8 Other 69.7 108.3 73.5 ------------------------------------------ OPERATING REVENUES (Note 4) 4,967.5 4,585.1 4,302.0 - ----------------------------------------------------------------------------------------------------------------------- COSTS AND Natural gas and petroleum products purchased 3,131.2 2,829.4 2,575.6 EXPENSES Operating and maintenance (Note 4) 598.4 570.6 663.8 General and administrative (Note 2) 207.0 258.8 237.1 Depreciation and amortization (Note 9) 279.0 257.0 250.8 Miscellaneous taxes 83.2 84.0 82.9 ------------------------------------------ Total 4,298.8 3,999.8 3,810.2 ------------------------------------------ OPERATING INCOME 668.7 585.3 491.8 - ----------------------------------------------------------------------------------------------------------------------- OTHER INCOME Equity in earnings of unconsolidated affiliates (Note 8) 50.6 40.9 16.1 AND DEDUCTIONS Gains (losses) on sales of assets, net (Notes 6 and 8) 8.7 (4.3) 42.4 Interest and miscellaneous income 21.0 21.1 26.9 Miscellaneous deductions (6.1) (11.4) (4.2) ------------------------------------------ Total 74.2 46.3 81.2 ------------------------------------------ GROSS INCOME 742.9 631.6 573.0 - ----------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on long-term debt (Note 10) 225.0 218.3 252.1 AND INCOME TAX Interest on rate refund provisions (Note 4) 5.0 12.3 7.9 Other interest 11.5 14.4 22.5 ------------------------------------------ Total 241.5 245.0 282.5 ------------------------------------------ INCOME BEFORE INCOME TAX 501.4 386.6 290.5 Income Tax (Note 5) 197.8 161.4 118.9 ------------------------------------------ NET INCOME $ 303.6 $ 225.2 $ 171.6 ======================================================================================================================= ======================================================================================================================= COMMON SHARES Average common shares outstanding (Note 12) 149.7 148.7 142.4 Earnings per common share $ 2.03 $ 1.51 $ 1.21 =======================================================================================================================
See accompanying notes to consolidated financial statements 37 13 PANENERGY CORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET-ASSETS
DECEMBER 31 --------------------------- MILLIONS 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 50.8 $ 33.3 Accounts and notes receivable (Note 6) Customers 487.7 349.4 Other 17.4 19.2 Inventory and supplies (Note 7) 135.8 124.1 Current deferred income tax (Note 5) 80.8 78.4 Other (Notes 4, 7 and 13) 239.8 206.8 --------------------------- Total 1,012.3 811.2 - ----------------------------------------------------------------------------------------------------------------------- INVESTMENTS Affiliates 164.3 160.1 Other 65.8 72.7 --------------------------- Total (Note 8) 230.1 232.8 - ----------------------------------------------------------------------------------------------------------------------- PLANT, PROPERTY Original cost 8,400.7 8,039.9 AND EQUIPMENT Accumulated depreciation and amortization (3,250.9) (3,032.1) --------------------------- Net plant, property and equipment (Note 9) 5,149.8 5,007.8 - ----------------------------------------------------------------------------------------------------------------------- DEFERRED CHARGES Goodwill, net (Notes 1 and 5) 239.7 342.4 Prepaid pension (Note 15) 259.3 239.8 Other (Notes 1, 4 and 13) 736.1 873.5 --------------------------- Total 1,235.1 1,455.7 - ----------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $7,627.3 $7,507.5 =======================================================================================================================
See accompanying notes to consolidated financial statements 38 14 PANENERGY CORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET-LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31 --------------------------------------- MILLIONS 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Long-term debt due within one year (Note 10) $ 179.6 $ 4.1 Notes payable 145.0 - Accounts payable 391.2 349.4 Rate refund provisions (Note 4) 53.6 60.2 Accrued interest 69.1 65.0 Accrued wages and benefits 64.7 61.2 Taxes payable (Note 5) 65.0 53.8 Other (Notes 4, 7 and 13) 355.2 352.4 ---------------------------------- Total 1,323.4 946.1 - ----------------------------------------------------------------------------------------------------------------------- DEFERRED LIABILITIES Deferred income tax (Note 5) 1,182.9 1,184.5 AND CREDITS Other (Notes 4 and 13) 802.1 978.0 ---------------------------------- Total 1,985.0 2,162.5 - ----------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT Notes payable 1,244.2 1,417.3 Debentures 519.4 618.4 Revenue bonds 328.0 328.0 ---------------------------------- Total (Note 10) 2,091.6 2,363.7 - ----------------------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENT LIABILITIES (Notes 4, 5, 6, 8, 11, 13, 14 and 15) - ----------------------------------------------------------------------------------------------------------------------- COMMON STOCKHOLDERS' Common stock, 150.2 million (1995) and 149.1 million (1994) EQUITY shares issued and outstanding, 300 million shares authorized, $1 par value per share 150.2 149.1 Paid-in capital 2,219.7 2,199.8 Retained earnings (deficit) (142.6) (313.7) ---------------------------------- Total (Note 12) 2,227.3 2,035.2 - ----------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,627.3 $ 7,507.5 =======================================================================================================================
See accompanying notes to consolidated financial statements 39 15 PANENERGY CORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31 ---------------------------------------- MILLIONS, EXCEPT PER SHARE AMOUNTS 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------ COMMON STOCK Balance at beginning of year $ 149.1 $ 147.6 $ 135.7 Sale of stock - - 10.0 Stock issued for purchase of assets 0.1 0.5 - Dividend reinvestment and employee stock plans 0.1 0.6 1.3 Stock option plans and awards 0.9 0.4 0.7 Retirement of stock - - (0.1) ---------------------------------------- BALANCE AT END OF YEAR (Note 12) $ 150.2 $ 149.1 $ 147.6 - ------------------------------------------------------------------------------------------------------------------------ PAID-IN CAPITAL Balance at beginning of year $ 2,199.8 $ 2,168.2 $1,936.2 Excess of proceeds over par value of common stock Sale of stock - - 194.5 Stock issued for purchase of assets 2.4 9.5 - Dividend reinvestment and employee stock plans 0.4 14.3 28.6 Stock option plans and awards 16.6 6.5 9.7 Unearned compensation 0.5 1.3 (1.5) Retirement of stock - - (2.0) Other items - - 2.7 ---------------------------------------- BALANCE AT END OF YEAR (Note 12) $ 2,219.7 $ 2,199.8 $2,168.2 - ------------------------------------------------------------------------------------------------------------------------ RETAINED EARNINGS Balance at beginning of year $ (313.7) $ (436.4) $ (515.1) (DEFICIT) Net income 303.6 225.2 171.6 Conform fiscal year end of PanEnergy Natural Gas - 0.5 - Common stock dividends paid, $0.885, $0.84 and $0.80 in 1995, 1994 and 1993, respectively (132.5) (103.0) (92.9) ---------------------------------------- BALANCE AT END OF YEAR (Note 12) $ (142.6) $ (313.7) $ (436.4) - ------------------------------------------------------------------------------------------------------------------------ TOTAL COMMON STOCKHOLDERS' EQUITY $ 2,227.3 $ 2,035.2 $1,879.4 ========================================================================================================================
See accompanying notes to consolidated financial statements 40 16 PANENERGY CORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31 ---------------------------------------- MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------ OPERATING Net income $ 303.6 $ 225.2 $171.6 ACTIVITIES Adjustments to reconcile net income to operating cash flows- Depreciation and amortization 279.0 257.0 250.8 Deferred income tax expense 109.2 114.8 15.2 Earnings of unconsolidated affiliates, net of distributions (7.9) (29.1) (1.8) Liquefied natural gas project settlement - 0.5 194.7 Order 636 settlement provision - - 100.0 Gain on sale of investments, net (8.1) - (49.8) Net pension benefit (19.5) (20.0) (17.2) Other non-cash items in net income (20.7) (17.3) 8.5 Net change in operating assets and liabilities (detail below) (62.5) (83.1) 97.5 ----------------------------------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 573.1 448.0 769.5 - ------------------------------------------------------------------------------------------------------------------------ INVESTING Capital expenditures (433.1) (555.3) (366.8) ACTIVITIES Investment expenditures (9.2) (8.4) - Other investment decreases (increases) 7.7 (36.3) 161.6 Property sales, retirements and other 14.9 16.0 49.1 ----------------------------------- NET CASH FLOWS USED IN INVESTING ACTIVITIES (419.7) (584.0) (156.1) - ------------------------------------------------------------------------------------------------------------------------ FINANCING Retirement of debt (314.1) (279.0) (991.0) ACTIVITIES Issuance of debt 200.0 574.0 298.3 Net increase (decrease) in notes payable 145.0 (18.4) (21.1) Common stock issuance 16.5 17.6 235.1 Dividends paid (132.5) (103.0) (92.9) Other (50.8) 17.1 (6.4) ----------------------------------- NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES (135.9) 208.3 (578.0) - ------------------------------------------------------------------------------------------------------------------------ NET CHANGE IN CASH Increase in cash and cash equivalents 17.5 72.3 35.4 Cash flows of PanEnergy Natural Gas for the three months ended December 31, 1994 - (116.6) - Cash and cash equivalents, beginning of year 33.3 77.6 42.2 ----------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 50.8 $ 33.3 $ 77.6 ======================================================================================================================== NET CHANGE IN OTHER Accounts and notes receivable $(149.2) $ 58.9 $ 19.5 OPERATING ASSETS Inventory and supplies (11.7) 4.4 86.9 AND LIABILITIES Other current assets 92.7 116.4 24.4 Rate refund provisions 14.1 35.0 (18.8) Accounts payable 89.0 (71.3) (5.1) Other current liabilities (8.5) (105.0) (42.5) Transition cost recoveries (payments), net (85.2) (104.9) 65.2 Other deferred charges and liabilities, net (3.7) (16.6) (32.1) ----------------------------------- Total $ (62.5) $ (83.1) $ 97.5 ======================================================================================================================== SUPPLEMENTAL Cash paid for interest (net of amount capitalized) $ 222.9 $ 221.0 $268.4 DISCLOSURES Cash paid for income tax 78.5 46.0 49.9 ========================================================================================================================
See accompanying notes to consolidated financial statements 41 17 PANENERGY CORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INDEX 1. Accounting Policies Summary . . . . . . . . . . . 42 2. Business Combination . . . . . . . . . . . . . . . 43 3. Business Segments . . . . . . . . . . . . . . . . 43 4. Natural Gas Revenues and Regulatory Matters . . . 44 5. Income Tax . . . . . . . . . . . . . . . . . . . . 45 6. Financial Instruments and Risk Management . . . . 46 7. Inventory and Gas Imbalances . . . . . . . . . . . 48 8. Investments . . . . . . . . . . . . . . . . . . . 48 9. Plant, Property and Equipment . . . . . . . . . . 49 10. Debt and Credit Facilities . . . . . . . . . . . . 50 11. Leases and Other Commitments . . . . . . . . . . . 50 12. Common Stock . . . . . . . . . . . . . . . . . . . 50 13. Environmental Matters . . . . . . . . . . . . . . 51 14. Litigation . . . . . . . . . . . . . . . . . . . . 52 15. Pension and Other Benefits . . . . . . . . . . . . 52
1. ACCOUNTING POLICIES SUMMARY The accounting policies are presented to assist the reader in evaluating the consolidated financial statements of PanEnergy Corp (PEC), formerly Panhandle Eastern Corporation, and its subsidiaries (the Company). The corporate name change is subject to shareholders' approval at the Company's 1996 Annual Meeting of stockholders. Certain amounts for prior years have been reclassified in the consolidated financial statements to conform to the current presentation. The Company is one of North America's leading energy companies, involved in the transportation, storage, gathering and processing of natural gas. The Company is also a leading marketer of natural gas, electricity, liquefied petroleum gases and related energy services, and has holdings in pipeline and other natural gas-related businesses worldwide. The interstate natural gas transmission operations of Texas Eastern Transmission Corporation (TETCO), Algonquin Gas Transmission Company (Algonquin), Panhandle Eastern Pipe Line Company (PEPL) and Trunkline Gas Company (Trunkline), and the liquefied natural gas (LNG) facilities of Trunkline LNG Company, are subject to the rules, regulations and accounting procedures of the Federal Energy Regulatory Commission (FERC). TETCO, Algonquin, PEPL and Trunkline meet the criteria and, accordingly, follow the reporting and accounting requirements of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of PEC and all significant subsidiaries. All significant intercompany items have been eliminated in consolidation. Investments in 20% to 50%-owned affiliates and in less than 20%-owned affiliates where the Company has general partnership interests and significant influence over operations are accounted for on the equity method. See Note 8. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements. Certain amounts of reported revenues and expenses are also affected by these estimates and assumptions. Actual results could differ from those estimates. REVENUE RECOGNITION. The Company recognizes transportation and storage revenues in the period service is provided and revenues on sales of natural gas and petroleum products in the period of delivery. When rate cases are pending final FERC approval, a portion of the revenues collected by each interstate natural gas pipeline is subject to possible refunds. The Company has established adequate reserves where required for such cases. See Note 4 for a summary of significant pending rate cases before FERC and related regulatory matters. GAS SUPPLY COSTS. Provisions are made in the consolidated statement of income for all estimated future losses associated with maintaining pipeline gas supply, including take-or-pay payments, contract settlements, and buyout and buydown costs. See Note 4 for a discussion of pipeline gas supply and other costs related to the FERC Order 636 transition. COMMODITY PRICE RISK MANAGEMENT. Gains and losses related to commodity derivatives which qualify as hedges of commodity commitments are recognized in income when the underlying hedged physical transaction closes and are included in natural gas and petroleum products purchased in the consolidated statement of income. Gains and losses related to such instruments, to the extent settled in cash, are reported as other deferred credits or charges, as appropriate, in the consolidated balance sheet. Gains and losses on derivatives that do not qualify as hedges are recognized on a current basis and are also included in natural gas and petroleum products purchased. See Note 6. CASH AND CASH EQUIVALENTS. All liquid investments with maturities at date of purchase of three months or less are considered cash equivalents. 42 18 PLANT, PROPERTY AND EQUIPMENT. Plant, property and equipment is stated at original cost, which does not purport to represent replacement or realizable value. The Company in 1995 adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," with no impact to the Company's consolidated financial statements. Assets are grouped and evaluated based on the ability to identify separate cash flows generated therefrom. At the time FERC-regulated properties are retired, the original cost plus the cost of retirement, less salvage, is charged to accumulated depreciation and amortization. When entire FERC-regulated operating units are sold or non-regulated properties are retired or sold, the plant and related accumulated depreciation and amortization accounts are reduced and any gain or loss is credited or charged to income, unless otherwise permitted by FERC. Depreciation of plant, property and equipment is generally computed using the straight-line method. The LNG facilities are depreciated using a modified unit-of-production method based on the life of the project's LNG supply contract. See Note 9. AMORTIZATION OF GOODWILL. The Company amortizes goodwill related to the purchase of Texas Eastern Corporation (TEC) in 1989 and goodwill related to certain natural gas gathering, transmission and processing facilities on a straight-line basis over 40 years and 15 years, respectively. Accumulated amortization of goodwill at December 31, 1995 and 1994 was $96.1 million and $86.6 million, respectively. See Note 5. EARLY RETIREMENT OF DEBT. The Company defers certain costs and losses related to the early retirement of long-term debt of its FERC-regulated subsidiaries, and amortizes such amounts as they are recovered through rates. At December 31, 1995 and 1994, other deferred charges included $54.7 million and $62.4 million, respectively, of such costs. INTEREST COST CAPITALIZATION. The Company capitalizes interest on major projects during construction. The rates used by regulated companies are calculated pursuant to FERC rules and include an allowance for equity funds. DEFERRED INCOME TAX. The Company follows the asset and liability method of accounting for income tax as prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this method, the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the rate change is enacted. See Note 5. COMMON STOCK OPTIONS AND AWARDS. The Company follows the intrinsic value method of accounting for common stock options and awards issued to employees. See Note 12. EARNINGS PER COMMON SHARE. The computation of earnings per common share is based on the monthly weighted average number of shares of common stock outstanding. Convertible debt and unexercised stock options do not have a dilutive effect on the reported amount of earnings per common share. See Note 12. 2. BUSINESS COMBINATION ASSOCIATED NATURAL GAS CORPORATION On December 15, 1994, a wholly-owned subsidiary of PEC merged with Associated Natural Gas Corporation, now PanEnergy Natural Gas Corporation (PanEnergy Natural Gas), on a tax-free, stock-for-stock basis. As a result, PanEnergy Natural Gas became a wholly-owned PEC subsidiary and the merger was accounted for under the pooling of interests method of accounting for a business combination. Nonrecurring expenses recorded in the fourth quarter 1994 as a direct result of the merger totaled $16.2 million ($14.2 million after tax). The consolidated financial statements for all periods prior to the merger were restated in 1994 to include the results of PanEnergy Natural Gas for the twelve months ended September 30. Effective with the date of the merger, the fiscal year end of PanEnergy Natural Gas was changed from September 30 to December 31 to conform to PEC's fiscal year end. PanEnergy Natural Gas' net income for the three months ended December 31, 1994 was recorded directly to retained earnings. In addition, cash activity of PanEnergy Natural Gas for the three months ended December 31, 1994 is shown separately on the consolidated statement of cash flows. 3. BUSINESS SEGMENTS The Company's operations are classified into two major business segments. The Natural Gas Transmission segment is involved in the interstate transportation and storage of natural gas. Principal markets are utilities, marketers and end-users serving the Mid-Atlantic, New England and Midwest areas. The Energy Services segment is involved in the purchasing, gathering, processing, marketing and intrastate transportation of natural gas, natural gas liquids (NGLs), crude oil and electricity. Gathering, processing and transportation services are provided to producers, refiners and a variety of wholesale and retail customers located in the Mid-Continent, Gulf Coast and Rocky Mountain areas. The principal markets for natural gas marketing services are industrial end-users and utilities located throughout the United States, in Canada and, to a lesser extent, the United Kingdom. "Corporate and Other" includes, among other things, corporate investments and the Company's LNG project, which imports LNG from Algeria, stores and regasifies LNG, and provides worldwide LNG shipping services. Intersegment eliminations are also included in Corporate and Other. 43 19 Selected financial data for the Company's segments follows. Identifiable assets are those assets used in the Company's operations in each segment.
REVENUES ---------------------------------- CAPITAL AND INTER- DEPRECIATION OPERATING INVESTMENT IDENTIFIABLE MILLIONS UNAFFILIATED SEGMENT TOTAL & AMORTIZATION INCOME (LOSS) EXPENDITURES ASSETS - ------------------------------------------------------------------------------------------------------------------------ Natural Gas Transmission 1995 $1,473.0 $ 53.1 $1,526.1 $228.5 $556.9 $227.0 $5,352.6 1994 1,637.5 44.8 1,682.3 216.8 529.4 303.4 5,655.8 1993 1,797.2 86.8 1,884.0 219.2 416.0(1) 292.1 6,105.3 Energy Services 1995 3,447.1 0.5 3,447.6 42.7 106.1 202.6 1,404.5 1994 2,892.8 60.2 2,953.0 33.3 74.8 254.5 1,118.7 1993 2,415.9 36.4 2,452.3 24.7 73.2 71.9 822.3 Corporate and Other 1995 47.4 (53.6) (6.2) 7.8 5.7 12.7 870.2 1994 54.8 (105.0) (50.2) 6.9 (18.9)(2) 5.8 733.0 1993 88.9 (123.2) (34.3) 6.9 2.6 2.8 680.2 - ------------------------------------------------------------------------------------------------------------------------ Consolidated 1995 $4,967.5 $ - $4,967.5 $279.0 $668.7 $442.3 $7,627.3 1994 4,585.1 - 4,585.1 257.0 585.3(2) 563.7 7,507.5 1993 4,302.0 - 4,302.0 250.8 491.8(1) 366.8 7,607.8 - ------------------------------------------------------------------------------------------------------------------------
(1) Includes a $100 million charge reflecting TETCO's settlement of Order 636 implementation and other issues. (2) Includes nonrecurring merger costs of $16.2 million. 4. NATURAL GAS REVENUES AND REGULATORY MATTERS FERC ORDER 636 AND TRANSITION COSTS During 1993, the Company's interstate natural gas pipelines began providing restructured services pursuant to FERC Order 636. This order, which is on appeal to the courts, requires pipeline service restructuring that unbundles sales, transportation and storage services. Order 636 allows pipelines to recover eligible costs resulting from implementation of the order (transition costs). On August 1, 1994, TETCO implemented a FERC-approved settlement that resolved regulatory issues related primarily to Order 636 transition costs and a number of other issues related to services prior to Order 636. In 1994, TETCO refunded $84 million to customers pursuant to the settlement. TETCO's final and nonappealable settlement provides for the recovery of certain transition costs through volumetric and reservation charges through 2002 and beyond, if necessary. Pursuant to the settlement, TETCO will absorb a certain portion of the transition costs, the amount of which continues to be subject to change dependent upon natural gas prices and deliverability levels. In 1993, the Company established an additional provision of $100 million ($60.2 million after tax) to reflect the impact of the settlement. In the fourth quarter 1995, based upon producers' discoveries of additional natural gas reserves, TETCO increased its estimated liabilities for transition costs by $125.8 million. Under the terms of the existing settlement, regulatory assets were increased by $85.8 million and TETCO recognized a $40 million charge to operating expenses ($26 million after tax). PEPL's transition cost recoveries, which are subject to certain challenges pending before FERC, will occur through 1998. At December 31, 1995 and 1994, the Company's interstate pipelines had recorded approximately $70 million and $310 million (1995), and $35 million and $300 million (1994) of current and long-term regulatory assets, respectively, representing transition costs incurred or estimated to be incurred that will be recovered. At December 31, 1995 and 1994, the Company had recorded estimated current and long-term liabilities related to Order 636 transition costs of approximately $125 million and $165 million (1995), and $125 million and $105 million (1994), respectively. In the past, during the normal course of business, the Company's interstate pipelines entered into certain gas purchase contracts containing take-or-pay provisions, which may expose the Company to financial risk. PEPL and Trunkline are currently collecting certain take-or-pay settlement costs with respect to such contracts through volumetric surcharges with interest through 1997. Trunkline intends to file after 1997 for further recovery of amounts not fully recovered by these surcharges. The Company had recorded approximately $22.8 million and $26.7 million at December 31, 1995 and 1994, respectively, for such amounts. 44 20 The U.S. Department of the Interior announced its intention to seek additional royalties from gas producers as a result of payments received by such producers in connection with past take-or-pay settlements, and buyouts and buydowns of gas sales contracts with natural gas pipelines. The Company's pipelines, with respect to certain producer contract settlements, may be contractually required to reimburse or, in some instances, to indemnify producers against such royalty claims. The potential liability of the producers to the government and of the pipelines to the producers involves complex issues of law and fact which are likely to take a substantial period of time to resolve. If the Company's pipelines ultimately have to reimburse or indemnify the producers, the Company's pipelines will file with FERC to recover a portion of these costs from pipeline customers. The Company believes the exposure associated with gas purchase contract commitments and the termination of the Company's pipeline merchant services is substantially mitigated by transition cost recoveries pursuant to TETCO's settlement, Order 636 and other mechanisms. As a result, the Company believes that Order 636 transition cost issues and take-or-pay settlement matters will not have a material adverse effect on future consolidated results of operations or financial position. JURISDICTIONAL TRANSPORTATION AND SALES RATES ALGONQUIN. In July 1994, FERC approved Algonquin's settlement of its 1993 rate case and certain other regulatory issues. The settlement resolved certain Order 636 service restructuring issues, transition cost recovery methodology and rate design issues remanded to FERC by the U.S. Court of Appeals. Additionally, the settlement provides for a partial roll-in of rates over six years, through limited rate filings in May 1996 and 1999 to reflect changes in net plant, property and equipment. PEPL. On April 1, 1992 and November 1, 1992, PEPL placed into effect, subject to refund, general rate increases. FERC issued an order on May 25, 1995 on the earlier rate proceeding and PEPL has requested rehearing of certain matters in that order. On February 5, 1996, FERC issued an order on the latter rate proceeding, which the Company is reviewing. Effective April 1, 1989, PEPL placed into effect, subject to refund, sales and transportation rates reflecting a restructuring of rates, including seasonal rate structures. On December 7, 1995, FERC issued an order, subject to rehearing, which addressed all remaining matters on the rate proceeding, with no additional refunds due customers. As a result of the resolution of certain proceedings, PEPL in 1994 recorded operating income of $23.9 million and interest reductions of $1.1 million and in 1995 recorded operating income of $15.5 million and interest reductions of $5.1 million. TRUNKLINE. On September 1, 1994, Trunkline placed into effect, subject to refund, a general rate increase as a result of a filing made in accordance with terms of a rate case settlement in 1993. A settlement resolving this rate case became effective February 1, 1996. On January 30, 1996, Trunkline filed a subsequent general rate increase seeking a March 1, 1996 effective date. OTHER. The Company's pipelines, pursuant to FERC requirements, requested FERC approval to record the impact of adopting SFAS No. 109, including the recognition of a portion of the impact as an increase to stockholders' equity. The FERC accounting branch has denied approval of certain of these requests pending future rate proceedings, and the Company's pipelines, where approval has been denied, have filed for rehearing. While it is not known when FERC will address this issue, the Company believes the ultimate resolution of this matter will not have a material adverse effect on consolidated financial position. 5. INCOME TAX Income tax recognized in the consolidated statement of income is summarized as follows:
YEARS ENDED DECEMBER 31 MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------ Current Federal $ 67.8 $ 40.6 $ 86.7 State 13.8 6.0 17.6 Foreign 7.0 - - --------------------------------- Total current 88.6 46.6 104.3 --------------------------------- Deferred Federal 91.8 94.6 13.0 State 17.4 20.2 1.6 --------------------------------- Total deferred 109.2 114.8 14.6 --------------------------------- Total income tax $197.8 $161.4 $118.9 =================================
Deferred income tax in 1993 included a net charge of $8.6 million for enacted changes in federal and state tax laws and rates, and a benefit of $4.8 million for changes in the beginning of the year valuation allowance. 45 21 Total income tax differs from the amount computed by applying the federal income tax rate to income before income tax. The reasons for this difference are as follows:
YEARS ENDED DECEMBER 31 MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------ Federal income tax rate 35% 35% 35% ================================= Income tax, computed at the statutory rate $175.5 $135.3 $101.7 Adjustments resulting from- State income tax, net of federal income tax effect 20.3 17.0 12.2 Cumulative effect of federal rate change - - 9.2 Goodwill amortization 3.2 4.1 6.0 Changes in valuation allowance - - (4.8) Insurance premiums (5.8) (4.1) (4.4) Other items, net 4.6 9.1 (1.0) --------------------------------- Total income tax $197.8 $161.4 $118.9 ================================= Effective tax rate 39.4% 41.7% 40.9% =================================
The tax effects of temporary differences that resulted in deferred income tax assets and liabilities, and a description of the significant financial statement items that created these differences are as follows:
DECEMBER 31 MILLIONS 1995 1994 - ------------------------------------------------------------------------ Deferred liabilities and credits $ 263.0 $ 321.8 Investment tax credit carryforward 24.5 71.7 Alternative minimum tax credit carryforward 78.6 78.1 Other accrued liabilities 104.3 98.3 Rate refund provisions 17.3 20.2 Deferred revenue - LNG project 22.1 24.4 State deferred income tax, net of federal tax effect 15.8 15.9 Other 20.8 13.5 ----------------------- Total deferred income tax assets 546.4 643.9 Valuation allowance and other tax reserves (142.5) (250.5) ----------------------- Net deferred income tax assets 403.9 393.4 ----------------------- Plant, property and equipment (914.0) (899.6) Deferred charges (252.6) (287.3) Investments (90.7) (81.4) State deferred income tax, net of federal tax effect (100.9) (92.3) Prepaid pension (90.7) (83.9) Other (57.1) (55.0) ----------------------- Total deferred income tax liabilities (1,506.0) (1,499.5) ----------------------- Net deferred income tax liability, inclusive of current amounts $(1,102.1) $(1,106.1) =======================
If tax benefits relating to the valuation allowance for deferred income tax assets and other tax reserves are recognized subsequent to December 31, 1995, approximately $40.9 million will be allocated to goodwill. The investment tax credit carryforward, which is expected to be fully utilized in 1996, will begin to expire in 1997 and will be extinguished in 2002 if not utilized sooner. The alternative minimum tax credit carryforward can be carried forward indefinitely. In 1990, the Internal Revenue Service (IRS) issued regulations which disallow for tax purposes losses incurred in the Company's 1989 sales of certain assets that were acquired in the purchase of TEC. Consequently, the Company established a provision in 1990 for this and certain other issues, resulting in an increase in goodwill and deferred income tax liability. Following further discussions with the IRS, the Company in 1994 revised its estimates with respect to the disallowed loss issue and in 1995 with respect to other issues. As a result, the Company reduced the related goodwill and deferred income tax liability by approximately $200 million and $100 million in 1994 and 1995, respectively. 6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT FINANCIAL INSTRUMENTS
APPROXIMATE MILLIONS BOOK VALUE FAIR VALUE - --------------------------------------------------------------------------- ASSETS (LIABILITIES) DECEMBER 31, 1995 Cash Note 1 $ 50.8 $ 50.8 Other current receivables 17.4 17.4 Other investments Note 8 44.8 44.7 (1) Notes payable (145.0) (145.0)(2) Long-term debt Note 10 (2,271.2) (2,551.5)(2) Foreign currency exchange contract 32.7 34.0 (3) Interest rate swaps - 0.9 (3) December 31, 1994 Cash Note 1 $ 33.3 $ 33.3 Other current receivables 19.2 19.2 Other investments Note 8 54.3 51.0 (1) Long-term debt Note 10 (2,367.8) (2,410.2)(2) Foreign currency exchange contract 22.4 21.7 (3) Interest rate swaps - 2.1 (3)
(1) The fair value of these financial instruments, which include insurance contracts and long-term receivables, is based on determinations by insurance companies and discounted cash flows, as applicable. (2) Based on quoted market prices for the same or similar issues, discounted cash flows and/or rates currently available to the Company for debt with similar terms and remaining maturities. (3) Represents estimated amounts the Company would receive if agreements were settled, considering current market rates and the creditworthiness of the parties to the agreements. The Company has implemented an agreement to sell with limited recourse, on a continuing basis, current accounts receivable at a discount. The Company received $100 million for accounts receivable sold that remained outstanding at December 31, 1995. In 1993, the Company sold LNG project settlement receivables, with limited recourse. At December 31, 1995, $64.7 million remained outstanding on the LNG settlement receivables sold. In the opinion of management, the probability that the Company will be required to perform under these recourse provisions is remote. 46 22 The following financial instruments have no book value associated with them and there are no fair values readily determinable since quoted market prices are not available: recourse provisions of the First Mortgage Notes (Note 8) and the LNG project settlement and trade receivable sales, the Northern Border Pipeline Company (Northern Border Pipeline) transportation agreement guarantee (Note 8) and the Petrolane Incorporated (Petrolane) lease indemnification (Note 11). The Company enters into certain financial instrument arrangements in order to reduce the market risks inherent in the operations of the business. As of December 31, 1995, the Company had outstanding a foreign currency exchange contract with a $54 million notional amount that reduces the impact of changes in currency exchange rates and interest rates on the Swiss Franc bonds. The contract expires in 1996 concurrent with maturity of the bonds and has the effect of fixing the currency exchange and interest rates for these 100 million Swiss Franc bonds at $0.54 per Swiss Franc and 9.26%, respectively. The long-term debt and the exchange contract valuation accounts are adjusted at the end of each period to reflect the current exchange rate. At December 31, 1995, the Company had two interest rate swaps for a total outstanding notional amount of approximately $64.7 million that were entered into as a result of the sale of the LNG project settlement receivables. Pursuant to these swaps, the Company makes payments to the counterparty at a rate based on LIBOR (London Interbank Offered Rates) and receives payments based on the FERC prime rate. The notional amount decreases as the outstanding balance of the settlement receivables decreases, and the swaps terminate in conjunction with collection of the receivables, which will be no later than 1998. Other interest expense is adjusted for the net amount of these swap receipts and payments. PRICE RISK MANAGEMENT. At December 31, 1995, the Company held or issued several instruments that reduce the Company's exposure to market fluctuations in the price and transportation costs of natural gas and petroleum products. The Company's market exposure arises from inventory balances and fixed-price purchase and sale commitments that extend for periods of up to 10 years which are entered into to support the Company's operating activities. The weighted average life of the Company's price risk portfolio was four months at December 31, 1995. The Company's general strategy is to hedge price and location risk with futures, swaps and options; however, net open positions in terms of price, volume and specified delivery point do occur. In addition to hedging activities, the Company also engages in the trading of such instruments. The Company manages open positions with strict policies which limit its exposure to market risk and require reporting potential financial exposure to management on a daily basis. These policies include risk tolerance limits using statistically-weighted price movements to calculate a daily earnings at risk (DEAR) as well as a total value at risk (VAR) measurement. Natural gas futures require the Company to buy or sell natural gas at a fixed price. Over-the-counter swap agreements require the Company to receive or make payments based on the difference between a specified price and the actual price of natural gas. The Company uses futures and swaps to manage margins on offsetting fixed-price purchase or sale commitments for physical quantities of natural gas. Natural gas options held to hedge price risk provide the right, but not the requirement, to buy or sell natural gas at a fixed price. The Company utilizes options to manage margins and to limit overall price risk exposure. At December 31, 1995 and 1994, the Company had outstanding futures, swaps and options for net purchases of 56.1 billion cubic feet (Bcf) and 36.5 Bcf of natural gas, respectively, which offset the risk of price fluctuations under fixed-price commitments to sell natural gas. Net positions of the Company for financial instruments held are as follows:
DECEMBER 31 1995 1994 NOTIONAL FAIR NOTIONAL FAIR MILLIONS AMOUNT VALUE AMOUNT VALUE - --------------------------------------------------------------------------------------------- Hedging activity $122.8 $107.4 $74.8 $64.4 Trading activity 16.8 17.3 43.6 44.3
The gains, losses and costs related to the hedging instruments described above are not recognized until the underlying physical transaction occurs. At December 31, 1995 and 1994, the Company had unrecognized net losses of $15.4 million and $10.4 million, respectively, related to financial instruments which are offset by corresponding unrecognized net gains from the Company's obligations to sell physical quantities of gas. During 1995 and 1994, the Company recognized gains of $10.5 million and $0.7 million, respectively, from risk management activities. The average fair values of net instruments held or issued for trading purposes was $12.3 million and $4.4 million during 1995 and 1994, respectively. 47 23 MARKET AND CREDIT RISK. New York Mercantile Exchange (Exchange) traded futures and option contracts are guaranteed by the Exchange and have nominal credit risk. On all other transactions described above, the Company is exposed to credit risk in the event of nonperformance by the counterparties. For each counterparty, the Company analyzes their financial condition prior to entering into an agreement, establishes credit limits and monitors the appropriateness of these limits on an ongoing basis. The change in market value of Exchange-traded futures and options contracts requires daily cash settlement in margin accounts with brokers. Swap contracts and most other over-the-counter instruments are generally settled at the expiration of the contract term and may be subject to margin requirements with the counterparty. At December 31, 1995 and 1994, the Company had $14.3 million and $30.8 million, respectively, in margin cash accounts to service these financial instruments of which $2 million and $4.7 million, respectively, was available for general corporate purposes. The Company has a concentration of receivables due from customers throughout the United States and Canada. These include, among others, gas and electric utilities and their affiliates, as well as industrial customers. These concentrations of customers may affect the Company's overall credit risk in that certain customers may be similarly affected by changes in economic, regulatory or other factors. Trade receivables are generally not collateralized; however, the Company analyzes customers' credit positions prior to extending credit. 7. INVENTORY AND GAS IMBALANCES A summary of inventory and supplies by category follows:
DECEMBER 31 MILLIONS 1995 1994 - ------------------------------------------------------------ Gas held for resale $ 30.1 $ 9.4 Crude oil 10.6 11.2 NGLs 11.2 2.3 Materials and operating supplies 83.9 101.2 --------------------- Total inventory and supplies $135.8 $124.1 =====================
Inventory and supplies are recorded at the lower of cost or market using the average cost method and the last-in first-out method, and do not exceed recoverable cost. Materials and operating supplies includes gas held for operations. The consolidated balance sheet includes in-kind balances as a result of differences in gas volumes received and delivered. At December 31, 1995 and 1994, other current assets and other current liabilities included $29.1 million and $19.1 million (1995), and $35 million and $11.5 million (1994), respectively, for these imbalances. 8. INVESTMENTS AFFILIATES The Company has investments in the following companies that are accounted for using the equity method. These investments include undistributed earnings of $76.7 million in 1995 and $69.7 million in 1994 related to 50% or less owned entities. INVESTMENTS IN AFFILIATES
DECEMBER 31 MILLIONS % OWNERSHIP 1995 1994 - ------------------------------------------------------------------------ National Methanol Company 25.00 $ 54.9 $ 70.7 Northern Border Partners, L.P. 8.45 34.4 33.5 TEPPCO Partners, L.P. 10.45 23.8 22.6 Midland Cogeneration Venture 14.34 20.6 9.1 Other affiliates Various 30.6 24.2 --------------------- Total investments in affiliates $164.3 $160.1 =====================
EQUITY IN EARNINGS
YEARS ENDED DECEMBER 31 MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------ National Methanol Company $22.5 $26.2 $ 3.3 Northern Border Partners, L.P. 7.2 4.5 13.9 TEPPCO Partners, L.P. 6.4 3.6 0.8 Midland Cogeneration Venture 11.6 2.8 (1.6) Other affiliates 2.9 3.8 (0.3) -------------------------------- Total equity in earnings $50.6 $40.9 $16.1 ================================
Distributions and dividends received amounted to $42.7 million, $11.7 million and $14.2 million in 1995, 1994 and 1993, respectively. Summarized combined balance sheet and income statement information of the entities that are accounted for using the equity method are as follows:
MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------ ASSETS Current assets $ 506.3 $ 525.1 $ 396.0 Noncurrent assets 4,280.2 4,453.0 4,506.7 ---------------------------------- Total $4,786.5 $4,978.1 $4,902.7 ================================== LIABILITIES AND EQUITY Current liabilities $ 395.2 $ 424.2 $ 356.4 Noncurrent liabilities 3,239.7 3,609.7 3,734.4 Equity 1,151.6 944.2 811.9 ---------------------------------- Total $4,786.5 $4,978.1 $4,902.7 ================================== INCOME Operating revenues $1,390.0 $1,221.9 $1,029.2 Operating expenses 855.3 763.9 656.2 Net income 264.4 226.8 103.4
48 24 NATIONAL METHANOL COMPANY (NATIONAL METHANOL). National Methanol, doing business as Ibn Sina, is a joint venture that owns and operates a methanol plant and an MTBE (methyl tertiary butyl ether) plant in Jubail, Saudi Arabia. Both plants are among the largest such plants in the world, producing 900,000 metric tons of methanol and 800,000 metric tons of MTBE in 1995. Methanol is a chemical made principally from natural gas which is used as a feedstock for glues, paints, fibers and MTBE. MTBE is made from methanol and field butanes, and is used as a gasoline additive which causes gasoline to burn cleaner and more efficiently, thus reducing harmful vehicle emissions. NORTHERN BORDER PARTNERS, L.P. Northern Border Partners, L.P. is a master limited partnership (MLP) that owns 70% of Northern Border Pipeline, a partnership operating a pipeline transporting natural gas from Canada to the Midwest area of the United States. The Company has general partner interests as well as subordinated and common limited partnership interests, totaling 8.45%, in Northern Border Partners, L.P., and through the MLP, an effective 5.95% ownership interest in Northern Border Pipeline. During 1993, the Company sold 74% of its MLP limited partner units, resulting in a fourth quarter gain of $48.2 million ($28.7 million after tax). The Company received net proceeds of approximately $147 million that were used for the repayment of debt and general corporate purposes. Under the terms of a settlement related to a transportation agreement between PEPL and Northern Border Pipeline, PEPL guarantees payment to Northern Border Pipeline under a transportation agreement by an affiliate of Pan-Alberta Gas Limited. The transportation agreement requires estimated total payments of $163.4 million for the years 1996 through 2001. In the opinion of management, the probability that PEPL will be required to perform under this guarantee is remote. TEPPCO PARTNERS, L.P. TEPPCO Partners, L.P. is an MLP that owns and operates a petroleum products pipeline. A subsidiary partnership of the MLP has $349.5 million in First Mortgage Notes outstanding with recourse to the general partner, a subsidiary of PEC. These notes have annual principal payments due through 2010. In the opinion of management, the probability that the subsidiary of PEC will be required to perform under this recourse provision is remote. MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP (MCV). MCV converted an incomplete nuclear plant to a dual-purpose energy unit that uses natural gas to generate electricity and produce industrial process steam. The Company has a general partnership interest in MCV. OTHER INVESTMENTS Other investments include real estate holdings and financial instruments, such as insurance contracts and long-term receivables that are recorded at cost in the consolidated balance sheet. 9. PLANT, PROPERTY AND EQUIPMENT A summary of plant, property and equipment by classification follows:
DEPRECIATION DECEMBER 31 MILLIONS % RATES 1995 1994 - ------------------------------------------------------------------------ Transmission 1.60 - 6.67 $6,044.8 $5,796.9 Gathering 1.30 - 6.67 511.9 449.1 Processing 4.00 - 5.00 144.1 133.2 Underground storage 1.87 - 3.50 488.3 465.2 LNG facilities -* 600.3 599.8 LNG vessels 2.78 - 2.86 150.9 144.5 General plant 2.53 - 33.33 318.5 302.7 Construction work in progress - 141.9 148.5 --------------------- Total plant, property and equipment $8,400.7 $8,039.9 =====================
* Modified unit-of-production method. A summary of plant, property and equipment, net of accumulated depreciation, by classification follows:
DECEMBER 31 MILLIONS 1995 1994 - ------------------------------------------------------------ Transmission $3,798.4 $3,761.6 Gathering 208.1 120.5 Processing 97.9 91.9 Underground storage 368.8 355.5 LNG project 321.4 319.7 General plant 213.3 210.1 Construction work in progress 141.9 148.5 ---------------------- Net plant, property and equipment $5,149.8 $5,007.8 ======================
The carrying value of LNG project assets is expected to be recovered through estimated future cash flows. Current estimates of future cash flows are based on significant business relationships and assumptions of future natural gas prices, supply availability and demand for LNG, which are subject to change. 49 25 10. DEBT AND CREDIT FACILITIES A summary of long-term debt is as follows:
DECEMBER 31 MILLIONS 1995 1994 - ------------------------------------------------------------- PEC 8 5/8% debenture maturing 2025 $ 100.0 $ - Bonds 7 3/4% revenue maturing 2022 328.0 328.0 Swiss Franc (9.26%) maturing 1996 86.7 76.4 Notes Medium Term, Series A, 8.5-9% maturing 1996-1997 139.0 139.0 8 5/8% maturing 1999 100.0 100.0 7 1/4% maturing 2005 100.0 - Revolving Credit Agreement - 185.0 Unamortized Discount (5.8) (9.7) ------------------------ Total PEC 847.9 818.7 ------------------------ TETCO Debentures 10 1/8% maturing 2011 100.0 100.0 10% maturing 2011 150.0 150.0 Notes 10 3/8% maturing 2000 200.0 200.0 10% maturing 2001 100.0 100.0 8% maturing 2002 100.0 100.0 8 1/4% maturing 2004 100.0 100.0 Medium Term, Series A, 7.64-9.07% maturing 1999-2012 100.0 100.0 Unamortized Discount (29.5) (31.6) ------------------------ Total TETCO 820.5 818.4 ------------------------ ALGONQUIN Notes 8.795-8.936% maturing 1996 50.0 50.0 9.13% maturing 2001-2003 100.0 100.0 Unamortized Discount (1.0) (2.1) ------------------------ Total Algonquin 149.0 147.9 ------------------------ PEPL 7 7/8% note maturing 2004 100.0 100.0 Debentures 9 7/8% maturing 1996 - 125.0 7.95% maturing 2023 100.0 100.0 7.2% maturing 2024 100.0 100.0 Unamortized Discount (0.8) (1.0) ------------------------ Total PEPL 299.2 424.0 ------------------------ PANHANDLE GATHERING COMPANY 4% note maturing 1996 4.5 4.5 ------------------------ PANENERGY NATURAL GAS Notes 12.75% maturing 1995 - 4.0 9.55% maturing 1996-1999 55.0 55.0 9% convertible maturing 1997-2004 10.0 10.0 6.3% maturing 1999-2003 40.0 40.0 9.9% maturing 2000-2003 45.0 45.0 Other 0.1 0.3 ------------------------ Total PanEnergy Natural Gas 150.1 154.3 ------------------------ LESS CURRENT MATURITIES (179.6) (4.1) ------------------------ TOTAL LONG-TERM DEBT $2,091.6 $2,363.7 ========================
The interest rates indicated were in effect on principal balances outstanding at December 31, 1995. Interest costs capitalized in 1995, 1994 and 1993 were $3.8 million, $4.6 million and $3.8 million, respectively. Required sinking fund and installment payments applicable to long-term debt are as follows:
Millions ------------------------------- 1996 $179.6 1997 145.8 1998 31.3 1999 188.3 2000 236.8
PEC, TETCO and PEPL have effective shelf registration statements with the Securities and Exchange Commission for the issuance of $100 million each of unsecured debt securities. At December 31, 1995, the Company had $145 million of short-term borrowings from banks outstanding with a weighted average interest rate of 6.28%. CREDIT AGREEMENTS. PEC entered into two new variable-rate, bank credit agreements, dated January 31, 1996, that permit PEC to borrow up to $400 million under a five-year facility and $400 million under a 364-day facility. In conjunction with these new agreements, PEC canceled its previous $600 million agreement and both TETCO and PEPL canceled their combined $200 million agreements. 11. LEASES AND OTHER COMMITMENTS The Company utilizes assets under operating leases in several areas of operations. Consolidated rental expense amounted to $34.7 million, $30.6 million and $28.7 million in 1995, 1994 and 1993, respectively. Minimum rental payments under the Company's various operating leases for the years 1996 through 2000 are $30 million, $26.3 million, $18.8 million, $15.6 million and $12.4 million, respectively. Thereafter, payments aggregate $52.1 million through 2011. In connection with the sale of Petrolane in 1989, TEC agreed to indemnify Petrolane against certain obligations for guaranteed leases and environmental matters. Certain of the lease obligations relate to Petrolane's divestiture of supermarket operations prior to its acquisition by TEC and as of December 31, 1995 total approximately $72.8 million over the remaining terms of the leases, which expire in 2006. In the opinion of management, the probability that TEC will be required to perform under this indemnity provision is remote. 12. COMMON STOCK STOCK ISSUANCES. On December 15, 1994, PEC issued 28.4 million shares of common stock in exchange for 100% of the common stock of PanEnergy Natural Gas. See Note 2. In June 1993, PEC sold 10 million shares of common stock priced at $21.25 per share, resulting in net proceeds to the Company 50 26 of $204.5 million. Proceeds from the offering were applied towards the early redemption, also in June, of $176 million of outstanding debentures. STOCK OPTIONS. Transactions under various stock option and incentive plans are summarized as follows:
SHARES OPTION PRICES - ----------------------------------------------------------------------------------- Outstanding Dec. 31, 1993 1,761,207 $12.19 - $30.63 Granted 337,300 20.00 - 24.25 Exercised (60,737) 12.19 - 19.06 Expired (33,666) 16.38 - 30.63 PanEnergy Natural Gas* 1,574,546 10.13 - 18.07 ------------ Outstanding Dec. 31, 1994 3,578,650 10.13 - 30.63 Granted 919,350 20.88 - 24.56 Exercised (1,030,033) 10.13 - 25.31 Expired (59,469) 16.38 - 30.63 ------------ OUTSTANDING DEC. 31, 1995 3,408,498 10.13 - 30.63 ============ Exercisable at December 31 1993 911,707 $12.19 - $30.63 1994 2,863,183 10.13 - 30.63 1995 2,293,308 10.13 - 30.63
* Represents conversion of stock options outstanding of PanEnergy Natural Gas into equivalent PEC options. STOCK AWARDS. Under the Company's 1990 Long Term Incentive Plan, there were 3 million shares of PEC common stock reserved for issuance to key employees. Awards representing 92,600 and 114,750 common shares, along with dividend equivalents, were granted to key employees during 1991 and 1990, respectively. Common shares are issued over a period of two to six years pursuant to these awards. In addition, in 1993 and 1991, respectively, 300,000 and 40,000 common shares were issued as restricted stock awards, with restrictions being removed over periods of three and four years, respectively. Pursuant to the merger of PanEnergy Natural Gas with PEC, all restrictions were removed in 1994 and 1995 on approximately 106,900 equivalent PEC shares that had been previously issued under a PanEnergy Natural Gas incentive plan. CONVERTIBLE DEBT. The Company's 9% convertible notes entitle the holders, at their option, to convert the notes into 451,875 shares of PEC common stock. This conversion right contains various anti-dilution provisions, including a provision to adjust the conversion rate if PEC sells shares at a price less than the current market price. See Note 10. RESTRICTIONS ON DIVIDENDS. Under the most restrictive covenants contained in the Company's debt agreements, $899.9 million of PEC's consolidated common stockholders' equity was available for the payment of dividends at December 31, 1995. 13. ENVIRONMENTAL MATTERS TETCO. TETCO is currently conducting PCB (polychlorinated biphenyl) assessment and cleanup programs at certain of its compressor station sites under conditions stipulated by a U.S. Consent Decree. The programs include on- and off-site assessment, installation of on-site source control equipment and groundwater monitoring wells, and on- and off-site cleanup work. TETCO expects to complete the cleanup programs at up to 89 sites in as many as 14 states by 1998. Groundwater monitoring activities will continue beyond 1998. In addition, TETCO has been conducting PCB cleanup work at certain on- and off-site areas pursuant to separate agreements with the states of Pennsylvania and New Jersey. These agreements generally impose cleanup levels that are more stringent than those required by the U.S. Consent Decree. In 1987, the Commonwealth of Kentucky instituted suit in state court against TETCO, alleging improper disposal of PCBs at TETCO's three compressor station sites in Kentucky. This suit, which is still pending, seeks penalties for violations of Kentucky environmental statutes. The Company previously established a reserve for potential fines and penalties. In 1991, TETCO and the Commonwealth executed a consent order in which TETCO agreed to perform site assessments at its sites in Kentucky, and this work has been substantially completed. TETCO completed cleanup of one of its Kentucky sites in 1994, another in 1995 and intends to complete the final site in 1996. At December 31, 1995 and 1994, TETCO had current and long-term liabilities recorded of $44.9 million and $168.3 million (1995) and $56.4 million and $289.1 million (1994), respectively, for remaining estimated cleanup costs. These cost estimates represent gross cleanup costs expected to be incurred by TETCO, have not been discounted or reduced by customer recoveries and do not include fines, penalties or third-party claims. Estimated liabilities for remaining PCB cleanup costs were reduced by $77.6 million in the fourth quarter 1995 as a result of lower-than-projected cleanup costs incurred on completed sites. TETCO is recovering 57.5% of cleanup costs in rates pursuant to a stipulation and agreement approved by FERC in 1992. As a result of the reduction in estimated cleanup costs, the related regulatory assets were reduced $44.6 million. TETCO's share of the cleanup estimate was lowered which resulted in a $33 million decrease to operating expenses ($21.5 million after tax). At December 31, 1995 and 1994, TETCO had current and long-term regulatory assets recorded of $17 million and $101.7 million (1995) and $18.6 million and $177.1 million (1994), respectively, representing costs to be recovered from customers. 51 27 PEPL AND TRUNKLINE. The Company has identified environmental contamination at up to 53 sites on the PEPL and Trunkline systems and is undertaking cleanup programs at these sites. The contamination resulted from the past use of lubricants containing PCBs and the prior use of wastewater collection facilities and other on-site disposal areas. Soil and sediment testing, to date, has detected no significant off-site contamination. The Company has communicated with the Environmental Protection Agency and appropriate state regulatory agencies on these matters. In August 1995, Trunkline entered into a consent order under a cleanup program with the Tennessee Department of Environment and Conservation for the cleanup of its Tennessee facility. Cleanups in other states by PEPL and Trunkline are also proceeding. The environmental cleanup programs are expected to continue until 2002. At December 31, 1995 and 1994, the Company had undiscounted liabilities recorded of $68.9 million and $70 million, respectively, relating to PEPL and Trunkline PCB, wastewater and disposal area cleanup programs and had regulatory assets recorded of $79.2 million and $82.4 million, respectively, representing costs to be recovered from customers. The federal and state cleanup programs are not expected to interrupt or diminish the Company's ability to deliver natural gas to customers. The Company believes the ultimate resolution of matters relating to the environmental issues discussed above will not have a material adverse effect on consolidated results of operations or financial position. 14. LITIGATION In connection with a rupture and fire that occurred on TETCO's 36-inch natural gas pipeline on March 23, 1994 in Edison, New Jersey, claims have been made and numerous lawsuits have been filed in the Superior Court of New Jersey, Middlesex County against TETCO and other private and governmental entities by or on behalf of hundreds of individuals and general businesses. These claimants seek compensatory damages for personal injuries and/or property losses, as well as punitive damages. The property insurers of an apartment complex adjacent to the asphalt plant where the rupture occurred also have filed suits against TETCO and other defendants in Superior Court seeking to recover amounts paid under pertinent policies of insurance. Quality Materials, Inc., the owner of the asphalt plant, has filed suit in the U.S. District Court for the District of New Jersey against TETCO seeking to recover unspecified property damages, lost income and punitive damages. TETCO has filed a counterclaim against Quality Materials, Inc. The findings of an investigation of the incident by the Company and the National Transportation Safety Board (NTSB) indicate third-party damage to be the cause of the rupture. Additionally, an NTSB report found that TETCO's pipeline operations met or exceeded federal safety regulations. The Company recorded a $5 million after-tax charge in 1994 for costs related to this incident that are not recoverable under the Company's insurance policies. On August 30, 1995, two plaintiffs filed a lawsuit with class action allegations in the 58th Judicial District Court, Jefferson County, Texas, against PEC, TEC and TETCO, among other defendants. Plaintiffs seek recovery of compensatory and punitive damages, in unspecified amounts, for personal injuries and property damage resulting from alleged exposure to PCBs. Additionally, TETCO, as well as certain other PEC subsidiaries in some of the cases, are defendants in several other private plaintiff suits in various courts. These suits seek relief for actual and punitive damages that allegedly resulted from the release of PCBs and other hazardous substances in violation of federal and state laws. The Company expects the resolution of all the above matters will not have a material adverse effect on consolidated results of operations or financial position. The Company is also involved in various other legal actions and claims arising in the normal course of business. Based upon its current assessment of the facts and the law, management does not believe that the outcome of any such action or claim will have a material adverse effect upon the consolidated financial position of the Company. However, these actions and claims in the aggregate seek substantial damages against the Company and are subject to the uncertainties inherent in any litigation. The Company is defending itself vigorously in all the above suits. 15. PENSION AND OTHER BENEFITS PENSION BENEFITS. PEC has a non-contributory trusteed pension plan covering certain employees with a minimum of one year vesting service. The plan provides pension benefits (i) for eligible employees of certain subsidiaries that are generally based on an employee's years of benefit accrual service and highest average eligible earnings, and (ii) commencing January 1, 1995, for eligible employees of certain other subsidiaries that are generally based on the employee's actual eligible earnings and accrued interest. The Company's policy is to fund amounts, as necessary, on an actuarial basis to provide assets sufficient to meet benefits to be paid to plan members. 52 28 The components of the net pension benefit are as follows:
YEARS ENDED DECEMBER 31 MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------- Actual return on plan assets $159.8 $ (2.1) $ 73.6 Amount deferred (93.4) 67.4 (13.4) ---------------------------------- Expected return on plan assets 66.4 65.3 60.2 Service cost benefits earned during the period (11.4) (12.4) (10.7) Interest cost on projected benefit obligations (36.8) (35.8) (35.0) Net amortization 2.9 2.9 2.7 ---------------------------------- Net pension benefit $ 21.1 $ 20.0 $ 17.2 ==================================
The following sets forth the pension plan's funded status and the net asset recognized by the Company:
DECEMBER 31 MILLIONS 1995 1994 - ------------------------------------------------------------------------ Plan assets at fair value (principally common stock and fixed income securities) $790.0 $676.9 --------------------- Actuarial present value of benefit obligations: Vested 363.1 335.7 Nonvested 17.6 14.9 --------------------- Accumulated obligations 380.7 350.6 Effects of projected future compensation levels 107.5 85.1 --------------------- Projected obligations 488.2 435.7 --------------------- Plan assets in excess of projected obligations 301.8 241.2 Unrecognized net asset (41.7) (46.4) Unrecognized net loss (gain) (23.0) 21.0 Unrecognized prior service cost 22.2 24.0 --------------------- Prepaid pension $259.3 $239.8 =====================
Assumptions used in the Company's pension accounting are as follows:
DECEMBER 31 1995 1994 1993 - ----------------------------------------------------------------------- Discount rate 7.5% 8.5% 7.5% Rate of increase in compensation levels 5.0 5.0 5.0 Expected long-term rate of return on plan assets 9.5 9.5 9.5
The Company also sponsors employee savings plans which cover substantially all employees. The Company expensed plan contributions of $12.9 million, $13 million and $12.2 million in 1995, 1994 and 1993, respectively. OTHER POSTRETIREMENT BENEFITS. The Company's postretirement benefits consist of certain health care and life insurance benefits. Substantially all employees of certain subsidiaries may become eligible for these benefits when they reach retirement age while working for such companies and have attained 10 years of specified service. The benefits are provided through contributory and noncontributory trusteed benefit plans. The Company accrues such benefit costs over the active service period of employees to the date of full eligibility for the benefits. The net unrecognized transition obligation, resulting from the implementation of accrual accounting, is being amortized over approximately 20 years commencing with 1993. It is the Company's general policy to fund accrued postretirement health care costs. The retiree life insurance plan is fully funded based on actuarially-determined requirements. FERC policy generally allows, subject to individual pipeline proceedings, for current rate recovery of funded accrued postretirement benefit costs including amortization of the transition obligation. Pending FERC approval for recovery, the Company's pipelines have deferred certain postretirement benefit costs. The components of the net postretirement benefits cost are as follows:
YEARS ENDED DECEMBER 31 MILLIONS 1995 1994 1993 - ------------------------------------------------------------------------ Actual return on plan assets $ 14.9 $ 0.3 $ 4.4 Amount deferred (8.9) 5.3 0.5 --------------------------------- Expected return on plan assets 6.0 5.6 4.9 Service cost benefits earned during the period (1.7) (2.2) (1.6) Interest cost on accumulated obligations (16.3) (15.6) (15.0) Net amortization and deferral (2.7) (2.9) (2.9) --------------------------------- Net postretirement benefits cost $(14.7) $(15.1) $(14.6) =================================
53 29 The following sets forth the postretirement benefit plans' funded status and the net liability recognized by the Company:
DECEMBER 31 MILLIONS 1995 1994 - ------------------------------------------------------------------------ Accumulated postretirement benefit obligations: Retirees $(182.9) $(162.1) Fully eligible active plan participants (2.5) (2.6) Other active plan participants (37.2) (30.7) ---------------------- Accumulated obligations (222.6) (195.4) Plan assets at fair value* 86.4 67.4 ---------------------- Accumulated obligations in excess of plan assets (136.2) (128.0) Unrecognized transition obligations 101.4 106.9 Unrecognized net loss 26.7 11.6 ---------------------- Net postretirement benefits liability $ (8.1) $ (9.5) ======================
* Principally common stocks, corporate bonds and U.S. government and agency bonds. The assumed health care cost trend rate used to estimate postretirement benefits was 9% for 1996. The health care cost trend rate is expected to decrease, with a 5.5% ultimate trend rate expected to be achieved by 1999. The effect of a 1% increase in the assumed health care cost trend rate for each future year is $0.7 million on the annual aggregate of the service and interest cost components of net periodic postretirement benefit cost and $9.4 million on the accumulated postretirement benefit obligation at December 31, 1995. Other assumptions used in postretirement benefit accounting are as follows:
December 31 1995 1994 1993 - ------------------------------------------------------------------------ Discount rate 7.5% 8.5% 7.5% Rate of increase in compensation levels 5.0 5.0 5.0 Expected long-term rate of return on plan assets 9.5 9.5 9.5 Assumed tax rate, health care portion only 39.6 39.6 39.6
OTHER POSTEMPLOYMENT BENEFITS. The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," effective January 1, 1994. This standard requires accruals for benefits provided by the Company to certain former or inactive employees. The Company's pipelines have received permission from FERC to defer such costs, pending resolution of present and future rate filings requesting recovery. The earnings impact of this change in accounting policy was not significant. 54 30 PANENERGY CORP AND SUBSIDIARIES CONSOLIDATED QUARTERLY FINANCIAL DATA
QUARTERS ENDED ---------------------------------------------------------------- 1995 MILLIONS, EXCEPT PER SHARE AMOUNTS MARCH 31 JUNE 30 SEPT. 30 DEC. 31 - ----------------------------------------------------------------------------------------------------------------- INCOME Operating revenues $ 1,232.1 $ 1,283.3 $ 1,133.7 $ 1,318.4 Operating expenses 1,055.4 1,122.3 975.1 1,146.0 ---------------------------------------------------------------- Operating income 176.7 161.0 158.6 172.4 Other income, net of deductions 22.9 13.9 22.3 15.1 Interest expense 60.8 62.6 57.9 60.2 ---------------------------------------------------------------- Income before income tax 138.8 112.3 123.0 127.3 Income tax 54.7 44.8 49.4 48.9 ---------------------------------------------------------------- Net income $ 84.1 $ 67.5 $ 73.6 $ 78.4 - ----------------------------------------------------------------------------------------------------------------- COMMON Average common shares outstanding 149.2 149.5 149.9 150.1 SHARES Earnings per common share $ 0.56 $ 0.45 $ 0.49 $ 0.52 ================================================================================================================= 1994 - ----------------------------------------------------------------------------------------------------------------- INCOME Operating revenues $ 1,147.7 $ 1,144.8 $ 1,124.2 $ 1,168.4 Operating expenses 983.8 998.9 987.5 1,029.6(1) ---------------------------------------------------------------- Operating income 163.9 145.9 136.7 138.8 Other income, net of deductions 3.4 11.4 9.4 22.1 Interest expense 58.2 60.4 60.3 66.1 ---------------------------------------------------------------- Income before income tax 109.1 96.9 85.8 94.8 Income tax 44.3 40.8 34.7 41.6 ---------------------------------------------------------------- Net income $ 64.8 $ 56.1 $ 51.1 $ 53.2(1) - ----------------------------------------------------------------------------------------------------------------- COMMON Average common shares outstanding 148.1 148.6 149.0 149.1 SHARES Earnings per common share $ 0.44 $ 0.38 $ 0.34 $ 0.36 =================================================================================================================
(1) Includes nonrecurring merger costs of $16.2 million ($14.2 million after tax). 55 31 PANENERGY CORP AND SUBSIDIARIES SUMMARY OF SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
YEARS ENDED DECEMBER 31 --------------------------------------------------------------------- MILLIONS, EXCEPT PER SHARE AMOUNTS 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------- INCOME OPERATING REVENUES $ 4,967.5 $ 4,585.1 $ 4,302.0 $ 3,881.3(1) $ 3,409.5 COSTS AND EXPENSES Natural gas and petroleum products purchased 3,131.2 2,829.4 2,575.6 2,058.9 1,773.1 Operating and maintenance 598.4 570.6 663.8(2) 577.1 561.9 Depreciation and amortization 279.0 257.0 250.8 258.9 268.8 Other costs and expenses 290.2 342.8 (3) 320.0 337.9 345.1 --------------------------------------------------------------------- OPERATING INCOME $ 668.7 $ 585.3 $ 491.8 $ 648.5 $ 460.6 INTEREST EXPENSE $ 241.5 $ 245.0 $ 282.5 $ 307.2(1) $ 344.6 NET INCOME $ 303.6 $ 225.2(3) $ 171.6(2)(4) $ 202.0(1) $ 99.4 AVERAGE COMMON SHARES OUTSTANDING 149.7 148.7 142.4(5) 134.6 122.5 EARNINGS PER COMMON SHARE $ 2.03 $ 1.51 $ 1.21 $ 1.50 $ 0.81 DIVIDENDS PER COMMON SHARE $ 0.885 $ 0.84 $ 0.80 $ 0.80 $ 0.80 - ------------------------------------------------------------------------------------------------------------------------- BALANCE PLANT, PROPERTY AND EQUIPMENT $ 8,400.7 $ 8,039.9 $ 7,523.4 $ 7,360.2 $ 7,092.5 SHEET Accumulated depreciation and amortization (3,250.9) (3,032.1) (2,826.7) (2,753.8) (2,658.3) --------------------------------------------------------------------- Net plant, property and equipment $ 5,149.8 $ 5,007.8 $ 4,696.7 $ 4,606.4 $ 4,434.2 TOTAL ASSETS $ 7,627.3 $ 7,507.5 $ 7,607.8 $ 7,714.9 $ 7,441.5 CAPITAL STRUCTURE Long-term debt due within one year $ 179.6 $ 4.1 $ 66.5 $ 196.3 $ 224.7 Notes payable 145.0 - 18.4 41.7 - Long-term debt 2,091.6 2,363.7 2,085.5 2,615.6 2,372.4 Common stockholders' equity 2,227.3 2,035.2 1,879.4 1,556.8 1,406.3 --------------------------------------------------------------------- TOTAL CAPITALIZATION $ 4,643.5 $ 4,403.0 $ 4,049.8 $ 4,410.4 $ 4,003.4 BOOK VALUE PER COMMON SHARE $ 14.83 $ 13.65 $ 12.73 $ 11.47 $ 10.61 DEBT TO CAPITALIZATION RATIO 52% 54% 54% 65% 65% - ------------------------------------------------------------------------------------------------------------------------- CASH FLOWS OPERATING CASH FLOW $ 573.1 $ 448.0 $ 769.5 $ 147.6 $ 358.2 CAPITAL EXPENDITURES $ 433.1 $ 555.3 $ 366.8 $ 356.0 $ 284.1 Investment Expenditures 9.2 8.4 - 1.8 - --------------------------------------------------------------------- Total $ 442.3 $ 563.7 $ 366.8 $ 357.8 $ 284.1 - ------------------------------------------------------------------------------------------------------------------------- OPERATING NATURAL GAS TRANSMISSION VOLUMES, Bcf(6) 2,629 2,498 2,400 2,378 2,130 ENERGY SERVICES VOLUMES Natural gas gathered/processed, Bcf/d(7) 1.9 1.6 1.4 1.2 1.1 Natural gas marketed, Bcf/d(8) 3.5 2.7 2.1 1.7 1.2 NGL production, thousand barrels/day 54.8 49.4 42.0 32.6 25.2 =========================================================================================================================
(1) Includes revenues for the LNG project settlement of $88.6 million and $17.5 million in reduced interest expense ($57.7 million after tax). (2) Includes a $100 million charge ($60.2 million after tax) reflecting TETCO's settlement of Order 636 implementation and other issues. (3) Includes nonrecurring merger costs of $16.2 million ($14.2 million after tax). (4) Includes a gain of $48.2 million ($28.7 million after tax) resulting from the sale of a partial interest in Northern Border Partners, L.P. (5) Includes the issuance of 10 million shares of common stock in June 1993. (6) Billion cubic feet at 14.73 pounds per square inch atmospheric pressure. (7) Billion cubic feet per day. (8) Includes Gas and Power Services volumes only. See the Notes to Consolidated Financial Statements for a discussion of material contingencies 56 32 PanEnergy Corp. Common Stock Data by Quarters
Dividends Paid 1995 Quarters High Low Per Share - ---------------------------------------------------------------------------- First $23 1/4 $18 3/4 $0.210 - ---------------------------------------------------------------------------- Second 25 7/8 22 7/8 0.225 - ---------------------------------------------------------------------------- Third 27 1/2 23 3/8 0.225 - ---------------------------------------------------------------------------- Fourth 28 7/8 24 3/8 0.225 ============================================================================
1994 Quarters - ---------------------------------------------------------------------------- First $25 1/2 $20 5/8 $0.21 - ---------------------------------------------------------------------------- Second 22 1/4 18 1/4 0.21 - ---------------------------------------------------------------------------- Third 23 1/2 19 1/2 0.21 - ---------------------------------------------------------------------------- Fourth 23 5/8 19 1/2 0.21 ============================================================================
* PanEnergy's common stock is listed for trading under the symbol PEL on the New York and Pacific Stock Exchanges. * There were 26,911 stockholder accounts at December 31, 1995. * See Page 35 for an explanation of the dividend policy and Note 12 of the Notes to Consolidated Financial Statements on Page 51 for a discussion of restrictions on dividends. Debt Ratings
Moody's Standard Duff Fitch Investors & & Investors Service Poor's Phelps Service - ------------------------------------------------------------------------------ TETCO Baa1 BBB BBB+ BBB+ PEPL Baa1 BBB BBB+ BBB+ PEC Baa2 BBB- BBB BBB
33 APPENDIX TO EXHIBIT 13 PANENERGY CORP AND SUBSIDIARIES Descriptions of Graphics Contained Within Management's Discussion and Analysis of Financial Condition and Results of Operations Located on page 26, a bar chart titled "Capital/Investment Expenditures" depicts capital and investment expenditures for the years 1993, 1994 and 1995. Each bar contains two sections, representing Market Expansion and Other as follows: $160 million and $207 million (1993); $412 million and $152 million (1994); and $260 million and $182 million (1995), respectively. The following caption appears below the chart: "Market-expansion projects again represented the majority of capital spending in 1995." Located on page 27, a bar chart titled "Natural Gas Transmission Transportation Revenue" depicts transportation revenue for the years 1993, 1994 and 1995. Each bar contains two sections, representing the demand and commodity portions as follows: $706 million and $360 million (1993); $1,086 million and $223 million (1994); and $1,121 million and $234 million (1995), respectively. The following caption appears below the chart: "Transportation revenue increased upon elimination of merchant services and has remained steady since." Located on page 29, a bar chart titled "Energy Services Revenues" depicts operating revenues of $2,452 million, $2,953 million and $3,448 million for the years 1993, 1994 and 1995, respectively. The following caption appears below the chart: "Increased natural gas and crude oil marketed volumes continue to add to revenue growth." Located on page 31, a bar chart titled "Interest Expense" depicts interest expense for the years 1993, 1994 and 1995. Each bar contains two sections, representing interest expense on Long-term debt and Other as follows: $252 million and $31 million (1993); $218 million and $27 million (1994); and $225 million and $17 million (1995), respectively. The following caption appears below the chart: "Interest expense has declined as the Company's financial position improved." Located on page 34, a bar chart titled "Capital/Investment Expenditures" depicts capital and investment expenditures for the years 1993, 1994 and 1995. Each bar contains sections representing the Natural Gas Transmission segment, the Energy Services segment and Other. The sections of the bars are proportioned, in the order previously described, as follows: $292 million, $72 million and $3 million (1993); $303 million, $255 million and $6 million (1994); and $227 million, $202 million and $13 million (1995), respectively. The following caption appears below the chart: "Significant Energy Services capital expenditures have fueled the group's growth." Located on page 35, a bar chart titled "Capitalization" depicts capitalization as of December 31, 1993, 1994 and 1995. Each bar contains two sections, representing Debt and Equity as follows: $2,171 million and $1,879 million (1993); $2,368 million and $2,035 million (1994); and $2,416 million and $2,227 million (1995), respectively. The following caption appears below the chart: "Debt as a percentage of capitalization dropped to 52% in 1995." EX-23 10 CONSENT OF KPMG PEAT MARWICK LLP 1 Exhibit 23 ACCOUNTANTS' CONSENT The Board of Directors Panhandle Eastern Corporation d/b/a PanEnergy Corp: We consent to incorporation by reference in the Registration Statements listed below of PanEnergy Corp of our report dated January 23, 1996, relating to the consolidated balance sheets of PanEnergy Corp and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, common stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995, which report is included herein. 1. Form S-8 Registration Statements for the following: (A) 1989 Nonemployee Directors Stock Option Plan (No. 33-28912) (B) 1977 Non-Qualified Stock Option Plan (No. 2-61225) (C) 1982 Key Employee Stock Option Plan (No. 2-79180) (D) Special Recognition Bonus Plan (No. 33-35253) (E) 1990 Long Term Incentive Plan (No. 33-35251) (F) Employees' Savings Plan (No. 33-36698) (G) Employees' Savings Plan (No. 33-41079) (H) 1994 Long-Term Incentive Plan (No. 33-55119) 2. Form S-3 Registration Statements for the following: (A) Dividend Reinvestment and Stock Purchase Plan (No. 33-28914) (B) Debt Securities (No. 33-56337) KPMG PEAT MARWICK LLP Houston, Texas March 28, 1996 EX-24 11 POWERS OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officers and/or Directors of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware corporation, do hereby constitute and appoint PAUL F. FERGUSON, JR., CARL B. KING and ROBERT W. REED, and each of them, their true and lawful attorney and agent to do any and all acts and things, and execute any and all instruments which, with the advice of Counsel, said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the filing under said Act of the Form 10-K Annual Report with the Securities and Exchange Commission, including specifically, but without limitation thereof, to sign their names as Officers and/or Directors of the Company to the Form 10-K Report, and to any instrument or document filed as a part of, or in connection with, said Form 10-K Report or Amendment thereto; and the undersigned do hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have subscribed these presents this 28th day of March, 1996 /s/ DENNIS HENDRIX /s/ GEORGE L. MAZANEC - -------------------------- -------------------------- Dennis Hendrix George L. Mazanec /s/ PAUL M. ANDERSON /s/ PAUL F. FERGUSON, JR. - -------------------------- --------------------------- Paul M. Anderson Paul F. Ferguson, Jr. Senior Vice President and Chief Financial Officer /s/ SANDRA P. MEYER - -------------------------- Sandra P. Meyer Vice President and Controller (Principal Accounting Officer) 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware corporation, does hereby constitute and appoint PAUL F. FERGUSON, JR., CARL B. KING, and ROBERT W. REED, and each of them, his true and lawful attorney and agent to do any and all acts and things, and execute any and all instruments which, with the advice of Counsel, said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the filing under said Act of the Form 10-K Annual Report with the Securities and Exchange Commission, including specifically, but without limitation thereof, to sign his name as Officer and/or Director of the Company to the Form 10-K Report, and to any instrument or document filed as a part of, or in connection with, said Form 10-K Report or Amendment thereto; and the undersigned does hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of March, 1996 /s/ RALPH S. O'CONNOR - ---------------------------- Ralph S. O'Connor 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware corporation, does hereby constitute and appoint PAUL F. FERGUSON, JR., CARL B. KING, and ROBERT W. REED, and each of them, his true and lawful attorney and agent to do any and all acts and things, and execute any and all instruments which, with the advice of Counsel, said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the filing under said Act of the Form 10-K Annual Report with the Securities and Exchange Commission, including specifically, but without limitation thereof, to sign his name as Officer and/or Director of the Company to the Form 10-K Report, and to any instrument or document filed as a part of, or in connection with, said Form 10-K Report or Amendment thereto; and the undersigned does hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of March, 1996 /s/ ANN MAYNARD GRAY - ---------------------------- Ann Maynard Gray 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware corporation, does hereby constitute and appoint PAUL F. FERGUSON, JR., CARL B. KING, and ROBERT W. REED, and each of them, his true and lawful attorney and agent to do any and all acts and things, and execute any and all instruments which, with the advice of Counsel, said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the filing under said Act of the Form 10-K Annual Report with the Securities and Exchange Commission, including specifically, but without limitation thereof, to sign his name as Officer and/or Director of the Company to the Form 10-K Report, and to any instrument or document filed as a part of, or in connection with, said Form 10-K Report or Amendment thereto; and the undersigned does hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of March, 1996 /s/ HAROLD S. HOOK - ---------------------------- Harold S. Hook 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware corporation, does hereby constitute and appoint PAUL F. FERGUSON, JR., CARL B. KING, and ROBERT W. REED, and each of them, his true and lawful attorney and agent to do any and all acts and things, and execute any and all instruments which, with the advice of Counsel, said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the filing under said Act of the Form 10-K Annual Report with the Securities and Exchange Commission, including specifically, but without limitation thereof, to sign his name as Officer and/or Director of the Company to the Form 10-K Report, and to any instrument or document filed as a part of, or in connection with, said Form 10-K Report or Amendment thereto; and the undersigned does hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of March, 1996 /s/ ROBERT CIZIK - ---------------------------- Robert Cizik 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware corporation, does hereby constitute and appoint PAUL F. FERGUSON, JR., CARL B. KING, and ROBERT W. REED, and each of them, his true and lawful attorney and agent to do any and all acts and things, and execute any and all instruments which, with the advice of Counsel, said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the filing under said Act of the Form 10-K Annual Report with the Securities and Exchange Commission, including specifically, but without limitation thereof, to sign his name as Officer and/or Director of the Company to the Form 10-K Report, and to any instrument or document filed as a part of, or in connection with, said Form 10-K Report or Amendment thereto; and the undersigned does hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of March, 1996 /s/ MILTON CARROLL - ---------------------------- Milton Carroll 7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware corporation, does hereby constitute and appoint PAUL F. FERGUSON, JR., CARL B. KING, and ROBERT W. REED, and each of them, his true and lawful attorney and agent to do any and all acts and things, and execute any and all instruments which, with the advice of Counsel, said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the filing under said Act of the Form 10-K Annual Report with the Securities and Exchange Commission, including specifically, but without limitation thereof, to sign his name as Officer and/or Director of the Company to the Form 10-K Report, and to any instrument or document filed as a part of, or in connection with, said Form 10-K Report or Amendment thereto; and the undersigned does hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of March, 1996 /s/ LEO E. LINBECK, JR. - ---------------------------- Leo E. Linbeck, Jr. 8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware corporation, does hereby constitute and appoint PAUL F. FERGUSON, JR., CARL B. KING, and ROBERT W. REED, and each of them, his true and lawful attorney and agent to do any and all acts and things, and execute any and all instruments which, with the advice of Counsel, said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the filing under said Act of the Form 10-K Annual Report with the Securities and Exchange Commission, including specifically, but without limitation thereof, to sign his name as Officer and/or Director of the Company to the Form 10-K Report, and to any instrument or document filed as a part of, or in connection with, said Form 10-K Report or Amendment thereto; and the undersigned does hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of March, 1996 /s/ CHARLES W. DUNCAN, JR. - ---------------------------- Charles W. Duncan, Jr. 9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware corporation, does hereby constitute and appoint PAUL F. FERGUSON, JR., CARL B. KING, and ROBERT W. REED, and each of them, his true and lawful attorney and agent to do any and all acts and things, and execute any and all instruments which, with the advice of Counsel, said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the filing under said Act of the Form 10-K Annual Report with the Securities and Exchange Commission, including specifically, but without limitation thereof, to sign his name as Officer and/or Director of the Company to the Form 10-K Report, and to any instrument or document filed as a part of, or in connection with, said Form 10-K Report or Amendment thereto; and the undersigned does hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of March, 1996 /s/ HARRY E. EKBLOM - ---------------------------- Harry E. Ekblom 10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officer and/or Director of PANHANDLE EASTERN CORPORATION (the "Company"), a Delaware corporation, does hereby constitute and appoint PAUL F. FERGUSON, JR., CARL B. KING, and ROBERT W. REED, and each of them, his true and lawful attorney and agent to do any and all acts and things, and execute any and all instruments which, with the advice of Counsel, said attorney and agent may deem necessary or advisable to enable the Company to comply with the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the filing under said Act of the Form 10-K Annual Report with the Securities and Exchange Commission, including specifically, but without limitation thereof, to sign his name as Officer and/or Director of the Company to the Form 10-K Report, and to any instrument or document filed as a part of, or in connection with, said Form 10-K Report or Amendment thereto; and the undersigned does hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of March, 1996 /s/ WILLIAM T. ESREY - ---------------------------- William T. Esrey EX-27 12 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Panhandle Eastern Corporation Annual Report on Form 10-K for the year ended December 31, 1995 and is qualified in its entirety by reference to such financial statements. 0000351696 PANHANDLE EASTERN CORPORATION 1,000 12-MOS DEC-31-1995 DEC-31-1995 50,800 0 505,100 0 135,800 1,012,300 8,400,700 3,250,900 7,627,300 1,323,400 2,091,600 150,200 0 0 2,077,100 7,627,300 3,397,200 4,967,500 3,131,200 3,729,600 362,200 0 241,500 501,400 197,800 303,600 0 0 0 303,600 2.03 2.03
EX-99 13 DEFINITIVE PROXY STATEMENT DATED 03/15/96 1 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 Panhandle Eastern Corporation - -------------------------------------------------------------------------------- (Name of Registrant as Specified in its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): / / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- /X/ Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- 2 [PANHANDLE EASTERN CORPORATION LOGO] March 15, 1996 Dear Stockholder: You are cordially invited to attend the Annual Meeting of Stockholders of Panhandle Eastern Corporation, on Wednesday, April 24, 1996, at 10:00 a.m., at the J. W. Marriott Hotel, 5150 Westheimer, Houston, Texas. Information about the business of the meeting is set forth in the formal meeting notice and the Proxy Statement on the following pages. In addition, there will be a discussion of the general operations of the Company, described in the Company's 1995 Annual Report to Stockholders, and stockholders will be offered an opportunity to ask questions. We particularly call your attention to the proposed amendment to the Company's Restated Certificate of Incorporation in order to change the name of the Company to "PanEnergy Corp." Your Board of Directors, which supports and recommends the proposed amendment, believes that the new name, under which the Company has been doing business since January 2, 1996, reflects the Company's increasing role in and expanding business focus on serving multiple energy markets, including natural gas, natural gas liquids, electricity, crude oil, and refined petroleum products. There also will be considered a proposal to amend the Company's 1994 Long Term Incentive Plan, which your Board of Directors supports, and three stockholder proposals. The attached Proxy Statement contains a complete description of each and the reasoning of the Board's recommendations in favor of the first two proposals and against each of the last three stockholder proposals. We urge that you read this material before completing your Proxy. We encourage you to participate in this year's Annual Meeting in person or by mailing your Proxy. Regardless of the number of shares you hold, your participation and representation in the Company's affairs is important. Therefore, even if you cannot attend the meeting, please return your proxy to the Company as soon as possible. To vote, simply place an "X" in the appropriate box on the enclosed form of Proxy, sign and date it, and mail it in the self-addressed, postage-paid return envelope. Sincerely, /s/ DENNIS HENDRIX /s/ PAUL M. ANDERSON DENNIS HENDRIX PAUL M. ANDERSON Chairman of the Board President and Chief Executive Officer 3 [PANHANDLE EASTERN CORPORATION LOGO] NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 24, 1996 To the Stockholders of Panhandle Eastern Corporation: The 1996 Annual Meeting of Stockholders of Panhandle Eastern Corporation will be held at the J. W. Marriott Hotel, 5150 Westheimer, Houston, Texas, on Wednesday, April 24, 1996, at 10:00 a.m., for the purposes of: 1. Electing four Directors, constituting the 1996 Class of the Company's Board of Directors, for terms of three years, each to hold office until the 1999 Annual Meeting or until a successor shall have been elected and shall have qualified; 2. Considering and acting upon a proposal to amend Article FIRST of the Company's Restated Certificate of Incorporation to change the name of the Company to "PanEnergy Corp" (the Board of Directors supports this proposal); 3. Considering and acting upon a proposal to amend the Panhandle Eastern Corporation 1994 Long Term Incentive Plan (the Board of Directors supports this proposal); and 4. Considering and acting upon other matters that properly come before the meeting, such as voting on the three stockholder proposals which begin on page 22 of the proxy statement (the Board of Directors opposes each of these proposals). Stockholders of record on February 29, 1995, are entitled to receive notice of, and to vote at, the meeting or any adjournment or adjournments thereof. The transfer books of the Company will not be closed. The list showing stockholders entitled to vote at the meeting will be located in the office of the Secretary at the Company's headquarters, 5400 Westheimer Court, Houston, Texas, for examination for at least 10 days prior to the Annual Meeting. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. BY ORDER OF THE BOARD OF DIRECTORS /s/ ROBERT W. REED ROBERT W. REED Secretary Dated: March 15, 1996 Houston, Texas 4 [PANHANDLE EASTERN CORPORATION LOGO] PROXY STATEMENT ------------------------ ANNUAL MEETING OF STOCKHOLDERS APRIL 24, 1996 ------------------------ This statement is furnished in connection with the solicitation by the Board of Directors (the "Board") of Panhandle Eastern Corporation (the "Company") of proxies for use at the Annual Meeting of Stockholders (the "Annual Meeting") to be held on Wednesday, April 24, 1996, at 10:00 a.m., at the J. W. Marriott Hotel, 5150 Westheimer, Houston, Texas, for the purposes set forth in the accompanying Notice of Annual Meeting. Business at the Annual Meeting is limited to matters properly brought before it. Unless revoked prior to its exercise, any proxy given pursuant to this solicitation will be voted at the Annual Meeting. A stockholder may revoke a proxy at any time prior to the Annual Meeting by giving written notice of such revocation addressed to the Secretary of the Company, P.O. Box 1642, Houston, Texas 77251-1642. Also, a stockholder may attend the Annual Meeting and vote in person, whether or not such stockholder has previously given a proxy. Proxy material is being mailed to stockholders on or about March 15, 1996. On February 29, 1996, the record date for the determination of stockholders entitled to vote at the Annual Meeting, the Company had outstanding 150,724,873 shares of Common Stock, par value $1.00 per share (the "Common Stock"). Each of such shares is entitled to one vote at the Annual Meeting. Votes cast by proxy or in person at the Annual Meeting will be tabulated by the independent election inspectors appointed for the Annual Meeting. The holders of a majority of the shares entitled to vote at the Annual Meeting, whether present in person or represented by proxy, will constitute a quorum for the transaction of business at the Annual Meeting. Directors shall be elected by a plurality of the votes of the shares present in person or by proxy at the Annual Meeting and entitled to vote. The proposal to amend the Company's Restated Certificate of Incorporation to change the name of the Company to "PanEnergy Corp" will require for approval the affirmative vote of a majority of the outstanding shares entitled to vote at the Annual Meeting. The stockholder proposal, which your Board opposes, to amend the Bylaws of the Company to eliminate the classification of the Board, will require for approval the affirmative vote of 75 percent of the outstanding shares entitled to vote at the Annual Meeting. All other matters shall be determined by the affirmative vote of the majority of the shares present in person or represented by proxy at the meeting and entitled to vote. If no voting direction is indicated on the proxy card, the shares will be considered votes FOR the election of the nominees for Director, FOR the proposed amendment to the Company's Restated Certificate of Incorporation to change the name of the Company to "PanEnergy Corp", FOR the proposed amendment to the Panhandle Eastern Corporation 1994 Long Term Incentive Plan, and AGAINST each of the three stockholders proposals set forth in this Proxy Statement. Proxy cards that are not signed or that are not returned are treated as not voted for any purposes. If a broker indicates on a proxy that it does not have discretionary authority as to certain shares to vote on a particular matter, those shares will not be considered as present and entitled to vote with respect to that matter. Abstentions with respect to any matter will be treated as shares present and entitled to vote. Accordingly, with respect to the proposed amendment to the Company's Restated Certificate of Incorporation to change the name of the Company to "PanEnergy Corp" and the stockholder proposal to amend the Bylaws of the Company to eliminate the classification of the Board, abstentions and broker non-votes will have the same effect as voting against the proposals. With respect to the other stockholder proposals described in this Proxy Statement and the proposed amendment to the Panhandle Eastern Corporation 1994 Long Term Incentive Plan, abstention from voting will have the same effect as voting against such proposals and broker non-votes will be disregarded and have no effect on the outcome of the vote. The Company knows of no proposals to be considered at the Annual Meeting other than those set forth in the Notice of Annual Meeting. 1 5 The cost of preparing, assembling, and mailing the material in connection with the solicitation of proxies will be borne by the Company. In addition to use of the mails, proxies may be solicited by officers and other employees of the Company personally, by telephone, or other means. To assist in the solicitation of proxies, the Company has engaged Corporate Investor Communications, Inc., for approximately $9,500. The Company will also request brokerage houses and other nominees or fiduciaries to forward copies of its proxy material and Annual Report to beneficial owners of Common Stock held in their names, and the Company will reimburse them for reasonable out-of-pocket expenses incurred in doing so. STOCKHOLDER PROPOSALS Stockholder proposals will be eligible for consideration for inclusion in the Proxy Statement for the 1997 Annual Meeting if they are received by the Secretary of the Company no later than November 15, 1996 at the address set forth above. A. ELECTION OF DIRECTORS Currently, the Board consists of 12 Directors (nine of whom are not employed by the Company) and two Advisory Directors (neither of whom is employed by the Company). In accordance with the Company's By-Laws, the Directors have been divided into three Classes of approximately equal size, with staggered terms in office. At each Annual Meeting, Directors constituting one Class are elected for three-year terms. Each Class is designated by the year in which its current term ends. The members of the 1996 Class of Directors, Milton Carroll, Robert Cizik, Harold S. Hook and Leo E. Linbeck, Jr., have been nominated for re-election at this year's Annual Meeting. If re-elected, they will hold office until the 1999 Annual Meeting or until successors shall have been elected and shall have qualified. The terms of the Directors constituting the other two Classes will continue as indicated below. The proxy holders named on the proxy card will vote FOR the election of the nominees listed below, unless otherwise instructed on proxy cards that have been signed or returned. If you do not wish your shares to be voted for particular nominees, please identify the exceptions on the proxy card. If any of these nominees should be unable to serve, the proxies will be voted by the proxy holders for the election of such other person as they shall determine, in accordance with their judgment. INFORMATION REGARDING NOMINEES FOR ELECTION AS DIRECTORS NAME BUSINESS EXPERIENCE AND AGE IN 1996 ---- ----------------------------------- 1996 CLASS Milton Carroll............. Age 46. Chairman, President, and Chief Executive Officer of Instrument Products, Inc., Houston, Texas, a manufacturer of oilfield tools and other precision products, since 1977. Director of the Company since 1993. Director of the Federal Reserve Bank of Dallas, Houston Industries, Inc., and BlueCross BlueShield of Texas. Robert Cizik............... Age 65. Chairman of the Board since 1983, and, from 1975 to 1995, Chief Executive Officer of Cooper Industries, Inc. ("Cooper"), Houston, Texas, a diversified, international manufacturing company. Director of the Company since 1991. Director of Cooper, Cooper Cameron Corporation, Temple-Inland, Inc. ("Temple-Inland"), Harris Corporation, and Air Products and Chemicals, Inc. Harold S. Hook............. Age 65. Chairman and Chief Executive Officer of American General Corporation ("American General"), Houston, Texas, a diversified financial services organization, for more than five years. Director of the Company since 1978. Director of American General, American General Finance, Inc., Chemical Banking Corporation, Chemical Bank, Cooper, and Sprint Corporation ("Sprint"). 2 6 Leo E. Linbeck, Jr......... Age 62. Chairman, President and Chief Executive Officer of Linbeck Corporation, Houston, Texas, a holding company of five construction-related firms, since 1990, and Chairman, President, and Chief Executive Officer of Linbeck Construction Corporation, Houston, Texas, a client-focused organization whose expertise is the planning and building of facilities, since 1975. Director of the Company since 1986. Director of Daniel Industries, Inc., and a Director and Trustee of thirty-three investment companies managed by John Hancock Advisers, Inc. INFORMATION REGARDING DIRECTORS CONTINUING IN OFFICE NAME BUSINESS EXPERIENCE AND AGE IN 1996 ---- ----------------------------------- 1997 CLASS Paul M. Anderson........... Age 51. Chief Executive Officer of the Company since April 1995, President of the Company since December 1993 and Director of the Company since December 1992. Executive Vice President of the Company from March 1991 to December 1993. President and Chief Executive Officer of Panhandle Eastern Pipe Line Company ("PEPL") from April 1991 to January 1994, a Director of PEPL since 1991, and Chairman of the Board since January 1994. Director of Texas Eastern Transmission Corporation ("TETCO") since April 1991 and Chairman of the Board since January 1994. Vice President, Finance and Chief Financial Officer, Inland Steel Industries Inc., 1990-1991. Director of Temple-Inland and of Texas Eastern Products Pipeline Company ("TEPPCO"), a wholly-owned subsidiary of the Company and the general partner of TEPPCO Partners, L.P., a publicly traded master limited partnership. William T. Esrey........... Age 56. Chairman since April 1990 and Chief Executive Officer since April 1985 of Sprint, Westwood, Kansas, a diversified telecommunications holding company. President of Sprint from April 1985 to April 1990. Director of the Company since 1985. Director of Sprint, Equitable Life Assurance Society of the United States, General Mills, Inc., and Everen Capital Corporation. Ann Maynard Gray........... Age 51. Since 1991, President, Diversified Publishing Group of Capital Cities/ABC, Inc., New York, New York, involved in television, radio, and publishing, and Corporate Vice President since 1986. Senior Vice President -- Finance, ABC Television Network from 1988 to 1991. Director of the Company since 1994. Director of Cyprus Amax Minerals Company. George L. Mazanec.......... Age 60. Vice Chairman of the Board of Directors of the Company since December 1993 and a Director since December 1992. Executive Vice President of the Company from March 1991 to December 1993. Director since January 1990, Vice Chairman of the Board since January 1994, and President and Chief Executive Officer from January 1991 to January 1994, of TETCO. Director of PEPL since January 1990 and Vice Chairman of the Board of PEPL since January 1994. From 1989 to 1991, Group Vice President of the Company. Director of Associated Electric and Gas Insurance Services and of TEPPCO. 1998 CLASS Charles W. Duncan, Jr...... Age 70. Engaged in private investments in Houston, Texas, since 1981. Deputy Secretary of the United States Department of Defense, January 3 7 NAME BUSINESS EXPERIENCE AND AGE IN 1996 ---- ----------------------------------- 1977 to August 1979; Secretary of the United States Department of Energy, August 1979 until January 1981. Director of the Company since 1990. Director of American Express Company, The Coca-Cola Company, Chemical Banking Corporation, Newfield Exploration Company, and United Technologies Corporation. Harry E. Ekblom............ Age 68. Vice Chairman of A. T. Hudson & Co., Inc., Oradell, New Jersey, a management consulting firm, since 1985, and President of Harry E. Ekblom & Co., Inc., Osterville, Massachusetts, a financial consulting firm, since January 1984. Director of the Company since 1971. Director of Harris & Harris Group, Inc., and The Commercial Bank of New York. Dennis R. Hendrix.......... Age 56. Chairman of the Board of the Company since November 1990 and Chief Executive Officer from November 1990 to April 1995. President of the Company from November 1990 to December 1993. Director of PEPL and TETCO since November 1990, Chairman of the Board from November 1990 to January 1994 and Chief Executive Officer from November 1990 to April 1991, of PEPL and TETCO, and President of TETCO from November 1990 to January 1994. Director of TECO Energy, Inc., and TEPPCO. Ralph S. O'Connor.......... Age 70. For more than five years, principally engaged in investments as Chairman and Chief Executive Officer of Ralph S. O'Connor & Associates, Houston, Texas. Director of the Company since 1991. B. ADDITIONAL INFORMATION BOARD OF DIRECTORS RETIREMENT POLICY In January 1996, the Board amended its policy regarding the retirement of Nonemployee Directors to provide for the retirement of a Nonemployee Director at the Annual Meeting of Stockholders next following the Nonemployee Director's seventy-second birthday. Previously, the policy provided that the Nonemployee Director would retire at the next Board meeting following the Nonemployee Director's seventieth birthday. INFORMATION REGARDING ADVISORY DIRECTORS In January 1996, the Board elected two Advisory Directors, Senator Lloyd M. Bentsen and Mr. Cortland S. Dietler, to their second one-year terms. Mr. Max R. Lents, who in January 1996 completed his eleventh term as an Advisory Director, did not stand for re-election. An Advisory Director has no voting rights but attends meetings of the Board and certain Board committees in an advisory capacity. In January 1996, the Board decided to phase out the use of Advisory Directors over the next several years. Information regarding the Advisory Directors is as follows: NAME BUSINESS EXPERIENCE AND AGE IN 1996 ---- ----------------------------------- Lloyd M. Bentsen........... Age 75. Shareholder of the law firm of Verner, Liipfert, Bernhard, McPherson and Hand, Houston, Texas. United States Senator from Texas from 1971 to 1993. Secretary of the Treasury of the United States from January 1993 to December 1994. Advisory Director of the Company since January 1995. Director of IVAX Corporation and American International Group, Inc. Cortland S. Dietler........ Age 75. Until the December 1994 merger with the Company, Chairman of the Board and Chief Executive Officer of Associated Natural Gas Corporation, Denver, Colorado, a marketer, gatherer, and processor of natural gas, for more than five years. Advisory Director of the Company since January 1995. 4 8 MEETINGS OF THE BOARD AND ITS COMMITTEES During 1995, the Board met eight times. Each Director attended at least 75 percent of the aggregate number of the Board meetings and the meetings of Board committees on which he or she served. The Board has six committees, which are the Audit Committee, the Compensation & Organization Committee ("Compensation Committee"), the Committee on Directors, the Executive Committee, the Finance Committee and the Public Responsibilities Committee. With the exception of the Executive Committee, all Committees are composed solely of Nonemployee Directors. Mr. Cizik is Chairman, and Ms. Gray and Messrs. Carroll, Hook, O'Connor, and Dietler, are members, of the Audit Committee. The Audit Committee recommends the appointment of independent auditors and reviews the plan, scope, and results of the audit and monitors the fees for audit and other services; reviews the recommendations resulting from such audit and management responses thereto; and reviews the Company's accounting principles, policies, internal accounting controls, and the internal auditing department plans and procedures. The Audit Committee also reviews the Company's annual financial statements and recommends accounting and internal auditing policies which, in the Audit Committee's judgment, should receive the attention of the Board. The Audit Committee met three times in 1995. Mr. Duncan is Chairman of the Compensation Committee and Messrs. Cizik, Ekblom, Esrey, Linbeck and O'Connor are members. The Compensation Committee establishes the compensation policies for the Chief Executive Officer and other senior officers; approves the salaries and certain remuneration arrangements of senior officers; recommends the adoption of compensation plans in which officers and certain key employees are eligible to participate; and approves, appoints a subcommittee which approves, or recommends awards pursuant thereto, including bonuses, stock option grants, and other awards. The Compensation Committee acts on management recommendations for the election of officers, recommends the election of a Chief Executive Officer when appropriate, and reviews management succession plans. The Compensation Committee met four times in 1995. Mr. Esrey is Chairman of the Committee on Directors and Messrs. Carroll, Cizik, Dietler, Duncan, Ekblom and Hook are members. The Committee on Directors identifies and recommends candidates to fill Board vacancies and considers nominees for election as Directors at the Annual Meeting; considers the removal of Directors; reviews the Board's retirement policy and policies pertaining to Board membership; advises the Board on matters pertaining to Board tenure and compensation; and considers and makes recommendations pertaining to corporate governance matters. In addition, the Committee on Directors will consider stockholders' suggestions of nominees for Director that are submitted in writing to it, in care of the Secretary of the Company. The Committee on Directors met three times in 1995. Mr. Hook is the Chairman of the Finance Committee and the members are Ms. Gray, Senator Bentsen, and Messrs. Duncan, Ekblom and Linbeck. The Finance Committee reviews the Company's financial needs and approves the Company's financing plans, represents the Board in discharging administrative responsibilities with respect to employee benefit plans, reviews the performance of the investment managers of the Retirement Income Plan of Panhandle Eastern Corporation and Participating Affiliates ("Retirement Income Plan"), monitors the Company's risk management activities, and reviews the Board's dividend policy. The Finance Committee met three times in 1995. Mr. Linbeck is Chairman, and Senator Bentsen, Messrs. Carroll, Esrey, and O'Connor and Ms. Gray are members, of the Public Responsibilities Committee. This Committee reviews and considers the Company's policies and practices related to public issues important to the Company and the industry, including: safety; environmental affairs; governmental relations; community relations; employee participation in civic and charitable affairs; civic, charitable, and philanthropic contributions; and equal opportunity policies and programs. The Public Responsibilities Committee met twice in 1995. Mr. Hendrix is Chairman, and Senator Bentsen and Messrs. Anderson, Carroll, Cizik, Duncan, Hook, Linbeck, Mazanec and O'Connor are members, of the Executive Committee, which reviews and, where appropriate, authorizes corporate action with respect to the conduct of the business of the Company between 5 9 Board meetings. Actions taken by the Executive Committee are regularly submitted to the Board for review and ratification at the next meeting. The Executive Committee did not meet in 1995. SECURITY OWNERSHIP OF MANAGEMENT As of December 31, 1995, all Directors and executive officers of the Company as a group owned beneficially, or had the right to acquire within 60 days of December 31, 1995, under the 1982 Key Employee Stock Option Plan, as amended (the "1982 Plan"), the 1989 Nonemployee Directors Stock Option Plan (the "1989 Plan"), the 1990 Long Term Incentive Plan (the "1990 LTIP"), and the 1994 Long Term Incentive Plan (the "1994 LTIP"), less than 1 percent of the presently issued and outstanding Common Stock. The following table shows the number of shares of Common Stock beneficially owned as of December 31, 1995, or as to which there was a right to acquire beneficial ownership within 60 days of such date, by each Director or nominee for Director, each executive officer of the Company named in the Summary Compensation Table on page 10 ("Named Executive Officers"), and all Directors and executive officers of the Company as a group.
NUMBER NUMBER OF OF SHARES SHARES WHICH BENEFICIALLY MAY BE OWNED(1) ACQUIRED(2) ------- ----------- Paul M. Anderson.................................... 27,632 190,666 Milton Carroll...................................... 500 6,000 Robert Cizik........................................ 1,322 8,000 Charles W. Duncan, Jr............................... 7,767(3) 9,000 Harry E. Ekblom..................................... 4,276(4) 10,000 William T. Esrey.................................... 2,500 10,000 Ann Maynard Gray.................................... 500 5,000 Dennis R. Hendrix................................... 362,100 -- James B. Hipple..................................... 13,192(5) 16,935 Harold S. Hook...................................... 5,600 10,000 Carl B. King........................................ 31,850 21,667 Leo E. Linbeck, Jr.................................. 1,216 10,000 George L. Mazanec................................... 27,368 193,552 Ralph S. O'Connor................................... 34,701(6) 8,000 All Directors, nominees for Director, and ten executive officers as a group, including those named above....................................... 566,492 566,746
- --------------- (1) Included are beneficially owned and undistributed shares of Common Stock held as of December 31, 1995, in the Panhandle Eastern Corporation Dividend Reinvestment and Stock Purchase Plan and shares held as of December 31, 1995, in, and allocable to the individual under, the Employees' Savings Plan of Panhandle Eastern Corporation and Participating Affiliates. (2) Shares of Common Stock which the Directors or executive officers of the Company have the right to acquire, within 60 days of December 31, 1995, pursuant to options outstanding under the 1982 Plan, the 1989 Plan, the 1990 LTIP, and the 1994 LTIP. Nonemployee Directors do not participate in the 1982 Plan, the 1990 LTIP, or the 1994 LTIP and Employee Directors do not participate in the 1989 Plan. (3) Includes 4,531 shares held by Duncan Investors Partnership, a partnership in which Mr. Duncan is a general partner. (4) Includes 2,000 shares held by Mrs. Ekblom. (5) Includes 48 shares held by Mrs. Hipple. (6) Includes 4,502 shares of Common Stock held by three trusts of which Mr. O'Connor is co-trustee and as to all of which Mr. O'Connor disclaims beneficial ownership. 6 10 Texas Eastern Products Pipeline Company, a wholly owned subsidiary of the Company, is the general partner of TEPPCO Partners, L.P. ("TEPPCO"), a publicly traded master limited partnership. The following table shows the number of units of limited partnership interests in TEPPCO beneficially owned as of December 31, 1995, or as to which there was a right to acquire beneficial ownership within 60 days of such date, by each Director or nominee for Director, each of the Named Executive Officers, and all Directors and executive officers of the Company as a group. As of December 31, 1995, the percentage of units beneficially owned by all Directors and executive officers as a group does not exceed 1 percent of the presently issued and outstanding units.
NUMBER NUMBER OF OF UNITS UNITS WHICH BENEFICIALLY MAY BE OWNED ACQUIRED ----- -------- Paul M. Anderson........................................ 2,000 -- Milton Carroll.......................................... -- -- Robert Cizik............................................ -- -- Charles W. Duncan, Jr. ................................. -- -- Harry E. Ekblom......................................... -- -- William T. Esrey........................................ -- -- Ann Maynard Gray........................................ -- -- Dennis R. Hendrix....................................... 13,500 -- James B. Hipple......................................... 1,000 -- Harold S. Hook.......................................... 2,000 -- Carl B. King............................................ -- -- Leo E. Linbeck, Jr. .................................... -- -- George L. Mazanec....................................... 1,000 -- Ralph S. O'Connor....................................... 1,000 -- All Directors, nominees for Director, and ten executive officers as a group, including those named above...... 20,500 --
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table shows the number of shares of Common Stock held by beneficial owners of more than 5 percent of the Common Stock as of December 31, 1995, and the percentage of the total outstanding shares of Common Stock as of that date.
NUMBER PERCENT OF OF SHARES OUTSTANDING NAME AND ADDRESS BENEFICIALLY SHARES OF BENEFICIAL OWNER OWNED OWNED ---------------------------------------------------- ----- ----- Sonatrach Petroleum Investment Corp., B.V. Sloterkade 138D 1058 HM Amsterdam, The Netherlands.................. 7,700,000 5.13 Employees' Savings Plan of Panhandle Eastern Corporation and Participating Affiliates 5400 Westheimer Ct., Houston, Texas 77056................................ 9,676,146 6.44
Sonatrach Petroleum Investment Corp., B.V., is a Dutch corporation owned by two shareholders: Sonatrach (the national oil and gas company of Algeria), which owns a 99.9 percent interest, and Banque Algerienne du Commerce Exterieur ("BACE"), a Swiss bank, which owns a 0.1 percent interest. The principal executive offices of Sonatrach are located at 10, Rue du Sahara, Hydra, Algiers (Algeria), and the principal executive offices of BACE are located at Schutzengasse 4, Postfach, 8023 Zurich, Switzerland. Sonatrach and BACE are wholly owned by the government of Algeria. 7 11 The Company and Sonatrach, directly and through subsidiaries, are parties to agreements entered into in 1987 providing for the importation of liquefied natural gas ("LNG") over a period of up to 20 years at volumes and prices and upon other terms to be agreed upon from time to time. The agreements provide that if LNG is purchased by the Company from Sonatrach, Sonatrach will receive an f.o.b. payment equal to approximately 63 percent of the average gross selling price of an equivalent quantity of regasified LNG, with the Company receiving the balance. For the year ended December 31, 1995, payments to Sonatrach under this program for LNG and shipping were approximately $8.7 million. Employees' Savings Plan of Panhandle Eastern Corporation and Participating Affiliates("ESP"), holds shares of Common Stock for the account of participants, who are employees of the Company and participating affiliates. Generally, the ESP passes through to participants the right to direct the voting of shares of Common Stock allocable to their accounts and to direct the tender of such shares in response to a tender or exchange offer for Common Stock. The ESP is administered by an administrative committee whose members are H. D. Church, Senior Vice President of TETCO; Paul F. Ferguson, Jr., Senior Vice President and Chief Financial Officer of the Company; D. R. Hennig, Vice President of PEPL, TETCO, and Trunkline Gas Company ("Trunkline"); Bruce A. Williamson, Treasurer of the Company; Theopolis Holeman, Vice President of PEPL; Sandra P. Meyer, Vice President and Controller of the Company; Michael J. Bradley, Vice President of PanEnergy Services, Inc., a subsidiary of the Company; and P. J. Hester, Vice President and General Counsel of Algonquin Gas Transmission Company. COMPENSATION OF DIRECTORS As employees of the Company, Messrs. Anderson, Hendrix, and Mazanec receive no fees for their service as Directors, for attendance at Board and Committee meetings, or for chairing Board Committees. Nonemployee Directors and Advisory Directors receive an annual retainer fee of $30,000, and $1,000 for each Board meeting and each Committee meeting attended. Nonemployee Committee Chairmen receive an additional annual retainer of $4,000. Nonemployee Directors and Advisory Directors are reimbursed for expenses incurred in attending Board and Committee meetings. In addition to the foregoing, the Company maintains, or formerly maintained, the following plans for Nonemployee Directors: 1. The 1982 Directors' Deferred Compensation Plan permits Nonemployee Directors to elect, on a year-to-year basis, to defer either 50 percent or 100 percent of their Directors' fees. As amended in January 1995, the annual interest rate applicable to deferred amounts is equal to Moody's seasoned Baa Corporate Bond Yield Index for the week ending with the final Friday of the previous November, as reported in the Federal Reserve statistical release No. 15 or its successor. Amounts accrued are payable either in a lump sum or over a period of five or 10 years, as elected by the Nonemployee Director, commencing on January 15th of the year next succeeding the year in which the Nonemployee Director either ceases to be a Director or upon the attainment of the age the Nonemployee Director previously elected. For the year ended December 31, 1995, amounts deferred under this Plan and interest accrued relative to such deferrals were $290,459 for the five participating Nonemployee Directors as a group. 2. The 1989 Nonemployee Directors' Stock Option Plan ("1989 Plan") provides for the granting of non-qualified options for the purchase of shares of Common Stock to each Nonemployee Director. Stock appreciation rights ("SARs") are not permitted. All options are granted at the fair market value of the Common Stock on the date of grant. On May 1, 1989, each Nonemployee Director was granted an option to purchase 5,000 shares of Common Stock, and any new Nonemployee Director is granted an option to purchase 5,000 shares of Common Stock effective on the May 1 next following election to the Board. Additional options to purchase 1,000 shares of Common Stock are granted to each Nonemployee Director on May 1 of each year, through and including May 1, 1998. On May 1, 1995, options to purchase a total of 9,000 shares of Common Stock were granted under the 1989 Plan at an exercise price of $23.875 per share. Options granted under the 1989 Plan become exercisable one year from the date of grant and expire on the tenth anniversary of the date of grant. Accordingly, the options granted on May 1, 8 12 1995, are not reflected in the table on page 6 hereof. No options were exercised during 1995 under the 1989 Plan. There are nine Nonemployee Directors participating in the 1989 Plan. 3. The Nonemployee Directors' Retirement Plan provides an annual unfunded retirement benefit for each Nonemployee Director of the Company upon the later to occur of the Director's retirement date or the attainment of age 65. A retired Nonemployee Director with 10 years or more of service on the Board will receive annually for life (a guaranteed minimum of 10 years) an amount equal to 60 percent of the annual retainer fee in effect on the Director's retirement date. For a Nonemployee Director retiring with less than 10 years of service, the annual benefit accrues at a rate of 6 percent of the annual retainer fee in effect on the Director's retirement date for each year of service, not to exceed a total of 60 percent of such annual retainer fee. In the event of a "change of control" (as defined), a Nonemployee Director shall be deemed to have served as such until the earlier of the tenth anniversary of the Director's service on the Board or attainment of retirement age. There are also certain pre-retirement supplemental death benefits provided under this plan. 4. At the time it was acquired by the Company in 1989, Texas Eastern Corporation ("TEC") maintained an unfunded plan, the TEC Directors' Retirement Plan, which provided an annual benefit payable for 10 years following a Nonemployee Director's retirement from active service on the TEC Board of Directors. Upon the Nonemployee Director's death following retirement, any unpaid installments will be paid to the named beneficiary. Under this plan, Messrs. Duncan and O'Connor have vested rights to annual benefits for 10 years of $18,000 commencing January 1, 1999. 5. The Directors' Deferred Compensation Plan of Panhandle Eastern Corporation ("Nonemployee Directors' Plan") was available until December 31, 1986, to Nonemployee Directors and permitted deferral of up to 100 percent of each participating Nonemployee Director's annual retainer fee. Benefit payment amounts related to retainer fees deferred, to interest accrued at seniority-based rates, and to age at the time of deferral. For the year ended December 31, 1995, interest accrued for the four participating Nonemployee Directors relative to amounts deferred under the Nonemployee Directors Plan was $30,968. 9 13 EXECUTIVE COMPENSATION AND OTHER INFORMATION The following table and notes present the cash and certain other compensation paid or accrued by the Company to or on behalf of the Company's Chief Executive Officer and each of the four other most highly compensated executive officers of the Company ("Named Executive Officers"), as of December 31, 1995, for the years ended December 31, 1993, 1994, and 1995: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION - ----------------------------------------------------------------------------------------------------------- AWARDS --------------------- SECURITIES PAYOUTS ALL OTHER NAME AND OTHER ANNUAL RESTRICTED UNDERLYING ------- COMPEN- PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/SARS LTIP SATION POSITION(1) YEAR ($) ($) ($)(2) AWARD(S)($)(3) (#)(4) PAYOUTS($) ($)(5) (a) (b) (c) (d) (e) (f) (g) (h) (i) - ----------------------------------------------------------------------------------------------------------- Paul M. Anderson....... 1995 455,417 333,540 -- -- -- -- 105,725 1994 340,000 191,964 -- -- -- -- 69,424 1993 337,917 160,153 -- -- 250,000 -- 61,066 Dennis R. Hendrix........ 1995 -- -- 24,921 -- -- -- 42,091 1994 -- -- 19,411 -- -- -- 49,451 1993 -- -- 23,578 6,525,000 -- -- 55,532 George L. Mazanec........ 1995 372,083 215,259 -- -- -- 149,231 126,227 1994 340,000 189,414 -- -- -- 198,413 97,111 1993 336,667 177,710 -- -- 250,000 203,644 76,851 James B. Hipple......... 1995 321,250 136,247 -- -- -- 105,841 143,389 1994 277,917 125,910 -- -- -- 64,998 71,682 1993 253,750 113,016 -- -- -- 66,644 63,104 Carl B. King..... 1995 261,875 115,689 -- -- 20,000 13,028 40,639 1994 255,000 135,333 -- -- 15,000 64,998 33,714 1993 253,833 103,709 -- -- -- 67,744 31,485 - -----------------------------------------------------------------------------------------------------------
(1) The principal positions of Messrs. Hendrix, Anderson, and Mazanec are described on pages 3 and 4. Mr. King is Senior Vice President and General Counsel of the Company. Until September 1, 1995, Mr. Hipple was Senior Vice President and Chief Financial Officer of the Company, PEPL and TETCO. From that date until his retirement on December 31, 1995, Mr. Hipple was Senior Vice President of such companies. (2) Pursuant to rules on executive and director compensation disclosure adopted by the Securities and Exchange Commission (the "SEC"), Other Annual Compensation is reportable if, in the aggregate, the components thereof exceed the lesser of $50,000 or 10 percent of the sum of the Named Executive Officer's salary and bonus. Each component thereof that exceeds 25 percent of the total for each Named Executive Officer for whom disclosure is required must be identified. Accordingly, the amounts reported in column (e) include for Mr. Hendrix the following amounts for use of company aircraft: 1993 -- $19,203; 1994 -- $15,980; 1995 -- $21,065. (3) In November 1990, Mr. Hendrix and the Company entered into an agreement whereby he would receive no salary for 1991, 1992, and 1993. Instead, Mr. Hendrix was awarded 300,000 shares of restricted Common Stock under the terms of the 1990 LTIP as compensation for that period. Mr. Hendrix received dividends payable to holders of record of Common Stock on the restricted shares. These shares were initially restricted as to the transfer of ownership, with such restrictions being removed on 25,000 shares every three months, beginning in February 1991 and continuing through November 1993. The value of the 300,000 restricted shares, based on the fair market value of the Company's Common Stock as reported on The New York Stock Exchange Composite Reporting System on November 12, 1990, which 10 14 was $11.00 per share, was $3,300,000. Based on the December 29, 1995, fair market value of $28.06 per share, the 300,000 restricted shares would be valued at $8,418,000. Effective February 24, 1993, the agreement with Mr. Hendrix was amended to extend the term through November 1996 and to award him an additional 300,000 shares of restricted Common Stock in lieu of salary for the period November 1993 through November 1996. The restrictions, and the removal thereof, were the same as for the 1990 award, and Mr. Hendrix receives dividends payable to holders of record of Common Stock on these restricted shares. In December 1993 this award was amended to provide for the accelerated removal of restrictions in that month on 200,000 shares. It was provided that the restrictions on the remaining 100,000 shares would be removed as follows: 36,000 shares in quarterly installments of 9,000 shares each in 1994, 34,000 shares in quarterly installments of 8,500 shares each in 1995, and 30,000 shares in quarterly installments of 7,500 shares each in 1996. The full amount reported in the table for 1993 represents the value of the 300,000 restricted shares based on the fair market value of the Company's Common Stock on February 24, 1993, which was $21.75. Based on the December 29, 1995, fair market value, these 300,000 shares also would be valued at $8,418,000 and Mr. Hendrix's aggregate remaining ownership of restricted stock was 30,000 shares, with a fair market value of $841,800. (4) In December 1991, the Compensation Committee granted 126 executives and management employees, including Messrs. Anderson, Mazanec, King, and Hipple, options to purchase 778,500 shares of Common Stock, together with an equivalent amount of EPS Performance Units. Stock options for 40,500 shares of Common Stock, together with an equivalent number of EPS Performance Units, were also granted in April 1992 to seven executives and management employees; 12,000 options and EPS Performance Units were granted to one executive in July 1992; 41,000 options and EPS Performance Units were granted to eight management employees in January 1993; in December 1993, Messrs. Anderson and Mazanec each were granted options to purchase 250,000 shares of Common Stock, together with an equivalent number of EPS Performance Units; in January 1994, 129 executive and management employees, including Mr. King, were granted options to purchase 324,300 shares, together with an equivalent number of EPS Performance Units; and in January 1995, 847,000 options and EPS Performance Units were granted to 178 executives and management employees, including Mr. King. Each EPS Performance Unit creates a credit to an employee's EPS Performance Unit account when earnings per share exceed a threshold, which was $0.80 per share for awards made in 1991 and 1992, $1.10 for awards made in January 1993, $1.50 for awards made in December 1993 and January 1994, and $1.61 for awards made in January 1995. When earnings for a calendar year (exclusive of certain special items) exceed the threshold, the excess amount is credited to the employee's EPS Performance Unit account. The balance in the account may be used to exercise stock options granted in connection with the EPS Performance Units or shall be paid two years after the underlying options expire, usually 10 years from the date of grant. Under the agreements for such stock options, the options become exercisable in equal installments over periods of one, two, and three years from the date of grant. Options may also be exercised by normal means once vesting requirements are met. (5) Pursuant to rules on executive and director compensation disclosure adopted by the SEC, all other compensation reported for the last completed fiscal year is required to be identified and quantified in a footnote. Accordingly, amounts reported for 1995 include (a) amounts credited by the Company for the Named Executive Officers under the ESP and under the Panhandle Eastern Corporation Key Employees Deferred Compensation Plan ("KED"), an unfunded, defined contribution plan that allows eligible employees, including Messrs. Anderson, Mazanec, Hipple and King, to elect deferral of base salary and bonus, and receive matching Company contributions and interest credits, whenever, and to the extent that, their participation in the ESP is limited by provisions of the Internal Revenue Code, (b) that portion of interest credits on deferred compensation amounts that are considered, pursuant to rules promulgated by the SEC, to be at above-market rates, (c) the value of EPS Performance Units credited to EPS Performance Unit accounts of the Named Executive Officers in 1995, (d) the imputed value of premiums paid by the Company for insurance on the Named Executive Officers' lives (none of the Named Executive Officers has any cash value rights related to such insurance) and (e) amounts paid to 11 15 Mr. Hipple in connection with his December 31, 1995, retirement from the Company (1995 unused vacation -- $25,000, 1996 earned vacation -- $31,250, accumulated sick pay benefits -- $12,500).
INTEREST VALUE OF PAYMENTS IN AT ABOVE VALUE OF EPS LIFE INSURANCE CONNECTION WITH ESP/KED MARKET RATES PERFORMANCE UNITS PREMIUMS RETIREMENT -------- ------------ ----------------- -------------- --------------- Mr. Anderson............... $42,727 $ 8,863 $51,800 $ 2,335 $ -- Mr. Hendrix................ -- 27,806 -- 14,285 -- Mr. Mazanec................ 30,882 33,949 51,800 9,596 -- Mr. Hipple................. 29,513 18,393 16,195 10,538 68,750 Mr. King................... 19,162 899 17,850 2,728 --
STOCK OPTION/SAR GRANTS IN 1995 The following table shows all grants of stock options to the Named Executive Officers in 1995. No SARs were granted to any Named Executive Officer in 1995 nor were the exercise prices on stock options previously awarded to any of them amended or adjusted. OPTION/SAR GRANTS IN LAST FISCAL YEAR
- ----------------------------------------------------------------------------------------------- GRANT DATE INDIVIDUAL GRANTS VALUE - ----------------------------------------------------------------------------------------------- PERCENT OF TOTAL NUMBER OF OPTIONS/ SECURITIES SARS GRANTED GRANT DATE UNDERLYING TO EMPLOYEES EXERCISE OR PRESENT OPTIONS/SARS IN BASE PRICE EXPIRATION VALUE(2) NAME GRANTED(#) FISCAL YEAR ($/SH) DATE $ (a) (b) (c) (d) (e) (f) - ----------------------------------------------------------------------------------------------- Mr. Anderson................... -- -- -- N/A -- Mr. Hendrix.................... -- -- -- N/A -- Mr. Mazanec.................... -- -- -- N/A -- Mr. Hipple..................... -- -- -- N/A -- Mr. King....................... 20,000(1) 5 $ 20.875 1-24-05 130,485 - -----------------------------------------------------------------------------------------------
(1) On January 25, 1995, the Board of Directors granted stock options to purchase 847,000 shares to 178 management employees, including Mr. King, at an exercise price of $20.875, which was the fair market value of the Common Stock on the date of grant. The options, including those granted to Mr. King, were nonqualified stock options vesting in annual increments of one-third commencing one year from the date of grant. The options have a ten year term. The grants include the award of an equivalent number of EPS Performance Units, but do not include SARs. Each EPS Performance Unit creates a credit to the grantee's EPS Performance Unit account when the Company's earnings per share, exclusive of certain special items, exceed a threshold. For the January 25, 1995 grant, the threshold is $1.61. When earnings for a calendar year, beginning with 1995, exceed the threshold, the excess amount is credited to the grantee's EPS Performance Unit account. The balance of the account may be used to exercise the stock options or it shall be paid two years after the expiration of the options. The options may also be exercised by normal means once vesting requirements are met. (2) Grant date present values are based on the Black-Scholes option valuation model. The key input variables used in valuing the options were: risk-free interest rate - 7.9 percent; dividend yield - 4.09 percent; stock price volatility - .28; option term - ten years. The Standard and Poor's Compustat Database was used and the volatility variable reflected 36 months of stock price trading data. No adjustments for non-transferability or risk of forfeiture were made. The grant date value is set out for illustrative purposes and, therefore, is not intended to forecast future financial performance or possible future appreciation, if any, in the price of the Company's Common Stock. 12 16 EXERCISES OF STOCK OPTIONS IN 1995 AND YEAR-END OPTION VALUES The following table provides information concerning stock options exercised by each of the Named Executive Officers during 1995 and the value of unexercised stock options to the Named Executive Officers as of December 29, 1995. The value assigned to each unexercised, "in the money" stock option is based on the positive spread between the exercise price of such stock option and the fair market value of the Common Stock on December 29, 1995. The fair market value is the average of the high and low prices of a share of Common Stock on that date as reported on The New York Stock Exchange, Inc., Composite Transactions Reporting System. In assessing the value, it should be kept in mind that no matter what theoretical value is placed on a stock option on a particular date, its ultimate value will be dependent on the market value of the Company's Common Stock at a future date. That future value will depend in part on the efforts of the Named Executive Officers to foster the future success of the Company for the benefit of all stockholders. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
- ----------------------------------------------------------------------------------------------- NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS SHARES FY-END (#) AT FY-END ($) ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE(#) REALIZED($) UNEXERCISABLE* UNEXERCISABLE (a) (b) (c) (d) (e) - ----------------------------------------------------------------------------------------------- Mr. Anderson................... 2,800 6,331 190,666/83,334 1,401,437/562,296 Mr. Hendrix.................... -- -- --/-- --/-- Mr. Mazanec.................... -- -- 193,552/83,334 1,438,742/562,296 Mr. Hipple..................... 989 10,389 16,935/-- 197,885/-- Mr. King....................... -- -- 21,667/20,000 135,054/143,700 - -----------------------------------------------------------------------------------------------
* Future exercisability of currently unexercisable stock options depends on the grantee remaining employed by the Company throughout the vesting period of the options, subject to provisions applicable at retirement, death, or total disability. The unexercisable options vest and become exercisable on the following schedule:
JANUARY 25, DECEMBER 1, JANUARY 25, JANUARY 25, 1996 1996 1997 1998 ----------- ----------- ----------- ----------- Mr. Anderson......................... -- 83,334 -- -- Mr. Mazanec.......................... -- 83,334 -- -- Mr. King............................. 6,666 -- 6,667 6,667
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL ARRANGEMENTS In November 1990, Mr. Hendrix and the Company entered into a five-year employment agreement pursuant to which Mr. Hendrix received no salary for the first three years of his employment. Instead, he was awarded 300,000 shares of Common Stock under the terms of the 1990 LTIP, which shares were initially restricted as to the transfer of ownership. Such restriction was removed on 25,000 shares every three months, beginning in February 1991 and continuing through November 1993. Mr. Hendrix received dividends on the restricted shares. The restriction would have terminated early as to all of the restricted shares in the event of death or disability, involuntary termination by the Company for any reason other than "cause" (as defined), or change in control of the Company. Effective February 24, 1993, the employment agreement with Mr. Hendrix was amended to extend the term through November 1996. The amendment provided that Mr. Hendrix would continue to receive no salary for the three years from November 1993 through November 1996. Instead, Mr. Hendrix was awarded an additional 300,000 shares of Common Stock on the same terms and subject to the same restrictions as those described above, with restrictions being removed at the rate of 25,000 shares every three months, beginning in February 1994. Mr. Hendrix began receiving dividends on the additional shares in December 1993. 13 17 On January 1, 1994, the Omnibus Budget Reconciliation Act of 1993 (the "Budget Act") became effective. Certain provisions of the Budget Act would have denied to the Company a tax deduction for a substantial portion of compensation expenses related to Mr. Hendrix in 1994, 1995, and 1996. In order to preserve the deduction, on December 20, 1993, the agreement was amended again to provide for the restrictions on 200,000 shares to be removed immediately and for the restrictions on the remaining shares to be removed over the next 36 months. Based on certain assumptions as to stock price, preserving the deduction was estimated to result in tax savings to the Company of approximately $1.8 million. In addition to the restricted shares, Mr. Hendrix participates in the welfare plans available to employees generally; however, to the extent permitted by law, Mr. Hendrix has waived and relinquished his right to participate in the ESP, the Retirement Income Plan, and certain other plans available to Company employees and executives. The Company and Mr. Mazanec entered into a five-year employment agreement in November 1989 which set a minimum base salary of $250,000 per year. In addition to maintaining certain non-qualified retirement benefits to which Mr. Mazanec was entitled as an executive of TEC, the agreement provides Mr. Mazanec a supplemental lump sum cash benefit of $750,000 plus 8 percent interest compounded semi-annually from November 1, 1989, payable within 30 days of his termination from the Company for any reason. If Mr. Mazanec terminates employment due to a material breach of the agreement by the Company which is not remedied within 30 days after written notice by Mr. Mazanec, or if the Company terminates the agreement without cause, the Company also will pay Mr. Mazanec, in a lump sum, base pay and incentive compensation projected through the employment period, as well as providing him an extension of welfare plan benefits through the employment period. Effective November 1, 1992, the Company and Mr. Mazanec entered into an amendment to the employment agreement, extending the period of employment covered by the agreement through October 31, 1996. On March 1, 1991, the Company and Mr. Anderson entered into an employment agreement, the primary term of which originally was to expire on December 31, 1993. Unless either party serves notice of termination, on December 31 of each year the term is automatically extended for an additional one-year period. On December 31 of each year from 1991 through 1995 the primary term was automatically extended and currently is extended through December 31, 1998. The Company may terminate the agreement for cause, death, or disability. Under such circumstances, or if Mr. Anderson terminates the agreement for other than good reason (as defined), Mr. Anderson or his estate will be paid base pay and incentive compensation earned for that fraction of the year which he was actually employed. If the agreement is terminated by Mr. Anderson for good reason, or by the Company for reasons other than cause, death, or disability, Mr. Anderson will receive in a lump sum the present value of his base pay and incentive compensation projected through the employment period, as well as an extension of welfare plan benefits through the employment period. Effective March 1, 1991, Mr. Anderson was awarded 40,000 shares of restricted Common Stock under the terms of the 1990 LTIP. These shares were initially restricted as to the transfer of ownership, with such restriction being removed on 10,000 shares on March 1 of each year, beginning on March 1, 1992, and continuing through March 1, 1995, provided Mr. Anderson remained in the employ of the Company during that period. The restriction would have terminated early as to all of the restricted shares in the event of death or disability, involuntary termination by the Company for any reason other than "cause" (as defined), or change in control of the Company. Mr. Anderson received dividends payable to holders of record of Common Stock on the restricted shares. The Company's Executive Severance Program ("Program"), which during 1995 covered four executive officers of the Company, including Messrs. Hipple and King, provides that in the event of a "change in control," as defined in the agreements entered into between the Company and the participants in the Program, such participants will have certain benefits provided to them in the event of the termination of their employment within three years of the effective date of such change in control. Such benefits are provided unless such termination of employment is (i) because of the death or retirement of the participant, (ii) by the Company or its subsidiaries for "cause" (as defined) or disability, or (iii) by the participant other than for "good reason" (as defined). Generally, benefits include a lump-sum cash payment equal to two and one-half 14 18 times the average of the participant's annual compensation for the five years preceding the change in control (including deferred amounts, bonuses, and employer contributions to the ESP); cash payment for the participant's account in the ESP; a continuation of various medical, insurance, and certain other benefits for a period of two and one-half years; and a lump-sum cash payment, at termination, equal to the present value of the additional retirement benefits the participant would have received as a result of two and one-half years additional service. The aggregate of each participant's benefits, when combined, will not exceed three times the "base amount" (as defined in the Internal Revenue Code). In consideration of these benefits, the participant agrees, in the event a person seeks to effect a change in control, not to leave the employ of the Company, and to continue to render services commensurate with the participant's position, until such person has abandoned or terminated efforts or the change in control has occurred. The participant also agrees to retain in confidence all of the confidential business information of the Company or its subsidiaries known to the participant. The Company's Change in Control Severance Pay Plan ("Severance Plan") is available for all employees of the Company and certain of its subsidiaries, except those employees covered by an agreement under the Executive Severance Program or a collective bargaining agreement. The Severance Plan provides a number of severance benefits for eligible employees, which would be triggered by certain specific events occurring subsequent to a "change in control" (as defined) of the Company. In addition to the variable cash payments provided for in the Severance Plan, eligible employees and dependents would receive, at no cost to the employee, six months' continuation of medical and dental benefits at the current benefit level, or at the benefit level immediately prior to the change in control, whichever is greater. As of December 31, 1995, no benefits had been provided under the Severance Plan. PENSION PLAN The Company's qualified retirement plan provides, with respect to participants employed by certain participating subsidiary companies, benefits, expressed in the form of a single life annuity commencing at normal retirement date (age 65, or, if later, the fifth anniversary of participation in the retirement plan), based on a benefit formula that, in part, uses final five-year average pay, which considers the regular compensation of the participant, including overtime payments, bonus payments, and some forms of deferred compensation. The retirement plan also provides, on and after January 1, 1995, with respect to participants employed by certain other participating subsidiary companies, benefits, expressed in the form of a cash balance, based on a benefit formula that uses annual regular compensation accruals and interest accruals. Qualified retirement plan benefits may be subject to statutory limitations if the participant receives compensation in excess of a maximum, is covered by other qualified plans, if benefits are paid before social security retirement age, if the participant has less than 10 years of plan participation, or if benefits are paid in a more valuable form than a single life annuity. When qualified plan benefits are limited by statute, non-qualified plans restore certain benefits for participants covered by the non-qualified plans to a level which would have been available if such statutory limits did not exist. 15 19 The table below shows the estimated annual benefits payable at age 65 under the qualified and non-qualified retirement plans at various levels of final average compensation and assuming various years of benefit accrual service: PENSION PLAN TABLE (DOLLARS IN THOUSANDS)
YEARS OF SERVICE ------------------------------------ REMUNERATION 15 20 25 30 35 -------------------------------------------- ---- ---- ---- ---- ---- $ 200..................................... $ 46 $ 62 $ 77 $ 92 $108 300..................................... 70 94 117 140 164 400..................................... 94 126 157 188 220 500..................................... 118 158 197 236 276 600..................................... 142 190 237 284 332 800..................................... 190 254 317 380 444 1,000.................................... 238 318 397 476 556
The years of benefit accrual service for each Named Executive Officer, except Mr. Hendrix, who does not participate in the plan, are as follows: Paul M. Anderson, 17; Carl B. King, 5; James B. Hipple, 38; and George L. Mazanec, 8. The covered compensation is the sum of the salary and bonus reported in the Summary Compensation Table on page 10. In connection with the 1989 acquisition of TEC by the Company, the TEC Retirement Plan was amended to offer enhanced early retirement benefits to active employees age 50 or older whose primary work location was in the headquarters office. Mr. Hipple was among those employees eligible for these enhanced retirement benefits. The Company entered into a contract with Mr. Hipple in 1989 under which, in consideration of his agreement to remain in the employ of the Company through December 1992, the Company agreed to pay him the actuarial equivalent of the enhanced retirement benefits which he lost by not exercising his option to retire early. During 1992, the Board of Directors extended the effectiveness of this contract until Mr. Hipple's retirement, which occurred as of December 31, 1995. C. BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee, which is composed exclusively of Nonemployee Directors, is responsible for, among other things, the Company's executive compensation programs. The following is the report of the Compensation Committee on compensation policies regarding executive officers and the basis of compensation actions it has taken. The objective of the Company's executive compensation programs is to offer compensation opportunities which attract and retain talented executive officers and key employees and which motivates such employees to enhance shareholder value. Base pay, annual incentives and long term incentives are structured so as to deliver competitive pay opportunities, reward individual performance and encourage executives to manage from the perspective of owners with an equity stake in the Company. The executive compensation programs are intended to provide total compensation (consisting of base salaries, annual cash incentive opportunities, and long-term incentive opportunities) that is competitive with the average total compensation offered other executives employed by companies of similar size, complexity, and line of business. To determine competitive compensation levels, the Compensation Committee considers data from surveys, proxy statements, independent compensation consultants, and those peer group companies listed in the Stockholder Return Comparison in Section D, below. The achievement of both corporate and individual annual performance goals determine the payouts from the annual incentive compensation plans in which executive officers and key employees participate. Long term incentive compensation awards are designed to make a significant portion of total pay directly linked to long term financial performance and the creation of stockholder value. 16 20 DESCRIPTION OF THE CURRENT EXECUTIVE COMPENSATION PROGRAM Base Salaries. Salaries are reviewed annually and established by the Compensation Committee based upon the executive's job responsibilities, level of experience, individual performance and contributions to the business, and competitive data obtained from surveys. At the Compensation Committee's December 1995 meeting, base pay adjustments were approved for certain key employees, including Mr. Anderson, in accordance with these criteria. Annual Cash Incentive Opportunities. The Compensation Committee administers the Annual Cash Bonus Plan ("ACBP") which permits the granting of cash incentive compensation awards. The ACBP requires the Compensation Committee annually to establish administrative guidelines to define employees who are entitled to earn an incentive award, what performance is required to earn it, and how much may be earned. Guidelines effective for 1995 called for the Chief Executive Officer to recommend, and the Compensation Committee to approve, an annual bonus opportunity for each participant. This bonus opportunity, or "target," is expressed as a percentage of base salary and is determined by the Compensation Committee's judgement of the direct or indirect impact each individual could have on the Company's performance, as measured by earnings before interest and taxes ("EBIT"). Further, the guidelines provided that the half of the bonus attributable to the EBIT performance would not be paid unless the Company's earnings per share goal of $2.00 was achieved. Depending upon performance, participants could receive up to 125% of the bonus target. Of the ten executive officers of the Company in 1995, nine were participants in the ACBP; Mr. Hendrix was not a participant. Each of the executive officers, in consultation with the Chief Executive Officer, established six to ten specific personal objectives, which were primarily directed toward development of new services, market expansion, cost control, increasing returns on capital employed and advancing the Company's non-jurisdictional business segments. Fifty percent of each executive officer's 1995 bonus was determined by the degree to which, in the opinion of the Chief Executive Officer and the Compensation Committee, the executive officer achieved his or her personal objectives. Further, each business unit established, and the Compensation Committee approved, EBIT objectives. If any one business unit failed to reach a minimum level of earnings established in the guidelines, the executive officer would receive no compensation for the portion of the bonus contingent upon that business unit's results. In 1995, five business units met or exceeded target EBIT objectives and three did not. Nine of ten participating executive officers scored in excess of 100 percent on personal objectives. Long Term Incentive Opportunities. Through the 1990 LTIP and 1994 LTIP, which were approved by the stockholders in April 1990 and 1994, respectively, the Compensation Committee has the flexibility to structure long-term awards to meet particular business needs. To date, four types of awards have been made under the 1990 LTIP and three types of awards have been made under the 1994 LTIP. 1. 1990 LTIP a. Restricted Stock. Since 1990 the Compensation Committee has awarded 715,000 shares of stock that is restricted as to transferability to three executive officers. Mr. Hendrix received grants of 300,000 shares of restricted stock both in 1990 and 1993 in lieu of salary, bonus and certain employee benefits. Mr. Anderson received a grant of 40,000 shares of restricted stock in 1991, which vested in four equal installments on the first through fourth anniversaries of the grant date. In January 1996, an award of 75,000 shares of restricted stock were granted to James T. Hackett, who joined the Company at that time as Executive Vice President. The terms of Mr. Hackett's award provide that restrictions will be removed on 15,000 shares on each of five consecutive anniversaries of his employment. b. Conditional Stock. This form of award was employed in November 1990 and January and April 1991 when the Company's management team was being assembled following the merger of the Company and TEC and in conjunction with the Company's reorganization into distinct business units. The awards, made to grantees that included Messrs. Mazanec, Hipple, and King, as well as other officers of the Company, were for the purpose of focusing the recipients' attention on long-term objectives by adding, through the ownership of Common Stock, a meaningful long-term incentive opportunity. The November 1990 and January 1991 17 21 conditional stock awards vested and were distributed in four scheduled annual installments ending in 1994. The April 1991 conditional stock awards vest and are distributed in scheduled annual installments over a six year term. Recipients of conditional stock awards are paid dividend equivalents in cash on unvested, undistributed shares. These awards were designed for a unique purpose and time, and the Compensation Committee has no plans to make additional conditional stock awards. c. Stock Options. Stock options have been granted to executive officers and others by the Compensation Committee at various times since the inception of the 1990 LTIP, as a vehicle for providing long-term incentive opportunities to executives officers. The number of stock options granted was determined through a process which, first, utilized survey data to determine the annualized value of long term incentive grants made to other executives and management employees in the Company's compensation data base ("target value"). Next, the Black-Scholes stock option pricing model was used to calculate a ratio which, when multiplied by the exercise price of an option, produced an expected present value of the option. Finally, the number of options required to make a competitive long-term grant was calculated by dividing the target value by the expected present value of a single option plus the expected present value of an EPS Performance Unit (described below), if an EPS Performance Unit was granted in connection with an option. The result of this equation, expressed as a number of options, could be adjusted by the Compensation Committee depending upon the recipient's individual performance, the size of stock option grants awarded the recipient in the past, and expectations of future contributions. No options have been granted under the 1990 LTIP since January 1994, when 129 executive and management employees, including Mr. King, were granted options to purchase 324,300 shares. d. EPS Performance Units. The Compensation Committee granted EPS Performance Units in conjunction with stock options to further encourage stock ownership by executive officers and key employees and to strengthen the linkage among financial performance, stockholder return, and long-term incentives. Beginning in 1991 and ending with grants made in 1995 under the 1994 LTIP, one EPS Performance Unit was granted in conjunction with each stock option awarded. Each EPS Performance Unit creates a credit to the grantee's EPS Performance Unit account when the Company's earnings per share has exceeded a threshold established by the Compensation Committee based on earnings per share for the year preceding the grant date. When earnings for a calendar year, exclusive of certain special items, exceed the threshold, the excess amount is credited to the grantee's EPS Performance Unit account. The balance in the account may be used to exercise stock options granted in connection with the EPS Performance Units or will be paid to the grantee, without interest, two years after the underlying options expire, usually ten years from the date of grant. Options may also be exercised by normal means once vesting requirements are met. 2. 1994 LTIP a. Stock Options. In January 1995, 178 executive and management employees were granted options under the 1994 LTIP to purchase 847,000 shares. In June 1995, 36 executive and management employees were granted options to purchase 58,350 shares, and in July 1995, one executive was granted an award of 5,000 shares. In January 1996, 146 executives and key employees were awarded options to purchase 324,900 shares. The method used to determine the number of stock options granted and the present value of the options was the same as described for stock option grants under the 1990 LTIP. b. EPS Performance Units. The Compensation Committee granted to each participant who received a 1995 stock option grant, a number of EPS Performance Units equal to the number of stock options granted. The threshold for calculating credit to the grantee's EPS Performance Unit account was $1.61 per share for these grants. No EPS units were awarded in connection with the January 1996 grants. c. Performance-Vested Restricted Stock. At its January 1996 meeting, the Compensation Committee elected to replace EPS Performance Units by awarding grants of performance-vested restricted stock ("PVRS") totalling 110,700 shares to 200 executives and key employees. With the assistance of an outside compensation consultant, the Compensation Committee determined how many shares of PVRS in addition to stock options granted to any employee would have a combined value which approximates a competitive long-term incentive grant. The Compensation Committee believes that shares of PVRS establish an opportunity for 18 22 increased share ownership and dividend income by executive management and key employees and encourages management decision making from the perspective of an investor in the Company. The terms of the PVRS awards granted in 1996 provide that one-sixth of the shares awarded any participant will vest when total shareholder return, measured from the grant date, equals or exceeds fifteen percent. Another one-third of the award will vest when total shareholder return measured from the grant date equals or exceeds thirty percent, and the final one-half of the award will vest when total shareholder return equals or exceeds forty-five percent. Total shareholder return is defined as accumulated dividends plus market appreciation of Common Stock when measured over a ten consecutive trading day period. No shares may vest before the first anniversary of the award unless there is a change in control. If the shareholder return targets are not met and the PVRS awards do not vest within five years, they will be forfeited. COMPENSATION OF THE CHIEF EXECUTIVE OFFICER Mr. Hendrix, who served as CEO until the appointment of Mr. Anderson as CEO at the annual meeting of shareholders in April 1995, continues to be compensated under the terms of his amended employment agreement under which he received only restricted stock and no salary or bonus. In 1995, Mr. Hendrix had the restrictions removed on a total of 34,000 shares of restricted stock under the terms of the agreement. In 1996, the last year of the agreement, Mr. Hendrix will have restrictions removed on the final 30,000 shares. Upon Mr. Anderson's appointment to the position of CEO, the Committee approved a salary of $500,000 and a bonus opportunity of 60 percent of base pay. At its December meeting, the Committee received an analysis by the compensation consultants of total compensation opportunities available to CEO's in the competitive marketplace. The consultants advised that the appropriate salary range for the CEO is $560,000 to $840,000 with a mid-point of $700,000. After considering this, the Committee adjusted Mr. Anderson's salary to $600,000 annually. The results of the consultants' study also indicated that a target bonus opportunity for the CEO should be 70 percent, rather than 60 percent, of base pay in 1996. Accordingly, the Committee increased Mr. Anderson's bonus opportunity to 70 percent. At its January 24, 1996 meeting, the Committee reviewed Mr. Anderson's personal objectives, established in early 1995, and his performance on each, and discussed the bonus to be paid to Mr. Anderson pursuant to the 1995 ACBP. His objectives included: 1) advancing non-jurisdictional businesses, including established a power services unit; 2) developing a strategy to better utilize underperforming assets; 3) increasing focus on, and improving return on, capital employed; 4) advancing major market projects such as Sable Island, Winternet and the Integrated Transportation Project; and 5) achieving various objectives to position the Company for the year 2000. After thorough discussion, the Committee rated Mr. Anderson at 109 percent of his target objectives and awarded the bonus indicated in the Summary Compensation Table. Section 162(m) of the Internal Revenue Code imposes a limitation on the deductibility from income tax by the Company on annual compensation in excess of $1 million paid to certain employees, generally, the Chief Executive Officer and the four other highest compensated employees ("Covered Employees"). The Committee intends to structure compensation that rewards performance while preserving maximum deductibility of all compensation awards. It is not anticipated that compensation realized by any executive officer under programs now in effect will, in the immediate future, result in a material loss of tax deductions. THE COMPENSATION AND ORGANIZATION COMMITTEE Charles W. Duncan, Jr., Chairman William T. Esrey Robert Cizik Leo E. Linbeck, Jr. Harry E. Ekblom Ralph S. O'Connor D. STOCKHOLDER RETURN COMPARISON SEC rules require that the Company include in this Proxy Statement a line graph presentation comparing cumulative, five-year stockholder returns on an indexed basis with the S&P 500 Stock Index and either a 19 23 nationally recognized industry standard or an index of peer companies selected by the Company. This information is set forth on the graph below, which covers the period from year-end 1990 through year-end 1995. The Company has chosen the Dow Jones Pipeline Group for its peer comparison. The Dow Jones Pipeline Group includes Coastal Corp., El Paso Natural Gas Company, Enron Corp., Enserch Corp., Sonat, Inc., Williams Companies, and the Company. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG PANHANDLE EASTERN CORPORATION, S&P 500 STOCK INDEX, AND DOW JONES PIPELINE GROUP (* Total return assumes quarterly reinvestment of dividends)
Measurement Period Panhandle Dow Jones (Fiscal Year Covered) Eastern Pipelines S&P 500 12/90 100.0 100.0 100.0 12/91 135.0 97.5 130.5 12/92 155.7 120.5 140.4 12/93 228.7 151.7 154.6 12/94 197.4 150.8 156.6 12/95 289.1 208.4 215.5
There can be no assurance that the Company's cumulative total return will continue into the future with the same or similar trends depicted in the graphs above. E. COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 To the Company's knowledge, based on information furnished to it and contained in the reports filed pursuant to Rule 16a-3 of the Securities Exchange Act of 1934, as well as written representations that no other reports were required, all applicable Section 16(a) filing requirements were complied with during the year ended December 31, 1995. F. AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION The Board has proposed an amendment to the Company's Restated Certificate of Incorporation in order to change the Company's name to "PanEnergy Corp." The proposed name change reflects the Company's expanding scope of its energy services. While the Company began doing business as PanEnergy Corp on January 2, 1996, amendment of the Restated Certificate of Incorporation to officially change the name 20 24 requires stockholder approval. The amendment will have no substantive effect on the Company or its stockholders. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION. APPROVAL THEREOF WILL REQUIRE THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK ENTITLED TO VOTE AT THE MEETING. G. AMENDMENT TO PANHANDLE EASTERN CORPORATION 1994 LONG TERM INCENTIVE PLAN The 1994 LTIP was approved by the stockholders by an 80 percent affirmative vote at the 1994 Annual Meeting of Stockholders. The provisions of Section 5 of the 1994 LTIP, which for information purposes are set forth in Exhibit 1 hereto, were intended to meet the requirements of Section 162(m) of the Internal Revenue Code, which imposes a limitation on the deductibility by the Company for federal income tax purposes of annual compensation paid to Covered Employees. Compensation in excess of $1 million is not deductible unless it constitutes "qualified performance-based compensation," as defined by Section 162(m). On December 15, 1995, final regulations implementing Section 162(m) were issued. Such regulations effectively disapproved the "salary referenced maximums" that were set forth in Section 5. Therefore, if any Covered Employee were to be paid annual compensation, including compensation received pursuant to the 1994 LTIP, in excess of $1 million, the Company would be unable to deduct such excess. Accordingly, in order to conform the provisions of Section 5 to the final regulations and enable otherwise qualifying compensation paid pursuant to the 1994 LTIP to constitute "qualified performance-based compensation" which would be deductible by the Company, the Board has proposed that the 1994 LTIP be amended to revise Section 5 in its entirety. In addition, the amendment would add accumulated dividends to the list of available subjects for performance targets and delete net income from the list, substituting instead, "income". Under the proposed amendment, which is set forth in its entirety in Exhibit 1, the Compensation Committee may, but shall not be required to, delegate to a subcommittee which it appoints ("Subcommittee") and which would consist of two or more "outside directors", as defined under Section 162(m), the authority to grant and administer awards under the 1994 LTIP to employees who are likely to be Covered Employees. Except as otherwise provided in the event of a "change in control", compensation shall result from an award made by the Subcommittee to a Covered Employee only upon the attainment of performance targets established by the Subcommittee with respect to the Company's earnings per share, return on equity, income, stock price or accumulated dividends or business unit income or market share, or any combination thereof. During the term of the 1994 LTIP, no Covered Employee may be granted incentive stock option, non-qualified stock option, SAR and restricted stock awards by the Subcommittee that cover an aggregate of more than one million shares. In the case of incentive stock option and non-qualified stock option awards, compensation resulting from an award will be equal to the difference between the amount the Covered Employee is required to pay for the Common Stock that is the basis of the award, which amount is determined by the Subcommittee and which may not be less than the fair market value of such Common Stock as of grant of the award, and the fair market value of such Common Stock as of the exercise of the award. In the case of awards of SARs, compensation resulting from an award will be equal to the difference between the fair market value of the Common Stock which is the basis of the award as of the grant of the award and the fair market value of such Common Stock as of the exercise of the award. In the case of restricted stock awards, compensation resulting from an award will be equal to the difference between the amount the Covered Employee is required to pay for the Common Stock that is the basis of the award, which amount is determined by the Subcommittee and which may be zero, and the fair market value of such Common Stock at the time the forfeiture restrictions lapse. Further, compensation resulting to any Covered Employee during any calendar year from all other types of awards granted by the Subcommittee is limited to a maximum value of $2,500,000. 21 25 THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT TO THE PANHANDLE EASTERN CORPORATION 1994 LONG TERM INCENTIVE PLAN. APPROVAL THEREOF WILL REQUIRE THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE SHARES PRESENT IN PERSON OR REPRESENTED BY PROXY AT THE ANNUAL MEETING AND ENTITLED TO VOTE. H. STOCKHOLDER PROPOSALS Set forth below is information concerning three proposals received by the Company from stockholders for inclusion in this Proxy Statement in accordance with the rules of the SEC. THE BOARD UNANIMOUSLY RECOMMENDS A VOTE AGAINST EACH OF THE STOCKHOLDER PROPOSALS. 1. STOCKHOLDER PROPOSAL REGARDING ELIMINATION OF THE CLASSIFICATION OF THE BOARD Donald L. Smith, Rural Route 3, Box 3036, Pittsfield, Illinois 62363, who has represented to the Company that he is the owner of at least 603 shares of Common Stock of the Company, has advised the Company of his intent to present the following proposal for consideration at the Annual Meeting: "BE IT RESOLVED: That the classification of the Board of Directors of Panhandle Eastern Corporation (the "Company") be eliminated (such declassification to be effected in a manner that does not affect the unexpired terms of directors previously elected) by amending Section 3.1 of Article III of the By-Laws of the Company to read in its entirety as follows: '3.1. The property and business of this Corporation shall be managed by its Board of Directors, consisting of such number of directors, not less than three, as may be determined from time to time by the Board. Except as otherwise provided in the Certificate of Incorporation, each director shall be elected at the annual meeting of shareholders to serve until the next annual meeting of shareholders. Except as otherwise provided in the Certificate of Incorporation, newly created directorships and all other vacancies may be filled at any time by a majority vote of the directors then in office, although less than a quorum. A director elected by the directors to fill a newly created directorship or any other vacancy shall hold office until the next election of directors. Unless he resigns, dies or is removed prior thereto, each director shall continue to hold office until the expiration of his term and until his successor has been elected and has qualified. Resignations of directors must be in writing and shall be effective upon the date of receipt thereof by the Secretary or upon an effective date specified therein, whichever date is later, unless acceptance is made a condition of the resignation, in which event it shall be effective upon acceptance of the Board.' " STOCKHOLDER'S SUPPORTING STATEMENT "This proposal is submitted in order to urge the Board to eliminate the classified Board in favor of electing all directors at each annual meeting. The stagger system now in place serves to keep directors in office for three-year terms and thus prevents the stockholders from voting on the full Board each year. This purely defensive measure, designed to protect management against the threat of takeovers by making it more difficult for a would-be acquiror to gain a majority of Board seats, results in a Board that is less accountable to the stockholders. "I urge the stockholders to VOTE FOR this proposal in order to establish fairness and accountability in the way that directors of the Corporation are elected." STATEMENT IN OPPOSITION TO THE STOCKHOLDER PROPOSAL The Board has reviewed the proposal and its implications and believes the proposal is not in the best interests of the Company or its stockholders for a number of reasons. The Board urges stockholders to vote AGAINST the proposal. The staggered election of Directors has been in place since 1946 when the Company's stockholders considered and approved an amendment to the By-Laws of PEPL (the predecessor parent company) to provide for the classification of the Board into three classes, each to serve for terms of three years, with one class being elected each year. 22 26 The Board believes that the classified Board and staggered election of Directors provides important benefits to the Company, which include: (a) At any given time at least two-thirds of the Board will have significant prior experience as Directors of the Company. Accordingly, there will be greater continuity and stability of the Company's business strategies and policies. (b) In the event of sudden and disruptive attempts by individuals or entities to take over or restructure the Company, the classified Board would permit the Company time to negotiate with the sponsor, to consider alternative proposals and to assure that stockholder value is maximized. (c) The Company's classified Board may cause a person seeking to acquire control of the Company to initiate such action through arm's length negotiations with management and the Board, which is in a position to negotiate a transaction that is fair to all of the Company's stockholders, rather than through a proxy contest. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THE FOREGOING STOCKHOLDER PROPOSAL. APPROVAL THEREOF WILL REQUIRE THE AFFIRMATIVE VOTE OF 75 PERCENT OF THE OUTSTANDING SHARES ENTITLED TO VOTE AT THE MEETING. 2. STOCKHOLDER PROPOSAL REGARDING SEVERANCE BENEFITS UPON A CHANGE IN CONTROL Richard M. Sipe, 606 North 8th Street, Concordia, Missouri 64020, who has represented to the Company that he is the owner of at least 347 shares of Common Stock of the Company, has advised the Company of his intent to present the following proposal for consideration at the Annual Meeting: "BE IT RESOLVED: That the shareholders of Panhandle Eastern Corporation (the "Company") request that the Board of Directors in the future refrain from entering into agreements providing executive compensation contingent upon a change in control of the Company, unless such agreements or arrangements are specifically submitted to the shareholders for approval." STOCKHOLDER'S SUPPORTING STATEMENT "The Company has agreements (the "Agreements") with certain executive officers which provide special severance compensation contingent upon a change in control of the Company. Commonly known as "golden parachutes," the Agreements provide that if an officer resigns or is fired under certain circumstances within three years after a change in control of the Company, the officer will receive a lump sum cash payment equal to two and one-half (2 1/2) times his average "total annual compensation" for the five years preceding the change in control, in addition to other compensation such as retirement benefits, life and health insurance benefits, stock ownership or stock options, disability benefits, etc. The Agreements define a change in control of the Company as occurring when an entity acquires 30% or more of the Company's common stock or all or substantially all of the Company's assets, or when a majority of the board members fail to win re-election. "If the Company were to become the target of a takeover, these golden parachutes would introduce a personal consideration for managers that potentially conflicts with their fiduciary responsibility to share- holders. Although the Company's board maintains that the Agreements permit executives to evaluate potential business combinations involving the Company "without concern that [they] might be distracted by the personal uncertainties and risks created by such a proposal," we believe that the golden parachutes may have just the opposite effect -- faced with the possibility of a windfall, managers may be inclined to encourage a takeover, regardless of whether it maximizes shareholder value. "We believe that the issue of whether the Company should, in the future, provide management with golden parachutes is of such importance that shareholders should approve this decision. We believe shareholder approval is one of the best ways available to address potential conflicts of interest that may arise between the board and top executives on one hand, and shareholders on the other hand, when a change of control is threatened. "IF YOU AGREE, WE URGE YOU TO VOTE FOR THIS PROPOSAL." 23 27 STATEMENT IN OPPOSITION TO THE STOCKHOLDER PROPOSAL The Board believes that contractual arrangements that provide reasonable severance benefits for key executives following a change in control of the Company can be an important and entirely appropriate element of an executive compensation program, although the Company has not included such provisions in any executive employment agreement it has entered into since 1990. The Board believes such arrangements may provide the means of ensuring the stability of certain of the executive management team during a period when such may be jeopardized by a threatened hostile takeover. Such stability is believed to be in the best interest of all stockholders. The Board of Directors disagrees with the proponent's assertion that severance agreements create a potential conflict of interest between management and stockholders. In fact, the Board believes that exactly the opposite may be the case and that reasonable severance agreements serve to further align the interests of management with those of the Company and its stockholders. The Company's existing agreements are designed to help keep executives' undivided attention focused on their duties, at precisely the time when such attention is needed most. The Board believes that reasonable severance agreements related to a change in control can also inure to the benefit of the Company by enhancing its ability to recruit, retain and motivate executives. Such severance arrangements related to a change in control for executives are a standard part of many compensation programs at other companies. In the view of the Board, it is important for it to retain the flexibility to offer such severance arrangements in order to recruit top executives, unless the Company were willing to make other employment arrangements that might well be more costly to it. Further, the Board believes that stockholder approval of such arrangements is not in the best interests of the Company and its stockholders since the imposition of such a requirement would, as a practical matter, make it extremely difficult to timely implement compensation arrangements suited to particular situations and circumstances. Compensation arrangements with executives, including severance agreements, continue to be the responsibility of the Board, which is in the best position to evaluate the performance of each executive and, with the assistance of independent benefit consultants, to assess competitive compensation practices. In addition, the Company's existing employment and severance agreements with Company officers have been reviewed and approved by the Compensation Committee, which Committee is composed exclusively of Nonemployee Directors. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THE FOREGOING STOCKHOLDER PROPOSAL. 3. STOCKHOLDER PROPOSAL REGARDING ARTICLE SEVENTH OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION Paul K. Merrill, 1105 Columbia, Sweet Springs, Missouri 65351, who has represented to the Company that he is the owner of at least 2,555 shares of Common Stock of the Company, has advised the Company of his intent to present the following proposal for consideration at the Annual Meeting: "BE IT RESOLVED: That the stockholders of Panhandle Eastern Corporation (the "Company") request that the Board of Directors adopt, declare advisable and submit for consideration by the stockholders a resolution deleting Article SEVENTH of the Restated Certificate of Incorporation of the Company in its entirety." STOCKHOLDER'S SUPPORTING STATEMENT "Article SEVENTH of the Company's charter is a defensive measure that was adopted in 1983, before the enactment of Delaware's so-called "anti-takeover statute" in 1987. Ostensibly put in place to protect shareholders against coercive, two-tier tender offers, the provisions of Article SEVENTH are designed to force potential acquirors deemed "hostile" by management to negotiate with the Board of Directors instead of submitting their offer directly to the shareholders. As a result, Article SEVENTH makes management less accountable to the Company's shareholders, which we believe may adversely affect shareholder value. To the 24 28 extent that the "protections" provided by Article SEVENTH may have been warranted in the 1980s, they are no longer required today in light of the Delaware statute and the virtual disappearance of coercive, two-tier tender offers in the 1990s. "Article SEVENTH of the Restated Certificate of Incorporation requires that certain "business transactions" between the Company and certain "related persons" (i.e., any person who is the beneficial owner of more than 10% of the Company's common stock) be approved by the holders of at least 80% of the voting stock unless (i) the transaction is approved by two-thirds of the "continuing directors" (i.e., the directors in office on the date the "related person" became such) or (ii) the transaction is a merger in which the stockholders of the Company receive the highest price paid by the "related person" in specified instances. For purposes of Article SEVENTH, the term "business transaction" includes a merger, a sale of all or substantially all of the Company's assets, the adoption of a plan of dissolution of the Company and recapitalizations and reclassifications of the Company's securities. "Euphemistically characterized by management as a "fair price" provision, Article SEVENTH is actually an anti-takeover device frequently adopted by corporation boards to prevent shareholders from responding directly to outside offers for their shares. Like the Company's "poison pill" rights plan, Article SEVENTH is a defensive measure that has the practical effect of entrenching management and thereby reducing their accountability to the shareholders, which we believe may adversely affect shareholder value. In any event, Section 203 of the Delaware General Corporation Law, which prohibits certain business combinations between a Delaware corporation and its "interested" stockholders, makes the provisions of Article SEVENTH superfluous. (Note, however, that Article SEVENTH goes further than Section 203 in certain respects; for example, Article SEVENTH requires 80% supermajority approval of certain business transactions while Section 203 requires only 66 2/3%.) "For the reasons stated above, we urge you to VOTE FOR this proposal." STATEMENT IN OPPOSITION TO THE STOCKHOLDER PROPOSAL At the April 27, 1983 Annual Meeting of Stockholders, the Company's stockholders approved adoption of the provision now contained in Article SEVENTH of the Company's Restated Certificate of Incorporation. Article SEVENTH is intended to help ensure the Company's stockholders receive a fair price in the event the Company enters into certain mergers or consolidations. The Board believes the considerations which led stockholders to adopt this Article in 1983 are equally compelling today. In particular, the Board disagrees with the assertion by the proponent of the proposal that Section 203 of the Delaware General Corporation Law makes the provisions of Article SEVENTH superfluous. First, Section 203 would not apply to any transaction with an acquiror who obtains 85 percent or more of the outstanding shares of the Company's voting stock in the same transaction in which such acquiror acquires in excess of 15 percent of such outstanding shares and, thus, would not provide any protection to the Company's minority stockholders remaining after such transaction. Article SEVENTH, however, would continue to provide to minority stockholders protection against a "freeze out" transaction at a lower price following a tender offer for 86 percent of the outstanding shares of the Company's Common Stock. In addition, Article SEVENTH applies to transactions between the Company and a beneficial owner of more than 10 percent of the Company's Common Stock while Section 203 applies only to transactions between the Company and holders of 15 percent of the Company's Common Stock. Moreover, Article SEVENTH applies to certain transactions which may have a coercive effect on, or otherwise disadvantage, minority stockholders (such as a liquidation or dissolution of the Company or certain purchases by the Company of assets from a Related Person) to which Section 203 may not apply. As a result, Article SEVENTH affords protection to the Company's stockholders in certain situations in which Section 203 would not apply. Under Article SEVENTH, the approval of 80 percent of the Company's Voting Stock (as defined) is required, not for all mergers, but only for certain Business Transactions (as defined) with a Related Person which (i) have not been approved by two-thirds of the Company's Continuing Directors and (ii) fail to meet certain conditions, including the condition that the Business Transaction is a merger or consolidation in which 25 29 the amount paid per share to the holders of the Company's Common Stock is equal to or greater than the highest amount paid per share by the Related Person for a share of Common Stock during a specified period. Article SEVENTH does not preclude the Board from either opposing or approving a future takeover proposal. Nor does Article SEVENTH prevent any tender offer followed by a second-step merger which complies with the minimum price requirements of the Article or has been approved by two-thirds of the Continuing Directors in accordance with the Article. Instead, Article SEVENTH is designed to protect the Company's stockholders against "two-tiered" or "front-end loaded" tender offers in which the potential acquiror first makes an unsolicited partial cash tender offer, usually at a premium over the current market price, for just enough of a company's outstanding voting securities to acquire control of the company. After taking control, the acquiring party then proceeds to "freeze out" the remaining public stockholders in a second-step merger (usually using some form of stock or debt securities) at a price lower than that paid in the first-step cash tender offer. The Board believes such offers would be unfair to stockholders since they are designed to coerce stockholders into tendering their shares in the first-step tender offer out of fear that, if they do not, they will be required to accept less consideration in the second-step merger. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THE FOREGOING STOCKHOLDER PROPOSAL. I. OTHER MATTERS INDEPENDENT AUDITORS KPMG Peat Marwick LLP ("Peat Marwick") served as the Company's independent auditor during 1995, and was again appointed by the Board to serve in that capacity for 1996. Representatives of Peat Marwick will be present at the Annual Meeting to respond to appropriate questions from stockholders and to make a statement if they desire to do so. OTHER MATTERS BEFORE THE MEETING The Company does not expect any other matters to come before the Annual Meeting. However, if any other matters properly come before the Annual Meeting, it is the intention of the persons named in the accompanying form of proxy to vote such proxy in accordance with their judgment on such matters. It is important that the proxies be returned promptly. All stockholders, whether or not they expect to attend the Annual Meeting in person, are urged to mark, sign, date, and return the accompanying form of proxy in the enclosed pre-addressed envelope, which requires no postage if mailed in the United States. BY ORDERS OF THE BOARD OF DIRECTORS, /s/ ROBERT W. REED ROBERT W. REED Secretary Dated: March 15, 1996 Houston, Texas 26 30 EXHIBIT 1 A. CURRENT SECTION 5 OF THE PANHANDLE EASTERN CORPORATION 1994 LONG TERM INCENTIVE PLAN: 5. AWARDS TO COVERED EMPLOYEES The Committee may determine that any Award granted hereunder for any Plan Year to a Participant who is a Covered Employee shall be made and administered by a subcommittee consisting solely of two or more "outside directors" (as defined in Treasury regulations promulgated under Section 162(m) of the Code) appointed by the Committee (the "Subcommittee"). Any such Award may be determined solely on the basis of (a) the achievement by the Company of a specified target earnings per share, return on equity or net income, all as adjusted to exclude items that the Subcommittee determines to be inappropriate for purposes of the Award, (b) the Company's stock price, (c) the achievement by a business unit of the Company of a specified target net income as adjusted to exclude items that the Subcommittee determines to be inappropriate for purposes of the Award, or market share, or (d) any combination of the goals set forth in (a) through (c) above. If an Award is made on such basis, the Subcommittee shall establish such goals prior to the beginning of the Plan Year (or such later date as may be prescribed by the Internal Revenue Service for purposes of Section 162(m) of the Code). Amounts received for each Plan Year pursuant to Awards granted under Sections 4(d) through 4(h) of this Plan, or any combination thereof, to each Covered Employee shall be limited to a maximum value of 500% of the Covered Employee's annual salary at the rate in effect on the first day of such Plan Year. In no event may the cumulative amounts paid pursuant to Awards granted in any Plan Year under Sections 4(d) through 4(h) of this Plan, or any combination thereof, to any Covered Employee exceed 500% of the Covered Employee's annual salary at the rate in effect on the first day of such Plan Year. For purposes of the two preceding sentences, if a Covered Employee does not receive a salary, the Covered Employee shall be deemed to have an annual salary of $500,000. Any payment of an Award granted under this Section 5, other than Awards referred to in Sections 4(a), 4(b) or 4(c) of this Plan or any combination thereof, shall be conditioned on the written certification of the Subcommittee that the goals used as the basis for any such Award, and any other material terms, were in fact satisfied. B. PROPOSED AMENDMENT AND RESTATEMENT OF SECTION 5: 5. AWARDS TO COVERED EMPLOYEES The Committee may determine that any Award granted hereunder for any Plan Year to a Participant who is a Covered Employee shall be made and administered by a subcommittee consisting solely of two or more "outside directors" (as defined in Treasury regulations promulgated under Section 162(m) of the Code) appointed by the Committee (the "Subcommittee"). Except as otherwise permitted by Section 8 of this Plan, compensation resulting from any Award made by the Subcommittee shall be paid solely on the attainment of performance goals established in writing by the Subcommittee with reference to (a) the achievement by the Company of a specified target earnings per share, return on equity or net income, (b) the Company's stock price, (c) accumulated dividends paid on the Company's stock, (d) the achievement by a business unit of the Company of a specified target income or market share, or (e) any combination of the goals set forth in (a) through (d) above. With respect to any Award made by the Subcommittee, the Subcommittee shall establish such performance goals prior to the beginning of the Plan Year for which the Award is granted (or such later date as may be prescribed by the Internal Revenue Service for purposes of Section 162(m) of the Code). No more than one million (1,000,000) shares of common stock shall be cumulatively available for Awards made by the Subcommittee and granted under Sections 4(a) through 4(d) of this Plan to any Covered Employee, and compensation resulting to any Covered Employee during any Plan Year from Awards made by the Subcommittee and granted under Sections 4(e) through 4(h) of this Plan, shall be limited to a maximum value of $2,500,000. Any payment of compensation to a Covered Employee resulting from an Award made by the Subcommittee upon attainment of related performance goals, other than Awards granted under Sections 4(a) through 4(c) of this Plan, shall be conditioned upon the written certification of the Subcommittee that the performance goals, and all other material conditions and terms, relating to such Award have, in fact, been satisfied. 31 proxy [PANHANDLE EASTERN CORPORATION LOGO] ----------------------------------- SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF STOCKHOLDERS APRIL 24, 1996, 10:00 A.M. As evidenced by the signature(s) on the reverse side hereof, the undersigned hereby appoints Paul F. Ferguson, Jr., Carl B. King, and Robert W. Reed, and any one of them, as Proxies, each with full power of substitution, to represent and vote all shares of the Common Stock of Panhandle Eastern Corporation (the "Company") which the undersigned would be entitled to vote if personally present at the Annual Meeting of Stockholders of the Company to be held at the J.W. Marriott Hotel, 5150 Westheimer, Houston , Texas, on April 24, 1996, at 10:00 A.M., and at any adjournments thereof, with all power the undersigned would possess if personally present. This card also provides voting instructions for shares, if any, held in the Company's Dividend Reinvestment and Stock Purchase Plan and, if applicable, shares held in the various employee benefit plans. The shares represented by this proxy will be voted as directed by the stockholder. IF NO DIRECTION IS GIVEN, SHARES WILL BE VOTED "FOR" ITEMS 1, 2, AND 3 AND "AGAINST" ITEMS 4, 5 AND 6. (CONTINUED, AND TO BE SIGNED, ON THE OTHER SIDE) 32 THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, AND 3 AND PLEASE MARK VOTES / / OR /X/ AGAINST ITEMS 4, 5, AND 6. Item 1--Election of duly Item 2--Proposal to Amend the Item 3--Proposal to amend Sec- Item 4--Proposal to amend the nominated Directors Company's Restated Certificate tion 5 of the Panhandle Eastern By-laws of the Company to elimi- (Three year terms). of Incorporation to change the Corporation 1994 Long Term nate the classification of the Nominees: Milton Carroll, Company's name to "PanEnergy Incentive Plan. Board of Directors. Robert Cizik, Harold S. Hook, Corp." and Leo E. Linbeck, Jr. FOR all nominees Witheld (except as marked (as to all to the contrary nominees) as provided) / / / / For Against Abstain For Against Abstain For Against Abstain To withhold authority to / / / / / / / / / / / / / / / / / / vote for any individual nominee write that nominee's name on space provided below. - ----------------------------- Item 5--Proposal regarding Item 6--Proposal to delete Item 7--On any other matters Severance Benefits Upon A Article SEVENTH of the that may properly come before Change in Control of the Company's Restated the meeting. Company. Certificate of Incorporation. For Against Abstain For Against Abstain / / / / / / / / / / / / P Dated __________________________________, 1996 R _____________________________________________________ Signature(s) of Stockholder(s) O _____________________________________________________ X Signature(s) of Stockholder(s) Y When signing as attorney, executor, administrator, trustee or guardian or in other representative capacities, please give your full title as such. Please date, sign and mail this proxy as your name A Proxy for shares held in joint ownership should be appears above and return in the enclosed envelope. signed by EACH owner.
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